A little while back I posted a critical commentary on the Stolen Asset Recovery Initiative’s Left Out of the Bargain report. The report described – and implicitly but clearly criticized – the fact that although the U.S. and other “supply-side” jurisdictions had recovered substantial amounts of money in settlements with bribe-paying firms, only a relatively small percentage of those settlements were transferred to the “demand-side” countries where the bribery took place. These demand-side countries (which the report, to its credit, carefully avoids calling “victim countries”) are the ones that are “left out” of the “bargain” (that is, the settlement) between bribe-paying firms and supply-side governments.
I read the report as calling for, among other things, greater redistribution of settlement proceeds to demand-side governments, and expansion of the ability of those governments (or private parties) to pursue “follow-on” actions. My main criticism was that the report neglected to consider the effect that either change would have on the incentives of firms and supply-side enforcers. Two of the report’s authors, Ji Won Park and Jacinta Odour, posted an interesting reply to my post, which I recommend (along with my rejoinder, which can be found in the comments section of the original post). But although the main focus of my critique and their response was the incentives issue, our exchange also revealed an important difference of opinion regarding the meaning and significance of the UN Convention Against Corruption, particularly its provisions on asset recovery. It’s that issue that I want to explore here.
In my original post, I remarked in passing that the StAR report “elides … the distinction between asset recovery actions—in which a country seeks the repatriation of assets stolen by the country’s own nationals (usually former officials or their family members)—and actions for penalties or disgorgement brought against a firm or individual for allegedly bribing foreign officials.” In their response, Park and Odour “disagree that the [Left Out of the Bargain] study does not distinguish between repatriation of assets stolen by public officials and monetary sanctions imposed in foreign bribery settlements.” The report does this, they say, “through the lens of UNCAC.” They explain that UNCAC Article 51 (the first Article in Chapter V, on asset recovery) states that “[t]he return of assets pursuant to this chapter is a fundamental principle of [UNCAC], and States Parties shall afford one another the widest measure of cooperation and assistance in this regard.” Park and Odour then declare that this obligation to assist in the return of assets “applies not only to the mandatory return of assets that proceed from embezzlement and misappropriation […] but also to proceeds of corruption from other offences covered by UNCAC (such as Article 16 on Foreign Bribery) and compensating victims.”
If I’m reading this right, Park and Odour seem to be suggesting that, for purposes of States Paries’ obligations under UNCAC Article 51, there is no significant difference between stolen assets recovered in a forfeiture action, fines recovered in anti-bribery enforcement actions, disgorged profits, compensatory damages, and the like; they are all “assets” within the meaning of Article 51 – which implies, presumably, an undifferentiated obligation to “repatriat[e]” (in Park & Odour’s word) both stolen assets and “monetary sanctions imposed in foreign bribery settlements.”
I don’t believe this assertion can withstand close legal analysis, and I certainly think it is misguided as a matter of policy.
Let’s start with some basic legal principles. There are at least four ways (as relevant here) that a government might get its hands on money that is, in some sense, the product of corrupt activity:
- Forfeiture/confiscation: The government can seize property that has been obtained through illegal means, including stolen assets deposited in foreign bank accounts. Typically some other party (often, in the case of embezzled public assets, another sovereign) will have a legitimate prior claim on these assets.
- Punitive Fines: Fines are penalties imposed by a sovereign in response to an offense against the sovereign’s interest; their primary purpose is deterrence (general or specific), and perhaps also condemnation or retribution.
- Compensation: When there is an identifiable victim of an unlawful act, the law may allow that party to seek compensatory damages in a civil action; sometimes instead of, or in addition to, private compensatory remedies, the government in a public enforcement action may order a wrongdoing to make restitution payments to an identifiable victim.
- Disgorgement: The principle that no person (or entity) should be allowed to profit by its own wrongdoing may sometimes justify a disgorgement remedy, in which the wrongdoer must surrender any ill-gotten proceeds of its unlawful activity. Disgorgement shares some characteristics with fines, in that part of the idea is to deter and punish, and also shares some features with compensatory remedies like damages or restitution, in that the objective is, in a sense, to “undo” the wrongdoing. But disgorgement is nonetheless different from both. It differs from punitive fines in that the appropriate punitive fine may be greater or less than the gain the wrongdoer realized. And it differs from restitution in that the amount the wrongdoer gained may not equal the harm to the victim, so the two remedies are not always linked; sometimes restitution is possible and appropriate even when there are no grounds for disgorgement, and vice versa.
Chapter V of UNCAC is concerned primarily with the first category—stolen assets that are, or should be, confiscated and returned to their rightful owner. This is implied by the language in Article 51, quoted by Park and Odour: “The return of assets pursuant to this chapter is a fundamental principle of [UNCAC]” (emphasis mine). “Return” of assets implies rightful ownership by the party to whom the assets are returned. But it makes no sense to talk about “returning” punitive fines to the government of the country where the corruption took place. Those punitive fines are rightfully the property of the sovereign government whose law was offended–for example the U.S. government when an entity that availed itself of U.S. markets violated U.S. law. Of course, the demand-side jurisdiction has every right to enforce its own law, and impose its own punitive fines. This can lead to legitimate questions about how to balance separate sovereigns’ independent interests in enforcing their own laws with the interest in avoiding duplicative, potentially excessive punishments. But there is no reasonable interpretation of UNCAC that would count these punitive fines as assets to be “returned.”
The idea that the obligations under Article 51, and Chapter V more generally, are restricted to those assets over which another entity would have a prior claim is bolstered by examining the remaining articles in the chapter. Article 53 deals with “Measures for direct recovery of property” and specifically addresses actions to establish legitimate title to stolen property (parts a and c), and to award compensatory damages to States Parties harmed by corruption offenses (part b). Likewise, Article 57, on “Return and disposal of assets,” deals primarily with confiscated assets where the requesting state can establish prior ownership, though in parts 3(b) and 3(c) it also touches on the possibility that state may make compensatory payments (though this is clearly left to the discretion of the requested state, in contrast to the return of stolen property, which is obligatory). Articles 54 and 55 likewise deal exclusively with confiscation actions directed at identifiable stolen assets. Articles 56 and 59 call for various forms of international cooperation and intelligence sharing in connection with the other provisions of the chapter. And Articles 52 and 58 call on states to set up legal mechanisms to identify and track illicit asset flows in their jurisdictions.
So it seems crystal clear that viewing the different forms of monetary recovery “through the lens of UNCAC” does not support the conflation of punitive fines with confiscated assets. UNCAC Chapter V clearly calls for international cooperation with respect to the return of the latter, but says nothing whatsoever about the appropriate distribution of the former.
Restitution and disgorgement present slightly more difficult cases, but only slightly. I think the best reading of UNCAC, and in particular Articles 35, 54(b), and 57(c), is that States Parties are obligated to provide a mechanism by which victimized parties (individuals or states) may seek compensation, and that States Parties may also (in their discretion) return confiscated proceeds of crime to states or individuals that can establish that they were harmed, even where they don’t otherwise have a claim on the property. Of course, it’s worth pointing out that many jurisdictions, including the U.S., already provide for exactly this. But for there to be a proper restitution order, there must be an identifiable victim who can establish, with reasonable precision, the magnitude of the injury.
As for disgorgement, the difficulty here is that although a successful disgorgement action establishes that the defendant has no right to the ill-gotten property, it’s not always clear who does have a right to that property. And whether or not we are comfortable with multiple sovereigns imposing separate punitive fines for the same wrongful conduct, multiple disgorgement orders are even more problematic: presumably once the defendant has disgorged its illicit profits, the purposes of disgorgement have been fully served. One might plausibly argue that all parties with a legitimate interest affected by the wrongful conduct have a right to some portion of the disgorgement. One could just as easily say, though, that the first party to successfully secure disgorgement can retain the full amount. In any event, in those cases where no party can establish its entitlement to compensatory damages, UNCAC does not tell us how disgorged proceeds should be disposed of.
Where does that leave us? To my mind, it suggests a couple of conclusions.
First, if the StAR report meant to assess whether UNCAC’s provisions were being honored, its calculation of the proportion of recoveries “returned” to the demand-side countries (which Park and Odour’s response to my post call “victim countries,” even though the report itself explicitly disavows that language), punitive fines should have been excluded, and disgorgement should probably have been excluded as well.
Second, it seems that there is an interest in some quarters in pressuring DOJ and other supply-side enforcers to share their foreign bribery settlements with developing countries, and there is a movement afoot (which has perhaps influenced StAR) to squeeze that agenda into the “stolen asset recovery” framework, perhaps leveraging the prestige and legitimacy of UNCAC in the process, even though it doesn’t really fit. One sees this in the StAR report itself, in the section on the UNCAC framework. After two pages of utterly reasonable and accurate summary of Chapter V’s provisions on asset recovery (entirely consistent with everything I said earlier in this post), the report suddenly declares that:
[I]n light of the possibilities for countries to take advantage of the various options opened by the convention to recover assets, concerns have been voiced as to whether—and how—settlements [in foreign bribery cases] can have an impact on those possibilities. Against this backdrop, settlements appear to be an important tool that requires careful analysis in the context of UNCAC.
This passage seems to me to be a total non-sequitur. The report nowhere explains the basis for the “concerns” that have been raised about how anti-bribery settlements might impact analytically distinct asset recovery actions, nor does it explain how anti-bribery settlements might require “careful analysis in the context of UNCAC” (presumably UNCAC Chapter V), given that UNCAC Chapter V is not relevant to most of the remedies at issue in these settlements.
To my mind, attempting to shoehorn this separate agenda — pressuring supply-side enforcers to share settlements — into a stolen asset recovery framework is a very bad idea, not only because of the incentive effects I discussed in my earlier post, but because it dilutes what should be StAR’s laser-like focus on the very real problem of stolen asset recovery, and leads to distorted and tendentious readings of UNCAC. UNCAC reflects a broad and welcome consensus on the evils of corruption and sovereign nations’ responsibilities to cooperate in combating it, a consensus grounded in a careful balancing of the interests of the various States Parties. Were StAR’s interpretation to gain traction, that balance, and the consensus underpinning UNCAC, could be lost — at great cost to all.