Author Archives: Matthew Stephenson

Unknown's avatar

About Matthew Stephenson

Professor of Law, Harvard Law School

A Detailed Critique of the NGO Call for Global Standards for Corporate Settlements in Foreign Bribery Cases

Posted on by
7

In my last couple of posts, I’ve responded to—and criticized—the joint letter that several of my favorite anticorruption NGOs (Corruption Watch, Transparency International, Global Witness, and the UNCAC Coalition) sent to the OECD last month, urging the adoption of “global standards for corporate settlements based on best practice.” My first post took issue with the claim (further developed in a Corruption Watch report) that the current approach (mainly in the U.S.) to corporate settlements in foreign bribery cases was inconsistent with adequate enforcement, while my next post questioned the need for global guidelines. But both of my prior posts could fairly be criticized for (among other things) being too abstract, and for not responding to the specific list of 14 “best practices” identified in the NGOs’ joint letter.

I take that criticism to heart, so in this post—at the risk of overkill on this one letter, but in the hopes of spurring further constructive dialogue on this important topic—I’ll offer a point-by-point reaction to each of the 14 principles listed in the joint letter. Here goes: Continue reading →

Guest Post: Curbing Judicial Corruption To Make “Justice For All” a Reality

Posted on by
Reply

Elodie Beth, Asia-Pacific Regional Anti-Corruption Advisor for the United Nations Development Programme (UNDP), submits the following guest post:

Judicial corruption is a serious problem, one that threatens further progress on a range of other good governance and institution-building initiatives. According to Transparency International’s 2013 Global Corruption Barometer, citizens around the world perceive the judiciary as the second-most corruption-prone sector (after the police). That depressing figure is a worldwide average; in some countries, the situation is even worse. For example, a recent study by the International Bar Association in Cambodia (discussed at greater length here) reported that Cambodian lawyers estimated that bribes are paid to judges or clerks in 90% of cases. Some renowned judges and legal experts have taken the matter in their own hands at the international level by creating the Judicial Integrity Group and developing the Bangalore Principles of Judicial Conduct. However, the implementation of the Principles remains a major challenge in many countries.

One way to help fight corruption in the judiciary would be to incorporate anticorruption more explicitly and comprehensively into judicial capacity assessments. Many development partners have already created tools and methods to assess the judiciary, but with a few exceptions, these evaluation tools rarely focus on corruption. Moreover, these judicial assessments tend to be externally driven, meaning that their recommendations often do not generate a sense of ownership on the part of the judiciary being evaluated, and there is therefore often too little follow-up.

So what more can we do? Fortunately, there are some lessons we can draw from UNDP’s capacity development work for other institutions and sectors, such as National Human Rights Institutions and anticorruption agencies, while keeping in mind some of the specific characteristics of the judiciary. UNDP’s recent report A Transparent and Accountable Judiciary To Deliver Justice for All, produced jointly with the U4 Anti-Corruption Resource Centre, illustrates how experiences from around the world can help promote judicial integrity. The report also suggests some general principles that could guide capacity assessments of the justice sector and follow-up implementation strategies: Continue reading →

Against Global Standards in Corporate Settlements in Transnational Anti-Bribery Cases

Posted on by
2

A couple weeks ago, Susan Hawley, the policy director of the UK-based NGO Corruption Watch, published a provocative post on this blog calling for the adoption of “global standards for corporate settlements in foreign bribery cases.” Her post, which drew on a recent Corruption Watch report on the use (and alleged abuse) of the practice of resolving foreign bribery enforcement actions through pre-indictment diversionary settlements—mainly deferred-prosecution and non-prosecution agreements (DPAs/NPAs)—echoed similar arguments advanced in a joint letter sent by Corruption Watch, Transparency International, Global Witness, and the UNCAC Coalition to the OECD, on the occasion of last month’s Ministerial meeting on the OECD Anti-Bribery Convention.

A central concern articulated in Ms. Hawley’s post, as well as the CW report and the joint letter, is the fear that corporate settlements too often let companies off too easily–and let responsible individuals off altogether–thus undermining the deterrent effect of the laws against transnational bribery. I’m sympathetic to the concern about inadequate deterrence, but unconvinced by the suggestion that over-reliance on DPAs/NPAs is the real problem. (Indeed, I tend to think that under-use of these mechanisms in other countries, such as France, is a far greater concern.) My last post took up that set of issues. But, as I noted there, the question whether the U.S. use of settlements is (roughly) appropriate is conceptually distinct from the question whether there ought to be global standards (or guidelines) on the use of such settlements. After all, while one could object to U.S. practices and call for (different) global guidelines—as Corruption Watch does—one could also object to U.S. practices but still resist attempts to develop global guidelines. Or one could not only endorse current U.S. practices, but also call for global guidelines that similarly endorse those practices. And then there’s my position: basically sympathetic to the general U.S. approach to corporate settlements in FCPA cases, and generally skeptical of the case for global guidelines.

Having spent my last post elaborating some of the reasons for my former instinct, let me now say a bit about the reasons I’m unconvinced by the call for global guidelines on corporate settlements (or at least why I think such calls are premature): Continue reading →

Guest Post: The British Academy/DFID Anti-Corruption Evidence Programme

Posted on by
3

Paul M. Heywood, the Sir Francis Hill Professor of European Politics at the University of Nottingman, contributes the following guest post:

In a recent post, Matthew recommended a speech by Robert Barrington, Executive Director of Transparency International UK, on the relationship between academics and advocates in the fight against corruption. I was very pleased to read the post, as Robert had given the speech at my invitation during the inaugural meeting of research projects funded under an exciting new initiative being jointly run by the British Academy and the Department for International Development (DFID). The Anti-Corruption Evidence (ACE) Programme, which I serve in the capacity of Academic Leader, is designed explicitly to address the interface between researchers and practitioners, with a fundamental focus on what actually works when it comes to fighting corruption.

Prompted in part by a highly critical report of DFID’s anticorruption approach by the Independent Commission for Aid Impact (ICAI) – itself reproached for poor use of evidence (including on this blog) – and in part by its own commissioned evidence papers into corruption (here and here), DFID has partnered with the British Academy to launch a £3.6m programme aimed at helping us understand better exactly how and why specific interventions succeed or fail in particular contexts. Some may wonder why we need yet more research on corruption; indeed, that is precisely the question I was recently asked by Jeremy Lefroy MP when giving evidence to the House of Commons Select Committee on International Development inquiry into tackling corruption overseas: “I would have thought there was plenty of evidence around. In what way do you think the evidence base needs to be strengthened, or is this just creating extra work for people who look at these things?”

The question is a reasonable one, especially given the exponential rise in the number of books and articles on corruption published over the last quarter century (as reflected in Matthew’s ever-expanding bibliography on the topic). There are many answers that could be given, but one key factor is that much of the existing research on corruption has simply been too generic to produce specific recommendations on which policymakers can act. Although it is widely recognized that corruption is not just one thing, such recognition has often not been translated into research design. Notably, many large-n studies have used an undifferentiated concept of corruption to serve as either a dependent or independent variable, seeking to explain a host of specific failings across a very wide canvas. Where there have been attempts to disaggregate corruption, these have often proposed bipartite, rather than graded, classifications (grand/petty, political/bureaucratic, need/greed, and so forth). In practice, corruption is a much more complex phenomenon than such dichotomous approaches can conceivably capture. Four observations follow from this: Continue reading →

The Case for Corporate Settlements in Foreign Bribery Cases

Posted on by
9

Although 41 countries have signed onto the OECD Anti-Bribery Convention, the United States remains the most active enforcer—by a lot. Two salient facts about the U.S. strategy for enforcing its Foreign Corrupt Practices Act (FCPA) are often noted: Sanctions against corporations are more common than cases targeting individuals, and most of these corporate cases are resolved by settlements—often pre-indictment diversionary agreements known as deferred prosecution agreements (DPAs) and non-prosecution agreements (NPAs). Both of these facts are sometimes exaggerated a bit: According to the OECD’s most recent composite data (for enforcement actions from 1999-2014), the U.S. imposed sanctions on 58 individuals (compared to 92 corporations or other legal persons), and of those 92 legal persons sanctioned, 57 reached a settlement via a DPA or NPA (meaning that 35 of them were sanctioned through a post-indictment plea agreement or—much more rarely—a trial). Still, it’s true that the U.S. enforcement strategy makes extensive use of pre-indictment settlements with corporate defendants, and that fact has attracted its share of criticism.

While most of that criticism (at least in the FCPA context) has come from the corporate defense bar and others opposed to aggressive FCPA enforcement, the use of DPAs/NPAs has been questioned by anticorruption advocates as well. Recently, the UK-based anticorruption NGO Corruption Watch (CW) published a report entitled “Out of Court, Out of Mind: Do Deferred Prosecution Agreements and Corporate Settlements Fail To Deter Overseas Corruption”; shortly thereafter, CW, along with several other leading NGOs (Global Witness, Transparency International, and the UNCAC Coalition) sent a letter to the OECD expressing “concern that the increasing use of corporate settlements in the way they are currently implemented as the primary means for resolving foreign bribery cases may not offer ‘effective, proportionate and disuasive’ sanctions as required under the Convention,” and “urg[ing] the OECD Working Group on Bribery to develop as a matter of priority global standards for corporate settlements based on best practice.” Last week, here on GAB, CW’s policy director Susan Hawley provide a succinct summary of the case for greater skepticism of the practice of resolving foreign bribery cases through DPAs/NPAs, and the need for some sort of global standard.

I disagree. While I have the utmost respect for Corruption Watch and the other NGOs that sent the joint letter to the OECD, and I sympathize with many of their concerns, I find most of the criticisms of the DPA/NPA mechanism, particularly as deployed by U.S. authorities in FCPA cases, wide of the mark. I also remain unconvinced that there is a pressing need for “global standards” for corporate settlement practices, and indeed I think that pushing for such standards may raise a host of problems. These issues—whether DPAs/NPAs are sufficiently effective sanctions, and whether we need common global standards regulating their use—are quite different, so I will address them separately. In this post, I will respond to the main criticisms of the U.S. practice of using DPAs/NPAs to resolve FCPA cases, focusing on the concerns emphasized in the CW report. In my next post, I will turn to the question whether the OECD, the UN Convention Against Corruption, or some other international agreement or body ought to try to establish global standards regulating the use of corporate settlements.

So, what’s wrong with the analysis in the CW critique of corporate settlements? Lots of things—so many that it’s hard to know where to begin. But before turning to my criticisms, it’s worth starting out by re-stating some of the main reasons why it might make sense to resolve some anti-bribery cases via corporate settlements: Continue reading →

Guest Post: Time for Global Standards on Corporate Settlements in Transnational Bribery Cases

Posted on by
4

Susan Hawley, Policy Director of Corruption Watch, a UK-based anticorruption organization, contributes the following guest post:

Earlier this month, the OECD held a Ministerial meeting on its Anti-Bribery Convention, which culminated with Ministers from 50 countries signing a Declaration that reaffirmed their commitment to fighting transnational bribery. Despite that statement of renewed commitment, however, the fact remains that only four countries out of the 41 signatories have shown any attempt at actively enforcing the Convention, and pressure is rightly mounting on countries to show they are taking some kind of action. As a result, an increasing number of countries are looking to deferred prosecution agreements (DPAs), non-prosecution agreements (NPAs), and similar forms of pre-indictment corporate settlements as a way to achieve better results. The United States—by far the most active enforcer of its law against foreign bribery—has used such agreements to produce its impressive enforcement record over the last 10 years. The OECD Foreign Bribery Report noted that 69% of foreign bribery cases have been resolved through some form of settlement since 1999. And it’s not just the US. Various European countries have used some form of out-of-court settlement procedure as a way of dealing with the few cases against companies that they have brought. The UK has recently introduced DPAs, based on the U.S. model (though with some important differences), and countries like Australia, France, Ireland, and Canada are all considering doing something similar.

Yet the widespread use of DPAs and NPAs has prompted concerns. The OECD Working Group on Bribery, in its reviews on implementation of the Convention, has sometimes questioned whether these settlements are sufficiently transparent and effective, and whether they instill public confidence. My own organization, Corruption Watch, recently produced a report on corporate settlements in foreign bribery cases, “Out of Court, Out of Mind: Do Deferred Prosecution Agreements and Corporate Settlements Fail to Deter Overseas Corruption?” that raised similar questions. Corruption Watch, along with Global Witness, Transparency International, and the UNCAC Coalition (a network of over 350 civil society organisations across the world) wrote a joint letter to the OECD Secretary General ahead of the Ministerial meeting urging the Working Group on Bribery to assess whether corporate settlements have sufficient deterrent effect, and to develop global standards for corporate settlements in foreign bribery cases.

Why the need for greater scrutiny, and the call for global standards? Several reasons:

  • First, these sorts of settlements allow culpable individuals off the hook, undermine the deterrent effect of the law by shielding companies from debarment from public contracting, and more generally fail to deter economic crime and prevent recidivism. The concern is that the fines and other penalties associated with DPAs/NPAs are just seen by firms a “cost of doing business,” rather than an impetus for meaningful change. Recent research by Karpoff, Lee, and Martin (discussed previously on this blog) suggests that in the US, which has imposed the highest fines and taken the most enforcement actions globally, detection would have to increase by 58.5% or fines increase by 9.2 times to offset the incentive to bribe. Indeed, there are signs that the U.S., despite having relied so extensively on diversionary corporate settlements, has recognized some of these weaknesses: The introduction of the Yates memo, with its emphasis on individual accountability, and the beefing up of the FBI’s resources for investigating corruption (and thus reducing the government’s reliance on corporate self-reporting), are examples of how the U.S. is taking note of the criticism of its reliance on DPAs and NPAs.
  • Second, in addition to their inadequacy for deterring foreign bribery, in many countries the negotiation of corporate settlements lacks adequate regulation or oversight.
  • Third, these corporate settlement agreements rarely provide any sort of compensation for victims of corruption.
  • Fourth, clear discrepancies are emerging about how different countries use corporate settlements to deal with foreign bribery, creating an uneven enforcement playing field.

Proponents of settlements argue that they are necessary because corruption cases are incredibly difficult and costly to investigate and prosecute; unless enforcement authorities encourage companies to come forward with evidence of their wrongdoing, the argument goes, enforcement rates will remain low and corruption will go undetected. Clearly encouraging companies, who often hold all the information required as to whether wrongdoing was committed, to report their own wrongdoing by offering some form of incentive needs to be a part of any enforcement strategy. But there are serious questions as to whether relying solely on settlements to deal with foreign bribery cases can provide real deterrence. Unless enforcement bodies beef up their ability to detect corruption and are willing to prosecute, there is little incentive for companies to report wrongdoing that they might otherwise get away with.

So what would global standards for corporate settlements look like? The NGOs’ joint letter to the OECD, referenced above, suggested 14 standards to the OECD. At the top of the agenda were the following:

  1. Settlements should be one tool in a broader enforcement strategy in which prosecution also plays an important role;
  2. Settlements should only be used where a company has genuinely self-reported, and cooperated fully;
  3. Judicial oversight which includes proper scrutiny of the evidence and a public hearing should be required;
  4. Prosecution of individuals should be standard practice;
  5. Settlements should only be used where a company is prepared to admit wrongdoing;
  6. Compensation to victims, based on the full harm caused by the corruption, must be an inherent part of a settlement.

These are high standards, but unless settlements are based on such standards, and unless they are used as part of a broader enforcement strategy which ensures that companies that don’t cooperate or self-report do get prosecuted, public confidence that justice is really being done when it comes to corporate bribery is going to be undermined.

The Roles of Anticorruption Academics and Advocates: Insights from the NGO Side

Posted on by
1

One of the purposes of this blog (as noted in our mission statement) is to promote the interchange of ideas across disciplinary boundaries, including–indeed, especially–between researchers and practitioners. It turns out that despite our shared interests in understanding and fighting corruption, there’s often quite a gulf between the academic and advocacy communities. I’ve commented this difference in perspectives in the past (from the perspective of an Ivory Tower academic), both in general terms, and with respect to some particular topics, such as the optimal degree of simplification, the role of university education, and the use of eye-catching statistics. While I recognize that discussion of these issues may seem like navel-gazing, I actually think these conversations are quite important, given the complementary but distinct roles that academic research and advocacy work have in the overall anticorruption project.

I was therefore delighted to read a recent speech by Robert Barrington, the Executive Director of Transparency International UK, on precisely this topic. It’s one of the best discussions of this issue that I’ve come across. (And I’d say that even if he didn’t reference one of my posts on this blog!) Whereas I come at this issue from an academic perspective, Mr. Barrington is a leading voice in the advocacy community, and he has some good advice for all of us. The speech is very short, so instead of attempting to summarize it I’ll just encourage interested readers to click on the link above. But let me close here by quoting Mr. Barrington’s summation, with which I wholeheartedly concur:

We should be two communities that work closely together. There is little excuse not to. As an advocate, this is my message: our subject is too important for academics to be obscure or self-referential, or for NGOs to be ill-informed, misguided or unchallenged. Our choice is not whether to work hand-in-hand, but how we should do so.

Guest Post: Structuring Effective Corporate Pay-Back To Help Fight Corruption

Posted on by
3

GAB is pleased to welcome back Alan Doig, Visiting Professor at Newcastle Business School, Northumbria University, who contributes the following guest post:

In recent years, there has been a swelling call for a substantial portion of the fines, disgorged profits, and other payments recovered from corporations in foreign bribery cases to be used to fund anticorruption initiatives, particularly those designed to fight corruption in the “victim” countries. If this recommendation were taken seriously, the potential funding resources could be substantial. While the recoveries from corporate settlements are miniscule (and ad hoc) contributions to national treasuries, they often dwarf what even big donor agencies spend. For example, the UNDP’s 2014-2017 GAIN (Global Anti-Corruption Initiative) had a total budget of $16 million, an amount much less than the fine and disgorgement from the first Deferred Prosecution Agreement (DPA) between the UK’s Serious Fraud Office (SFO) and ICBC Standard Bank in December 2015. Just think how such funds could provide badly-needed resources for anticorruption work, particularly for areas or organizations seeking new sources of funding, or for innovative work, in what is a very competitive environment. Thus while Integrity Action has managed to win competitive funding from soruces as diverse as Google’s Global Impact Challenge and the UK Comic Relief charity, the chair of the Board of Governors of the International Anti-Corruption Academy (IACA) recently bemoaned the fact that IACA’s “last two general budgets never received 90% of the funding that was unanimously agreed upon” by member states, without which there would be no opportunity for the implementation of its ambitious programs.

While corporate settlements would provide a regular and substantial resource beyond the usual multilateral and bilateral donors (and the occasional big private foundation), there are, of course, a number of practical, legal, and political problems with getting countries to agree to divert substantial portions of such settlement funds to support anticorruption efforts. But even assuming these obstacles are overcome, another set of problems remains: Assuming that a given country (say, the US or UK) has decided that a substantial portion of a corporate penalty for bribery should be redirected to fund anticorruption efforts, how should the arrangement be structured? Which entities should be responsible for any settlement funds? Who will make the key decisions? What will be funded, by whom, and for how long? Our limited experience to date illustrates several options that have been attempted so far: Continue reading →

Can a Corporate Settlement that Names Names Be Grounds for a Defamation Suit?

Posted on by
2

A running theme in discussions—and criticisms—of government settlements with corporations in foreign bribery cases is the failure to focus adequately on individuals. Most commonly, this criticism emphasizes the alleged failure of the “supply-side” enforcers (e.g., the U.S. Department of Justice (DOJ), the U.K. Serious Fraud Office (SFO), etc.) to bring charges against the individual corporate officers and employees responsible for the illegal conduct. Additionally, though, some—including some contributors to this blog (see here and here)—have emphasized that settlements with supply-side enforcers should contain enough information on the illegal transactions that enforcement authorities in the demand-side countries (that is, the countries whose public officials took the bribes) can go after individuals under their jurisdiction. Such individuals would include, most obviously, the government officials who took the bribes, but might also include third-party intermediaries and other local agents over whom the supply-side enforcers lack jurisdiction.

The idea that the public documents in these settlement agreements ought to include a detailed discussion of the transactions, including the identities of the individuals involved, sounds like a good idea. Indeed, I think it generally is a good idea (though I confess I haven’t thought through the issue carefully). But recent news reports out of Tanzania last week highlight a potential pitfall that I confess I hadn’t previously considered: The individuals named as wrongdoers in corporate settlement agreements might sue. Are such suits viable? I have no idea. But the problem is worth considering.

Let me first lay out a brief synopsis of the Tanzania case, and then offer a few under-informed speculations about what this all means. Continue reading →

Anticorruption Bibliography–March 2016 Update

Posted on by
Reply

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.