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 third and final post in the series on how to compensate the victims of transnational bribery:
I began this series of guest posts by applauding the StAR Initiative’s recent report, Left Out of the Bargain, for calling attention to the need for settlements in anti-bribery cases to provide more compensation to the overseas victims of bribery. In my last post, I explored a series of encouraging, but perhaps not quite promising, ways of doing so in the specific context of US FCPA enforcement actions.
What we’re looking for is an enforcement mechanism that satisfies these criteria: 1) it benefits the citizens of the bribed government; 2) it funds initiatives to remedy past bribery (to the extent possible) and to curb future bribery; 3) it reallocates a portion of the penalty money, rather than relying on recovered assets; 4) the money goes to private-sector organizations and programs, rather than the host governments; and 5) the mechanism is authorized under existing US law, requiring no new statutes or regulations.
I think I’ve got one. I’ve developed it in detail in this paper (see Part III generally and subpart III.D specifically) and will give a thumbnail sketch here.
A seemingly important obstacle to allocating penalty proceeds in anti-bribery enforcement actions to overseas victims is the Miscellaneous Receipts Statute, which requires that all federal criminal enforcement monies be deposited directly in the US Treasury. However, several decades ago federal enforcement agencies developed a workaround, which the courts have regularly upheld and the agencies–especially the Department of Justice (DOJ) and Environmental Protection Agency (EPA)–are now using to an historic degree in the context of enforcing federal environmental statutes. The trick is that the government never handles the money. Rather, as part of the settlement with the government, the defendant designs, oversees, and funds a project that designed to benefit victims (either through remediation or prevention), and then receives a penalty reduction. As an example, recall that the recent BP Gulf of Mexico $4 billion settlement. Over half of that settlement — $2.6 billion – didn’t go to the US Treasury at all. Instead, it funded cleanup and prevention projects in the communities affected by the spill.
Although this approach has been mainly used to date in the environmental context, the authorization for funding these projects does not lie in the environmental statutes. Rather, the authority derives from the US Sentencing Guidelines. Therefore, there is no legal reason why this settlement mechanism must be limited to environmental law–and indeed, the Sentencing Guidelines presently allow the US DOJ to channel a portion of the criminal penalty monies in FCPA cases to fund anti-corruption initiatives in developing countries. DOJ and corporate defendants could include as part of their settlement agreements a wide variety of prevention and remediation projects that would benefit corruption’s true victims: Corporations could fund educational initiatives, raising awareness of corruption issues and creating the political will for change (as we now see working quite effectively in Brazil and China, among other places). They could fund certification programs, where local lawyers, distributors, and other potential partners could learn how to help their US-based business partners stay clear of corruption prohibitions, receiving a certification that would allow them to attract more clients. They could fund projects that assess corruption weaknesses in particular governments or agencies and engage thought leaders to develop solutions. And so on.
The nice thing about this approach is that everyone would win. Benefits to the host countries are obvious. And many corporations (and their lawyers) would like nothing more than to fund anti-corruption initiatives in the markets where their clients have trouble; they would much rather do this than plunk money in the Treasury. The DOJ would generate all kinds of favorable press, for itself and for the anti-bribery movement generally; the StAR Initiative folks are far from the only ones asking for victim-oriented settlements. And it could all occur at very little cost – a very small percentage of a typical settlement could do a great deal of work overseas.
By keeping the monies out of the foreign government’s hands, not only do we avoid squandering the money, but we largely avoid the incentive problems that Matthew previously described. I don’t think it would impact self-reporting, or foreign enforcement, at all.
And it’s a proposal that the enforcement agencies could adopt right now.
The StAR report recommends that settling countries make “changes in law and practice to permit the formal inclusion of third parties in settlement agreements in foreign bribery cases.” Changing law can be difficult, especially these days. But changing practice under existing law only requires persuasion.
This summary of my proposal raises more questions than it answers, I know. The paper does better. Read it; I’d really love to hear your (informed) feedback.
Many thanks to GAB for the opportunity to do these guest posts.
GAB | The Global Anticorruption Blog 
Andy,
This is brilliant. I love it. The SEP device from environmental law could clearly be transposed to this context. Indeed, hasn’t DOJ already done something like this? In the Siemens settlement, if memory serves, in addition to the huge fines paid to the US and German governments, Siemens agreed to set up a fund to support anticorruption research and advocacy work worldwide (with the fund overseen — though in a fairly hands-off way — by the World Bank).
It might be worth noting, however, that the increasing use of SEPs in the environmental context has attracted a fair share of criticism, precisely because it involves using the threat of more severe legal sanctions to, in effect, induce the defendant to make charitable donations. There are questions of how close the connection needs to be between the defendant’s wrongdoing and the recipient of the supplemental funding, whether there are concerns about the government making these sorts of decisions, etc.
And I’m not sure I’m 100% with you that some of the incentive problems I noted before would definitely go away, though I agree that they might, and at the very least they would probably be mitigated. Still, the use of this device might alter the total amounts that the defendant has to pay (which would affect disclosure incentives, as well as deterrence), and it might also affect the internal politics of resource allocation within DOJ (if, for example, money paid to the Treasury is seen as more of a “win” than money allocated to other parties, even for worthy causes).
And then, lingering in the background is the legal question that the StAR Report provoked, and that our respective posts have at least touched on: Presuming that the US _can_ do what you propose, is there any obligation under UNCAC that the US _must_ do this? My answer would be no, even though I (tentatively) support your proposal as a matter of policy, but clearly others disagree.