There is a broad consensus that foreign bribery harms the citizens and governments of developing nations. But in most cases where enforcement agencies in a “supply side” jurisdiction (that is, the home jurisdiction of the companies that paid the bribes) reach a settlement with a company accused of bribing foreign officials, the settlement does not provide for any remedial payments to the government or citizens of the “demand side” country where the bribery took place. Given the inherent difficulties in setting right the harm corruption causes, this is hardly surprising. Nevertheless, scholars and activists have increasingly called for settlement agreements between supply side enforcers and bribe-paying companies to include requirements that the companies make such remediation to the victims of the foreign bribery scheme, and some prosecutorial agencies, like the U.S. Department of Justice (DOJ) and the U.K. Serious Fraud Office (SFO), have occasionally done something along these lines. They have done so, however, only intermittently, and as an exercise of prosecutorial discretion, without any overarching policy agenda or conceptual framework.
In a recent article, I proposed a framework that could achieve more consistent outcomes and be used as a benchmark for developing best practices. I do not focus on grand designs for a private right of action for the foreign victims of corruption, or on obligations under international law. Because the action is happening on the ground, through the exercise of prosecutorial discretion in negotiating settlements, that’s where I focus. In this post, I outline the factors that enforcement agencies should take into account when deciding whether to pursue remediation in any given case.
Before proceeding to the factors that enforcement agencies ought to consider, it is important to distinguish between two concepts of harm, and two associated concepts of victimhood—distinctions which, in turn, suggest a crucial distinction between two different forms of remediation in this context.
First, we should distinguish between direct and indirect harm. Direct harm exists where the harm suffered by the victim is directly attributable to the misconduct of the perpetrator. The deferred prosecution agreement (DPA) negotiated between the SFO and Standard Bank provides an illustrative example of direct harm in the foreign bribery context. Standard Bank’s subsidiary paid $6 million in bribes, using funds that would have otherwise been paid to the Tanzanian Government. The Tanzanian government thus suffered a direct harm as a result of Standard’s bribery: But for the bribery, that $6 million would have gone to the Tanzanian government. The DPA therefore required Standard Bank’s subsidiary to pay $6 million to the Tanzanian Government. Indirect harms, by contrast, are the diffuse adverse effects of foreign bribery, where the victims could be said to be the general populace.
This distinction between direct and indirect harm is useful in distinguishing different kinds of corruption victims. What I call “first-order” victims are those who have suffered direct harm, while those who have suffered second-order harm are “second-order” victims. These distinctions, in turn, provide us with a vocabulary for describing two different categories of remediation in foreign bribery enforcement actions: compensation and reparations. Compensation seeks to make a first-order victim whole to the greatest extent possible by providing an amount of remediation equal to the direct harm suffered by the victim. The Standard Bank DPA noted above is as an example of compensation. Reparations are intended to benefit second-order victims of corruption’s indirect harms. For example, the SFO and DOJ have included terms in DPAs and plea deals that require the defendant firm to provide funds earmarked for public infrastructure initiatives or charities in the countries where the bribery took place.
With this distinction in hand, we can consider the criteria that enforcement agencies ought to use when deciding whether to insist on compensation and/or reparations in settlement agreements.
With regard to compensation, enforcement agencies should take the following factors into account when deciding whether to provide compensation through the terms of a DPA:
- First, whether there is an identifiable first-order victim, or victims;
- Second, the extent to which the degree of loss to the victim is reasonably ascertainable;
- Third, whether there is a risk that paying compensation to the victim (especially if that victim is a foreign government) will lead to additional corruption—for instance, that the money paid might be repurposed for corrupt ends—and if so whether that risk can be sufficiently mitigated.
- Fourth, whether providing compensation would be impractical or unnecessary—an admittedly broad catch-all consideration that might include, for example, whether the victim has other available avenues for seeking relief, or is a wealthy government that has no inclination to pursue relief. (The breadth of this final consideration is necessary given that enforcement agencies need to be able to take the unique facts of each case into account.)
Because indirect harm is diffuse and difficult to quantify, the framework for reparations does not require the same degree of precision with respect to identifying victims and ascertaining the level of harm. Instead, when deciding whether to include reparations in a DPA or similar settlement, the enforcement agencies should consider the following factors as preconditions for including reparations:
- First, even though reparations are distinct from compensation payments, there ought to be some kind of nexus between the nature of the indirect harm and the form of the reparations. For example, if bribes paid to secure a monopoly over a state’s public health sector led to defective services in that sector, reparations payments should be earmarked for hospitals, medical supplies, or the health sector generally. To date, enforcement agencies that have sometimes included reparations agreements in settlements have not employed a nexus requirement. But if enforcement agencies are committed to providing reparations in a consistent and principled manner, then they ought to adopt some variant of a nexus requirement as a precondition to reparations, or at least should provide an explicit and plausible justification for declining to do so.
- Second, as with compensation payments, enforcement agencies considering the inclusion of reparations in settlement agreements must take into account the risk of repeat corruption. But assessing and mitigating this risk is more complex in reparations cases, because the agency administering reparations has to satisfy itself that funds dispersed through a publicly accessible apparatus will not become repurposed for corrupt ends. (The U.S. and U.K. exhibit different approaches to managing this risk. Settlements negotiated by the DOJ tend to impose obligations on the parties to the agreement, stipulating how reparations monies can and cannot be spent. The SFO adopts similar terms, but leaves the administration of reparations schemes to other U.K. government agencies.) Agencies might consider whether a portion of the funds used for remediation should be set aside to establish transparency and oversight measures to ensure the proper spending of reparations.
- Third, as with compensation, enforcement agencies must also consider whether reparations are appropriate in light of the totality of the circumstances.
Scholars and policymakers should consider how the international foreign bribery regime, which focuses on the supply side of corruption, might be wielded to assist those in the developing world most harmed by foreign corrupt practices—and supply side enforcement agencies have increasingly used DPAs in foreign bribery cases to advance this remedial objective. But this practice ought to operate according to a set of clearly defined principles and best practices, rather than proceeding in an ad hoc and inconsistent fashion.