Tag Archives: United States

Compensating Corruption Victims: American Law on Bribery Damages

Posted on by
Reply

Parties to the UN Convention Against Corruption pledge in article 53 to “pay compensation or damages to another State Party that has been harmed” by an act of corruption, but nowhere does the convention say who it is that is harmed by corruption or how compensation is to be calculated.  In a submission to the 2015 meeting of convention parties, the UNCAC Coalition, an global network of civil society organizations, argued that the absence of guidance is “one of the main obstacles to the award of damages to victim countries” and urged the publication of “best practice examples with respect to the identification, quantification and reparation of the damage caused by corruption” as step in developing the needed guidance.

This writer recently summarized how American courts deal with compensation issues when the corrupt act is the payment of a bribe.  Written for the Open Society Foundations’ Justice Initiative, the paper explains that under both federal and state law individuals, businesses, and even foreign governments can recover damages for injuries sustained as a result of bribery and that with passage of the Foreign Corrupt Practices Act the number of cases has exploded.  Not all claimants have been successful of course.  In some actions their damages were too remote (not proximately caused in legal language); in others claimants failed to show how the bribery injured them, and in some cases foreign governments were denied recovery because their officials were so deeply involved in the bribery scheme that the government did not qualify as a victim under U.S. law.  But other claimants have enjoyed significant success — realizing in some instances awards in the tens of millions of dollars.

Whether American law is a “best practice example” of the kind the UNCAC Coalition had in mind I don’t know.  But it is an example, and one, given the creativity of American lawyers (spurred by the chance for a lucrative fee), that provides those thinking about victim compensation for corruption a rich vein of case law to explore.

The paper is the fifth in a series of papers commissioned by the Open Society Justice Initiative on civil society and anticorruption litigation.  It follows earlier ones on standing by GAB editor-in-chief Matthew Stephenson, on civil society litigation in India by Vidhi Centre for Legal Policy Director Arghya Sengupta, on private suits for defrauding government by Houston Law School Professor David Kwok, and private prosecution by Tamlyn Edmonds and David Jugnarain.

 

London Anticorruption Summit–Country Commitment Scorecard, Part 2

Posted on by
2

This post is the second half of my attempt to summarize the commitments (or lack thereof) in the country statements of the 41 countries that attended last week’s London Anticorruption Summit, in four areas highlighted by the Summit’s final Communique:

  1. Increasing access to information on the true beneficial owners of companies, and possibly other legal entities, perhaps through central registers;
  2. Increasing transparency in public procurement;
  3. Strengthening the independence and capacity of national audit institutions, and publicizing audit results (and, more generally, increasing fiscal transparency in other ways); and
  4. Encouraging whistleblowers, strengthening their protection from various forms or retaliation, and developing systems to ensure that law enforcement takes prompt action in response to whistleblower complaints.

These are not the only subjects covered by the Communique and discussed in the country statements. (Other topics include improving asset recovery mechanisms, facilitating more international cooperation and information sharing, joining new initiatives to fight corruption in sports, improving transparency in the extractive sector through initiatives like the Extractive Industries Transparency Initiative, additional measures to fight tax evasion, and several others.) I chose these four partly because they seemed to me of particular importance, and partly because the Communique’s discussion of these four areas seemed particularly focused on prompting substantive legal changes, rather than general improvements in existing mechanisms.

Plenty of others have already provided useful comprehensive assessments of what the country commitments did and did not achieve. My hope is that presenting the results of the rather tedious exercise of going through each country statement one by one for the language on these four issues, and presenting the results in summary form, will be helpful to others out there who want to try to get a sense of how the individual country commitments do or don’t match up against the recommendations in the Communique. My last post covered Afghanistan–Malta; today’s post covers the remaining country statements, Mexico–United States: Continue reading →

Is it Legal in the U.S. To Buy Delegate Votes at Party Nominating Conventions?

Posted on by
4

As bizarre as the U.S. presidential campaign has been so far, it may get even more so this summer. There is a chance (although maybe not a probability) that the Republican Party will have its first contested convention since 1976. If no candidate has a majority of delegates on the first ballot, then many “bound delegates” can switch their vote to any candidate for the nomination (here is a brief primer on how a contested convention might work). If that happens, might some candidates (or, more likely, their surrogates) actually try to buy delegates’ votes—offering them cash or other crude material inducements in exchange for support? Donald Trump recently told a friend—apparently (and hopefully) in jest—he would “buy the delegates” if he did not obtain a majority in the primaries.

Such conduct would certainly be corrupt in the traditional sense. Believe it or not, however, such vote buying might not be against the law. Buying votes in a federal election is certainly illegal. But, as a recent Bloomberg article explained, “There is nothing in the [Republican National Committee]’s rules that prohibits delegates from cutting a deal for their votes, and lawyers say it is unlikely that federal anti-corruption laws would apply to convention horse-trading. (It is not clear that even explicitly selling one’s vote for cash would be illegal.)” Similarly, when respected former Republican National Committee counsel Ben Ginsberg was recently asked whether an unbound delegate to the convention could legally accept a suitcase full of cash in exchange for a vote for a candidate for the nomination, Ginsberg replied, “That is a great legal question that I’m not sure there’s an answer [to]. It’s not official [] action.” (Ginsberg did, however, emphasize that most lawyers “would not want to be defending somebody who just took a suitcase of cash for a vote at a convention.”)

So while outright vote buying at a contested convention is not exactly likely, it’s a serious enough concern to make it worthwhile to assess the risks, the current law that might apply, and the steps that Congress and the political parties can take to do something about this concern. Continue reading →

Claims Against Petrobras Highlight Prospects for Shareholder Enforcement in US Courts

Posted on by
7

The fallout continues from the ongoing investigation of corruption at Petrobras, Brazil’s giant state-owned oil company. (See New York Times coverage here, and helpful timelines of the scandal here and here.) In March of 2014, Brazilian prosecutors alleged that Petrobras leadership colluded with a cartel of construction companies in order to overcharge Petrobras for everything from building pipelines to servicing oil rigs. Senior Petrobras executives who facilitated the price-fixing rewarded themselves, the cartel, and public officials with kickbacks, and concealed the scheme through false financial reporting and money laundering. The scandal has exacted a significant human toll: workers and local economies that relied on Petrobras contracts have watched business collapse: several major construction projects are suspended, and over 200 companies have lost their lines of credit. One economist predicted unemployment may rise 1.5% as a direct result of the scandal.

The enormous scale of the corruption scheme reaches into Brazil’s political and business elite. The CEO of Petrobras has resigned. As of last August, “117 indictments have been issued, five politicians have been arrested, and criminal cases have been brought against 13 companies.” In recent months, the national Congress has initiated impeachment proceedings against President Dilma Rousseff, who was chairwoman of Petrobras for part of the time the price-fixing was allegedly underway. And last month, federal investigators even received approval from the Brazilian Supreme Court to detain former President Luiz Inácio Lula da Silva for questioning. (Lula was President from 2003 to 2010—during the same period of time that Ms. Rousseff was chairwoman of Petrobras.) Meanwhile, the House Speaker leading calls for President Rousseff’s impeachment has himself been charged with accepting up to $40 million in bribes.

As Brazilian prosecutors continue their own investigations, another enforcement process is underway in the United States. Shareholders who hold Petrobras stock are beginning to file “derivative suits,” through which shareholders can sue a company’s directors and officers for breaching their fiduciary duties to that company. Thus far, hundreds of Petrobras investors have filed suits. In one of the most prominent examples, In Re Petrobras Securities Litigation, a group of shareholders allege that Petrobras issued “materially false and misleading” financial statements, as well as “false and misleading statements regarding the integrity of its management and the effectiveness of its financial controls.” (For example, before the scandal broke, Petrobras publicly praised its Code of Ethics and corruption prevention program.) The claimants allege that as a result of the price-fixing and cover-up, the price of Petrobras common stock fell by approximately 80%. In another case, WGI Emerging Markets Fund, LLC et al v. Petroleo, the investment fund managing the Bill & Melinda Gates Foundation has alleged that the failure of Petrobras to adhere to U.S. federal securities law resulted in misleading shareholders and overstating the value of the company by $17 billion. As a result, the plaintiffs claim they “lost tens of millions on their Petrobras investments.”

Thus, in addition to any civil or criminal charges brought by public prosecutors, private derivative suits offer a way for ordinary shareholders to hold company leadership accountable for its misconduct. In these derivative suits, any damages would be paid back to the company as compensation for mismanagement; the main purpose of the suits is not to secure a payout for shareholders, but to protect the company from bad leadership. The Petrobras cases illustrate how derivative suits can offer a valuable mechanism for anticorruption enforcement, but they also face a number of practical challenges.

Continue reading →

Fighting Corruption in Central America: Suggestions for Improving the CICIG Model

Posted on by
2

There has been a great deal of optimism surrounding Guatemala’s International Commission Against Impunity (CICIG) in recent months. This UN-sponsored body, in existence since 2006, played a key role in exposing a massive customs fraud scheme that implicated the nation’s president and vice president. Both leaders are currently awaiting trial in Guatemala following their resignations and arrests. Following talk, including on this blog, about the merits of instituting CICIG-like bodies in other Central American nations, a Honduran version of CICIG is now set to become operational in 2016. As I discussed in a previous post, CICIG’s counterparts in Honduras and El Salvador are less robust (as currently formulated) than CICIG, though ultimately their effectiveness will depend on the strength of their leadership.

Yet notwithstanding CICIG’s recent high-profile successes, there are some important weaknesses in the CICIG model–weaknesses that reformers should consider and address before CICIG-like structures can be fully embraced as the solution to corruption and impunity in Central America. Key areas for improvement include the following: Continue reading →

Do Corrupt Politicians Deserve a Second Chance?

Posted on by
12

In 2003, Joe Ganim left his fifth term as mayor of Bridgeport, Connecticut in disgrace. A federal jury convicted Ganim on sixteen corruption charges, including racketeering, extortion, bribery, and mail fraud, and he served seven years in prison. Yet five years after his release, Ganim is poised to become mayor again, having won the Democratic Party primary (in overwhelmingly Democratic Bridgeport)—defying the predictions of those who thought his corruption sentence would make a political comeback all but impossible. Yet if Bridgeport were located just across the Connecticut border, in neighboring New York, Joe Ganim would not be allowed to run, because New York—along with several other states such as Mississippi, South Carolina, and Virginia—has a disqualification law. Such laws prevent officials who have been convicted of corruption-related crimes from running for elected office, for periods ranging from several years to life (depending on the state). We see something like this approach in many other countries as well, though different countries have adopted varied approaches to the question of whether people convicted of crimes – corruption-related or not – can run for office. In Brazil, politicians convicted of certain enumerated crimes, including corruption-related offenses, are barred for eight years pursuant to a 2009 bill (which had been championed by civil society groups). In Canada, those convicted for corrupt acts must wait seven years from the date of conviction before they can run for the House of Commons (the limit for those convicted of other crimes is five years). In France, courts have the discretion to impose, as part of criminal conviction, a period of up to ten years during which the defendant may not vote or run for public office. Other countries, like Denmark and Finland, leaves the matter up to the parliament, which can vote to disqualify someone convicted of an offense showing untrustworthiness or unfitness for public office.

Are disqualification rules of this sort a good idea? Would it be better if Connecticut had a law like New York’s, which would prevent someone like Joe Ganim from running for life? Should other democracies that suffer from widespread public corruption follow the example of countries like Brazil, which have adopted these sorts of disqualification laws? This solution is indeed a tempting one. After all, the Bridgeport race—and numerous elections elsewhere—show that voters will not always prevent those convicted of serious corruption offenses from seeking and winning public office. Yet the experience of countries that have adopted statutory disqualification signals reasons for caution. Although one must be careful about overly broad generalizations, given the extent of variation in government structure and political culture, disqualification laws raise serious risks, and may not be necessary. Continue reading →

Why International Double Jeopardy Is a Bad Idea

Posted on by
7

In a recent post, I argued that U.S. authorities investigating British pharma giant GlaxoSmithKline (“GSK”) should consider criminally prosecuting GSK but partially offsetting any attendant penalty in light of the $490 million fine already imposed by China. This option is only available to the DOJ, though, because it stands on one side of a crucial divide in the global anticorruption regime: the U.S. — unlike Canada, the U.K., and the European Union — does not recognize an international variant of ne bis in idem (“not twice for the same thing”) (also known as “international double jeopardy”).

Recognizing an international double jeopardy bar can have a dramatic impact on a country’s capacity to combat international corruption. For countries like the U.K., being second-in-line to target an instance of transnational bribery often means not being able to prosecute the conduct at all. (For example, in 2011, the U.K. had to forego criminal sanctions against DePuy International because the U.S. had already prosecuted the British subsidiary.) In recent years, though, a spike in the number of parallel and successive international prosecutions has inspired a small but growing chorus of commentators calling for countries like the U.S. to formally embrace international double jeopardy.

To these commentators’ credit, many of their arguments sound in basic notions of fairness: you shouldn’t punish someone twice for the same crime. But before we jump on the double jeopardy bandwagon, I want to spend a few minutes explaining why, when it comes to the global fight against transnational bribery, double jeopardy probably isn’t all it’s cracked up to be.

Continue reading →

Prosecuting GSK: How to Deal with Being Second in Line

Posted on by
6

As followers of the anticorruption blogosphere know, China recently fined British pharmaceutical giant GlaxoSmithKline (“GSK”) $490 million for bribing Chinese doctors and hospital administrators. There is no need rehash here what many others have already said: this case is likely a watershed moment marking China’s emergence as a force in the global fight against corruption.

But there is another aspect of the story that has gone unnoticed: With rare exceptions, the U.S. Government’s corporate FCPA settlements have either preceded any foreign enforcement action (e.g., Total) or been announced as part of a coordinated global settlement (e.g., Siemens). But China’s prosecution of GSK has put U.S. regulators in a relatively unfamiliar position: that of the second mover. And in doing so, China has forced the Department of Justice to confront a difficult question: Should it care that China has already fined GSK for the same conduct that DOJ is investigating.

Continue reading →

Policing Private Parties: How to Get Kleptocrats’ Seized Assets to their Citizens

Posted on by
7

As Rick has pointed out, it is exciting to see the successful forfeiture of U.S.-based assets owned by sitting Vice President of Equatorial Guinea, kleptocrat and international playboy Teodoro Nguema Obiang Mangue (“Obiang”). The Department of Justice estimates that the assets are worth an estimated $30 million. Also encouraging is the fact that the bulk of the settlement funds will be returned to the people of Equatorial Guinea. This is the first case in which the assets of a current leader’s cronies will be seized and repatriated to the country of origin by the U.S. Disbursing millions of dollars transparently in country that ranks 163/177 on Transparency International’s Corruption Perception Index will be challenging.

In stolen asset repatriation cases, the debate over disbursement typically boils down to whether to channel reclaimed cash through the government or through private actors. In Equatorial Guinea, returning the money directly to the government is a non-starter: the Obiang family has an extensive record of human rights and corruption abuses and a tight grip on power. The DOJ settlement accordingly cuts the government and its henchmen out of the forfeiture proceeds and channels repatriated funds through a private charity. But simply relying on private actors will not eliminate corruption challenges; there are pitfalls in channeling aid through private NGOs as well.

The DOJ should keep the following risks in mind as works out a disbursement plan for the Obiang settlement funds: Continue reading →

Linking Anticorruption to Human Rights Accountability

Posted on by
Reply

Corruption and human rights are closely related. Vulnerable groups–including the poor, minorities, women, children, and people with disabilities–are most likely to suffer the effects of corruption, which can compromise their access to basic services, health, and education. Anticorruption efforts can threaten human rights—whistleblowers, journalists, and other anticorruption defenders are often at risk of retaliation in the form of imprisonment, threats, violence, or death.  And countries where corruption is pervasive consistently demonstrate less commitment to the protection of human rights: Of the 15 countries with the lowest scores on Transparency International’s Corruption Perceptions Index of 2013, seven have the worst Freedom House ratings for political rights and civil liberties.

Continue reading →