The World Bank’s Office of Suspension and Debarment Is a Model of Transparency–But I Still Want More!

As many readers of this blog are likely aware, the World Bank (and the other multinational development banks) have their own procedures for identifying and sanctioning firms that engage in unethical behavior (corruption, but also fraud, collusion, etc.) in Bank projects.  At the World Bank, responsibility for addressing corruption and other unethical practices by Bank contractors and partners is handled by the Integrity Vice Presidency (INT), which has investigative and quasi-prosecutorial functions, and the Office of Suspension and Debarment (OSD), an independent adjudicative body, as well as the Sanctions Board, an appellate body.

A few weeks ago, the OSD released a comprehensive report on its office’s activities and performance over its first seven years in operation (fiscal years 2007-2013).  It’s a very useful report, and well worth reading.  It includes a clear, succinct summary of the World Bank’s sanctions and procedures (including both their history and current structure), and also–most notably–a great deal of descriptive quantitative data about the ODS’s activities.  In many ways, the report is a model of transparency, allowing observers both inside and outside the bank to understand the activities of OSD (and, to  lesser extent, INT and the Sanctions Board), and perhaps to identify weaknesses and areas for improvement.

But because no good deed goes unpunished, my main initial reaction to the report is to wish there were even more data provided!  Here are a few open questions that the data in the OSD report does not address, but that OSD might consider providing in future reports:

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Is US Campaign Finance Law More Permissive of Corruption than the FCPA?

An odd feature of U.S. law is that it appears to impose more stringent restrictions on private donations to foreign politicians than on donations to U.S. politicians.

Consider first domestic U.S. campaign finance laws.  These laws have received a great deal of scrutiny over the last 40 years, because of the argument that restricting spending on political activities may offend the “freedom of speech” guaranteed by the First Amendment of the U.S. Constitution. The U.S. Supreme Court has issued a number of landmark decisions on this subject over the last 40 years, beginning with Buckley v. Valeo (1976), and most recently in McCutcheon v. FEC (2014) (which Matthew discussed in a post from a few months back). The dominant trend in these decisions has been a loosening of restrictions on campaign contributions and independent donations, but one specific change in the campaign finance jurisprudence is particularly interesting. In McConnell v. FEC, the Supreme Court held that “selling access” or “influence” constituted a form of corruption, prevention of which could justify certain campaign finance restrictions. In Citizens United v. FEC, the Court, in an opinion by Justice Kennedy (citing to his dissent in McConnell), narrowed the definition of corruption “to quid pro quo corruption,” and held the “fact that speakers may have influence over or access to elected officials does not mean that these officials are corrupt.”

Now consider the main U.S. statute that addresses payments to foreign officials (as well as foreign candidates for public office): the Foreign Corrupt Practices Act (FCPA). In contrast to the campaign finance area, there is very little case law clarifying the meaning of the FCPA’s provisions (a fact that some commentators have lamented). Nonetheless, the FCPA’s prohibition on “corruptly” giving “anything of value” to a foreign official or foreign candidate for public office for the purpose of “influencing any act or decision [taken in an official capacity]” does not require an express quid pro quo, (see 15 U.S.C. § 78dd-1(a)(2)(A)(i)).

Thus it appears that payments (including campaign donations or other forms of political support) that are intended to influence politicians’ official decisions are proper (indeed, constitutionally protected) if made in the U.S., but improper (indeed, criminal) if made in other countries.

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Should the WTO Outlaw Transnational Bribery?

Unlike other international organizations, the World Trade Organization (WTO) has not passed measures that directly address transnational bribery. This is the case despite the fact that transnational bribery significantly harms international trade. Almost 20 years ago, then-U.S. Trade Representative Mickey Kantor described corruption as a “barrier to trade” and advocated more action on corruption through the WTO system. Although those proposals went nowhere at the time, prominent scholars continue to make a strong case in favor of using the WTO to directly address matters of bribery and corruption, either by passing provisions that directly outlaw bribery or requiring WTO Member States to sign a declaration against corruption.

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Should FCPA Sanctions Be Nine Times Larger?

In my post last week, I discussed a recent working paper (by Cheung, Rao, and Stouraitis) that attempted to measure the economic returns firms reap from foreign bribery — and which reached the depressing conclusion that, much as we would like to believe otherwise, bribery still “pays.”  In doing a bit more research along these lines, I came across another terrific working paper – by Jonathan Karpoff, D. Scott Lee, and Gerald Martin – that investigates a similar question, using a somewhat different (though complementary) method, and reaches a similar conclusion: in the authors’ words, “firms engage in bribery because it pays to bribe, on average.”

Let’s suppose — plausibly, in my view — that these papers are correct in their conclusions that, given the expected costs of foreign bribery (probability of detection times expected magnitude of direct and indirect sanctions), many firms will find it in their rational self-interest to bribe.  If one believes (as I do) that foreign bribery is a social costly that we should try to deter (if we can do so at reasonable cost), then this implies that we should increase the expected cost to firms of paying bribes abroad — either by increasing the probability of detection, or the size of the penalty, or both.

One of the cool things about the Karpoff, Lee, and Martin paper is that it attempts to calculate just how much higher the penalties would have to be in order to deter foreign bribery, if the probability of detection remains constant.  Their sobering answer is that the average penalties would have to by about 9.2 times larger.  So, despite all the hyperbole about the enormous size of FCPA penalties (with the US government bragging about the large penalties, and the business community and defense bar griping about same), this recent research suggests that the penalties are almost an order of magnitude too small, if we really want to deter foreign bribery. (The authors also calculate how much the probability of detection would have to increase to deter foreign bribery, if the penalties remain the same.  Their conclusion is that it would have to increase from the current estimated level of 6.4% to about 58.5% — clearly unrealistic.)

What to make of this?  A few preliminary thoughts:

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Fixing the Mutual Legal Assistance Regime: Some Thoughts on Reform

Last week I reported that the United States was often slow to respond to requests from other nations for evidence needed to prosecute corruption cases in their courts and that as a result some cases have had to be dismissed.  I also noted that, as of spring 2013, 4500 requests awaited processing, a backlog the Justice Department blames on a shortage of personnel.  In a comment on the post. Matthew asks two questions:  1) are there other ways besides adding staff that countries can reduce the delay in responding to requests for legal assistance and 2) is the U.S. the only country with a large backlog of requests.

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Maybe Brazil’s Painful World Cup Defeat Was a Blessing in Disguise

So the 2014 World Cup is over (congratulations, Germany), and the result was a disappointment for the host nation, to say the least.  Brazil’s ignominious 7-1 defeat in the semi-finals will probably go down as one of the worst sports losses in the country’s history.  As someone with many very close Brazilian friends, I’m hesitant to suggest that there may be anything good about Brazil’s loss.  But I’m going to anyway, from the perspective of anticorruption activism.  Here goes:

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Conference Room Advocacy: The Negotiating Power of Corporate FCPA Defendants

For years, commentators have decried the plight of the corporate FCPA defendant in a world without trials: As Arthur Andersen made clear, most companies accused of crimes by the Department of Justice (DOJ) can’t afford to go to trial. As a result, the story goes, prosecutors are able to pressure companies into accepting negotiated resolutions of FCPA charges that rest upon conclusory allegations and dubious, untested legal theories. This story, often retold, is at the core of what Professor Mike Koehler calls “The Façade of FCPA Enforcement.” It also happens to be a gross oversimplification. Corporate FCPA defendants may not go to trial, but they aren’t helpless victims of prosecutorial bullying. Even as their advocacy shifts from the courtroom to the conference room, these defendants often retain powerful forms of leverage over federal prosecutors.

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