Francesco De Simone, an Advisor at the U4 Anti-Corruption Resource Centre, contributes the following guest post:
What are the consequences of “supply side” foreign bribery laws, like the US Foreign Corrupt Practices Act (FCPA) and UK Bribery Act (UKBA), on the developing countries that are often the bribe receivers in foreign bribery cases (the “demand side”)? When can OECD country (say, the United States) prosecutes a company for paying a bribe in a developing country (say Nigeria), what are the implications for Nigeria – for its institutions and for its overall corruption environment and anti-corruption framework? How does the investigation or prosecution affect Nigeria’s ability to investigate prosecute the same case? What are the consequences if the U.S. case is settled? How can Nigeria obtain restitution of the proceeds of the bribe? And should it?
Although foreign anti-bribery laws like the FCPA have attracted a great deal of analysis and discussion (including on this blog: see here, here, here, here, and here), there is much less material on those sorts of questions. (An exception is the work by Professor Kevin Davis, see here and here, also discussed on this blog.) In a new U4 paper I co-wrote with Bruce Zagaris, we attempt to provide a more in-depth analysis of how supply-side enforcement of foreign anti-bribery laws by OECD countries affects parallel investigation and enforcement action in the demand-side country whose officials allegedly took the bribes. Unfortunately, reliable information on how many supply-side enforcement actions result in parallel investigations by the demand-side host countries is not currently available (so far as we know), but we were able to extract a great deal of useful information from FCPA and UKBA cases, as well as other recent studies like the Stolen Asset Recovery Initiative (StAR) Left Out of the Bargain report.
The main takeaways from our study can be summarized as follows:
- The available evidence suggests that only a handful of developing countries have launched investigations on bribes paid by foreign companies following parallel investigations in the bribe payer’s country (a point emphasized by Rick Messick in a previous post).
- The failure of supply-side enforcement actions to prompt parallel demand-side action seems attributable to three main factors: (1) lack of technical capacity in developing countries to investigate complex multi-jurisdictional cases; (2) lack of political will to do so, especially when high-ranking public officials are involved; and (3) the inefficient flow of information between investigators and prosecutors in bribe-receiving and bribe-paying countries, due in part to distrust (e.g. a concern that confidential information may be leaked). (Incidentally, these explanations are in line with those Rick identified in his earlier post, noted above.)
- Donor agencies need to be more involved in this area. Donor agencies are ideally positioned to understand the context in which foreign bribery takes place; they also act as a bridge between developed and developing countries and thus can help facilitate the flow of information on foreign bribery cases.
- There is a need for more research in this area. The information available is clearly insufficient to answer all the questions posed at the beginning of this post. Primary research is needed to dig into foreign bribery cases investigated in OECD countries and verify if they result in parallel investigations in the bribe-receiving countries, to identify the factors that may facilitate such a connection between investigations, and to analyze the broader consequences for the bribe receiving country’s institutions and overall anti-corruption framework.
A final note on allocation of the proceeds of judgments or settlements in foreign anti-bribery cases: StAR’s Left Out of the Bargain report has triggered an interesting debate on whether, or when, the monies recovered in foreign bribery cases should be transferred to the bribe-receiver’s country (see here, here, and here, and here). We agree with StAR that such repatriation should happen more often. But we also recognize that such redistribution may become a disincentive for demand-side countries to launch their own investigations, and ultimately sanction both the foreign company and the domestic public official. And we also acknowledge that courts may be reluctant to repatriate monies to countries that fail to investigate and eventually sanction the bribe receiver (see for example the ICE case in Costa Rica). To reconcile these points, our paper further argues that:
- Repatriation should not be unconditional, but ideally tied to some action by the demand-side government that demonstrates willingness to prosecute the bribe receiver–although this is clearly complex to achieve from a legal perspective.
- For OECD countries it may be easier, from both a legal and public relations perspective, to repatriate monies recovered through disgorgements rather than through fines, because disgorgements are the direct result of the illicit profits made by the bribe payer in the foreign country. This raises other issues, related to what types of penalties are imposed in foreign bribery cases and why, as well as on the transparency and level of judicial review of settlements.
This post raises a fascinating point – one that I now can’t believe has been so overlooked. In the long term, strong, independent institutions in demand-side countries will enable the eradication of corrupt practices there. Yet, in the immediate term, supply-side enforcement appears to do little to strengthen those institutions. In fact, its effects could be detrimental.
Consider the BAE Systems settlement with the SFO as it pertained to misconduct in Tanzania. At the outset, the Tanzanian Prevention and Combating of Corruption Bureau (PCCB) conducted a parallel investigation with the SFO. Upon settlement, however, the Tanzanian investigation dwindled and, ultimately, yielded no enforcement action. The PCCB looked powerless, Tanzanians did not see justice done in their courts, the restitution paid by BAE to support Tanzanian education came from an external agreement, etc.
Of course, one could argue that the SFO investigation bolstered the PCCB investigation to begin with. Furthermore, supply side countries do not have an obligation to expend resources supporting foreign investigations. But, in taking the long view, developed countries should want to back institutions like the PCCB as they take on more responsibilities.
As anti-corruption enforcement becomes increasingly popular in developed countries, we need to be asking the excellent questions that Francesco and Bruce identify.
Agreed, these are great questions to be asking. I am particularly interested in the factors that are preventing demand-side prosecutions—(1) technical capacity, (2) political will, and (3) inefficient flow of information. My intuition is that outside activists can play a large role in defeating all three obstacles to demand-side prosecutions.
In terms of technical capacity, there are some amazing examples of political pressure creating highly competent anti-corruption prosecution units. The gold standard in this mold may be Indonesia, whose KPK unit has developed excellent technical capacity despite its relative inexperience (it is a very young agency). Anticorruption activists, and the public at large, have been the KPK’s biggest supporters, and defend the agency when it goes up against powerful adversaries.
This relates to the second, political will. Political will to defeat corruption is a function of rising prosperity; as incomes rise in demand-side countries, citizens will be increasingly intolerant of corrupt officials threatening their wealth. To the extent that these citizens are the beneficiaries of a free press, publicizing corruption issues will give the public a foothold in making corruption a first-tier political issue. Here, I am thinking of countries like Argentina, where citizens would doubtlessly love to understand better how their government is squandering their country’s vast potential with the aid of foreign corporations.
Lastly, the flow of information to prosecutors themselves. This may be the toughest nut to crack, but I believe activists can play a role here as well. Developed nations, like the UK in Liz’s BAE example, have highly developed Freedom of Information laws. Corporate confidentiality, as identified by the authors of this report, is likely to be of less value to society (in the eyes of a court) than public disclosure of corrupt acts. In a previous post on this blog, Ignacio Boulin-Victoria proposed using the American FOIA to extract the details of FCPA settlements from the SEC and the DOJ. To be sure, demand-side prosecutors will need more information to bring a case than can be gathered using a FOIA, but to the extent that law can be leveraged by activists to address these obstacles, it should be used.
I doubt, as Chris suggests, that outside activists will have much impact in addressing the “inefficient flow of information” factor. FOIA laws are not going to be any less cumbersome than the traditional MLAT or letter rogatory process governing formal exchange of information between nations. The DOJ will certainly do its best to shield confidential law enforcement information from public disclosure, perhaps to a greater extent than it does from disclosure through MLAT avenues to countries whose motives seem less than pure or in whom the DOJ places little trust. Furthermore, FOIA disclosures would likely only serve to point demand-side investigative authorities in the right direction; without formal certification by the DOJ and transmission through official MLAT or judicial channels, this evidence may not be admissible in many foreign jurisdictions. That isn’t to say that FOIA laws cannot serve any purpose, but perhaps our reform energies are better directed elsewhere. Perhaps we can spend more time streamlining MLAT procedures, or working with foreign nations to prevent the leakage of confidential information. Or, a bit more radically, maybe we need to think beyond MLATs and come up with an international information clearinghouse for the sharing of evidence related to transnational corruption. If prosecutors constantly feel the need to resort to informal channels on the fringes of international organizations to short circuit the MLAT process, perhaps that’s a sign that there is a real problem at the heart of our current information-sharing regime.
If the ‘inefficient flow of information’ factor were the only one affected by the FOIA scheme suggested, your point would be stronger, Jordan. However, Chris’s proposal also bears upon the ‘political will’ element. In investigations involving government official misconduct (a basis of the “demand-side” label), there are obvious differences between the merits of FOIA and traditional MLATs. Most importantly, civil society activists could use the former, at the very least, to exert pressure on demand-side prosecutors.
Your idea of an international information clearinghouse is intriguing. Another consideration (falling somewhere in between an MLAT and a substantive clearinghouse) would be an institution like Eurojust, designed to facilitate the process of information-sharing. However, none of those proposed solutions do much to address a lack of political will, which seems the most difficult obstacle to surmount. I’d be curious to hear your thoughts on that factor.
The questions raised in this post are fascinating, and I hope to see more research that focuses on the effect of anticorruption law enforcement on the “supply” side. In particular, I wonder how increased investigations and prosecutions conducted by the supply end could encourage meaningful institutional reform amongst failing enforcement agencies on the demand end.
It’s important to recognize that distrust is blocking the efficient flow of information, but equally important to ask what both sides have to gain from parallel action. Currently, it seems that information sharing happens much more frequently amongst agencies that are already regarded as having excellent technical capacity. For example, early this year Singapore hosted delegates from 22 anticorruption agencies in an effort to increase coordination and information sharing. While the FBI, KPK, and Hong Kong’s ICAC were among those agencies present, less reputable counterpart agencies were not. What else might be gained if such networks were expanded? What institutional changes or improvements in technical capacity must occur to allow for more widespread information sharing?
If more research is conducted to point out what demand side countries have to gain from parallel action, more efficient agencies could provide guidance or instruction to improve the institutional deficiencies facing the agencies of developing nations.
I recognize this may raise some of the same tensions Matthew wrote about in his earlier post on academics in anticorruption. But to the extent that activism should play a role, it may be more beneficial to developing nations for outside activists to highlight the stake wealthier nations have in robust enforcement structures on the demand end.
thanks for your comments and glad to see this post (and the paper that triggered it) have generated a lively debate. A couple of thoughts and reactions.
I agree very much with Elizabeth: it is a bit puzzling why these topics, particularly the effect of supply-side enforcement on demand-side are so understudied. I think there is a lot of good work to be done in this area, for example by looking at bilateral relations (e.g. U.S. and Nigeria) to see if FCPA enforcement of cases related to Nigeria has resulted not only in parallel investigations/prosecutions in Nigeria, but also in other types of impacts, such as media attention, legislative or regulatory changes etc. This would probably require some field research, but not a huge amount of it, as the universe of FCPA cases with Nigeria or any given country is unlikely to be very large.
As a former TIer, I found the comments on the role of activists very interesting. Undoubtedly, activists’ main role is awareness raising; I would be more cautious with their possible contribution to building technical capacity, although there have been isolated successful cases of this (not in anti-bribery though, that I am aware of).
When it come sot information, I think the key questions, partly addressed int he paper, is to understand why there is often lack of trust between jurisdictions, and how this can be addressed. The ‘clearinghouse’ idea is quite interesting, but keep in mind that there are already a few such initiatives, although coordination is lacking, and duplication is always a risk.
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