Currently, the European Union (EU) has few provisions in place to deal with the risks to EU business, relating to corruption, in developing countries like China. In this respect, the EU lags well behind the United States. According to our recent research, plans to rectify this are in the pipeline. When these plans will emerge, however, is an open question.

Existing provisions and policy

· In 1995, EU ministers adopted the Convention on the Protection of the European Community's Financial Interests, a protocol that required member states to punish bribery that related to European Community affairs-but only such affairs, and only by applying member states' national legislation, not the EU law.

· The EU Convention on Corruption was adopted in 1997 and provides for prosecution of corruption involving officials of the EU or its member states. But this still is related to corruption by European officials, not by European companies.

A 2003 review of EU anti-corruption policy noted, "the main problem continues to be the implementation of legislation, and more importance needs to be attached to preventing, investigating, prosecuting and adjudicating corruption cases."

· A further initiative was the Joint Action of December 22, 1998, on corruption in the private sector by the EU Council, which incorporates many similar provisions to the proceeding documents, but with one fundamental difference. Here the focus is on corruption in the private sector. The text is drafted in binding legal terms, and member states were required to bring forward proposals for implementation within two years of its entry into force--i.e. by the end of 2000. From what we can see, nothing further has happened.

Recent developments

The European parliament has recently approved the Eighth Company Law Directive. Dubbed Europe's answer to *Sarbanes-Oxley, the directive sets out requirements on auditors, including the publication by auditors of an annual transparency report, a requirement for audit partners to be rotated at least every five years and quality assurance reporting for audit committees and management.

The Economic and Finance committee of all 25 European finance ministers will now have to approve the directive before it can become law.

David Devlin, President of the Federation des Experts Comptables Europeans, the representative organization of the accountancy profession in Europe, said in September 2005, "The accountancy profession welcomes the decision of the European parliament. The reforms are supportive of high quality audit and will drive the further harmonization of audit practice…The accountancy profession particularly welcomes proposals on key issues such as application of international standards on auditing, quality assurance, audit committees and new arrangements for public oversight of the profession which underpin audit quality in the EU."

Also currently wending its way through the EU system is a draft council resolution concerning a comprehensive EU policy against corruption, which originated on November 23, 2004. From what we can see on the EU website, it appears to have been bouncing back and forth from the Council of Ministers to the European Commission since then, with the most recent item being a note dated April 8, 2005. The resolution is not publicly available.

Another note dated February 11, 2005, implies some continuing debate among member states and between the commission and the council--it noted the text as it existed then was "the subject of a consensus among all member states, but has met with some objections from the commission." It seems the commission's views are more advanced than those of member states. For example, the commission notes inadequate coverage of three items--criminalization of passive bribery of international public officials, transparency in funding of political parties and mechanisms for monitoring the convention.

Conclusion

So it seems that there has been a lot of talk and a lot of paper, but little progress with any real bite, apart from the draft company law directive, which still needs approval from all 25 finance ministers.

Of course, national governments also have a role to play. It is worth noting, in passing, that Britain's Antiterrorism, Crime and Security Act 2001, which was written in response to 9/11, also updates British law on corruption and bribery. The law makes no distinction between facilitation payments and grand bribes, thus outlawing the former. This is said to have led even non-British companies to consider a company policy of barring facilitation payments. Needless to say, despite the bureaucracy involved with EU politics and lawmaking, compliance with Sarbanes-Oxley--and later the EU's version of this--is now considered good business practice and it would be wise for European businesses to follow in the Americans' footsteps in getting their houses in order concerning international business practices.

* The Sarbanes-Oxley Act of 2002 is legislation enacted in response to the high-profile Enron and WorldCom financial scandals to protect shareholders and the general public from accounting errors and fraudulent practices in the enterprise. The act is administered by the Securities and Exchange Commission, which sets deadlines for compliance and publishes rules on requirements.

Chris Devonshire-Ellis is a senior partner of Dezan Shira & Associates, Business Consultants www.dezshira.com