The Internal Revenue Service’s (Potential) Role in Combating Foreign Bribery

The uptick in FCPA investigations in recent years is well-known. The two agencies responsible for FCPA enforcement—the Department of Justice (DOJ) and the Securities and Exchange Commission (SEC)—now have special units focused on FCPA cases. Both have been aggressively pursuing cases against corporations and (increasingly) individuals. But there is a third U.S. agency that can and should be more involved in the fight against transnational bribery: the Internal Revenue Service (IRS).

The IRS already has some role in FCPA cases, though the extent of that involvement is not entirely clear. Recently, its joint investigative role has been mentioned in a few high-profile matters. Notably, criminal FCPA charges against Vicente Eduardo Garcia (an SAP regional director who in August pled guilty to an FCPA violation involving bribery for Panamanian government contracts) were investigated cooperatively by the FBI and IRS, a fact that some commentators cautioned signaled a need for companies to increase FCPA compliance efforts through additional channels. IRS Criminal Investigation was also involved in the case against Hewlett-Packard Russia, which last year pled guilty to violating the FCPA, and even the (non-FCPA but bribery-related) investigation of FIFA started with the IRS. Beyond investigation, the IRS can bring separate tax charges related to incidents of bribery or other inappropriate payments. A 2014 settlement included a multi-million-dollar forfeiture to the IRS, apparently the first such forfeiture in an FCPA settlement, though the exact reason for the forfeiture was not revealed.

Several observers have speculated that the last decade’s increase in FCPA actions could lead to an increase in tax-related actions. Up until now it has been relatively rare for FCPA actions to include associated tax charges, but the 2014 settlement might be one indication that the relative scarcity of tax involvement could change. The IRS can further develop its responsibility in FCPA investigations with an expanded formal cooperative role, if indeed it does not have one already, in DOJ or SEC prosecutions. This would be a positive step, since there are two major advantages to FCPA investigations assisted, or tax charges brought, by the IRS:

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The 2015 CPI and Year-to-Year Changes: A Definite Improvement, But Problems Remain

As most people who follow this blog are likely aware, Transparency International released the 2015 Corruption Perceptions Index (CPI) last week. There is, of course, a lot to talk about here, and I’m sure many commentators and scholars will spend a lot of time poring over the new data and debating its significance. Given my previous criticisms of the CPI’s suggestion that scores for the same country can be compared across time (see here, here, here, and here), that was naturally the first thing I focused on. I was hoping that TI might take up some version of my suggestion to report statistical confidence intervals in an easy-to-see place in the main data table, or, even better, test for statistically significant changes in scores across years. Alas, TI didn’t do either of those things. (The confidence intervals are still available, but you have to download the data to find them.) TI did, however, report that since 2012, some countries had improved, while others had deteriorated. In particular, TI noted three countries (Greece, Senegal, and the UK) had improved their CPI scores since 2012, while five countries (Australia, Brazil, Libya, Spain, and Turkey) had seen a notable worsening.

Because of last year’s fiasco with China (where TI emphasized a decline in China’s CPI score that turned out to be bogus), I was initially skeptical. So, I went ahead and implemented the procedure that I outlined in my post from a few months ago to see whether, for these eight countries, there really was a genuine, statistically meaningful change in the CPI score. I was pleasantly surprised to discover that in all eight of the countries that TI identified, the change in the CPI score between 2012 and 2015 was indeed statistically significant at conventional levels, and do not seem to have been driven by the addition or subtraction of sources in the later year, or by a large anomalous jump in a single source. (Though it’s perhaps worth noting that in the case of Brazil – which TI particularly emphasizes in its press release – the change is just barely significant at conventional levels, and of the seven sources used to construct the score, although four indicate moderate to large declines, two show no change and one actually rates Brazil as improving slightly from 2012 to 2015.) So, while I still have a number of criticisms (about which more below), I’ll gladly give credit where credit is due: In this year’s publicity materials, TI has indeed identified countries where there is statistically significant change in CPI scores, generally driven by changes in several of the underlying data sources. I hope that in future years, TI will go further (and save me some time) by simply including in the main data table not only the confidence interval for the current year, but also a simple three-category indicator (up, down, null) for whether there has been a statistically significant change in the CPI in the past three years. (This is important because of the way the CPI is covered by mainstream journalists: Though researchers might dig into the data tables, most journalists or casual readers just look for year-to-year changes.)

Now, I did say I still had some concerns, so in the interest of continued constructive engagement, let me lay out why I still don’t think we should treat within-country year-to-year changes in CPI scores as terribly meaningful: Continue reading

Private Law Suits for Corruption:  Am I Missing Something?

As explained in earlier posts (here and here), I am working with the Open Society Justice Initiative on a project to examine how civil society can prompt more corruption-related litigation  — either by stimulating criminal prosecutions or filing civil suits itself.

One area that remains a puzzle is why businesses are not filing more civil suits for damages caused by bribery.  At common law, if a merchant could show it lost a customer to a bribe-payer, it could sue the briber for tortuous interference with contractual relations and the bribe-taking employee for breach of fiduciary duty.  A merchant that discovered it had paid higher prices or bought goods of a lesser quality because the seller had bribed one of its employees likewise had an action for damages, against the employee for breach of fiduciary duty and for fraud against the bribe-payer.  The Civil Law Consequences of Corruption, a 2009 volume edited by Professor Olaf Myer, describes similar doctrines that corruption victims in countries governed by the civil law can invoke to recover damages.  Moreover, regardless of legal heritage, parties to the United Nations Convention Against Corruption are required by article 35 —

“to ensure that entities or persons who have suffered damage as a result of an act of corruption have the right to initiate legal proceedings against those responsible for that damage in order to obtain compensation.”

Am I missing something?  Or is there only one country where businesses that are victims of corruption are heeding the invitation to sue for damages?  And if so, why is this case?  Why aren’t businesses in other nations besides this one seeking compensation for the losses bribe-paying has caused them? Continue reading

Malaysia’s Anticorruption Credibility Problem

The biggest anticorruption news last week was almost certainly the announcement by Malaysia’s new Attorney General clearing Prime Minister Najib Razak of any wrongdoing in connection to the approximately $781 million that mysteriously appeared in his personal bank account. Early reports suggested that the money might have been embezzled from a state investment fund called 1MDB – and the controversy over this matter caused substantial political upheaval (and ended up being a major focus of last year’s International Anti-Corruption Conference, which was held in Malaysia at the height of the scandal). But last week, Attorney General Mohamed Apandi Ali, following up on an earlier statement by the Malaysian Anti-Corruption Commission (MACC), announced that the money was not in fact from 1MDB, but was instead a “political donation” from the Saudi royal family. Attorney General Apandi further stated that the money was given “without any consideration,” that Prime Minister Najib had not done anything unlawful, and that he’d returned $620 million of unused money to the Saudi royal family.

Is this true? Is it really the case that Prime Minister Najib did nothing wrong (or at least nothing illegal)? Of course, I have no idea (though Swiss investigators announced earlier this week that there is indeed evidence of massive misappropriation from 1MDB). I’m not privy to any of the evidence that the MACC and the AG investigated, and I’m at best a casual, intermittent outside observer of Malaysian politics. And it would be nice to live in a world in which, when the most senior justice official in a country, announces that allegations of corruption are unfounded, I could simply believe those assertions. After all, not all allegations of corruption are true. Yet in this case, my reaction to the AG’s announcement (even before I read the news about the ongoing Swiss investigations) was cynical disbelief. I may not ever know what actually happened in this case, but what I do know is that pretty much everything that’s happened since news of the scandal broke has shattered any faith that I may once have had that Malaysian institutions undertook a genuine, impartial, investigation of this matter. Indeed, the Malaysian government’s handling of this matter is a textbook example of how a system can damage its credibility, perhaps irreparably.

Just to recap some of the highlights: Continue reading

The Reform of the One-Child Policy Will Help Reduce Corruption in China

Imagine being pregnant with a second child in a country with a one-child-per-family limit. The penalties for violating the policy are severe-forced abortions, sterilizations, and crippling fines. This was, of course, the grim reality for many Chinese citizens before October 30, 2015. That day, China’s Central Communist Party issued a short announcement that all Chinese couples will be allowed to have two children, ending 35 years of the notorious one- child policy.

The official reason for ending this policy lies in its troubling effects on China’s demographics: After decades of successfully curbing population growth, the one-child policy has caused China to become a country with a rapidly aging population (that is enjoying more longevity) and a corresponding shrinking young work force, which together put enormous pressure on the country’s labor industry and public service resources. Commentators have overlooked the fact that the new two-child policy may also have important implications for President Xi Jinping’s anticorruption crackdown (covered from different perspectives here, here, and here ). The one-child policy (perhaps inadvertently) fostered at least two forms of corruption, and the end of that policy will therefore make a non-negligible contribution to reducing corruption in China.

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A “Paradigm Shift” in Mexican Anticorruption Law?

Problems of corruption and graft are not new in Mexico. Recently, the Mexican elite political class has been implicated in a series of real estate scandals that reached all the way to President Peña Nieto. Most notably, President Nieto and his wife have been accused of impropriety in their purchase of a 7 million dollar mansion—dubbed by the press “la Casa Blanca” (“the White House”)—from a wealthy government contractor. While not directly related, Nieto’s presidency has also been rocked by protests surrounding the disappearance and presumed death of 43 students in Guerrero. Local officials appear to have been involved in the disappearances, and the official investigation is widely viewed to have been botched.

But in the midst of all this (and arguably because it), Mexico managed to pass one of the most sweeping anticorruption reforms in recent memory. In April and May of last year, the Mexican legislature passed and the state legislatures approved reforms to 14 articles of the Mexican Constitution. Conceived of and spurred on by Mexican civil society groups, these reforms bolstered existing anticorruption institutions and created whole new ones.

The reaction to these reforms has ranged from excitement and enthusiasm, to cautious optimism, to cynical dismissal. (President Nieto, for his part, has hailed them as a “paradigm shift” in the Mexican fight against corruption.) These changes to Mexico’s constitution are only the first step in the country’s much needed systemic reform. Their success will depend substantially on secondary enabling laws to be enacted sometime before June 2016. But it’s worth stopping now to analyze what these reforms get right, and what they fail to address.

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Guest Post: A New Additional Indicator for Measuring Progress Toward SDG 16

GAB is delighted to welcome back Dieter Zinnbauer, Programme Manager at Transparency International, who contributes the following guest post:

A very interesting discussion has evolved on this blog (see here, here, here, and here), and in the wider world (for example, see here), on about the indicators that should be used to measure progress toward the Sustainable Development Goals (SDGs) goals for improving governance and reducing corruption (Goal 16). There are already some very good suggestions on the table, including the use of Transparency International’s Global Corruption Barometer (GCB) to measure progress toward Target 16.5, on reducing corruption and bribery in all their forms. (TI has used the GCB since 2005 to compile one of the largest data troves on the detailed experience with corruption of households and individuals around the world. Using a GCB-type indicator for the bribery dimension of SDG 16.5 is supported by a wide variety of stakeholders, including the World Bank, UNDP, and Save the Children.)

Yet most of the indicators proposed so far, including the GCB, speak to very specific aspects of corruption (such as bribery) and don’t quite do justice to Goal 16’s broad ambitions and its emphasis on public accountability. So to spice up this stew a bit, let me suggest another possible indicator, one that complement to some of the ideas that are already on the table. My proposed indicator of progress toward SDG 16 is as follows:

What percentage of national-level parliamentarians (and perhaps top level members of the executive) have made assets, income, and interest disclosures (AIIDs) in a format that is publicly accessible online at sufficient level of detail, in timely manner, and in a machine-readable data format.

Using AIID as an additional SDG 16 indicator might at first seem to be a step backwards, since such an indicator measures “outputs” rather than “outcomes.” But let me try to convince you that in fact AIID would be an extremely useful complementary indicator for progress toward SDG 16: Continue reading