Tag Archives: Foreign Corrupt Practices Act

Why FCPA Opinion Procedure Releases Are Broken and How to Fix Them

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A couple months ago there was a rare sighting in the world of the Foreign Corrupt Practices Act (FCPA): a Department of Justice (DOJ) opinion procedure release. If you have no clue what an opinion procedure release is, don’t feel bad – if you aren’t an FCPA specialist, there’s a good chance you’ve never heard of them. Under 15 U.S.C. § 78dd-1(e), the DOJ is required to establish a procedure to provide advisory opinions to companies on whether contemplated conduct would conform with FCPA requirements. Regulations promulgated under this provision established “opinion procedure releases” – non-binding, public guidance opinions that provide companies with an indication of how the DOJ would treat a particular action. The releases are quite rare, however. Only 38 have been issued since 1993, and only four have been issued since 2012.

It’s probably fair to say that opinion procedure releases aren’t serving the purpose Congress originally intended for them. Congress presumably recognized that because the FCPA’s provisions are vague and consequences of violation can be severe, businesses require a way of ensuring that their contemplated conduct is within legal bounds. These concerns are even more pressing in 2014 as they were when the FCPA was passed in 1977, given that the DOJ and SEC are attempting to expand the FCPA’s reach through creative legal arguments, and multinational companies expanding into emerging markets that present new cultural and legal challenges. Companies constantly complain about legal uncertainty under the FCPA, yet the statutory mechanism designed to alleviate this problem is hardly used. Why? Continue reading →

Guest Post: Reaching Bribery’s Victims (Part 3)

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This month GAB is delighted to feature a series of guest posts from Andy Spalding, Assistant Professor at the University of Richmond School of Law and Senior Editor of the FCPA Blog.  This is the third and final post in the series on how to compensate the victims of transnational bribery:

I began this series of guest posts by applauding the StAR Initiative’s recent report, Left Out of the Bargain, for calling attention to the need for settlements in anti-bribery cases to provide more compensation to the overseas victims of bribery. In my last post, I explored a series of encouraging, but perhaps not quite promising, ways of doing so in the specific context of US FCPA enforcement actions.

What we’re looking for is an enforcement mechanism that satisfies these criteria: 1) it benefits the citizens of the bribed government; 2) it funds initiatives to remedy past bribery (to the extent possible) and to curb future bribery; 3) it reallocates a portion of the penalty money, rather than relying on recovered assets; 4) the money goes to private-sector organizations and programs, rather than the host governments; and 5) the mechanism is authorized under existing US law, requiring no new statutes or regulations.

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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: The Alibaba IPO–Open Sesame Time for Anticorruption?

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Dieter Zinnbauer, Senior Program Manager for Emerging Policy Issues at Transparency International, contributes the following guest post on the pending Alibaba IPO:

The anticipated listing of Alibaba, China’s rising corporate tech star, on a U.S. stock exchange is likely to be the IPO of the year. The business press is awash in speculations about the financial and economic impact of this much hyped IPO. Will this listing also create a big splash in the fight against corruption? What will be the impact on business integrity when this fast-growing Chinese tech company lists in the US and, as a result, directly subjects itself to the Foreign Corrupt Practices Act (FCPA) and other corporate governance rules?

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U.S. v. Esquenazi: Some Knee-Jerk Reactions

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As those who follow the world of Foreign Corrupt Practices Act (FCPA) enforcement are no doubt well aware, earlier this week the U.S. Court of Appeals for the 11th Circuit decided U.S. v. Esquenazi. The decision affirmed the convictions of two individuals involved in a complicated scheme to bribe officials of Teleco, the Hatian state-owned telecommunications company. Though the appeal involved several issues, the most significant aspect of the case–and the reason it had been so closely followed by so many people–was the defendants’ claim that Teleco was not an “instrumentality” of the Hatian government, and therefore that the Teleco employees whom the defendants bribed were not “foreign officials” within the meaning of the FCPA. Though several district courts had considered (and rejected) claims of this sort before, Esquenazi was the first court of appeals decision to address such a claim.  And, like all of the prior district court cases, the court rejected the defendant’s argument and found that Teleco was indeed an instrumentality of the Hatian government.

Though I’m not sure there’s all that much to say about this that hasn’t already been said, let me make four quick observations about the decision and its potential significance (or lack thereof):

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Brazil’s Clean Companies Act: Ineffective for Combating Local Corruption?

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In January 2014, the Brazilian Clean Companies Act (CCA) came into effect. Under the CCA, Brazilian companies and foreign entities with a Brazilian registered office, branch, or affiliate can be sanctioned (civilly and administratively) for the bribery of domestic or foreign public officials, with penalties up to 20% of a company’s gross billings. The Act may be cause for optimism that Brazil is going to get serious about the corruption that has hampered its development, undermined trust in government, and provoked riots.

But despite the CCA’s tough sanctions and sweeping provisions, there are reasons to doubt whether the law will be effective at combatting corruption at the local level (as opposed to national-level officials).  Even if the CCA might go some way toward dealing with corruption at the national level, the new law fails to to adequately address local-level corruption in Brazil — and this is a major limitation, because local corruption in Brazilian business dealings is especially rampant.  There are at least two reasons why it is questionable the CCA will effectively combat local corruption. 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:

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Objective Validation of Subjective Corruption Perceptions?

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As discussed on this blog and elsewhere, one of the big concerns about the most popular cross-country datasets on corruption (the Transparency International Corruption Perceptions Index (CPI), the World Bank Institute’s Worldwide Governance Indicators (WGI), etc.) is that they are based (largely or entirely) on perceptions of corruption. As Rick noted in a recent post, and as the critical literature has pointed out ad nauseam, perceptions, while perhaps important in their own right, are not necessarily based in reality. Indeed, some recent research (including, but certainly not limited to, nice papers by Claudio Weber Abramo, by Mireille Razafindrakoto and Francois Rouband, and by Richard Rose and William Mishler) indicates that national corruption perceptions are only weakly correlated with survey results asking about individuals’ personal experience with bribery. This raises serious questions about whether the perception-based indicators are useful either for general assessment or for testing hypotheses about the causes or consequences of corruption.

But might there be more objective measures that could be used to assess whether the corruption perceptions indices are picking up something real? Off the top of my head, I can think of four quite clever recent papers that demonstrate a strong correlation between a subjective corruption perception index and some more objective measure of dishonest behavior. I’m sure there are more, but let me note the four examples that I can think of, and then say a bit on what this might mean for the use of perception-based indicators in empirical corruption research.

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Could FCPA Investigations Influence International Arbitration?

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Is it possible for violations of the Foreign Corrupt Practices Act (FCPA) and other domestic anti-corruption regimes to influence the outcomes of international investment arbitrations? In my last post, I showed how allegations of corruption could be relevant in investment treaty arbitration, both as a “sword” wielded by investors, and as a “shield” used by sovereign states. In this post, I consider how evidence from domestic anti-corruption proceedings could be used in arbitration, and what effects its use might have on the international system. Continue reading →