Author Archives: Richard Messick

Actions for Damages Caused by Corruption: American Law

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American law allows corruption victims to recover damages under a variety of legal theories, and its class action procedures are well suited for recovery in certain cases.  This post discusses who the law deems a victim and what damages they are entitled to recover.  A second post will suggest where countries developing their own corruption victim law might follow American practice, and where American practice should be avoided at all costs.

In the United States, the party that most often recovers damages for corruption is a company whose employee accepted a bribe. The bribe will have been paid in return for awarding the bribe-payer a contract or for approving poor performance or overpayment on a contract the payer already holds with the employer. Most cases have arisen from one firm bribing an employee of another, but the same law applies when the victim is a government agency whose employee was bribed. U.S. agencies (here), cities (here and here) and counties (here), local police forces (here) and the United Nations (here) have all collected damages in these circumstances. So have foreign governments when the bribe was paid in violation of the Foreign Corrupt Practices Act (chapter 10 here). 

The basis of the employer’s damages is in taking a bribe the employee breached the duty of loyalty owed the employer. The duty of loyalty is also grounds for recovery in conflict of interest cases.  The most well-known public conflict of interest case is from the early 20th century. In United States v. Carter, Army Captain Oberlin Carter had awarded dredging contracts to a company in which he had a secret interest. The court ruled that not only was the Army entitled to Carter’s share of the company’s profits but to any money he had earned from investing those profits.

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Why Do So Few Corruption Victims Seek Compensation?

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The United Nations Convention Against Corruption requires state parties to open their courts to those damaged by corruption.  Under article 35, states that have ratified UNCAC must provide victims of corruption a right to “initiate legal proceedings against those responsible for that damage … to obtain compensation.” According to the United Nations Office on Drugs and Crime, virtually all 187 states parties do. Its 2017 review of the convention’s implementation found article 35 was “one of the least problematic provisions of the entire convention.” “All but seven of the reviewed states,” it reported, “have adopted measures to fully or partly implement article 35.”

The UNODC’s conclusion comes from a reading of the parties’ laws.  While only a handful of states have enacted special legislation governing recovery of damages for corruption, in the remainder national authorities assured UNODC that corruption victims could recover damages “under the general principles of civil (contract or tort) law.”  But research by UNODC, the UNCAC Civil Society Coalition, Transparency International, and surveys of practitioners belies these assurances. It finds that in most nations few if any corruption victims have sought damages for injuries suffered.

For a UNODC/Stolen Asset Recovery Initiative project, I seek answers to two questions.  One, is the research correct? Are there really only a few cases where corruption victims have been awarded damages?  My preliminary analyses of U.S. data shows only some 30 arising from public, as opposed to private, corruption; given its size, the amount of corruption, and low barriers to suit, one would expect more. What about other states, especially larger, wealthier ones?

Two, if indeed there are few corruption damage actions in any jurisdiction, what explains the paucity? Why, despite the prevalence of corruption, the damage it has wreaked, and the worldwide attention it has drawn, have so few corruption victims sought redress. I hypothesize three factors are to blame: courts’ narrow reading of legal doctrine, especially that governing causation for harm (here); shortcomings in procedure, and in some countries the threat violent retaliation.

But these are my guesses, based largely on my experience as a lawyer in a wealthy common law jurisdiction and second hand reports from those in other nations. Readers’ thoughts and comments solicited. Cases and commentary in any language Google translate reads most welcome.

International Anticorruption Academy Spring Course on Obtaining Mutual Legal Assistance

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It is the rare corruption investigation today that does not cross one or more national boundaries.  The bribe payer is located in one country, the bribe taker in a second, and the bribe stashed in a third.  Successful prosecution of the payer and the taker and recovery of assets requires collecting information in multiple jurisdictions, and though obtaining evidence abroad has progressed far beyond sending a letter rogatory and hoping for the best, the process is still involved. A misstep can delay receipt of needed material by months if not years and in some cases can permanently bar its receipt.

How to speed the process of obtaining evidence from another country while avoiding common missteps is the focus of a four-week, online course offered by the International Anticorruption Academy April 12 through May 8, 2021. As the course description explains, it will cover not only the formal request and receipt of information for use at trial, but informal avenues for obtaining leads, “tips,” and intelligence to advance an ongoing investigation. The two methods, collectively termed Mutual Legal Assistance or MLA, require investigators, prosecutors, and increasingly defense counsel to combine knowledge of domestic and international law with a practical savvy about how to get things done. The instructor, yours truly, will cover both with the help of guest lecturers who will discuss use of the UNODC’s MLA writer tool and obtaining evidence from the United States and Switzerland.

An outline of the topics to be covered (with welcome input from a certain GWU adjunct law professor — thank Tom) is here and a bibliography here.  Comments on either welcome.  Registration information is here.

Kleptocracy in Mongolia: Deutsche Bank As Batbold’s Enabler

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To the left is a document showing how Deutsche Bank helped Mongolian politician Sukhbaatar Batbold hide assets offshore (full-size copy here). Written by Deutsche Bank executives in Hong Kong, it asks the bank’s Guernsey Island office to “establish and manage the offshore trust structure The Quantum Lake Trust on [Batbold’s] behalf.” The authors assure their Guernsey colleagues that there no reason to be suspicious about the request:

“We are unaware of any activities in which the above client [Batbold] engages which leads us to suspect that the client is involved in money laundering.” In fact, on the day the letter was written Batbold was a Member of Parliament and between 2004 and 2006 was Cabinet Minister of Trade and Industry (here). In money laundering terms he was a “politically exposed person.” As a consequence, Deutsche Bank was required to scrutinize his past activities before creating the trust and to closely monitor all future transactions with the bank or the trust to ensure they were lawful. There is no evidence Deutsche Bank ever conducted what the money laundering law terms this “enhanced due diligence.”

Two weeks ago Batbold denied ever having “any open or hidden accounts, money, apartments or property in the offshore zone” (here), but as the letter and other documents made public last Friday show, he is at least prevaricating if not lying. He has or has had numerous accounts and properties offshore. Batbold’s representative ducked questions GAB has asked (here) about the trust and Batbold’s offshore properties, issuing a short, blanket denial reprinted below.

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Why Won’t Sweden Punish Swedes for Bribing Foreign Government Officials? UPDATE

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Last week a Swedish appellate court issued an opinion confirming the anticorruption community’s worst fear. The decision stems from a 2017 U.S. prosecution of Swedish telecommunications giant Telia for bribing the Uzbekistan president’s daughter. The evidence showed Telia’s then CEO and two other executives countenanced the bribery, and Swedish prosecutors promptly charged the three with bribing a foreign official. To the surprise and shock of both prosecutors and observers, all three were acquitted at a 2019 trial (here).  

It was widely assumed the Stockholm Court of Appeals, the nation’s oldest and most prestigious appeals court, would reverse the trial court’s decision.  Instead, in a February 4th opinion it affirmed it.

UPDATE. Chief prosecutor Kim Andrews termed the decision “offensive,” telling OCCRP in a statement that the decision means “Swedish companies can jump queues” by bribing, that Sweden “is failing to live up to its international obligations, . . . and that we leave it up to other European countries and the United States to clean up our mess.”

Former South African MP Andrew Feinstein once asked a senior Swedish official about foreign bribery. His reply:

“All bribes are illegal but if a Swedish company paid bribes in another country, I can’t say we would do anything about it.”  

The Telia acquittal is the latest sign that this attitude continues to prevail. That the anticorruption community’s worst fear about Sweden is true. That to protect the export earnings of Swedish multinationals and to shield the Swedish elites who run them, the government will condone the bribery of foreign public officials no matter how egregious.  Indeed, the first and still most appalling example of the lengths Sweden will go to derail a foreign bribery investigation was in a case that implicated its now prime minister.

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Guest Post: Guidelines for Settling Foreign Bribery Cases

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The OECD Antibribery Convention requires parties to impose “effective, proportionate, and dissuasive criminal penalties” on those found guilty of bribing an official of another nation. As GAB readers know, most prosecutions for foreign bribery end not with a trial but with a settlement (here). GAB readers also know that a vigorous debate has ensued on this blog (here and here) and elsewhere (here, here and here) as to whether these settlements have met the “effective, proportionate, and dissuasive” test. In response, and with the assistance of the private bar, the OECD has been developing guidelines to help prosecutors and defense counsel ensure that future settlements do.

 GAB is delighted to welcome this guest post by Peter Solmssen, a leader in this effort from the private bar, in which he describes where the guidelines project stands.  As General Counsel of Siemens AG, Mr. Solmssen negotiated its settlement of foreign bribery cases with, among others, the Federal Republic of German and the United States.  He now chairs the Non-trial Resolutions of Bribery Cases Subcommittee of the International Bar Association (IBA).

Work on international guidelines for the settlement of foreign bribery cases is accelerating. The IBA made its latest submission to the OECD Working Group on Bribery January 22. It there urged the Working Group to move quickly with its anticipated international guidelines on settling transnational bribery cases and to resolve those aspects of settlements that remain contentious. As described here, the IBA has been pushing the OECD to issue guidelines that will encourage prosecutors to cooperate internationally and programmatically to increase the use of settlements, or non-trial resolutions as they are formally referred to internationally.

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Guest Post: For Whose Benefit? Reframing Beneficial Ownership Disclosure Around User Needs

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GAB is pleased to publish this post summarizing a recent paper on beneficial ownership disclosure by Anton Moiseienko (Research Fellow) and Tom Keatinge (Director) of the London-based Centre for Financial Crime and Security Studies at the Royal United Services Institute.  In the paper, the authors examine current standards governing disclosure of beneficial ownership data, the challenges of ensuring the data’s accuracy, and the needs and interests of the data’s different users. It will be of particular interest to American policymakers given enactment of the Corporate Transparency Act.

Beneficial ownership disclosure – the collection and sharing of information on genuine (rather than formal or nominee) owners of assets – has become a central issue in the fight against corruption and other financial crimes. To whom to disclose it can be controversial, as the very public spat between the United Kingdom, and several of its Overseas Territories shows. Moreover, even countries committed to full public disclosure face challenges in ensuring implementation meets promise as continuing discussions among EU member states shows.  

Arguments over the extent of disclosure and verification can obscure an equally important issue, ensuring the ownership data meets the needs of domestic and foreign law enforcement agencies, tax authorities, regulated businesses, and the public at large. In our paper, we examine not only to whom the information should be provided and how to guarantee it is accurate but how to be sure what is collected and disclosed serves the interests of different types of users. It is based on a review of publicly available sources and over 40 interviews, including more than 25 with experts based in British Overseas Territories and Crown Dependencies, jurisdictions where the lack of information on beneficial ownership has been a major concern internationally.

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Kleptocracy Strikes Mongolia? Further Reply from Batbold’s Advisor

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Faithful readers know that last December 8 GAB reported on a New York case alleging that while in office former Mongolian Prime Minister Sukhbaatar Batbold conspired with a South Korean couple to embezzle hundreds of millions of dollars from his government.  Brought by three Mongolian government agencies, the complaint seeks to prevent the sale of two New York condominiums the agencies say are registered in the couple’s name but beneficially owned by Batbold until a case in Mongolia is resolved. In that case, the three agencies plus the Metropolitan Prosecutor’s Office ask that Batbold, the Korean couple, and others compensate the government for the damages it suffered from their corrupt acts.

The December 8 post and a second one December 23 drew a considerable number of comments. About half said the charges were fabricated and half said it was about time Batbold was held accountable.  But none addressed the facts alleged. It was only on January 5 GAB received any substantive comment on the charges — in the form of a letter from Batbold advisor Batbayar Sh. He there denied Batbold had done anything wrong, asserted the Mongolian case was politically motivated, and asked that the posts be taken down. Although Batbayar claimed the two posts were riddled with errors, as GAB explained in its January 6 post reprinting his letter, he identified no inaccuracies in either the December 8 or December 23 post.

Batbayar has now sent a second letter. It again denies Batbold has done anything wrong and, unlike the earlier letter, adds some facts to back up the denial. The text of this second letter along with GAB’s comments on the points it raises follows.

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Guest Post: Every Bank Robber Needs A Getaway Car; Banker Held Accountable For Money Laundering

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GAB is pleased to publish this analysis by Emile J. M. Van Der Does De Willebois, Coordinator of the World Bank/UNODC Stolen Asset Recovery Initiative, of the significance of a decision of the Gerechtshof Den Haag, the Dutch appeals court in The Hague. As he explains, for too long authorities in the developed world have ignored the role lawyers, bankers, and other “enablers” play in facilitating corruption in the developing world.  Let us hope that the court’s decision marks a turning point in holding them accountable for their role in corruption crimes.  

Last month, a Dutch appeals court ordered the public prosecutor to initiate the criminal prosecution of the former CEO of the nation’s largest bank. The court directed that Ralph Hamers be put on trial for money laundering and other crimes the Amsterdam-based banking giant ING committed during his seven–year tenure as its chief executive. Financial and legal professionals are rarely prosecuted for crimes they facilitate, and it is even rarer that senior executives, as opposed to the institution they run, are targeted. Until this decision, the indictment of Goldman Sachs bankers for their role in the 1MDB scandal was a notable exception.

The culpability of those who, like the driver in a bank robbery, facilitate a crime is not particularly controversial. We all know that the corruption that happens “over there” needs the services of bankers, lawyers, accountants and other facilitators “over here.” We like to pay lip service to the idea that “it takes two to tango” and acknowledge, at least verbally, that the financial and corporate services in the financial centers of the developed world facilitate the corruption found in large parts of the developing world.

But whether those working on anti-corruption always act upon that notion is another matter. A quick look at the Transparency International corruption perceptions index helps maintain the illusion that the rich developed world is doing well on corruption, and that, looking at the bottom of the table, corruption is really a developing-country problem. We have not really internalized the lessons of the Panama Papers, 1MDB, Danske Bank and, most recently, the FinCEN files, which shone a spotlight on the services provided by banks, lawyers and other professionals in making corruption possible.

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Kleptocracy Strikes Mongolia? A Batbold Advisor Replies

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GAB’s December 8 “Kleptocracy Strikes Mongolia? The Batbold Case” prompted dozens of reader comments. The post recounts a recently filed New York civil case where it is alleged that, while he was Prime Minister, Sukhbaatar Batbold worked with a South Korean couple to embezzle hundreds of millions of dollars which went in part to buy real estate in New York and elsewhere registered in the couple’s name. Although the couple appears to have no experience in international commodity markets, they bought large quantities of ore from Mongolian state-owned or controlled mines during Batbold time in office on questionable terms. Batbold’s children now live in or use properties registered to the couple.

Dozens of readers commented on the post, roughly half claiming the charges were fabricated and half saying it was past time to hold Batbold accountable. No one addressed the substance of the allegations however, and hence in a follow up post December 23 readers were invited to do so. To date the one response has been a letter from a Batbold advisor asking GAB to delete the two posts. GAB Editor-in-Chief Matthew Stephenson wrote in reply that while GAB does not remove a post because someone believes it unfair, GAB will correct it if it is inaccurate.

The advisor’s letter contains a blanket denial of wrongdoing by Batbold and a claim the case is politically motivated. It points to no inaccuracies, however. It does note that subsequent to the first post’s appearance the government of Mongolia voluntarily discontinued the case against Batbold.  The letter implies this was because the court exonerated him. That is not correct. The court has not ruled on any of Mongolia’s allegations. Likely Mongolia decided to discontinue its case against Batbold for technical reasons having to do with his claim that as a public official he is immune from all court action. In any event, the South Korean couple remain parties.The letter is below. 

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