Author Archives: Matthew Stephenson

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About Matthew Stephenson

Professor of Law, Harvard Law School

Guest Post: Limited Corporate Criminal Liability Impedes French Enforcement of Foreign Bribery Laws

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Frederick Davis, a lawyer in the Paris office of Debovoise & Plimpton, contributes the following guest post:

The U.S. Foreign Corrupt Practices Act (FCPA), adopted in 1977, prohibits bribery of foreign public officials. In 2000, France adopted its own law on foreign bribery, which generally prohibits the same conduct. Yet despite the similarity of the laws on the books, the FCPA has been vigorously enforced, with scores of settlements and large fines imposed on corporations, while in France, not a single corporation has been convicted of foreign bribery under the 2000 law—even though since that law’s passage, four large French corporations have entered into negotiated agreements with US authorities to settle alleged FCPA violations, paying more than US$3 billion in fines and other penalties. What explains this difference in enforcement?

While suspicions lurk that French authorities may not be terribly serious about fighting overseas corruption, the more plausible explanations lay the blame on other aspects of the French legal system. One difficulty is that French criminal investigations proceed very slowly, often taking ten years or longer. (At least some of the French corporations that negotiated outcomes with the U.S. DOJ were investigated for the same conduct in France; it’s likely that the U.S. authorities declined to defer to a French investigation without having any idea when it might end, or what the result would be.) Second, as Sarah Krys and Liz Loftus have pointed out in an earlier posts on this blog, France lacks a mechanism permitting a negotiated corporate outcome comparable to the “deferred prosecution agreements” and “non-prosecution agreements” (DPAs and NPAs) that the US authorities routinely used to resolve FCPA cases against corporations; even a corporate “guilty plea” is difficult and very rarely used in France. Just as important, though, and perhaps not sufficiently appreciated, is the difference between the two countries’ laws concerning corporate criminal responsibility, and the incentives those laws create for corporate decision-makers: Continue reading →

My Fellow Americans: Please Never, Ever Say (or Imply) That the United States Is the Only Country that Tries To Do Something About Corruption

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In my last post, I cautioned those of us who talk about corruption to be careful to avoid saying – even casually – that “everyone” in this or that country is corrupt, not only because that statement is incorrect, but also because it’s offensive and counterproductive. I realize that it wasn’t the most important of topics, but language matters, and the political sensitivity of corruption means that those of us from wealthier countries should be especially careful about the language that we use. (Think about David Cameron’s “fantastically corrupt” gaffe at last spring’s London Anti-Corruption Summit for an example of how poorly chosen words can get in the way of substantive engagement.) That’s not to say we should shy away from accurately describing and criticizing systemic corruption where it exists; it’s just a caution against careless hyperbole.

In that (perhaps trivial and nit-picky) spirit, I want to call attention to something else I’ve heard now several times from U.S. speakers at anticorruption conferences, which strikes me as extraordinarily arrogant, offensive, and incorrect. It goes like this:

  • American speaker gets up before multinational audience to talk about the U.S. approach to fighting corruption and, in an apparent effort to defuse precisely the risk of condescension that I’m complaining about, says something like, “Now, one thing we learn from the U.S. experience is that we have a corruption problem too. Corruption is a problem everywhere, including in the United States.”
  • OK, so far so good. But then the American speaker says, “The difference is that in the United States, we try to do something about it.”

Ugh. Is it possible to imagine a more ham-handed, condescending thing to say, especially to a multinational audience? I mean, look, I think that the U.S., for all its faults, can be justly proud of its law enforcement efforts to fight domestic corruption, particularly the role of the FBI, Department of Justice, and federal judiciary. While the U.S. is far from perfect, it’s my view that the culture of impunity pervasive in many parts of the world is, as a relative matter, not nearly as bad in the U.S. And I do think other countries can learn from the U.S. experience. But to suggest that the United States stands alone in its willingness to try to do something about corruption is (A) obviously factually incorrect, and (B) insulting to the hardworking, often heroic men and women in other countries who are fighting against corruption every day, and to the governments in at least some of those countries that have made anticorruption a priority, but are having trouble making progress due to a range of factors (severe resource constraints, powerful entrenched interests, complicated political situations, etc).

And really, what purpose is served, substantively or rhetorically, by saying, “The difference is that in the U.S. we try to do something about corruption”? The speech that follows that opening line would be just as effective if the speaker just said, “Now, one thing we learn from the U.S. experience is that we have a corruption problem too. Corruption is a problem everywhere, including in the United States. But the U.S. experience in our struggle with corruption – both the things we’ve done well, and the challenges and limitations of our approach – may provide some useful lessons for others engaged in a similar struggle.”

OK, OK, I know that this is beyond trivial, and I promise in future posts I’ll return to weightier topics. But this has just been bugging me, so I thought I’d get it off my chest.

Guest Post: The Draft ISO 37001 Anti-Bribery Standard’s Promise and Limitations

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William Marquardt and David Holley, respectively Director and Managing Director at the Berkeley Research Group, LLC (a private management consulting firm) contribute the following guest post, which is written in their personal capacity and does not necessarily reflect the opinions, position, or policy of the Berkeley Research Group or its other employees and affiliates:

This past April, the International Organization for Standardization (ISO) released its draft standard on anti-bribery management systems (ISO 37001). The standard is tentatively scheduled to be finalized later this year. In substantive content, the draft ISO standard is similar to the FCPA Resource Guide provided by the U.S. Department of Justice and Securities and Exchange Commission, in that it provides a list of elements that an effective anti-bribery/corruption (“ABC”) program should contain. In terms of the specific elements listed, the proposed ISO standard provides a number of sound recommendations – such as a comprehensive, risk-based approach, as well as management commitment to promoting an ethical corporate culture—but with a few exceptions, the draft ISO 37001 standard is not much different from the guidance available from the DOJ/SEC and other sources in multiple jurisdictions.

That’s not to say that there is nothing whatsoever distinctive about ISO 37001. It does differ from the existing guidance in some ways, some good (such as the comprehensive focus on documentation, document retention, and document availability) and some not so good (such as the unrealistic recommendations regarding extension of management’s internal control systems to third-party vendors). The draft ISO standard also puzzlingly omits consideration of certain key issues –such as the labor law and data privacy issues that arise in connection with bribery investigations, questions regarding how to address anti-bribery concerns in connection with M&A or joint venture due diligence, and (most generally) the integration of ABC management systems into the firm’s wider financial, operational, and regulatory functions. But, again, in most respects the ISO 37001 draft standard closely resembles existing ABC guidance.

What makes the ISO 37001 standard distinctive, and the reason its finalization would be potentially such big news, is that ISO 37001 (like other ISO standards dealing with more technical matters) is intended to be subject to independent “certification” by third-party auditors. In other words, if and when the ISO 37001 standard is finalized, companies will be able to hire auditing firms to review their ABC programs and (if the auditor determines the firm meets the ISO 37001 criteria) to provide a formal certification that the company is ISO 37001-compliant. The question whether formal ISO 37001 certification of this sort will be a good thing (for firms, or for the world) has been hotly debated (for previous discussions on this blog, see here and here). Continue reading →

Watch Your Language: Not “Everyone” Is Corrupt–Anywhere.

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I’ve noticed something about the way many people (including me) sometimes describe the severity of the corruption problem in many parts of the world: When calling attention to the problem of widespread, systemic corruption, it’s not uncommon to hear people say—usually in casual conversation, occasionally in more formal presentations—that in this or that country, or this or that government or department, “everyone” is corrupt, or “everybody” takes bribes, or similar. I’m sure I’ve used this or similar language myself, without even thinking about it. And I understand that when most people say things like “everyone in [X] is corrupt,” they don’t mean that literally. Yet I find myself increasingly bothered by statements like this, for several reasons: Continue reading →

Anticorruption Bibliography–August 2016 Update

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An updated version of my anticorruption bibliography is available from my faculty webpage. A direct link to the pdf of the full bibliography is here, and a list of the new sources added in this update is here. As always, I welcome suggestions for other sources that are not yet included, including any papers GAB readers have written.

Guest Post: The U4 Proxy Challenge and the Search for New Corruption Indicators

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Osmund Grøholt, a research assistant at the Chr. Michelsen Institute and the U4 Anti-Corruption Resource Centre, contributes the following guest post:

One of the major challenges that the development community faces in promoting effective anticorruption reform efforts is the difficulty of measuring progress. This challenge has become all the more pressing in light of the explicit inclusion of anticorruption targets as part of the Sustainable Development Goals. Unfortunately, many of the most widely-used national-level corruption perception indexes, such as the Transparency International Corruption Perceptions Index and the Worldwide Governance Indicators control-of-corruption index, are not suitable proxies for measuring anticorruption reform effectiveness.

To help address this challenge, the U4 Anti-Corruption Resource Centre is announcing its second “Proxy Challenge Competition.” The Proxy Challenge Competition invites researchers and practitioners to submit proposals for indicators that can help show the direction of change and the progress of reform efforts, rather than measuring the quantity or volume of corruption per se. Ideally, the proxy indicators should be reliable, intuitive, accessible, and cost-effective.

The proposed proxies will be evaluated by a panel of experienced anticorruption practitioners and academics, and the individuals who submit the two best submissions will be invited to present their proposed proxies at a special session at the International Anti-Corruption Conference in Panama (Dec. 1st-4th, 2016), with travel, hotel, and conference registration expenses covered. In addition, the UK’s Department for International Development (DFID) will work with the proposal authors to test the relevance and the validity of the proposed indicators, including financial support for a policy paper on the proposed proxy indicators and, if appropriate, developing a plan for testing the proxy indicator for actual reporting in selected countries.

Proposals of no more than 700 words should be submitted to proxychallenge@u4.no by September 1st, 2016. The submissions should:

  • Clearly define the proposed proxy indicator, and explain why and how this indicator reflects changes in corrupt behavior;
  • Explain how the indicator can be combined with other indicators to obtain a better measurement of overall anticorruption progress, including how the proxy indicator would be useful for different agents (e.g., aid agencies, governments, civil society) for purposes of monitoring and reporting;
  • Comment on the strengths and weaknesses of the proxy indicator, including how they differ with shifting national contexts.
  • Present ideas for how to test the validity of the proxy indicator.

More information on the Proxy Challenge Competition, including a complete list of requirements, can be found here. Additional background reading, including material from the first Proxy Challenge Competition (held in 2013-2014) can be found here and here.

We look forward to your submissions!

Guest Post: What the McDonnell Ruling Means for Future Corruption Prosecutions

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Ziran Zhang, an associate at Burnham & Gorokhov, PLLC, a Washington D.C. law firm, contributes the following guest post:

The Supreme Court’s decision last month in United States v. McDonnell has raised questions about the continued vitality of public corruption prosecutions in the United States. Some observers, including Professor Stephenson, pointed out that the decision itself was cast in narrow terms, and may not make a big difference to most public corruption cases.  I respectfully disagree: McDonnell created an important substantive rule of law that will have a lasting impact, and this impact is apparent when one applies McDonnell’s holding to another high-profile public corruption case—the prosecution of former New Jersey Senator Robert Menendez.

To prove a bribery offense, the government must show (among other things) that the public official promised an official act, defined further as a “decision or action” on a “question or matter” (or cause, proceeding, or suit). A “question or matter,” the McDonnell opinion holds, must be a “formal exercise of government power” that is “specific” and “concrete.” As for a “decision” or “action,” it can be direct (such as when an official issues an order or makes a decision) or indirect (such as when an official “exerts pressure” or “gives advice” to another official.) McDonnell left substantial uncertainty over what counts as “exerting pressure” or “giving advice.”  As Professor Stephenson’s post points out, pressure is inherent from any kind of contact between a subordinate and an official in high office, but in McDonnell the Supreme Court quite clearly rejected that view, indicating that something more is required.

So, how does the McDonnell holding affect the prosecution of Senator Menendez? The facts of the Menendez prosecution are remarkably similar to those of the McDonnell case. According to the indictment, Senator Menendez had a longstanding friendship with Dr. Salomon Melgen. Melgen gave Menendez gifts, such as free flights, luxury hotel stays, and money to various political campaigns benefiting Menendez; Menendez returned the favors in various ways: Continue reading →

A Tale of Two Regions: Anticorruption Trends in Southeast Asia and Latin America

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OK, “best of times” and “worst of times” would be a gross exaggeration. But still, when I consider recent developments in the fight against corruption in Latin American and Southeast Asia, it seems that these two regions are moving in quite different directions. And the directions are a bit surprising, at least to me.

If you’d asked me two years ago (say, in the summer of 2014) which of these two regions provoked more optimism, I would have said Southeast Asia. After all, Southeast Asia was home to two jurisdictions with “model” anticorruption agencies (ACAs)—Singapore and Hong Kong—and other countries in the regions, including Malaysia and especially Indonesia, had established their own ACAs, which had developed good reputations for independence and effectiveness. Thailand and the Philippines were more of a mixed bag, with revelations of severe high-level corruption scandals (the rice pledging fiasco in Thailand and the pork barrel scam in the Philippines), but there were signs of progress in both of those countries too. More controversially, in Thailand the 2014 military coup was welcomed by many in the anticorruption community, who thought that the military would clean up the systemic corruption associated with the populist administrations of Thaksin Shinawatra and his successor (and sister) Yingluck Shinawatra—and then turn power back over to the civilian government, as the military had done in the past. And in the Philippines, public outrage at the brazenness of the pork barrel scam, stoked by social media, and public support for the Philippines’ increasingly aggressive ACA (the Office of the Ombudsman), was cause for hope that public opinion was finally turning more decisively against the pervasive mix of patronage and corruption that had long afflicted Philippine democracy. True, the region was still home to some of the countries were corruption remained pervasive and signs of progress were scant (such as Vietnam, Laos, Cambodia, and Myanmar), but overall, the region-wide story seemed fairly positive—especially compared to Latin America where, aside from the usual bright spots (Chile, Uruguay, and to a somewhat lesser extent Costa Rica), there seemed to be precious little for anticorruption advocates to celebrate.

But now, in the summer of 2016, things look quite a bit different. In Southeast Asia, the optimism I felt two years ago has turned to worry bordering on despair, while in Latin America, things are actually starting to look up, at least in some countries. I don’t want to over-generalize: Every country’s situation is unique, and too complicated to reduce to a simple better/worse assessment. I’m also well aware that “regional trends” are often artificial constructs with limited usefulness for serious analysis. But still, I thought it might be worthwhile to step back and compare these two regions, and explain why I’m so depressed about Southeast Asia and so cautiously optimistic about Latin America at the moment.

I’ll start with the sources of my Southeast Asian pessimism, highlighting the jurisdictions that have me most worried: Continue reading →

Fact-Checking the FCPA Scaremongers

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In my last post, I made a disparaging in-passing reference to assertions, by some critics of the US Foreign Corrupt Practices Act (FCPA), that companies could get in FCPA trouble if they do things like buy a foreign government official a cup of coffee, take her to a reasonably-priced business meal, cover her taxi fare, etc. In my view, that’s just wrong, both because the US government would not bring such a case, and because the FCPA wouldn’t cover such isolated, modest benefits. The reason, as the DOJ/SEC FCPA Resource Guide explains, is that such benefits, without more, would not be offered “corruptly”–that is, with the wrongful intent of inducing the official to misuse her official position). I described those who suggest that the FCPA would criminalize such minor benefits as “FCPA scaremongers.”

My use of that the term “scaremonger” seems to have touched a nerve with Professor Mike Koehler–the self-described “FCPA Professor”–who had this to say in his comment my earlier post:

Scaremongering? Recent FCPA enforcement action have included allegations about flowers, cigarettes, karaoke bars, and golf in the morning and beer drinking in the evening.

I responded by asking Professor Koehler to identify the most ridiculous example of an actual FCPA settlement in which a trivial benefit was the sole basis of the enforcement action, as opposed to a small part of a larger scheme to corrupt government officials into misusing their authority. Professor Koehler answered:

The following is a factual statement: recent FCPA enforcement action have included allegations about flowers, cigarettes, karaoke bars, and golf in the morning and beer drinking in the evening.

I take the position that the DOJ/SEC include such allegations in FCPA enforcement actions for a reason and not just to practice their typing skills.

I again asked for an example. Professor Koehler’s response was to send, not the name of any individual case, but rather the links to the DOJ and SEC sites with all enforcement documents, suggesting that I could go through them myself to find “numerous examples of inconsequential things of value” included in the government allegations. He also referred to “several speeches” by SEC enforcement chief Andrew Ceresney (I actually think it’s one speech, given by Mr. Ceresney in November 2015) that supposedly acknowledged the government’s sweeping view of FCPA-prohibited conduct.

Having tried unsuccessfully to get Professor Koehler to point me to a specific example, I did a bit of digging on my own to see if I could find out if it’s really true that the DOJ and/or SEC have brought FCPA enforcement actions in cases that involve nothing more than “flowers, cigarettes, karaoke bars, and golf in the morning and beer drinking in the evening.” What I found makes me even more confident that I was fully justified in my use of the term “FCPA Scaremongers,” with Professor Koehler as perhaps the FCPA Scaremonger-in-Chief. Here are the cases to which I’m fairly sure Professor Koehler was referring: Continue reading →

Does an FCPA Violation Require a Quid Pro Quo? Further Developments in the JP Morgan “Sons & Daughters” Case

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One of the Foreign Corrupt Practices Act cases we’ve been paying relatively more attention to here on GAB is the investigation of JP Morgan’s hiring practices in Asia (mainly China), in connection to allegations that JP Morgan provided lucrative employment opportunities to the children of powerful Chinese officials–both in the government and at state-owned enterprises (SOEs)–in exchange for business. A couple weeks back the Wall Street Journal published a story about the case, indicating that the government and JP Morgan were likely to reach an agreement soon in which the firm would pay around $200 million to settle the allegations. (The WSJ story is behind a paywall, but Thomas Fox has a nice succinct summary of both of the case generally and of the recent developments reported by WSJ.)

I’ll admit that my first reaction, on seeing the WSJ report, was skepticism that we were actually on the verge of seeing a settlement announcement. After all, the last time the WSJ broke a story about an imminent settlement of an FCPA case we’ve been following here on GAB, it was a story about the Walmart investigation last October; that report said that “most of the work had been completed,” and hinted that the announcement of a (smaller-than-expected) settlement was imminent. It’s now nine months later… and still no settlement. Apparently the Walmart case may have gotten more complicated since the WSJ‘s October report, but still, I think there are sometimes good reasons to season these inside scoops with the appropriate grains of salt. But, back to the reports on JP Morgan’s Asian hiring practices.

To me the most interesting feature of the recent report concerns the legal issue that is reportedly the sticking point between the government and JP Morgan. That issue is not the question whether an SOE official is a “foreign official” for FCPA purposes: According to the WSJ report, JP Morgan is not disputing the government’s position that SOE executives, at least in this case, are foreign officials, even though that issue is a major focus of critics who believe the government’s interpretation of the FCPA is too broad. And, the question whether a job for a relative counts as “anything of value”–the question that provoked the extended blog debate between Professor Andrew Spalding and me, as well as a good chunk of the other commentary on the case–also does not seem to be something that JP Morgan is contesting. Rather, at least according to the WSJ report, the big question seems to be whether an offer of a job to an official’s relative, given with the intent to influence that official’s exercise of her duties, is a violation of the FCPA even if there is no quid pro quo–at least if the conduct takes place in a country where preferential hiring for official’s relatives is “standard business practice.”

This seems to be to be a legitimately hard legal question, and one where I’m not yet sure what I think. As our regular readers may know, I’m generally fairly “hawkish” on FCPA enforcement, usually sympathizing with the government’s broad reading. And the text of the FCPA can certainly be read not to require any quid pro quo–indeed, that might be the more natural reading. But in contrast to some of the other accusations of alleged overreach lodged against the US FCPA enforcement agencies, here (if the reports are to be believed) the argument on the other side is fairly strong, both as a matter of law and as a matter of policy. In the end, I think I still come down on the government’s side, both on the legal question and the policy issue. But I’m genuinely conflicted, and would very much like to hear what others think on this one. Continue reading →