Susan Hawley, Policy Director of Corruption Watch, a UK-based anticorruption organization, contributes the following guest post:
Earlier this month, the OECD held a Ministerial meeting on its Anti-Bribery Convention, which culminated with Ministers from 50 countries signing a Declaration that reaffirmed their commitment to fighting transnational bribery. Despite that statement of renewed commitment, however, the fact remains that only four countries out of the 41 signatories have shown any attempt at actively enforcing the Convention, and pressure is rightly mounting on countries to show they are taking some kind of action. As a result, an increasing number of countries are looking to deferred prosecution agreements (DPAs), non-prosecution agreements (NPAs), and similar forms of pre-indictment corporate settlements as a way to achieve better results. The United States—by far the most active enforcer of its law against foreign bribery—has used such agreements to produce its impressive enforcement record over the last 10 years. The OECD Foreign Bribery Report noted that 69% of foreign bribery cases have been resolved through some form of settlement since 1999. And it’s not just the US. Various European countries have used some form of out-of-court settlement procedure as a way of dealing with the few cases against companies that they have brought. The UK has recently introduced DPAs, based on the U.S. model (though with some important differences), and countries like Australia, France, Ireland, and Canada are all considering doing something similar.
Yet the widespread use of DPAs and NPAs has prompted concerns. The OECD Working Group on Bribery, in its reviews on implementation of the Convention, has sometimes questioned whether these settlements are sufficiently transparent and effective, and whether they instill public confidence. My own organization, Corruption Watch, recently produced a report on corporate settlements in foreign bribery cases, “Out of Court, Out of Mind: Do Deferred Prosecution Agreements and Corporate Settlements Fail to Deter Overseas Corruption?” that raised similar questions. Corruption Watch, along with Global Witness, Transparency International, and the UNCAC Coalition (a network of over 350 civil society organisations across the world) wrote a joint letter to the OECD Secretary General ahead of the Ministerial meeting urging the Working Group on Bribery to assess whether corporate settlements have sufficient deterrent effect, and to develop global standards for corporate settlements in foreign bribery cases.
Why the need for greater scrutiny, and the call for global standards? Several reasons:
- First, these sorts of settlements allow culpable individuals off the hook, undermine the deterrent effect of the law by shielding companies from debarment from public contracting, and more generally fail to deter economic crime and prevent recidivism. The concern is that the fines and other penalties associated with DPAs/NPAs are just seen by firms a “cost of doing business,” rather than an impetus for meaningful change. Recent research by Karpoff, Lee, and Martin (discussed previously on this blog) suggests that in the US, which has imposed the highest fines and taken the most enforcement actions globally, detection would have to increase by 58.5% or fines increase by 9.2 times to offset the incentive to bribe. Indeed, there are signs that the U.S., despite having relied so extensively on diversionary corporate settlements, has recognized some of these weaknesses: The introduction of the Yates memo, with its emphasis on individual accountability, and the beefing up of the FBI’s resources for investigating corruption (and thus reducing the government’s reliance on corporate self-reporting), are examples of how the U.S. is taking note of the criticism of its reliance on DPAs and NPAs.
- Second, in addition to their inadequacy for deterring foreign bribery, in many countries the negotiation of corporate settlements lacks adequate regulation or oversight.
- Third, these corporate settlement agreements rarely provide any sort of compensation for victims of corruption.
- Fourth, clear discrepancies are emerging about how different countries use corporate settlements to deal with foreign bribery, creating an uneven enforcement playing field.
Proponents of settlements argue that they are necessary because corruption cases are incredibly difficult and costly to investigate and prosecute; unless enforcement authorities encourage companies to come forward with evidence of their wrongdoing, the argument goes, enforcement rates will remain low and corruption will go undetected. Clearly encouraging companies, who often hold all the information required as to whether wrongdoing was committed, to report their own wrongdoing by offering some form of incentive needs to be a part of any enforcement strategy. But there are serious questions as to whether relying solely on settlements to deal with foreign bribery cases can provide real deterrence. Unless enforcement bodies beef up their ability to detect corruption and are willing to prosecute, there is little incentive for companies to report wrongdoing that they might otherwise get away with.
So what would global standards for corporate settlements look like? The NGOs’ joint letter to the OECD, referenced above, suggested 14 standards to the OECD. At the top of the agenda were the following:
- Settlements should be one tool in a broader enforcement strategy in which prosecution also plays an important role;
- Settlements should only be used where a company has genuinely self-reported, and cooperated fully;
- Judicial oversight which includes proper scrutiny of the evidence and a public hearing should be required;
- Prosecution of individuals should be standard practice;
- Settlements should only be used where a company is prepared to admit wrongdoing;
- Compensation to victims, based on the full harm caused by the corruption, must be an inherent part of a settlement.
These are high standards, but unless settlements are based on such standards, and unless they are used as part of a broader enforcement strategy which ensures that companies that don’t cooperate or self-report do get prosecuted, public confidence that justice is really being done when it comes to corporate bribery is going to be undermined.
First things first … there is no global standard for corporate criminal liability. Well, actually there kind of is, and the U.S. is the outlier.
For additional reading on the U.S. experience with NPAs and DPAs, below is a link to the article “Measuring the Impact of NPAs and DPAs on FCPA Enforcement.”
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I share your concern about enforcers’ reliance on self-reporting but I think the difficulty and expense of investigation and prosecution is a very strong argument in favor or NPAs/DPAs. It would probably be very challenging to conduct a comprehensive, transnational investigation without either the cooperation of the company or authorities in other jurisdictions where the misconduct occurred, which you recognize. Given your dissatisfaction with the former, I am wondering what you think about the prospects for the latter. Does country reluctance to fight foreign bribery translate to a similar reluctance to assist enforcing jurisdictions in their own investigations? (My inclination is that governments are more willing to help out than investigate, themselves, but maybe not to a sufficient extent). If so, what are the real alternatives for getting the necessary information?
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