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

Saudi Arabia’s Anticorruption Purge: A Sham to Consolidate Power and Lure Investors

Saudi Arabia’s crown prince, Prince Mohammad bin Salman (MBS, for short), has been cleaning house. In the last month, he has arrested 11 princes, four ministers, and dozens of ex-ministers, all of whom are being held in five star hotels across Riyadh. He has also detained more than 200 others for questioning. Scores of commentators and media personalities have praised MBS’s anticorruption purge (see here and here), while others have condemned it (see here and here), which goes to show just how difficult it is to understand what the recent anticorruption purge means in the context of a country like Saudi Arabia. On the one hand, in Saudi Arabia, any measure to address corruption seems to be cause for optimism. Taken against the backdrop of the many social reforms advanced by MBS, ranging from permitting women to drive, diversifying the economy, and moderating the religious establishment’s brand of Islam, the anticorruption measures appear to be part of a genuine effort to reform Saudi Arabian society. Yet this optimistic assessment naively conflates a progressive social agenda that taps into our hopes for Saudi Arabia’s future (and the Middle East’s writ large) with what Saudi Arabia’s anticorruption purge really is: an attempt to consolidate MBS’s power and reassure foreign investors. Continue reading

Corruption as a Jurisdictional Barrier in Investment Arbitration: Consequences and Solutions

As has been explored on this blog and elsewhere, corruption is a controversial topic in investor-state arbitration disputes. First emerging as a defense by states seeking to avoid liability, multiple tribunals have refused to enforce arbitration contracts tainted by corruption (see World Duty Free v Kenya and Plama Consortium v Bulgaria). Corruption has also been used as a cause of action by investors claiming unfair treatment (see Yukos v Russian Federation and here). The unclear incentive effects of corruption in arbitration proceedings have been analyzed from different angles—whether it provides countries with perverse incentives that might encourage corruption or instead buttresses anticorruption principles and promotes accountability.

Unfortunately, less attention has been paid to the procedural step at which tribunals discuss corruption. In the past ten years, an increasing number of tribunals are evaluating evidence of corruption at the jurisdictional stage of arbitration rather than at the merits stage. Those readers who are not lawyers (and even those who are), may be wondering, “Who cares? Why does it matter if corruption is treated as a ‘jurisdictional’ issue as opposed to a ‘merits’ issue?”

Actually, it matters a lot.  Continue reading

Large-Scale Land Acquisitions: Opportunities for Corruption

Recent years have seen a significant rise in large-scale land acquisitions by foreign investors, generally for agricultural or extractive purposes. Many of these land deals, termed “land grabs,” have had injurious effects on local populations who are often pushed off of their land without their informed consent. (For a description of contemporary land grabs and a land grab bibliography, see here.) Foreign companies and governments secure the majority of these land deals in poorer countries, where large tracts of land can be purchased cheaply, and where many of the local inhabitants do not have the means to contest the deals through the legal system. The land is frequently used for agriculture or production of “flex crops” (such as soy or palm oil), which are then sold abroad, rather than to the host country. Therefore, land grabs can result in not only the displacement of local communities, but also the reallocation of these vital resources to external actors, rather than to the inhabitants of the host country.

Large-scale land deals are often facilitated by corrupt practices perpetrated by the foreign purchaser and/or the host government, through the transactions themselves or through weak institutions. Last November, the International Corporate Accountability Roundtable (ICAR) and Global Witness released a report that details the opportunities for corruption at each stage of large-scale land acquisitions, as well as the current legal frameworks for addressing this corruption. As noted in the report, corruption can occur in each of the six phases of a land deal: Continue reading

Mauro (1995) Does NOT Show That Corruption Slows Growth

One of the most influential and widely cited economics articles on corruption is Paolo Mauro’s 1995 paper, “Corruption and Growth,” published in the Quarterly Journal of Economics (Vol. 110, No. 3, pp. 681-712). It has become a standard citation for the proposition that corruption is lowers investment, and consequently lowers economic growth. The paper is important because it sparked close to 20 years (and counting) of increasingly sophisticated research on the economic effects of corruption. Furthermore, it leant critical academic support to the emerging anticorruption movement in both civil society and international organizations like the World Bank and IMF. And for those reasons alone, I think one could make a strong case that this paper has had a positive impact on the world.

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Yes, Corruption Is Bad for Development. No, Corruption Is Not a Western Obsession

Recently there has been a spate of commentary in the blogosphere that revives a set of tired old canards about corruption and development — the related claims (1) that the focus on corruption and governance in the development discourse is misplaced, because there isn’t a lot of evidence that corruption matters much for development, poverty reduction, etc.; and (2) that anticorruption is a fixation of wealthy, mostly Western countries, because it enables people in those countries congratulate themselves about their moral virtue and to look down on habits and practices in the poor, benighted South. Recent examples include Chris Blattman’s posts on his blog (here, here, and here), Michael Dowdle’s contributions to the Law & Development blog (here and here), and Jason Hickel’s post on Al Jazeera English, though there are others as well.

Sigh. Do we really need to go through this again? OK, look: Yes, there are still lots of unanswered questions about corruption’s causes and consequences, and its significance for various aspects of economic development. And yes, some anticorruption zealots have sometimes over-hyped the role of corruption relative to other factors. But the overwhelming weight of the evidence supports the claim that corruption is a big problem with significant adverse consequences for a range of development outcomes. And the evidence is also quite clear that the focus on corruption as a significant obstacle to development comes as much or more from poor people in poor countries as it does from wealthy Western/Northern elites.

A blog post is not the best format for delving into a very large academic literature on the adverse impacts of corruption. And so the posts to which I’m responding might be forgiven for generally failing to provide much evidence in support of their claims that corruption is relatively unimportant for development, and largely a Western obsession. But, let me at least take a stab at trying to move the conversation beyond unsubstantiated declarations to some assessment of the actual evidence, starting with the impact of corruption on development.

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