As explained in earlier posts (here and here), I am working with the Open Society Justice Initiative on a project to examine how civil society can prompt more corruption-related litigation — either by stimulating criminal prosecutions or filing civil suits itself.
One area that remains a puzzle is why businesses are not filing more civil suits for damages caused by bribery. At common law, if a merchant could show it lost a customer to a bribe-payer, it could sue the briber for tortuous interference with contractual relations and the bribe-taking employee for breach of fiduciary duty. A merchant that discovered it had paid higher prices or bought goods of a lesser quality because the seller had bribed one of its employees likewise had an action for damages, against the employee for breach of fiduciary duty and for fraud against the bribe-payer. The Civil Law Consequences of Corruption, a 2009 volume edited by Professor Olaf Myer, describes similar doctrines that corruption victims in countries governed by the civil law can invoke to recover damages. Moreover, regardless of legal heritage, parties to the United Nations Convention Against Corruption are required by article 35 —
“to ensure that entities or persons who have suffered damage as a result of an act of corruption have the right to initiate legal proceedings against those responsible for that damage in order to obtain compensation.”
Am I missing something? Or is there only one country where businesses that are victims of corruption are heeding the invitation to sue for damages? And if so, why is this case? Why aren’t businesses in other nations besides this one seeking compensation for the losses bribe-paying has caused them?
Of course, the one country where corruption victims of all types have not been reticent to sue is the United States. Since the surge in FCPA enforcement actions in the mid-2000s, there has been a sharp increase in what supporters term “follow on” and detractors call “parasitic” civil damage actions to recover losses incurred because of the FCPA-violator’s bribery. And as the law firms who counsel large corporations regularly warn (advertise?), there have been some spectacular recoveries by bribe victims: NewMarket collected $45 million in return for settling its claim that Innospec’s bribery shut it out of the market for gasoline additives in Indonesia and Iraq, and Alba collected $85 million to settle claims against defendant firms who bribed Alba employees to overpay for the products defendants sold it.
There are of course reasons why the U.S. is a particularly hospitable venue for suit: entrepreneurial lawyers willing to work on contingency, antitrust and antiracketeering laws that reward successful plaintiffs with three times their actual damages plus attorneys’ fees, and a court system that can be counted on to decide cases accurately and within a reasonable time. But is the U.S. that unique? Aren’t there other nations where some combination of favorable laws, hungry lawyers, and trustworthy courts makes it worth a victim’s wile to seek damages against bribe-payers and their cohorts? Or am I missing something?
Good point. I’m not well versed in this area so excuse the overly simplistic observation, but it seems that “follow on” is the operative part of follow on suits for civil damages. I don’t know for sure but I’d expect that most derivative or class action suits are triggered by the announcement of investigations and/or settlements by the DOJ/SEC. Suzie Shareholder would assume, at least, that her company has admitted some wrongdoing and might also assume (incorrectly) that, if the DOJ has closed a criminal matter, it has met a higher burden of proof than that required in a civil action. Not only do government enforcement proceedings draw prominent attention to potential misconduct, they tangibly bolster the plaintiff’s case. For example, plaintiffs may rely on stipulated facts in published NPAs/DPAs (which, I suppose, is one reason the Statement of Facts is such a crucial point of negotiation); and certain company disclosures to the government may constitute waivers of privilege, allowing later adverse litigants access to incriminating information. It makes sense to me, then, that the jurisdiction with exceptionally (uniquely?) strong government enforcement of foreign anti-corruption law also has the most secondary civil litigation.
I could easily be missing something, too – my answer doesn’t explain why foreign companies penalized under the FCPA escape follow on suits in their home countries. And I wonder to what extent civil actions could put pressure on enforcement agencies in jurisdictions that aren’t so keen on cracking down. And how can we incentivize/aid these plaintiffs? It sounds like that is a focus of your work with Open Society and I very much look forward to seeing the result.
The issue is complicated when the major shareholders of a private company are also the Executive Directors, Executive Chairman and Company Secretary, asking them to take a derivative action on behalf of the Company is like asking a “Turkey to vote for Christmas” unfortunately.