StAR yesterday held six panels on asset recovery issues as part of the meeting of the Conference of State Parties to UNCAC. I participated in the one on compensating corruption victims along with Costa Rican prosecutor Greysa Barrientos, Kate McMahon, Chair the International Bar Association’s Anticorruption Asset Recovery Subcommittee Kate McMahon, and Juanita Olaya Garcia of the UNCAC Coalition.

Panel moderators Yara Esquivel of StAR and Felipe Falconi from UNODC asked that I discuss what avenues of relief were available to corruption victims, the main challenges they face in recovering damages, and what reforms are needed to overcome those challenges. My remarks follow.   

Avenues of relief. Corruption victims generally have two options for obtaining compensation – as an adjunct to a criminal prosecution of the perpetrators by the state or by bringing a private civil suit against them.

1) Criminal case. In countries that follow the civil law tradition, victims of a crime can join the prosecution of a corruption case as a “civil party” and recover damages in the event of a conviction. In many, but not all common law countries, a crime victim has a right to file a claim requesting damages which will be made part of the judgement if the defendant is convicted. 

2) Private action for damages.  In all countries, a person or entity inured as a result of another’s wrongful act can hire a lawyer and file a lawsuit for damages.

Challenges to recovery. Victims face several challenges to recovering damages. The two most significant – common across all state parties – are: 1) showing the corruption was the cause in the legal sense of the injury, and 2) quantifying the amount of damage suffered.

1) Causation. Those seeking damages for corruption must prove the defendant’s corrupt act was as a matter of law the cause of the injury. In all but a few UNCAC state parties, corruption damage actions are decided in accordance with general liability laws, laws that govern responsibility for harms ranging from slipping on a wet floor in a store to a bite by a neighbor’s dog to being injured when a building collapses. Because these general laws apply to injuries arising in an endless number of ways from countless fact situations, courts interpret the causation requirement narrowly, fearing a broad interpretation will have untoward consequences. They thus hold that only those whose injuries are the “direct” or “immediate” result of a defendant’s act are “caused” by the act.

As a result, in many cases where notions of justice and the deterrent value of requiring the corrupt to pay damages would dictate an award of compensation, courts rule the corruption was not the cause of the victim’s injury.  So if those crossing a corruptly-built bridge are injured when it collapses, courts will say their damages are “too remote” or were not “foreseeable.” Courts in some countries term them “ricochet” damages – reasoning they bounced or “ricocheted” off the initial corrupt act. However corruption damages are characterized, in most countries most of the time the courts rule they are not recoverable.

2) Quantification of damages. A victim must show not only that he or she was injured by corruption but the amount of the damage – in euros, shillings, pounds, dollars, or whatever. Courts deny damage claims where they deem them “speculative. Other times courts reject a claim because it was not based on a credible enough showing. In some states, there are statutes demanding the exact amount be proved or there be a “clear and precise” basis for any estimate.

Much of the damage corruption does is financial and the amount depends upon predictions of future events. A road washes out because it was corruptly built, and farmers are thus not be able to bring their crops to market.  A firm loses the chance to win a government contract because a competitor paid a bribe. Exactly how much would each farmer have earned had they been able to sell their crops? Precisely how much would the competitor have earned had the bribe not been paid?

Other challenges are particular to different legal systems or traditions. Two in particular –

1) The state is the only victim. Influenced by Roman law, the laws of a number of states provide that the only victim of corruption is the state.  Thus, for example, in Italy in a criminal prosecution of a judge who took a bribe, the party that lost its case a result was denied the right to claim damages as a civil party to the criminal case on the grounds only the state was the victim of the bribery.

2) Lack of collective or class actions.  Corruption can damage a very large number of individuals but the damage to each is so small that for each to bring a case is not economic.  A firm bribes the those who determine at what price it sells water or electric power to consumers.  Each consumer pays more, but the overcharge is small relative to the time and effort involved in filing a civil suit. In other cases, the damage is to a collective interest as when a bribe is paid so that a firm can evade restrictions on emitting noxious gases or other pollutants into the air thus damaging the environment.

Reforms. Many of the changes required to reduce the barriers to compensation flow directly from a description of the barrier.  Thus, states should repeal or amend outmoded laws that provide only the state is a victim of corruption and enact legislation allowing for class and representative actions. Below are the two most important reforms needed to ensure corruption’s victims can recover damages from those who caused them injury.

1) Enact a special corruption damages law. Historically, when legislators have determined that victims of certain actions could not recover compensation under general liability principles, they enacted special legislation to see that they could.  This is why today liability for injuries arising from the operation of factory machinery or automobile accidents or most recently defective consumer products are now governed not by general liability laws but by special statutes.  In each case, the legislature concluded that the limitations on recovery in general laws did not reach far enough, they did not reflect society’s interest in seeing those injured by these activities were compensated and wrongdoers faced the deterrent of the possibility of damage suits for their conduct.  It is time that reasoning was applied to damages caused by corruption.

2) Scrap demands damages be shown with precision.  Courts should recognize the inherent uncertainty in calculating damages in corruption case.  As a well-regard American judge once put it, the best one can expect in such cases is “a rough approximation,” and courts should not deny damages because the “exactness and precision that would be possible if the case, which [defendant] alone is responsible for making, were otherwise.”

The best solution would be provide for simple, inexpensive, easy to apply default damage rules. For example, where a damage claim rests on bribery, the victim should be able to recover at the least the amount of the bribe.  If the victim can show, by a rough approximation, the damage was greater, then he or she would be entitled to the greater amount instead.

Finally, there should be a central place where the cases on damages for corruption and the laws and commentary on corruption damages are collected and easily accessible.  A judge asked to rule on whether a victim is entitled to recover or an attorney looking for legal precedent or guidance when drafting a complaint should be able to turn to a website where such information is readily available at little or no cost. Donors that support StAR, are you listening?