The OECD Convention’s Article Prohibiting the Politicization of Foreign Bribery Enforcement Is in Desperate Need of Clarification

Article 5 of the OECD Anti-Bribery Convention provides that the policing of foreign bribery by Convention Parties shall not be influenced by (1) “considerations of national economic interest,” (2) “the potential effect upon relations with another State,” or (3) “the identity of the natural or legal persons involved.” Collectively, these mandates are known as the “Article 5 factors.” Article 5 is intended as a safeguard against the politicization or instrumentalization of foreign bribery laws. It is therefore vital to impartial foreign bribery enforcement, as well as to the integrity of foreign bribery enforcement generally.

The most well-known instance of an alleged Article 5 breach is the United Kingdom’s decision in 2006 to stop investigations into bribes paid by BAE Systems to public officials in Saudi Arabia. Then-Attorney General Peter Goldsmith argued that this decision was justified because the investigation could have damaged national security interests, as Saudi Arabia had threatened to end counterterrorism cooperation with the UK if the investigation continued. Goldsmith expressly denied that terminating the investigation for this reason constituted a breach of Article 5 because, as he put it, the decision to join the OECD Convention didn’t mean that the UK had “agreed to abandon any consideration of national security. [The Convention] certainly doesn’t say that and I don’t believe that’s what we could have intended or any other country could have intended.” The UK’s decision to suspend the BAE investigation, though challenged in court, was ultimately upheld.

More recently, the OECD has called attention to two other potential Article 5 breaches. First, an OECD news release stated that Turkey’s Article 5 compliance was in doubt due to inexplicably low level of foreign bribery enforcement, which the release suggested might be partly due to improper economic or political considerations. Second, another OECD news release raised concerns that Canada may have breached Article 5 by cancelling investigations into allegations that SNC Lavelin had bribed Libyan officials—a decision that observers believed was motivated by a desire to protect Canada’s national economic interests.

While it is encouraging to see the OECD adopt a more assertive approach to recognizing Article 5 breaches than it has in the past, these statements serve as stark reminders that there is not really an effective means for enforcing Article 5. And unfortunately, the uncertainty surrounding the meaning of Article 5 complicates the task of achieving Article 5 compliance. Continue reading

G7 Hypocrisy on Illicit Enrichment Crimes

Last month, I saw a news report about the international reaction to the Ukrainian Constitutional Court’s decision striking down Ukraine’s criminal offense of “illicit enrichment” as unconstitutional. For those unfamiliar with this topic, the crime of “illicit enrichment” makes it a criminal offense for a public official to realize a significant increase in his or her assets that the public official cannot reasonably explain. The crime of illicit enrichment is related to, but distinct from, civil asset forfeiture systems under which the government may seize—as presumptively the proceeds of unlawful activity—assets that the owner cannot reasonably explain. The main difference is that a civil forfeiture order results in the loss of assets, while a criminal offense can result in fines or incarceration, as well as the other collateral consequences of a criminal conviction. Some anticorruption activists support the criminalization of illicit enrichment on the grounds that it is often difficult or impossible to prove the underlying corruption offenses, but a substantial unexplained increase in a public official’s wealth is sufficient to prove that the official is corrupt. Critics warn that criminalizing illicit enrichment is incompatible with traditional notions of the presumption of innocence. (The UN Convention Against Corruption (UNCAC), perhaps unsurprisingly, fudges the issue, with UNCAC Article 20 calling on States Parties to “consider” adopting an illicit enrichment offense, “[s]ubject to [that country’s] constitution and the fundamental principles of its legal system.”)

In its decision last February 26, Ukraine’s Constitutional Court went with the critics, holding that the criminalization of illicit enrichment a criminal offense was an unconstitutional infringement on the presumption of innocence. This decision met with swift condemnation from the G7, which issued a joint statement with the World Bank declaring that the “recent elimination of the illicit enrichment offence from [Ukraine’s] criminal code is a serious setback in the fight against corruption” that has “weakened the impact of the whole anti-corruption architecture.” Illicit enrichment, the G7 and World Bank admonished, “is not a new offence. In 2010 there were more than 40 countries that criminalized illicit enrichment,” and “[c]ourts around the world have recognized that the criminalization of illicit enrichment is a powerful tool in the fight against corruption, while at the same time respecting fundamental human rights and constitutional principles such as [the] presumption of innocence[.]” The G7-World Bank joint statement closed by calling on Ukrainian authorities to “reinstat[e] criminal liability for illicit enrichment in line with UN, OECD, and [European Court of Human Rights] principles.”

Now, as a policy matter, I tend to agree with the G7-World Bank position here. I think that appropriately tailored and cabined illicit enrichment offenses can be useful tools, and (as others have also pointed out), it’s not true that such offenses have any inherent conflict with the presumption of innocence. Nonetheless, I found the letter an exercise in outrageous, condescending hypocrisy, one that the G7 countries in particular should be ashamed to have written. Continue reading

Putting Elected Officials in Charge of Elections Is a Recipe for Corruption: Evidence from U.S. States

One of the stories that figured prominently in last November’s U.S. elections was that of Brian Kemp, then Georgia’s Secretary of State and now the state’s new Governor. As Secretary of State, Kemp was responsible for administering the state’s elections—but in 2018 he was administering the very election in which he was running for governor, which creates an inherent conflict of interest. Indeed, there was plenty of evidence that Kemp used his position as Secretary to increase his odds of winning the election: He attempted to close polling locations in neighborhoods likely to vote for his opponent, promulgated abnormally stringent voter registration rules that put thousands of voters’ eligibility into question, and launched what most observers considered to be a groundless investigation into his opponent’s campaign in the week before the election. Ultimately, after ignoring calls for him to recuse himself, Kemp announced that he would resign as Secretary of State two days after the election, while the votes were still being counted. Kemp was eventually declared the winner, though his opponent, Stacey Abrams, never fully conceded, vowing to sue Kemp for “gross mismanagement of the election.”

It’s hard to see how an election administrator’s use of his power to benefit his own political campaign is anything other than corrupt. Indeed, Kemp’s controversial election illustrates how the U.S. electoral process is particularly vulnerable to this sort of corruption. (And, it’s worth noting, while Kemp drew most of the attention, there were two other candidates in the 2018 elections that found themselves in the same position, with one choosing to recuse himself from the recount process back in August 2018 during a close primary.) In most U.S. states, the Secretary of State (who is responsible for administering the state’s elections) is an elected official, and in over half of the states, Secretaries of State can run for public office while serving as Secretaries. This is out of step with most of the developed world, where election administration is independent and apolitical. Reformers have called for changes to this system before, so far without much success. But the atmosphere may now be ripe for anticorruption advocates to propose referenda to create new, independent, and non-partisan systems for election administration. A well-designed system could eliminate the clear conflicts of interest raised by people like Brian Kemp, while also tackling the more insidious and less obvious forms of corruption that arise when party members use their power over election administration to ensure that their party stays in power.

What might such a system look like? Canada may provide a useful model, given its similarities to the U.S., particularly with respect to its federalist structure. In Canada, each province is responsible for administering its provincial elections, while the Canadian national government administers national elections. The Canadian election administration systems share a few key components that keep the electoral commissions independent and non-partisan, and that all U.S. states should adopt: Continue reading

The Guiding Principle for Anticorruption Policy Should Be Cost-Effectiveness, Not “Zero Tolerance”

In 2015, following indications that a few Canadian Senators had been using government money for disallowed personal expenses, the Canadian government launched a major investigation that cost approximately $23 million—but led to no convictions, and exposed corruption that cost the government less than $1 million. To many, me included, this seems like overkill, even if we acknowledge that corruption is a serious problem. Yet the “zero tolerance” ethos that motivated the Canadian Senate’s investigation is widely embraced. As previous posts have pointed out, zero tolerance policies fail to account for the fact that corruption might be expensive to root out, and that the extraordinary expenditures required to reduce corruption closer to zero might not, after a certain point, be justified.

This does not mean that corruption is good. But the efficient amount for the government to invest in corruption-reduction—which in turn determines the amount of corruption that will prevail—is that for which, as an economist would put it, marginal benefit equals marginal cost. Or to put this another way, “tolerance” of some corruption is efficient (and appropriate) once the costs of achieving further reductions in corruption are greater than the costs of the corruption that would be eliminated by those additional efforts.

The right amount of corruption, therefore, is probably not zero. Existing anticorruption policies neglect this point, leading to inefficient spending like that on the Canadian Senate probe. With that understanding, how can anticorruption policy be targeted to get the biggest bang for the buck?

Continue reading

What Chinese Cuisine and Deferred Prosecution Agreements Have in Common

As Kees noted Monday, the use of American-style deferred prosecution agreements (DPAs) to resolve corporate corruption cases short of trial is on the rise.  The United Kingdom, France, Argentina, and most recently Singapore now permit prosecutors to suspend or even drop altogether the prosecution of a firm for a corruption offense in return for the accused firm paying a fine, adopting measures to prevent future offenses, and cooperating with ongoing investigations.  Australia and Canada are on the verge of approving DPAs, and influential voices in India and Indonesia are urging their adoption too.

Apostles say DPAs allow governments to realize the benefits of a criminal conviction without the need for a lengthy, expensive, arduous trial against a well-funded corporate defendant where defeat is always a risk.  Former U.K. Attorney General Lord Peter Goldsmith told a New Delhi audience last October that once India begins using DPAS, companies would start coming forward and admit wrongdoing.  During the recent debate in Singapore one commentator observed that DPAs “provide an incentive to corporate entities to confront criminal conduct within their ranks,” and a group of Indonesian professors claim DPAs will be particularly valuable in their country.   In Indonesia, conviction of a corporation provides no assurance the defendant will not commit the same offense again while, they write, a DPA does.

DPA evangelists are about to learn what DPAs have in common with Chinese cuisine.  The first-time visitor to China soon discovers that Chinese food in China is unlike Chinese food at home.  Beef broccoli tastes much different outside China than in. Connoisseurs of DPAs will shortly find that what American prosecutors are able to cook up looks much different when prepared abroad.     Continue reading

The Role of Judicial Oversight in DPA Regimes: Rejecting a One-Size-Fits-All Approach

In late March 2018, the Canadian government released a backgrounder entitled Remediation Agreements and Orders to Address Corporate Crime that outlines the contours of a proposed Canadian deferred prosecution agreement (DPA) regime. DPAs—also appearing in slightly different forms such as non-prosecution agreements (NPAs) or leniency agreements—are pre-indictment diversionary settlements in which offenders (almost exclusively corporations) agree to make certain factual admissions, pay fines or other penalties, and in some cases assume other obligations (such as reforming internal compliance systems or retaining an external corporate monitor), and in return the government assures the corporation that it will drop the case after a period of time (ordinarily a few years) if the conditions specified in the agreement are met. Such agreements inhabit a middle ground between declinations (where the government declines to file any charges, but where companies still might forfeit money) and plea agreements (which require guilty pleas to criminal charges filed in court).

While Canada has been flirting with the idea of introducing DPAs for over ten years, several other countries have recently adopted, or are actively considering, deferred prosecution programs. France formally added DPAs (known in France as “public interest judicial agreements”) in December 2016, and entered into its first agreement, with HSBC Private Bank Suisse SA, in November 2017. In March 2018, Singapore’s Parliament installed a DPA framework by amending its Criminal Procedure Code. And debate is underway in the Australian parliament on a bill that would introduce a DPA regime for offenses committed by corporations.

The effect of DPAs in the fight against corruption, pro and con, has been previously debated on this blog. One critical design component of any DPA regime is the degree of judicial involvement. On one end of the spectrum is the United States, where courts merely serve as repositories for agreements at the end of negotiations and have no role in weighing the terms of any deal. On the other end of the spectrum is the United Kingdom, where a judge must agree that negotiations are “in the interests of justice” while they are underway, and a judge must declare that the final terms of any DPA are “fair, reasonable, and proportionate.” British courts also play an ongoing supervisory role post-approval, with the ability to approve amendments to settlement terms, terminate agreements upon a determined breach, and close the prosecution once the term of the DPA expires.

Under Canada’s proposed system of Remediation Agreements, each agreement would require final approval from a judge, who would certify that 1) the agreement is “in the public interest” and 2) the “terms of the agreement are fair, reasonable and proportionate.” While the test used by Canadian judges appears to parallel the U.K. model—including using some identical language—the up-or-down judicial approval would occur only once negotiations have been concluded. This stands in contrast to the U.K. model mandating direct judicial involvement over the course of the negotiation process.

The decision by the Canadian government to chart a middle course on judicial oversight is all the more notable given that an initial report released by the Canadian government following a several-month public consultation regarding the introduction of DPAs appeared to endorse the U.K. approach, noting that the majority of commenters who submitted views “favoured the U.K. model, which provides for strong judicial oversight throughout the DPA process.” Moreover, commentators have generally praised the U.K. model’s greater role for judicial oversight of settlements, especially judicial scrutiny of the parties charged (or not) in any given case, the evidence (or lack thereof), and the “fairness” (or not) of any proposed deal.

Despite these positions, one should not reflexively view the judicial oversight regime outlined in Canada’s latest report as a half-measure. Perhaps the U.K. model would be better for Canada, or for many of the other countries considering the adoption or reform of the DPA mechanism. But the superiority of the U.K. approach can’t be assumed, as more judicial involvement is not categorically better. Rather than a one-size-fits-all approach favoring heightened judicial oversight, there are several factors that countries might consider when deciding on the appropriate form and degree of judicial involvement in DPA regimes: Continue reading

How Corrupt Are Your Courts? Too Corrupt To Be Fair?

In complex transnational litigation, ensuring the rights of all parties is especially challenging. Consider the following situation: A plaintiff brings a lawsuit against a US multinational in US court, alleging wrongful conduct in some foreign country; the defendant corporation moves to dismiss the case on the ground that the courts of the country where the alleged conduct took place are a more appropriate forum for adjudicating the suit, and the plaintiff should therefore be required to pursue the suit there; but the plaintiff opposes the motion to dismiss on the grounds that the foreign country’s courts are so corrupt that it would be impossible to get a fair trial. What should the US court do when confronted with that sort of situation?

The technical legal term for a motion to dismiss a case because the plaintiff ought to file the suit in a different (and more convenient) judicial forum is the forum non conveniens motion. To successfully win on such a motion in a US federal court, the defendant must convince the court that an alternative forum would provide “basic fairness.” When the alternative forum is the judiciary of a foreign country, plaintiffs sometimes try to oppose these motions by pointing to judicial corruption in the foreign forum. But as one court highlighted, “the argument that the alternative forum is too corrupt to be adequate does not enjoy a particularly good track record.” Indeed, as I noted in my previous post on the Chevron-Ecuador litigation, the district judge in that case rejected the plaintiff’s claim that Ecuadorian judicial corruption made it impossible to get a fair trial in Ecuador, remarking that “the courts of the United States are properly reluctant to assume that the courts of a sister democracy are unable to dispense justice.” Even when confronted with clear and undisputed evidence of corruption in a foreign court, US courts have generally been unwilling to accept this as a sufficient reason to keep the case in US court. (In one case a US court reaffirmed a forum non conveniens decision even after the plaintiff successfully bribed a Mexican judge to have the case sent back to the US court.) Consistent with this deferential approach, there are very few cases where a US court has found a foreign forum inadequate due to credible allegations of widespread judicial corruption. (There are admittedly a handful of such cases, including Bhatnagar v. Surrendra Overseas, Ltd., in which the court found that the extensive delay, unreliability, and general corruption of the Indian judiciary made it an inadequate forum for the plaintiff.)

By contrast, other jurisdictions take allegations of foreign judicial corruption more seriously as a reason not to dismiss a lawsuit and insist that it remain in the forum of the plaintiff’s choice. Notably, although the forum non conveniens analysis is very similar in US and Canadian courts, Canadian courts have been more willing to find foreign forums inadequate because of pervasive corruption. For example, in Norex Petroleum Limited v. Chubb Insurance Company of Canada, a US court dismissed the case on forum non conveniens grounds, while the Canadian court took jurisdiction, denying the defendant’s forum non conveniens motion in light of the Canadian court’s finding that—even though every other factor weighed heavily in favor of Russia as the better forum—extensive judicial corruption in Russia would prevent the plaintiff from accessing a fair and impartial court. It’s certainly not the case that Canadian courts have been consistently receptive to these sorts of arguments—for example, a recent Canadian ruling found Guatemala an appropriate forum despite significant corruption concerns—but the contrast between Canada and the US demonstrates that the US courts’ “see no evil” approach is far from inevitable.

Although it may be helpful for the purposes of international comity for courts to presume that foreign judiciaries are fair, and there are legitimate reasons to dismiss a case in favor a foreign forum (such as easier access to evidence and witnesses), the reluctance of US courts to accept credible allegations of judicial corruption as a reason to deny a forum non conveniens motion likely goes too far. Respect for foreign courts is a good thing in principle, but in practice it can undermine the ability of plaintiffs to get a fair hearing. US courts should hesitate before dismissing cases to foreign forums when there are plausible claims of corruption for two reasons:  Continue reading