Providing Reparations to the Victims of Foreign Bribery: What Criteria Are Appropriate?

It is widely agreed that foreign bribery is capable of causing harm to a range of different victims, including the governments whose officials are bribed (the so-called “demand-side countries”), and the citizens of those countries. Yet traditionally, when supply-side countries (those with jurisdiction over the firms that paid bribes abroad) reach settlement agreements with corporate defendants in these cases, the fines and penalties collected—which can sometimes run into the tens or even hundreds of millions of dollars—go to the supply-side government treasuries, a fact that has attracted considerable discussion and criticism.

In recent years, we’ve started to see some changes in the approach taken by supply-side governments on this issue, with the United Kingdom being particularly active. On several notable occasions, the UK’s Serious Fraud Office (SFO) has included in its settlement agreements with corporate defendants specific provisions to remediate the victims of foreign bribery. Importantly, such remediation (not just in the UK case, but more generally) can take two forms, which are often unhelpfully conflated:

  • In some cases, the resolution of a bribery case may include compensation to identifiable victims, if it can be shown that the victims suffered a direct loss, the value of which can be reasonably estimated. The victim might be a foreign government itself. For example, the 2015 deferred prosecution agreement negotiated between the SFO and Standard Bank included a payment to the Tanzanian Government, because in that case an agent of Standard Bank had used money to which the Tanzanian government was entitled in order to pay an illegal bribe. The payment to the Tanzanian government in the settlement agreement was compensation for this loss.
  • In many cases, though, the harm done by foreign corruption is more diffuse, the victims are difficult to identify individually, and the monetary value of the harm inflicted is impossible to calculate. Nonetheless, even though traditional victim compensation is not possible in these cases, it is still possible, and often desirable, for a portion of the fines and penalties collected from the responsible corporation to be directed toward improving the lives and livelihoods of the population victimized by the misconduct—perhaps by making a payment to the government of the demand-side country, possibly earmarked for a specific purpose, or perhaps by donating money to charities, or by purchasing assets that benefit the public, or even by making payments directly to citizens. Though these sorts of payments are also sometimes described as “victim compensation,” I prefer the term reparations, which makes clear that these payments are not “compensation” in the traditional, narrower sense, but rather payments intended for the benefit of a general populace or society at large. An example of this sort of reparations payment can be found in another case involving the SFO and Tanzania, this one the SFO’s 2010 settlement agreement with BAE Systems for illegal commissions that the company had paid to an intermediary in connection with the sale of an aircraft radar system to the Tanzanian government. (Technically, BAE admitted and was penalized for an accounting offense—failing to keep accurate records of the payments—rather than the underlying bribery.) The settlement required BAE systems to pay approximately £30 million for the purpose of buying educational materials in Tanzania. There is no evidence to suggest that BAE System’s misconduct in connection with the radar system sale caused any damage, let alone £30 million worth of damage, to Tanzania’s education system. So this payment was not “victim compensation” in the narrow sense, but rather an effort to offset some of the damage BAE’s wrongful conduct had done at a more general, societal level.

The legal mechanisms for determining compensation awards, though imperfect, are relatively straightforward. Determining an award of reparations is much more complicated, because (almost by definition) it will not be clear exactly who suffered due to the act of foreign bribery, nor how much loss was suffered, nor how that loss should be recouped. (While the United Kingdom does have “compensation principles” in place which are intended to provide a guiding framework for remedial awards in foreign bribery cases, these principles are phrased at too high a level of abstraction to be much use.) One question that will need to be addressed, and the one I want to focus on here, is whether there must be some kind of nexus between the harm caused by a particular act of bribery and the proposed reparations. Of course, as I have explained, reparations are distinct from compensation, and will not require a showing of a quantifiable harm to an identifiable victim. But does the reparations payment need to have any strong connection—in sector, location, or amount—with the harm plausibly caused by the defendant’s act of bribery? Continue reading

Guest Post: Structuring Effective Corporate Pay-Back To Help Fight Corruption

GAB is pleased to welcome back Alan Doig, Visiting Professor at Newcastle Business School, Northumbria University, who contributes the following guest post:

In recent years, there has been a swelling call for a substantial portion of the fines, disgorged profits, and other payments recovered from corporations in foreign bribery cases to be used to fund anticorruption initiatives, particularly those designed to fight corruption in the “victim” countries. If this recommendation were taken seriously, the potential funding resources could be substantial. While the recoveries from corporate settlements are miniscule (and ad hoc) contributions to national treasuries, they often dwarf what even big donor agencies spend. For example, the UNDP’s 2014-2017 GAIN (Global Anti-Corruption Initiative) had a total budget of $16 million, an amount much less than the fine and disgorgement from the first Deferred Prosecution Agreement (DPA) between the UK’s Serious Fraud Office (SFO) and ICBC Standard Bank in December 2015. Just think how such funds could provide badly-needed resources for anticorruption work, particularly for areas or organizations seeking new sources of funding, or for innovative work, in what is a very competitive environment. Thus while Integrity Action has managed to win competitive funding from soruces as diverse as Google’s Global Impact Challenge and the UK Comic Relief charity, the chair of the Board of Governors of the International Anti-Corruption Academy (IACA) recently bemoaned the fact that IACA’s “last two general budgets never received 90% of the funding that was unanimously agreed upon” by member states, without which there would be no opportunity for the implementation of its ambitious programs.

While corporate settlements would provide a regular and substantial resource beyond the usual multilateral and bilateral donors (and the occasional big private foundation), there are, of course, a number of practical, legal, and political problems with getting countries to agree to divert substantial portions of such settlement funds to support anticorruption efforts. But even assuming these obstacles are overcome, another set of problems remains: Assuming that a given country (say, the US or UK) has decided that a substantial portion of a corporate penalty for bribery should be redirected to fund anticorruption efforts, how should the arrangement be structured? Which entities should be responsible for any settlement funds? Who will make the key decisions? What will be funded, by whom, and for how long? Our limited experience to date illustrates several options that have been attempted so far: Continue reading

Who Guards the Guardians in the Anticorruption Battle? Compelling Prosecutors to Take Action

Article 30(3) of UNCAC calls upon state parties to ensure that any legal discretion pertinent to the prosecution of corruption is exercised to to maximize the effectiveness of law enforcement.” Yet there is evidence that prosecutors do not always exercise their discretion in anticorruption cases in a manner that conforms to this principle. Prosecutorial decisions to shelve or terminate a case might instead be influenced by economic considerations — as when a large financial institution is involved, or when prosecution risks losing a valuable foreign investor — and by political considerations — as when the case may influence foreign diplomatic relations or when the case involves senior officials or other parties close to the governing regime.

There is no shortage of such troubling cases in both developed and developing countries. One of the best-known is the BAE Systems/Al-Yamamah case, which involved credible allegations that the British multinational had paid substantial bribes to senior Saudi Arabian officials in connection to a major arms deal. The UK investigation into the bribery allegations was brought to an end on grounds of public interest. The British government, and some of its defenders, emphasized the need to combat terrorism through maintaining relationship with Saudi Arabia with all underlying intelligence cooperation. Nevertheless, cases of this kind impair progress against entrenched corruption. Even if such cases are relatively infrequent, their existence risks depriving both the UNCAC treaty and domestic anticorruption laws of their deterrent effect.

If public prosecutors sometimes fail in their responsibility as anticorruption “guardians” by shelving or dropping investigations, what can be done? Long term solutions might require broader systemic reform, but there are some actions that could be taken, under the rubric of the UNCAC, to pressure or compel prosecutors to fulfill their responsibilities: Continue reading