The Curious Absence of FCPA Trials

As is well known, enforcement actions brought under the Foreign Corrupt Practices Act (FCPA) have expanded dramatically over the past decade and a half. With all this enforcement activity, someone unfamiliar with this field might suppose that the most important questions regarding the FCPA’s meaning and scope are now settled. But as FCPA experts well know, that is not the case; the realm of FCPA enforcement is a legal desert, with guidance often drawn not from binding case law but from a whirl of enforcement patterns, settlements, and dicta. As a result, many of the ambiguities inherent in the statutory language remain unresolved—even core concepts, such as what constitutes a transfer of “anything of value to a foreign official,” lack concrete legal decisions that offer guidance. While some claim that this ambiguity fades when the FCPA is applied to the facts at hand, past analysis shows that this may not always be the case.

The dearth of binding legal precedent in FCPA enforcement stems directly from the lack of FCPA cases that are actually brought to trial. Of course, most white collar and corporate criminal cases—like most cases of all types—result in settlements rather than trials. But a look at the major cases white collar cases going to trial in 2017, and the pattern of FCPA settlements, shows that FCPA trials are uniquely rare. In fact, FCPA cases are resolved through settlements more often than any other type of enforcement actions brought by the DOJ or SEC.

Why is this? Why are FCPA enforcement cases so rarely brought to trial, even compared to other white collar cases? The answer can help explain why FCPA case law is so sparse, and reveal whether this trend may change in the future.

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What to Do About Corrupt Arbitral Tribunals?

Discussions of corruption in the context of international arbitration typically focus on how arbitral tribunals handle corruption allegations in the cases before them. But there is a wholly separate issue that is often glossed over or ignored: corruption in the arbitral proceedings themselves. And I’m not just talking about the concern—stressed by numerous prominent figures in the arbitration community—about potential conflicts of interest in the system for constructing the tribunals. That concern is a real and serious one, but there is also a more direct and crude problem: parties (or their lawyers) bribing, or making backdoor deals with, the arbitrators to secure a favorable outcome. Last November, Stephen Jagusch QC discussed the routine nature of certain forms of corruption in the arbitration process. He highlighted this claim by repeating a boast he had heard from a presiding arbitrator that year: the arbitrator was “[able] to deliver a good result providing the party appointing him was prepared to share the result with him.” A similar story of corruption and bribery occurred last year in Italy in an arbitral proceeding between AmTrust and Somma. The saga culminated in AmTrust using in U.S. federal court to block the arbitral award, claiming that Somma had offered on the arbitrators 10% of the final award if the one of the arbitrators found in Somma’s favor. Although the case was ultimately settled, the questions about impropriety in the arbitral process remain.

There are two avenues for handling corruption in the arbitral process, but unfortunately neither provides an adequate guard against potentially corrupt activity conducted by arbitrators: Continue reading

If Voters Hate Corruption, Why Do Elected Politicians Resist Anticorruption Reform? Lessons from South Dakota

If U.S. voters dislike corruption so much, why don’t U.S. politicians see anticorruption as a winning issue—or at the very least feel more pressure to act aggressively against the corruption that voters claim to hate? This question, which has been explored on this blog before, is interesting to consider in the context of recent developments in South Dakota. South Dakota is considered to be one of the most corrupt states in the U.S., and in recent years has suffered through several major public corruption scandals, including massive misappropriations after the state privatized its EB-5 visa program, and the theft of over a million dollars earmarked for scholastic grants for the state’s American Indian population. In the past, although some Democratic state representatives had introduced bills to crack down on corruption, these measures failed in largely party-line votes in South Dakota’s Republican-dominated state legislature. Yet South Dakota, like many U.S. states, has a ballot initiative process that empowers voters to approve new laws by popular referendum. Last November, South Dakota voters used this process to approve Initiated Measure 22 (IM-22), also known as the “South Dakota Anti-Corruption Act.” While IM-22, despite its title, is not a direct anticorruption bill—its focus was on reforming campaign finance and lobbying—the message from the South Dakota voters was clear: they saw corruption as a problem and wanted to take measures to combat it.

Yet after the referendum passed, Republican lawmakers immediately took steps to halt the new rule. Within two weeks, 25 Republican South Dakota lawmakers brought suit against the state, arguing that the ethics commission created by the referendum violated the state’s constitution, and they succeeded in getting a temporary injunction against the new rules. Ultimately, the South Dakota State Senate struck down the law, using a provision of state law that allows the state legislature that repeals a referendum. Thus elected stood in direct opposition to an attempt to combat corruption enacted through a popular democratic initiative. Moreover, events in South Dakota reveal that some of the more conventional explanations that have been offered—including by previous analyses on this blog—are at best incomplete.

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The Role of Corruption in the Syrian Civil War

Many forces spurred on the development of the Syrian Civil War, a conflict that has likely led to the deaths of over half a million people, as well as the displacement of ten million more. While fighting was sparked by protests within Syria, a reflection of the larger wave of discontent in the Middle East and North Africa that spurred the so-called Arab Spring, the uniquely destructive path of Syria’s internal instability is tied to more specifically Syrian problems, including rule by a minority religious group – the Alawites – over a mostly Sunni country, early and continued support by Russia to maintain the Assad regime, a partially autonomous Kurdish minority in the north, and the rise of Sunni rebel groups including ISIS. While these larger points are important, another, more mundane factor is often overlooked: the pervasive corruption of the Assad regime, which contributed to the outbreak of the civil war in at least three ways:

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Why Does the SEC Enforce the FCPA?

Donald Trump’s nomination of Jay Clayton to chair the Securities and Exchange Commission (SEC) has attracted some attention and concern from the anticorruption community. That concern is due mainly to a report issued by a New York Bar Foundation committee, chaired by Mr. Clayton, which criticized the Foreign Corrupt Practices Act (FCPA) for its alleged adverse and asymmetric impact on U.S. corporations. Though it remains to be seen how strongly committed Mr. Clayton is to the views expressed in the report, the concern is understandable given that the SEC is one of the two agencies—along with the Department of Justice (DOJ)—that is responsible for enforcing the FCPA. This controversy also highlights another, broader question that some FCPA critics have raised: Why is the SEC even involved in FCPA enforcement in the first place?

Congress created the SEC in 1934 through the aptly named Securities Exchange Act to enforce federal regulations regarding the trade of securities after they have been issued. The main impetus for the SEC’s creation was the belief that an under-regulated securities market helped drive the 1929 stock market crash. However, over the past 80 years, the SEC has expanded into other areas of enforcement—such as FCPA enforcement—that seem tentatively tied to the SEC’s original mandate. Some have argued that due to resource limitations, it does not make sense for the SEC to pursue vigorous FCPA enforcement at the expense of diverting resources from protecting investors. In pushing this point, some critics also point out that the SEC’s major regulatory fumbles of the past decade coincide with the escalation of FCPA enforcement activity—which perhaps suggests that expanding the SEC’s responsibilities beyond its original mandate has indeed weakened the agency.

The reasons for the SEC’s involvement in FCPA enforcement are partly historical, as explained further below. But beyond that, despite the critics’ complaints, in fact FCPA enforcement remains a valuable use of the SEC’s resources in the 21st century.

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Corruption in Kurdistan: Implications for U.S. Security Interests

Since the rise of ISIS, the Kurdish Regional Government (KRG) has been a vital U.S. ally in the fight against ISIS. The KRG is in many ways a unique sub-state, created through U.S. intervention following Saddam Hussein’s genocidal campaign against the Kurds, and preserved in the new Iraqi constitution through Article 137, which grants the KRG a degree of autonomy.  Yet Kurdistan is plagued by corruption common to governments that, like the KRG, are heavily reliant on oil and gas revenue. Of the hundreds of millions dollars produced by the oil and gas industry in Kurdistan each month, only a portion reaches the actual Kurdish economy. Kurdish officials have tried to combat this problem to some degree, but oil revenues continue to “leak” from official channels to foreign advisors and government ministers. The problems are exacerbated by the fact that the KRG government, while nominally a democracy, is dominated by two tribal-familial groups, the Barzani and the Talabani, and the government actually resembles a hereditary dictatorship more than a parliamentary democracy, with the Barzani family in particular controlling the presidency, prime minister, and head of the region’s security forces through direct familial ties. In fact, current president Massoud Barzani has been serving without a democratic mandate since 2013.

KRG corruption is not just a concern for the Kurdish people, but a real security threat for the United States, for two main reasons: Continue reading