China Should Go After Bribe Takers in FCPA Cases

As other contributors to this blog have noted (see here, here, here, here, and here), in transnational corruption prosecutions there is a huge disparity in the enforcement of corruption laws against bribe-givers (the “supply side”) and bribe-takers (the “demand side”). For example, corporations have been penalized under the U.S. Foreign Corrupt Practices Act (FCPA) for bribes they allegedly paid to foreign officials, but the foreign officials implicated in these enforcement actions have largely remained untouched under their respective countries’ legal and political regimes. The reasons why demand-side governments have not stepped up and investigated officials who have been implicated in FCPA cases may include the lack of political will, the lack of capacity, and lack of inter-governmental cooperation. The particular reasons likely vary from country to country.

The People’s Republic of China is one of the demand-side countries that has demonstrated such a disparity. In 2016, for example, the SEC concluded 26 FCPA-related enforcement actions, 14 of which were related to corruption in China. In the same year, the DOJ published 24 FCPA-related enforcement actions as well as five declinations under its pilot program, and ten of these cases involved China. (Note that there were some overlap between the DOJ and the SEC’s enforcement actions.) Yet there has been no report about China initiating investigations into any of the officials implicated in these cases. This suggests a failure, or missed opportunity, in China’s otherwise aggressive and wide-ranging anticorruption campaign. If the government officials who take bribes can escape without any consequences, even as the bribe-paying firms are penalized, it will be very hard to effect fundamental changes to corrupt business and cultural norms, which eventually will become roadblocks to the Chinese economy’s healthy and sustainable development. Furthermore, unlike other countries, China does not seem to face significant structural obstacles that prevent it from acting on these FCPA cases. It has the political will and capacity, and it has been collaborating with the U.S. government on other matters, such as bringing back corrupt fugitives from the U.S. It seems to be just a matter of awareness or choice. This post urges the Chinese government to take a look into the government officials implicated in the FCPA cases.

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Post-TPP Withdrawal: Loss of a Trade-Corruption Milestone?

As promised, President Trump removed the United States from the Trans-Pacific Partnership (TPP) trade agreement soon after he took office in January. The move withdrew the world’s leading economy from the largest regional trade deal ever proposed. It also represented a major step back from what looked like a breakthrough in linking anticorruption and trade. As I discussed in a previous post, the TPP’s anticorruption chapter was an important step towards inclusion of anticorruption commitments in trade deals, making the U.S. withdrawal from the TPP a step backwards for the decades-old movement to incorporate anticorruption provisions in trade agreements.

Yet Trump’s move was not the end of the TPP negotiations. Nor should it be the end of championing an increased role for anticorruption and transparency in trade deals. With the TPP having reached the final stages of negotiation, its Transparency and Anticorruption Chapter can provide an outline for future trade deals that might provide further opportunities for trade-corruption linkage. As outlined in a previous post, the TPP’s chapter on anticorruption made several strides forward, including obligations to join UNCAC and respect other anticorruption instruments. What’s more, the anticorruption provisions were to be made enforceable in trade dispute resolution tribunals (though, as Danielle has previously written, corruption can already support certain actions in trade dispute arbitration). Looking at the strides forward in the draft TPP, there are three key avenues through which the Transparency and Anticorruption Chapter can continue to strengthen international trade deals.

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When, If Ever, Does a Favorable Legal or Regulatory Decision Count as an “Emolument”?

Last week, I posted about the amended complaint that the Citizens for Responsibility and Ethics in Washington (CREW) filed in its lawsuit against President Trump for alleged unconstitutional acceptance of “emoluments” from various sources. My post last week, like much of the immediate commentary on the amended complaint, focused on the new plaintiffs who had joined the suit, and the extent to which their addition mitigated concerns about whether the court would have jurisdiction to hear the case. But the amended complaint was notable for other reasons. In particular, it fleshed out more details about President Trump’s alleged violations of the Foreign Emoluments Clause, and also added a new set of allegations focused on separate violations of the Domestic Emoluments Clause.

What was most striking to me about the allegations detailed in the amended complaint is that in several cases, the alleged “emolument” is not a monetary payment or a market transaction, but rather a legal or regulatory decision by a government (U.S. or foreign) that favors businesses owned by President Trump. Consider the following examples:

  • Donald Trump had long sought—and had long been denied—Chinese trademark protection for his “Trump” brand in China. Shortly after his inauguration, President Trump made statements suggesting that he might reconsider the U.S. commitment not to recognize the government of Taiwan (the so-called “One China” policy). On February 9, President Trump met with Chinese President Xi Jinping. Following the meeting, President Trump reaffirmed the U.S. commitment to the One China policy. Five days later, China granted the Trump Organization its trademarks. According to CREW, the decision to grant the trademarks was an emolument, from the government of China to President Trump.
  • The Trump Organization has several ongoing real estate development projects in Indonesia, which require permits from the government. According to the CREW complaint, if and when the government of Indonesia grants these permits, this will constitute an emolument from the government of Indonesia to President Trump.
  • Prior to the election, a company owned by President Trump signed a lease with the U.S. General Services Administration (GSA) to open what is now the Trump International Hotel at a property owned by the U.S. government. The lease agreement stated that “no … elected official of the Government of the United States … shall be admitted to any share or part of this Lease, or to any benefit that may arise therefrom.” Prior to President Trump’s inauguration, a GSA official indicated that the GSA thought that Trump would be in violation of the lease unless he fully divests from the hotel. Shortly after the inauguration, President Trump appointed a new GSA Administrator. On March 23, the GSA issued a letter taking the position that President Trump is not in violation of the lease, principally because President Trump would not receive any earnings from the hotel until he leaves office. Many ethics experts derided the GSA’s letter as unpersuasive. The CREW amended complaint goes further, arguing that the GSA’s letter is itself an “emolument” from the U.S. government to President Trump.
  • Prior to the election, the Trump company that owns the D.C. hotel applied for a “Historical Rehabilitation Tax Credit,” which, if approved, could be worth up to $32 million. The application has cleared the first two phases of the three-stage approval process—the first step before the election, the second step after the election (but before inauguration). The National Park Service must provide the third and final approval. If the Service were to grant that approval, according to the CREW complaint, this would be an unconstitutional domestic emolument to the President.

All of these alleged “emoluments” are regulatory or legal decisions by government agencies. Can such decisions count as emoluments? When or under what conditions?

These turn out to be hard legal questions, and to the best of my knowledge there’s very little existing case law or scholarly commentary. I’ll throw out some preliminary thoughts here, but this issue likely deserves more sustained and careful analysis from genuine experts (which I am not). Continue reading

Jared Kushner, Ivanka Trump, Anti-Nepotism, and Conflicts of Interest

On the same day as President Trump’s swearing in, the Department of Justice’s (DOJ) Office of Legal Counsel (OLC) released a memorandum elaborating upon why President Trump’s appointment of his son-in-law Jared Kushner as a Senior White House Advisor did not violate the federal anti-nepotism statute (5 U.S.C. § 3110). That statute prohibits a public official (including the President) from appointing or employing a relative (which the statute defines as including a son-in-law or daughter-in-law). The OLC reasoned that despite the seemingly clear prohibition in 5 U.S.C § 3110, another federal statute, 3 U.S.C. § 105(a), exempted positions in the White House Office from the anti-nepotism law. The OLC recognized this conclusion was a departure from its own precedent, but with the aid of some selective reading of legislative history, the OLC argued that lawmakers intended to allow the president “total discretion” in employment matters when it passed 3 U.S.C. § 105(a). (For non-specialists, see this primer for an explanation of these and other federal laws and regulations which could be relevant for addressing corruption in the Trump Administration.)

Somewhat predictably, the OLC memo generated debate among legal commentators (see here, here, here, and here). Yet even if the legal arguments were not entirely convincing, the OLC ended with a practical point that was echoed by many of the commentaries: given that President Trump will seek Mr. Kushner’s advice, regardless of whether he is a formal employee, it would be better for Mr. Kushner to be formally employed as a White House advisor, and thus subject to the applicable conflict-of-interest (COI) and financial disclosure rules. The same argument applies to Ivanka Trump, who also recently became an employee of the White House.

Some anticorruption advocates, myself included, were persuaded at the time by the OLC’s practical point. It would be best if the President did not make major policy decisions on the advice of radically unqualified relatives. But unfortunately, he is going to turn to them for advice. Given that baseline, we should prefer those family members occupy formal appointments, where at least they will be constrained by the COI statute and disclosure rules. However, with the benefit of hindsight, we should never have been persuaded. The COI statute and the disclosure rules turn out to be ineffective devices for preventing corruption in the Trump era. While the disclosure rules did encourage Mr. Kushner to make some divestments, they do not contain enough details to identify potential conflicts. And when there are conflicts, the COI statute is unlikely to be enforced, either because Attorney General Jeff Sessions will choose not to, or because the White House will grant a waiver.

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CREW’s New and Improved Legal Complaint Against Trump

Can anything be done about the serious corruption risks posed by Donald Trump’s dual role as President of the United States and patriarch of a vast business empire? Do any of these apparent conflicts of interest break the law? If so, is it reasonable to hope that the courts will step in?

As readers of this blog are likely aware, a group of activists, lawyers, and legal scholars have asserted that the answers to the above questions are Yes, Yes, and Yes. The fact that President Trump’s companies do business with foreign governments, the argument goes, means that the President is in violation of the U.S. Constitution’s Foreign Emoluments Clause, which prohibits any person “holding any office of profit or trust under [the United States]” from accepting, without congressional consent, “any present, emolument, office, or title, of any kind whatever, from any king, prince, or foreign state.” Shortly after the inauguration, Citizens for Responsibility and Ethics in Washington (CREW), a nonprofit advocacy group, filed a lawsuit seeking a declaration that President Trump was in violation of the Foreign Emoluments Clause and a court order enjoining the President from further violations of that clause.

Before CREW filed its suit, I was skeptical about the prospects of a judicial remedy for this alleged Emoluments Clause violation—not because I didn’t think that President Trump was in violation of the clause (quite the opposite), but because I didn’t think it was realistic to expect that a court would be willing to order the sitting President to rearrange his financial affairs (or hold him in contempt if he didn’t). My prediction was that the court would find a way to dismiss the suit on jurisdictional grounds, or deem it a non-justiciable “political question.” And my skepticism only deepened after CREW filed its original complaint. Like many other legal analysts, I thought that CREW’s claimed basis for “standing” (which requires a direct, concrete, non-ideological injury to the plaintiff) was flimsy and would likely be rejected, and I worried that the whole enterprise would prove counterproductive, because a dismissal on jurisdictional grounds would be widely misinterpreted as a judicial rejection of the substantive claim that Donald Trump is violating the Constitution.

Two days ago, CREW filed an amended complaint, which has caused me to rethink (though not entirely abandon) my earlier skepticism. The new complaint includes a number of changes, but by far the two most important are these:

  1. The amended complaint adds two new plaintiffs to the suit—an association of restaurants and a Washington, D.C. event planner—whose claims to have standing are much stronger than CREW’s.
  2. The amended complaint also adds new substantive allegations that President Trump is not only violating the Foreign Emoluments Clause, but is also violating a separate provision of the Constitution, the so-called “Domestic Emoluments Clause,” which states that the President shall receive a fixed salary, which cannot be changed during his term, and that the President “shall not receive within that period any other emolument from the United States, or any [state].”

In a future post I may have something to say about the Domestic Emoluments Clause issue, but for now I want to focus on how much difference the addition of the two new plaintiffs makes to the likelihood that the lawsuit will survive a motion to dismiss on jurisdictional grounds. My initial take is that it makes a big difference—the case for standing, under current doctrine, is now much stronger than it was before—but some problems still remain. Continue reading

Why Does the Chinese Communist Party Tear a Hole in its Own Democracy Cloak?

The People’s Republic of China recently uncovered the biggest vote-buying scandal since its founding in 1949. On September 13, 2016, the Standing Committee of the National People’s Congress (NPC), the national legislature, dismissed 45 of the 102 NPC representatives from Liaoning province for securing their seats in the NPC through vote buying. These NPC representatives had apparently bribed representatives to the Liaoning provincial Congress, which elects NPC representatives; 523 out of the 619 Liaoning provincial congress representatives were also implicated in this scandal, and have either resigned or been removed for election rigging, rendering the Liaoning provincial legislature inoperable. The central authorities stated that the “unprecedented” bribery scandal challenged the “bottom line” of China’s socialist system and the rule of the Chinese Communist Party (CCP).

For many observers, reports of this vote-buying scandal came as a surprise. Some commentators wondered why people would risk getting caught and punished for corruption, just to secure a seat in a legislature that has been derided as little more than a rubber stamp. The most plausible explanation is that a seat on the NPC facilitates access to the rich and powerful, and it is this consideration, rather than the mostly symbolic power of the legislature itself, that motivates candidates to buy votes in NPC elections. (See here, here and here). There is, however, a second puzzle about the recent vote-buying scandal—one that is in fact more puzzling and important, though it has not received as much attention: Why do CCP leaders care about electoral corruption in NPC elections, if the NPC merely rubber-stamps party decisions? True, the CCP under President Xi Jinping has made the fight against official corruption a top priority—but given the prevalence of corruption in so many areas of Chinese government, many of which have immediate practical consequences, why target electoral corruption in the NPC?

The question becomes even more interesting when one considers that calling attention to vote-buying in NPC elections—a form of corruption that might otherwise not attract much attention—poses certain risks to the CCP. First, even if the NPC is mostly a rubber stamp legislature, it represents the symbolic core of state power, and is central to the CCP’s “socialist democracy,” a model the Party has long used to resist the Western-style multi-party democracy. As one commentator put it has observed, the exposure of the NPC vote-buying scandal has torn a large hole in the country’s “democracy cloak.” Second, exposing widespread corrupt practices could also increase pressure for systemic reforms. So why did CCP leaders choose to crack down on corruption in the legislature so openly? Continue reading

The Walmart FCPA Investigation Revisited (Again): Some Musings and Speculations on the Most Recent Reports

Earlier this month, there was yet another intriguing story about new developments in the US government’s investigation into possible Foreign Corrupt Practices Act (FCPA) violations by the Walmart’s foreign operations. The Walmart case is probably the most high-profile (and controversial) FCPA case of the last decade, and the reports suggest that it may finally be lurching toward a conclusion, though the recent story raises as many questions than it answers.

Before proceeding to the most recent developments, here’s a quick, and admittedly oversimplified, recap: In 2005, Walmart received a report from a disgruntled former employee that its Mexican subsidiary had engaged in an extensive bribery scheme to pay off government officials to speed the opening of new stores. After internal investigation, however, Walmart’s executives decided in 2006 not to take meaningful action or disclose the apparent FCPA violations to the US government. In 2011, Walmart’s new general counsel initiated a review of Walmart’s anticorruption compliance worldwide; this audit revealed evidence of significant problems in several countries, including Mexico, China, Brazil, and India. Around the same time, Walmart learned that reporters from the New York Times were conducting an extensive investigation into bribery allegations involving Walmart’s Mexico operations. In attempt to get out in front of the story, in December 2011 Walmart disclosed to the DOJ and SEC potential FCPA problems in its Mexican subsidiary, but indicated that the problems were limited to a handful of discrete cases. In April and December 2012, the New York Times published two lengthy articles (here and here) detailing extensive bribery by Walmart’s Mexican subsidiary, orchestrated by the subsidiary’s CEO and general counsel—allegations that went far beyond the isolated incidents Walmart had disclosed the previous year. Since then, the DOJ and SEC investigation into Walmart’s alleged FCPA violations—not only in Mexico, but in other foreign subsidiaries as well—has been ongoing.

There have been quite a few twists and turns in the story. Perhaps the most dramatic was the Wall Street Journal’s surprising report, from almost exactly one year ago. The highlights from that report included the claims (from “people familiar with the probe”) that (1)the investigation was nearly complete (and, by implication, the case would be resolved soon); (2) the US government’s investigation had found “few signs of major misconduct in Mexico”; and (3) although the investigation had uncovered evidence of “widespread but relatively small payments” in India, the Walmart case turned out to be “a much smaller case than investigators first expected” that “wouldn’t be likely to result in any sizeable penalty.”

The first of those three claims has been refuted by the passage of time—it’s more than a year after the WSJ story, and the case has still not been resolved. The latter two claims are flatly contradicted by the more recent report published by Bloomberg (also based on anonymous “people familiar with the matter”). According to the Bloomberg report: Continue reading