The OECD Convention’s Article Prohibiting the Politicization of Foreign Bribery Enforcement Is in Desperate Need of Clarification

Article 5 of the OECD Anti-Bribery Convention provides that the policing of foreign bribery by Convention Parties shall not be influenced by (1) “considerations of national economic interest,” (2) “the potential effect upon relations with another State,” or (3) “the identity of the natural or legal persons involved.” Collectively, these mandates are known as the “Article 5 factors.” Article 5 is intended as a safeguard against the politicization or instrumentalization of foreign bribery laws. It is therefore vital to impartial foreign bribery enforcement, as well as to the integrity of foreign bribery enforcement generally.

The most well-known instance of an alleged Article 5 breach is the United Kingdom’s decision in 2006 to stop investigations into bribes paid by BAE Systems to public officials in Saudi Arabia. Then-Attorney General Peter Goldsmith argued that this decision was justified because the investigation could have damaged national security interests, as Saudi Arabia had threatened to end counterterrorism cooperation with the UK if the investigation continued. Goldsmith expressly denied that terminating the investigation for this reason constituted a breach of Article 5 because, as he put it, the decision to join the OECD Convention didn’t mean that the UK had “agreed to abandon any consideration of national security. [The Convention] certainly doesn’t say that and I don’t believe that’s what we could have intended or any other country could have intended.” The UK’s decision to suspend the BAE investigation, though challenged in court, was ultimately upheld.

More recently, the OECD has called attention to two other potential Article 5 breaches. First, an OECD news release stated that Turkey’s Article 5 compliance was in doubt due to inexplicably low level of foreign bribery enforcement, which the release suggested might be partly due to improper economic or political considerations. Second, another OECD news release raised concerns that Canada may have breached Article 5 by cancelling investigations into allegations that SNC Lavelin had bribed Libyan officials—a decision that observers believed was motivated by a desire to protect Canada’s national economic interests.

While it is encouraging to see the OECD adopt a more assertive approach to recognizing Article 5 breaches than it has in the past, these statements serve as stark reminders that there is not really an effective means for enforcing Article 5. And unfortunately, the uncertainty surrounding the meaning of Article 5 complicates the task of achieving Article 5 compliance. Continue reading

Guest Post: New OECD Report Highlights the Importance of Non-Trial Resolutions in Foreign Bribery Cases

Today’s guest post is from Senior Legal Analyst Sandrine Hannedouche-Leric, together with Legal Analysts Elisabeth Danon and Brooks Hickman, of the OECD Anti-Corruption Division.

 In December 2016, Brazilian, Swiss, and US authorities announced that the Brazilian construction giant Odebrecht would pay a combined fine of USD 3.5 billion as part of a coordinated resolution of foreign bribery allegations—the largest foreign bribery resolution in history. Like many foreign bribery cases concluded in the last decade, the Odebrecht case was resolved outside a courtroom. In fact, non-trial resolutions, also referred to as settlements, have been the predominant means of enforcing foreign bribery and other related offences since the OECD Anti-Bribery Convention entered into force 20 years ago.

The OECD Working Group on Bribery recently published a report on Resolving Foreign Cases with Non-Trial Resolutions. The report develops a typology of the various non-trial resolution systems used by Parties to the Convention, and sheds light on the operation and effectiveness of these systems. It also looks at the challenges they raise for law enforcement authorities, companies and other stakeholders in the resolution process. The data collected for the Study confirms and quantifies the widely-recognized fact that settlement, rather than trial is the dominant mechanism for resolving foreign bribery cases. The report finds that close to 80% of the almost 900 foreign bribery cases concluded since the OECD Anti-Bribery Convention came into force have been concluded through non-trial resolutions, and among the three most active enforcers of foreign anti-bribery laws—the United States, Germany, and the United Kingdom—this percentage rises to 96%. Non-trial resolutions have been responsible for approximately 95% of the USD 14.9 billion (adjusted to 2018 constant US dollars) collected from legal persons sanctioned to date. Additionally, the report finds that coordinated multi-jurisdictional non-trial resolutions have been on the rise over the past decade. Such coordination, which would not be possible through trial proceedings, has permitted the imposition of the highest global amount of combined financial penalties in foreign bribery cases. Eight of the ten largest foreign bribery enforcement actions involved coordinated or sequential non-trial resolutions involving at least two Parties to the Convention.

The study was launched last month during the OECD Global Anti-Corruption and Integrity Forum, in a panel discussion moderated by the Head of the World Bank’s Integrity Compliance Unit. Building on the Study’s key findings, law enforcement officials from Brazil, France, the United Kingdom and the United States discussed the challenges associated with non-trial resolutions based on their first-hand experience, and explained why the use of these instruments will likely continue to grow in the future. In particular, they discussed how non-trial instruments can help overcome procedural hurdles and fundamental differences between legal systems and cultures, and thus facilitate cross-country coordination in the resolution of foreign bribery cases. (The video of the session is accessible online. See the section “Watch Live” for Room 1 starting at 8:13:00).

Where Is the Behavioral Insights Revolution in Anticorruption?

Behavioral economics—the application of insights from behavioral psychology to economic analysis and regulatory policy-making—is all the rage. In addition to the contributions of this synthesis to academic economics, research in behavioral economics has suggested the possibility of innovative, simple, low-cost policy interventions that can shift behavior in dramatic and productive ways, without as much reliance on the heavy hand of regulators. These so-called “nudges” (named after Richard Thaler’s and Cass Sunstein’s book Nudge) include, for example, things like automatic enrollment in retirement plans, which appears to increase the amount of people saving for their retirement more than tax incentives do. The possibility of using nudges or other approaches inspired by behavioral economics has captured the imagination of politicians, international organizations, and others, and there are now approximately 200 so-called “nudge units” in governments around the world looking for ways to employ behavioral insights to solve public policy problems

This enthusiasm has spread to the field of anticorruption. (See here, here, and on this blog here and here). But, while there have been a handful of anecdotal reports of successful nudge-like interventions in this area (e.g. here), there has not yet been much elaboration of what sorts of concrete anticorruption innovations follow from a behavioral perspective, nor of the evidence base supporting these sorts of interventions. Indeed, there seems to be surprisingly little data about successful applications of behavioral insights in the fields of integrity and anticorruption. That’s why I was so excited when last year the Organization for Economic Co-Operation and Development (OECD) published Behavioural Insights for Public Integrity: Harnessing the Human Factor to Counter Corruption, a report that, according to the OECD, is the “first comprehensive review of different strands of behavioral sciences to identify practical lessons for integrity policies.”

Alas, rather than providing systematic evidence on how applying behavioral insights can make anticorruption efforts more effective and using that evidence to recommend new integrity tools, the OECD report largely rehashes the last couple of decades of behavioral economics more generally, and makes it seem—at least to me—that, at least so far, behavioral science does not really suggest anything revolutionary for integrity and anticorruption, and there is little or no data-backed guidance on how to apply nudging to solve problems of integrity. Continue reading

Report on the OECD’s 6th Global Anti-Corruption and Integrity Forum

For the sixth year running the Organization for Economic and Cooperation is hosting a two-day conference on ethics and corruption.  This year’s theme is how corruption has eroded trust in government and is helping advance what Secretary General Gurria termed in his opening remarks the three destructive “isms” haunting the world today: populism, nationalism, and protectionism.

The organization’s members are 35 of the world’ s richest nations (all save Russia and the PRC), and despite extraordinary levels of wealth by any historical measure, and recent upbeat economic news, citizens across the 35 have soured on their governments.  Trust in government across the 35 is at a record low while cynicism and distrust in elected leaders is at an all-time high, and though the Secretary General put much of the blame for the current funk on the 2008 economic crisis and the still uneven and unbalanced recovery, corruption, he stressed, has done its part.  Revelations of wrong-doing at the highest levels of government coupled with the petty corruption that frustrates the delivery of basic government services has only deepened citizens’ suspicions in their government.  If OECD member states are to win back citizens’ confidence, and avoid those destructive “isms,” they cannot, he argued, ignore the corruption question.

For those unable to fund a trip to Paris or with a sponsor or client willing to foot the bill, the conference home page with the agenda is here.  Four things I found useful on day one: Continue reading

Improving Mutual Legal Assistance: Lessons from Asia

Back in 2014, Rick called for further analysis of mutual legal assistance (MLA) processes and potential reforms that would promote responsiveness to MLA requests in anticorruption cases (and others). As a follow-up, I wanted to highlight the findings of a recent report from the Asian Development Bank (ADB)/Organization for Economic Cooperation and Development (OECD) Anti-Corruption Initiative for Asia and the Pacific. The report, entitled “Mutual Legal Assistance in Asia and the Pacific: Experiences in 31 Jurisdictions,” provides examples of various obstacles to effective MLA, which I have sorted into two general categories: legal and practical. Continue reading

Guest Post: A Call for Higher Integrity Standards and Deeper Democratization

Jeroen Michels, Policy Analyst at the OECD, and Michael Johnston, the Charles A. Dana Professor of Political Science at Colgate University, contribute today’s guest post:

Many of the recent woes and challenges of democracies worldwide—such as fading policy consensus, populist discontent, and widening equality gaps—have been fueled, at least in part, by corruption and unethical practices (not all of which are currently illegal). The Panama Papers and similar leaks have dented the reputation of elected politicians, established firms, and respected countries. Soon after their term in office, some public sector leaders have taken up lucrative posts and board memberships in banks, lobbying firms, and multinationals, leaving voters disillusioned about political integrity and the intertwinement of elite networks across sectors in society. Less visible but equally harmful can be the ways in which narrow interests seek to influence public decision-making for their own profit. Inequalities in access to policymaking processes, often reflecting inequalities in wealth and status, often lead to decisions that benefit and further empower those narrow interests, which exacerbates inequalities and fosters the perception of politics as unfair or illegitimate. Against the backdrop of widening income gaps between the rich and poor, the abuse of power leading to a concentration of economic resources in the hands of fewer people is a worrisome prospect.

As a result, these legal and illegal forms of influence peddling corrode the meanings and mechanisms of democracy itself. As Professor Mark Warren has argued, corruption can be described as duplicitous exclusion: corruption undermines democracy by excluding people from decisions that affect them and in which they expect to have a voice. When people lose confidence that public decisions are taken for reasons that are publicly available and justifiable, and that those in official positions take citizen views and interests seriously, they often become cynical, expecting duplicity in public speech. This tarnishes all public officials, whether or not they are corrupt. And when people are mistrustful of government, they are also cynical about their own capacities to act in favor of the public good. Elections, for too many citizens, become a way to reject traditional democratic values and practices.

There are no quick fixes or easy remedies to this dilemma, but there are two things that activists and reformers must emphasize: Continue reading

Why the Repeal of the U.S. Publish-What-You-Pay Rule Is a Major Setback for Combating Corruption in the Extractive Sector

Bonnie J. Palifka, Assistant Professor of Economics at Mexico’s Tecnológico de Monterrey (ITESM) contributes today’s guest post:

Last Friday, following the U.S. House of Representatives, the Senate voted to repeal a Securities and Exchange Commission (SEC) regulation that required oil, gas, and minerals companies to make public (on interactive websites) their payments to foreign governments, including taxes, royalties, and “other” payments. The rule was mandated by Section 1504 of the 2010 Dodd-Frank Act, but had only been finalized last year. President Trump’s expected signature of the congressional resolution repealing the rule will represent a major blow to anticorruption efforts, and a demonstration of just how little corruption matters to his administration and to Congressional Republicans.

The extractive industry had lobbied against this rule, arguing that having to report such payments is costly to firms and puts them at an international disadvantage. Some commentators have supported their efforts, arguing, for example, that the Section 1504 rules are unnecessary because the Foreign Corrupt Practices Act (FCPA) already prohibits firms under SEC jurisdiction—including extractive industry firms—from paying bribes abroad. This argument misses the mark: The extractive sector poses especially acute and distinctive corruption risks, which the FCPA alone is unlikely to remedy if not accompanied by greater transparency. Continue reading