Busting Graft For Profit

By Benjamin Kessler

Michael Hershman, left, president of The Fairfax Group, helps public and private sector clients integrate core principles of social responsibility into their everyday practices.

In a 2010 talk to law students at Pepperdine University, Hershman described an instructive experience he had at Siemens AG in the late nineties:

They asked me to come in and talk about how they could do business going forward…I met with 20 of their top executives, and I gave what I thought was a rousing lecture for two hours…At the end, I asked for questions. There were none. Of the 20 people seated around that table, half went to jail.

After the Siemens bribery scandal broke, the company appointed Hershman to assist in the creation of its anti-corruption program.

The Virginia-based Fairfax Group has a network of staff and contacts that extends to more than ninety countries.

In addition to taking a direct role in influencing public policy, Hershman believes that pressure from for-profit institutions can be crucial to defeating corruption. He said,

Corporations are better positioned to deal with corruption than governments, particularly publicly listed multinationals. They have lots of checks and balances that should prevent corruption. When we bring multinationals together with other private sector companies to work in collaboration, we can start putting pressure on governments to help lower their risk of corruption.

Hershman’s CV includes work as a counterterrorism agent with U.S. Military Intelligence in the late 1960s, as well as a senior staff investigator for the Senate Watergate Committee. Immediately prior to founding The Fairfax Group in 1983, Hershman served as deputy auditor general for the Foreign Assistance Program of the U.S. Agency for International Development (AID).

His public-sector work continues today. In 2011, he traveled to Malaysia four times to supervise the implementation of groundbreaking initiatives such as an online database of corruption offenders and new whistleblower-protection legislation.

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Benjamin Kessler is an editor and writer for Ethics 360. He can be contacted here.

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This post is part of our series profiling global compliance leaders. Most appear on our sponsor Ethisphere’s annual list of the 100 Most Influential People in Business Ethics.

POTUS Walks ASEAN's Mean Streets

President Obama meets tomorrow on Bali, Indonesia with the heads of state from ASEAN -- the Association of Southeast Asian Nations.

ASEAN hasn't been effective in spreading free trade and investment across the region. A big obstacle is corruption. Although the group includes Singapore, ranked as the least corrupt country in the world on the CPI, it also includes some of the planet's most corrupt nations.

Even with Singapore, the average CPI rank for ASEAN's ten members is 101, dragged down by Cambodia (154), Laos (154), and Myanmar (176), which managed to beat only Somalia. 

On the President's agenda in Bali will be 'improving economic integration and addressing security challenges in the region.' Both start with fighting corruption.

Here are the ASEAN countries in order of their CPI ranking:

Singapore (1)

Brunei  (38)

Malaysia (56)

Thailand (78)

Indonesia (110)

Vietnam (116)

Philippines (134)

Cambodia (154)

Laos (154)

Myanmar (176)

In Carson Case, DOJ Agrees 'Foreign Official' Knowledge Is Required

Does a defendant need to know a bribe taker is a 'foreign official' to be guilty of an FCPA offense?

According to the DOJ, the answer is 'yes.'

The question came up this month in U.S. v. Carson et al.

Prosecutors and the defendants have been trying to work out jury instructions for the trial, set to start in June next year.

In May, the defendants lost a motion to dismiss the FCPA counts against them based on the definition of 'foreign official.' They claimed employees of state-owned enterprises aren't covered by the FCPA. The court disagreed.

But this month the arguments about 'foreign officials' resurfaced. This time in the discussion about jury instructions. Judge James V. Selna asked both parties to consider whether an element of an FCPA offense is a defendant's knowledge that the individual allegedly taking a bribe is a 'foreign official.'

The DOJ and the Carson defendants have both answered 'yes.'

They haven't agreed yet on the final language for the jury instructions.

The trial is set to begin on June 5, 2012. The defendants -- Stuart Carson, Hong Carson, Paul Cosgrove, David Edmonds, Flavio Ricotti, and Han Yong Kim -- are facing FCPA and Travel Act-related charges.

They're accused of bribing employees at state-owned companies in Korea, China, the UAE, and Malaysia.

The case is US v. Carson et al, U.S. District Court, Central District of California, Southern Division - Santa Ana, Case #: 8:09-cr-00077-JVS-1.

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Here's part of the government's latest brief, filed Monday:

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At the hearing on September 6, 2011, the government requested an opportunity to submit further briefing on the following hypothetical question posed by the Court:

THE COURT: I want to get the business, and I’m going to pay you $50,000. I want you to misuse your position. I may or may not know that you’re a government official. But assume the record establishes that the person is a foreign official and that the conduct solicited, whether he knows it or not, is misuse of an official position. He intended to make the bribe, and his conduct brought about misuse of an official position. Must he know that? Must he know that the individual is in fact a government official?

The Court subsequently ordered the government to submit its brief no later than September 20, 2011, with any defense response to be filed no later than October 4, 2011. On September 21, 2011, the parties filed a stipulation stating, in part, as follows:

Since the hearing, counsel for the government and counsel for the Defendants have discussed the issue raised by the Court. Those discussions have yielded what appears to be at least some consensus that the answer to the questions posed by the Court is “yes.” Accordingly, the parties have exchanged proposed jury instructions to reflect the resolution of this issue. The parties expect that their discussions will result in a joint proposed jury instruction on the elements of a substantive offense under the FCPA. If those discussions do not result in a joint proposed jury instruction, the parties expect that additional submissions will be limited to their respective proposed instructions, and any legal argument explaining how their respective instructions in fact differ.

On September 22, 2011, the Court issued an Order resetting the briefing schedule, with the government’s brief due on September 26, 2011, and the defendants’ brief due on October 10, 2011. The parties have continued to exchange proposed instructions over the course of the past week but have been unable to reach agreement on certain language in elements 4 and 5 of the instruction.

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Download the government's September 26, 2011 supplemental brief regarding jury instructions; memorandum of points and authorities here.

We'll Walk, Thanks

Travelers beware.

Before hailing a cab in Kuala Lumpur, consider this:

"Taxi drivers have been made the 'eyes and ears' of the Malaysian Anti-Corruption Commission (MACC) to help curb corruption," a local press report said.

Foreigners are among the targets, according to Nazri Aziz of the prime minister's office. He was speaking at this week's launch of the Fighting Corruption Through Taxi Drivers campaign.

"Taxi drivers . . .  can get a lot of information from their passengers," Nazri said.

What should cabbies do when they hear incriminating talk?

“For example, if they suspect some of their passengers may be involved in graft activities, then they should immediately take the passengers to any MACC office and lodge a report,” Nazri said.

The italics are ours.

Whether the cabbies will earn rewards and bounties is still under discussion, the Malaysian anti-corruption agency said.

U.K. Arrest In Securency Case

The Guardian today reported the  arrest of a British businessman who allegedly paid for the son of a Vietnamese state bank governor to attend Durham University in the U.K. in exchange for a banknote printing deal.

Bill Lowther, a 71-year-old businessman knighted in Britain and Belgium, was charged by the Serious Fraud Office on September 8.

The SFO hasn't mentioned the arrest. It usually posts news releases on its website on the day arrests are made in major corruption cases.

"The SFO and Australian police," the Guardian said, "allege that the Securency executives bribed Le Duc Thuy, the then bank governor, to induce him to award the firm a contract to print Vietnam's currency in 2003."

The Guardian said it located the official's son in Hanoi this summer. "He denied his education was funded through corrupt payments and said both the fees for his studying and his living costs while at Durham, totalling more than £10,000, were paid by his family," the Guardian said.

Securency, the polymer banknote-maker half owned by the Reserve Bank of Australia, is under investigation in Australia and the U.K. Seven executives from the firm were arrested this year by Australian police for bribing officials in Vietnam, Malaysia, and Indonesia.

Lowther, the first person to be charged in the U.K in the growing scandal, will appear at the City of Westminster magistrates court in London on September 20.

Rob Evans was one of the reporters on the story for the Guardian. He broke the BAE bribery scandal.