There is no longer any doubt that corruption does enormous harm – to individuals, businesses, governments, and whole societies. Nor is there any dispute that those harmed should have a right to recover damages for their injuries. In drafting the UN Convention Against Corruption, governments agreed quickly and without dissent upon what is now article 35. It requires parties to ensure their domestic law permit any person or entity harmed by corruption to “initiate legal proceedings against those responsible for the damage to obtain compensation.”
Yet what evidence there is shows article 35’s promise remains largely unfulfilled.
For the UN Office on Drugs and Crime and the StAR Initiative, I am examining just how far there is to go for that promise to be met. With their resources and the help of the International Bar Association, I have reviewed the case law in close to one-third of the 187 UNCAC states parties. The most common victim recovery cases I find are those where a government agency or state-owned corporation has recovered damages when an employee took a bribe. In a few, courts have also awarded damages to third-parties harmed by the bribery. There are in addition a miscellany of actions I am still digesting covering actions by the competitors of a bribe-payer, consumers, and NGOs.
Below are the bribery victim cases I have located to date. A second post will review the other cases. Reader contributions and comments warmly solicited.
Damages to the agency employing a bribe taker
Besides collecting fines for a criminal violation of their anti-bribery law, several governments have recovered damages for the losses the bribery caused, either from the official who took the bribe, the one who paid the bribe, or both. Most often, the case has arisen from an employee awarding a public contract in return for a bribe. A recent, well-known example of this form of procurement bribery are the several cases involving Petrobras, Brazil’s national oil company. Construction companies bribed company personnel to approve contracts to build refineries, processing plants, and other major works at prices in excess of cost plus a reasonable profit. To date, Brazil has collected $920 million in damages from both the bribe-takers and bribe-payers. In a prosecution under the U.S. Foreign Corrupt Practices Act, the individual who arranged for an American firm to bribe executives of Haiti’s national telecommunications agency in return for a contract was ordered to pay the Haitian government $73,824, his commission for arranging the bribe.
Damages have been recovered for other forms of procurement bribery as well. The German state of Lower Saxony was awarded damages from an official who took a bribe to approve a contractor’s request to clear-cut a stand of trees near a motorway junction (here). The official had told his superiors the trees were rotting and so posed a hazard to passing motorists when in fact the trees were all healthy. The court ordered him to compensate the state both for what it paid to have the trees cut and the cost of replanting trees.
In exchange for a $43,000 bribe, an employee of the U.S. Army’s Intelligence and Security Command allowed a contractor to hire fewer workers than the contract required and to employ personnel without the requisite security clearance. The bribe-taker and the payer were together required to reimburse the Army for the damages caused by the failure to adhere to the contract specifications. (U.S. v Harvey). A manager at the Dutch University of Groningen had companies holding contracts with the university buy him cars, pay for trips, and provide jobs to family members. The contractors billed the university for these expenses, and the manager approved their invoices. The trial court ordered him to reimburse the university €450,000 — the estimated cost of the wrongfully billed items (here).
Besides procurement bribery, governments have collected damages when officials took bribes to collect less than what was due in taxes, customs duties, or revenues from exploiting the nation’s resources. A court in Bosnia Herzegovina ordered a senior customs officer to compensate the government for the losses incurred when an importer paid him to allow goods into the country without being inspected. Indonesia collected damages equal to the market value of timber cut when an employee issued the permit to log it in return for a bribe (In re Surya Dumai Group). Those who bribed South African officials to illegally harvest lobsters in the country’s coastal waters were ordered to pay their government $22.4 million, the lobster’s market value (U.S. v. Bengis).
Compensation has also been ordered for other types of damages a bribe-taker caused his or her employer. The Insurance Corporation of the Canadian province of British Columbia both issues driver’s licenses and insures licensed drivers. A driving school bribed the corporation’s employees to say its students had passed their driving test, and several later caused accidents on which the corporation paid a claim. The Court of Appeal for British Columbia approved the corporation’s request that the driving school and the employees together reimburse it for the monies paid on these claims (ICBAC v. Lo). The Centraal Bureau Rijvaardigheidsbewijzen, the Dutch agency that issues driver’s licenses, uncovered a similar scheme where employees were bribed to pass those taking a driving test. In addition to a prison sentence, the Hague Court of Appeal ordered defendants to pay the agency € 11, 153 in damages, the agency’s cost to uncover the bribery scheme (here).
Under American law, an employer can recover as damages part or all of the salary of an employee who took a bribe. The legal theory is that an agency which hired an individual who later took a bribe is a victim of fraud. The employing agency thought it was hiring an honest employee when in fact the employee was dishonest. Damages for “honest services fraud” are measured by the difference between the salary the agency paid expecting to receive honest services and the value of the services it in fact received. Accordingly, the town of Northlake, Illinois, recovered one-fourth of the town sheriff’s salary after he was convicted of taking bribes to overlook an illegal gambling operation, the court’s approximation of the difference in value between the services the town would have received from an honest sheriff and the value of the services it actually received (U.S. v Sapoznik).
Damages to third-parties injured by bribery
Courts have recognized that bribery can damages others besides the bribe-taker’s employer. One type of case involves citizens forced to pay an official to obtain something to which they are entitled by law, state-provided health care or a passport for example. In 2018, the Sri Lankan High Court convicted an official of demanding a citizen pay a bribe in return for his issuing a travel permit. In addition to a prison term, the court ordered the defendant to pay the citizen damages equal to the amount of the bribe (HCB 2146/16). Upon conviction for forcing businesses to pay to renew their operating permits, an official of the U.S. city of Milwaukee was ordered to repay all the monies he had extorted from the firms (U.S. v. McGee).
In other cases, investors in a company whose mining rights in the Democratic Republic of the Congo were rendered worthless as a result of bribery recovered damages from one of the bribe payers (here), The French city of Cannes recovered in damages not only the taxes foregone as a result of its mayor taking a bribe but €250,000 in moral damages (here). Moral damages were awarded, the Court of Cassation explained, because of the bribery had harmed the reputation of “a city known throughout the world because of the international prestige of its [film] festival.”
Any reader who is better at translating French, German, or Dutch than Google translate is kindly asked to check my reading of the cases in those languages. My English sometimes fails as well so a check on my interpretation of the U.S and Canadian actions is invited too. And again, additional cases from these or other jurisdictions where, in addition to a fine or prison sentence, the perpetrator of a corrupt act was required to compensate a victim for damages would be most welcome.
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I suppose the recovery of damages done by corruption is also related to punishment (primarily monitory) for corruption crime. Earlier, I read somewhere (now, I vaguely remember, may be in her book Governance and Corruption) Susan Rose Ackerman developed a matrix on corruption punishment where she explained where the punishment should equal to social cost or harm inflicted by a corrupt transaction when market prices are not available. Anyway, this is an interesting topic to read and looking forward to read next installment.