Tag Archives: Foreign Corrupt Practices Act

Against Global Standards in Corporate Settlements in Transnational Anti-Bribery Cases

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A couple weeks ago, Susan Hawley, the policy director of the UK-based NGO Corruption Watch, published a provocative post on this blog calling for the adoption of “global standards for corporate settlements in foreign bribery cases.” Her post, which drew on a recent Corruption Watch report on the use (and alleged abuse) of the practice of resolving foreign bribery enforcement actions through pre-indictment diversionary settlements—mainly deferred-prosecution and non-prosecution agreements (DPAs/NPAs)—echoed similar arguments advanced in a joint letter sent by Corruption Watch, Transparency International, Global Witness, and the UNCAC Coalition to the OECD, on the occasion of last month’s Ministerial meeting on the OECD Anti-Bribery Convention.

A central concern articulated in Ms. Hawley’s post, as well as the CW report and the joint letter, is the fear that corporate settlements too often let companies off too easily–and let responsible individuals off altogether–thus undermining the deterrent effect of the laws against transnational bribery. I’m sympathetic to the concern about inadequate deterrence, but unconvinced by the suggestion that over-reliance on DPAs/NPAs is the real problem. (Indeed, I tend to think that under-use of these mechanisms in other countries, such as France, is a far greater concern.) My last post took up that set of issues. But, as I noted there, the question whether the U.S. use of settlements is (roughly) appropriate is conceptually distinct from the question whether there ought to be global standards (or guidelines) on the use of such settlements. After all, while one could object to U.S. practices and call for (different) global guidelines—as Corruption Watch does—one could also object to U.S. practices but still resist attempts to develop global guidelines. Or one could not only endorse current U.S. practices, but also call for global guidelines that similarly endorse those practices. And then there’s my position: basically sympathetic to the general U.S. approach to corporate settlements in FCPA cases, and generally skeptical of the case for global guidelines.

Having spent my last post elaborating some of the reasons for my former instinct, let me now say a bit about the reasons I’m unconvinced by the call for global guidelines on corporate settlements (or at least why I think such calls are premature): Continue reading →

The Case for Corporate Settlements in Foreign Bribery Cases

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Although 41 countries have signed onto the OECD Anti-Bribery Convention, the United States remains the most active enforcer—by a lot. Two salient facts about the U.S. strategy for enforcing its Foreign Corrupt Practices Act (FCPA) are often noted: Sanctions against corporations are more common than cases targeting individuals, and most of these corporate cases are resolved by settlements—often pre-indictment diversionary agreements known as deferred prosecution agreements (DPAs) and non-prosecution agreements (NPAs). Both of these facts are sometimes exaggerated a bit: According to the OECD’s most recent composite data (for enforcement actions from 1999-2014), the U.S. imposed sanctions on 58 individuals (compared to 92 corporations or other legal persons), and of those 92 legal persons sanctioned, 57 reached a settlement via a DPA or NPA (meaning that 35 of them were sanctioned through a post-indictment plea agreement or—much more rarely—a trial). Still, it’s true that the U.S. enforcement strategy makes extensive use of pre-indictment settlements with corporate defendants, and that fact has attracted its share of criticism.

While most of that criticism (at least in the FCPA context) has come from the corporate defense bar and others opposed to aggressive FCPA enforcement, the use of DPAs/NPAs has been questioned by anticorruption advocates as well. Recently, the UK-based anticorruption NGO Corruption Watch (CW) published a report entitled “Out of Court, Out of Mind: Do Deferred Prosecution Agreements and Corporate Settlements Fail To Deter Overseas Corruption”; shortly thereafter, CW, along with several other leading NGOs (Global Witness, Transparency International, and the UNCAC Coalition) sent a letter to the OECD expressing “concern that the increasing use of corporate settlements in the way they are currently implemented as the primary means for resolving foreign bribery cases may not offer ‘effective, proportionate and disuasive’ sanctions as required under the Convention,” and “urg[ing] the OECD Working Group on Bribery to develop as a matter of priority global standards for corporate settlements based on best practice.” Last week, here on GAB, CW’s policy director Susan Hawley provide a succinct summary of the case for greater skepticism of the practice of resolving foreign bribery cases through DPAs/NPAs, and the need for some sort of global standard.

I disagree. While I have the utmost respect for Corruption Watch and the other NGOs that sent the joint letter to the OECD, and I sympathize with many of their concerns, I find most of the criticisms of the DPA/NPA mechanism, particularly as deployed by U.S. authorities in FCPA cases, wide of the mark. I also remain unconvinced that there is a pressing need for “global standards” for corporate settlement practices, and indeed I think that pushing for such standards may raise a host of problems. These issues—whether DPAs/NPAs are sufficiently effective sanctions, and whether we need common global standards regulating their use—are quite different, so I will address them separately. In this post, I will respond to the main criticisms of the U.S. practice of using DPAs/NPAs to resolve FCPA cases, focusing on the concerns emphasized in the CW report. In my next post, I will turn to the question whether the OECD, the UN Convention Against Corruption, or some other international agreement or body ought to try to establish global standards regulating the use of corporate settlements.

So, what’s wrong with the analysis in the CW critique of corporate settlements? Lots of things—so many that it’s hard to know where to begin. But before turning to my criticisms, it’s worth starting out by re-stating some of the main reasons why it might make sense to resolve some anti-bribery cases via corporate settlements: Continue reading →

Guest Post: Time for Global Standards on Corporate Settlements in Transnational Bribery Cases

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Susan Hawley, Policy Director of Corruption Watch, a UK-based anticorruption organization, contributes the following guest post:

Earlier this month, the OECD held a Ministerial meeting on its Anti-Bribery Convention, which culminated with Ministers from 50 countries signing a Declaration that reaffirmed their commitment to fighting transnational bribery. Despite that statement of renewed commitment, however, the fact remains that only four countries out of the 41 signatories have shown any attempt at actively enforcing the Convention, and pressure is rightly mounting on countries to show they are taking some kind of action. As a result, an increasing number of countries are looking to deferred prosecution agreements (DPAs), non-prosecution agreements (NPAs), and similar forms of pre-indictment corporate settlements as a way to achieve better results. The United States—by far the most active enforcer of its law against foreign bribery—has used such agreements to produce its impressive enforcement record over the last 10 years. The OECD Foreign Bribery Report noted that 69% of foreign bribery cases have been resolved through some form of settlement since 1999. And it’s not just the US. Various European countries have used some form of out-of-court settlement procedure as a way of dealing with the few cases against companies that they have brought. The UK has recently introduced DPAs, based on the U.S. model (though with some important differences), and countries like Australia, France, Ireland, and Canada are all considering doing something similar.

Yet the widespread use of DPAs and NPAs has prompted concerns. The OECD Working Group on Bribery, in its reviews on implementation of the Convention, has sometimes questioned whether these settlements are sufficiently transparent and effective, and whether they instill public confidence. My own organization, Corruption Watch, recently produced a report on corporate settlements in foreign bribery cases, “Out of Court, Out of Mind: Do Deferred Prosecution Agreements and Corporate Settlements Fail to Deter Overseas Corruption?” that raised similar questions. Corruption Watch, along with Global Witness, Transparency International, and the UNCAC Coalition (a network of over 350 civil society organisations across the world) wrote a joint letter to the OECD Secretary General ahead of the Ministerial meeting urging the Working Group on Bribery to assess whether corporate settlements have sufficient deterrent effect, and to develop global standards for corporate settlements in foreign bribery cases.

Why the need for greater scrutiny, and the call for global standards? Several reasons:

  • First, these sorts of settlements allow culpable individuals off the hook, undermine the deterrent effect of the law by shielding companies from debarment from public contracting, and more generally fail to deter economic crime and prevent recidivism. The concern is that the fines and other penalties associated with DPAs/NPAs are just seen by firms a “cost of doing business,” rather than an impetus for meaningful change. Recent research by Karpoff, Lee, and Martin (discussed previously on this blog) suggests that in the US, which has imposed the highest fines and taken the most enforcement actions globally, detection would have to increase by 58.5% or fines increase by 9.2 times to offset the incentive to bribe. Indeed, there are signs that the U.S., despite having relied so extensively on diversionary corporate settlements, has recognized some of these weaknesses: The introduction of the Yates memo, with its emphasis on individual accountability, and the beefing up of the FBI’s resources for investigating corruption (and thus reducing the government’s reliance on corporate self-reporting), are examples of how the U.S. is taking note of the criticism of its reliance on DPAs and NPAs.
  • Second, in addition to their inadequacy for deterring foreign bribery, in many countries the negotiation of corporate settlements lacks adequate regulation or oversight.
  • Third, these corporate settlement agreements rarely provide any sort of compensation for victims of corruption.
  • Fourth, clear discrepancies are emerging about how different countries use corporate settlements to deal with foreign bribery, creating an uneven enforcement playing field.

Proponents of settlements argue that they are necessary because corruption cases are incredibly difficult and costly to investigate and prosecute; unless enforcement authorities encourage companies to come forward with evidence of their wrongdoing, the argument goes, enforcement rates will remain low and corruption will go undetected. Clearly encouraging companies, who often hold all the information required as to whether wrongdoing was committed, to report their own wrongdoing by offering some form of incentive needs to be a part of any enforcement strategy. But there are serious questions as to whether relying solely on settlements to deal with foreign bribery cases can provide real deterrence. Unless enforcement bodies beef up their ability to detect corruption and are willing to prosecute, there is little incentive for companies to report wrongdoing that they might otherwise get away with.

So what would global standards for corporate settlements look like? The NGOs’ joint letter to the OECD, referenced above, suggested 14 standards to the OECD. At the top of the agenda were the following:

  1. Settlements should be one tool in a broader enforcement strategy in which prosecution also plays an important role;
  2. Settlements should only be used where a company has genuinely self-reported, and cooperated fully;
  3. Judicial oversight which includes proper scrutiny of the evidence and a public hearing should be required;
  4. Prosecution of individuals should be standard practice;
  5. Settlements should only be used where a company is prepared to admit wrongdoing;
  6. Compensation to victims, based on the full harm caused by the corruption, must be an inherent part of a settlement.

These are high standards, but unless settlements are based on such standards, and unless they are used as part of a broader enforcement strategy which ensures that companies that don’t cooperate or self-report do get prosecuted, public confidence that justice is really being done when it comes to corporate bribery is going to be undermined.

Time to Investigate Nike’s ‘Commitment Bonus’ to Kenya’s Track and Field Authority

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Since last November Kenya has been rife with claims (here and here for press reports) that American shoemaker Nike bribed the nation’s track and field authority to ensure the country’s runners compete wearing Nike shoes.  While Nike denies wrongdoing, the March 6 issue of the New York Times provides details which suggest the allegations are true.  Yet despite the mounting evidence that an American company is at the center of a high profile corruption case in Kenya, the Times reports the U.S. has not opened an investigation.  Its failure to do so, in the face of President Obama’s stern lecture about corruption to the Kenyan elite during his July 2015 visit to the country and the agreement reached during his visit pledging the U.S. to help Kenya fight corruption, has left Kenyans frustrated and angry at America.  It is “hypocritical,” famed Kenyan corruption fighter John Githongo told the Times, for the American government to “bang on” about Kenya without investigating allegations against the iconic American company.

According to the Times, American officials believe the U.S. is powerless to investigate because, even if Nike did indeed pay a bribe, it was to employees of a private entity, and private sector bribery is not covered by the anti-bribery provisions of the Foreign Corrupt Practices Act.  But while private sector bribery itself is not an FCPA offense, this does not mean Nike is off the hook.  If an American company bribes an employee of a private entity, as it is alleged Nike has, it runs afoul of numerous state and federal statutes, anyone of which could provide the basis for launching an investigation.  Four that come to mind immediately are:   Continue reading →

It’s Official: Hiring a Foreign Official’s Relative in Exchange for Business Violates the FCPA

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The U.S. Foreign Corrupt Practices Act (FCPA) prohibits the entities it covers from corruptly offering “anything of value” to a foreign official for the purposes of obtaining or retaining business. In most cases, the “thing of value” offered is a traditional bribe—money, expensive gifts, lavish vacations, etc. But in some cases, firms do “favors” for foreign officials that are less direct, and do not conform quite so obviously to traditional notion of bribery. Making a generous donations to the official’s favorite charity is one example; another, which has become increasingly prominent in recent FCPA investigations—primarily in cases involving China—is preferential hiring of the relatives of the foreign officials in exchange for business opportunities. This issue got a lot of press particularly in connection with the SEC’s investigation of hiring practices at JP Morgan and other investment banks in China, but the issue is more pervasive.

These investigations raised an interesting legal question: Can providing a job or internship to the adult relative of a foreign official ever count as providing “anything of value” to the official him- or herself? To my mind, the answer is a clear yes, but not everyone agrees. Last year, Professor Andy Spalding and I engaged in a spirited and constructive debate on this question (see here, here, here, and here)—and though I think in the end our positions (mostly) converged, there was perhaps still some lingering doubt (though not in my mind) as to whether the U.S. government would or should adopt the view that offering a bribe to an official’s relative can count as offering something of value to the official.

That doubt has been laid to rest. In the BNY Mellon settlement from last August, the settlement document explicitly endorsed the view that the firm’s decision to provide internships to foreign officials’ relatives counted as providing “anything of value,” because “[t]he internships were valuable work experience, and the requesting family members derived significant personal value in being able to confer this benefit on their family members.” And last week, the SEC announced a settlement with Qualcomm regarding investigations into Qualcomm’s alleged FCPA violations in China; although the violations included more traditional bribes (such as lavish gifts, travel, and entertainment), the settlement focuses substantially on Qualcomm’s practice of hiring the relatives of Chinese officials (and executives at state-owned enterprises, who count as foreign officials for FCPA purposes) in exchange for favorable treatment—even when these candidates would not meet Qualcomm’s normal hiring standards.

As GAB readers know, I think that this view is legally correct, good policy, and entirely consistent with the DOJ and SEC’s past statements on this issue, including the FCPA Resource Guide (which admittedly doesn’t discuss this specific scenario explicitly). The recent settlements in BNY Mellon and Qualcomm do not, of course, have any bearing on whether I’m correct in those views. But insofar as there might have been any uncertainty about the U.S. government’s position, it has been eliminated. This is likely bad news for J.P. Morgan, but good news for the world. Why do I think it’s good news for the world? Three main reasons: Continue reading →

Judge Sullivan Calls Out the DOJ: What Corporate Settlements Reflect About The Broader Criminal Justice System

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After the DOJ released the Yates Memo last September, I suggested that the DOJ was probably very serious about focusing attention on prosecuting individuals involved in corporate misconduct (including FCPA violations). This would constitute a significant shift away from the DOJ’s recent practice of resolving most allegations of corporate wrongdoing through deferred or non-prosecution agreements (known as DPAs and NPAs). Some proponents of DPAs and NPAs claim that such settlements—which allow companies to avoid formal legal charges if they cooperate with a DOJ investigation, disclose desired information, improve compliance measures, and perhaps pay a fine—are actually a “a more powerful tool” than convictions in changing corporate behavior. But many critics—such as Judge Rakoff—have argued that settlements usually obscure who is actually responsible for the misconduct, and “ever more expensive” compliance programs may do little to prevent future misconduct. As Judge Rakoff suggested:

“[T]he impact of sending a few guilty executives to prison for orchestrating corporate crimes might have a far greater effect than any compliance program in discouraging misconduct, at far less expense and without the unwanted collateral consequences of punishing innocent employees and shareholders.”

Federal judges, including Judge Rakoff, are responsible for approving the DOJ’s settlements with corporations. The scope of their review is quite limited, and they are required to defer to the prosecution decisions of the DOJ. But even before the Yates Memo, judges had begun reviewing settlements more carefully when individuals were not charged. At least one federal judge is still dissatisfied with the DOJ’s enforcement strategy, and recently took the opportunity—in a corruption case—to urge the DOJ to adhere to the Yates Memo and deal directly with individual wrongdoers. Moreover, he suggested this could have broader significance for how we think about the rest of the criminal justice system.

Continue reading →

The “FCPA Cash Cow” Story Is Bull: Why Vigorous Enforcement Is Not About Raising Revenue

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Occasionally one hears—particularly though not exclusively from the U.S. business community and corporate defense bar—the assertion that aggressive U.S. enforcement of the Foreign Corrupt Practices Act (FCPA) is the result, at least in part, of the desire to raise revenue for the U.S. government. (See here, here, here, and here.) This claim that the FCPA is a government “cash cow” is sometimes offered as a knowing (or cynical) explanation for why the government is allegedly “over-enforcing” the statute. Even among some scholars with less of a personal or professional stake in criticizing the U.S. government’s motives, the idea that FCPA enforcement advances the U.S. national interest by increasing U.S. government revenues seems to be occasionally finding its way into the discourse.

There are, to be sure, lots of legitimate questions about the motives and wisdom of the U.S. government’s current approach to enforcing the FCPA. But the notion that FCPA enforcement is driven by the desire to raise revenue (from beleaguered, helpless multinational corporations) is just implausible. Indeed, I’m surprised so many extremely intelligent people seem to entertain this argument rather than dismissing it outright.

Why do I think it’s so implausible? Two main reasons: Continue reading →

The Internal Revenue Service’s (Potential) Role in Combating Foreign Bribery

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The uptick in FCPA investigations in recent years is well-known. The two agencies responsible for FCPA enforcement—the Department of Justice (DOJ) and the Securities and Exchange Commission (SEC)—now have special units focused on FCPA cases. Both have been aggressively pursuing cases against corporations and (increasingly) individuals. But there is a third U.S. agency that can and should be more involved in the fight against transnational bribery: the Internal Revenue Service (IRS).

The IRS already has some role in FCPA cases, though the extent of that involvement is not entirely clear. Recently, its joint investigative role has been mentioned in a few high-profile matters. Notably, criminal FCPA charges against Vicente Eduardo Garcia (an SAP regional director who in August pled guilty to an FCPA violation involving bribery for Panamanian government contracts) were investigated cooperatively by the FBI and IRS, a fact that some commentators cautioned signaled a need for companies to increase FCPA compliance efforts through additional channels. IRS Criminal Investigation was also involved in the case against Hewlett-Packard Russia, which last year pled guilty to violating the FCPA, and even the (non-FCPA but bribery-related) investigation of FIFA started with the IRS. Beyond investigation, the IRS can bring separate tax charges related to incidents of bribery or other inappropriate payments. A 2014 settlement included a multi-million-dollar forfeiture to the IRS, apparently the first such forfeiture in an FCPA settlement, though the exact reason for the forfeiture was not revealed.

Several observers have speculated that the last decade’s increase in FCPA actions could lead to an increase in tax-related actions. Up until now it has been relatively rare for FCPA actions to include associated tax charges, but the 2014 settlement might be one indication that the relative scarcity of tax involvement could change. The IRS can further develop its responsibility in FCPA investigations with an expanded formal cooperative role, if indeed it does not have one already, in DOJ or SEC prosecutions. This would be a positive step, since there are two major advantages to FCPA investigations assisted, or tax charges brought, by the IRS:

Continue reading →

Private Law Suits for Corruption:  Am I Missing Something?

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As explained in earlier posts (here and here), I am working with the Open Society Justice Initiative on a project to examine how civil society can prompt more corruption-related litigation  — either by stimulating criminal prosecutions or filing civil suits itself.

One area that remains a puzzle is why businesses are not filing more civil suits for damages caused by bribery.  At common law, if a merchant could show it lost a customer to a bribe-payer, it could sue the briber for tortuous interference with contractual relations and the bribe-taking employee for breach of fiduciary duty.  A merchant that discovered it had paid higher prices or bought goods of a lesser quality because the seller had bribed one of its employees likewise had an action for damages, against the employee for breach of fiduciary duty and for fraud against the bribe-payer.  The Civil Law Consequences of Corruption, a 2009 volume edited by Professor Olaf Myer, describes similar doctrines that corruption victims in countries governed by the civil law can invoke to recover damages.  Moreover, regardless of legal heritage, parties to the United Nations Convention Against Corruption are required by article 35 —

“to ensure that entities or persons who have suffered damage as a result of an act of corruption have the right to initiate legal proceedings against those responsible for that damage in order to obtain compensation.”

Am I missing something?  Or is there only one country where businesses that are victims of corruption are heeding the invitation to sue for damages?  And if so, why is this case?  Why aren’t businesses in other nations besides this one seeking compensation for the losses bribe-paying has caused them? Continue reading →

Whistle While You Work: Protections for Internal Whistleblowers under Dodd-Frank

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One of the many objectives of the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act was to encourage whistleblowers to report securities violations—including violations of the Foreign Corrupt Practices Act (FCPA)—to the Securities and Exchange Commission (SEC). Among other things, Dodd-Frank created new remedies for whistleblowers who suffer retaliation by their employers, including allowing whistleblowers to sue their (former) employers on more favorable terms than existing anti-retaliation laws. But what if an employee doesn’t report a possible violation to the SEC, but only told her boss? If that “internal whistleblower” is subsequently terminated, can she avail herself of Dodd-Frank’s anti-retaliation provisions?  Because of the way the law was drafted, this turns out to be a difficult legal question, one on which courts across the U.S. have divided.

Nevertheless, there are strong practical reasons—above and beyond the basic reasons that could be advanced in any context—why Dodd-Frank should cover internal whistleblowers. Unless the courts resolve their division in favor of internal whistleblowers soon (most likely through a Supreme Court decision), Congress should step in and rewrite the law to remove any doubt that internal whistleblowers are protected.

Continue reading →