In my last post, I imagined what a frustrated U.S. official might have to say about the ever-increasing drumbeat of demands for the United States to “return” (that is, transfer) the “proceeds of crime” (that is, the fines collected from corporate defendants in Foreign Corrupt Practices Act (FCPA) cases) to the “victim countries” (that is, the governments whose officials took the bribes that gave rise to the FCPA violations). My imaginary rant was deliberately over-the-top, intended to be provocative and to stir up some more honest debate on this topic by cutting through the circumspection and diplomatic niceties that usually accompany pushback against the “give the settlement money to the victim countries” position. In this post, I want to continue on the same general topic, and in the same provocateur’s spirit, by asking the following question:
When (or if) demand-side countries start collecting serious fines against bribe-taking public officials and/or bribe-paying companies, does the logic of compensating “victims” dictate that these countries transfer some of the money they recover to the United States?
At the risk of seeming totally bonkers, I’m going to assert that the answer might well be yes if one accepts the logic for making transfer payments in the other direction (from the U.S. government to the governments of the countries whose officials took the bribes) in FCPA cases. Here’s the argument:
The case for transferring a portion of FCPA fines to the so-called “victim countries” is not based on any viable claim that the demand-side country’s government is actually a “victim” in the traditional, narrow sense. Rather, the idea is that corruption – or, to be more specific, bribery of a country’s officials by a foreign corporation – hurts that country’s citizens, in ways that are usually indirect and hard to quantify. Perhaps the services or goods provided by the bribe-paying foreign firm will be more expensive and/or lower quality than would have been the case if the firm had not paid bribes. That won’t always be true, or at least it will often be hard to show in any individual case: Maybe if foreign firm X hadn’t paid bribes, the contract would have gone to a different bribe-paying competitor, or maybe the corrupt official in charge would simply not have allowed a socially valuable project to go forward in the absence of a bribe. But no matter: There’s a plausible case that the practice of transnational bribery as a practice hurts the country where it takes place. If so, then if a foreign company has engaged in that bad practice, we can assume (according to the proponents of transferring FCPA settlement proceeds) that this company has “victimized” the citizens of the country, and so – the argument continues – some of the penalties the company pays to the supply-side enforcer for its malfeasance should go to the demand-side country’s government (with the latter serving as a representative of the “victims”), or perhaps instead to some charitable organization doing good works for the demand-side country’s citizens.
OK, fine, but if we accept that logic – that monetary penalties recovered in bribery cases ought to be used to help corruption’s “victims” – shouldn’t we also consider other victims of corruption? And who else is harmed when Company X pays a foreign official a bribe to, say, secure a government contract to provide some good or service? Well, the most obvious victims are competitor firms (and their employees and shareholders). Indeed, competitors are harmed much more directly than the citizens of the country where the corruption took place. True, it may be difficult to prove, in any given case, that any particular competitor firm lost out on specific business opportunities because of Company X’s unlawful bribes, or to quantify the damage. But it’s hard to gainsay that these competitor companies have been “victimized” (both by the bribe-paying firm and by the public official who accepted, and often demanded, the bribe payment).
By this reasoning, when China secures a nearly half-billion dollar settlement against the pharmaceutical giant GSK, China should have to pay a portion of that money to the governments of the United States, Britain, Germany, or any other country whose companies might have been competing for the contracts that GSK ultimately won. After all, shouldn’t China – the enforcing jurisdiction in this example – have to “compensate” the “victims” of the defendant company’s corruption, as represented by those victims’ governments?
For that matter, if demand-side countries start cracking down on bribe-taking by their domestic public officials, and punishing them with fines or disgorgement (not just prison time), doesn’t the logic of “victim compensation” compel these demand-side governments to turn some of that money over to the governments of the individuals or companies those officials had shaken down? Consider Nigeria, which has been adamant about securing the return of all of the assets held by former dictator Sani Abacha, and which has also been at the forefront of efforts to insist that supply-side jurisdictions share fines in foreign bribery cases with the governments of the countries where the bribery took place, on the logic of “victim compensation.” It is highly likely that a significant chunk of Abacha’s ill-gotten loot consisted of bribe payments that he extorted from American and European companies that wanted to do business in Nigeria – these companies’ payments of those bribes hurt the companies (and their shareholders and employees), compared to how they would have done if they could have gotten the same business without paying bribes. So, why shouldn’t Nigeria be required to use some of the Abacha assets to “compensate” Abacha’s “victims” (that is, firms in countries that were extorted by Abacha) by turning this money over to the firms that paid the bribes, or to the governments of their home countries?
Now, to be clear, I don’t actually support any such compensation payments. The very idea seems slightly ludicrous to me, particularly if framed as an obligation. But, again in the spirit of being provocative (perhaps to the point of being obnoxious or offensive): How are these examples different, in terms of their underlying logic, from the arguments about why the United States should be obligated to turn over FCPA fine recoveries to “victim countries”? Of course, we have a basic and understandable intuition that rich countries should give money to poor countries, and not the other way around. But that instinct is grounded in the logic of altruism and poverty alleviation, not the logic of victim compensation. Indeed, that’s part of what I’m getting at here. For those who want rich countries to give more money to poor countries, that’s fine, make that argument in those terms, and I’ll listen with a sympathetic ear. But I’m not sure it passes muster to dress up that sort of claim as if it’s a legal claim about victim compensation. If you want to go down that road, then you’d better be prepared to explain why the argument doesn’t cut both ways.