Category Archives: Commentary

Declinations-with-Disgorgement in FCPA Cases Don’t Worry Me: Here’s Why

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Among those who follow Foreign Corrupt Practices Act (FCPA) enforcement practices, there’s been a spate of commentary on a few recent cases in which the Department of Justice (DOJ) has resolved FCPA cases with a formal decision not to prosecute (a “declination”) that includes, as one of the reasons for (and conditions of) the declination, the target company’s agreement to disgorge to the U.S. Treasury the profits associated with the (allegedly) unlawful conduct. Disgorgement is a civil remedy rather than a criminal penalty (as the U.S. Supreme Court recently emphasized); it is often employed by the Securities and Exchange Commission (SEC), which has civil FCPA enforcement authority over issuers on U.S. exchanges. Until recently, however, the DOJ – which has civil FCPA enforcement authority with respect to non-issuers, and criminal enforcement authority in all FCPA matters – had not sought disgorgement very often, and the recent “declination-with-disgorgement” resolutions appear to be something new, at least in the FCPA context.

Not everyone is happy with this development. Last week, for example, Professor Karen Woody posted an interesting commentary over at the FCPA Blog (based on a longer academic paper) on why the emergence of declinations-with-disgorgement in FCPA cases is an “alarming” development that makes her “queasy.” Professor Woody is an astute and knowledgeable FCPA commentator, and I’m hesitant to disagree with her—especially since I’m not really an FCPA specialist in the way that she is—but I’m having trouble working up a comparable level of alarm. Indeed, my knee-jerk reaction is to view the declination-with-disgorgement as a useful mechanism, one that would often be the most appropriate one to employ to resolve FCPA violations by a company that is not subject to SEC jurisdiction, and eliminating this mechanism might force the DOJ to employ a worse alternative.

Let me start by laying out the affirmative case for declinations-with-disgorgement, and then I’ll turn to Professor Woody’s concerns. Continue reading →

Model Language for an Anticorruption Citizen Suit Provision in Community Development Agreements

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Community Development Agreements (CDAs) are contracts between extractive companies and the local communities that reside near their operations. The contracts are designed to funnel some of the financial and non-financial benefits of the project to those who are most likely to be negatively impacted by their inherent destructiveness. Some developing states require CDAs from extractive companies as a precondition for granting permits, and the World Bank publishes model regulations for CDAs—recommendations that hold significant sway for many developing states. The World Bank’s model regulations are often referenced, or adopted wholesale, by countries with capacity constraints.

The World Bank model CDA, and many of the existing national laws which govern CDAs, include required, substantive terms such as monitoring components, dispute resolution systems, etc. However, CDAs have not traditionally included provisions that might allow the contracts to be operationalized in the anticorruption fight. Building on the work of Abiola Makinwa and James Gathii, I have argued that CDAs should include anticorruption clauses that would give recognized community members the right to sue as third party beneficiaries in the case of corruption, and that the World Bank should amend its model CDA to include a third party beneficiary cause of action for corruption in the making or execution of a CDA.

While my previous post advocated for this reform in general terms, my objective here is to suggest specific language that the World Bank should incorporate into its model regulations. These provisions derive in part from recommendations of the Columbia Center on Sustainable Investment’s (CCSI) analysis of Emerging Practices in Community Development Agreements and transform the CDA into an anticorruption tool. The recommended provisions are as follows:

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The Curious Absence of FCPA Trials

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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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Internationalizing the Fight Against Corruption: The EU Mission in Kosovo

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For countries saddled with a tight-knit, corrupt leadership class, what happened last week in Guatemala is cause for celebration.  There a normally meek judiciary slapped down the president’s effort to end a corruption investigation that threatens his rule.  What made the difference was the investigation is led by a United Nations entity created under an accord an earlier government had signed with the U.N.  The agreement, and the support it enjoys both in Guatemala and abroad, gave the nation’s Constitutional Court both the legal rationale and the backbone to tell the president that even he was not above the law.

Before corruption fighters embrace internationalization as the deus ex machina in the corruption fight, however, they will want to pay heed to another, far less publicized event, that also took place last week: publication of Joschka Proksik’s analyis of the European Union’s rule of law mission in Kosovo ( (published in this volume). As with Guatemala, the government of Kosovo agreed to share with an international agency the power to enforce the nation’s criminal law.  Unlike Guatemala, however, where the U.N. can only investigate allegations of criminal misconduct and domestic prosecutors and courts must take it from there, in Kosovo the EU’s power is unlimited.  EU personnel can at any time and for any reason investigate, prosecute, and judge whether a Kosovar has violated the nation’s criminal law — without any involvement whatsoever by local authorities.  Moreover, EULEX, as the mission is known, is far larger and far better resourced than the UN’s Guatemalan mission, staffed at its peak by some 1,900 international personnel at a cost of over €100 million in administrative expense alone.

Proksik interviewed dozens of current and former EULEX staff, analyzed data on investigations, prosecutions, and convictions, and perused pervious evaluations by the European Union and independent observers to determine what the progress EULEX has made in its almost nine-year life in realizing its core objectives of helping Kosovo’s judiciary and law enforcement agencies remain “free from political interference” and adhere to “internationally recognized standards and European best practices.”  Because his careful, balanced, professional assessment merits the attention of aIl looking for ways to help countries stuck with corrupt leaders, I won’t give away the bottom line.  But safe to say it forms an important counter to the Guatemala experience.

Proksik suggests some reasons why the results of internationalizing the corruption fight in the two countries differ so: EU’s large and unwieldy bureaucracy, the lack of a shared language between Kosovars and internationals, and the short-term secondments of many international staff.  As Matthew explained earlier this year, there are pros and cons to internationalizing, or outsourcing, the fight against corruption.  Given what a successful effort can achieve, understanding why the results in Kosovo have been so different from those in Guatemala is surely a topic worthy of sustained, careful attention.

Internationalizing the Fight Against Corruption: the Guatemala Showdown

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Guatemala shows how a beleaguered citizenry can fight a thoroughly corrupt leadership.  A joint United Nations/Guatemalan agency, known by its Spanish initials CICIG, has for several years been waging all out war against corruption in Guatemala (details here).  Besides winning corruption convictions against countless senior politicians and military leaders, its investigations led to the 2015 ouster of then President Otto Pérez Molina and Vice President Roxana Baldetti for orchestrating a massive corruption scheme in customs.  CICIG has been able to withstand the inevitable backlash that cases against the powerful generate thanks to a remarkable alliance between Guatemalans fed up with corruption and impunity and those in the international community willing to provide not only financial support but political backing too.

Fearing he is about to become the target of a CICIG investigation, Guatemala’s current president Jimmy Moralesis is testing the strength of the alliance. On August 26 he issued a decree expelling CICIG’s head, claiming the commission was compromising the country’s sovereignty.  Given Guatemala’s experience with foreign intervention, one would expect his claim to resonate, but so far outside far right circles it has gained little traction. The day after his order issued the Guatemalan Constitutional Court granted an amparo (protective order) staying the expulsion order pending a hearing on its lawfulness.  Guatemalans have taken to the streets, and commentators to the airwaves and op-ed pages, to protest Morales’ action.

International backers of CICIG have come to its defense too.  The U.N. Secretary General, the U.S. State Department, the European Union, and the Latin American Association of Ombudsmen have all denounced Morales’ order.  CICIG’s most important international ally may well be U.S. Congresswoman Norma Torres.  Guatemalan by birth, she is a leading voice on U.S. policy towards Guatemala, from shaping a responsible foreign assistance program, to devising a humane immigration policy, to supporting the fight against corruption. In an August 29 opinion piece in a Guatemalan daily (reprinted below in English) she not only strongly backed CICIG but reminded Morales his actions were putting millions of dollars of U.S. aid at risk. However much cheap demagoguery about foreign intervention and “Yankee imperialism” might undermine the credibility of CICIG’s other international supporters, the Congresswoman would seem immune.

Guatemala is a model for how a small country stuck with entrenched, powerful and corrupt leaders can mobilize international organizations, friendly governments, and key members of the diaspora to help purge the nation of corruption.  The outcome of the showdown between President Moralies and that alliance in Guatemala will be a critical test of the model’s viability.

Iván Velásquez and the Future of Guatemala
by Congresswoman Norma Torres

Like many chapines [Guatemalans] in Guatemala and abroad, I was shocked and dismayed by President Morales’s decision to declare Iván Velásquez “persona non grata.”  This decision is not only a devastating step back in the progress that has been made in anti-corruption efforts, it will delay justice in the important investigations and that are currently underway. It may also have lasting repercussions for Guatemala’s future by putting at risk millions of dollars in critical assistance. Continue reading →

Conceptualizing Bank Robbery: A Pedantic Parable for Corruption Scholars

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Some years ago, an ambitious and idealistic young social scientist decided that she would put her newly-acquired research skills to good use by trying to better understand and combat some important social problem. She settled on bank robbery. Why? Well, partly her personal interest, partly her background, and partly coincidence: She had a friend whose hometown had been hit by a rash of bank robberies, and she had been reading newspaper articles about a high-profile bank robbery, and it just seemed like a good thing to work on.

She went to see a senior scholar in the field, a former editor of the Journal of Bank Robbery and chair of the International Association of Bank Robbery Studies. They had the following exchange: Continue reading →

For the Love of Money: Capitalizing on Corrupt Officials’ Opulent Spending Habits to Fight Corruption

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Corruption is notoriously difficult to track and discover, not least because both sides in a corrupt exchange have strong incentives to avoid getting caught. So how can enforcement officials, journalists, and anticorruption activists catch corrupt actors? Pay close attention to flagrant and excessive spending by public officials. After all, most people who benefit from corruption, whether they are officials receiving bribes or industrialists benefitting from the government action they purchased, do it for the money. And what’s the point of taking on so much personal risk to make more money if you can’t spend it on nice things? This is why you’ll see Chinese officials wearing wristwatches worth four times their annual salary and presidents spending millions on designer clothes and shoes and other luxury goods. The additional risk of being caught seems to be outweighed by the perceived social benefits of public displays of wealth. Throwing lavish weddings and banquets seems to be a particularly common trap that captures this phenomenon. The very public nature of these events, the massive guest lists, and the attendance of well known figures all but guarantee public scrutiny. But current and former government officials just can’t seem to help themselves. For example, in the middle of India’s recent anticorruption crackdown a former government minister held a lavish wedding for his daughter at a cost of over $75 million. This is in a country where a former state chief minister and potential prime minister was recently sentenced to four years in prison, banned from politics for a decade, and fined $16 million after an investigation sparked by an astonishingly opulent wedding she hosted.

Over the past decade, the spending habits of dozens of high-ranking officials have produced a number of viral news stories and have, in some cases, led to effective enforcement actions. The fact that people are willing to spend their corruptly acquired wealth so publicly, in spite of the risks involved, provides enforcement officials and anticorruption advocates with a unique and important opportunity in three respects:

Continue reading →

How For-Profit Businesses Can Reduce Corruption in Development Aid

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Although for-profit businesses often are epicenters of corruption-related problems, there are opportunities for small and medium enterprises (SMEs) to reduce corruption in development aid—particularly in locales and sectors where NGOs and the government do not seem to have an impact, or where the NGOs and governments are themselves part of the problem. Development practitioners and policymakers should consider greater use of for-profit businesses, as opposed to non-profit NGOs, for implementing development projects.

There are several reasons why SMEs may be able to successfully run for-profit social ventures that are potentially more resistant to corruption: Continue reading →

How Corrupt Institutions Corrupt Decent People

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One of the great challenges in combating corruption—particularly systemic corruption that permeates an entire organization or institution—is figuring out how and why ordinary, well-meaning people would get caught up in activities that are blatantly unethical and usually unlawful. Yes, there are some greedy sociopaths out there, but most people at least like to think of themselves as good people. And yes, sometimes the sociopaths wield so much power that they can coerce collaboration or obedience—but in most cases, systemic corruption occurs only because a large number of people who think of themselves as basically decent end up doing (or at least tolerating and implicitly enabling) grotesquely unethical conduct.

We’ve had a few posts on this topic before (see, for example, here and here), and there’s a substantial and ever-growing body of academic literature, in fields like psychology and organizational sociology, which investigates this question. I’m still working through that literature and perhaps in a future post I’ll have something to say about the research findings. But today, I just wanted to share some insights on the question that originated in commentaries on a different topic: posts by Professor David Luban and by my colleague Professor Jack Goldsmith on the question of whether people of decency and integrity should be willing to serve in the Trump Administration. (Professor Luban’s published immediately after the election, Professor Goldsmith’s published in the wake of Trump’s abrupt firing of FBI Director James Comey last May.) Professors Luban’s and Goldsmith’s pieces are not about corruption, but rather about broader issues related to the challenges of serving a President who might push a policy agenda that many prospective appointees, though politically conservative, find abhorrent. Nonetheless, in reading these two pieces, I was struck by how much their analysis could apply, with only slight modifications, to how well-meaning individuals who join a corrupt organization (whether in the public or private sector) can end up compromising their integrity.

Below I’ll simply quote the relevant passages, with only minor edits to make their observations applicable to corruption (in a public or private organization), rather than creeping authoritarianism or a radical policy agenda: Continue reading →

What to Do About Corrupt Arbitral Tribunals?

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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 →