Memo for SEC Chairman Clayton: Getting Other Nations to Enforce Their Antibribery Laws

In recent remarks to the New York business community, you complain that vigorous enforcement of the Foreign Corrupt Practices Act has had little effect on corruption levels “in many areas of the world.”  The blame, you argue, lies with other nations which don’t enforce their antibribery laws. When companies from these nations seek business in a third state, they are free to, and too often do, bribe their way to commercial success. Indeed, as you explain, their repeated success provides the states where they are headquartered an incentive not to enforce their antibribery laws.

Using the prisoners’ dilemma game, you show that bribery will only be brought under control when all countries with firms that do business in foreign states agree to crack down on the payment of bribes.  And you promise that whenever you speak to counterparts in these countries, you will try to persuade them of the value of “common, cooperative enforcement strategies.”  But while the prisoners’ dilemma paradox underscores why all countries where firms that may pay bribes are located must enforce their antibribery laws, it obscures another important step in the global fight against corruption. One that the Commission can do much to advance.   

The hypothetical you develop to illustrate the prisoners’ dilemma aspect of the enforcement of national antibribery laws assumes the countries where bribes are paid are helpless, so laced with corruption they cannot enforce their laws against bribe taking by their officials.  A 2018 OECD report, however, shows this is not the case.  In 20 percent of the cases where a bribe was paid, the OECD found one or more bribe recipients were sanctioned by the government which employed them. The sample was, to be sure, quite small, but it nonetheless shows that states where bribes are paid are not helpless.

The report’s more important finding was the lack of cooperation between authorities in states pursuing bribe payers and authorities in states where the bribe was paid.  In no case  where a bribe payer was prosecuted did the OECD find the country’s authorities learned of the offense from authorities in the country that had convicted the bribe payer.  The most common way enforcement agencies in the bribe recipient’s country had learned about the case was through the media.

The first thing the Commission and the Justice Department, its partner in FCPA enforcement, should do is ensure that authorities in the country where the bribe was paid are alerted when it successfully concludes an FCPA case.  The second thing the two should do is keep track of what those authorities do with the information.  Have they opened an investigation?  Has anyone been charged?  Convicted?  The third thing the two should do is ensure all this information is publicly available.

A running tab on what a country has done when the United States, or another state for that matter, has determined that an individual or firm bribed one of the country’s officials can help spur action. Legislators, audit agencies, the political opposition, and civil society organizations in the bribe recipient’s country can then ask what authorities are doing about the case and advocate for action when none is being taken.

The World Bank gathered and reported such data from 2010 to 2017.  Whenever an investigation disclosed evidence that a company or national of a state was involved in corruption in one of its projects, the Bank “referred” a file with the information it had gathered to the state’s law enforcement authorities.  Each year the Bank then reported what the authorities had done with the referral, and while the most common entry was the Bank “is unaware of any action by authorities,” over time entries reporting the officials implicated had been removed from office or prosecuted grew. (That after the Bank received complaints disclosing action taken on its referral reports it stopped revealing what authorities did with the information is likely a sign of the program’s effectiveness.)

Chairman Clayton, there is no reason why the SEC can’t launch a similar effort with FCPA cases.  You could then urge your counterparts in other nations to follow, collecting and publishing their own data on what actions countries where a bribe was paid have taken.  You were quite right to tell your New York audience that bribery will only be curbed when all states enforce their antibribery legislation.  Were the SEC to take the lead in advancing the modest steps proposed here, it would move the world closer to realizing that objective.

6 thoughts on “Memo for SEC Chairman Clayton: Getting Other Nations to Enforce Their Antibribery Laws

  1. A meaningful percentage of SEC FCPA enforcement actions involve “mere” findings of books and records and internal controls violations, not findings of anti-bribery violations. In other words, in these cases the SEC (presumably) was not even able to satisfy its civil burden of proof that “bribes” were paid.

    Moreover, a meaningful percentage of SEC FCPA enforcement actions that do involve findings of the anti-bribery provisions involve internships and hiring practices, non-business travel, entertainment and similar things. In other words, the underlying activity is normal and acceptable in most situations but only becomes problematic when directed to a certain type of person.

    Many “big picture” discussions of global bribery issues, comparative stats, etc. fall apart by failing to recognize and appreciate the above issues. For example, is the U.S. supposed to tell [insert country] that the child of a mid-level procurement manager at an SOE received an internship – and should we now expect [insert country] to prosecute that person? Is the U.S. supposed to tell [insert country] that a physician went golfing in the morning and drank beer in the evening – and should we now expect [insert country] to prosecute that person?

    http://fcpaprofessor.com/depends-b-word-means/

    http://fcpaprofessor.com/fcpa-enforcement-actions-often-involve-normal-activity/

    • Thanks for the comment. I take your point that many SEC cases arise from a failure to keep accurate books and records. But isn’t one of the reasons accounting records are not accurately kept is to avoid having to disclose the payment of a bribe? And shouldn’t authorities in the state where the firm does business be alerted to the offense? What is the harm? And if the violation involves no wrongdoing in the foreign state, it is easy enough for the public record of action taken by the foreign state to say so.

      I also take the point that what the SEC considers an FCPA violation, say awarding a foreign official’s son or daughter an internship, might not be considered a crime under the foreign state’s law. But again, I don’t see the harm in the SEC formally disclosing the facts of the case to foreign authorities.

      Sometimes an internship, lavish entertainment, and the like will be a crime in the foreign state. Or at least suggest the beneficiary may be committing other, more serious violations of local law.

      Even if the acceptance of an internship or whatever is legal under the foreign state’s laws, authorities there might want to know their officials are receiving such gifts. The revelation might prompt changes in ethics rules or heightened disclosure requirements. Or require the authorities to explain to citizens why they see nothing wrong in officials accepting such gifts.

  2. The ideas in this memo seem reasonable in a closed universe where the SEC’s only mission is anti-bribery/corruption. They are practical, cheap, and appear to have no downside. However, I would posit that this approach does not account for the diplomatic ramifications of a U.S. government agency regularly naming and shaming another state’s officials. Openly demanding that other countries take action against their corrupt officials means potentially sacrificing fruitful counter-money laundering, counter-terrorism, or joint-intelligence operations that require collaboration with other states and their leadership. In a perfect world, states would pursue their own corrupt officials once U.S. law enforcement shared its evidence. But if a state is unwilling or unable to take action, a U.S. policy of publically naming and shaming might create more problems for law enforcement cooperations in the long run than it solves in the near term.

  3. “But isn’t one of the reasons accounting records are not accurately kept is to avoid having to disclose the payment of a bribe?”

    Again, it depends on the “b” word. In the internship cases there really were no false “accounting” records. In other situations, the company booked something as a charitable contribution, promotional expenses, etc. and the SEC still brought books and records charges. In perhaps the most egregoius example, a company received an outside legal counsel opinion that a payment qualified as an exempted facilitating payment under the FCPA but the SEC disagreed with this legal conclusion and thus charged books and records violations.

    There is extensive coverage of FCPA enforcement action in the media, blogosphere, etc. not to mention on the DOJ and SEC’s public website. It’s not like these cases are a secret or hard to discover.

  4. Thank you for this post, it raises an interesting suggestion for addressing a thorny problem. With that said, I share many of Jacques’ concerns on this point. While in the abstract this seems like a low-cost way of pressuring the enforcement of bribery, I worry that it could get politicized very quickly. In cases where we are concerned about sabotaging ongoing diplomatic efforts, might we not see efforts being made to avoid prosecuting instances of corruption in the relevant country? Relatedly, anticorruption prosecution at a global level risks being weaponized to serve other political ends, possibly jeopardizing its broader effectiveness. We can imagine the US actively working to prosecute bribery that happens in Russia, but ignoring it when it occurs in Saudi Arabia or Russia targeting American bribe-taking but ignoring Syrian. I do think the idea of pressuring states with endemic corruption through public transparency is an appealing one, but I would be interested in learning more about how you would structure the system to avoid creating perverse incentives.

  5. Thank you for the interesting post! In cases where the person offering the bribe is from one country and the person accepting the bribe is from a different country, there is certainly a “prisoner’s dilemma” element to the interaction between the countries in the sense that cooperation will result in an overall benefit to both countries, which seems to be motivating your suggestion to remedy the cooperation problem by publishing reports on enforcement efforts. However, a different (additional) element of the prisoner’s dilemma is a collective action problem arising from positive externalities created by the players’ behavior. Specifically, one country’s efforts to strengthen enforcement of anti-bribery laws create deterrence that the other countries benefit from as well, since the corrupt interaction crosses borders and therefore it is usually sufficient to cut it off at a single spot. If this is a significant element in the overall story, then making enforcement efforts public may not prove useful, and arguably it could even be counterproductive, as increased enforcement efforts by one or a set of countries (especially dominant ones, like the US) may discourage other, probably smaller countries from incurring the significant costs required to investigate these types of cases, free-riding on other countries. This will happen when the additional deterrent benefit from increasing enforcement, given the efforts already employed by other countries, may prove smaller than the associated costs.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

This site uses Akismet to reduce spam. Learn how your comment data is processed.