This month GAB is delighted to feature a series of guest posts from Andy Spalding, Assistant Professor at the University of Richmond School of Law and Senior Editor of the FCPA Blog. This is the first in the series of three posts on how to compensate the victims of transnational bribery:
Who are the victims of transnational corporate bribery? Do existing anti-bribery laws help them? And should they? The answers may not be as intellectually crisp as our gut feelings are strong. But the questions are now unmistakably central to anti-bribery debates, as illustrated by the lively exchange concerning the StAR Initiative’s Left Out of the Bargain report. (On this debate, see Matthew’s original critique, the rejoinder by two of the report’s authors, and Matthew’s subsequent reply.) In this three-part series of posts, I’ll consider who the victims of bribery are, briefly weigh in on the StAR report debate, and then see if I can’t broaden this discussion a bit.
Most of us would agree that overseas corporate bribery is not a victimless crime. Though there are many possible victims–the bribed governments, the shareholders in the defendant companies, even the companies themselves (which often pay bribes in response to near-extortionate demands)–the principal victims of overseas bribery are the citizens of those countries – almost always developing countries – whose governments have been corrupted. Yet the profound irony of modern anti-bribery enforcement: those substantial monetary penalties are deposited in the public fisc of the perpetrator. They hardly touch the victims at all. And this isn’t by design. It’s a sort of accident of extraterritorial white-collar crime.
Awareness of this irony was driven home for me many years ago, during a conversation with an Indian forensic accountant in a Mumbai café. This was early in the modern era of FCPA enforcement, and she was on a steep learning curve. I explained that when an allegation of bribery arises, our enforcement agencies investigate and frequently assess monetary sanctions. “Are the sanctions significant?” she asked. “Oh yes,” I replied, “frequently in the tens or even hundreds of millions of dollars.” She paused, looked aside for a moment, and then asked, “where does that money go?” Awkwardly, I replied, “it’s deposited in the US Treasury.” And I’ll never forget what she said next:
“Who does that help?”
I mumbled something about general deterrence. And then I changed the subject.
Broader awareness of this irony has been aided to a great degree by the recent report, Left Out of the Bargain. Written principally by members of the World Bank’s StAR Initiative, it’s based on two premises: one factual, the other normative. Factually, the report notes that the amount of assets ordered returned to host countries in anti-bribery enforcement actions around the world is but a tiny fraction of the total monetary sanctions imposed. Normatively, the report assumes that this isn’t as it should be. I, for one, find both premises persuasive.
But as Matthew has already explained, framing anti-bribery enforcement as an issue of stolen assets recovery is tricky in a number of ways; I’d like to focus on two. First (and I’m largely repeating Matthew here), bribery monies typically were never really stolen. The former owner of the funds, the bribing company, willingly (if reluctantly) parted with them. But even if the funds were stolen, and we could identify the “rightful” owners, we have a second problem: we usually cannot freeze and confiscate those funds. The money often dissipates among numerous foreign officials, and the bribes often occurred quite a number of years ago. Think of the now-pending Wal-Mart investigation, which allegedly involved systemic bribes to a wide variety of government officials in a wide variety of countries, starting in the 1990s. I don’t think we’ll be freezing many bank accounts in that settlement. Put another way, many if not most bribery enforcement actions involve funds that satisfy neither the “St” nor the “R” of “StAR.”
These and other issues gave rise to the recent series of posts and comments concerning the StAR report, which focused in large part on whether the UN Convention Against Corruption (UNCAC) establishes an obligation to share settlement monies with host countries where the settlement does not involve the recovery of stolen assets. Though UNCAC plainly establishes an obligation to return stolen assets, does that obligation also extend to the allocation of other forms of settlement money, particularly criminal penalties?
I certainly agree with Matthew that UNCAC gives the lion’s share of attention to the return of stolen assets specifically. Almost all of Chapter V, by my read, plainly does that very thing, and is therefore not germane to the question of allocating penalty money. But unlike Matthew, I see possible support for the StAR authors’ contention that penalty money should also be shared. Article 53, paragraph (b), establishes an obligation to “take such measures as may be necessary” (a favorite UNCAC phrase) to permit an enforcing country’s courts to order defendants to “pay compensation or damages to another State Party that has been harmed by” offenses “established in this Convention.” This paragraph is not expressly limited to stolen assets recovery; the question is whether the broader context suggests that it should be so narrowly construed.
I’m not certain of it; I see room here to argue that 53(b) could extend more broadly to penalty money. But I am disinclined to belabor that point, for one reason: I don’t believe the broader question of whether anti-bribery penalty money should be shared with overseas victims is tethered particularly closely to UNCAC. The UN Office on Drugs and Crime, which oversees implementation of UNCAC, is widely known to be focusing on enactment of laws, not enforcement. That is, UNODC seems to believe that a party’s UNCAC obligations are discharged upon enactment of a compliant law, irrespective of whether that law is or is likely to be enforced. So the only UNCAC question, at least at this point in time, is whether a country could legally allocate penalty monies, not whether it is doing so or should do so. I’m not suggesting that the UNCAC question, thus framed, is unimportant; I am suggesting that if we really want to talk about actually compensating victims, we should move beyond UNCAC.
I’ll do that next post.
Thank you for the intellectual sparring on bribery and corruption- a fascinating and well-argued debate. I’d like to comment on just one point you mentioned, namely that when it comes to bribery-funds “they were typically never really stolen”. This is an interesting point, which deserves further study and discussion.
In the most direct sense, it is of course correct that the funds were not taken from one person’s estate without that person’s consent. Indeed the bribing company willingly parted with them. However, once those funds have been placed in the estate of the bribed official, there is ample case-law to back up the claim that the official then holds those funds as a (constructive) trustee for his government. As the beneficiary of that trust, the government then has a proprietary remedy to reclaim those funds.
Probably the most widely discussed case in this regard is the ruling of the Privy Council in Attorney General v Charles Warwick Reid. In its verdict, the Privy Council approvingly cites a paper on bribes by Sir Peter Millet who argues that: “He [the official] must not accept a bribe. If he has done so, equity insists on treating it as a legitimate payment intended for the benefit of the principal; he will not be allowed to say that it was a bribe.” Seen from that perspective, it is surely reasonable to consider any subsequent disposal of the assets that contravenes the interest of the principal, a theft. Put differently to the authors themselves: if I were to be looking after Andy’s affairs and Matthew were to give me some money for Andy, but I were to use it for my own ends, you would be well within your rights to call me a thief.
So, could we have our “St” back please!
Emile van der Does de Willebois, Stolen Asset Recovery
From the Giffen/Mercator indictment. Shows the government’s argument, which is in line with Emelie’s comment: “KO-1 and KO-2 had the power to substantially influence whether JAMES H. GIFFEN, the defendant, and Mercator obtained and retained lucrative business ad advisors and counselors to the government of Kazakhstan. The unlawful payments GIFFEN made to KO-1 and KO-2 ensured that GIFFEN and Mercator obtained and retained such business, and that they remained in a position from which they could divert large sums from oil transactions into accounts for the benefit of senior Kazakh officials and GIFFEN personally. The scheme thus defrauded the Government of Kazakhstan of funds to which it was entitled from oil transactions, and defrauded the people of Kazakhstan of the right to the honest services of their elected and appointed officials.”