Category Archives: Commentary

It’s Official: Hiring a Foreign Official’s Relative in Exchange for Business Violates the FCPA

Posted on by
18

The U.S. Foreign Corrupt Practices Act (FCPA) prohibits the entities it covers from corruptly offering “anything of value” to a foreign official for the purposes of obtaining or retaining business. In most cases, the “thing of value” offered is a traditional bribe—money, expensive gifts, lavish vacations, etc. But in some cases, firms do “favors” for foreign officials that are less direct, and do not conform quite so obviously to traditional notion of bribery. Making a generous donations to the official’s favorite charity is one example; another, which has become increasingly prominent in recent FCPA investigations—primarily in cases involving China—is preferential hiring of the relatives of the foreign officials in exchange for business opportunities. This issue got a lot of press particularly in connection with the SEC’s investigation of hiring practices at JP Morgan and other investment banks in China, but the issue is more pervasive.

These investigations raised an interesting legal question: Can providing a job or internship to the adult relative of a foreign official ever count as providing “anything of value” to the official him- or herself? To my mind, the answer is a clear yes, but not everyone agrees. Last year, Professor Andy Spalding and I engaged in a spirited and constructive debate on this question (see here, here, here, and here)—and though I think in the end our positions (mostly) converged, there was perhaps still some lingering doubt (though not in my mind) as to whether the U.S. government would or should adopt the view that offering a bribe to an official’s relative can count as offering something of value to the official.

That doubt has been laid to rest. In the BNY Mellon settlement from last August, the settlement document explicitly endorsed the view that the firm’s decision to provide internships to foreign officials’ relatives counted as providing “anything of value,” because “[t]he internships were valuable work experience, and the requesting family members derived significant personal value in being able to confer this benefit on their family members.” And last week, the SEC announced a settlement with Qualcomm regarding investigations into Qualcomm’s alleged FCPA violations in China; although the violations included more traditional bribes (such as lavish gifts, travel, and entertainment), the settlement focuses substantially on Qualcomm’s practice of hiring the relatives of Chinese officials (and executives at state-owned enterprises, who count as foreign officials for FCPA purposes) in exchange for favorable treatment—even when these candidates would not meet Qualcomm’s normal hiring standards.

As GAB readers know, I think that this view is legally correct, good policy, and entirely consistent with the DOJ and SEC’s past statements on this issue, including the FCPA Resource Guide (which admittedly doesn’t discuss this specific scenario explicitly). The recent settlements in BNY Mellon and Qualcomm do not, of course, have any bearing on whether I’m correct in those views. But insofar as there might have been any uncertainty about the U.S. government’s position, it has been eliminated. This is likely bad news for J.P. Morgan, but good news for the world. Why do I think it’s good news for the world? Three main reasons: Continue reading →

Does Immunity Mean Impunity?: Understanding Obstacles in the Prosecution of U.N. Corruption

Posted on by
7

Corruption has yet again publicly surfaced as a significant problem at the United Nations. The current bribery scandal implicates John Ashe, the U.N. ambassador from Antigua and Barbuda and the former President of the General Assembly, along with several others. Ashe stands accused of accepting $1.3 million in bribes from Chinese developers in exchange for promoting real estate projects. Among the others who have come under scrutiny is Francis Lorenzo, the Dominican Republic’s deputy ambassador to the U.N., who allegedly accepted and paid bribes as a part of a scheme to influence decisions related to the development of a multi-billion dollar U.N. conference center in Macau.

As both Sarah and Matthew have previously discussed, the U.N. has not done an admirable job of policing itself. But now the organization may be getting help from the U.S. Attorney’s Office for the Southern District of New York. In October 2015, the FBI arrested Ashe and Lorenzo on charges of tax evasion and bribery, respectively. But the prosecution of officials of an international organization poses uncommon challenges. U.N. diplomats can claim certain immunity against suit in American courts, and both Ashe and Lorenzo plan to assert such immunity as a complete defense. U.S. Attorney Preet Bharara feels confident that he will be able to defeat these immunity claims, and he has further implied that he will be able to do so in future cases.

Is Bharara’s confidence well-founded? Any assessment of how American prosecutors (or other national prosecutions) may fight corruption at the U.N. requires delving into the complex legal doctrines on diplomatic immunities. This post aims to offer a brief primer on the key legal concepts and doctrines, and how they might apply in the Ashe and Lorenzo cases. Continue reading →

Countering Procurement Corruption with Integrity Pacts: The Indian Experience

Posted on by
7

Corruption in government procurement is a massive problem worldwide, especially in developing countries. In an ideal world, measures to combat procurement corruption would include structural changes that would open up monopolies, break cartels, and enact rational, uniform, and effective procurement laws. Sadly, the potential effectiveness of these measures is matched only by the near impossibility of their implementation any time soon. We should continue to push for comprehensive structural solutions to the procurement mess, of course. But in the meantime, are there other measures that can be implemented in countries struggling with widespread procurement corruption, which can at least help alleviate the problem?

One possible solution, heavily promoted by Transparency International (TI), is the use of so-called “Integrity Pacts” (IPs). An integrity pact is a voluntary agreement between a government agency and the bidders entering into a procurement contract, where both sides agree to refrain from corrupt practices. Bidders violating the pact could be blacklisted, placed under investigation, or have their contracts cancelled. Civil society actors monitor and arbitrate disputes in enforcement of IPs. The first IP was implemented in Ecuador for a refinery project in 1994; since then, TI has collaborated with government agencies to implement IPs in public contracts of more than 30 countries including Germany, Hungary, South Korea, Malaysia, Mexico, Argentina, Pakistan, China and India.

No one expects IPs to be a panacea—deeper structural reforms are still essential. But do IPs at least help? Or are they a distraction from more meaningful reforms? While a general answer may not be possible, we can learn from the past three decades of experience with IPs in different countries. One useful test case for the effectiveness of IPs is India. And the evidence is, on the whole, encouraging. Continue reading →

How Asset Return Agreements Can Bolster Reform: The Kazakh Experience

Posted on by
6

Guest contributor Robert Packer last week highlighted what can be the most contentious issue presented by the U.N. Convention Against Corruption – a request for the return of assets stolen as a result of corruption.  One reading of the convention seems to give countries victimized by corruption an absolute, unrestricted right to the return of the proceeds of corruption located in a second state.  But as Robert observed, states holding stolen assets can be reluctant to return them to a country where the chances the assets will again be lost to corruption are high and can find language in the convention arguably giving them the right, if not to keep the assets, to make return conditional on the requesting state taking steps to ensure the returned assets benefit citizens rather than again being stolen.  While there is always the danger that conflict over whether a return should be unrestricted or conditional will become acrimonious, a recent experience shows the result can also lead to a solution that benefits all parties. Continue reading →

Dear International Anticorruption Court Advocates: It’s Time to Answer Your Critics

Posted on by
4

Over the last year or so, proposals for an International Anti-Corruption Court (IACC), modeled on (but distinct from) the International Criminal Court (ICC), have attracted an increasing amount of attention in the anticorruption community and beyond. This attention is due in part to the understandable frustration with the continued impunity of many kleptocrats, and in part to the instinctive attraction (in some quarters) to international judicial solutions to political problems. It’s also the result of the dogged and determined advocacy of IACC proponents. As some readers of this blog probably know, I’m skeptical. But I nonetheless admire the IACC advocates for their willingness to think creatively and to spark an important debate.

That admiration, however, is waning, and the reason is simple: For all their talk about wanting to start a conversation, IACC advocates have shown surprisingly little interest in engaging, in any serious way, with substantive objections to the proposal. It’s now over 18 months since the campaign for an IACC began. Very early on, sympathetic but skeptical critics—including me, as well as several others (see here and here)—raised a number of serious questions and concerns. These concerns are not minor details about implementation—they go to the heart of the proposal, and if the criticisms are on the mark, then the whole enterprise is misguided. Now, maybe the criticisms are not well-founded; maybe there are good answers to all of them. Yet so far IACC advocates have not really provided those answers. (To be fair, the main pro-IACC webpage includes an FAQ section that purports to offer some preliminary responses, but to call those responses “thin” would be generous.) When pressed, IACC advocates have a tendency to respond with one or both of the following rejoinders: (1) “Corruption is really bad—don’t you want to stop it?”; (2) “The critics have raised a number of concerns that will need to be addressed when we work out the details of the proposal.” But nobody in this debate seriously disputes the harms of corruption, and the criticisms that have been raised are not about minor details. At this point, if IACC advocates are serious, they need to offer more than that, and what’s to be found on the brief FAQ page.

Just to recap the main objections: Continue reading →

You Can’t Go Home Again: A Surprising Concession from South Africa’s President

Posted on by
5

“Nkandlagate” has been the gift that keeps on giving for South Africa’s satirists and social media quipsters. It started with the scandal itself: Jacob Zuma, the country’s president, spent at least 256 million rand (what was then more than US$30 million) in public funds to install a swimming pool, amphitheater, chicken run, and cattle corral at his private home, called Nkandla. When the expenditures were revealed, he claimed they were “security upgrades.” After all, the most natural way to ensure you have enough water on hand to put out a fire is to install a swimming pool, right? Political cartoonists and puppet-starring TV shows alike have weighed in on Zuma’s recalcitrance in the face of Public Protector Thuli Madonsela’s report demanding that Zuma pay back some of the misused funds.

The jokes are understandable: after years of living with the consequences of an infamous arms deal–the “original sin” that “infected [the country’s] politics” with corruption when the lack of consequences for its high-level participants fostered a sense of impunity–many South Africans have turned to dark comedy as a form of release.

The need for that type of gallows humor may have dipped slightly earlier this month.  President Zuma, after refusing for years to admit he’d done anything wrong and publicly mocking the outcry about Nkandla, finally conceded to the country’s highest court that he should have obeyed the findings of Madonsela’s report. Rather than insisting that President Zuma did nothing illegal, his defense team is now arguing that the president made a mere “mistake of law.”  What explains this stunning reversal? And what will the implications be?

Continue reading →

Judge Sullivan Calls Out the DOJ: What Corporate Settlements Reflect About The Broader Criminal Justice System

Posted on by
4

After the DOJ released the Yates Memo last September, I suggested that the DOJ was probably very serious about focusing attention on prosecuting individuals involved in corporate misconduct (including FCPA violations). This would constitute a significant shift away from the DOJ’s recent practice of resolving most allegations of corporate wrongdoing through deferred or non-prosecution agreements (known as DPAs and NPAs). Some proponents of DPAs and NPAs claim that such settlements—which allow companies to avoid formal legal charges if they cooperate with a DOJ investigation, disclose desired information, improve compliance measures, and perhaps pay a fine—are actually a “a more powerful tool” than convictions in changing corporate behavior. But many critics—such as Judge Rakoff—have argued that settlements usually obscure who is actually responsible for the misconduct, and “ever more expensive” compliance programs may do little to prevent future misconduct. As Judge Rakoff suggested:

“[T]he impact of sending a few guilty executives to prison for orchestrating corporate crimes might have a far greater effect than any compliance program in discouraging misconduct, at far less expense and without the unwanted collateral consequences of punishing innocent employees and shareholders.”

Federal judges, including Judge Rakoff, are responsible for approving the DOJ’s settlements with corporations. The scope of their review is quite limited, and they are required to defer to the prosecution decisions of the DOJ. But even before the Yates Memo, judges had begun reviewing settlements more carefully when individuals were not charged. At least one federal judge is still dissatisfied with the DOJ’s enforcement strategy, and recently took the opportunity—in a corruption case—to urge the DOJ to adhere to the Yates Memo and deal directly with individual wrongdoers. Moreover, he suggested this could have broader significance for how we think about the rest of the criminal justice system.

Continue reading →

Is the Kleptocracy Initiative Worth It?: A Tentative Yes

Posted on by
2

The New York Times ran a very nice piece last week (with a GAB mention!) about the U.S. Department of Justice’s Kleptocracy Asset Recovery Initiative, and its ongoing efforts to seize foreign assets held by corrupt foreign leaders (and their cronies) in the United States. We’ve already had a lot of blog commentary on some of the issues associated with the Kleptocracy Initiative (see here, here, here, here, and here). But I wanted to pause for a moment to consider a question raised in the NYT piece: Is the effort worthwhile, given its resource costs and the relatively modest successes to date? The answer is not obvious; as Rick (quoted in the article) put it: “In terms of really helping the global anticorruption struggle, I wonder if this is the highest use of resources.” (Rick further suggests that the DOJ’s resources would be better spent on assisting countries pursuing their own anticorruption and asset recovery cases.)

Rick is right to raise these questions about the Kleptocracy Initiative—but my instincts are different from his. Even if it is the case, as the NYT reports, that the DOJ has so far only been able to recover around 8% of the assets it has gone after under the Kleptocracy Initiative, this still strikes me as a good use of DOJ resources. Here’s why: Continue reading →

NGOs, Like Ceasar’s Wife, Should Be Above Suspicion: Why Indian Nonprofits Need To Take Transparency More Seriously

Posted on by
19

Soon after India’s new government assumed power in May 2014 under the leadership of Prime Minister Narendra Modi, the Central Bureau of Investigation (CBI) sought permission for arrest and custodial interrogation of journalist and human rights activist Teesta Setalvad for alleged mismanagement of $576,000 by her organization. In October 2014, the Ministry of Home Affairs (MHA) issued show-cause notices to 10,343 non-profits for not furnishing annual returns, and subsequently cancelled FCRA registrations for around 9,000 of these non-profits, citing “non-response within the stipulated time period.” India’s Foreign Contribution Regulation Act (FCRA) regulates the inflow of foreign contributions to charitable organizations and is expanding its tentacles and grip under each successive government (see here and here). In April 2015, Ford Foundation, the philanthropic organization whose work in India dates back to 1952, was put on a national security watch list and removed from the prior-permission list in January 2016, constraining its funding capacity. Ford is being targeted primarily for channeling funds to Ms. Setalvad’s NGO that was apparently ineligible to receive funds under FCRA.

As many in the Indian media have pointed out, the government’s aggressive actions against non-profits seems selective—more like a political vendetta than a principled stand against misappropriation of funds. It’s hard to ignore the fact that Ms. Setalvad had sought the conviction of Narendra Modi for alleged human rights abuses during his tenure as the Chief Minister of Gujarat, or that the case against Ford is linked to its funding for her non-profit. Moreover, in the same month that MHA canceled the FCRA licenses of 9,000 non-profits, an access-to-information query revealed that 401 of the 545 Members of the Parliament’s Upper House had not declared their assets and liabilities – including the Minister of Home Affairs himself. And the government’s tenacious pursuit of non-profits contrasts awkwardly with the practical impunity of those accused of perpetrating India’s three biggest scams (the $27.8 billion coal scam of 2012, the $26.3 billion 2G spectrum scam of 2013, and multi-million Vyapam scam of 2015).

So, when nonprofits, activists, and their supporters accuse the government of applying a double standard, they have a point. Yet, even as we rightly protest the government’s politically motivated vendetta against civil society, it is equally important for India’s non-profits to take a good hard look in the mirror. India has witnessed an unprecedented civil society mobilization against corruption in 2011 and non-profits have spearheaded numerous successful anticorruption initiatives, such as social audits, citizen report cards, and crowdsourcing platforms like I-Paid-a-Bribe.com. Yet the members of India’s vibrant non-profit sector must be sure that they are applying to themselves the same high standards of transparency and accountability that they advocate in the public sphere. Too often, they fall short. Indeed, the accountability practices within India’s non-profits are alarmingly sketchy. Continue reading →

Fighting Corruption With Art: Successfully Raising Public Awareness

Posted on by
11

Art is “one of the best societal mediators of difficult messages — it has always created a bridge between the comprehension and the expression of critical problems in society.” So declares the 10th International Anti-Corruption Conference’s website, which organized an art program against corruption. In keeping with that sentiment, last September the Anti-Corruption Organization of Thailand (ACT) organized a “museum of corruption,” a temporary exhibition at the Bangkok Art and Culture Centre intended to raise public awareness about the extent and costs of corruption. Thailand is not the first country to undertake such an initiative. Museums of corruption (actual museums, not just temporary exhibitions) already exist in Paraguay, Ukraine and the United States, and many other enterprises that use art as a tool for anticorruption education and action are flourishing worldwide. For instance, the Open Society Initiative for West Africa has recently launched a hip hop video against corruption in Liberia, while the Inter-American Development Bank organized a cartoon contest to promote awareness and understanding of the corruption phenomenon and its harm to development. More recently, Pakistani President Mamnoon Hussain called upon poets and intellectuals to write against corruption. Other major players in the anticorruption field that have organized artistic projects include Transparency International (see here and here) and the United Nations Development Program (UNDP). In additions to these institutionalized artistic anti-corruption projects, several countries have witnessed spontaneous public art displays – in the physical public domain, usually outside and accessible to all – to promote awareness and solidarity in fighting corruption (see for example in Afghanistan and South Africa).

Understandably, some are skeptical of these initiatives, arguing that museums and temporary exhibitions are not the right forum to communicate on corruption (this was one of the criticisms of the Thai museum of corruption). One might worry that expressing anticorruption messages through cartoons and popular music won’t lead people to take the message seriously enough. (This would also be true when the artistic initiative takes a more humorous approach, as is the case for many of the anticorruption cartoons, as well as New York’s corruption museum.) And of course, nobody thinks that art initiatives on their own are enough. Yet while artistic initiatives will not by themselves solve the issue of corruption, these initiatives are not just a fad or a gimmick or a distraction. Indeed, there’s quite a bit of research indicating that these programs can be quite effective in raising public awareness on corruption. Continue reading →