Guest Post: An Exercise in Underachievement–The UK’s Half-Hearted Half-Measures To Exclude Corrupt Bidders from Public Procurement

GAB is delighted to welcome back Susan Hawley, policy director of Corruption Watch, to contribute today’s guest post:

A year ago, in May 2016, the UK government gathered 43 nations around the world together at the London Anti-Corruption Summit to show their commitment to fighting corruption. The resulting declaration made a number of bold promises. One of the most important—though not one that grabbed a lot of headlines—was the announcement that corrupt bidders should not be allowed to bid for government contracts, and the associated pledge by the declaration’s signatories that they would commit to ensuring that information about final convictions would be made available to procurement bodies across borders. Seventeen signatories went further, making specific commitments to exclude corrupt bidders, while six countries pledged to establish a centralized database of convicted companies as a way of ensuring procurement bodies could access relevant information. (Three other countries committed to exploring that possibility.)

The London Anti-Corruption Summit was right to be ambitious about focus on this issue in its declaration. Research shows that the risk of losing business opportunities such as through debarment from public contracts ranks has a powerful deterrent effect—equal to that associated with individual executives facing imprisonment, and much greater than one-off penalties such as fines. Yet debarment of corrupt companies for public contracting is quite rare. The OECD Foreign Bribery report found that while 57% of the 427 foreign bribery cases it looked at spanning 15 years involved bribes to obtain government procurement contracts, only two resulted in debarment. Even the US which has a relatively advanced debarment regime and which debars or suspends around 5000 entities a year from public procurement, appears to debar very few for foreign bribery and corruption. And the UK does not appear to have ever excluded a company from public procurement, despite laws in place since 2006 that require companies convicted of corruption and other serious crimes to be excluded from public contracts.

Did the London Anti-Corruption Summit mark significant turning point in the UK’s approach to this issue? Having persuaded 43 countries to sign a declaration that included a commitment to exclude corrupt bidders, did the UK have its own bold new vision to implement that commitment domestically? Unfortunately, the answer is no. Continue reading

Guest Post: What’s the Problem with Out-of-Court Settlements for Foreign Bribery? A Reply to Stephenson

GAB is delighted to welcome back Susan Hawley, policy director of Corruption Watch, for further discussion and debate regarding the proposal to create global standards for out-of-court settlements in foreign bribery cases:

Matthew Stephenson has devoted three successive blog posts (see here, here, and here) to critiquing the position that we outlined in our report, Out of Court, Out of Mind, calling for global standards for corporate settlements on corruption cases. NGOs, including we at Corruption Watch, along with Transparency International, Global Witness, and the UNCAC Coalition, outlined this position in a letter to the OECD. I am delighted that our report and the joint letter has triggered such interest and discussion. This is a hugely important debate: it cuts to the heart of how countries enforce their anticorruption laws and what constitutes effective enforcement.

We wrote our letter to the OECD and released our report precisely to stimulate this kind of debate at a time when:

  • a number of countries are looking at whether to introduce Deferred Prosecution Agreements (DPAs) and/or Non-Prosecution Agreements (NPAs) specifically to improve their track record of dealing with overseas corruption and
  • many countries in Europe appear to be choosing to resolve the few enforcement actions that they are taking through out-of-court settlements.

This post offers a riposte to Professor Stephenson’s criticisms of our case for global standard for corporate settlements in these cases. The fact that Professor Stephenson devoted three blog posts to the subject shows how meaty it is, and it won’t be possible in a single reply post to go into all of his criticisms, but this post replies to some of the most essential points. Continue reading

Against Global Standards in Corporate Settlements in Transnational Anti-Bribery Cases

A couple weeks ago, Susan Hawley, the policy director of the UK-based NGO Corruption Watch, published a provocative post on this blog calling for the adoption of “global standards for corporate settlements in foreign bribery cases.” Her post, which drew on a recent Corruption Watch report on the use (and alleged abuse) of the practice of resolving foreign bribery enforcement actions through pre-indictment diversionary settlements—mainly deferred-prosecution and non-prosecution agreements (DPAs/NPAs)—echoed similar arguments advanced in a joint letter sent by Corruption Watch, Transparency International, Global Witness, and the UNCAC Coalition to the OECD, on the occasion of last month’s Ministerial meeting on the OECD Anti-Bribery Convention.

A central concern articulated in Ms. Hawley’s post, as well as the CW report and the joint letter, is the fear that corporate settlements too often let companies off too easily–and let responsible individuals off altogether–thus undermining the deterrent effect of the laws against transnational bribery. I’m sympathetic to the concern about inadequate deterrence, but unconvinced by the suggestion that over-reliance on DPAs/NPAs is the real problem. (Indeed, I tend to think that under-use of these mechanisms in other countries, such as France, is a far greater concern.) My last post took up that set of issues. But, as I noted there, the question whether the U.S. use of settlements is (roughly) appropriate is conceptually distinct from the question whether there ought to be global standards (or guidelines) on the use of such settlements. After all, while one could object to U.S. practices and call for (different) global guidelines—as Corruption Watch does—one could also object to U.S. practices but still resist attempts to develop global guidelines. Or one could not only endorse current U.S. practices, but also call for global guidelines that similarly endorse those practices. And then there’s my position: basically sympathetic to the general U.S. approach to corporate settlements in FCPA cases, and generally skeptical of the case for global guidelines.

Having spent my last post elaborating some of the reasons for my former instinct, let me now say a bit about the reasons I’m unconvinced by the call for global guidelines on corporate settlements (or at least why I think such calls are premature): Continue reading

The Case for Corporate Settlements in Foreign Bribery Cases

Although 41 countries have signed onto the OECD Anti-Bribery Convention, the United States remains the most active enforcer—by a lot. Two salient facts about the U.S. strategy for enforcing its Foreign Corrupt Practices Act (FCPA) are often noted: Sanctions against corporations are more common than cases targeting individuals, and most of these corporate cases are resolved by settlements—often pre-indictment diversionary agreements known as deferred prosecution agreements (DPAs) and non-prosecution agreements (NPAs). Both of these facts are sometimes exaggerated a bit: According to the OECD’s most recent composite data (for enforcement actions from 1999-2014), the U.S. imposed sanctions on 58 individuals (compared to 92 corporations or other legal persons), and of those 92 legal persons sanctioned, 57 reached a settlement via a DPA or NPA (meaning that 35 of them were sanctioned through a post-indictment plea agreement or—much more rarely—a trial). Still, it’s true that the U.S. enforcement strategy makes extensive use of pre-indictment settlements with corporate defendants, and that fact has attracted its share of criticism.

While most of that criticism (at least in the FCPA context) has come from the corporate defense bar and others opposed to aggressive FCPA enforcement, the use of DPAs/NPAs has been questioned by anticorruption advocates as well. Recently, the UK-based anticorruption NGO Corruption Watch (CW) published a report entitled “Out of Court, Out of Mind: Do Deferred Prosecution Agreements and Corporate Settlements Fail To Deter Overseas Corruption”; shortly thereafter, CW, along with several other leading NGOs (Global Witness, Transparency International, and the UNCAC Coalition) sent a letter to the OECD expressing “concern that the increasing use of corporate settlements in the way they are currently implemented as the primary means for resolving foreign bribery cases may not offer ‘effective, proportionate and disuasive’ sanctions as required under the Convention,” and “urg[ing] the OECD Working Group on Bribery to develop as a matter of priority global standards for corporate settlements based on best practice.” Last week, here on GAB, CW’s policy director Susan Hawley provide a succinct summary of the case for greater skepticism of the practice of resolving foreign bribery cases through DPAs/NPAs, and the need for some sort of global standard.

I disagree. While I have the utmost respect for Corruption Watch and the other NGOs that sent the joint letter to the OECD, and I sympathize with many of their concerns, I find most of the criticisms of the DPA/NPA mechanism, particularly as deployed by U.S. authorities in FCPA cases, wide of the mark. I also remain unconvinced that there is a pressing need for “global standards” for corporate settlement practices, and indeed I think that pushing for such standards may raise a host of problems. These issues—whether DPAs/NPAs are sufficiently effective sanctions, and whether we need common global standards regulating their use—are quite different, so I will address them separately. In this post, I will respond to the main criticisms of the U.S. practice of using DPAs/NPAs to resolve FCPA cases, focusing on the concerns emphasized in the CW report. In my next post, I will turn to the question whether the OECD, the UN Convention Against Corruption, or some other international agreement or body ought to try to establish global standards regulating the use of corporate settlements.

So, what’s wrong with the analysis in the CW critique of corporate settlements? Lots of things—so many that it’s hard to know where to begin. But before turning to my criticisms, it’s worth starting out by re-stating some of the main reasons why it might make sense to resolve some anti-bribery cases via corporate settlements: Continue reading

Guest Post: Time for Global Standards on Corporate Settlements in Transnational Bribery Cases

Susan Hawley, Policy Director of Corruption Watch, a UK-based anticorruption organization, contributes the following guest post:

Earlier this month, the OECD held a Ministerial meeting on its Anti-Bribery Convention, which culminated with Ministers from 50 countries signing a Declaration that reaffirmed their commitment to fighting transnational bribery. Despite that statement of renewed commitment, however, the fact remains that only four countries out of the 41 signatories have shown any attempt at actively enforcing the Convention, and pressure is rightly mounting on countries to show they are taking some kind of action. As a result, an increasing number of countries are looking to deferred prosecution agreements (DPAs), non-prosecution agreements (NPAs), and similar forms of pre-indictment corporate settlements as a way to achieve better results. The United States—by far the most active enforcer of its law against foreign bribery—has used such agreements to produce its impressive enforcement record over the last 10 years. The OECD Foreign Bribery Report noted that 69% of foreign bribery cases have been resolved through some form of settlement since 1999. And it’s not just the US. Various European countries have used some form of out-of-court settlement procedure as a way of dealing with the few cases against companies that they have brought. The UK has recently introduced DPAs, based on the U.S. model (though with some important differences), and countries like Australia, France, Ireland, and Canada are all considering doing something similar.

Yet the widespread use of DPAs and NPAs has prompted concerns. The OECD Working Group on Bribery, in its reviews on implementation of the Convention, has sometimes questioned whether these settlements are sufficiently transparent and effective, and whether they instill public confidence. My own organization, Corruption Watch, recently produced a report on corporate settlements in foreign bribery cases, “Out of Court, Out of Mind: Do Deferred Prosecution Agreements and Corporate Settlements Fail to Deter Overseas Corruption?” that raised similar questions. Corruption Watch, along with Global Witness, Transparency International, and the UNCAC Coalition (a network of over 350 civil society organisations across the world) wrote a joint letter to the OECD Secretary General ahead of the Ministerial meeting urging the Working Group on Bribery to assess whether corporate settlements have sufficient deterrent effect, and to develop global standards for corporate settlements in foreign bribery cases.

Why the need for greater scrutiny, and the call for global standards? Several reasons:

  • First, these sorts of settlements allow culpable individuals off the hook, undermine the deterrent effect of the law by shielding companies from debarment from public contracting, and more generally fail to deter economic crime and prevent recidivism. The concern is that the fines and other penalties associated with DPAs/NPAs are just seen by firms a “cost of doing business,” rather than an impetus for meaningful change. Recent research by Karpoff, Lee, and Martin (discussed previously on this blog) suggests that in the US, which has imposed the highest fines and taken the most enforcement actions globally, detection would have to increase by 58.5% or fines increase by 9.2 times to offset the incentive to bribe. Indeed, there are signs that the U.S., despite having relied so extensively on diversionary corporate settlements, has recognized some of these weaknesses: The introduction of the Yates memo, with its emphasis on individual accountability, and the beefing up of the FBI’s resources for investigating corruption (and thus reducing the government’s reliance on corporate self-reporting), are examples of how the U.S. is taking note of the criticism of its reliance on DPAs and NPAs.
  • Second, in addition to their inadequacy for deterring foreign bribery, in many countries the negotiation of corporate settlements lacks adequate regulation or oversight.
  • Third, these corporate settlement agreements rarely provide any sort of compensation for victims of corruption.
  • Fourth, clear discrepancies are emerging about how different countries use corporate settlements to deal with foreign bribery, creating an uneven enforcement playing field.

Proponents of settlements argue that they are necessary because corruption cases are incredibly difficult and costly to investigate and prosecute; unless enforcement authorities encourage companies to come forward with evidence of their wrongdoing, the argument goes, enforcement rates will remain low and corruption will go undetected. Clearly encouraging companies, who often hold all the information required as to whether wrongdoing was committed, to report their own wrongdoing by offering some form of incentive needs to be a part of any enforcement strategy. But there are serious questions as to whether relying solely on settlements to deal with foreign bribery cases can provide real deterrence. Unless enforcement bodies beef up their ability to detect corruption and are willing to prosecute, there is little incentive for companies to report wrongdoing that they might otherwise get away with.

So what would global standards for corporate settlements look like? The NGOs’ joint letter to the OECD, referenced above, suggested 14 standards to the OECD. At the top of the agenda were the following:

  1. Settlements should be one tool in a broader enforcement strategy in which prosecution also plays an important role;
  2. Settlements should only be used where a company has genuinely self-reported, and cooperated fully;
  3. Judicial oversight which includes proper scrutiny of the evidence and a public hearing should be required;
  4. Prosecution of individuals should be standard practice;
  5. Settlements should only be used where a company is prepared to admit wrongdoing;
  6. Compensation to victims, based on the full harm caused by the corruption, must be an inherent part of a settlement.

These are high standards, but unless settlements are based on such standards, and unless they are used as part of a broader enforcement strategy which ensures that companies that don’t cooperate or self-report do get prosecuted, public confidence that justice is really being done when it comes to corporate bribery is going to be undermined.