Category Archives: Commentary

Settling Prosecutions for Corruption: Developing Nations’ Issues

Posted on by
4

The OECD Antibribery Convention requires its 43 state parties to levy “effective, proportionate and dissuasive criminal penalties” on individuals or corporations who have bribed a foreign official. Since the convention took effect February 15, 1999, through June 1, 2014, when data was last compiled, the OECD Secretariat reports that more than two-thirds of all prosecutions have ended in a pre-trial settlement. Settlements are permitted under the convention, but they must still impose “effective, proportionate and dissuasive” sanctions on the settling defendant.

Developing nations, the World Bank/UNODC’s StAR Program, and civil society groups say many of these settlements have let corporate bribe payers off too easy.  They also say that, where a case involved bribery of a developing country official, settlement has made it harder for the developing state to collect the fine and other monies due from the bribe payer under its laws.

The OECD is considering issuing a guide on settlement terms.  To help its drafters ensure they appreciate developing nations’ concerns, Norway’s Agency for Development Cooperation asked I write a paper on settlements and developing nations. Last week I posted a draft that focused on settlement strategy.  Thanks to several very helpful comments and discussions, the final paper covers much different ground.  Among the points it makes:

  • Fears that OECD settlements will bar prosecution for the same acts in developing nations seem to be misplaced given current law, but concerns a settlement could compromise a developing state’s ability to recover — i) profits the defendant realized from corrupting its officials or ii) sufficient funds to compensate citizens injured by the corruption — are genuine.
  • Developing states with weak criminal justice systems face a dilemma when weighing whether to settle or try their own cases for corruption.  As last week’s post explained, a weak judicial system means a tough settlement is out of reach, for the system’s very weakness tells defendants if they go to trial they will prevail — or equivalently, be able to delay resolution for decades.  If a government loses a string of corruption cases, it risks encouraging more corruption as those tempted to commit acts of corruption see they are very likely to get off scot-free.

When, as in the case of transnational bribery, two sovereigns both have the legal right to try the perpetrators, tension is inevitable.  The paper offers several recommendations for if not eliminating the tension at least managing it. What in international law would be termed advancing principles of comity.  Click on Settlements of Criminal Corruption Cases — Developing States’ Issues to download the paper.  Comments earnestly solicited.  Many, many thanks to those who commented on last week’s version.

The Promise and Perils of Cleaning House: Lessons from Italy

Posted on by
4

In countries beset by endemic corruption, efforts to expose and root out corrupt networks, and to punish the participants, can and should be celebrated. There are, of course, always legitimate concerns about the role that political power struggles may play in anticorruption crackdowns (think China and Saudi Arabia), an issue we’ve discussed on this blog before (see here and here), and that I may turn to again at some point. But in today’s post, I want to put those issues to one side to focus on something different. Suppose that some combination of government investigation, citizen reports, and media scrutiny exposes a major corruption network. Suppose that even though people always suspected that corruption was all too common, the investigation reveals that the rot runs much deeper, and goes much higher, than most people had imagined. Suppose further that, as a result of these revelations, law enforcement agencies take aggressive action, putting many people in jail and causing many others to lose their government positions. Again putting aside for the moment concerns about political bias, this is all to the good. But, what happens “the morning after,” as it were?

The hope, of course, is that by “cleaning house,” the state will be able to turn over a new leaf; the “vicious cycle” of self-perpetuating corruption may be broken, and those corrupt officials disgraced and removed from power will be replaced by a new generation of cleaner (though of course not perfect) leaders. Unfortunately, while that’s one possible scenario, it’s not the only one. In his presentation at last September’s Populist Plutocrats conference, the Italian political scientist Giovanni Orsina used the Italian “Clean Hands” (Mani Pulite) investigation into widespread political corruption, and the subsequent rise of Silvio Berlusconi, to illustrate how, under the wrong set of circumstances, a well-intentioned and widely-celebrated corruption cleanup could contribute to the rise of a populist—and deeply corrupt—demagogue.

I don’t know enough to have a firm opinion on the validity of Professor Orsina’s analysis, and I gather that other analysts have a different view of the long-term impact of Clean Hands, but his arguments strike me as plausible and sufficiently important that they’re worth considering, not only as potential explanations for developments in Italian politics, but perhaps more importantly for their potential applicability (mutatis mutandis) to other cases. In particular, Professor Orsina identifies two related but distinct mechanisms through which an aggressive and seemingly-effective anticorruption crackdown can contribute to the rise of a populist demagogue like Berlusconi. Continue reading →

A Ukrainian Anticorruption Court Is an Essential Step Toward the Rule of Law

Posted on by
3

Since the Maidan movement that overthrew the last Ukrainian government, Ukrainian anticorruption activists have demanded, among other reforms, the creation of a specialized anticorruption court. Many of Ukraine’s Western backers likewise consider the creation of such a court to be an essential step in addressing the country’s systemic corruption problem, and in recent months, protests have broken out on the street in support of the court. In what appears to be a major victory for the domestic and international advocates of a special anticorruption court, President Poroshenko agreed in principle to create such a court this past October—although the details will need to be worked out.

Not everyone is convinced that the creation of a specialized anticorruption court is as important as its backers think. In a thoughtful post last month, Helen articulated the skeptical view, arguing that the specialized anticorruption court will likely not live up to expectations, and that domestic and international actors are placing too much emphasis on the creation of this particular institution. But Helen both underestimates the importance of a specialized anticorruption court in the Ukrainian context, and is overly pessimistic about its prospects for effectiveness. That said, she is right to highlight how things could go awry if the creation of the specialized anticorruption court is not done right.

Continue reading →

The U.S. Is Making a Mistake by Withdrawing from the EITI

Posted on by
4

Last month, the Trump Administration announced that the United States would be withdrawing from the Extractive Industries Transparency Initiative (EITI). The decision was not wholly unexpected, especially since the Department of the Interior announced last spring that it would no longer host regular talks among a group of U.S. stakeholders that included representatives from the industry as well as activists and government representatives — one of the requirements of membership in the EITI. Nonetheless, the U.S. decision to withdraw from the EITI is a significant setback to the fight against corruption and misgovernance in the resource sector.

To understand the likely impact of the U.S withdrawal from the EITI, it’s useful first to review what the EITI is—both its mechanics and its objectives. Continue reading →

Is It Time to Amend U.S. Domestic Anti-Bribery Statutes?

Posted on by
6

Last month’s hung jury in the trial of New Jersey Senator Robert Menendez, coming hard on the heels of appellate court decisions to vacate the convictions of former U.S. Congressman William Jefferson and New York state legislators Dean Skelos and Sheldon Silver, has increased public attention to domestic U.S. anti-bribery laws—and the Supreme Court’s interpretation of those laws. As Professor Zephyr Teachout puts it, the Court, beginning in the 1999 case Sun-Diamond Growers and continuing up through last year’s decision in McDonnell, has steadily “hollowed out” U.S. anti-bribery laws, making it much more difficult to convict “anyone but the most inept criminals.”

Now, some of the recent commentary, particularly on the impact of the McDonnell case, may overstate things a bit. As Maddie pointed out in a recent post, the fact that the Skelos and Silver convictions (and, she might have added, the Jefferson conviction) were vacated in light of McDonnell doesn’t necessarily imply that the conduct alleged in those cases is now legal. Rather, the appellate decisions held that the jury instructions were improperly phrased, and left the door open for a retrial (which will occur in these other cases, even though the government declined to retry McDonnell). And we don’t really know how much of an effect the Supreme Court’s decision in McDonnell or other cases affected the jury’s inability to reach a verdict in Menendez; it’s possible that even with a jury instruction identical to the one found deficient in McDonnell, some of the Menendez jurors would have voted to acquit. All that said, there are certainly good reasons for concern about the seemingly narrow scope of U.S. anti-bribery law.

Some of this blame, as Professor Teachout persuasively argues, can be laid at the feet of the Supreme Court. Indeed, I argued that McDonnell’s conviction should have been affirmed, and criticized the Court’s unanimous decision to vacate it. That said, I do think there’s an argument in favor of the Supreme Court’s ruling in McDonnell, at least if the holding is read narrowly as concerning the phrasing of the jury instructions. Likewise, in Sun-Diamond Growers, the Court’s holding is actually quite plausible as a reading of the unlawful gratuities statute. (The Court held that a conviction under this statute, which prohibits corruptly giving anything of value to a public official “because of any official act” performed by that official, requires the government to show a connection between the gift and a specific official act, rather than relying on the more general claim that the recipient is in a position to make decisions that affect the giver’s welfare. The Court’s interpretation of the statutory language, while contestable, is certainly reasonable.)

Moreover, if we’re looking for an institution to blame for the current state of U.S. anti-bribery law—or to lobby for improvements in that law—the Supreme Court is perhaps not the only target. There’s also the U.S. Congress, which could, and arguably should, amend the hodge-podge of anti-bribery laws to fill some of the gaps that we find in current law, as interpreted by the Supreme Court. After all, though the Court has dropped occasional troubling hints about possible constitutional concerns with a broad reading of the anti-bribery statutes, most of the Court’s rulings in this area, in contrast to the related but distinct campaign finance context, are statutory rather than constitutional. And that means that Congress could conceivably step in to fix the problem. Continue reading →

Analyzing Settlements in Corruption Cases: A Primer

Posted on by
3

As prosecutions for bribery and other corruption crimes have ramped up around the world, so too has a practice common in the United States that is now spreading: resolving criminal cases short of full trials.  A prosecution can be cut short three ways.  The first is through a plea bargain.  The defendant admits guilt at some point between the investigation and the rendering of a final verdict.  As the term implies, the admission is the result of a bargain, the defendant receiving something in return, most often a lesser sentence.

The second and third ways are through non-prosecution and deferred prosecution agreements.  With the former, the prosecution does not charge the accused with a crime even though it has sufficient evidence to do so; in the latter, a charge is filed but immediately set aside.  Like a plea bargain, non-prosecution and deferred prosecution agreements are the result of an agreement between the accused and prosecutors.

The American practice of settling a criminal case short of a trial has always had its critics.  With an increasing number of countries adopting similar practices, several for the explicit purpose of resolving corruption prosecutions, the concerns about settlement heard in America, along with ones peculiar to corruption cases, are now circulating in a larger international community (examples here, here, and here).  For a paper on developing countries and settlements, I summarize the literature on how to analyze settlements.  It appears below.  I believe it robust enough to apply to any country, but would like to hear readers’ comments. Continue reading →

Saudi Arabia’s Anticorruption Purge: A Sham to Consolidate Power and Lure Investors

Posted on by
13

Saudi Arabia’s crown prince, Prince Mohammad bin Salman (MBS, for short), has been cleaning house. In the last month, he has arrested 11 princes, four ministers, and dozens of ex-ministers, all of whom are being held in five star hotels across Riyadh. He has also detained more than 200 others for questioning. Scores of commentators and media personalities have praised MBS’s anticorruption purge (see here and here), while others have condemned it (see here and here), which goes to show just how difficult it is to understand what the recent anticorruption purge means in the context of a country like Saudi Arabia. On the one hand, in Saudi Arabia, any measure to address corruption seems to be cause for optimism. Taken against the backdrop of the many social reforms advanced by MBS, ranging from permitting women to drive, diversifying the economy, and moderating the religious establishment’s brand of Islam, the anticorruption measures appear to be part of a genuine effort to reform Saudi Arabian society. Yet this optimistic assessment naively conflates a progressive social agenda that taps into our hopes for Saudi Arabia’s future (and the Middle East’s writ large) with what Saudi Arabia’s anticorruption purge really is: an attempt to consolidate MBS’s power and reassure foreign investors. Continue reading →

China’s Anticorruption System 2.0: A Harbinger of Rule of Law?

Posted on by
7

In his three-and-a-half-hour speech at China’s 19th Party Congress last month, President Xi Jinping demonstrated his determination to maintain his vigorous anticorruption campaign. But he also proposed a number of significant changes, including (1) the creation of a new National Supervision Commission (NSC), along with supervision commissions (SCs) at the provincial, municipal, and county levels, to spearhead China’s anticorruption efforts, (2) the adoption of new national legislation, the Supervision Law, that includes improved procedural protections for the accused, and (3) the integration of China’s obligations under international anticorruption treaties into domestic law.

For the most part, Western commentators were unimpressed (for example, see Tom’s previous post). The establishment of the NSC was characterized as “essentially another power expansion of the Central Commission for Discipline Inspection (CCDI),” while the reforms related to protections for the accused were seen as little more than the “replace[ment of] one abusive detention system with another.” I beg to differ. This reform plan, while incomplete and inadequate in some respects, is a big step forward from where China stands now. While it would be a mistake to be overly optimistic before any positive change actually takes place, it would also be a mistake to dismiss these new reforms out of hand as insignificant or cosmetic. Any movement toward greater judicialization and respect for the rule of law in China is likely to be incremental and face pushback. Understood in that context, the three announced reforms noted above seem quite significant, and mark a notable break with China’s previous approach to anticorruption enforcement.

Continue reading →

Enlisting the Private Sector in the Fight Against Corruption — Part 2

Posted on by
3

Part 1 of this post lists 21 countries plus the Canadian province of Quebec that have taken measures to get corporations to join the fight against corruption.  Thanks to a bad case of jet lag, the post’s author ran out of steam before explaining what he meant by a company’s “joining the fight” or how countries got them to join it.  Herewith an explanation of both along with my apologies to readers puzzled by part 1.

To begin, a table summarizing the laws to which part 1 referred along with summaries of bills pending in the Irish and Vietnamese legislatures appears here: National Compliance Rules.  (Thanks to readers who caught errors in the part 1 list; similar scrutiny of the table solicited.)

As the table shows, the laws referenced require — or provide incentives for — companies under their jurisdiction to prevent their employees from paying bribes or engaging in other forms of corrupt conduct.  Some laws prescribe in detail the elements such an anticorruption compliance program should contain; others leave it to regulations or the courts to decide what companies must do.  With the October 2016 publication of ISO 37001 setting standards for corporate antibribery programs, most authorities will likely converge around the elements it recommends.   The recommendations are sensible and quite consciously track the experience of those countries that required corporate compliance programs, especially the United States, where guidelines on what constitutes an “effective” compliance program, drafted to help courts when deciding the culpability of corporations for the corrupt acts of employees and agents, have been in force since 2004.

Where national corporate compliance laws differ is in how countries “encourage” companies subject to their laws to institute a compliance program. The table reveals several approaches. Continue reading →

The FCPA Is Not an All-Purpose Anti-Foreign-Illegality Law

Posted on by
2

A few months back, Adam Davidson did a terrific New Yorker piece on the Trump Organization’s shady business dealings in Azerbaijan, focusing on evidence of corruption, money laundering, and sanctions evasion in connection with the Trump Organization’s licensing deal for a Trump Tower in Baku, the country’s capital. While I greatly admired the piece, I nonetheless criticized one aspect of it: the argument that the Trump Organization’s licensing deal ran afoul of the Foreign Corrupt Practices Act (FCPA), an allegation which, it seemed to me, wasn’t adequately supported by the otherwise impressive body of evidence assembled in the piece. While I recognize that a piece written for a general audience can’t get too lost in the technical legal weeds, I do think that it’s important to convey an accurate sense of what the FCPA does, and what it doesn’t do.

I was reminded of this a couple weeks back when I read an otherwise incisive essay by the political commentator Heather Digby Parton (whose work I very much admire) on Ivanka Trump’s shady business dealings and possible legal violations. Though Ms. Parton’s piece focused mainly on the Trump Ocean Club in Panama (dubbed “Narco-a-Lago” in an excellent Global Witness report), she also brought up Mr. Davidson’s reporting on the Azerbaijan project, and repeated the suggestion that the Trump Organization’s involvement in this project likely violated the FCPA. In making this case, Ms. Parton states:

The Foreign Corrupt Practices Act requires that American companies not make profits from illegal activities overseas, and simply saying you didn’t know where the money was coming from isn’t good enough…. Courts have held that a company needn’t be aware of specific criminal behavior but only that corruption was pervasive.

I hate to be nitpicky, especially when it involves criticizing a piece I generally agree with by an author I admire, but this is simply not a correct statement of the law. Continue reading →