Author Archives: Kees Thompson

About Kees Thompson

Kees Thompson is a student at Harvard Law School. He previously worked at the U.S. Department of Defense, the New York County District Attorney’s Office, and a private law firm.

The UK Parliament Should Broaden and Sharpen the Legal Advice Privilege in Order to Encourage More Internal Investigations into Corruption

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On September 5, 2018, the compliance departments and outside counsel of large corporations operating in the UK breathed a collective sigh of relief. In a much anticipated ruling, the Court of Appeal of England and Wales overturned a trial judge’s order that would have compelled a London-based international mining company, Eurasian Natural Resources Corporation Limited (ENRC), to hand over documents to UK prosecutors investigating the enterprise for bribery in Kazakhstan and Africa. Those documents were the product of an investigation that ENRC’s outside legal counsel had conducted following an internal whistleblower report that surfaced in late 2010. In conducting that internal investigation, lawyers from the law firm interviewed witnesses, reviewed financial records, and advised ENRC’s management on the company’s possible criminal exposure. Though the company tried to keep everything quiet, the UK’s Serious Fraud Office (SFO) came knocking in mid-2011. The SFO agreed to let ENRC and its lawyers continue to investigate on their own, periodically updating the SFO on their progress. In 2013, ENRC’s legal counsel submitted its findings to the SFO in a report arguing that, on the basis of the facts presented, the company should not be charged. The SFO disagreed and launched a formal criminal investigation. But the SFO then also demanded that ENRC turn over all of the files and documents underpinning its report—including presentations given by the lawyers to ENRC’s management and the lawyers’ notes from their interviews with 184 potential witnesses.

ENRC refused to comply, claiming that these documents were covered by two legal privileges under UK law: the “litigation privilege,” which guarantees the confidentiality of documents created by lawyers for the “dominant purpose” of adversarial litigation (including prosecution) that is “in reasonable contemplation,” and the “legal advice privilege,” which protects communications between lawyers and clients exchanged for legal advice. The trial court rejected ENRC’s privilege claims, a decision that sent shockwaves through the English defense bar and spurred much criticism on legal and policy grounds. But the Court of Appeal reversed, holding that ENRC’s lawyers didn’t have to share the documents. The Court’s ruling relied on the litigation privilege, holding, first, that documents created to help avoid criminal prosecution counted as those created for the “dominant purpose” of litigation, and, second, that criminal legal proceedings were in “reasonable contemplation” for ENRC once the SFO contacted the company in 2011.

Many commentators have hailed the Appeal Court’s decision (which the SFO declined to appeal) as a “landmark ruling” and a “decisive victory” for defense lawyers. The reality is a bit more nuanced. The Court of Appeal’s fact-specific ruling was very conservative in its legal conclusions, and it’s unlikely that its holding regarding the litigation privilege is sufficient to create the right incentives for companies and their lawyers. It’s also unlikely that further judicial tinkering with the scope of the litigation privilege will resolve the problem promptly or satisfactorily. The better solution would involve a different institutional actor and a different privilege: Parliament should step in and expand the scope of the legal advice privilege to cover all communications between a company’s lawyers and the company’s current and former employees. Continue reading →

Band-Aids Don’t Fix Bullet Holes: The West Virginia Supreme Court Needs To Address Its Corruption Problem

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The headlines wrote themselves: a $32,000 couch (complete with $1,000 worth of throw pillows). A $10,000 payment to a private attorney to “ghostwrite” a court opinion. Illegal overpayments to former colleagues in the hundreds of thousands of dollars. Public outcry erupted in late 2017 when news broke that the justices on the West Virginia Supreme Court of Appeals (the highest court in the state) had spent lavishly on office renovations. Further investigations revealed that some justices had used state-owned vehicles and government credit cards for personal use. Three of the justices were accused of scheming to overpay retired judges who were contracted by the judiciary to fill in on the trial courts in times of vacancy or high caseloads. But the most brazen allegations were leveled against Chief Justice Allen Loughry, who was convicted of wire fraud and obstructing an investigation into his enriching himself at taxpayer expense—despite the modest fame and fortune he (ironically) earned as the author of a book on political corruption in West Virginia.

The pervasiveness and diversity of the misdeeds on the West Virginia Supreme Court of Appeals over the past few years suggest that the corruption was in many ways a cultural problem. But it’s worth noting that the most serious allegations of corruption were likely not actually criminal. A quirk in West Virginia’s law gave the Supreme Court near-total control over its own budget, paving the way for the unchecked spending. Likewise, the intentional overpayments to retired judges reeked of cronyism but may or may not have been illegal; while a statute capped payments to part-time judges, the judiciary still arguably retained ultimate control how and how much to spend.

In response to the revelations of corruption, West Virginia’s government settled on two aggressive solutions. First, in August 2018 the West Virginia House of Delegates approved 11 articles of impeachment against the four justices still on the court and scheduled trials for each of them before the State Senate to determine if they should be removed from office. (The normally five-member court was already down a justice, who resigned in July a few weeks before pleading guilty to federal fraud charges.) The impeachment proceedings were met with outrage by some commentators (see here, here, and here), who saw them as a partisan power grab. Questionable motives aside, the results of the impeachment charges were still a mixed bag: one justice resigned from the Supreme Court before her trial. Another was acquitted of all charges but formally censured by the State Senate in a lopsided vote. The other two justices escaped any impeachment trial after an interim slate of state Supreme Court justices threw out the impeachment charges against their fellow justices on technical grounds. Chief Justice Loughry resigned following conviction in federal court (that makes three resignations overall, if you’re keeping count), and the legislature backed down from further impeachments. Second, after the impeachments, West Virginia’s voters overwhelmingly approved a constitutional amendment that wrested control over the judiciary’s budget away from the Supreme Court, giving the legislature the power to cap the judiciary’s annual spending, so long as the total amount is no less than 85% of the previous year’s budget.

But even if these measures work precisely as planned, the problem in West Virginia is far from solved. The damage to the judiciary’s legitimacy has been severe. A common refrain states that judges “like Caesar’s wife, must not only be virtuous but above suspicion.” And Chief Justice Loughry—of all people—echoed this same bold claim in his book: “Of all the criminal politicians in West Virginia, the group that shatters the confidence of the people the most is a corrupt judiciary…. It is essential that people have the absolute confidence in the integrity and impartiality of our system of justice.”

Unfortunately, the remedies implemented thus far serve only the short-sighted goals of stopping yesterday’s corruption. What is missing in the aftermath of the West Virginia scandals is a concerted effort on rebuilding trust in the judiciary. As previous scandals in the public and private sectors suggest, regaining trust in the judiciary requires public remedial actions by the judiciary itself. Replacing certain justices and adding high level legislative oversight may have been appropriate, even essential, measures, but they don’t necessarily help the court restore its integrity and repair its tarnished reputation. Moreover, focusing exclusively on these externally-imposed remedies may send a signal that the judiciary can’t be trusted to handle its own affairs. This makes it all the more imperative that the judiciary take the initiative in addressing its cultural problem and rebuilding public trust in the courts. A willingness to accept responsibility for past mistakes and engage in transparent self-evaluation will be critical as the West Virginia Supreme Court begins its new term this month. In particular, there are two steps the Court could take that would be helpful: Continue reading →

South Africa Exhibits the Pitfalls of Private Prosecutions for Corruption

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In March 2018, after several years of investigation stemming from allegations of corruption and mismanagement, South Africa’s National Prosecuting Authority (NPA) announced that it would not pursue charges against former South African Revenue Service Commissioner Tom Moyane. But this was decision short lived. A few weeks later, the NPA abruptly reversed course, explaining that it had reopened its investigation into Moyane and was reconsidering its decision not to prosecute. In the interim, the South African civil rights group Corruption Watch had publicly requested from the NPA a certificate of nolle prosequi—a document formally affirming the NPA’s decision not to prosecute. Obtaining such a certificate was a preliminary and necessary legal step for Corruption Watch to launch its own private prosecution of Moyane—which, under South African Law, Corruption Watch would have been able to do if the NPA formally declined to prosecute. Corruption Watch was calling NPA’s bluff, saying, in effect, “prosecute Moyane or else we will.”

Corruption Watch’s implicit threat stems from Section 7 of South Africa’s Criminal Procedure Act (CPA), which permits a citizen to criminally prosecute another person or entity if the NPA formally declines to prosecute. These prosecutions are similar to civil suits but with all the trial rights and potential penalties associated with a state prosecution. Moreover, at any time during a private prosecution the NPA may request permission from the supervising court to step back in and take over the case. South Africa is not unique in this regard: There are provisions for private prosecutions in other countries—especially Commonwealth countries—including the UK, Canada, Australia, Zimbabwe, and Kenya, as well as in China and Israel.

Many commentators in the international community have been optimistic about the potential of private prosecutions, particularly in combating corruption (see here, here, and on this blog here). And forces inside South Africa have been especially enthusiastic; in 2017, the South African civil society organization AfriForum launched its own dedicated private prosecutions unit focused on prosecuting corrupt government officials, with other organizations expressing similar interest. Much of this optimism stems from sheer frustration with the current prosecution regime in South Africa, a country that has long been plagued by selective prosecution, especially in the area of corruption.

South Africa could certainly use more pressure on the NPA to act; the country would also benefit from more resources, whatever the source, devoted to investigating and prosecuting corruption cases. And the fact that the threat of private prosecution appears to have spurred the NPA to action in the Moyane case is encouraging. Nevertheless, South Africa’s recent flirtation with private prosecutions actually illustrates why countries—including and perhaps especially South Africa—should be cautious about embracing organized, comprehensive private prosecution regimes to supplement traditional state prosecution. Continue reading →

Expediting Corruption: The Dangers of Expediters in Licensing Markets

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The scheme was as simple as it was brazen, and as brazen as it was frightening. On April 24, 2018, a New York City jury convicted attorney John Chambers of bribing New York Police Department (NYPD) personnel in exchange for gun permits for his numerous clients. Calling himself a “gun license expediter,” Mr. Chambers acted as an intermediary for individuals hoping to pass the necessary background check and obtain the mandatory permit in order to legally own a firearm in the city. But in a decentralized scheme involving numerous individuals inside and outside the police department, NYPD officers approved hundreds of licenses while skipping background checks, shortening license suspensions, and waving through applications containing glaring red flags—including improperly approving licenses for individuals convicted of illegal weapons possession. In return, the officers received expensive gifts, tickets to sporting events, lavish vacations, envelopes stuffed with cash—and even free guns.

At the center of the web of bribery were so-called “gun license expediters” like Chambers, who advertised their ability to help clients navigate the demanding and complex process of obtaining, renewing, or retaining a handgun license in New York City. Several of the expediters indicted in the scandal were retired police officers who had served in the NYPD Licensing Division, bribing former colleagues after leaving the police force in order to open their own expediting businesses. Fees varied depending on the difficulty and timing of the requests, but clients were routinely charged thousands of dollars per license—on top of the hundreds of dollars in mandatory city-imposed application fees. By leveraging experience, relationships, and sometimes illegal gifts, expediters such as Chambers were able to not only expedite but also to influence the outcome of applications.

In response to the revelations, the NYPD announced substantial changes to its licensing program. First and foremost, the department barred any expediter from physically visiting the Licensing Division on behalf of a client—instead requiring that all applicants appear in person to submit their own paperwork. (Expediters, however, would presumably not be barred from contacting members of the Licensing Division or directing their clients whom to talk to when they arrive.) Second, the department mandated that all gun permit approvals could only be made by the top two officers in the unit. Despite these seemingly sweeping changes, the new policies sidestep the root causes of corruption in this instance—which reveal the danger of expediters in general. Continue reading →

Brazil: A Model for International Cooperation in Foreign Bribery Prosecutions

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Much ink has been spilled celebrating the extraordinary crackdown on corruption in Brazil over the past few years (including on this blog). Headlined by the massive Operation Car Wash (Portuguese: Lava Jato)—in which officials received nearly $3 billion in bribes to overcharge Petrobras, Brazil’s state-controlled oil company, for construction and service work—high-profile corruption investigations have swept through Brazil, threatening to upend its reputation as a bastion for unchecked graft. Although corruption in Brazil remains a serious problem, the extensive investigations have worked to elevate the nation as an inspiration for countries looking to address their own corrupt political systems and hoping to become “the next Brazil.”

In addition to the headline-grabbing investigations targeting the upper echelons of the Brazilian government, Brazilian authorities have also worked closely with U.S. authorities investigating bribery activity in Brazil, leading to significant penalties both under Brazilian law and under the U.S. Foreign Corrupt Practices Act (FCPA). This is a significant development, because it demonstrates the possibility for close collaboration on cross-border bribery cases between a developed country (usually on the “supply side” of transnational bribery cases) and a developing country (on the “demand side”). Commentators have complained that too often supply-side enforcers like the United States take an outsized role in transnational bribery cases, with the countries where the bribery takes place doing too little. Other commentators have cautioned that an increase in prosecutions by other countries, in the absence of some sort of global coordination mechanism, may lead to races to prosecution or to over-enforcement. China’s nearly $500 million fine of British pharmaceutical giant GlaxoSmithKline in 2014 for bribing Chinese doctors and hospitals was emblematic of these fears, providing an example of an aggressive, unilateral approach to demand-side enforcement – while putting DOJ in the unfamiliar position of pursuing FCPA violations as a cop late to the scene.

Through its recent enforcement actions, Brazil has provided a different model. While there have been successful joint enforcement actions in the past—such as the Siemens case—the recent series of coordinated U.S.-Brazil actions exhibit how developed and developing countries can work together in anti-bribery enforcement, sharing in the investigative responsibilities, negotiations with companies, and even the financial returns.

Continue reading →

Mixed Messages from the UK’s First Contested Prosecution for Failure to Prevent Bribery

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In February 2018, the UK secured its first ever contested conviction of a company for “failure to prevent bribery.” Under Section 7 of the UK Bribery Act (UKBA), a company or commercial organization faces liability for failing to prevent bribery if a person “associated with” the entity bribes another person while intending to obtain or retain business or “an advantage in the conduct of business” for that entity. Following an internal investigation, Skansen Interior Limited (SIL)—a 30-person furniture refurbishment contractor operating in southern England—discovered that an employee at its firm had agreed to pay nearly £40,000 in bribes to help the company win contracts worth £6 million. Company management fired two complicit employees and self-reported the matter to the National Crime Agency and the City of London police. The Crown Prosecution Service ultimately charged SIL with failing to prevent bribery under Section 7. Protesting its innocence, SIL argued that the company had “adequate procedures” in place at the time of the conduct to prevent bribery; SIL, in other words, sought to avail itself of the widely-discussed “compliance defense” in Section 7(2) of the UKBA, which allows a company to avoid liability for failing to prevent bribery if the company can show that it “had in place adequate procedures designed to prevent persons associated with [the company] from undertaking” the conduct in question.

The case proceeded to a jury trial. The verdict? Guilty. The sentence? None. In fact, SIL had been out of business since 2014, so the judge had no choice but to hand down an absolute discharge—wiping away the conviction.

The hollow nature of the government’s victory has led some commentators to call the prosecution “arguably unprincipled” or even a “mockery of the UK criminal process.” Indeed, the bribing employee and the bribed individual had already separately pleaded guilty to individual charges under UKBA Sections 1 and 2, respectively, and the remaining shell of a corporation had no assets or operations. Other commentators pointed out that precisely because the company was dormant it would have been unable to enter into a deferred prosecution agreement (DPA), lacking assets to pay financial penalties or compliance programs to improve. Putting aside arguments about the wisdom or fairness of pursuing a prosecution in these circumstances, the SIL case sheds light on Section 7(2)’s “adequate procedures” defense. While the UK government has secured a few DPAs for conduct under Section 7—beginning with Standard Bank Plc in 2015—SIL is the first case in which the Section 7(2) “adequate procedures” defense was tested in front of a jury.

While the government argued that it prosecuted the case primarily to send a message about the importance of anti-bribery compliance programs, the UK government’s actions in the SIL case ultimately sends mixed messages to companies and may have counterproductive effects. Continue reading →

The Role of Judicial Oversight in DPA Regimes: Rejecting a One-Size-Fits-All Approach

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In late March 2018, the Canadian government released a backgrounder entitled Remediation Agreements and Orders to Address Corporate Crime that outlines the contours of a proposed Canadian deferred prosecution agreement (DPA) regime. DPAs—also appearing in slightly different forms such as non-prosecution agreements (NPAs) or leniency agreements—are pre-indictment diversionary settlements in which offenders (almost exclusively corporations) agree to make certain factual admissions, pay fines or other penalties, and in some cases assume other obligations (such as reforming internal compliance systems or retaining an external corporate monitor), and in return the government assures the corporation that it will drop the case after a period of time (ordinarily a few years) if the conditions specified in the agreement are met. Such agreements inhabit a middle ground between declinations (where the government declines to file any charges, but where companies still might forfeit money) and plea agreements (which require guilty pleas to criminal charges filed in court).

While Canada has been flirting with the idea of introducing DPAs for over ten years, several other countries have recently adopted, or are actively considering, deferred prosecution programs. France formally added DPAs (known in France as “public interest judicial agreements”) in December 2016, and entered into its first agreement, with HSBC Private Bank Suisse SA, in November 2017. In March 2018, Singapore’s Parliament installed a DPA framework by amending its Criminal Procedure Code. And debate is underway in the Australian parliament on a bill that would introduce a DPA regime for offenses committed by corporations.

The effect of DPAs in the fight against corruption, pro and con, has been previously debated on this blog. One critical design component of any DPA regime is the degree of judicial involvement. On one end of the spectrum is the United States, where courts merely serve as repositories for agreements at the end of negotiations and have no role in weighing the terms of any deal. On the other end of the spectrum is the United Kingdom, where a judge must agree that negotiations are “in the interests of justice” while they are underway, and a judge must declare that the final terms of any DPA are “fair, reasonable, and proportionate.” British courts also play an ongoing supervisory role post-approval, with the ability to approve amendments to settlement terms, terminate agreements upon a determined breach, and close the prosecution once the term of the DPA expires.

Under Canada’s proposed system of Remediation Agreements, each agreement would require final approval from a judge, who would certify that 1) the agreement is “in the public interest” and 2) the “terms of the agreement are fair, reasonable and proportionate.” While the test used by Canadian judges appears to parallel the U.K. model—including using some identical language—the up-or-down judicial approval would occur only once negotiations have been concluded. This stands in contrast to the U.K. model mandating direct judicial involvement over the course of the negotiation process.

The decision by the Canadian government to chart a middle course on judicial oversight is all the more notable given that an initial report released by the Canadian government following a several-month public consultation regarding the introduction of DPAs appeared to endorse the U.K. approach, noting that the majority of commenters who submitted views “favoured the U.K. model, which provides for strong judicial oversight throughout the DPA process.” Moreover, commentators have generally praised the U.K. model’s greater role for judicial oversight of settlements, especially judicial scrutiny of the parties charged (or not) in any given case, the evidence (or lack thereof), and the “fairness” (or not) of any proposed deal.

Despite these positions, one should not reflexively view the judicial oversight regime outlined in Canada’s latest report as a half-measure. Perhaps the U.K. model would be better for Canada, or for many of the other countries considering the adoption or reform of the DPA mechanism. But the superiority of the U.K. approach can’t be assumed, as more judicial involvement is not categorically better. Rather than a one-size-fits-all approach favoring heightened judicial oversight, there are several factors that countries might consider when deciding on the appropriate form and degree of judicial involvement in DPA regimes: Continue reading →