Tag Archives: Foreign Corrupt Practices Act

Guest Post: How to Improve Foreign Bribery Enforcement in Korea

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Jeena Kim, a lawyer with Bae, Kim & Lee LLC (Seoul), contributes the following guest post:

South Korea was one of the first signatories to the OECD Anti-Bribery Convention in 1997, and in 1998 Korea enacted legislation–the Act on Preventing Bribery of Foreign Public Officials in International Business Transactions (Korean FBPA)–to implement the convention domestically. Yet while the US Foreign Corrupt Practices Act (FPCA), which served as a model for the Korean FBPA, has been actively enforced throughout the world, the Korean FBPA is significantly under-enforced, especially against corporate offenders. According to the OECD Working Group on Bribery, by the end of 2012, Korea had sanctioned 16 individuals and four legal entities for foreign bribery under the Korean FBPA, whereas the United States had imposed criminal sanctions on 62 individuals and 77 legal entities, and had imposed civil or administrative sanctions on an additional 41 individuals and 55 legal entities. Moreover, only nine cases have been prosecuted and convicted under the Korean FBPA since 1999, and eight of those involved bribery related to procurements for the U.S. army in Korea–that is, cases in which the bribery occurred in Korea rather than abroad. Korea’s under-enforcement of the Korean FBPA against foreign bribery is not only a problem for Korea, but also hinders multinational efforts to combat corruption, and creates many innocent victims in the host countries of bribed foreign officials.

While there are many possible explanations for the under-enforcement of the Korean FBPA, one of the most significant is the difficulty of collecting evidence of foreign bribery. The United States suffered the same problem in the early years of the FCPA, but the US government effectively overcame this obstacle through a two-pronged strategy: (1) granting a cooperation benefit to offenders that came forward and provided evidence, and (2) threatening severe punishment for uncooperative defendants. Many risk-averse companies therefore had the incentive to conduct a robust internal investigation, and to turn over evidence relevant to their own prosecution to the government in exchange for lenient treatment.

The success story of the United States in enforcing prohibitions against foreign bribery suggests a possible approach for Korea, though one that would need to be implemented in a somewhat different way, through different Korean institutions. Here’s how it could work: Continue reading →

Whistling in the Dark: The Potential Benefits of Withdrawing Anti-Retaliation Protection from Foreign Whistleblowers

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When the US Congress enacted the Dodd-Frank Act in 2010, it provided the Securities and Exchange Commission (SEC) with two powerful tools to encourage whistleblowers to report violations of the Foreign Corrupt Practices Act (FCPA) and other federal securities laws. First, whistleblowers can potentially receive a “bounty” of 10-30% of the monetary damages assessed against a company. Second, whistleblowers are shielded from their employers’ ire via an “anti-retaliation” provision, which affords whistleblowers a private cause of action for wrongful termination, harassment, or other discrimination associated with their report.

While many observers initially believed that these measures applied equally to all whistleblowers, the U.S. Court of Appeals for the Second Circuit recently held in Liu v. Siemens AG that the Dodd-Frank Act’s anti-retaliation provision does not have extraterritorial effect–it cannot be invoked by a foreign whistleblower against a foreign corporation (even though the corporation is listed on a US exchange), if none of the relevant conduct took place in the United States. The Second Circuit is the first Court of Appeals to adopt this position and, as some commentators have noted, this ruling creates an odd imbalance in the Dodd-Frank Act’s whistleblower provisions: in certain cases involving foreign whistleblowers and foreign companies, although whistleblowers might be eligible to receive significant monetary rewards under the Dodd-Frank Act’s bounty provision, they will nonetheless not be able to invoke the Act’s anti-retaliation provisions if their employer takes action against them.

Putting aside the question of whether the Second Circuit’s legal analysis was sound, as a matter of policy this may, at first glance, seem like a perverse result. Yet this seeming disconnect between the reach and scope of the Dodd-Frank Act’s bounty and anti-retaliation provisions may result, paradoxically, in an improvement in both the volume and content of whistleblower reports.  Continue reading →

Guest Post: The Impact of Foreign Anti-Bribery Laws on the Demand-Side Countries

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Francesco De Simone, an Advisor at the U4 Anti-Corruption Resource Centre, contributes the following guest post:

What are the consequences of “supply side” foreign bribery laws, like the US Foreign Corrupt Practices Act (FCPA) and UK Bribery Act (UKBA), on the developing countries that are often the bribe receivers in foreign bribery cases (the “demand side”)? When can OECD country (say, the United States) prosecutes a company for paying a bribe in a developing country (say Nigeria), what are the implications for Nigeria – for its institutions and for its overall corruption environment and anti-corruption framework? How does the investigation or prosecution affect Nigeria’s ability to investigate prosecute the same case? What are the consequences if the U.S. case is settled? How can Nigeria obtain restitution of the proceeds of the bribe? And should it?

Although foreign anti-bribery laws like the FCPA have attracted a great deal of analysis and discussion (including on this blog: see here, here, here, here, and here), there is much less material on those sorts of questions. (An exception is the work by Professor Kevin Davis, see here and here, also discussed on this blog.) In a new U4 paper I co-wrote with Bruce Zagaris, we attempt to provide a more in-depth analysis of how supply-side enforcement of foreign anti-bribery laws by OECD countries affects parallel investigation and enforcement action in the demand-side country whose officials allegedly took the bribes. Unfortunately, reliable information on how many supply-side enforcement actions result in parallel investigations by the demand-side host countries is not currently available (so far as we know), but we were able to extract a great deal of useful information from FCPA and UKBA cases, as well as other recent studies like the Stolen Asset Recovery Initiative (StAR) Left Out of the Bargain report.

The main takeaways from our study can be summarized as follows: Continue reading →

The OECD Convention and Extraterritorial FCPA Jurisdiction

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I suggested in an earlier post that a major reason for the increase in foreign anti-bribery prosecutions in other countries since the passage of the OECD Anti-Bribery Convention is increased enforcement of the FCPA against foreign companies by the US government. In this post, I will set out, in a little more depth, one factor that contributed to bringing this effect about, namely a broadened scope for enforcement jurisdiction under §78dd-3 of the FCPA.

An important effect of the entry into force of the OECD Convention was that it provided “cover” for expansive US enforcement of the FCPA. Equally important, though, was the contribution it made in providing the legal means by which the US Department of Justice was actually able to undertake this expansion. Broader enforcement has helped to push standards for anti-bribery enforcement into convergence around the world, and has encouraged other countries to start enforcing their own laws more seriously.

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Should FCPA Enforcers Focus on Corruption in the Poorest Countries?

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A few months ago, the Wall Street Journal published an interview with Charles Duross, the current Morrison & Foerster partner who up until last February led the U.S. Justice Department’s Foreign Corrupt Practices Act Unit. Among the interview’s most interesting revelations was Duross’s description of how he set enforcement priorities. When asked about likely future priorities Duross provided this response:

To be clear we do prioritize cases, based on the significance of the case. For example how big are the bribes? Are we talking about $100 million or $100? But in terms of saying “I have decided what we’re going to do is look at X industry or everybody that’s going to be dealing with this country or this region, and we’re going to scrub those folks in particular,” I don’t think we do that.

Although Duross may well be correct that DOJ doesn’t target particular countries or regions, there is some evidence that FCPA enforcement does disproportionately involve particular kinds of countries–in particular, poorer countries and countries with poorer governance. A working paper by Stephen Choi and Kevin Davis (which Matthew also discussed in a recent post) found that “aggregate total monetary sanctions related to a particular violation country, controlling for the overall bribe level in that country, is greater for countries with a lower GNI [gross national income] per capita, as well as weaker government effectiveness and rule of law scores.” What to make of this? Is it true that companies are penalized more heavily (controlling for the size of the bribe) when they pay bribes in poorer countries with less effective legal systems? If so, is this desirable?

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The Case Against an International Anti-Corruption Court

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Judge Mark Wolf recently published a Brookings Paper, and an accompanying Op-Ed in the Washington Post last week, calling for the creation of an “International Anti-Corruption Court” (IACC), modeled on the International Criminal Court (ICC). The proposal is motivated by the twin observations (1) that corruption is incredibly damaging (not only in its economic costs, but also in its link to human rights abuses), and (2) that although corruption is illegal everywhere, in many countries “grand” corruption at the highest levels of government creates a culture of impunity in which the corrupt need not fear punishment.

Judge Wolf is not only a distinguished jurist, but also an experienced prosecutor of corruption cases within the United States, and for these reasons alone his proposal is worth taking seriously. And I am very much in agreement with him about the insufficiency of current anticorruption measures, particularly in those countries beset by the culture of impunity that he and others have so vividly described. Yet I find myself deeply skeptical of his proposal for an independent IACC. Indeed, I think the proposal is at best unhelpful, and at worst counterproductive. Let me explain why.

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“Ghost Money”: Thinking About State Bribery in the National Interest

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“It is difficult to overstate the profoundly negative impact that corruption has on society.  The abuse of entrusted power for private gain does violence to our values, our prosperity, and even our security.” — Secretary of State John Kerry

For a government so concerned with the fight against corruption, the United States sure does bribe a lot.  In fact, only months before Secretary Kerry delivered those remarks in December 2013, the New York Times revealed that the Central Intelligence Agency had been delivering millions of dollars in “ghost money” — packed in “suitcases, backpacks, and on occasion, plastic shopping bags” — to the office of Afghan President Hamid Karzai for more than a decade.  In a way, this story was old news; it’s been known for years that the CIA has done everything from slipping little blue pills to local Afghan chieftains to bankrolling members of the Afghan National Security Council.  As it turns out, bribing foreign officials in the name of national security has been a standard practice at the CIA for decades, one that the public seems to have tacitly accepted.

Standard practice or not, how can one reconcile this state-sponsored corruption with the U.S. government’s efforts to combat transnational bribery?  Is it hypocritical for the U.S. Department of Justice to punish private firms that bribe foreign officials, while the CIA is bribing those same officials at the same time?

Perhaps in some cases it might be, but there a couple of possible justifications for aggressively prosecuting private bribery while at the same time accepting the permissibility of state-sponsored bribery (at least under some circumstances):

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Is US Campaign Finance Law More Permissive of Corruption than the FCPA?

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An odd feature of U.S. law is that it appears to impose more stringent restrictions on private donations to foreign politicians than on donations to U.S. politicians.

Consider first domestic U.S. campaign finance laws.  These laws have received a great deal of scrutiny over the last 40 years, because of the argument that restricting spending on political activities may offend the “freedom of speech” guaranteed by the First Amendment of the U.S. Constitution. The U.S. Supreme Court has issued a number of landmark decisions on this subject over the last 40 years, beginning with Buckley v. Valeo (1976), and most recently in McCutcheon v. FEC (2014) (which Matthew discussed in a post from a few months back). The dominant trend in these decisions has been a loosening of restrictions on campaign contributions and independent donations, but one specific change in the campaign finance jurisprudence is particularly interesting. In McConnell v. FEC, the Supreme Court held that “selling access” or “influence” constituted a form of corruption, prevention of which could justify certain campaign finance restrictions. In Citizens United v. FEC, the Court, in an opinion by Justice Kennedy (citing to his dissent in McConnell), narrowed the definition of corruption “to quid pro quo corruption,” and held the “fact that speakers may have influence over or access to elected officials does not mean that these officials are corrupt.”

Now consider the main U.S. statute that addresses payments to foreign officials (as well as foreign candidates for public office): the Foreign Corrupt Practices Act (FCPA). In contrast to the campaign finance area, there is very little case law clarifying the meaning of the FCPA’s provisions (a fact that some commentators have lamented). Nonetheless, the FCPA’s prohibition on “corruptly” giving “anything of value” to a foreign official or foreign candidate for public office for the purpose of “influencing any act or decision [taken in an official capacity]” does not require an express quid pro quo, (see 15 U.S.C. § 78dd-1(a)(2)(A)(i)).

Thus it appears that payments (including campaign donations or other forms of political support) that are intended to influence politicians’ official decisions are proper (indeed, constitutionally protected) if made in the U.S., but improper (indeed, criminal) if made in other countries.

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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:

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Conference Room Advocacy: The Negotiating Power of Corporate FCPA Defendants

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For years, commentators have decried the plight of the corporate FCPA defendant in a world without trials: As Arthur Andersen made clear, most companies accused of crimes by the Department of Justice (DOJ) can’t afford to go to trial. As a result, the story goes, prosecutors are able to pressure companies into accepting negotiated resolutions of FCPA charges that rest upon conclusory allegations and dubious, untested legal theories. This story, often retold, is at the core of what Professor Mike Koehler calls “The Façade of FCPA Enforcement.” It also happens to be a gross oversimplification. Corporate FCPA defendants may not go to trial, but they aren’t helpless victims of prosecutorial bullying. Even as their advocacy shifts from the courtroom to the conference room, these defendants often retain powerful forms of leverage over federal prosecutors.

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