Holding Relatives Hostage: China’s Newest Way of Pressuring Fugitives to Return to Face Corruption Charges

China’s latest tactic in Operation Fox Hunt, its campaign to force those who have fled abroad to return to face corruption charges, has had the extraordinary, if unintended, consequence of uniting America’s bitterly divided political elite.  Last June, the American wife and children of accused fraudster Liu Changming were detained in China after a brief visit; his wife held in a “black site” and his children barred from leaving.  The ostensible the reason for holding them is because they are being investigated for “economic crimes,” but almost surely, as the family claims, the real reason is to pressure paterfamilias Liu to return to China to stand trial for corruption offenses.  Trump National Security Advisor John Bolton, avowed Trump opponents Senator Elizabeth Warren and Congressman Joseph P. Kennedy III, and leaders of Harvard and Georgetown universities are all demanding the Americans be permitted to leave China at once (accounts here and here).

Holding family members hostage to force a relative to surrender to authorities is a species of collective punishment, a patent human rights’ violation universally condemned by the world community. No wonder the Boltons, Warrens, Kennedys, Harvards and Georgetowns find themselves on the same side of the issue.

Reporting by the New York Times, however, suggests that there could be more to the case than appears at first glance.  That there may be reason for both the Chinese government and the strange bedfellows its policy has created in opposition to examine their actions in view of the global fight against corruption. Continue reading

OECD Nations Should Criminalize the Unexplained Wealth of Politically Exposed Persons

Today’s guest post is from Hamid Sharif, Managing Director, Compliance, Effectiveness and Integrity, for the Asian Infrastructure Investment Bank.  Writing in his personal capacity, he urges OECD countries to enact laws like that giving the British government the power to demand public officials from another nation explain how they acquired assets held in Britain.  If the official cannot show the assets were purchased with honestly-obtained monies, they are confiscated.  The laws Mr. Sharif advocates would provide that if the official were from a developing country, the seized assets would go to development projects in the victim state.  The views expressed in no way reflect or represent those of AIIB, its Board, or Management.

Since 1996, when then World Bank President James Wolfensohn condemned corruption as a “cancer” which stood “as a major barrier to sound and equitable development,” combating corruption has figured prominently on the international development agenda. In 1997, the OECD nations agreed to make it a crime to bribe a foreign public official, and in the early 2000s the World Bank, the African Development Bank, and the other multilateral development banks (MDBs) introduced corruption prevention policies into their procurement rules, adopted anti-corruption policies, established procedures for investigating corruption in their operations, and instituted systems for sanctioning firms and individuals found to have engaged corruption. Beyond ring-fencing their own projects against corruption, both the MDBs and bilateral development agencies have worked to strengthen institutions to prevent corruption in developing countries. Civil society in both developing and developed states has also stepped up its efforts to fight corruption.

Both the MDBs and bilateral donors have urged developing nations to operate with greater transparency and accountability and funded projects to strengthen anticorruption agencies, judiciaries, and other domestic institutions responsible for combatting corruption. Today there is far more information on corruption and how to fight it available to citizens of the developing world than 20 years ago. The result has been a multitude of reforms aimed at preventing or deterring corruption, from the spread of right to information laws to more effective anticorruption laws and agencies.

Despite this progress, in most developing countries institutions are not yet strong enough to investigate and successfully prosecute the corrupt acts of senior government officials whether elected or appointed, individuals who in antimoney laundering parlance are, along with their relatives and close associates termed “politically exposed persons” or “PEPs.”  In many countries, investigating and prosecution agencies as well as courts lack the independence, security, and institutional capacity to instill public confidence in their ability to deal with high-level political corruption perpetrated by PEPs. Continue reading

Complying with Antibribery Laws: Mike Koehler’s Strategies for Minimizing Risk Under the FCPA and Related Laws

Professor Mike Koehler is perhaps the leading critic of the Foreign Corrupt Practices Act – or at least of how the U.S. Justice Department and Securities and Exchange Commission currently enforce it.  On his FCPA Professor Blog, he regularly bemoans the way the enforcement agencies have stretched a law its authors wrote to outlaw hard core bribery to make donations to foreign charities, internships for relatives of business associates, birthday gifts to business partners, and other seemingly innocuous  conduct a serious felony under American law. Such broad interpretations of the law’s antibribery stricture could never withstand judicial review he argues, but because the costs, reputational and otherwise, of challenging an FCPA enforcement action are so great, companies facing FCPA charges quickly settle rather than contest the agencies’ interpretation in court.  The result is the agencies not only enforce the law but their interpretations in effect make it as well.

So what advice does Professor Koehler proffer businesses wanting to avoid running afoul of the FCPA or the similar laws of other nations in his new book Strategies for Minimizing Risk Under the Foreign Corrupt Practices Act and Related Laws?  Does he urge a corporation threatened with an enforcement action based on an overly broad reading of a law to fight back?  Has he produced a polemical guide to compliance?  One written for the risk-taking corporate maverick?  Is this how he separates his book from the many other compliance guides flooding the market?

Not at all. To the contrary, what distinguishes Professor Koehler’s book from many of its competitors is its straightforward, easy to read exposition of what any firm should do to minimize the chances that, thanks to the wayward act of an employee or consultant, it will face allegations it has bribed a government official. In eight tightly-written chapters, he brings his encyclopedic knowledge of FCPA cases, pre-trial settlements of enforcement actions, and the commentary on antibribery law to bear to explain how to develop and implement a sound, reasonable, cost-effective antibribery compliance program. Along the way he chucks the jargon that has grown up around antibribery compliance programs, opting instead for clearly written prose that demystifies rather obscures the process all firms should follow to develop and implement preventive measures.

Take his account in chapter six on how to conduct a risk assessment. Continue reading

Settling Foreign Bribery Cases: Suggested Guidelines

At the request of the OECD Secretary-General, a High Level Advisory Group produced a report in October 2017 on how the OECD could strengthen its work combating corruption and promoting integrity.  One recommendation was that the organization “create and publish model guidelines” for member states to follow when settling cases arising from the bribery of a foreign public official.  Noting concerns (discussed in many posts on this blog and elsewhere) that pretrial settlements can let defendants off too easy, the advisory group cautioned that the guidelines should be “consistent with the requirement for effective, proportionate and dissuasive sanctions under the OECD Anti-Bribery Convention.”

Earlier this year, Professor Tina Søreide of the Norwegian School of Economics and former Siemens General Counsel Peter Solmssen organized a multinational group of defense lawyers, prosecutors, academics, and civil society activists to suggest guidelines.  “Principles for the Implementation and Use of Non-Trial Resolutions of Foreign Bribery Cases” together with a set of explanatory notes were released last week.  The principles, the explanatory notes, and a letter transmitting the documents to the OECD are here.

Professor Søreide, Mr. Solmssen, and the others involved in developing the principles welcome reader comments.

Open Contracting and the Withholding of Commercially Sensitive Information: the U.S. Experience

U.S. courts and federal agencies have grappled for more than 40 years with the question of what information in a government contract should be made public and what should be withheld as “commercially sensitive.” The anticorruption community now seeks an answer to that same question.  The Open Contracting Partnership, the leading advocate for the full disclosure of every contract let by every government, acknowledged in July there should be an exemption from disclosure for such information, and a Center for Global Development working group followed in October with draft principles for determining what is commercially sensitive.

Getting the correct answer is critical, particularly for developing nations, precisely the countries where advocates believe open contracting will make the greatest difference and where the push for open contracting laws is felt the most.  Too narrow an exemption, one that would result in the release of genuinely sensitive information, will discourage companies from bidding on public tenders.  On the other hand, if the exemption is too broad, contractors can use commercial sensitivity assertions to hide information showing whether a contract was awarded fairly and honestly and whether the public is getting value for its money.

Though far different than conditions in these countries, the American experience nonetheless offers lessons to those urging developing nations to embrace open contracting. The most important being that it counsels more caution than many open contracting advocates might at first think is warranted. Continue reading

Unexplained Wealth Orders and London Property Bargain Hunters: Part II

Last week I dangled before readers hunting for a home in an upscale London neighborhood the possibility that prices might take a sudden nose dive. Britain’s recently enacted law on Unexplained Wealth Orders (UWO) authorizes law enforcement agencies to seize a property if the owner cannot show it was bought with monies honestly come by. Given estimates some 40,000 U.K. properties can’t pass this test, I suggested it was possible the London real estate market could soon be flooded with properties for sale at bargain basement prices as those fearing an UWO try to dump them before law enforcers confiscate them.

But to the great disappointment of GAB readers looking for bargains on London properties, I explained that another new law makes this scenario highly unlikely.  Those trying to offload a property purchased with criminally obtained money are, under U.K. law, committing the crime of laundering money, and thanks to the recent tightening of the U.K. money laundering rules, British real estate agents must alert authorities to any transaction where they suspect money laundering.  With enactment of the UWO law, selling a property of questionable provenance now at less than full market price would scream money laundering. So loudly that no real estate agent no matter how hard of hearing could ignore it.

While the post dampened the hopes of readers thinking the UWO law might shave a couple of million pounds off a place in Mayfair, Knightsbridge, or other neighborhood where many anticorruption activists now dwell (okay, or more likely wish they dwelled), it did serve my real purpose: to prompt reader reactions.    And so it did. Continue reading

Unexplained Wealth Orders: Godsend for London Property Bargain Hunters?

Those looking for bargains in London real estate may want to follow developments in National Crime Agency v Mrs A [2018] EWHC 2534 closely. The case is the first to rule on Unexplained Wealth Orders, Britain’s new tool for halting the purchase of British properties with money derived from corruption, human trafficking, and other wrongdoing perpetrated on a massive scale.  In its October 3 decision, the court held that Zamira Hajiyeva, owner of a tony Knightsbridge townhome, must tell authorities how she could afford the place when her only means of support is a husband now serving 15 years for defrauding the Azerbaijan state-owned bank he ran. If she cannot show the house was bought with money from legitimate sources, the U.K. National Crime Agency will seize the property, now worth an estimated £15 million.

The Hajiyeva case could prompt a run on London real estate.  Owners of other properties with a questionable provenance may decide to dump them on the market at fire sale prices rather than wait for the NCA to confiscate them.  If so, there could indeed be many bargains on offer.  Transparency International U.K. estimates £4.2billion (US$5.4 billion) worth of U.K. properties are held by those at risk of receiving an UWO.

But both bargain hunters and dodgy real estate owners might best hold off ringing an estate agent until considering another recent directive aimed at curbing criminal money flows into real estate markets. The Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 is likely to crimp quick sale plans.  It is also very likely to ensure that any quick sale effort produces instead even quicker service of an UWO. Continue reading