Jeena Kim, a lawyer with Bae, Kim & Lee LLC (Seoul), contributes the following guest post:
South Korea was one of the first signatories to the OECD Anti-Bribery Convention in 1997, and in 1998 Korea enacted legislation–the Act on Preventing Bribery of Foreign Public Officials in International Business Transactions (Korean FBPA)–to implement the convention domestically. Yet while the US Foreign Corrupt Practices Act (FPCA), which served as a model for the Korean FBPA, has been actively enforced throughout the world, the Korean FBPA is significantly under-enforced, especially against corporate offenders. According to the OECD Working Group on Bribery, by the end of 2012, Korea had sanctioned 16 individuals and four legal entities for foreign bribery under the Korean FBPA, whereas the United States had imposed criminal sanctions on 62 individuals and 77 legal entities, and had imposed civil or administrative sanctions on an additional 41 individuals and 55 legal entities. Moreover, only nine cases have been prosecuted and convicted under the Korean FBPA since 1999, and eight of those involved bribery related to procurements for the U.S. army in Korea–that is, cases in which the bribery occurred in Korea rather than abroad. Korea’s under-enforcement of the Korean FBPA against foreign bribery is not only a problem for Korea, but also hinders multinational efforts to combat corruption, and creates many innocent victims in the host countries of bribed foreign officials.
While there are many possible explanations for the under-enforcement of the Korean FBPA, one of the most significant is the difficulty of collecting evidence of foreign bribery. The United States suffered the same problem in the early years of the FCPA, but the US government effectively overcame this obstacle through a two-pronged strategy: (1) granting a cooperation benefit to offenders that came forward and provided evidence, and (2) threatening severe punishment for uncooperative defendants. Many risk-averse companies therefore had the incentive to conduct a robust internal investigation, and to turn over evidence relevant to their own prosecution to the government in exchange for lenient treatment.
The success story of the United States in enforcing prohibitions against foreign bribery suggests a possible approach for Korea, though one that would need to be implemented in a somewhat different way, through different Korean institutions. Here’s how it could work:
The Korean Financial Services Commission (FSC) and the Financial Supervisory Service (FSS), which are equivalent to the U.S. Securities and Exchange Commission, should obligate listed companies to report foreign bribery to the FSC and FSS. Korean law–the Korean Financial Investment Services and Capital Markets Act (FISCMA)–already requires listed companies to submit to the FSC/FSS various reports containing information that could materially affect investors’ decisions to the FSC/FSS. The proposed new reporting requirement could be introduced in an amendment to the subordinate regulation of FISCMA.
This solution has several advantages:
- First, the FSC/FSS can enforce the prohibition against foreign bribery more efficiently than can Korean prosecutors, because under Korean law the FSC and FSS already have the general authority to investigate whether a listed company has fulfilled its reporting requirements, and can require it and any related persons to procure the necessary evidence. The prosecutors under the Korean FBPA do not have such authority and are generally required to obtain a court warrant to collect evidence.
- Second, as to the sanction, criminal and administrative sanctions under the FISCMA are actually more severe than the available criminal sanctions under the Korean FBPA, so the FSC and FSS have more leverage to induce offenders to cooperate during an investigation. Additionally, FSC/FSS can order offending companies to disclose acts of foreign bribery to the public. It can thus use reputational damage as an additional incentive to induce cooperation. The private right of action of investors under the FISCMA would also enhance deterrence of foreign bribery.
- Third, this solution can be implemented more easily than any other, because the executive branch can add the new reporting requirement under FISCMA without legislative involvement.
- Fourth, FSC/FSS can refer foreign bribery cases, once detected, to the prosecutors. The evidence gathered by the companies under suspicion would facilitate criminal investigation and prosecution of offenses under the Korean FBPA. In such cases, institutional pressure from the government agency that referred them, namely FSC/FSS, would be likely to encourage the prosecutors to invest more resources in fighting foreign bribery, which would promote the enforcement of Korean FBPA.
This is a great idea. (I sometimes wonder why, short of any possible Fifth Amendment problem, we do not similarly require disclosure of FCPA violations in the United States.) But I wanted to point out that the story of the U.S. turnaround is a quite complicated. To begin, there are really two separate problems that the DOJ had to overcome: (1) How do you know where to look? and (2) How do you do the looking? Because of limited resources, the difficulty in discovering foreign bribery through traditional investigative channels, and the logistical challenges posed by international criminal investigations, the U.S. needed to get companies to both (1) bring cases through the door and (2) help build those cases. I like to think of these separately as the “source” problem and the “investigative” problem, because both pose unique challenges. For example, providing a “voluntary disclosure” credit only addresses the source problem, while reducing penalties for companies that assist in making international employees available for interviews obviously only addresses the latter.
Of course, the U.S. has come up with a myriad of tools that, when combined, address both of these problems with some degree of success. The cooperation credits that you cite are key components of that toolbox, but I would be remiss if I did not also point out the role played by both plea bargaining generally and the modern variations of the plea agreement. Allowing prosecutors the flexibility to reward (or punish) cooperation (or the lack thereof) with a range of negotiated settlements ranging from guilty pleas to deferred or non-prosecution agreements has been critical to the success of the modern FCPA program.