Tag Archives: Foreign Corrupt Practices Act

South African NGO to U.S. Department of Justice: Please Investigate Bain and Company for FCPA Violations

Posted on by
Reply

In a Guest Post Monday, Nicole Fritz of South Africa’s Helen Suzman Foundation recounted Boston consulting guru Bain and Company’s role in the massive corruption that infected her country during the reign of its now deposed president Jacob Zuma. Today, she asks the Department of Justice to investigate the Company for “potential breaches of the U.S. Foreign Corrupt Practices Act of 1977.”

As she explains in a letter sent to the head of the FCPA unit, the evidence of violations is “not mere opinion.” Rather, it is drawn

from reports produced by two separate judicial commissions of inquiry, chaired by eminent South African judges: first, the Judicial Commission of Inquiry into State Capture Report (“State Capture Report”); second, the final report of the Commission of Inquiry into Tax Administration and Governance at the South African Revenue Services, colloquially referred to in South Africa as the ‘Nugent Commission Report.’  

The full text of her letter is here.

The Future of FCPA Enforcement After KT Corp.

Posted on by
1

Earlier this year, the US Securities and Exchange Commission (SEC) settled a Foreign Corrupt Practices Act (FCPA) case with KT Corporation, the largest telecommunications operator in South Korea. The facts of the case, as described in the settlement documents, are cinematically scandalous: From at least 2009 through 2017, high level executives at KT maintained enormous slush funds in off-the-books accounts and physical stashes of cash, from which they made illegal political contributions and paid off government officials in both Korea and Vietnam. In their home country, they frequently used these slush funds to pay for substantial unreported gifts, entertainment, and campaign donations to members of the Korean National Assembly who were serving on committees that addressed issues of public policy directly related to KT’s business. Furthermore, after the South Korean press reported on the slush fund allegations back in 2013—reporting that led to a Korean criminal prosecution of KT’s president for embezzlement—the company simply shifted its tactics for filling its slush funds: Rather than siphoning off inflated executive bonuses, KT had its Corporate Relations (CR) Group purchase gift cards, which were then converted into cash to replenish the slush funds. In genuine “cloak and dagger” style, a member of the CR Group would meet the corrupt gift card vendor in the parking lot behind the KT building and receive a paper bag containing a large envelope of cash.

In a magnificent understatement, the Chief of the SEC’s FCPA Enforcement Unit noted that KT “failed to implement sufficient internal accounting controls with respect to key aspects of its business operations,” and that in the future, the company’s leaders should “be sure to devote appropriate attention to meeting their obligations under the FCPA.” But this was not simply a case of a company failing to keep its financial records up to date. Rather, there was a complete and total collapse of any semblance of a culture of compliance at KT. The fact that executives at the highest levels of this corporation, including the president and the CR Group, were directly responsible for these bribery schemes indicates that the culture of this corporation was corrupt, thorough-and-through; bribery was an indispensable component of its business model, and continued even after the company’s president was prosecuted. Yet because KT cooperated with the SEC’s investigation, the SEC only required KT to pay a paltry $6.3 million in combined disgorgement and civil penalties; the SEC also put the company on a two-year probation, during which KT must update the SEC every six months on its compliance measures, though it is unclear what, if anything, will happen if KT somehow mishandles the recommended compliance improvements.

This outcome is unacceptable. If the U.S. government is serious about its intention to deter future misconduct, it must ensure that civil penalties for FCPA violations cannot simply be seen as an “acceptable cost of doing business.” Over the past few years, SEC and DOJ leadership have repeatedly emphasized the importance of anticorruption enforcement and have suggested a desire to reverse the trend of steadily declining FCPA enforcement actions. If deterrence of corrupt corporate conduct is truly a priority for the SEC and the DOJ, then now would be a good time to start substantially ramping up FCPA investigations and enforcement actions, especially in cases of companies like KT that have exhibited the incorrigible culture of brazen corruption.

There are two substantial objections to the call to ramp up FCPA enforcement actions against foreign companies and dramatically stiffen penalties for violations, but on closer inspection neither is compelling. Continue reading →

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

Posted on by
2

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.)

Posted on by
3

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 →

New Podcast Episode, Featuring Peter Solmssen

Posted on by
Reply
A new episode of KickBack: The Global Anticorruption Podcast is now available. In this week’s episode, I interview Peter Solmssen, an American lawyer who currently serves as the chair of the International Bar Association’s Subcommittee on Non-Trial Resolutions of Bribery Cases, and who previous served as the General Counsel of the Siemens Corporation in the immediate aftermath of Siemens’ foreign bribery scandal in 2007-2008. In our interview, Mr. Solmssen discusses his perspective on the Siemens case, including both how and why a successful and large company like Siemens developed systematic bribery schemes in the first place, and how Siemens new leadership in the aftermath of the scandal took steps to clean up the company and change its culture. Our conversation then moves from the Siemens case to broader questions concerning how best to combat transnational bribery, whether statutes like the U.S. Foreign Corrupt Practices Act (FCPA) are effective, and the role of the private sector in promoting ethics and integrity.
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.

Commentary on the FACTI Panel’s Report and Recommendations (Part 1)

Posted on by
2

This past February, the United Nation’s cumbersomely-named “High-Level Panel on International Financial Accountability, Transparency and Integrity for Achieving the 2030 Agenda”—which, thankfully, everyone simply refers to as the FACTI Panel—released its report on Financial Integrity for Sustainable Development. The report (which was accompanied by a briefer executive summary and an interactive webpage) laid out a series of recommendation for dealing with the problem of illicit international financial flows. Though the report states that it contains 14 recommendations, most of these have multiple subparts, which are really distinct proposals, so by my count the report actually lays out a total of 35 recommendations.

I had the opportunity to interview one of the FACTI panelists, Thomas Stelzer—currently the Dean of the International Anti-Corruption Academy—for the KickBack podcast, in an episode that aired last week. Our conversation touched on several of the report’s recommendations. But this seems like a sufficiently important topic, and the FACTI Panel report like a sufficiently important contribution to the debates over that topic, that it made sense to follow up with a more extensive analysis of and engagement with the FACTI Panel’s recommendations.

Of the 35 distinct recommendations in the report, eight of them (Recommendations 2, 3B, 4A, 4B, 4C, 8A, 11A, and 14B) all deal with tax matters (such as tax fairness, anti-evasion measures, information sharing among tax authorities, etc.). While this is an important topic, it is both less directly related to anticorruption and well outside my areas of expertise. So, I won’t address these recommendations. That leaves 27 recommendations. That’s too much for one post, so I’ll talk about 13 recommendations in this post and the other 14 in my next post.

I should say at the outset that, while some of my comments below are critical, overall I am hugely grateful to the members of the FACTI Panel for their important work on this topic. The Panel’s report should, and I hope will, prompt further discussion and careful consideration both of the general problem and the Panel’s specific recommendation. Part of that process is critical engagement, which includes a willingness to raise concerns and objections, and to probe at weak or underdeveloped parts of the arguments. I emphasize this because I don’t want my criticisms below to be mistaken for an attack on the Panel or its report. Rather, I intend those criticisms in a constructive spirit, and I hope they will be so interpreted.


With that important clarification out of the way, let’s dig in, taking each recommendation in sequence.

Continue reading →

Principles for Victim Remediation in Foreign Bribery Cases

Posted on by
9

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 →

Guest Post: An Anticorruption Agenda for the Biden Administration

Posted on by
2

Today’s guest post is from Lucinda A. Low and Shruti Shah, respectively Acting Chair and President of the Coalition for Integrity, a U.S. based non-governmental organization focused on fighting corruption. The opinions expressed here are those of the authors, and should not be attributed to the organization..  

The United States has a long history, across administrations of both parties, of showing leadership internationally in the fight against corruption. The passage and enforcement of the Foreign Corrupt Practices Act (FCPA) has served as an example for other countries to adopt their own transnational anti-bribery laws. Additionally, the United States has championed international anti-bribery efforts in multilateral organizations and worked to build coalitions to root out all types of corruption. For the last several years, however, U.S. has faltered. In order to reestablish the U.S. as a global leader against corruption, and to get its own house in order, the Biden Administration and the new Congress should embrace an ambitious agenda that includes the following elements: Continue reading →

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

Posted on by
2

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.

Continue reading →

The Trump Administration and Corruption: A Preliminary Retrospective

Posted on by
8

As of yesterday at 12 noon, U.S. East Coast Time, Donald Trump is no longer the President of the United States of America.

First, let’s all breathe a collective sigh of relief.

OK, now we can start thinking about what we’ve learned from this traumatic experience. There is no shortage of political and cultural commentary on the Trump era and its implications, and I have little of substance to add to that general discussion. But, given that this is a blog specifically focused on corruption, let me offer a few reflections on the implications of the last four years for corruption and anticorruption in the United States.

At the risk of self-indulgence, I’ll frame this preliminary discussion in terms of my own guesses, as of four years ago, about how the Trump Administration would affect U.S. corruption and anticorruption policy. Immediately after Trump’s election, I wrote a despondent post about why I thought that Trump’s election would be a disaster for the fight against corruption on many different dimensions. Roughly a year later, I did a follow-up post assessing my own predictions, concluding that on some issues my pessimistic forecasts proved inaccurate (for reasons I did my best to assess), while on other dimensions the Trump administration was as bad or worse than I had feared. Now that Trump is finally out of office, it’s a good time for another retrospective assessment—both to understand where things stand now with respect to U.S. policy and leadership on anticorruption issues, and also to see what lessons we might be able to draw from the experience of the past four years. Continue reading →