Should Other Countries Enact a False Claims Act?

For governments looking for a cheap, easy way to curb fraud and corruption in government contracts, the American False Claims Act seems like a no lose proposition.  It authorizes private citizens to file civil suits against companies they believe have cheated the federal government, and if their suit succeeds, the citizen is entitled to anywhere between 15 to 30 percent of any damages the government collects.  The offer of a reward creates an army of volunteer investigators and lawyers willing to invest their own time and energy into ferreting out fraud and corruption.  If they win the case, the government recoups most of its losses.  If they lose, the government isn’t out a cent.  The data suggests that False Claims Act suits have indeed been a bonanza for the U.S. government.  Recoveries in recent years have exceeded $2 billion per year with an average of $1.7 billion going to the government and the rest to citizen sleuths.

Before copying the False Claims Act verbatim, however, policymakers will want to consider University of Houston Law Center Professor David Kwok’s paper on why the statute seems to work well in the U.S., why an exact copy might not work so well elsewhere, and how it might be changed to fit countries where conditions differ from those in the United States.  The paper is the third in the series of papers commissioned by the Open Society Justice Initiative on civil society and anticorruption litigation, following earlier ones on standing by GAB editor-in-chief Matthew Stephenson and on civil society litigation in India by Vidhi Centre for Legal Policy Director Arghya Sengupta. As with those by Matthew and Arghya, David’s paper provides civil society activists and policymakers wanting to bolster the enforcement of anticorruption laws in their country much to deliberate on.

Private Law Suits for Corruption:  Am I Missing Something?

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

Private FCPA Enforcement: Some Troubling Trade-Offs

In my last post, I suggested that one possible drawback to dramatically ramping up enforcement of the Foreign Corrupt Practices Act against individuals (from the perspective of those who, like me, favor aggressive FCPA enforcement) is that individual defendants are relatively more likely to litigate than are corporate defendants. This not only might entail a greater drain on the resources of the government enforcement agencies—a familiar and well-understood concern—but it could also lead to adverse appellate rulings on the meaning of key FCPA provisions (particularly if the targeting of more individuals also entails the targeting of relatively more sympathetic individuals). In this post, I want to raise a similar concern in connection with a prominent proposal for increasing the FCPA’s deterrent effect: the addition of a private right of action under the statute.

The FCPA in its current form does not authorize private individuals to sue defendants for alleged violations of the statute. Although some other statutes might authorize certain forms of private FCPA enforcement—for example, in the form of shareholder derivative suits, or suits alleging violations of the antitrust laws or the RICO Act—these forms of private recourse are quite limited in their availability. (I won’t go into all the reasons in this post—Professor Gideon Mark has a nice discussion in his paper on the topic.) Yet many people (including Professor Mark) have advocated the addition of an express FCPA private right of action which, in the view of its proponents, would substantially enhance FCPA deterrence. This idea has attracted at least some interest in the U.S. Congress, though the proposed bills to add an FCPA private right of action have not yet gone anywhere.

My natural instincts are to support a proposal along these lines, both because I’m more of a “hawk” when it comes to FCPA enforcement, and because I’m generally an enthusiast for the “private attorney general” model for enforcing public law. And I could still be persuaded that a private FCPA action is a good idea. But I have concerns similar to those I raised in my last post about greater targeting of individuals, as well as some additional, closely related worries. Here are the main worries, as I see them: Continue reading

Removing Barriers to Private Actions Against Corruption by Liberalizing Standing Doctrine

Although most countries have traditionally relied on public bodies to enforce anticorruption laws, frustration with the ineffectiveness of public enforcement has led a growing number of activists and scholars to champion private lawsuits as an additional tool in the anticorruption arsenal (see, for example, here and here). Not only can private enforcement supplement government enforcement, but (as I have discussed previously) private enforcement can push public enforcers to do their job more scrupulously. However, in many jurisdictions private actions to enforce anticorruption laws face a daunting obstacle: the doctrine of standing (known in some jurisdictions by its Latin name, locus standi). The difficulty is that most corruption cases do not have an identifiable victim, or an aggrieved person in its traditional sense. For this reason, in many jurisdictions, those parties (often civil society NGOs) attempting to bring private suits against corrupt actors may be deemed not to have the requisite standing.

The question, then, is whether it is possible and desirable to adopt a broader conception of standing, one that would entitle citizens or NGOs to initiate actions against corrupt actors, even if the complainants cannot establish that they were personally and directly injured by the alleged corrupt conduct. Proponents of a restrictive interpretation of standing doctrine tend to argue that a more expansive notion of standing could inundate the courts with weak cases, including cases brought by vexatious litigants without a genuine interest in the underlying allegations. But these concerns are exaggerated. It is quite possible, as several jurisdictions have already demonstrated, to liberalize standing doctrine to empower private anticorruption plaintiffs without opening the floodgates of meritless litigation. Moreover, the legitimate concerns about abuse of the judicial process can be addressed in other ways. Continue reading

Can a Private Right of Action Solve State Capture in the Philippines?: A Skeptical View

Last month, as a part of the LIDS Global initiative (discussed here), a research team at the University of the Philippines (U.P.) put forth an ambitious legal proposal to combat corruption in the Philippines. The centerpiece of the proposal is a private right of action that would allow individual citizens to bring civil claims against public officials for violations of the Philippines’ Anti-Graft and Corrupt Practices Act. The proposal is designed to overcome the problem of “state capture”–the shaping of laws, rules, and regulations through illegal and non-transparent payments to public officials. Because state capture is so severe in the Philippines—reaching even high-ranking officials within the country’s own anticorruption agencies—citizens cannot “rely solely on the political will of government officials to prosecute their peers in the government.” The private cause of action is intended to address (or at least circumvent) this problem by enabling private citizens injured by corruption to go directly to court, without having to rely on public enforcers.

While I agree that state capture presents a huge problem for anticorruption efforts, I’m skeptical that the proposed private right of action will be effective–at least in the Philippines. The roots of my skepticism are threefold: Continue reading