Guest Post: Corporate or Individual Liability? Converging Approaches to Fighting Corruption

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GAB is delighted to welcome back Gönenç Gürkaynak (Managing Partner at ELIG Attorneys-at-Law in Istanbul and 2015 Co-Chair of the B20 Anti-Corruption Task Force), who, along with his colleagues Ç. Olgu Kama (ELIG partner and B20 Anti-Corruption Task Force Deputy Co-Chair) and Burcu Ergün (ELIG associate), contributes the following guest post:

Combating international corruption has come a long way in the last decade. More and more jurisdictions are adapting and updating their legal systems in an effort to eradicate impunity for corruption crimes. Yet an important question persists: Who should be held primarily liable for corruption crimes, the individual or the company? The US and European countries have traditionally provided diverging answers to this question, but there now seems to be some evidence of an emerging convergence, though a consensus is yet to be reached.

In the United States—the pioneering legal system in terms of fighting international corruption—although individuals can be charged with violations of the Foreign Corrupt Practices Act (FCPA), it is the companies that are primarily held liable for FCPA violations. The US embraces a broad notion of corporate criminal liability, based on the principle of respondeat superior (the employer is responsible for the acts or omissions of its employees) and the US Department of Justice (DOJ) and Securities and Exchange Commission (SEC) have employed this theory as the basis for FCPA settlements with scores of corporations, raking in hundreds of millions of dollars in fines. However, there have been relatively few FCPA cases brought against individuals. This may be due in part to the fact that it is often difficult to attribute a corrupt act to any one specific individual, though it may also be due to the DOJ’s and the SEC’s traditional focus on going after the “deep pockets” of the corporations that come under their scrutiny.

In contrast to the US, the focus of criminal law in continental European systems has typically been on the culpability of individuals; thus, the introduction of the concept of “corporate criminal liability” is a relatively new development. Traditionally, the continental European systems have taken the view that criminal punishment can only be imposed on grounds of personal culpability, and that organizations cannot be held liable under criminal law (societas delinquere non potest). To that end, some European jurisdictions have preferred imposing administrative liability on corporations for actions that are considered to be administrative (rather than criminal) offenses.

In terms of deterring corrupt acts, a broad notion of corporate criminal liability goes a long way. The willingness of US authorities to impose significant fines on corporations provides powerful incentives for corporations to self-police. Furthermore, the threat of criminal FCPA sanctions—and the associated “moral sanctioning” of criminal liability—may have a more powerful effect on corporations than would similar fines imposed as administrative sanctions. On the other hand, the threat of corporate criminal liability is likely not sufficient, on its own, to foster a compliance culture within an organization. In a legal environment in which individuals face a credible threat of prosecution for their personal roles in organizational corruption, corporations could maintain a stronger culture of compliance as the employees themselves would be legally responsible for their misconduct and therefore less likely to engage in (or turn a blind eye to) corrupt practices.

Even though significant differences remain among jurisdictions, it is an encouraging development that there now seems to be gradually converging views regarding corporate criminal liability among these different legal systems. Continue reading →

Donald Trump: Ethics Champion?

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Seeing the President-elect as a champion of ethics would be one way to interpret the comedic events of the past 36 hours in the upside-down world of what was once termed the capital of the free world.  The comedy opened Monday evening, January 2, with Republican members of the incoming House of Representatives voting (in secret and without prior notice) to curb the Office of Congressional Ethics, the independent body which hears allegations of ethical transgressions by House members and staff.  The vote met with immediate and sustained outrage by citizens, media commentators, and government reform groups.  Criticism was also voiced from a source many found unlikely.  In a pair of messages (here and here) Tuesday morning President-elect Trump tweeted that:

“With all that Congress has to work on, do they really have to make the weakening of the Independent Ethics Watchdog, as unfair as it may be, their number one act and priority. Focus on tax reform, healthcare and so many other things of far greater importance! #DTS”

Within hours of the Trump tweets, the comedy ended.  Chastened, on-the-defensive, with even their allies questioning their political competence, House Republicans reversed course and left the congressional ethics office’s powers intact.      Continue reading →

Specialized Anticorruption Courts: An Overview

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I’m going to take a quick break from agonizing about the impending Trumpocalypse to share some news about a new U4 Issue Paper, which I coauthored with Sofie Schütte, on specialized anticorruption courts in countries around the world. (This paper builds on an earlier series of case studies.) Here’s the abstract:

Frustration with the capacity of the ordinary machinery of justice to deal adequately with corruption has prompted many countries to develop specialised anti-corruption institutions. While anti-corruption agencies with investigative and/or prosecutorial powers have attracted more attention, judicial specialisation is an increasingly common feature of national anti-corruption reform strategies. The most common argument for the creation of special anti-corruption courts is the need for greater efficiency in resolving corruption cases promptly and the associated need to signal to various domestic and international audiences that the country takes the fight against corruption seriously. In some countries, concerns about the ability of the ordinary courts to handle corruption cases impartially, and without being corrupted themselves, have also played an important role in the decision to create special anti-corruption courts. Existing specialised anti-corruption courts differ along a number of dimensions, including their size, their place in the judicial hierarchy, mechanisms for selection and removal of judges, the substantive scope of the courts’ jurisdiction, trial and appellate procedures, and their relationship with anti-corruption prosecutors. These institutional design choices imply a number of difficult trade-offs: while there are no definitive “best practices” for specialised anti-corruption courts, existing models and experience may provide some guidance to reformers considering similar institutions. They must decide whether such a court should adopt procedures that are substantially different from those of other criminal courts, and/or special provisions for the selection, removal, or working conditions of the anti-corruption court judges.

For Foreign Aid and Fighting Corruption, Less Is More

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The US government learned many hard lessons from its military occupation of Iraq. With respect to corruption in security and reconstruction projects, one of the clearest lessons—emphasized by the 2013 final report from the Special Inspector General for Iraq Reconstruction (SIGIR), among others—was that smaller, short-term projects were more effective, and less susceptible to massive and debilitating corruption, than big, long-term projects. Indeed, a month after publication of the SIGIR report, Paul Cooksey, the Deputy Special Inspector General for Iraq Reconstruction, testified to Congress that large amounts of money should not be injected into an unstable region without enough well-trained, experienced personnel to oversee it. The better strategy, he argued, was to use small projects that could be more tightly managed. For example, one battalion commander in Iraq mentioned that greenhouse and drip irrigation projects—which allowed farmers to use water more efficiently and grow vegetables year-round—were small enough to be easily monitored to completion. This may not be as grandiose as building massive infrastructure, but it can still have a meaningful impact on people’s lives.

Yet despite the clarity and consistency of this message, it has not been heeded in Afghanistan. Continue reading →

Will the Trump Administration Realize that Fighting Extremism Requires Fighting Corruption?

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That corruption breeds extremism is one of the abiding lessons of the last decade plus.  Whether it is Nigeria, Egypt, Somalia, Tunisia, Iraq, Afghanistan or Uzbekistan, allowing what a recent Carnegie Endowment report terms “acute, systemic” corruption to fester is the equivalent of putting out a welcome mat for extremists, home-grown and foreign. Eleven days after President Trump takes office, the world will see whether his national security team has absorbed this lesson.

January 31, 2017, is the day the Trump Administration must tell an American judge whether it will continue negotiations with the Government of Uzbekistan over the return $850 million in bribes paid in violation of the Foreign Corrupt Practices Act the Department of Justice has frozen.  Following a Bush Administration policy continued by the Obama Administration, the U.S. government position has been that such funds should go back the country of origin only if:

  1. the government take steps to curb grand corruption and
  2. the monies are used to improve the lives of ordinary citizens.

Candidate Trump called the FCPA a “horrible” law. On the 31st the world will see what that means in practice.  He could, as I explain here an article for the U.S. newspaper The Hill, tell the judge he has decided to turn the money over to the Uzbek government without strings.  That result would certainly show how horrible he thinks the FCPA is.  It would also ease the task the Islamic Movement of Uzbekistan, the Islamic Jihad Union, and the other radical groups in Central Asia have set of overthrowing the endemically corrupt Uzbek government.

Will the Trump Administration realize that fighting extremism requires fighting corruption? Visit this blog February 1 for at least the first answer to the question.

Anticorruption Bibliography–December 2016 Update

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An updated version of my anticorruption bibliography is available from my faculty webpage. A direct link to the pdf of the full bibliography is here, and a list of the new sources added in this update is here. As always, I welcome suggestions for other sources that are not yet included, including any papers GAB readers have written

Leniency Agreements Under Brazil’s Clean Company Act: Are They a Good Idea?

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Brazil’s 2013 Clean Company Act, the country’s first anti-bribery statute applicable to companies, has grabbed Brazilians’ attention due to its recurrent use in the context of the so-called Car Wash operation. The Clean Company Act has provided the main legal basis for Brazilian public authorities (especially federal prosecutors) to sign leniency agreements with construction corporations whose top executives stand accused of bribing officials in exchange for contracts from Petrobras, Brazil’s state-owned oil giant. Under the Act, Brazilian authorities may enter into a leniency agreement as long as the company admits its participation in the illicit act, ceases any further participation, provides full restitution for damage caused, and cooperates fully and permanently with the ongoing investigation. In exchange, the fines can be reduced by up to two-thirds and, more importantly, the cooperating company may be exempted from judicial and administrative sanctions, including suspension or debarment from public contracts. Over the course of the Car Wash investigation, Brazilian authorities have already signed five leniency agreements with some of Brazil’s largest engineering firms, and at least twelve more companies are currently negotiating leniency deals with Brazilian authorities.

But do these sorts of leniency agreements provide for sufficient deterrence of corrupt behavior? And are they consistent with the interest in punishing those companies that have committed a serious crime? Those who defend Brazil’s increasing use of leniency agreements emphasize that a similar approach has proven to be effective in countries like the United States, one of the most successful countries in the world in the fight against corruption. Indeed, the leniency agreements authorized by the Clean Company Act were modeled on the Non-Prosecution Agreements (NPAs) and Deferred Prosecution Agreements (DPAs) used by US authorities in white-collar criminal law enforcement. However, Brazil is following the US model precisely at a time when the widespread use of NPAs and DPAs is becoming more controversial, in part because of concerns that these sorts of agreements fail to deter economic crimes and allow high-ranking executives to escape accountability for their crimes (for a summary of the criticisms of those agreements, see here and here). Perhaps more importantly, even if one views the US experience with NPAs and DPAs as successful overall, there are several reasons why this model might be more problematic in the Brazilian context. Continue reading →

Equitable Sharing, Not Deference: How US FCPA Enforcers Should Accommodate Foreign Interests

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Frederick Davis recently published two guest posts (see here and here) emphasizing some of the risks that arise when the US government pursues FCPA prosecutions against foreign corporations. He notes that European anticorruption administrators are regularly irritated by aggressive US action in this field and by the apparent discrepancy in the treatment of US and non-US corporations. He also notes that foreign corporations are reasonably worried about being charged twice for the same transgression: While European countries have addressed this concern through an international version of the double jeopardy bar (also known as ne bis in idem), that bar does not protect a corporation against a subsequent US prosecution. Moreover, as Mr. Davis notes, US enforcement agencies (as compared to their counterparts in Europe) have wider authority to charge, are more willing to assert power abroad, wield more procedural tools, and are less subject to judicial supervision in their charging and settlement decisions. To address these problems, Mr. Davis recommends, among other measures, that the US DOJ issue guidelines for when to defer to foreign judgments.

However, US deference to foreign judgments may not be the best solution. It could be true, as Mr. Davis worries, that US prosecutors are “becoming the ultimate arbiters” of foreign bribery cases (at least those involving multinational corporations). But if the US standard is indeed more stringent, then US hegemony could lead to more aggressive anticorruption prosecution across the board, a boon for anticorruption advocates. Since in certain situations competition among administrative and enforcement agencies can create a de facto “race to the top” in terms of standards, it might not be such a good idea for the US to adopt a more deferential posture toward foreign judgments in transnational bribery cases.

That’s not to ignore the significant problems that Mr. Davis describes. Given that the fines and other monetary penalties for corrupt business behavior can be enormous, US FCPA counterparts in other nations would be rightly dismayed if they lost out on the potential recoveries. If a Danish corporation listed on a US exchange bribes an official in Gambia, all three countries should be able to penalize the wrongdoers and share—though not necessarily equally—in the fines and other penalties recovered. If the penalties are appropriately distributed, we need not sacrifice the aggressive anticorruption regime of US hegemony. My response to Mr. Davis is that we need guidelines for distribution of recoveries, not necessarily guidelines for deferral to foreign judgments operating under differing, and less aggressive, standards.

Continue reading →

Guest Post: Aid Agencies Need to Improve Their Anticorruption Strategies and Implementation in Fragile States

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GAB is pleased to welcome back Jesper Johnson, who contributes the following guest post:

Last year, Nils Taxell, Thor Olav Iversen and I contributed a guest post about the EU’s anticorruption strategy and its implementation (calling development aid a blind spot for EU anticorruption efforts), based on a report which was presented twice in the European Parliament. This material was part of a wider comparative study of the anticorruption strategies of the World Bank, European Commission, and UNDP that has just been published as a book by Edward Elgar. The book is the first major comparative study of work to help governments in fragile states counter corruption by the three multilateral aid agencies. The focus is on fragile states, where aid agencies face the greatest challenges in terms of both strategy and implementation. Although many recent reports and agreements, including the OECD’s New Deal for Engagement in Fragile States and the World Bank’s 2011 World Development Report, have emphasized that agencies need to change the way they work in fragile states—in particular, the traditional policy frameworks cannot be uncritically copied from a non-fragile contexts—this message has not yet trickled down to the way these three multilateral aid agencies do anticorruption. Anticorruption and state-building policies are often disconnected or incoherent, and challenges rooted in the organization of the agencies prevent strategies from translating into results. More specifically, all three aid agencies shared a number of characteristics that inhibited their ability to address corruption in fragile states more effectively: Continue reading →

Are Better Principals the Answer to the Corruption Problem?

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Those in the business of giving policy advice know the surest way to guarantee a policymaker ignores their counsel is to say the problem is “complicated” or “there are no easy solutions” and that the best way to see the advice is accepted is to cast it in the form of a simple, straightforward solution that fits easily onto a single power point slide. World Bank economists have learned this lesson well as their recent report on how developing countries can cure corruption and related governance ills demonstrates.  Making Politics Work for Development: Harnessing Transparency and Citizen Engagement manages to state the solution to the corruption problem in one sentence: Give citizens more information about politicians so they will know which ones to vote out and which ones to keep at the next election.

The authors are able boil the complex problems of corruption and bad governance down into such a neat solution thanks to application of principal-agent theory.  But in avoiding the “it’s complicated”/“no easy solution” Scylla have they veered into the Charybdis of oversimplification?

Continue reading →