The OECD Convention and Extraterritorial FCPA Jurisdiction

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I suggested in an earlier post that a major reason for the increase in foreign anti-bribery prosecutions in other countries since the passage of the OECD Anti-Bribery Convention is increased enforcement of the FCPA against foreign companies by the US government. In this post, I will set out, in a little more depth, one factor that contributed to bringing this effect about, namely a broadened scope for enforcement jurisdiction under §78dd-3 of the FCPA.

An important effect of the entry into force of the OECD Convention was that it provided “cover” for expansive US enforcement of the FCPA. Equally important, though, was the contribution it made in providing the legal means by which the US Department of Justice was actually able to undertake this expansion. Broader enforcement has helped to push standards for anti-bribery enforcement into convergence around the world, and has encouraged other countries to start enforcing their own laws more seriously.

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More on Compliance Program Certification/Verification: The Proposed ISO Standard

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My last post, inspired by Transparency International USA’s recent publication of a report on verifying the effectiveness of corporate anti-bribery programs, talked a bit about the emergence of a set of private firms that provide “certifications” for such programs. I expressed some skepticism about the value of these certification services. Some of my concerns — also expressed in the TI-USA report — had to do the opacity and apparent inconsistency in the methodology that certification firms employ. One possible response to this concern might be to develop an “official” international standard for anti-bribery compliance, and to provide certification that firms meet that standard.

Such an effort is already underway, through an organization called the International Organization for Standardization (ISO), a consortium of national (generally private) standard-setting bodies in 163 different countries. Traditionally, the ISO promulgates international standards with respect to quality control, safety, and technical compatibility. External auditing firms then provide certifications that a firm meets the ISO standard(s) in the relevant areas. The ISO is now already in the process of developing an ISO standard (ISO 37001) for anti-bribery programs — which would be the first ISO standard to deal with a topic like bribery. The draft standard is supposed to be available for public comment by 2015.

Before proceeding further, I should disclose that I’ve been involved — very marginally — in the U.S. Technical Assistance Group that’s supposed to provide commentary on this developing standard. (Basically, I’ve listened in on a few phone calls and seen a few documents circulated to the group.) So I need to be careful what I say on this subject, so as not to disclose anything confidential. I actually think there’s little risk of that, because what I really want to do in this post is not to focus on specific features of the proposed standard, but rather to raise questions about the whole enterprise. The more I think about it, the less justification I can imagine for promulgating an international standard like this. Indeed, it strikes me as entirely the wrong way to go about promoting the very worthy cause of improved corporate anti-bribery compliance programs.

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Don’t Give Back that Glove General Holder!

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Although few readers likely can find Equatorial Guinea on a map (hint: it’s that small square wedged between Cameroon and Gabon), many have heard its name in connection with the annual contest to identify the “most corrupt country.” For despite the always stiff competition from the likes of such states as Iran, Afghanistan, Sudan, Somalia, year-in-year-out Equatorial Guinea always manages to place at or near the top.  Observers attribute its perennially strong showing to a combination of two factors: 1) the country’s vast mineral wealth and 2) its rulers’ skill and ruthlessness in keeping it all for themselves. Continue reading →

Some Thoughts on Certification of Corporate Anticorruption Programs

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Last week, I posted a brief announcement about an interesting new report from Transparency International USA about verification of corporate anticorruption compliance programs — that is, efforts to ensure that the measures companies put in place to ensure compliance with anti-bribery law (and other legal and ethical requirements) are actually working. One particularly interesting facet of the report, at least for me, was the discussion of the emerging “certification” industry: private firms that companies can hire to review their compliance programs, and that provide a public certification — basically, a statement saying “we’ve reviewed this company’s compliance program and we think it’s up to scratch.” These certification services are different from more familiar consulting services, where firms assist companies in designing or evaluating their compliance programs (though the firms that offer certification also often offer consulting services as well).

While I’m all for private sector initiative to improve corporate anti-bribery compliance, I’ll admit I’m a bit skeptical as to the value of these services. Indeed, I worry a bit about whether they might in some cases prove counterproductive. And while the TI-USA report uses careful language, I read the report as evincing a fair amount of skepticism as well. I also want to be appropriately circumspect, as I don’t really know enough to have strong views, but let me raise a few concerns about the private anticorruption certification industry.

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How the WTO’s Trade Facilitiation Agreement May Reduce Bribery

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I argued in my last post that the WTO is not well-suited to directly addressing bribery and corruption; even though bribery impedes trade, it would be a mistake to recognize bribery (or failure to suppress bribery) as an actionable violation of international trade law. But that does not mean the WTO should not take action to deal — indirectly — with the problem of corruption. A good example of productive measures the WTO can implement to reduce the impact of bribery and corruption in trade is the Trade Facilitation Agreement (TFA), which was negotiated in December 2013 (but has not yet entered into force).  The TFA aims to reduce transactional obstacles to trade, focusing mainly on border transactions; in doing so, it may indirectly address some of the most significant contributors to bribery in international trade, even though the TFA is not about corruption as such. The agreement provides a nice example of how the WTO system can take positive steps to combat corruption, even though the system is not equipped to tackle corruption directly.

The TFA has the potential to contribute to reducing trade-related bribery in three main ways.

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Should FCPA Enforcers Focus on Corruption in the Poorest Countries?

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A few months ago, the Wall Street Journal published an interview with Charles Duross, the current Morrison & Foerster partner who up until last February led the U.S. Justice Department’s Foreign Corrupt Practices Act Unit. Among the interview’s most interesting revelations was Duross’s description of how he set enforcement priorities. When asked about likely future priorities Duross provided this response:

To be clear we do prioritize cases, based on the significance of the case. For example how big are the bribes? Are we talking about $100 million or $100? But in terms of saying “I have decided what we’re going to do is look at X industry or everybody that’s going to be dealing with this country or this region, and we’re going to scrub those folks in particular,” I don’t think we do that.

Although Duross may well be correct that DOJ doesn’t target particular countries or regions, there is some evidence that FCPA enforcement does disproportionately involve particular kinds of countries–in particular, poorer countries and countries with poorer governance. A working paper by Stephen Choi and Kevin Davis (which Matthew also discussed in a recent post) found that “aggregate total monetary sanctions related to a particular violation country, controlling for the overall bribe level in that country, is greater for countries with a lower GNI [gross national income] per capita, as well as weaker government effectiveness and rule of law scores.” What to make of this? Is it true that companies are penalized more heavily (controlling for the size of the bribe) when they pay bribes in poorer countries with less effective legal systems? If so, is this desirable?

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The Case Against an International Anti-Corruption Court

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Judge Mark Wolf recently published a Brookings Paper, and an accompanying Op-Ed in the Washington Post last week, calling for the creation of an “International Anti-Corruption Court” (IACC), modeled on the International Criminal Court (ICC). The proposal is motivated by the twin observations (1) that corruption is incredibly damaging (not only in its economic costs, but also in its link to human rights abuses), and (2) that although corruption is illegal everywhere, in many countries “grand” corruption at the highest levels of government creates a culture of impunity in which the corrupt need not fear punishment.

Judge Wolf is not only a distinguished jurist, but also an experienced prosecutor of corruption cases within the United States, and for these reasons alone his proposal is worth taking seriously. And I am very much in agreement with him about the insufficiency of current anticorruption measures, particularly in those countries beset by the culture of impunity that he and others have so vividly described. Yet I find myself deeply skeptical of his proposal for an independent IACC. Indeed, I think the proposal is at best unhelpful, and at worst counterproductive. Let me explain why.

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Some Successful Initiatives by Civil Society to Prompt Corruption-Related Litigation

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In an earlier post I promoted a conference on corruption the Oxford Institute for Ethics, Law and Armed Conflict and the Open Society Foundations’ Justice Initiative had planned for June 2014 to discuss ways civil society could stimulate corruption-related litigation, be it criminal investigations or private actions for damages.  The conference was held June 28 with some 100 individuals from civil society, academia, law firms, and governments attending, and one of the highlights was presentations describing successful efforts by civil society groups in India, Nigeria, France, and Switzerland. Continue reading →

TI Report on Verification of Corporate Anticorruption Compliance Programs

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Last week Transparency International-USA released a new report entitled Verification of Anti-Corruption Compliance Programs. The report is available for download on TI-USA’s website (the link there opens the document as a pdf, so I can’t do a direct link). It’s a helpful document on an important but surprisingly neglected topic: although there’s a ton of material out there about how to design a corporate compliance program (for anti-bribery and related matters), there’s much less out there on how to go about assessing these programs to ensure they’re actually working as they’re supposed to.

I won’t bother summarizing the document here. Shruti Shah, the TI-USA Senior Policy Director who was one of the driving forces behind the report, has a nice succinct summary over at the FCPA Blog. I’ll try to do a more substantive post within the next week or two on my reactions to the report and the more general issues it raises, but for now I just wanted to bring this document to the attention of GAB readers.

How the Export-Import Bank Debate is Destroying Our Understanding of Crony Capitalism

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The sleepy, little-known U.S. Export-Import Bank is having an uncomfortable moment in the spotlight. The bank, a federal agency that finances and insures foreign governments’ and corporations’ purchases of American exports, is due for congressional reauthorization this fall. For most of its history, Congress has reauthorized the Ex-Im bank without controversy. But it has become a political lightning rod amid accusations that it’s an instrument of crony capitalism — a way for well-connected domestic companies to receive federal subsidies at the expense of competitors and taxpayers. A chorus of libertarian and ultraconservative Tea Party Republicans are making reauthorization a litmus test, framing the bank as “corporate welfare” abetted by the Republican establishment. The fight over reauthorization has taken on greater urgency since House Majority Leader Eric Cantor, a key supporter of the bank, improbably lost his Republican Party primary in June in what was billed as a Tea Party-versus-establishment battle. Indeed, after his loss Boeing — a large beneficiary of Ex-Im funds — took a tumble in the stock market on fears that Ex-Im’s survival has been imperiled.

The accusation of crony capitalism is a powerful one. In the age of trillion-dollar corporate bailouts, it’s not hard to see why that accusation resonates with many U.S. voters. However, the debate over whether the bank represents “crony capitalism” illustrates a major point of confusion about what crony capitalism is, obscuring actual steps that could be taken to address the problem. The public debate about crony capitalism should focus not simply on where government and business intersect, but on when that intersection implicates the kinds of traditional corruption — such as bribery, bid-rigging, special treatment, and conflicts of interest — that distinguish crony capitalism from government’s legitimate if controversial engagement with the private sector. Without focusing on the actual corruption that gives rise to crony capitalism, those trying to fight it are aiming at the wrong target.

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