Tag Archives: enforcement

Friends with Benefits: India’s Crony Capitalism and Conflict of Interest Regulations

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In May 2014, when Narendra Modi’s National Democratic Alliance (NDA) ran and won against the incumbent United Progressive Alliance (UPA) Government on a platform of anticorruption and growth, very few were surprised. UPA’s second term was paralyzed by a string of mega-corruption scandals, including the 2G scam and Coal–Gate, pointing to entrenched crony capitalism and raising public fury. A country that had had enough with lackluster economic performance and widespread corruption kicked into survival mode and set aside its deep misgivings about a man with a troubling past. India was desperate for an efficient administrator and an uncorrupted leader—and Modi promised both.

After Modi became Prime Minister, many Indian businessmen grumbled that they had lost access to the Government—a fact hailed by the Indian media as evidence that he was finally cleaning house and cracking down on crony capitalism. However, more recent reports suggest that the Cronyism of Many has simply been replaced by the Cronyism of One. The Indian media is rife with reports hinting at a troublingly close relationship between the Prime Minister and a Gujarat-based industrialist who is one of the latest entrants to the Indian billionaire’s club (See reports here, here, here and here).

To be clear, such allegations do not necessarily imply that the PM himself is corrupt. Nonetheless, in this context even the appearance of corruption can be damaging. High officeholders in a country like India, where endemic corruption and crony capitalism have historically prevented the nation from achieving its full potential, ought to be held to much higher standards of probity.

The PM may be flirting within the permissible boundaries of business-government collaboration and may even get away with it using personal charisma, strong economic performance, and the lack of clarity in laws governing such relations. However, in the interest of keeping the high offices of the country beyond reproach, it is time to have a relook at the laws governing business-government relations in India. A good place to start will be the Conflict of Interest (COI) provisions for India’s Executive and Legislative branches. Unfortunately, the current COI regime for Indian public office holders is weak and ineffectual: Continue reading →

Should FCPA Enforcers Focus on Bribe-Paying Employees or Their Corporate Employers?

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These days most (though not all) resolutions in Foreign Corrupt Practices Act cases involve corporate defendants paying fines or other penalties to the government. Usually (again, not always) the government does not bother prosecuting the employees who paid the bribes. (While the government has recently made individual liability in corporate criminal cases more of a point of emphasis — as exemplified by the DOJ’s Yates Memo, which Danielle discussed in yesterday’s post — the targets in those cases are typically senior executives who orchestrated bribe-paying schemes, not the lower-level executives or employees who actually paid the bribes.) The government also uses various legal tools to encourage lower-level employees blow the whistle on their employers.

Do we have this backwards? Right now, the government focuses its enforcement efforts on the corporate employers, rather than the lower-level employees who pay the bribes. Should the government instead emphasize enforcement actions against the employees? Right now, the government tries to give employees incentives to uncover and disclose evidence of FCPA violations committed by their employers. Should the government instead focus on encouraging the employers to uncover and disclose FCPA violations committed by their employees?

This past summer, I was fortunate enough to attend the Third Annual Conference on Evidence-Based Anti-Corruption Policies in Bangkok, and the keynote speaker at that event, New York University Law Professor Jennifer Arlen, made a case along those lines. (Professor Arlen’s address was actually a much more wide-ranging discussion of corporate criminal liability; I’ve extracted, and possibly oversimplified or distorted, one thread of her argument. But it’s an interesting enough argument that I think it’s worth engaging, and I’ll focus on the simple version, even though her position is more nuanced.) The argument goes something like this: The DOJ should adopt a policy that any corporation that discovers FCPA violations by its employees, and then promptly (a) discloses the violation to the government, (b) provides the government with information, and (c) assists the government in prosecuting the employee, should be exempt from corporate criminal liability for the violation; the DOJ should instead vigorously prosecute the individual employees in this situation (using the evidence that the corporate employer has itself provided). If the corporation fails to promptly disclose such a violation, however, and the government subsequently finds out about it, the corporation should be held criminally liable for the FCPA violation, and penalized accordingly.

I think this proposal is interesting enough to take seriously, though in the end I remain unconvinced that this shift in emphasis would be a good idea. Let me first lay out the argument in favor of this change, and then explain why I ultimately disagree. Continue reading →

No Longer a Cost of Doing Business: The Yates Memo Signals DOJ Is Serious About Going After Individuals

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As many observers have noted, penalties for Foreign Corrupt Practices Act (FCPA) violations tend to fall on corporations, rather than individual wrongdoers. The individual employees responsible for the unlawful conduct rarely pay fines or go to prison. The FCPA is not unique in this regard; many U.S. Department of Justice (DOJ) settlements with corporate defendants shield executives and employees from personal liability so long as the corporation accepts institutional responsibility. Yet this enforcement posture has been unsatisfying, and critics argue that many corporations simply treat the fines as an accepted cost of doing business. In response to this concern, and after much foreshadowing, the DOJ formally released a new policy on individual liability last week—a policy that applies to all corporate prosecutions and settlements, including those involving the FCPA. Known as the “Yates Memo” (it was announced by Deputy Attorney General Sally Quillian Yates in her remarks at NYU School of Law on September 9th), this new policy statement—the first major policy announcement from the DOJ under Attorney General Loretta Lynch—signals that the “cost of doing business” model of corporate compliance is coming to a definitive end.

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The Economist Gets It Badly Wrong on Anti-Bribery Law

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Last week, The Economist published an op-ed entitled “Daft on Graft,” which argued that the enforcement of transnational anti-bribery laws like the U.S. FCPA and U.K. Bribery Act is “becoming ridiculous,” with costs that are “spiraling beyond what is reasonable,” and that we are now witnessing “a descent into investigative madness.”

If I spent all my time responding to poorly-reasoned claptrap that looks like it was written either by a shill for business lobbyists or by someone who didn’t know much about the topic, I wouldn’t have time to do anything else. But when such claptrap appears in a widely-read, well-respected publication like The Economist, I can’t just let it pass. I know, I know—it may be unfair to beat up on a short op-ed, a format that doesn’t lend itself to in-depth analysis or nuance. But still, even by the standards of op-eds in popular periodicals, this is pretty bad. The diagnosis of the problem is shrill, one-sided, and hyperbolic, and the proposed reforms are either already in place, or misguided.

Maybe the best way to approach this is to consider each of the op-ed’s four proposed “reforms” to anti-bribery law enforcement one at a time: Continue reading →

Uses and Abuses of Anticorruption Tactics in the Gambia

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The tiny African country of the Gambia rarely receives international media attention.  Perhaps once a year, shocking statements from its president, Yahya Jammeh, might win it a small news blurb, but even then, these stories tend to be treated in a perfunctory, “look at this wacko human rights abuser” manner: reporting something awful or absurd—like his declaration that LGBT people are “vermin”, or that he has developed a cure for AIDS—but doing so in a derisive or condescending tone. A headline like “Five Crazy Things About Gambia’s Jammeh” is fairly typical.  (The latest zaniness-oriented reporting has been centered on an incredibly poorly planned attempted coup by two Gambian-Americans against whom the U.S. Department of Justice just filed charges.)

However, such gawking, hit-and-run style reportage overlooks the very real, very sinister way that Jammeh has solidified his hold on power by co-opting the language of anticorruption as a rhetorical tool to justify his tenure, and by using purported anticorruption crackdowns as a weapon to eliminate his opponents.  By utilizing the language of anticorruption advocates, and selectively throwing certain members of the government to the wolves while perpetually tossing the (anticorruption) book at his political opponents, Jammeh has managed to create the myth that his administration is at least relatively committed to fighting corruption, and is the best hope for the Gambia to pursue economic development.

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Anticorruption Enforcement Policy: Insights from the Deterrence Scholarship

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Over the past three decades much empirical work has appeared on the effect of the criminal law on crime rates.  Usefully summarized in review articles by, among others, Professors Daniel Nagin of Carnegie Mellon University and Michael Tonry of the University of Minnesota (click here and here for examples), this research offers several insights for those engaged in the fight against corruption.

The first is that the criminal justice system can make a difference.  Save for acts committed in the heat of the moment, crime is a cost-benefit proposition.  Would-be criminals tote up the (usually) monetary gains of violating the law against the risks of being caught and punished and, when the benefits exceed the costs, commit an offense.  Thus policies that drive up the cost of crime by increasing the chances an offender will be caught, prosecuted, and appropriately punished reduce the crime rate.  Recent studies confirm that corruption crimes are no exception.  Putting more resources into to prosecuting corruption in the United States and ensuring corruption in the construction of roads is detected both reduced corruption.

But if the good news from the deterrence literature is that the criminal law can make a difference, the bad news is that that the difference is not easy to realize and that the logic of deterrence can lead policymakers astray.  One of the more striking findings is that what would seem to be the easiest way to enhance deterrence, sharp increases in the penalties for corruption crimes, may actually lead to more corruption.  Continue reading →

Whistling in Chorus: The Potential Impact of the Rise of Parallel Prosecutions on Whistleblower Regimes

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A few months ago, Chinese officials announced a number of new incentives for whistleblowers to come forward to disclose corporate wrongdoing: pledging to develop protection plans for whistleblowers when necessary to “prevent and end acts of retaliation” and increasing the rewards whistleblowers could potentially receive to approximately $33,000 for “actionable information” (with even greater sums available for “significant contributions of information”).  While these policies are fascinating in their own right, they also feed into a larger discussion that has been taking place both on this blog and in other forums, regarding what impact, if any, an increased commitment to anticorruption norms by demand-side countries may have upon the current anticorruption regime. A number of authors have already discussed this phenomenon both in broad strokes and specifically within the context of China’s increased enforcement of anticorruption laws (though some have suggested China’s recent, high-profile corruption prosecutions, including a $490 million fine of GlaxoSmithKline, may serve as a cover for protectionist policies).  One area that may warrant further consideration, however, is the likely impact that the rise of demand-side prosecutions and the resulting potential for parallel enforcement by demand-side and supply-side countries may have upon these states’ whistleblowing regimes.

While the ways in which the increased prevalence of demand-side corruption prosecutions will impact the interactions between supply- and demand-side countries’ anticorruption regimes remains unclear, this phenomenon seems likely to result in one of two possible outcomes with respect to states’ attitudes towards whistleblowers. First, countries may perceive some benefit to ensuring that they are the only–or, at the very least, the first–government to receive a whistleblower’s report.  Second, states may alter their whistleblowing policies to reflect the fact that whistleblowers can potentially report to, and be rewarded by, both demand- and supply-side countries.  While the impact of these different scenarios on the ways in which whistleblowing protections and incentives will develop over time may be quite different, both appear disadvantageous to states’ anticorruption efforts, to the whistleblowers themselves, or both.

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The New Head of the DOJ’s Fraud Unit Advocated Gutting the FCPA: Shouldn’t We Be More Upset About That?

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Two months ago, the U.S. Department of Justice announced that Andrew Weissmann would take over as chief of Fraud Section in the DOJ’s Criminal Division, a position that involves responsibility for, among other things, the DOJ’s enforcement of the Foreign Corrupt Practices Act (FCPA). Mr. Weissmann has had a distinguished professional career, with previous stints in private practice and in government, including prior positions as Special Counsel to the Director of the FBI, and as the director of the DOJ’s Enron Task Force. But for those of us who care about maintaining the US government’s aggressive enforcement of the FCPA and its leadership in the global fight against corruption, Mr. Weissmann’s appointment should be cause for concern. The reason? Mr. Weissmann was one of the principal authors of the U.S. Chamber of Commerce’s 2010 report, Restoring Balance: Proposed Amendments to the Foreign Corrupt Practices Act. That report is notable principally for three things: (1) its strident attack on aggressive FCPA enforcement, (2) its proposal of a series of amendments to the statute that would gut the FCPA, and (3) its misleading manipulation (and sometimes outright misrepresentation) of both facts and law in making its case.

Fortunately, Professor Dan Danielsen at Northeastern School of Law and my Harvard colleague Professor David Kennedy provided an exceptionally thorough take-down of the Chamber of Commerce’s arguments in a report for the Open Society Foundations (OSF), called Busting Bribery: Sustaining the Global Momentum of the Foreign Corrupt Practices Act. Aside from a few small (but admittedly important) errors, the OSF report provides a sufficiently thorough rebuttal that I won’t attempt to summarize it all here; rather, I urge readers to follow the links above. But let me just highlight a few aspects of Mr. Weissmann’s report for the Chamber of Commerce to explain why I think it deserves the harsh language I used. Continue reading →

An International Success, Applied in the US: The OECD Law Enforcement Group as a Model for US State Prosecutors

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In the United States, the federal government plays a lead role in prosecuting corruption at the state and local level–and many anticorruption advocates and scholars (both in the US and internationally) credit this federalization of anticorruption enforcement with getting rampant local corruption under control. Indeed, the DOJ’s Public Integrity Section was founded in 1976 precisely because it was thought that federal enforcement efforts were required to fill the vacuum created by the inability or unwillingness of state and local law enforcement authorities to bring cases against government officials in their own communities.

Leaving aside for the moment the substantial federalism and sovereignty concerns that have been leveled against this approach, it seems that the federalization of state and local corruption prosecutions worked, and contributed to a significant reduction in corruption across the United States. For this reason, anticorruption advocates frequently suggest that the US experience with federal enforcement should serve as a model for the international community. For example, Judge Mark Wolf’s proposal for an International Anticorruption Court explicitly draws on the US approach, and was likely influenced by Judge Wolf’s personal experience as a federal prosecutor of state and local officials.

I would like to propose the reverse: The United States should take a page out of the international enforcement playbook to improve state-level prosecution of state and local corruption, by implementing something like the OECD Anti-Bribery Convention’s closed-door meetings of law enforcement officials, but for US state-level prosecutors. Here’s why: Continue reading →

Guest Post: Why Debarment Is Different–A Reply to Professor Stephenson

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Richard Bistrong, a writer, speaker, and blogger on anti-bribery compliance issues, contributes the following guest post:

As the recent OECD Foreign Bribery Report made clear, debarment (prohibiting the defendant company or individual to engage in future government contracting) is very rarely used as a sanction in foreign bribery cases, most likely because prosecutors worry that debarment would be an excessive penalty that would often do too much collateral damage to innocent parties. I have argued that debarment can and should be used more frequently, and that the legitimate concerns about disproportionate punishment can be addressed by using various forms of “partial debarment.” In a recent post, Professor Stephenson draws attention to a number of potential shortcomings to my proposal. While I agree with some of his points, I think he understates the ways in which debarment—as distinct from fines or other monetary penalties—can have a distinctive deterrent effect on foreign bribery, and why partial debarment might therefore often be appropriate.

Let me try to clarify where Professor Stephenson and I disagree, where we may disagree, and why partial debarment is a sanction that government enforcers ought to employ more often. Continue reading →