Guest Post: How to Improve Foreign Bribery Enforcement in Korea

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Jeena Kim, a lawyer with Bae, Kim & Lee LLC (Seoul), contributes the following guest post:

South Korea was one of the first signatories to the OECD Anti-Bribery Convention in 1997, and in 1998 Korea enacted legislation–the Act on Preventing Bribery of Foreign Public Officials in International Business Transactions (Korean FBPA)–to implement the convention domestically. Yet while the US Foreign Corrupt Practices Act (FPCA), which served as a model for the Korean FBPA, has been actively enforced throughout the world, the Korean FBPA is significantly under-enforced, especially against corporate offenders. According to the OECD Working Group on Bribery, by the end of 2012, Korea had sanctioned 16 individuals and four legal entities for foreign bribery under the Korean FBPA, whereas the United States had imposed criminal sanctions on 62 individuals and 77 legal entities, and had imposed civil or administrative sanctions on an additional 41 individuals and 55 legal entities. Moreover, only nine cases have been prosecuted and convicted under the Korean FBPA since 1999, and eight of those involved bribery related to procurements for the U.S. army in Korea–that is, cases in which the bribery occurred in Korea rather than abroad. Korea’s under-enforcement of the Korean FBPA against foreign bribery is not only a problem for Korea, but also hinders multinational efforts to combat corruption, and creates many innocent victims in the host countries of bribed foreign officials.

While there are many possible explanations for the under-enforcement of the Korean FBPA, one of the most significant is the difficulty of collecting evidence of foreign bribery. The United States suffered the same problem in the early years of the FCPA, but the US government effectively overcame this obstacle through a two-pronged strategy: (1) granting a cooperation benefit to offenders that came forward and provided evidence, and (2) threatening severe punishment for uncooperative defendants. Many risk-averse companies therefore had the incentive to conduct a robust internal investigation, and to turn over evidence relevant to their own prosecution to the government in exchange for lenient treatment.

The success story of the United States in enforcing prohibitions against foreign bribery suggests a possible approach for Korea, though one that would need to be implemented in a somewhat different way, through different Korean institutions. Here’s how it could work: Continue reading →

A Problematic Proposed Whistleblowing Law in Switzerland

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Switzerland is currently not a particularly hospitable country for whistleblowers.  The anti-retaliation protections provided to potential whistleblowers are relatively sparse – individuals fired from their jobs can, at best, hope to receive up to the equivalent of six months of their salary rather than reinstatement – and there are few legislative incentives in place to encourage individuals to report corruption or other forms of corporate wrongdoing.  Moreover, not only are the country’s laws rather harsh when it comes to encouraging and protecting whistleblowers in the private sector, commentators have noted the “brutally hard line” that the Swiss government has taken in a number of high-profile whistleblower prosecutions.

Unfortunately, a proposed law which has passed the country’s Council of States and will be considered by its National Council, initially billed as an attempt to address ambiguities within the current whistleblower system, appears likely, if enacted, to make an already hostile climate for whistleblowers even worse.

Continue reading →

Sua Sponte Corruption Inquiries by Arbitral Tribunals: Causing More Harm than Good?

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As several prior posts on this blog have discussed (see here, here, and here), corruption has emerged as a significant and controversial issue in international investor-state arbitration proceedings, with a number high-profile cases in which the tribunal refuses to provide relief on the grounds that the underlying contract was procured through corruption. In these cases, corruption allegations usually surface at the initiative of one of the parties. For example, this summer, Djibouti filed an arbitration against Dubai-owned port operator DP World, seeking annulment of a port concession because DP World allegedly formed its contract with Djibouti for the operation of Africa’s largest container terminal through corrupt means. However, in rare instances, corruption can enter the picture without either party raising the issue during the proceedings. In these cases, the arbitral tribunal considers the issue of corruption sua sponte, even when neither party alleges corruption by the other.

Perhaps the most prominent example of this is the tribunal’s decision in Metal-Tech v. Uzbekistan. In Metal-Tech, the ICSID tribunal, in its words, “required explanations” from the parties for suspicious facts that “emerged in the course of the arbitration”–in particular the fact that Metal-Tech had paid exorbitant, seemingly unjustifiable sums for consulting services to an Uzbeki government official and individuals with close ties to Uzbeki leadership. The ICSID tribunal then essentially placed the burden of disproving corruption in light of this circumstantial evidence on Metal-Tech, which could not come up with enough evidence to overcome the tribunal’s presumption. The ICSID tribunal held it did not have jurisdiction and dismissed Metal-Tech’s claim.

On the surface, sua sponte efforts by tribunals to address corruption may seem like a positive step in the anticorruption fight. Indeed, it might seem irresponsible for the tribunal to stick its head in the sand given such facially suspicious facts. As Michael Hwang and Kevin Lim assert in a recent paper endorsing this sua sponte practice, “Tribunals must remain vigilant and alert to the possibility of corrupt dealings being hidden by one or both parties, otherwise they may become unwitting accessories to heinous acts.” But in fact, the approach adopted by the tribunal in Metal-Tech, might do more harm than good. Indeed, by engaging in sua sponte considerations of corruption, arbitral tribunals might unwittingly perpetuate corruption under several different scenarios: Continue reading →

More on the “News from Nowhere” Problem in Anticorruption Research

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One of my all-time favorite academic papers — which should be required reading not only for those who work on anticorruption, but on any topic where people casually throw around statistics — is Marc Galanter‘s 1993 article News from Nowhere: The Debased Debate on Civil Justice. Professor Galanter’s paper doesn’t have anything directly to do with international corruption. Rather, he sets out to debunk a series of widely-held but mostly-false beliefs about civil litigation in the United States, and in the process he traces the origins of many of the statistics often cited in debates about that topic. He finds that many of these statistics come from, well, nowhere. Here’s my favorite example: Around the time Professor Galanter was writing, it was common to hear claims that the civil justice system costs $80 billion in direct litigation costs; indeed, that figure appeared in an official report from the President’s Council on Competitiveness. The report’s only source for that estimate, however, was an article in Forbes; Forbes, in turn, had drawn the figure from a 1988 book by Peter Huber. But Huber himself hadn’t done any direct research on the costs of the system. Rather, Huber’s only source for the $80 billion figure was an article in Chief Executive magazine, which reported that at a roundtable discussion, a CEO claimed that “it’s estimated” (he didn’t say by whom) that insurance liability costs industry $80 billion per year. So: A CEO throws out a number at a roundtable discussion, without a source, it gets quoted in a non-scholarly magazine, repeated (and thus “laundered”) in what appears to be a serious book, and then picked up in the popular press and official government reports as an important and troubling truth about the out-of-control costs of the US civil justice system.

I thought about Galanter’s book the other day when I was reading the Poznan Declaration on “Whole-of-University Promotion of Social Capital, Health, and Development.” The Declaration itself is about getting universities to commit to integrating anticorruption and ethics into their programs; I may have something to say about the substance of the declaration itself in a later post. But the following assertion in the Declaration caught my eye: “Despite the relative widespread implementations of anti-corruption reforms and institutional solutions, no more than 21 countries have enjoyed a significant decrease in corruption levels since 1996, while at the same time 27 countries have become worse off.” Wow, I thought, that seems awfully precise, and if it’s true it’s very troubling. Despite the fact that I spend a fair amount of time reading about the comparative study of corruption, that statistic is news to me. It turns out, though, that it’s news from nowhere. Continue reading →

National Anticorruption Strategies: Lessons from the Asia-Pacific Region

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The 173 nation that have ratified the U.N. Convention Against Corruption are obliged by article 5 to “develop and implement or maintain effective, coordinated anticorruption policies . . . .”  Many meet this requirement by adopting a national anticorruption strategy, and such strategies are so common that the World Bank, the U4 Anticorruption Resource Centre, and Transparency International have all published works advising how to develop and implement them.  The latest, and most useful entry, comes from the Bangkok office of the U.N. Development Program.   Released December 9,  Anticorruption Strategies: Understanding What Works, What Doesn’t and Why — Lessons from the Asia-Pacific Region draws on the experience of 14 countries in the region  to  help guide policymakers wanting to promulgate a national strategy or revise an existing one. Continue reading →

Updated Anticorruption Bibliography – December 2014 Update

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An updated version of my anticorruption bibliography is available from my faculty webpage.  A direct link to the pdf is here.  (And, if you only want to see the new additions in this update, you can find those sources here.) As always, I welcome suggestions for other sources that are not yet included, including any papers GAB readers have written.

Whistling in the Dark: The Potential Benefits of Withdrawing Anti-Retaliation Protection from Foreign Whistleblowers

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When the US Congress enacted the Dodd-Frank Act in 2010, it provided the Securities and Exchange Commission (SEC) with two powerful tools to encourage whistleblowers to report violations of the Foreign Corrupt Practices Act (FCPA) and other federal securities laws. First, whistleblowers can potentially receive a “bounty” of 10-30% of the monetary damages assessed against a company. Second, whistleblowers are shielded from their employers’ ire via an “anti-retaliation” provision, which affords whistleblowers a private cause of action for wrongful termination, harassment, or other discrimination associated with their report.

While many observers initially believed that these measures applied equally to all whistleblowers, the U.S. Court of Appeals for the Second Circuit recently held in Liu v. Siemens AG that the Dodd-Frank Act’s anti-retaliation provision does not have extraterritorial effect–it cannot be invoked by a foreign whistleblower against a foreign corporation (even though the corporation is listed on a US exchange), if none of the relevant conduct took place in the United States. The Second Circuit is the first Court of Appeals to adopt this position and, as some commentators have noted, this ruling creates an odd imbalance in the Dodd-Frank Act’s whistleblower provisions: in certain cases involving foreign whistleblowers and foreign companies, although whistleblowers might be eligible to receive significant monetary rewards under the Dodd-Frank Act’s bounty provision, they will nonetheless not be able to invoke the Act’s anti-retaliation provisions if their employer takes action against them.

Putting aside the question of whether the Second Circuit’s legal analysis was sound, as a matter of policy this may, at first glance, seem like a perverse result. Yet this seeming disconnect between the reach and scope of the Dodd-Frank Act’s bounty and anti-retaliation provisions may result, paradoxically, in an improvement in both the volume and content of whistleblower reports.  Continue reading →

Crowdsourcing the Fight Against Fake Drugs

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Producing and selling falsified medicines—fake drugs deliberately labeled as real and sold to consumers—has been described by the Institute of Medicine as “the perfect crime.” The industry tops $200 billion annually and in Africa alone is responsible for 100,000 deaths each year. The WHO identifies corruption as one of the biggest challenges to keeping these drugs off the market, but the number of access points all along the supply chain—at the point of manufacturer, in customs offices, at distribution centers or individual pharmacies—make reining in corruption a gargantuan task. Governments may squeeze one area—say stricter regulation of customs offices—only to find distribution centers being turned into drug swap shops.

We may, however, be witnessing a shift in how governments approach these issues, moving from confronting corruption head on—which has met with mixed results—to simply circumventing it. The Nigerian experience is noteworthy. Nigeria’s National Agency for Food and Drug Administration (NAFDAC) has teamed up with Sproxil, a product verification company, to allow consumers to individually verify the authenticity of their drugs. NAFDAC is effectively crowdsourcing its falsified medicines anti-corruption efforts, and with some very positive results. Continue reading →

Guest Post: Global Shell Games — Experimenting with Untraceable Shell Companies

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GAB is delighted to welcome back guest contributor Professor Jason Sharman of Griffith University, Australia, who contributes the following post:

Among the various mechanisms for hiding and laundering large sums of money associated with corruption, shell companies that cannot be linked with their real owners have proved one of the most troublesome. A 2011 Stolen Asset Recovery Initiative report on laundering the proceeds of grand corruption noted that from a total of 213 cases, 150 involved the use of shell companies (or, more rarely, trusts) to launder $56.4 billion. Since 2003, all those governments bound by the standards of the Financial Action Task Force (FATF) have promised to ensure timely access to information on identity of those owning shell companies, and FATF rates member countries according to their compliance and the overall level of risk they present. Despite (or perhaps because of) a renewed stress on tracing shell companies’ beneficial (i.e. real) owners, most recently at the G20 leaders’ summit in my home state of Brisbane, there are good reasons to be skeptical about whether the standards are really enforced.

Frustrated with the poor measurement of policy effectiveness in this area, Michael Findley, Daniel Nielson, and I decided to try a new approach. We ran a real-world experiment to see whether corporate service providers would comply with the rules on client screening, particularly in cases where the client profile raised “red flags.” Our findings, reported in our book Global Shell Games, were both worrying and counter-intuitive. Continue reading →

Corruption Risks in the Criminal Justice System

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The U4 Anti-Corruption Resource Center has just published the introductory chapter to a new U4 issue paper, Corruption Risks in the Criminal Justice Chain and Tools for Assessment.  The forthcoming paper has separate chapters that examine where corruption is most likely to arise in the 1) investigation, 2) prosecution, and 3) trial of a criminal case and in 4) the detention of suspects and incarceration of convicted defendants.  The chapters also describe what tools exist to to assess these risks.  The introductory chapter, co-authored by this writer, summarizes the four chapters.

U4 will release the other four chapters one by one in January 2015.  Join U4’s linked-in group for updates and to interact with the authors who will answer questions and respond to comments in these weeks: