Tag Archives: settlements

Guest Post: A Response to Commentary on the FACTI Panel Report and Recommendations

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Today’s guest post is from Bolaji Owasanoye, the Chair of Nigeria’s Independent Corrupt Practices and Other Related Offenses Commission, and a member of the UN High-Level Panel on International Financial Accountability, Transparency and Integrity (the FACTI Panel).

A few weeks ago, Professor Matthew Stephenson published two posts on this blog (see here and here) that offered some reactions to the report and recommendations of the UN High-Level Panel on International Financial Accountability, Transparency and Integrity (the FACTI Panel), on which I served as a member. I want to first thank Professor Stephenson for his serious discussion of the report. Critical engagement on the Panel’s recommendations is very welcome, and indeed Panel members are keen to continue engagement with researchers, policymakers, and the wider public in order to accomplish our shared purpose: strengthened systems for financial integrity. Now isn’t the time for the lowest common denominator approach but instead for governments to be ambitious and thus unlock the large resources currently being drained aggressively from public finances.

Professor Stephenson generously concluded that “the FACTI Panel has done us all a useful service by providing a document that can serve as the focus for discussion and debate over this vitally important topic.” That said, on a few recommendations he called for more detail, and on an even smaller number he found what he considered as faults with the recommendations. It is on only some of these final few, and within my own area of expertise, that I want to respond to points Professor Stephenson raised. In particular, I want to explain my understanding of the Panel’s thinking in three areas: standards for settlement in bribery cases, strengthening asset recovery, and the use of escrow accounts.

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Principles for Victim Remediation in Foreign Bribery Cases

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There is a broad consensus that foreign bribery harms the citizens and governments of developing nations. But in most cases where enforcement agencies in a “supply side” jurisdiction (that is, the home jurisdiction of the companies that paid the bribes) reach a settlement with a company accused of bribing foreign officials, the settlement does not provide for any remedial payments to the government or citizens of the “demand side” country where the bribery took place. Given the inherent difficulties in setting right the harm corruption causes, this is hardly surprising. Nevertheless, scholars and activists have increasingly called for settlement agreements between supply side enforcers and bribe-paying companies to include requirements that the companies make such remediation to the victims of the foreign bribery scheme, and some prosecutorial agencies, like the U.S. Department of Justice (DOJ) and the U.K. Serious Fraud Office (SFO), have occasionally done something along these lines. They have done so, however, only intermittently, and as an exercise of prosecutorial discretion, without any overarching policy agenda or conceptual framework.

In a recent article, I proposed a framework that could achieve more consistent outcomes and be used as a benchmark for developing best practices. I do not focus on grand designs for a private right of action for the foreign victims of corruption, or on obligations under international law. Because the action is happening on the ground, through the exercise of prosecutorial discretion in negotiating settlements, that’s where I focus. In this post, I outline the factors that enforcement agencies should take into account when deciding whether to pursue remediation in any given case. Continue reading →

Guest Post: Guidelines for Settling Foreign Bribery Cases

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The OECD Antibribery Convention requires parties to impose “effective, proportionate, and dissuasive criminal penalties” on those found guilty of bribing an official of another nation. As GAB readers know, most prosecutions for foreign bribery end not with a trial but with a settlement (here). GAB readers also know that a vigorous debate has ensued on this blog (here and here) and elsewhere (here, here and here) as to whether these settlements have met the “effective, proportionate, and dissuasive” test. In response, and with the assistance of the private bar, the OECD has been developing guidelines to help prosecutors and defense counsel ensure that future settlements do.

 GAB is delighted to welcome this guest post by Peter Solmssen, a leader in this effort from the private bar, in which he describes where the guidelines project stands.  As General Counsel of Siemens AG, Mr. Solmssen negotiated its settlement of foreign bribery cases with, among others, the Federal Republic of German and the United States.  He now chairs the Non-trial Resolutions of Bribery Cases Subcommittee of the International Bar Association (IBA).

Work on international guidelines for the settlement of foreign bribery cases is accelerating. The IBA made its latest submission to the OECD Working Group on Bribery January 22. It there urged the Working Group to move quickly with its anticipated international guidelines on settling transnational bribery cases and to resolve those aspects of settlements that remain contentious. As described here, the IBA has been pushing the OECD to issue guidelines that will encourage prosecutors to cooperate internationally and programmatically to increase the use of settlements, or non-trial resolutions as they are formally referred to internationally.

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Fixing the Brazilian Anticorruption Leniency Program

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When the Brazilian Anticorruption Law came into force in 2014, pundits celebrated the enactment of a statute that finally authorized action against corporations and other legal entities involved in public corruption, and that provided for substantial penalties. The statute’s most important innovations, however, were not so much its substantive provisions but rather the procedural reforms it introduced, chief among them the Anticorruption Leniency Program, which, alongside the criminal plea bargains for accomplice cooperation created by the Organized Crime Act (enacted on the same day as the Anticorruption Law), authorizes enforcement agencies to settle corruption-related cases.

            The Anticorruption Leniency Program largely reproduces the key features of Brazil’s Antitrust Leniency Program, which, in turn, was inspired by the amnesty program adopted by the U.S. Department of Justice’s Antitrust Division. To qualify for a leniency agreement, a company must be the first among those involved in a corruption scheme to state its interest in cooperating, admit its participation in the wrongdoing, cease any further involvement, cooperate fully with the investigation, and agree to pay compensation for any harm caused to the Public Administration. In exchange, the qualifying company can receive a significant reduction in the administrative fine, as well as protection against debarment or suspension from doing business with the Public Administration. (In contrast to the Antitrust Leniency Program, however, an Anticorruption Leniency agreement does not shield individuals associated with the qualifying company from criminal prosecution.)

Despite its importance in high-profile investigations such as the Lava Jato investigation (Operation Car Wash), critics have emphasized shortcomings of the Anticorruption Leniency Program. Coordination – or rather the lack thereof – between different enforcement agencies is often considered the most significant weak point of the program. However, I want to suggest a different source for the relative ineffectiveness (so far) of the Anticorruption Leniency Program: the requirement that, in order to be eligible for leniency, a company must admit its participation in the wrongdoing. Importantly, this requirement is not (merely) that the company accepts legal responsibility; rather, the program requires admissions of facts—facts that the company cannot subsequently dispute in other proceedings, which, from an enforcement standpoint, is precisely what creates the need for coordination between agencies. But such admissions can also entail additional collateral consequences:

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FACTI Background Paper: Current Trends in Foreign Bribery Investigation and Prosecution

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The United Nations High-Level Panel on International Financial Accountability, Transparency and Integrity for Achieving the 2030 Agenda Financing for Sustainable Development (FACTI) will recommend reforms to tax and anticorruption laws, asset recovery rules, beneficial ownership disclosure requirements, and other international norms to staunch the outflow of illicit funds from developing nations and speed the return of corrupt monies held abroad. A link to the panel’s interim report and instructions for submitting comments is here. 

As explained in an earlier post, the panel’s recommendations will draw on background papers commissioned by the United Nations Department of Economic and Social Affairs, the panel’s Secretariat.  A link to the papers is here. 

Dr. Abiola Makinwa of the Hague University of Applied Sciences authored a very fine one analyzing trends In the investigation and prosecution of foreign bribery cases (here).  Her summary of the paper is below.

Current Trends in Foreign Bribery Investigation and Prosecution

My paper examines systemic issues, such as lack of political will, profound information asymmetries, and the overarching general insufficiency of traditional criminal punishment as a response to the ‘true costs’ of corruption. I draw attention to Article 39 of the UN Convention against Corruption which calls for cooperation between national authorities and private sector entities as an integral aspect of anti-corruption enforcement. In practice, such cooperation between alleged offenders and prosecuting authorities may result in an agreement or resolution that reduces eventual sanction or penalty. These agreements are variously referred to as non-trial resolutions (NTRs), negotiated settlements, or structured settlements.

I show in the paper how the use of NTRs in foreign bribery cases is spreading across jurisdictions and is dramatically changing the face of anti-corruption enforcement.  While NTRs may be a pragmatic, new mechanism to overcome the limitations of traditional criminal prosecution of foreign bribery, they must not be seen as a get-out-of-jail card or lead to the decriminalization of the grievous crime of foreign bribery. Nonetheless, it is clear that NTRs provide a development-friendly response to foreign bribery enforcement by overcoming historic impunity and lack of enforcement. The most important “development dividend” of NTRs, is, in my opinion, the fact that NTRs shift the focus of anti-foreign bribery enforcement to corruption prevention.

There are 4 KEY arguments that support countries buying into NTR regimes for anti-foreign bribery enforcement.

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Review of Søreide and Makinwa “Negotiated Settlements in Bribery Cases: A Principled Approach”

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The resolution of foreign bribery cases through some type of out-of-court agreement has spread from the United States to other OECD nations.  The latest figures show that close to 80 percent of foreign bribery prosecutions by OECD nations have been settled short of a full trial on the merits.  Settlements free prosecutors to pursue additional violations, but there is the ever-present risk the defendant will get off too easy, that the settlement terms will not deter the defendant or others from continuing to bribe officials of a foreign government.

The OECD’s Working Group on Bribery in International Business Transactions is now developing standards to ensure that settlements will provide the “effective, proportionate, and dissuasive criminal penalties” the OECD Antibribery Convention mandates. As it proceeds, it will find Negotiated Settlements in Bribery Cases: A Principled Approach, a new volume from Elgar edited by anticorruption scholars Tina Søreide and Abiola Makinwa, an invaluable guide.  In 12 chapters, the cross-disciplinary, multinational group of experts the editors assembled review the use of settlements in the United States, the experience of other nations and the World Bank with settlements, ways to judge whether a settlement serves the public interest, and recommendations for gauging whether a particular settlement passes the public interest test. Continue reading →

Even “Tough on Corruption” Proponents Should Worry about “Zero Tolerance” Rules

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“Zero tolerance for corruption,” as Professor Stephenson suggested in a 2014 post, is an expression that can be construed in several different ways: from a general attitude that corruption should be considered “a high priority,” to an uncompromising policy mandating that “all feasible measures to minimize corruption must always be used.” In this post I will discuss another common, narrower understanding of “zero tolerance for corruption,” according to which corruption – at least in certain contexts – must always be addressed with a mandatory predetermined harsh sanction. A clear example of such a “zero tolerance” rule is the Colombian and Peruvian law demanding the instant termination of “any public contract tainted by corruption.” Another illustrative example is the EU’s directive mandating debarment from public contracting of any company convicted of offenses of corruption, fraud, or money laundering.

Granted, the potential deterrent value of mandatory harsh sanctions for corruption is substantial. A company aware that any conviction for corruption will inevitably incur severe penalties is more likely to be dissuaded from violating the law. Nevertheless, the costs of this “take no prisoners” approach to anticorruption may be much higher than the actual benefit. Thus, as Rick Messick recently showed, the law mandating termination of corruption-tainted public contracts has proven to have disastrous ramifications for the infrastructure in Peru and Colombia. As it turns out, not only has the nondiscretionary cancellation of corruption-tainted public contracts halted the advancement of existing infrastructure projects, but it has also deterred investors and developers from taking any part in such projects, for fear that they will be cancelled due to “the tiniest of infractions by anyone associated with the project.” Similarly, debarment is nothing less than “a death-sentence” for companies whose main business involves public contracts, and its mandatory imposition for even a relatively minor offense may be so draconian as to be counterproductive.

This kind of cost-benefit reasoning, though compelling to some, would not convince many proponents of an unequivocally “tough on corruption” stance. Many anticorruption hardliners believe in maximizing deterrence notwithstanding any associated costs. From this point of view, the end of deterring corruption justifies all necessary means. Yet even for those who take this view, it turns out that “zero tolerance” may not be the ideal approach. Supporters of “zero tolerance” rules assume that adoption of mandatory sanctions for corruption would guarantee that actors in the anticorruption system – judges, prosecutors, and legislators – will adhere to the “zero tolerance” ideal, and that such rules would be sustainable. But these decisionmakers in the anticorruption system may evade the application of “zero tolerance” rules where doing so would lead to sanctions perceived (rightly or wrongly) as patently absurd or unjust. In other words, a “zero tolerance” rule on the books does not guarantee that a “zero tolerance” policy would actually be implemented. Consider the various ways that actors in the anticorruption system may avoid triggering the mandatory sanctions for corruption:

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Colombia’s Harsh Criminal Penalties for Corruption Are an Illusion. Here’s How To Fix That.

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Whenever a new corruption scandal comes to light, many politicians instinctively react with strong punitive rhetoric, and this rhetoric often translates into action, usually in the form of amendments to criminal codes that make penalties for corruption offenses harsher. Latin America supplies plenty of examples of this (see here, here, here, and here.) Yet despite this emphasis on punishment, many corrupt politicians avoid justice altogether, and in the rare cases where they are found guilty, many end up doing only short stints in comfortable detention centers. Consider, for example, Colombia, which has unusually good public data on corruption convictions and sentences thanks to the work by the Anticorruption Observatory of the Secretary for Transparency. According to this data, between 2008 and 2017, criminal courts in Colombia have convicted 2,178 individual defendants for corruption (51.2% for bribery, 23% for embezzlement, and the remainder for other corruption-related offenses), but only about one-quarter of these convicted defendants actually went to prison. Approximately half of these defendants received suspended sentences, while another quarter were sentenced to house arrest. And of those who did go to prison, the time served was only about 22 months on average, much lower than the penalties on the books for corruption offenses. No wonder many Colombians believe the criminal justice system is too lenient.

The reason that actual Colombian sentences end up being so light, despite the penalties on the books being so heavy, is that Colombian law includes a set of provisions that allow for a variety of sentence reductions if certain conditions are met. For example, a defendant who accepts guilt can receive a 50% reduction in his prison term. Inmates may also reduce their prison term through work, with very generous terms: An inmate reduces his sentence by one day for every two days of ordinary work (8 hours of work per day), or for every four hours of work as a teacher. An inmate can also reduce his sentence through in-prison education, with  six hours of study translating into one day of sentence reduction. Furthermore, once an inmate has served 60% of his sentence, he can petition for release for good behavior. 

This excessive leniency needs to be addressed, not only in corruption cases but in all cases. Specifically, Colombia should adopt the following revisions to its criminal laws: Continue reading →

Settling Foreign Bribery Cases: Suggested Guidelines

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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.

What Chinese Cuisine and Deferred Prosecution Agreements Have in Common

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As Kees noted Monday, the use of American-style deferred prosecution agreements (DPAs) to resolve corporate corruption cases short of trial is on the rise.  The United Kingdom, France, Argentina, and most recently Singapore now permit prosecutors to suspend or even drop altogether the prosecution of a firm for a corruption offense in return for the accused firm paying a fine, adopting measures to prevent future offenses, and cooperating with ongoing investigations.  Australia and Canada are on the verge of approving DPAs, and influential voices in India and Indonesia are urging their adoption too.

Apostles say DPAs allow governments to realize the benefits of a criminal conviction without the need for a lengthy, expensive, arduous trial against a well-funded corporate defendant where defeat is always a risk.  Former U.K. Attorney General Lord Peter Goldsmith told a New Delhi audience last October that once India begins using DPAS, companies would start coming forward and admit wrongdoing.  During the recent debate in Singapore one commentator observed that DPAs “provide an incentive to corporate entities to confront criminal conduct within their ranks,” and a group of Indonesian professors claim DPAs will be particularly valuable in their country.   In Indonesia, conviction of a corporation provides no assurance the defendant will not commit the same offense again while, they write, a DPA does.

DPA evangelists are about to learn what DPAs have in common with Chinese cuisine.  The first-time visitor to China soon discovers that Chinese food in China is unlike Chinese food at home.  Beef broccoli tastes much different outside China than in. Connoisseurs of DPAs will shortly find that what American prosecutors are able to cook up looks much different when prepared abroad.     Continue reading →