Tag Archives: enforcement

Quid Pro Quo: The Deus Ex Machina of Bribery Law?

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In a recent post Phil spotted an apparent anomaly in U.S. anticorruption laws: these laws make it is easier to get away with bribing an American politician than a non-American one.  As Phil explains, the difference arises from what seems to be the higher burden the prosecution must meet to prove that what is ostensibly a campaign contribution is in reality a bribe when the recipient is an American politician rather than a non-U.S. officeholder.

When the payment is to an American politician, the prosecution must, in the words of McCutcheon v. FEC, the Supreme Court’s most recent decision interpreting the Federal Election Campaign Act, prove “quid pro quo corruption,” which the Court defines as “a direct exchange of an official act for money.” By contrast, when the challenged payment is to a non-American office holder, the Foreign Corrupt Practices Act merely requires that the prosecution establish that the money was “corruptly” given for the purpose of “influencing any act or decision [taken in an official capacity].” Phil takes the absence of an express requirement of a quid pro quo in the FCPA as easing the prosecutor’s burden. But is Phil’s reading of the two laws correct? Continue reading →

Should FCPA Sanctions Be Nine Times Larger?

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In my post last week, I discussed a recent working paper (by Cheung, Rao, and Stouraitis) that attempted to measure the economic returns firms reap from foreign bribery — and which reached the depressing conclusion that, much as we would like to believe otherwise, bribery still “pays.”  In doing a bit more research along these lines, I came across another terrific working paper — by Jonathan Karpoff, D. Scott Lee, and Gerald Martin — that investigates a similar question, using a somewhat different (though complementary) method, and reaches a similar conclusion: in the authors’ words, “firms engage in bribery because it pays to bribe, on average.”

Let’s suppose — plausibly, in my view — that these papers are correct in their conclusions that, given the expected costs of foreign bribery (probability of detection times expected magnitude of direct and indirect sanctions), many firms will find it in their rational self-interest to bribe.  If one believes (as I do) that foreign bribery is a social cost that we should try to deter (if we can do so at reasonable cost), then this implies that we should increase the expected cost to firms of paying bribes abroad — either by increasing the probability of detection, or the size of the penalty, or both.

One of the cool things about the Karpoff, Lee, and Martin paper is that it attempts to calculate just how much higher the penalties would have to be in order to deter foreign bribery, if the probability of detection remains constant.  Their sobering answer is that the average penalties would have to by about 9.2 times larger.  So, despite all the hyperbole about the enormous size of FCPA penalties (with the US government bragging about the large penalties, and the business community and defense bar griping about same), this recent research suggests that the penalties are almost an order of magnitude too small, if we really want to deter foreign bribery. (The authors also calculate how much the probability of detection would have to increase to deter foreign bribery, if the penalties remain the same.  Their conclusion is that it would have to increase from the current estimated level of 6.4% to about 58.5% — clearly unrealistic.)

What to make of this?  A few preliminary thoughts:

Continue reading →

America’s Broken System for Helping Friendly Nations Prosecute Corruption Cases

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Gaborone, Botswana, is not the place one would expect to find a group advocating that the United States government get tough on crime, but then the advocates were not the typical Washington cabal of interest group representatives, activists, lawmakers, and media.  Rather, they were investigators and prosecutors from 14 African anticorruption agencies attending a workshop on corruption investigations sponsored by the Association of Anticorruption Agencies in Commonwealth Africa.  Why the advocacy?  What is the complaint with the U.S.?

Especially in the smaller African countries, any significant corruption case almost inevitably requires a cross-border investigation.  The alleged corrupter is in one jurisdiction, the alleged corruptee in a second, and what may be the proceeds of the crime in a third.  Although the U.S. would seem to be a long way from Lesotho, Namibia, Malawi, and other Sub-Saharan nations, workshop participants explained that not only are corrupters sometimes located in the U.S., but many African elites favor parking assets acquired corruptly in American banks, real estate, and financial assets.  Hence the anticorruption authorities of Sub-Saharan states frequently seek help from the U.S. to locate stolen assets, obtain business records, and depose witnesses.  In a session devoted to the mechanics of investigating cross-border cases, however, not one of the 30 participants identified a single instance where the U.S. had timely responded to their request to provide evidence they needed to help convict corrupt public officials or freeze or seize his or her assets.  Indeed, several said they had been forced to dismiss charges or allow freezing orders to lapse because the U.S. had failed to reply to their requests. Continue reading →

Is China’s Anticorruption Crackdown Really a Crackdown on Anticorruption Activists?

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In my last post I noted that political decentralization, and the inter-jurisdictional competition it fostered, could potentially suppress local corruption and promote economic growth. My enthusiasm was fanned by the Chinese Communist Party’s (CCP’s) aggressive anticorruption campaign. Since President Xi Jinping took power, there has been a wave of anticorruption purges against powerful military and government officials. The very public purge of Zhou Yongkang, a retired official described as “the most powerful man in China,” seems to be an indication that Xi is fulfilling his promise of zero tolerance against “tigers” and “flies.”

However, my optimism has been tempered by recent news that two more anticorruption activists have gone on trial in China. The fact that the two activists from New Citizens Movement—Ding Jiaxi and Li Wei—campaigned for officials to disclose their assets, a cause that echoed CCP’s official aspiration (see here and here) only made the arrests more perplexing.

This seems like a glaring contradiction.  Why does the Chinese leadership continue to trumpet on about anticorruption and simultaneously arrest anticorruption activists?

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The FCPA’s “Facilitating Payments” Exception: Mostly Harmless

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The U.S. Foreign Corrupt Practices Act (FCPA) contains a sweeping prohibition on paying bribes to foreign officials—but also contains an exception for so-called “facilitating payments” (also sometimes called “grease payments”) meant to secure non-discretionary “routine government action.” The exception was included in the FCPA to respond to complaints by representatives of the U.S. business community that it was impossible to do business in certain countries without making these “grease payments” to low-level bureaucrats. The exception has been criticized—occasionally by those who think that the exemption is too narrow and should be expanded (or, to use their preferred euphemism, “clarified”), but more recently by a growing chorus of voices that has called for the elimination of the FCPA’s facilitation payments exception. This chorus has included, perhaps most prominently, the OECD’s Working Group on Bribery (responsible for the peer-review process under the OECD Anti-Bribery Convention), along with several of the OECD’s senior officials. And, notably, more recent foreign bribery legislation—most prominently the UK Bribery Act—contains no exception for facilitating payments. Possibly for this reason, at several recent international anticorruption conferences I’ve attended, participants (especially from outside the U.S.) have asked whether (or when) the U.S. will eliminate the grease payment exemption.

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Encouraging More Corruption-Related Litigation?

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On June 28 the Oxford Institute for Ethics, Law and Armed Conflict and the Open Society Foundations’ Justice Initiative will, with the help of this writer, host a one-day conference at the Said Business School entitled Legal Remedies for Corruption to discuss ways civil society can stimulate corruption-related litigation – either by pressuring prosecutors to file more criminal cases or by bringing their own civil actions for damages.

The question mark in the title is for American readers who might be forgiven for asking why such a conference is necessary.  Isn’t there enough litigation already? The U.S. Department of Justice and Securities & Exchange Commission continue to vigorously enforce the Foreign Corrupt Practices Act, while the Justice Department’s Public Integrity Section continues to ferret out corrupt federal, state, and local officials.  In 2012, the last year for which data is available, the section charged more than 1,000 individuals with accepting bribes, criminal conflict of interest, and other corruption offenses. And private parties in the U.S. have also been willing to sue alleged bribe payers, with suits brought by a range of injured parties including competitors, suppliers, partners, shareholders, and employee-whistleblowers.  Even foreign governments have taken advantage of American law’s broad standing rules and generous theories of damages: One alleged bribe payer recently paid a company owned by the Government of Bahrain $85 million to settle a claim it had harmed the company by bribing one of its employees to secure a contract, while the government of Trinidad has brought an action under Florida’s version of the Racketeer and Corrupt Organizations Act against the companies that allegedly rigged bids on an airport construction project in Port of Spain.

It turns out that while there is a great deal of litigation — public and private — over bribery allegations in the United States, this is much less true in most of the rest of the world. Continue reading →

Guest Post: Using FOIA to Get Evidence on Bribe Takers

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Ignacio A. Boulin Victoria, Professor of Public Law at Universidad Nacional de Cuyo (Argentina) and co-founder of the human rights group CLADH, contributes the following guest post, proposing a new legal strategy for acquiring information about bribe-taking public officials:

In a recent post, Richard Messick observed–correctly–that although in the last 10-15 years we have seen greater enforcement by so-called “supply-side” countries against bribe-paying firms, “demand-side” governments have not been willing—or able—to go after the bribe-taking public officials. Rick further observes that once a bribe-paying firm has reached a settlement with a supply-side enforcer (say, the U.S. Department of Justice), it should be much easier for the demand-side government to prosecute the corrupt officials on the other side of the transaction. But we see very little of this. Rick attributes the failure to go after the bribe takers to a combination of factors: lack of capacity on the part of demand-side governments, lack of political will, and lack of information about the settlements with supply-side governments.

Those factors are all important, but Rick overlooks one salient fact about these settlements between bribe-paying firms and supply-side governments: often the public settlement documents do not reveal nearly enough information about the bribe transactions to enable the demand-side governments to take action (unless they undertake substantial and costly additional investigation). In the US, for example, the press release announcing the resolution of a Foreign Corrupt Practices Act matter often looks like this: no names regarding who received the money, no precise time concerning when, no specific department within the agency that received the money. Even if the U.S. government has provided more detailed information about the transactions to demand-side governments, the lack of public disclosure means that if the demand-side government takes no action, local activists lack the ability to use “naming and shaming” techniques effectively.

To go after the bribe-takers effectively–and to put pressure on demand-side governments to do so–we need the names, the dates, and the details of the corrupt transactions.  How do we get them?  I propose a novel (and admittedly aggressive) use of freedom of information laws, like the U.S. Freedom of Information Act (FOIA). Here’s how it would work:

Continue reading →

Going After the Bribe Takers: The World Bank Program

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Two weeks ago I wrote about the growing disparity between transnational prosecutions for paying bribes and those for receiving bribes.  The number of cases where OECD countries have prosecuted their nationals or firms subject to their jurisdiction for bribing developing country officials has been growing steadily, but there are disappointingly few cases where a developing state has gone after its nationals for accepting bribes.  Last week I suggested one way to increase the number of cases against bribe-taking officials is to publicize whenever a firm or individual has been convicted of paying a bribe in a developing state.  For every payer, there is a taker, and if the details of the case are widely publicized, my contention was that civil society, the media, and the political opposition would then press the authorities to prosecute the taker.

The World Bank has tried something similar when an investigation reveals corruption in one of its projects, and the experience suggests that, though not a silver bullet, the effort is worthwhile.

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Revolving Doors and Corruption

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I recently came across a couple of interesting blog posts about corruption and the “revolving door” in the U.S. government (the cycling of individuals from the private sector to government and back again—often as representatives of the same industries they used to regulate while in government).

First, last month Chandu Krishnan (who served as Executive Director of Transparency International UK from 2004-2012) published an insightful post on the Safra Center’s blog, noting how the revolving door—and in particular the promise of lucrative post-government employment—may lead government officials to make laws that reflect the preferences of “industry lobbies” rather than the “will of the people.” Mr. Krishnan adds his voice to the chorus of calls for reform; in particular, he recommends lengthening the legally-required “cooling off” period (during which former government officials are prohibited from lobbying) from one to three years (or longer for positions involving especially high risk, such as procurement).

Around the same time, Mike Koehler, who runs the FCPA Professor Blog, posted a comment on Charles Duross’s recent departure from his position as head of the DOJ’s FCPA enforcement division to take up a position at the law firm Morrison & Foerster. In this post, Professor Koehler reiterated his earlier calls for extending and expanding the “cooling off” period, so that former government FCPA lawyers could not provide any FCPA defense or compliance services for five years after leaving government service.

What struck me about reading these two posts in rapid succession was the fact that although Mr. Krishnan and Prof. Koehler seem in agreement on the problem and the solution, in fact their hypotheses about the effect of the revolving door on government officials’ incentives are not only different, but polar opposites. Mr. Krishnan worries that the prospect of future employment at private sector firms will cause government officials to go too easy on those firms—leading to overly passive or timid enforcement of U.S. law. (He views this as a kind of “institutional corruption.”) Prof. Koehler worries that the prospect of future private sector employment causes government officials to be too aggressive in their enforcement of the law—creating or augmenting the demand for the defense & compliance services these ex-government officials then provide.

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Going After the Bribe Takers: Step One

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Last week I wrote about the gap between prosecutions for transnational bribe paying and transnational bribe taking.  Even after a bribe payer in one state has been convicted or pled guilty, most countries where the bribe was paid have shown little interest in investigating who took the bribe – an often easy inquiry given the evidence unearthed in the bribe payer case.  I also noted that in almost every instance the bribe was paid by a firm in an OECD country to a government official in a developing state.

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