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Lift the Panama Brim - A Catalyst for Greater Transparency in Public Service Contracting

18/04/2016 14:43

The recent revelations of off-shore investments, tax avoidance and much else arising from the leaks of the so called "Panama Papers" should be a wake-up call to those responsible for public procurement across the UK and beyond.

Whilst I have not seen reports of any major public outsourcing or construction or supply company being implicated in the Mossack Fonseca papers so far revealed, nonetheless it is important for the public sector, on behalf of the citizens it serves, to understand more about those individuals, entities and organisations in receipt of 'large' sums of public money.

For some time, there has been a growing demand for greater transparency in all aspects of public procurement and contracting. Indeed, I have written about this previously, as have others. And to their credit, the Government and other public bodies have taken some (albeit cautious) steps in the direction of more openness.

Transparency matters for at least three critical reasons. It ensures greater accountability; it engenders greater public confidence; and where competition matters, it can create the conditions for better competitive tendering. And as with almost every other aspect of public sector behaviour and public policy, transparency is a contemporary "must have" - not a "nice to have".

The "Panama Papers" have raised many questions about business and public ethics (both UK and international), and fair taxation. And these issues are certainly not straightforward given that 'some' companies bidding for contacts are in fact majority or entirely owned by foreign governments. Public procurement officials swim in choppy waters.

Given the level of public expenditure that ends up in the accounts of outsourcing, construction, consultancy and supply companies - surely few can argue that it is essential that the highest standards of transparency and accountability apply to these companies and their relationships with the public sector?

No surprise, then, that I urge the Government to introduce the most robust, statutory standards as soon as possible to address enhanced transparency for public sector contracting. And it is vital that these standards address the companies/entities and senior decision makers in both the business and public sectors.

Many companies, which are involved in contracting with the public sector, will be subsidiaries of complex international conglomerates. Others will have a range of businesses in the UK and internationally, additional to their public sector contracts. And still others will be owned, in whole or part, by a range of investors, companies - and even governments or their agencies. These arrangements should not be allowed to obfuscate or be seen as an excuse not to be transparent. Indeed, they strengthen the case for transparency standards.

So, what might we expect such standards to cover? The following ideas are designed principally to stimulate debate, and care will need to be taken so as not to discourage effective and transparent public procurement.

Company ownership, structures, policies and behaviours

Companies bidding for public sector contracts over a threshold value equivalent to that which, under the EU public procurement regulations demands that there be a competitive selection process, should, in my view, be required to submit information on:

  • ownership structures, and decision making and control structures (i.e. who makes the key decisions)
  • major shareholders
  • the jurisdiction of registration for the bidding and ultimate controlling company
  • tax policies and practices as well as proof of tax compliance and payments in accordance with the UK law and tax policy, and those of countries in which the company trades and/or is registered in
  • details of international financial transfers and related tax practices, especially in respect of foreign based trading activity and/or subsidiaries or associated companies
  • investment policies and significant financial holdings
  • any business relations with or in countries which are regarded as tax havens
  • details of incentive and bonus arrangements for employees who make key decisions in respect of the contract
  • explanation of how policies and practices are monitored and enforced

Ideally, companies would be expected to have signed up to the "Fair Tax Mark" or similar, and practice ethical investment policies

Senior executives and decisions makers (including politicians) in bidding companies and the public sector

These individuals should be required to:

  • share their personal tax returns with the public procurement body (indeed, there could even be an argument that in some circumstances, they should be required to publish them, so that the wider public can have access)
  • explain their financial interests in the bidding and/or controlling company, including any financial incentive arrangements
  • in the case of public sector senior executives responsible for decision making in respect of the procurement and/or subsequent contract management, disclose details of any relevant share holdings and/or investments to their employers
  • disclose both formal and any informal relationships, or any other form of engagement with the bidders and/or contracted company

Consideration needs to be given to how to collect similar information in respect of any dependents of these individuals.

External regulation of compliance will also be important. This could naturally fall to the National Audit Office in respect of central government. In respect of local government, it should be included in the remit of external auditors. Parliamentary select committees and the Public Accounts Committee, and local authority scrutiny committees might also wish to take an interest in these matters too.

The "Panama Papers" have again brought into question the ethics of some, and the complex and shadowy world that some governments and their agencies, businesses and individuals operate in. There is, therefore, a strong case to look at how standards could and should be introduced to cover issues such as employment practices, business activities in countries with poor human rights, contribution to climate change and much more. But let's at least start with tax and investment related policies, practices and behaviours.

I recognise that most individuals and most companies (large and small) engaged in trading and/or contracting with the public sector and public sector officials do operate on an ethical basis and presumably pay their fair share of taxes. However, it is in the interests of these individuals, companies and other entities, just as much as it is for the public sector and the public as a whole, to encourage greater transparency and in turn, greater confidence in all such relationships.

Public confidence, transparency and accountability in 2016 are not simply desirable - they are essential.

The "Panama Paper" leaks may be the tip of a much wider problem. We should use public procurement to drive the highest ethical standards, including fair taxation and public accountability.

The lifting of the Panama hat should be the catalyst for an urgent debate and early action.

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