It’s Time for China to Show Its Foreign Bribery Law is Not a Paper Tiger

In May 2011, China criminalized the bribery of foreign public officials. More specifically, the 8th Amendment to China’s Criminal Law, among other things, added Article 164(2), which prohibits both natural persons and units (i.e. companies and other organizations) under Chinese criminal jurisdiction from giving “property to any foreign public official or official of an international public organization for the purpose of seeking illegitimate commercial benefit.” This legislative action, intended in part to fulfill China’s obligations as a State Party to the United Nations Convention Against Corruption, was considered an accomplishment given the under-criminalization of foreign bribery in Asia Pacific at the time. Many commentators devoted substantial attention to questions about the law’s meaning, including the definition of almost every term in the provision (“property,” “foreign public official,” “international public organization,” “illegitimate commercial benefit,” etc.—for a sampling, see here, here, here, here, here, or just search for “China Criminal Law 164” using any search engine).

However, almost seven years have passed, and nothing substantial has happened, except for some minor movements related to the law as observed by the media and commentators in some official and unofficial statements (see, for example, here, here, and here). Not a single enforcement action has been brought (or at least publicized) under Article 164(2). Even after President Xi Jinping launched in 2013 the most extensive anti-graft campaign China has ever seen, there have been no foreign anti-bribery enforcement actions.

There are several possible explanations for China’s non-enforcement of 164(2). One possibility, discussed previously on this blog, is that China’s traditional “non-interference” foreign policy might make China reluctant to go after transnational bribery; more generally, China might not be interested in devoting resources to fighting forms of corruption that don’t have domestic effects. Some have also suggested that China has little incentive to enforce its foreign anti-bribery law because bribery of foreign officials gives Chinese firms a competitive advantage in certain jurisdictions. It’s also possible that simple inertia is part of the story: It’s worth keeping in mind that although the U.S. Foreign Corrupt Practices Act (FCPA) was enacted in 1977, almost 80% of the FCPA enforcement actions (amounting to 95% of the total FCPA sanctions) occurred after 2007. Similarly, the UK Bribery Act came into force in 2011, but the first foreign bribery case under that act wasn’t resolved until 2014. South Korea enacted its foreign bribery law in 1999 but didn’t prosecute its first case until 2003, while Japan took even longer, enacting a foreign bribery law in 1998 but not bringing its first case until nine years later, in 2007. In fact, Transparency International observed in 2015 that about half of the then-42 countries taking part in the OECD Convention on Combating Foreign Bribery (to which China is not a party) have not yet prosecuted a single foreign bribery case since the Convention came into force in 1999. So China’s inertia is hardly unique.

Yet regardless of the reasons why China has not enforced its foreign bribery law, and regardless of whether this inaction renders China unusual or typical, it is now high time for China to start enforcing this law aggressively. Doing so is in China’s long-term strategic interests, for three reasons: Continue reading

Why DOJ’s New FCPA Corporate Enforcement Policy May Be a Step Backwards

At the end of last year, the U.S. Department of Justice announced a new Corporate Enforcement Policy to guide prosecutors charged with overseeing Foreign Corrupt Practices Act (FCPA) violations. This new policy codifies, and builds on, the DOJ’s FCPA Pilot Program, which had been in place since mid-2016. Under the Pilot Program, the DOJ announced that it would consider mitigated penalties for companies that voluntarily disclosed FCPA violations, fully cooperated with the government investigation, and agreed to remediation measures. Those mitigated penalties included a reduction in penalties by 50% below the low end of the U.S. Sentencing Guidelines range, or in some cases outright declination of prosecution.

The new Corporate Enforcement Policy goes further, stating that when a company voluntarily self-discloses an FCPA violation, fully cooperates, and adopts timely and appropriate remediation measures (including disgorgement of any gains from the violation), there is a presumption that the DOJ will offer the company a declination, absent aggravating circumstances (such as a particularly severe offense). This presumption of a declination is stronger than the Pilot Program, which only said that the DOJ would “consider” a declination. Additionally, while Pilot Program gave prosecutors the discretion to reduce requested fines, the new policy directs prosecutors to ask for lower fines as long as companies meet the requirements noted above. The new policy also gives favorable terms even to companies that do not voluntarily disclose misconduct, so long as they later fully cooperate and implement a remediation program. For these companies, the DOJ will recommend a sentence reduction of up to 25% off of the low end of the U.S. Sentencing Guidelines. (The DOJ also recently announced that it’s expanding this beyond the FCPA, applying it also to crimes such as securities fraud.)

One way to understand the new FCPA Corporate Enforcement Policy is as a response to concerns that the U.S. government’s traditional approach to enforcing the FCPA has over-emphasized corporate settlements at the expense of prosecuting individual wrongdoers. In that sense the new policy, and the Pilot Program before it, can be seen as consistent with the Yates Memo, which declared that the DOJ would focus more on individual liability. A related but distinct justification for the new Corporate Enforcement Policy is the idea that it will improve overall FCPA enforcement by encouraging more voluntary self-disclosures. The rationale is that there are likely a large number of low-level corporate bribery cases that companies learn about but don’t report, for fear of the expected penalties. The DOJ would prefer that companies disclose these transgressions, and the Department appears to have concluded that the benefits of encouraging such disclosures outweighs concerns about reducing punishments for FCPA violations. Indeed, in justifying the new enforcement policy, U.S. Deputy Attorney General Rod Rosenstein emphasized that under the Pilot Program, the number of voluntary disclosures during the program doubled to 30.

These justifications for the new policy at first seem plausible, but they suffer from an important flaw: They overlook the impact of DOJ’s enforcement posture on corporate culture. The new policy may increase incentives for voluntary self-disclosure and post hoc remediation, but at the same time the new policy weakens incentives for companies to actively work to promote a pro-integrity corporate culture. For that reason, the new policy may end up worsening overall foreign bribery activity, even if both corporate self-disclosures and prosecutions of individuals increase.

Continue reading

Guest Post: Further Developments on French Law Regarding Anti-Bribery Prosecutions by Multiple States

GAB is pleased to welcome back Frederick Davis, a lawyer in the Paris office of Debevoise & Plimpton, who contributes the following guest post:

The Supreme Court of France recently reversed two criminal judgments on the application of the international double jeopardy principle (or ne bis in idem, as the principle is known in Europe and elsewhere) in transnational bribery cases (and others). Taken together with some other recent developments, these developments suggest a renewed determination in France to regain leadership from US prosecutors in enforcing international bribery norms in France.

The ne bis in idem principle limits prosecutors’ power to pursue individuals or companies already convicted or acquitted elsewhere, including in other countries. Several European countries have domestic laws endorsing this principle; in France, the prosecutor is not bound by non-French outcomes if the French prosecution is “territorial” (that is, if an element of the offense took place on French soil) but cannot prosecute a defendant already pursued elsewhere if the only French basis for prosecution would be so-called “extraterritorial” principles (such as French citizenship of the perpetrator or the victim). Separately, a number of Europe-wide treaties, the most effective of which is the Convention Implementing the Schengen Agreement (CISA), have provisions that, with some exceptions, basically mean that no one can be prosecuted twice in Europe for the same offense.

But these provisions do not apply to US prosecutors, who are by far the most aggressive and effective pursuers of cross-border crimes such as overseas bribery. US courts interpret the Double Jeopardy clause of the Fifth Amendment to mean only that a single sovereign cannot prosecute the same defendant twice for the same offense. Some have argued that the US position creates a tension with Article 4.3 of the OECD Anti-Bribery Convention, which provides that when more than one country is competent to prosecute, they must consult to “determin[e] the most appropriate jurisdiction for prosecution,” clearly contemplating that only one country prosecute a given defendant for the same acts. But for reasons I have explored elsewhere, as well as in this space here and here, US prosecutors have not followed the spirit of Article 4.3, instead acting as the “final arbiter” of outcomes around the world, not hesitating to bring actions if they deem non-US outcomes insufficient.

Two formally unrelated decisions of the Paris Court of Appeals in 2016 – the ones that the French Supreme Court just vacated – seemed to complicate matter still further: Continue reading

The U.S. Is Making a Mistake by Withdrawing from the EITI

Last month, the Trump Administration announced that the United States would be withdrawing from the Extractive Industries Transparency Initiative (EITI). The decision was not wholly unexpected, especially since the Department of the Interior announced last spring that it would no longer host regular talks among a group of U.S. stakeholders that included representatives from the industry as well as activists and government representatives — one of the requirements of membership in the EITI. Nonetheless, the U.S. decision to withdraw from the EITI is a significant setback to the fight against corruption and misgovernance in the resource sector.

To understand the likely impact of the U.S withdrawal from the EITI, it’s useful first to review what the EITI is—both its mechanics and its objectives. Continue reading

The FCPA Is Not an All-Purpose Anti-Foreign-Illegality Law

A few months back, Adam Davidson did a terrific New Yorker piece on the Trump Organization’s shady business dealings in Azerbaijan, focusing on evidence of corruption, money laundering, and sanctions evasion in connection with the Trump Organization’s licensing deal for a Trump Tower in Baku, the country’s capital. While I greatly admired the piece, I nonetheless criticized one aspect of it: the argument that the Trump Organization’s licensing deal ran afoul of the Foreign Corrupt Practices Act (FCPA), an allegation which, it seemed to me, wasn’t adequately supported by the otherwise impressive body of evidence assembled in the piece. While I recognize that a piece written for a general audience can’t get too lost in the technical legal weeds, I do think that it’s important to convey an accurate sense of what the FCPA does, and what it doesn’t do.

I was reminded of this a couple weeks back when I read an otherwise incisive essay by the political commentator Heather Digby Parton (whose work I very much admire) on Ivanka Trump’s shady business dealings and possible legal violations. Though Ms. Parton’s piece focused mainly on the Trump Ocean Club in Panama (dubbed “Narco-a-Lago” in an excellent Global Witness report), she also brought up Mr. Davidson’s reporting on the Azerbaijan project, and repeated the suggestion that the Trump Organization’s involvement in this project likely violated the FCPA. In making this case, Ms. Parton states:

The Foreign Corrupt Practices Act requires that American companies not make profits from illegal activities overseas, and simply saying you didn’t know where the money was coming from isn’t good enough…. Courts have held that a company needn’t be aware of specific criminal behavior but only that corruption was pervasive.

I hate to be nitpicky, especially when it involves criticizing a piece I generally agree with by an author I admire, but this is simply not a correct statement of the law. Continue reading

US Anticorruption Policy in a Trump Administration Revisited: An Evaluation of Last Year’s Doom-and-Gloom Predictions

Almost exactly one year ago, the day after the U.S. presidential election, I published a deeply pessimistic post about the likely future of U.S. anticorruption policy under a Trump presidency. As I acknowledged at the time, “the consequences of a Trump presidency are potentially so dire for such a broad range of issues–from health care to climate change to national security to immigration to the preservation of the fundamental ideals of the United States as an open and tolerant constitutional democracy–that even thinking about the implications of a Trump presidency for something as narrow and specific as anticorruption policy seems almost comically trivial.” That statement is, alas, still true. But what about the impact on anticorruption specifically? In my post last year, I made a bunch of predictions about the likely impact of a Trump presidency on corruption, anticorruption, and related issues. What did I get right and where did I go wrong?

This may seem a bit self-indulgent, but I think it’s often useful to go back and assess one’s own forecasts, not only in the interests of accountability and self-criticism, but also because examining where we got things right and, more importantly, where we went wrong can help us do a better job in the future. Of course, one difficulty in assessing my own predictions is that many of them concerned longer-term effects that we can’t really assess after one year (really 9+ months). And in some cases the predictions concern things that it’s hard to assess objectively. But it’s still a useful exercise. So, here goes: Continue reading

Some Thoughts on the Trump-Tillerson FCPA Exchange

Dexter Filkins’ terrific New Yorker piece on US Secretary of State Rex Tillerson earlier this month included an anecdote about an exchange between Tillerson and President Trump concerning the Foreign Corrupt Practices Act (FCPA). For those who haven’t seen it, here’s the basic gist: In February 2017, shortly after Tillerson was sworn in as Secretary, he was meeting with Trump about an unrelated personnel matter when Trump launched into a tirade about the FCPA, and how it put US businesses at an unfair disadvantage. (That Trump holds this view is no surprise: He had expressed similar criticisms of the FCPA in public prior to his election.) But Tillerson pushed back, using an anecdote about how, when Tillerson was CEO of Exxon, senior officials from Yemen had demanded a $5 million bribe to close a deal that Exxon was pursuing in that country. Tillerson told Trump that he refused to pay, and made it clear to the Yemenis that this wasn’t how Exxon does business—and in the end Exxon got the deal anyway. According to Mr. Filkins’ source, “Tillerson told Trump that America didn’t need to pay bribes—that we could bring the world up to our own standards.”

Though it’s only a minor part of Filkins’ piece, the alleged exchange about the FCPA has attracted a fair bit of attention and commentary over the past month (see, for example, here, here, here, and here), much of it expressing or implying concern about this further evidence of President Trump’s hostility to the FCPA. It’s slightly puzzling that this anecdote is attracting more attention now, since the alleged exchange (which took place in February) was actually reported in early March—though Filkins’ piece has a little bit more detail (like the name of the country involved). Perhaps it’s because a news item about the FCPA was drowned out in early March by more pressing and immediate matters. (Trump issued the second version of his travel ban two days before the March report about the Trump-Tillerson FCPA exchange, and the federal district judge in Hawaii issued its injunction temporarily blocking enforcement of the ban a week later.) And perhaps the renewed attention to this item also has something to do with recent reports of an increasingly strained relationship between Trump and Tillerson.

Ultimately, though, it’s not so important to figure out why this anecdote is getting more attention now than it did back in March. The more interesting question is what, if anything, it reveals about the state of thinking—in government and the private sector—about the FCPA. There’s only so much that one can or should draw from a single vignette, but I do think it invites a few observations: Continue reading