GAB is pleased to welcome back Alan Doig, Visiting Professor at Newcastle Business School, Northumbria University, who contributes the following guest post:
In recent years, there has been a swelling call for a substantial portion of the fines, disgorged profits, and other payments recovered from corporations in foreign bribery cases to be used to fund anticorruption initiatives, particularly those designed to fight corruption in the “victim” countries. If this recommendation were taken seriously, the potential funding resources could be substantial. While the recoveries from corporate settlements are miniscule (and ad hoc) contributions to national treasuries, they often dwarf what even big donor agencies spend. For example, the UNDP’s 2014-2017 GAIN (Global Anti-Corruption Initiative) had a total budget of $16 million, an amount much less than the fine and disgorgement from the first Deferred Prosecution Agreement (DPA) between the UK’s Serious Fraud Office (SFO) and ICBC Standard Bank in December 2015. Just think how such funds could provide badly-needed resources for anticorruption work, particularly for areas or organizations seeking new sources of funding, or for innovative work, in what is a very competitive environment. Thus while Integrity Action has managed to win competitive funding from soruces as diverse as Google’s Global Impact Challenge and the UK Comic Relief charity, the chair of the Board of Governors of the International Anti-Corruption Academy (IACA) recently bemoaned the fact that IACA’s “last two general budgets never received 90% of the funding that was unanimously agreed upon” by member states, without which there would be no opportunity for the implementation of its ambitious programs.
While corporate settlements would provide a regular and substantial resource beyond the usual multilateral and bilateral donors (and the occasional big private foundation), there are, of course, a number of practical, legal, and political problems with getting countries to agree to divert substantial portions of such settlement funds to support anticorruption efforts. But even assuming these obstacles are overcome, another set of problems remains: Assuming that a given country (say, the US or UK) has decided that a substantial portion of a corporate penalty for bribery should be redirected to fund anticorruption efforts, how should the arrangement be structured? Which entities should be responsible for any settlement funds? Who will make the key decisions? What will be funded, by whom, and for how long? Our limited experience to date illustrates several options that have been attempted so far:
- First, the settlement can require the corporation to make a direct payment, of a fixed amount, to the country where the offenses took place, with no strings attached. For example, the 2011 UK settlement in the Mabey and Johnson case, and the 2015 settlement in the ICBC case, involved these sorts of payments to various countries (one of which, Ghana, refused the funds).
- Second, the funds transferred to the victim country, or to an NGO, and earmarked for specific purposes. For example, in 2011 Alstom paid $1 million as reparations under Article 53 of the Swiss Criminal Code to the International Committee of the Red Cross, to be split between projects in Tunisia, Latvia and Malaysia. In the British Aerospace (BAE) case, £29.5 million was paid to the Government of Tanzania in an arrangement involving the Crown Agents, PricewaterhouseCoopers, Vision International and DFID to provide primary school books, teachers’ guides, and desks.
- Third, an international organization can be put in charge of supervising the allocation of funds. An example here would be the 2007 Mercator/Giffen case, in which the convicted parties relinquished rights to Swiss accounts, which in turn provided a $115 million resource for a specifically-created NGO – the BOTA Foundation – to deliver projects in Kazakhstan, the “victim” country, under the supervision of the World Bank (one of the three interested parties involved in agreeing the settlement).
- Fourth, the settlement could require the offending company to set up and administer its own fund, handing out grants or awards either for specific projects or in response to an open bidding process. The leading example here is the Siemens Integrity Initiative, set up as a consequence of a settlement agreement with the World Bank. Since 2009, the Initiative has spent some $100 million in two rounds of competitive bidding; most of the successful bidders have been civil society organizations, with the two largest recipients the Basel Institute of Governance ($5.8 million), various Transparency International bodies ($7.5 million), and IACA ($7.4 million).
All of these alternatives have advantages and disadvantages. With respect to simply returning funds to the “victim” countries, and obvious concern is that the money will be misappropriated or spent on projects that don’t actually benefit the true victims. Even when money is allegedly earmarked for specific purposes, this might end up simply displacing existing budget commitments. As Ben Taylor of the Tanzanian NGO Daraja noted in connection with the BAE settlement: “BAE specified the money be spent on school textbooks and other educational equipment. But the Tanzanian government already had a responsibility to provide these things and had promised to do so. The payment from BAE effectively absolves Tanzania’s government of its responsibility to provide a quality education for the country’s people, thereby undermining its accountability to its citizens. A payment for something that the government had already promised opens up the problem of aid fungibility. BAE’s payment for textbooks allows Tanzania’s government to reassign its textbook budget elsewhere.” And when corporations are allowed to set up their own funds (supposedly as part of a punishment for serious bribery violations), there’s the risk that they and the recipients of their largess could be seen to be more concerned with their mutual benefit, whether income, reputation, or anticorruption visibility – a form of “greenwashing” that some have raised as a criticism of the Siemens Integrity Initiative — than with being part of any wider global anticorruption approach.
Developing such an approach would require resolution of a more general set of questions and concerns has to do with how proposals and expenditures are assessed. It is noteworthy just how little information most recipient organizations provide on project delivery, information by which to assess whether the initiative and the mode of delivery was the most relevant and effective (and cost-effective) way to disburse monies from anticorruption settlements, though there is quite a bit of variation. At one end of the spectrum, in the Mercator/Giffen case, IREX was subcontracted to deliver the project, which was supervised by the World Bank, supported with technical expertise from Save the Children, and evaluated by a UK-based consultancy; after five years, a detailed final report, with detailed financial information, was published. In contrast, in the BAE-Tanzania case, it took a Freedom of Information Act request to get DFID to hand over one of the two evaluation reports (one by a UK consultant and one by a Tanzanian consultancy), which described issues of physical delivery but included nothing on costs or effectiveness.
Such variation needs addressing. The Siemens Integrity Initiative asks its recipient organizations for evidence of “impact evaluation” both at individual level (e.g., have those trained influenced policy, law, and behavior in their own countries) and the organizational level (e.g, has the work of the organization been taken up in the countries concerned). It has been very keen that all recipient organizations publish reports that discuss activities and achievements, and full financial information, including external evaluation reports, budget and expenditure reports, and audit reports. In practice many organizations don’t really deliver on many — or any — of these, relying for evaluation on in-house annual reports, which are usually descriptions of activities rather than evidence of impact, added-value, or sustainability, and often contain only limited financial information. For example, IACA – the single biggest recipient of Siemens funding – has never provided public financial information on its income streams and program/administrative expenditure.
No current delivery option is problem-free; those reviewed above all have weaknesses, with the absence of transparent information both by disbursing organizations to assess selection and evaluation criteria, and by recipient organizations with respect to performance, impact, and financial information. These are major obstacles even before we begin to consider what such funds could and should be used for, under whose responsibility, and with respect to what overall strategy, objectives, and measurements. As the international community moves toward greater willingness to devote corporate settlement proceeds to anticorruption activities — a proposal formalized in Article 62 of the UN Convention Against Corruption — it is important to have more serious discussions now about some of these practical issues, rather than letting ad hoc approaches to various settlements end up determining norms and standard practices on what is funded, by whom, and to what effective anticorruption purpose.
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I complete agree about how important this issue is. Yes, as you highlight, there are many other hurdles/issues one faces, chronologically, before arriving at this particular problem, but I’m always surprised that there aren’t more conversations (at least that I’ve seen) about how best to “give back the money” if one decides to do so. It’s a problem that seems particularly acute in contexts where the in-country parties with whom a corporation may have corruptly contracted still hold power, since it raises that basic “sovereignty vs. third party monitoring to ensure money isn’t recycled into corrupt uses” debate. Even if, arguendo, you accepted strings on returned money in some way, it seems to me you could end up with some inter-governmental debate over how diplomacy, accountability, and other factors interact. To the extent that actual empirical evidence can be gathered and used to ground those debates, it seems like it would be incredibly useful. From the information gathered so far, it seems to me like having a detailed implementation plan (including distribution and monitoring–including local civil society organizations, when good, appropriate partners are available) at the beginning has been incredibly important in the success (or lack thereof) of repatriation efforts.
It seems to me that the hands-down winner in terms of best practice for structuring effective corporate payback to help fight corruption is the third option –through an independent NGO structure which is 100% transparent, and has oversight by civil society and a range of other actors. As the former executive director of BOTA, I admit I’m biased, but, in the addition to transparency, the option does take the conflict of interest issue out of the equation for repatriation — and this is huge. Ideally, in fact, a huge corporate payout would be administered as an endowment, which would provide continued benefit in terms of anti-corruption initiatives or whatever the purpose of the established fund. In the case of BOTA it was to improve child and youth welfare for very poor families from Kazakhstan,