Tag Archives: Corruption Watch

South Africa Exhibits the Pitfalls of Private Prosecutions for Corruption

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In March 2018, after several years of investigation stemming from allegations of corruption and mismanagement, South Africa’s National Prosecuting Authority (NPA) announced that it would not pursue charges against former South African Revenue Service Commissioner Tom Moyane. But this was decision short lived. A few weeks later, the NPA abruptly reversed course, explaining that it had reopened its investigation into Moyane and was reconsidering its decision not to prosecute. In the interim, the South African civil rights group Corruption Watch had publicly requested from the NPA a certificate of nolle prosequi—a document formally affirming the NPA’s decision not to prosecute. Obtaining such a certificate was a preliminary and necessary legal step for Corruption Watch to launch its own private prosecution of Moyane—which, under South African Law, Corruption Watch would have been able to do if the NPA formally declined to prosecute. Corruption Watch was calling NPA’s bluff, saying, in effect, “prosecute Moyane or else we will.”

Corruption Watch’s implicit threat stems from Section 7 of South Africa’s Criminal Procedure Act (CPA), which permits a citizen to criminally prosecute another person or entity if the NPA formally declines to prosecute. These prosecutions are similar to civil suits but with all the trial rights and potential penalties associated with a state prosecution. Moreover, at any time during a private prosecution the NPA may request permission from the supervising court to step back in and take over the case. South Africa is not unique in this regard: There are provisions for private prosecutions in other countries—especially Commonwealth countries—including the UK, Canada, Australia, Zimbabwe, and Kenya, as well as in China and Israel.

Many commentators in the international community have been optimistic about the potential of private prosecutions, particularly in combating corruption (see here, here, and on this blog here). And forces inside South Africa have been especially enthusiastic; in 2017, the South African civil society organization AfriForum launched its own dedicated private prosecutions unit focused on prosecuting corrupt government officials, with other organizations expressing similar interest. Much of this optimism stems from sheer frustration with the current prosecution regime in South Africa, a country that has long been plagued by selective prosecution, especially in the area of corruption.

South Africa could certainly use more pressure on the NPA to act; the country would also benefit from more resources, whatever the source, devoted to investigating and prosecuting corruption cases. And the fact that the threat of private prosecution appears to have spurred the NPA to action in the Moyane case is encouraging. Nevertheless, South Africa’s recent flirtation with private prosecutions actually illustrates why countries—including and perhaps especially South Africa—should be cautious about embracing organized, comprehensive private prosecution regimes to supplement traditional state prosecution. Continue reading →

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

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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 →

Guest Post: Global Forum or Global Farce on Asset Recovery?

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

The global record on recovering assets looted from public treasuries is not good. The World Bank and UNODC estimate that between $20-40 billion is stolen each year. Between 2006 and 2012, $2.6 billion stolen assets were frozen in so-called “destination” countries, and $423.5 million was returned. That means of the roughly $120 billion (taking the lowest end of the World Bank and UNODC’s estimate) thought to have been potentially looted globally in that 6 year period, only 0.3% was actually recovered.

To strengthen international efforts to combat this problem, the 2016 London Anti-Corruption Summit called for the creation of a Global Forum on Asset Recovery (GFAR); the World Bank and UNODC’s Stolen Asset Recovery Initiative organized the inaugural Global Forum on Asset Recovery (GFAR), in December 2017 in Washington, D.C., with the US and UK governments as co-hosts. The GFAR, which welcomed over 300 participants from 26 jurisdictions, focused on four countries: Nigeria, (thought to have to have lost $32 billion to corruption under previous President Goodluck Jonathan); Sri Lanka (where former President Rajapaksa allegedly stole up to $5.38 billion); Tunisia (where former ruler Ben Ali and his family are thought to have amassed wealth of over $13 billion); and Ukraine (where former president Yanukovych and his associates are thought to have stolen around $7.5 billion). These countries were selected for their political will to recover stolen assets and the considerable assets they have to recover.

The stated objectives for the GFAR were “progress on cases achieved by the four focus countries, increased capacity through technical sessions, renewed commitment to advancing asset recovery cases, and increased collaboration among involved jurisdictions.” As measured against these objectives, was the GFAR a success? Should it be a regular event? More generally, do asset recovery forums like this have sufficient positive impact to justify their cost? Continue reading →

Brexit and Anticorruption

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So… Brexit. I don’t know nearly enough to weigh in on what this startling development means for European politics, British politics, macroeconomics, Donald Trump’s chances in the U.S. presidential election, or the price of tea in China. But since Brexit is such a major development, I felt like I should say something about the implications for anticorruption, even though that probably wouldn’t be on most people’s top-ten lists of important Brexit implications.

Fortunately, in coming up with something to say about Brexit and anticorruption, I don’t have to work too hard, because two excellent recent posts—one from Robert Barrington at Transparency International UK, another from Corruption Watch—have very nice, clear discussions of the issue. I don’t really have much to add, but let me highlight three of the key worries raised in both posts, and then throw in one more, somewhat more speculative and longer-term question: Continue reading →

Guest Post: What’s the Problem with Out-of-Court Settlements for Foreign Bribery? A Reply to Stephenson

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GAB is delighted to welcome back Susan Hawley, policy director of Corruption Watch, for further discussion and debate regarding the proposal to create global standards for out-of-court settlements in foreign bribery cases:

Matthew Stephenson has devoted three successive blog posts (see here, here, and here) to critiquing the position that we outlined in our report, Out of Court, Out of Mind, calling for global standards for corporate settlements on corruption cases. NGOs, including we at Corruption Watch, along with Transparency International, Global Witness, and the UNCAC Coalition, outlined this position in a letter to the OECD. I am delighted that our report and the joint letter has triggered such interest and discussion. This is a hugely important debate: it cuts to the heart of how countries enforce their anticorruption laws and what constitutes effective enforcement.

We wrote our letter to the OECD and released our report precisely to stimulate this kind of debate at a time when:

  • a number of countries are looking at whether to introduce Deferred Prosecution Agreements (DPAs) and/or Non-Prosecution Agreements (NPAs) specifically to improve their track record of dealing with overseas corruption and
  • many countries in Europe appear to be choosing to resolve the few enforcement actions that they are taking through out-of-court settlements.

This post offers a riposte to Professor Stephenson’s criticisms of our case for global standard for corporate settlements in these cases. The fact that Professor Stephenson devoted three blog posts to the subject shows how meaty it is, and it won’t be possible in a single reply post to go into all of his criticisms, but this post replies to some of the most essential points. Continue reading →

A Detailed Critique of the NGO Call for Global Standards for Corporate Settlements in Foreign Bribery Cases

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In my last couple of posts, I’ve responded to—and criticized—the joint letter that several of my favorite anticorruption NGOs (Corruption Watch, Transparency International, Global Witness, and the UNCAC Coalition) sent to the OECD last month, urging the adoption of “global standards for corporate settlements based on best practice.” My first post took issue with the claim (further developed in a Corruption Watch report) that the current approach (mainly in the U.S.) to corporate settlements in foreign bribery cases was inconsistent with adequate enforcement, while my next post questioned the need for global guidelines. But both of my prior posts could fairly be criticized for (among other things) being too abstract, and for not responding to the specific list of 14 “best practices” identified in the NGOs’ joint letter.

I take that criticism to heart, so in this post—at the risk of overkill on this one letter, but in the hopes of spurring further constructive dialogue on this important topic—I’ll offer a point-by-point reaction to each of the 14 principles listed in the joint letter. Here goes: Continue reading →

Against Global Standards in Corporate Settlements in Transnational Anti-Bribery Cases

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A couple weeks ago, Susan Hawley, the policy director of the UK-based NGO Corruption Watch, published a provocative post on this blog calling for the adoption of “global standards for corporate settlements in foreign bribery cases.” Her post, which drew on a recent Corruption Watch report on the use (and alleged abuse) of the practice of resolving foreign bribery enforcement actions through pre-indictment diversionary settlements—mainly deferred-prosecution and non-prosecution agreements (DPAs/NPAs)—echoed similar arguments advanced in a joint letter sent by Corruption Watch, Transparency International, Global Witness, and the UNCAC Coalition to the OECD, on the occasion of last month’s Ministerial meeting on the OECD Anti-Bribery Convention.

A central concern articulated in Ms. Hawley’s post, as well as the CW report and the joint letter, is the fear that corporate settlements too often let companies off too easily–and let responsible individuals off altogether–thus undermining the deterrent effect of the laws against transnational bribery. I’m sympathetic to the concern about inadequate deterrence, but unconvinced by the suggestion that over-reliance on DPAs/NPAs is the real problem. (Indeed, I tend to think that under-use of these mechanisms in other countries, such as France, is a far greater concern.) My last post took up that set of issues. But, as I noted there, the question whether the U.S. use of settlements is (roughly) appropriate is conceptually distinct from the question whether there ought to be global standards (or guidelines) on the use of such settlements. After all, while one could object to U.S. practices and call for (different) global guidelines—as Corruption Watch does—one could also object to U.S. practices but still resist attempts to develop global guidelines. Or one could not only endorse current U.S. practices, but also call for global guidelines that similarly endorse those practices. And then there’s my position: basically sympathetic to the general U.S. approach to corporate settlements in FCPA cases, and generally skeptical of the case for global guidelines.

Having spent my last post elaborating some of the reasons for my former instinct, let me now say a bit about the reasons I’m unconvinced by the call for global guidelines on corporate settlements (or at least why I think such calls are premature): Continue reading →

The Case for Corporate Settlements in Foreign Bribery Cases

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Although 41 countries have signed onto the OECD Anti-Bribery Convention, the United States remains the most active enforcer—by a lot. Two salient facts about the U.S. strategy for enforcing its Foreign Corrupt Practices Act (FCPA) are often noted: Sanctions against corporations are more common than cases targeting individuals, and most of these corporate cases are resolved by settlements—often pre-indictment diversionary agreements known as deferred prosecution agreements (DPAs) and non-prosecution agreements (NPAs). Both of these facts are sometimes exaggerated a bit: According to the OECD’s most recent composite data (for enforcement actions from 1999-2014), the U.S. imposed sanctions on 58 individuals (compared to 92 corporations or other legal persons), and of those 92 legal persons sanctioned, 57 reached a settlement via a DPA or NPA (meaning that 35 of them were sanctioned through a post-indictment plea agreement or—much more rarely—a trial). Still, it’s true that the U.S. enforcement strategy makes extensive use of pre-indictment settlements with corporate defendants, and that fact has attracted its share of criticism.

While most of that criticism (at least in the FCPA context) has come from the corporate defense bar and others opposed to aggressive FCPA enforcement, the use of DPAs/NPAs has been questioned by anticorruption advocates as well. Recently, the UK-based anticorruption NGO Corruption Watch (CW) published a report entitled “Out of Court, Out of Mind: Do Deferred Prosecution Agreements and Corporate Settlements Fail To Deter Overseas Corruption”; shortly thereafter, CW, along with several other leading NGOs (Global Witness, Transparency International, and the UNCAC Coalition) sent a letter to the OECD expressing “concern that the increasing use of corporate settlements in the way they are currently implemented as the primary means for resolving foreign bribery cases may not offer ‘effective, proportionate and disuasive’ sanctions as required under the Convention,” and “urg[ing] the OECD Working Group on Bribery to develop as a matter of priority global standards for corporate settlements based on best practice.” Last week, here on GAB, CW’s policy director Susan Hawley provide a succinct summary of the case for greater skepticism of the practice of resolving foreign bribery cases through DPAs/NPAs, and the need for some sort of global standard.

I disagree. While I have the utmost respect for Corruption Watch and the other NGOs that sent the joint letter to the OECD, and I sympathize with many of their concerns, I find most of the criticisms of the DPA/NPA mechanism, particularly as deployed by U.S. authorities in FCPA cases, wide of the mark. I also remain unconvinced that there is a pressing need for “global standards” for corporate settlement practices, and indeed I think that pushing for such standards may raise a host of problems. These issues—whether DPAs/NPAs are sufficiently effective sanctions, and whether we need common global standards regulating their use—are quite different, so I will address them separately. In this post, I will respond to the main criticisms of the U.S. practice of using DPAs/NPAs to resolve FCPA cases, focusing on the concerns emphasized in the CW report. In my next post, I will turn to the question whether the OECD, the UN Convention Against Corruption, or some other international agreement or body ought to try to establish global standards regulating the use of corporate settlements.

So, what’s wrong with the analysis in the CW critique of corporate settlements? Lots of things—so many that it’s hard to know where to begin. But before turning to my criticisms, it’s worth starting out by re-stating some of the main reasons why it might make sense to resolve some anti-bribery cases via corporate settlements: Continue reading →

Guest Post: Time for Global Standards on Corporate Settlements in Transnational Bribery Cases

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Susan Hawley, Policy Director of Corruption Watch, a UK-based anticorruption organization, contributes the following guest post:

Earlier this month, the OECD held a Ministerial meeting on its Anti-Bribery Convention, which culminated with Ministers from 50 countries signing a Declaration that reaffirmed their commitment to fighting transnational bribery. Despite that statement of renewed commitment, however, the fact remains that only four countries out of the 41 signatories have shown any attempt at actively enforcing the Convention, and pressure is rightly mounting on countries to show they are taking some kind of action. As a result, an increasing number of countries are looking to deferred prosecution agreements (DPAs), non-prosecution agreements (NPAs), and similar forms of pre-indictment corporate settlements as a way to achieve better results. The United States—by far the most active enforcer of its law against foreign bribery—has used such agreements to produce its impressive enforcement record over the last 10 years. The OECD Foreign Bribery Report noted that 69% of foreign bribery cases have been resolved through some form of settlement since 1999. And it’s not just the US. Various European countries have used some form of out-of-court settlement procedure as a way of dealing with the few cases against companies that they have brought. The UK has recently introduced DPAs, based on the U.S. model (though with some important differences), and countries like Australia, France, Ireland, and Canada are all considering doing something similar.

Yet the widespread use of DPAs and NPAs has prompted concerns. The OECD Working Group on Bribery, in its reviews on implementation of the Convention, has sometimes questioned whether these settlements are sufficiently transparent and effective, and whether they instill public confidence. My own organization, Corruption Watch, recently produced a report on corporate settlements in foreign bribery cases, “Out of Court, Out of Mind: Do Deferred Prosecution Agreements and Corporate Settlements Fail to Deter Overseas Corruption?” that raised similar questions. Corruption Watch, along with Global Witness, Transparency International, and the UNCAC Coalition (a network of over 350 civil society organisations across the world) wrote a joint letter to the OECD Secretary General ahead of the Ministerial meeting urging the Working Group on Bribery to assess whether corporate settlements have sufficient deterrent effect, and to develop global standards for corporate settlements in foreign bribery cases.

Why the need for greater scrutiny, and the call for global standards? Several reasons:

  • First, these sorts of settlements allow culpable individuals off the hook, undermine the deterrent effect of the law by shielding companies from debarment from public contracting, and more generally fail to deter economic crime and prevent recidivism. The concern is that the fines and other penalties associated with DPAs/NPAs are just seen by firms a “cost of doing business,” rather than an impetus for meaningful change. Recent research by Karpoff, Lee, and Martin (discussed previously on this blog) suggests that in the US, which has imposed the highest fines and taken the most enforcement actions globally, detection would have to increase by 58.5% or fines increase by 9.2 times to offset the incentive to bribe. Indeed, there are signs that the U.S., despite having relied so extensively on diversionary corporate settlements, has recognized some of these weaknesses: The introduction of the Yates memo, with its emphasis on individual accountability, and the beefing up of the FBI’s resources for investigating corruption (and thus reducing the government’s reliance on corporate self-reporting), are examples of how the U.S. is taking note of the criticism of its reliance on DPAs and NPAs.
  • Second, in addition to their inadequacy for deterring foreign bribery, in many countries the negotiation of corporate settlements lacks adequate regulation or oversight.
  • Third, these corporate settlement agreements rarely provide any sort of compensation for victims of corruption.
  • Fourth, clear discrepancies are emerging about how different countries use corporate settlements to deal with foreign bribery, creating an uneven enforcement playing field.

Proponents of settlements argue that they are necessary because corruption cases are incredibly difficult and costly to investigate and prosecute; unless enforcement authorities encourage companies to come forward with evidence of their wrongdoing, the argument goes, enforcement rates will remain low and corruption will go undetected. Clearly encouraging companies, who often hold all the information required as to whether wrongdoing was committed, to report their own wrongdoing by offering some form of incentive needs to be a part of any enforcement strategy. But there are serious questions as to whether relying solely on settlements to deal with foreign bribery cases can provide real deterrence. Unless enforcement bodies beef up their ability to detect corruption and are willing to prosecute, there is little incentive for companies to report wrongdoing that they might otherwise get away with.

So what would global standards for corporate settlements look like? The NGOs’ joint letter to the OECD, referenced above, suggested 14 standards to the OECD. At the top of the agenda were the following:

  1. Settlements should be one tool in a broader enforcement strategy in which prosecution also plays an important role;
  2. Settlements should only be used where a company has genuinely self-reported, and cooperated fully;
  3. Judicial oversight which includes proper scrutiny of the evidence and a public hearing should be required;
  4. Prosecution of individuals should be standard practice;
  5. Settlements should only be used where a company is prepared to admit wrongdoing;
  6. Compensation to victims, based on the full harm caused by the corruption, must be an inherent part of a settlement.

These are high standards, but unless settlements are based on such standards, and unless they are used as part of a broader enforcement strategy which ensures that companies that don’t cooperate or self-report do get prosecuted, public confidence that justice is really being done when it comes to corporate bribery is going to be undermined.