OECD Nations Should Criminalize the Unexplained Wealth of Politically Exposed Persons

Today’s guest post is from Hamid Sharif, Managing Director, Compliance, Effectiveness and Integrity, for the Asian Infrastructure Investment Bank.  Writing in his personal capacity, he urges OECD countries to enact laws like that giving the British government the power to demand public officials from another nation explain how they acquired assets held in Britain.  If the official cannot show the assets were purchased with honestly-obtained monies, they are confiscated.  The laws Mr. Sharif advocates would provide that if the official were from a developing country, the seized assets would go to development projects in the victim state.  The views expressed in no way reflect or represent those of AIIB, its Board, or Management.

Since 1996, when then World Bank President James Wolfensohn condemned corruption as a “cancer” which stood “as a major barrier to sound and equitable development,” combating corruption has figured prominently on the international development agenda. In 1997, the OECD nations agreed to make it a crime to bribe a foreign public official, and in the early 2000s the World Bank, the African Development Bank, and the other multilateral development banks (MDBs) introduced corruption prevention policies into their procurement rules, adopted anti-corruption policies, established procedures for investigating corruption in their operations, and instituted systems for sanctioning firms and individuals found to have engaged corruption. Beyond ring-fencing their own projects against corruption, both the MDBs and bilateral development agencies have worked to strengthen institutions to prevent corruption in developing countries. Civil society in both developing and developed states has also stepped up its efforts to fight corruption.

Both the MDBs and bilateral donors have urged developing nations to operate with greater transparency and accountability and funded projects to strengthen anticorruption agencies, judiciaries, and other domestic institutions responsible for combatting corruption. Today there is far more information on corruption and how to fight it available to citizens of the developing world than 20 years ago. The result has been a multitude of reforms aimed at preventing or deterring corruption, from the spread of right to information laws to more effective anticorruption laws and agencies.

Despite this progress, in most developing countries institutions are not yet strong enough to investigate and successfully prosecute the corrupt acts of senior government officials whether elected or appointed, individuals who in antimoney laundering parlance are, along with their relatives and close associates termed “politically exposed persons” or “PEPs.”  In many countries, investigating and prosecution agencies as well as courts lack the independence, security, and institutional capacity to instill public confidence in their ability to deal with high-level political corruption perpetrated by PEPs. Continue reading

Settling Foreign Bribery Cases: Suggested Guidelines

At the request of the OECD Secretary-General, a High Level Advisory Group produced a report in October 2017 on how the OECD could strengthen its work combating corruption and promoting integrity.  One recommendation was that the organization “create and publish model guidelines” for member states to follow when settling cases arising from the bribery of a foreign public official.  Noting concerns (discussed in many posts on this blog and elsewhere) that pretrial settlements can let defendants off too easy, the advisory group cautioned that the guidelines should be “consistent with the requirement for effective, proportionate and dissuasive sanctions under the OECD Anti-Bribery Convention.”

Earlier this year, Professor Tina Søreide of the Norwegian School of Economics and former Siemens General Counsel Peter Solmssen organized a multinational group of defense lawyers, prosecutors, academics, and civil society activists to suggest guidelines.  “Principles for the Implementation and Use of Non-Trial Resolutions of Foreign Bribery Cases” together with a set of explanatory notes were released last week.  The principles, the explanatory notes, and a letter transmitting the documents to the OECD are here.

Professor Søreide, Mr. Solmssen, and the others involved in developing the principles welcome reader comments.

Guest Post: The Result in US v. Hoskins is Required by the OECD Anti-Bribery Convention

GAB is pleased to welcome back Frederick Davis, a lawyer in the Paris and New York offices of Debevoise & Plimpton and a Lecturer at Columbia Law School, who contributes the following guest post:

Much has been written about the long-awaited decision in US v. Hoskins, on this blog (see here and here) and elsewhere. In Hoskins, a US federal appeals court held that the U.S. cannot charge a foreign national acting abroad (and who therefore couldn’t be charged directly with violating the anti-bribery provisions of the Foreign Corrupt Practices Act (FCPA)) by alleging vicarious liability under either the aiding and abetting statute, 18 U.S.C § 2, or the conspiracy statute, 18 U.S.C. § 371. Judge Pooler’s opinion for the court relied on two justifications: First, under the principle established by a Supreme Court cased called Gebardi v. United States and its progeny, Congress clearly indicated an affirmative legislative policy to exclude from complicity or conspiracy liability parties like Mr. Hoskins (foreign nationals acting abroad). Second, the FCPA lacks the requisite affirmative indication of congressional intent, demanded in cases like Morrison v. National Australia Bank, that Congress intended the FCPA to apply extraterritorially to the kind of conduct in question. (Analytically, these two tests are very similar, as they both ask, “What did Congress intend?” The principal difference is the burden of persuasion: The Gebardi  line of cases, while not always entirely consistent, seem to indicate that prosecutors can generally invoke complicity or conspiracy liability even of someone who could not be prosecuted as a principal unless there’s a strong showing that this is contrary to congressional intent, while the extraterritoriality analysis, on the other hand, typically puts the burden on the prosecutor to show that a statute was intended to apply extraterritorially in the circumstances raised by a specific indictment.) The court dismissed the conspiracy and complicity charges against Hopkins, but remanded the case on the assumption that Mr. Hoskins might still be directly liable under the FCPA if the government could prove that he was acting as an agent of Alstom’s US subsidiary.

In my view, the court’s decision was clearly correct. But the court could have gone further to address another issue that, while not formally before the court, will need to be addressed on remand: The implications of the OECD Anti-Bribery Convention. The OECD Convention is far more important to the appropriate interpretation of the FCPA than the court acknowledged, provides compelling support for the Hoskins outcome, and should also control the resolution of the issue the appeals court left open for consideration on remand. Continue reading

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

Dispatches from the UNCAC Conference of States Parties, Part 2: International Enforcement of Anticorruption Agreements

Last month, the UN Convention Against Corruption (UNCAC) Conference of States Parties (COSP) was held in Vienna, Austria. In addition to the formal meetings of government representatives, the COSP also featured a number of panels, speeches, and other side events, at which leading experts discussed and debated a range of anticorruption topics. GAB is delighted that Northwestern Pritzker School of Law Professor Juliet Sorensen and her student Kobby Lartey, who attended the COSP, have offered to share highlights of some of the most interesting sessions in a series of guest posts. Today’s post is the second in that series.

The COSP panel on “Corruption and International Laws and Judgments” generated candid conversations about the role of international laws and judgments in the fight against corruption. Moderated by Bart Scheffers of the Open Society Foundation, the panel included one of us (Juliet Sorensen), along with Transparency International’s Gillian Dell; the Helsinki Committee’s Harry Hummel; and France Chain of the OECD. Continue reading

Settling Prosecutions for Corruption: Developing Nations’ Issues

The OECD Antibribery Convention requires its 43 state parties to levy “effective, proportionate and dissuasive criminal penalties” on individuals or corporations who have bribed a foreign official. Since the convention took effect February 15, 1999, through June 1, 2014, when data was last compiled, the OECD Secretariat reports that more than two-thirds of all prosecutions have ended in a pre-trial settlement. Settlements are permitted under the convention, but they must still impose “effective, proportionate and dissuasive” sanctions on the settling defendant.

Developing nations, the World Bank/UNODC’s StAR Program, and civil society groups say many of these settlements have let corporate bribe payers off too easy.  They also say that, where a case involved bribery of a developing country official, settlement has made it harder for the developing state to collect the fine and other monies due from the bribe payer under its laws.

The OECD is considering issuing a guide on settlement terms.  To help its drafters ensure they appreciate developing nations’ concerns, Norway’s Agency for Development Cooperation asked I write a paper on settlements and developing nations. Last week I posted a draft that focused on settlement strategy.  Thanks to several very helpful comments and discussions, the final paper covers much different ground.  Among the points it makes:

  • Fears that OECD settlements will bar prosecution for the same acts in developing nations seem to be misplaced given current law, but concerns a settlement could compromise a developing state’s ability to recover — i) profits the defendant realized from corrupting its officials or ii) sufficient funds to compensate citizens injured by the corruption — are genuine.
  • Developing states with weak criminal justice systems face a dilemma when weighing whether to settle or try their own cases for corruption.  As last week’s post explained, a weak judicial system means a tough settlement is out of reach, for the system’s very weakness tells defendants if they go to trial they will prevail — or equivalently, be able to delay resolution for decades.  If a government loses a string of corruption cases, it risks encouraging more corruption as those tempted to commit acts of corruption see they are very likely to get off scot-free.

When, as in the case of transnational bribery, two sovereigns both have the legal right to try the perpetrators, tension is inevitable.  The paper offers several recommendations for if not eliminating the tension at least managing it. What in international law would be termed advancing principles of comity.  Click on Settlements of Criminal Corruption Cases — Developing States’ Issues to download the paper.  Comments earnestly solicited.  Many, many thanks to those who commented on last week’s version.

Transparency International’s Anti-Corruption Pledge Tracker Is Badly Flawed. It Needs To Be Redone from Scratch.

In May 2016, at the London Anticorruption Summit sponsored by then-Prime Minister David Cameron, participating countries issued declarations announcing a variety of commitments—some new, some continuations of existing policies—to further the fight against international corruption. Of course, all too often governments fail to follow through on their grandiose promises, so I was heartened by Transparency International’s announcement, in September 2016, that it had gone through all the country declarations, compiled a spreadsheet identifying each country’s specific promises, and would be monitoring how well each country was following through on its commitments.

Last month, a year after TI published the spreadsheet documenting the list of summit commitments, TI released a report and an interactive website that purport to track whether countries have followed through on those commitments. So what do we learn from this tracking exercise?

Alas, the answer is “almost nothing.” TI’s “Anti-Corruption Pledge Tracker,” in its current form, is a catastrophic failure—a slapdash, amateurish collection of arbitrary, often inconsistent judgments, unsupported by anything that resembles serious research, and (ironically) non-transparent. This is all the more surprising—and disappointing—given the fact that TI has done so much better in producing similar assessment tools in other contexts. Indeed, at least one such recent tool—TI’s Government Defense Anti-Corruption Index—provides a model for what the Pledge Tracker could and should have looked like. Given the importance of tracking countries’ fulfillment of their summit pledges, and TI’s natural position as a leader on that effort, I dearly hope that TI will scrap the Pledge Tracker in its current form, go back to the drawing board, and do a new version.

I know that sounds harsh, and perhaps it seems excessive. But let me explain why I don’t find the Pledge Tracker, in its current form, worthy of credence. Continue reading