Tag Archives: Department of Justice

The Anticorruption Campaigner’s Guide to Asset Seizure

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Anticorruption campaigners have long argued that Western governments should be more aggressive in freezing and seizing the assets of kleptocrats and corrupt oligarchs. While targeting illicit assets has been part of the West’s anticorruption arsenal for many years, attention to this tactic has surged in response to Russia’s invasion of Ukraine. Almost as soon as Russian troops crossed the border into Ukrainian territory, not only did Western governments impose an array of economic sanctions on Russian institutions and individuals close to the Putin regime, but also—assisted by journalists who identified dozens of properties, collectively worth billions—Western law enforcement agencies began seizing Russian oligarchs’ private jets, vacation homes, and superyachts.

Many people who are unfamiliar with this area—and even some who are—might naturally wonder about the legal basis for targeting these assets. And indeed, the law in this area has some important nuances that are not always fully appreciated in mainstream media reporting and popular commentary. Continue reading →

Taking on the Demand Side of Foreign Bribery: How U.S. FCPA Settlements Can Facilitate Foreign Prosecutions

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Laws like the U.S. Foreign Corrupt Practices Act (FCPA) target what is sometimes referred to as the “supply side” of transnational bribery transactions—the firms and individuals of offer or pay bribes to foreign officials in order to secure a business advantage. But what about the demand side? All too often, the government officials who demand or receive these bribes escape accountability—even when the bribe-paying firms are forced to pay substantial penalties for FCPA violations. Years ago, some U.S. Department of Justice (DOJ) prosecutors floated the theory that bribe-taking officials could be charged as abettors to, or co-conspirators in, FCPA violations, but that theory, though legally plausible, failed to gain traction in the courts. On occasion, the DOJ has prosecuted bribe-taking foreign officials for money laundering. And more recently, Members of the U.S. Congress have introduced a new bill, the Foreign Extortion Prevention Act (FEPA), which would make it a crime under U.S. law for a foreign public official to seek, demand, or accept a bribe. FEPA’s chances of enactment are uncertain (the vast majority of bills fail, after all); moreover, even if enacted, FEPA’s impact may be circumscribed by the practical and political difficulties of arresting and trying foreign public officials, particularly those that do not have any contact with U.S. territory.

What about the bribe-taking public official’s own government? Shouldn’t that government take the lead in prosecuting its own public officials when they behave corruptly? There would be a nice symmetry—and a great deal of practical advantage—to a system in which the supply-side government (say, the United States) goes after the bribe-paying company, while the demand-side government goes after the bribe-taking public official. But often this doesn’t happen: In the majority of cases where the U.S. government imposes FCPA sanctions on a company for paying bribes in a given country, there is no parallel or subsequent prosecution by that country’s government of the corrupt officials involved.

Sometimes the explanation is political: the public officials involved are sufficiently powerful and well-connected to escape domestic accountability in their home countries, even when their misconduct is known. That’s a big problem, and one that statutes like FEPA are designed to address. But there’s another reason that demand-side governments often fail to hold their own officials accountable: a lack of capacity and an associated lack of evidence. In a great many cases, even when a bribe-paying firm settles an FCPA case with the US government, and in doing so admits to certain facts and provides evidence about the misconduct to the DOJ, the demand-side country government does not receive sufficient evidence to identify, let along prosecute, the corrupt officials involved—either because the company did not supply that information to the DOJ, or the DOJ did not turn that information over to the demand-side official’s government. True, FCPA settlement agreements are usually public, but the official statements of facts in these agreements are often not sufficiently precise and detailed to give a foreign enforcement agency what it needs to make out a case.

The U.S. government can and should fix this problem. Doing so would not require new legislation. Rather, it could be accomplished through a straightforward and easily implementable change in DOJ policy. Continue reading →

Do Individual U.S. Senators Manipulate the Timing of FCPA Enforcement Actions? (Spoiler: No.)

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Is enforcement of the U.S. Foreign Corrupt Practices Act (FCPA) improperly politicized? The notion that it is has gained traction in some circles, particularly in countries with multinational firms that have been sanctioned by U.S. authorities for FCPA violations, such as France and Brazil. The usual claim by those who assert that FCPA enforcement is politicized is that the US Department of Justice (DOJ) deploys the FCPA as a kind of protectionist weapon against foreign multinationals that compete with US firms. But a recent working paper by two business school professors (one American and one Chinese) claims to have found evidence for a different sort or FCPA politicization. According to this paper, individual U.S. Senators exert behind-the-scenes influence over the DOJ to manipulate the timing of FCPA enforcement actions against foreign corporations. More specifically, the paper argues that when a Senator is up for reelection, he or she will influence the DOJ to announce an enforcement action against a foreign company before, rather than after, the election. Doing so, the authors suggest, helps the Senator’s reelection chances by imposing a cost on a foreign company that competes with domestic firms in the Senator’s state.

I confess that when I first saw this paper a few weeks ago, I didn’t take it too seriously, because the central argument seemed so obviously detached from reality. (I also didn’t have time to dig into the details of the empirical methods, which are somewhat involved.) But the paper seems to generated a bit of buzz—including a Tweet from one of the best and most respected economists who works on corruption-related issues, which specifically asked me and a few others for our reactions to some of the “provocative” evidence presented in the paper. So I took a closer look. Continue reading →

Lessons from the U.S. College Admissions Scandal: Why Universities Need to Embrace Anticorruption Measures

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In 2019, a college admissions corruption scandal made headlines in the United States and around the world. Richard Singer, who masterminded the scheme, promised wealthy parents that he could get their children coveted places at Stanford, Yale, USC, and other selective colleges through what he called the “side door.” Rather than donate $45 or $50 million to gain an edge in admissions, parents would pay Singer and his foundation to bribe college coaches to recruit the students as college athletes—even though many of the students had never competed in the sport for which they were allegedly being recruited. U.S. federal prosecutors, in the so-called “Varsity Blues” investigation, uncovered this scheme and indicted more than fifty people (parents, coaches, and others). Many of the defendants pled guilty. This past October, in the first Varsity Blues case to go to trial, a jury found hedge fund magnate John Wilson and former casino executive Gamal Abdelaziz guilty of conspiracy, wire fraud, and mail fraud. More trials are likely coming, and more convictions are likely.

Beyond the sensational headlines—which often focused on the wealthy parents, several of whom are celebrities—what broader lessons can we draw from the scandal? When it first broke, many commentators attacked the broader culture of entitlement and privilege in which wealthy parents secure unfair—but in most cases entirely legal—advantages for their children through legacy preferences and favoritism toward big donors. Other commentators drew attention to the hypercompetitive, win-at-all-cost culture fostered by the U.S. college admissions system. Critics pointed to a culture that leads not only to criminal bribery of the sort revealed in the Varsity Blues investigation, but also to less visible forms of dishonesty like college admissions “consultants” who draft essays for pay and students who cheat on college admissions tests, sometimes with the support or complicity of adults.

Those critiques of the U.S. college admissions culture are apt, but there’s another important lesson that emerges from the scandal, one that has received less attention: The scandal highlighted the extent to which universities have failed to address seemingly obvious corruption risks, and failed to implement effective controls for identifying applicants who were bribing their way onto campus. Compared to other large institutions, universities are behind when it comes to establishing effective anticorruption controls.

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Rethinking the Hatch Act in a Post-Trump World

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In the United States, the Hatch Act has long served as bulwark against the corrosive intersection of partisan politics and government power. Signed into law in 1939, the Hatch Act was designed to combat the corruption associated with the so-called “spoils system,” in which politicians dole out valuable government jobs to their supporters, and those supporters are in return expected to use their government positions to benefit their political patrons. Civil service laws that create a “merit system” attack the spoils system from one direction, by making politically-motivated hiring and firing more difficult. Laws like the Hatch Act complement these efforts by prohibiting government employees from engaging in partisan political activities. More specifically, the Hatch Act prohibits any federal officer or employee (other than the President or Vice President) from engaging in political activity while acting under his or her “official authority or influence.” (This prohibition, as interpreted, covers any sort of partisan political activity while on the job, including displaying political paraphernalia, distributing campaign materials, and soliciting campaign contributions.) Penalties for violating the Hatch Act can include fines, demotion, suspension, removal from office, and temporary debarment from future federal service.

Since its enactment, compliance with the Hatch Act has generally been quite good. But that changed in January 2017, when President Trump took office. Throughout the Trump years, rampant violations of the Hatch Act plagued the federal government. High-level Trump Administration officials like Ivanka Trump, Jared Kushner, Mike Pompeo, Kellyanne Conway, and Stephen Miller, among many others, engaged in likely Hatch Act violations, with no significant consequences. This exposed an uncomfortable truth: At least for high-level political appointees, the Hatch Act’s enforcement mechanisms are too week, and the penalties too negligible, to deter officials uninterested in complying with the law. Indeed, past compliance with the Act was likely more the product of government norms than fear of punishment.

Just to be clear, the situation is likely quite different for career civil servants who serve in government regardless of which political party holds the White House. With respect to these individuals, who comprise the overwhelming majority of the government, the Hatch Act’s prohibitions are strictly enforced, and the penalties are stiff. But for senior political appointees, the Trump Administration exposed glaring weaknesses in the Hatch Act’s efficacy, when the Administration has little interest in adhering to conventional norms of ethics and integrity. Two types of reform are needed:

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Principles for Victim Remediation in Foreign Bribery Cases

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There is a broad consensus that foreign bribery harms the citizens and governments of developing nations. But in most cases where enforcement agencies in a “supply side” jurisdiction (that is, the home jurisdiction of the companies that paid the bribes) reach a settlement with a company accused of bribing foreign officials, the settlement does not provide for any remedial payments to the government or citizens of the “demand side” country where the bribery took place. Given the inherent difficulties in setting right the harm corruption causes, this is hardly surprising. Nevertheless, scholars and activists have increasingly called for settlement agreements between supply side enforcers and bribe-paying companies to include requirements that the companies make such remediation to the victims of the foreign bribery scheme, and some prosecutorial agencies, like the U.S. Department of Justice (DOJ) and the U.K. Serious Fraud Office (SFO), have occasionally done something along these lines. They have done so, however, only intermittently, and as an exercise of prosecutorial discretion, without any overarching policy agenda or conceptual framework.

In a recent article, I proposed a framework that could achieve more consistent outcomes and be used as a benchmark for developing best practices. I do not focus on grand designs for a private right of action for the foreign victims of corruption, or on obligations under international law. Because the action is happening on the ground, through the exercise of prosecutorial discretion in negotiating settlements, that’s where I focus. In this post, I outline the factors that enforcement agencies should take into account when deciding whether to pursue remediation in any given case. Continue reading →

The New FCPA Resource Guide Wisely Suggests a More Flexible Approach to Successor Liability

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When a company subject to the jurisdiction of the U.S. Foreign Corrupt Practices Act (FCPA) merges with or acquires another company that is also covered by the FCPA, should the former company also acquire the latter’s potential FCPA liability? In other words: Suppose Company A acquires Company B, and evidence later comes to light that prior to the acquisition, Company B’s employees paid bribes to foreign government officials, in violation of the FCPA. Can or should Company A be subject to a post-acquisition enforcement action for these earlier FCPA violations? This is known (in the FCPA context and elsewhere) as the question of “successor liability.” In U.S. law, the general rule is that successors inherit the acquired company’s civil and criminal liabilities. The U.S. Department of Justice (DOJ) and Securities and Exchange Commission (SEC), which share responsibility for enforcing the FCPA, have long argued that there is no reason to make an exception to this general rule for FCPA cases. Yet critics have argued that successor liability in the FCPA context “can kill deals.” Numerous transactions have fallen through or decreased in value because of corruption-related concerns, and other transactions became costlier due to such risks.

The DOJ and the SEC’s traditional response to such concerns—as laid out in the first edition of their FCPA Resource Guide, published in 2012—is that companies should conduct pre-acquisition due diligence to identify red flags and potentially undertake various forms of remediation. Furthermore, the agencies have stated that they might decline to pursue enforcement actions against an acquiring firm on a successor liability theory if that firm’s pre-acquisition efforts were adequate. The problem, though, is that pre-acquisition due diligence on possible FCPA violations is often difficult or impossible to conduct properly. In some cases, laws in foreign countries known as blocking statutes may prevent the acquiring firm from getting the information it needs from the target company (see, for example, here and here). More generally, there are numerous practical reasons why pre-acquisition due diligence on possible FCPA violations may not be possible, including time-sensitivity, the difficulty of accessing data stored or located in distant places, and the target company’s reluctance to cooperate with external investigations that could result in the target’s personnel facing criminal exposure. These factors can make pre-acquisition due diligence impractical.

The DOJ and SEC appear to have acknowledged and responded to that concern in the second edition of the FCPA Resource Guide, published this past July. While the second edition’s treatment of successor liability seems mostly the same as in the first edition (save for some wording adjustments and references to more recent cases), the second edition also includes one short but potentially crucial additional paragraph, which reads as follows:

DOJ and SEC also recognize that, in certain instances, robust pre-acquisition due diligence may not be possible. In such instances, DOJ and SEC will look to the timeliness and thoroughness of the acquiring company’s post-acquisition due diligence and compliance integration efforts.

Although subtle, this passage represents a potentially important shift, as it indicates that the DOJ and SEC will consider not only pre-acquisition due diligence, but also post-acquisition measures, when deciding whether to pursue enforcement actions against a company on a successor liability theory.

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New Podcast Episode, Featuring Jack Goldsmith

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A new episode of KickBack: The Global Anticorruption Podcast is now available. In this week’s episode, I interview my Harvard Law School colleague Jack Goldsmith about what the Trump Administration has taught us about the strengths and weaknesses of the U.S. system for constraining corruption, conflicts of interest, and other forms of wrongdoing by the President and senior members of the executive branch, as well as what kinds of institutional reforms and policy changes would help prevent such wrongdoing going forward. The conversation centers on Professor Goldsmith’s new book, After Trump: Reconstructing the Presidency, co-authored with Bob Bauer. Jack and I discuss the importance of norms in constraining wrongdoing and maintaining the independence of law enforcement bodies, various approaches to addressing financial conflict-of-interest risks in the context of the U.S. president, the challenges (but also the necessity) of relying on political checks, and the debates over whether to prosecute a former president, such as President Trump, for crimes allegedly committed while in office. You can find this episode here. You can also find both this episode and an archive of prior episodes at the following locations: KickBack is a collaborative effort between GAB and the ICRN. If you like it, please subscribe/follow, and tell all your friends! And if you have suggestions for voices you’d like to hear on the podcast, just send me a message and let me know.

Guest Post: The Impending Reckoning on the U.S. Government’s Expansive Theory of Extraterritorial FCPA Liability

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Today’s guest post is from Roxie Larin, a lawyer who previously served as Senior Legal Counsel for HSBC Holdings and is now an independent researcher and consultant on corruption, compliance, and white collar crime issues.

The U.S. Foreign Corrupt Practices Act (FCPA) is a powerful tool that the U.S. government has wielded to combat overseas bribery—not just bribery committed by U.S. citizens or firms, but also bribery committed by foreign nationals outside of U.S. territory. (The FCPA also applies to any individual, including a non-U.S. person or firm, who participates in an FCPA violation while in the United States, but this territorial jurisdiction is standard and noncontroversial.) The FCPA, unlike many other U.S. statutes, does not require a nexus of the alleged crime to the United States so long as certain other criteria are satisfied. For one thing, the statute applies to companies, including foreign companies, that issue securities in the U.S. In addition, the FCPA covers non-U.S. individuals or companies that act as an employee, officer, director, or agent of an entity that is itself covered by the FCPA (either a U.S. domestic concern or a foreign issuer of U.S. securities), even if all of the relevant conduct takes place outside U.S. territory.

In pursuing FCPA cases against non-U.S. entities for FCPA violations committed wholly outside U.S. territory, the agencies that enforce the FCPA—the Department of Justice (DOJ) and Securities and Exchange Commission (SEC)—have pushed the boundaries of this latter jurisdictional provision. They have done so in part by stretching to its limits (and perhaps beyond) what it means to act as an “agent” of a U.S. firm or issuer. (The FCPA provisions covering foreign “officers” and “employees” of issuers and domestic concerns are more straightforward, but also more rarely invoked. It’s rare for the government to have evidence implicating a corporate officer, and the employee designation doesn’t help unless the government is either able to dispense with notions of corporate separateness, given that foreign nationals are typically employed by a company organized under the laws of their local jurisdiction.) Until recently, the government’s expansive agency-based theories of extraterritorial jurisdiction had neither been tested nor fully articulated beyond a few generic paragraphs in the government’s FCPA Resource Guide. In many cases, foreign companies affiliated with an issuer or domestic concern have settled with the U.S. government before trial, presumably conceding jurisdiction on the theory that the foreign company acted as an agent of the issuer or domestic concern. (This concession may be in part because a guilty plea by a foreign affiliate is often a condition for leniency towards the U.S. company.) Hence, the government has not had to prove its jurisdiction over these foreign defendants.

But there was bound to be a reckoning over the U.S. government’s untested theories of extraterritorial FCPA jurisdiction, and the SEC and DOJ’s expansive theories are increasingly being tested in court cases brought against individuals who, sensibly, are more prone to litigating their freedom than companies are their capital. And it turns out that the U.S. government’s expansive conception of “agency” may be difficult to sustain in cases where the foreign national defendant—the supposed “agent” of the U.S. firm or issuer—is a low- or mid-level employee of a foreign affiliate, and even more difficult to sustain so where the domestic concern is only an affiliate and not the parent company. Continue reading →

The Independence of U.S. Law Enforcement is Under Attack. Here’s What Congress Can Do About It.

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The politicization of the institutions of justice, particularly those associated with criminal law enforcement, is one of the greatest threats to the rule of law and the integrity of government. Corrupt leaders in democracies and autocracies alike seek to undermine any check on their power, thus ensuring impunity for themselves and their allies, and may also try to weaponize criminal investigations to harass and discredit political opponents. For many years, most Americans viewed this sort of threat to the integrity of the institutions of justice as something that only happened abroad, or in the distant past. Not so anymore. Under the Trump Administration, the corruption and politicization of law enforcement institutions is a significant threat to American democracy.

That President Trump lacks respect for the independence and integrity of law enforcement has been evident for some time, at least since Trump fired FBI Director James Comey. (Trump dismissed Comey in part to the FBI’s investigation into potential collusion between Trump’s campaign associates and Russia during the 2016 election, and in part because Comey wouldn’t pledge his personal loyalty to the president.) In the last month, the situation appears to be getting even worse. As has been widely reported in the media, President Trump publicly criticized the Department of Justice (DOJ) for seeking a high sentence in the case of Trump associate Roger Stone; Attorney General Bill Barr claimed that President Trump didn’t issue any specific instructions regarding the case (and complained about the President’s tweeting), but Barr nonetheless recommended a much lower sentence that the DOJ’s own prosecutors had originally requested. Barr recently made the highly unusual decision to install an outside prosecutor to oversee the case against President Trump’s former National Security Advisor Michael Flynn. In another troubling move that didn’t get as much press attention, in early February Barr issued a memo saying that any FBI investigations into 2020 candidates or their campaigns would require the Attorney General’s approval.

Trump has asserted that he had the legal right, as President, to intervene in criminal cases. This is a contested claim, to say the least. Some argue that, under the U.S. Constitution, the President has ultimate control not only over general DOJ policy, but over decision-making in individual criminal prosecutions. However, others assert that this is not so, and that the Constitution actually imposes certain limits the President’s control over individual prosecutions—most importantly, that the President cannot seek to affect a criminal case out of corrupt or self-interested motivations.

Putting the legal debate to one side for now, and assuming that Congress—if not now, then at some point in the future—would like to establish new safeguards to insulate the DOJ and FBI from the corrupting influence of an unscrupulous president, what might Congress do? I suggest three steps that Congress might take:

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