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: The UK’s Compensation Principles in Overseas Corruption Cases–A New Standard for Aiding Victims of Corruption?

GAB is delighted to welcome back Susan Hawley, Policy Director at Corruption Watch, to contribute today’s guest post:

The issue of whether money from foreign bribery settlements should go back to the people of affected countries has generated a fair amount of heat over the years. Back in 2013, the World Bank’s Stolen Asset Recovery Initiative (StAR) asked whether countries whose people were most harmed by corrupt practices were being left out of the bargain in foreign bribery settlements. According to the StAR study, out of the $6 billion in monetary sanctions imposed for foreign bribery in 395 settlements between 1999 and 2012, only 3.3%, or $197 million, had been returned to the countries where the bribes were paid. Those statistics have provoked considerable controversy, as has the question whether the UN Convention Against Corruption (UNCAC) requires states parties to share money from foreign bribery settlements with affected countries. Yet the fact remains that when the huge fines paid by US and European companies for bribing officials in developing countries go into the treasuries of the US and Europe, while the people of those countries affected by that bribery get nothing, this creates a serious credibility and legitimacy problem for the international anticorruption regime.

For that reason, the UK enforcement bodies’ publication, this past June 1st, of joint principles to compensate overseas victims of economic crime is a welcome development, and provides another opportunity to think again about what is possible and what is desirable in terms of compensating the people of affected countries when companies get sanctioned for paying bribes. The UK Compensation Principles were first mooted and drafted at the 2016 London Anti-Corruption Summit; that Summit’s Joint Communique recognized that “compensation payments and financial settlements … can be an important method to support those who have suffered from corruption,” and led nine countries (though only four from the OECD) to commit to develop common principles for compensation payments to be made “safely, fairly and in a transparent manner to the countries affected.” The UK’s new principles are an effort to fulfill that Summit commitment. They commit the UK’s enforcement bodies to:

  • Consider compensation in all relevant cases;
  • Use whatever legal means to achieve it;
  • Work cross-government to identify victims, assess the case and obtain evidence for compensation, and identify a means by which compensation can be paid in a transparent, accountable and fair way that avoids risk of further corruption; and
  • Proactively engage where possible with law enforcement in affected states.

Interestingly, these principles have been in informal operation since late 2015, which helps shed some light on how these principles are likely to operate in practice. Continue reading

Compensating Corruption Victims: American Law on Bribery Damages

Parties to the UN Convention Against Corruption pledge in article 53 to “pay compensation or damages to another State Party that has been harmed” by an act of corruption, but nowhere does the convention say who it is that is harmed by corruption or how compensation is to be calculated.  In a submission to the 2015 meeting of convention parties, the UNCAC Coalition, an global network of civil society organizations, argued that the absence of guidance is “one of the main obstacles to the award of damages to victim countries” and urged the publication of “best practice examples with respect to the identification, quantification and reparation of the damage caused by corruption” as step in developing the needed guidance.

This writer recently summarized how American courts deal with compensation issues when the corrupt act is the payment of a bribe.  Written for the Open Society Foundations’ Justice Initiative, the paper explains that under both federal and state law individuals, businesses, and even foreign governments can recover damages for injuries sustained as a result of bribery and that with passage of the Foreign Corrupt Practices Act the number of cases has exploded.  Not all claimants have been successful of course.  In some actions their damages were too remote (not proximately caused in legal language); in others claimants failed to show how the bribery injured them, and in some cases foreign governments were denied recovery because their officials were so deeply involved in the bribery scheme that the government did not qualify as a victim under U.S. law.  But other claimants have enjoyed significant success — realizing in some instances awards in the tens of millions of dollars.

Whether American law is a “best practice example” of the kind the UNCAC Coalition had in mind I don’t know.  But it is an example, and one, given the creativity of American lawyers (spurred by the chance for a lucrative fee), that provides those thinking about victim compensation for corruption a rich vein of case law to explore.

The paper is the fifth in a series of papers commissioned by the Open Society Justice Initiative on civil society and anticorruption litigation.  It follows earlier ones on standing by GAB editor-in-chief Matthew Stephenson, on civil society litigation in India by Vidhi Centre for Legal Policy Director Arghya Sengupta, on private suits for defrauding government by Houston Law School Professor David Kwok, and private prosecution by Tamlyn Edmonds and David Jugnarain.

 

A Different Kind of Quid Pro Quo: Conditional Asset Return and Sharing Anti-Bribery Settlement Proceeds

In my last couple of posts, I’ve returned to a theme I’ve written about before: My skepticism about claims that the U.S. government either should (as a matter of policy) or must (under UNCAC or other legal obligations) share settlement proceeds in FCPA cases with the governments of the countries where the bribery took place. I’m also skeptical that there’s any obligation on the part of U.S. or other supply-side enforcers to use any of this settlement money to fund NGO-sponsored projects in (or for the benefit of) those countries.

Asset recovery, however, is different. When the U.S. (or some other country) identifies – at its own initiative or pursuant to the request of another government – assets held in the U.S. that have been stolen from a foreign government, my reading of the law (both conventional domestic legal principles and Chapter V of UNCAC) is that the U.S. has an unconditional legal obligation to return those assets to their rightful owner. At times, the U.S. has indicated that, although it has a general policy of returning stolen assets to the governments from which they were stolen, it does not view this as a legal obligation. Rather, the U.S. seems to want to leave open the option, in some cases, of attaching conditions to the return of the assets, or funneling them through NGOs or other bodies, rather than simply turning them over to the claimant government. I understand why the U.S. has taken this position: Returning assets stolen assets to a claimant government with a reputation for pervasive corruption—where it seems highly likely much of the money will be stolen again—seems awfully unappealing, and doubly so in those cases where the government officials who stole the money in the first place, or their family members and cronies, retain their power and influence in the claimant country. Hence the instinct to attach conditions to the return of the assets, or to use the money to fund NGOs rather than simply turn it over to the claimant government. The problem, though, is that I’m hard-pressed to come up with a legal basis (notwithstanding some valiant attempts) for doing anything other than handing over the money.

So, the situation as it stands looks something like this (and I acknowledge simplifying quite a bit to make things a tad neater than they actually are): On the one hand, many developing countries want wealthy countries like the U.S. to share foreign bribery settlement proceeds with the countries where the bribery took place, but for the most part the wealthy countries do not want to do this, and assert—correctly—that they are under no obligation to do this under UNCAC or any other legal instrument. On the other hand, many wealthy countries would like to retain the flexibility to attach conditions to asset return (or to use seized assets to fund NGO programs rather than turning the money over to the governments), but the claimant countries in the developing world assert—correctly—that there is a legal obligation (enshrined in UNCAC) to return stolen assets, without strings attached.

Framing the issue this way suggests a possible compromise. (In the interests of disclosure, I should say that this is not my original idea: It came up in a conversation I had recently with an analyst at an anticorruption NGO, but since I haven’t had the chance to clear it with him, I won’t name the person or organization here.) The trade would go like this: Continue reading

Victim-Compensation Arguments Cut Both Ways

In my last post, I imagined what a frustrated U.S. official might have to say about the ever-increasing drumbeat of demands for the United States to “return” (that is, transfer) the “proceeds of crime” (that is, the fines collected from corporate defendants in Foreign Corrupt Practices Act (FCPA) cases) to the “victim countries” (that is, the governments whose officials took the bribes that gave rise to the FCPA violations). My imaginary rant was deliberately over-the-top, intended to be provocative and to stir up some more honest debate on this topic by cutting through the circumspection and diplomatic niceties that usually accompany pushback against the “give the settlement money to the victim countries” position. In this post, I want to continue on the same general topic, and in the same provocateur’s spirit, by asking the following question:

When (or if) demand-side countries start collecting serious fines against bribe-taking public officials and/or bribe-paying companies, does the logic of compensating “victims” dictate that these countries transfer some of the money they recover to the United States?

At the risk of seeming totally bonkers, I’m going to assert that the answer might well be yes if one accepts the logic for making transfer payments in the other direction (from the U.S. government to the governments of the countries whose officials took the bribes) in FCPA cases. Here’s the argument: Continue reading

Guest Post: The Role of Compensation Systems in Promoting Anti-Bribery (Non-)Compliance

GAB is pleased to welcome back anti-bribery consultant Richard Bistrong, who contributes the following guest post:

These days, most sophisticated multinational firms, at least those that might be subject to liability under the Foreign Corrupt Practices Act or similar laws, have official anti-bribery compliance programs. But as many observers have rightly noted, while formal control systems are important, they have their limits: the formal rules in place, or what top-level management asserts when setting the “tone from the top,” may often differ from what actually happens on the ground. As I’ve emphasized my earlier posts on this blog, understanding what actually happens out in the field requires careful attention to the actual incentives of the people on the front lines: the regional managers, salespeople, and the like. And with respect to these individuals, many corporations that have seemingly robust anti-bribery programs, and whose C-Suite executives say all the right things about ethics and integrity and zero tolerance, are actually creating incentives that foster corruption. Here I want to focus on incentive plans for international sales, marketing, and business development teams. I have identifies three common features of the compensation system for salespeople may contribute substantially to bribery risk. Continue reading