Beyond Balance IV: New Players, Same Playing Field

By Andy Spalding

Serendipity is a wonderful thing. What better segue from my last posting than Wednesday's announcement that Russia has signed the OECD Anti-Bribery Convention. This is a remarkable and important event. I hope we fully understand why.

When the U.S. enacted the FCPA in 1977, it was the only law of its kind in the world. And we were by and large comfortable at the time in our assumed role as the lone ranger of international commercial bribery. When the question arose in congressional debates of whether the statute would put U.S. businesses at a competitive disadvantage, many testified that it would not. Why? Because, they said, when U.S. companies do business overseas, they are only competing against other U.S. companies. We were, or so we then thought, the only game in town.

How quaint that notion now seems. And indeed, within ten years we would come to see that the U.S. had ceased to be monolithic in international business. In 1988, Congress specifically instructed the President to lobby the world’s other capital-exporting nations to adopt similar laws. We would achieve historic success in 1997 in the form of the OECD Convention. And as my prior post explained, we thought at the time that the OECD encompassed all the major players in international business: the U.S., the U.K., Germany, France, Japan.

And now that notion, too, seems quaint. Just as the global business world was once U.S.-dominated, so too was that world once OECD-dominated. But no more. A prominent Asian anti-corruption activist once described the OECD to me as a “wealthy nations club.” How many of the BRICs are full members? Answer:  none.

All the more important, then, that we bring non-member nations within the anti-bribery fold. But why is it important? We have historically spoken of “leveling the playing field,” but this metaphor is deeply business-centric. If multinational corporations are the players in this supposed game, what then are the countries in which they do business? The spectators? Or the turf?

Indeed, what the business community sees as a “competitive disadvantage” is, from the perspective of a developing country, something altogether more harmful. When companies subject to FCPA jurisdiction lose business they are out-competed, and thus displaced, by companies that are not subject to anti-bribery laws. These companies pay bribes and engage in other socially destructive forms of business conduct without fear of penalty. When companies subject to the FCPA are rendered unable to do business, we leave developing countries to be ravaged by foreign competitors whose own governments don’t much care.

But we should care; those who fought so hard to enact the FCPA in 1977, and to amend it in 1998, most certainly did. And if we do indeed care, what does it mean for FCPA reforms? We’ll go there next.

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Andy Spalding teaches international business law at the Chicago-Kent College of Law; effective June 1, he’ll be an Assistant Professor at the University of Richmond School of Law. A former Fulbright Senior Research Scholar and lawyer at a major international firm, he has lectured and conducted research on anti-corruption law throughout the developing world. He can be contacted here.

We're grateful to Professor Spalding for allowing us to serialize 'Beyond Balance.'

Beyond Balance I can be viewed here, Beyond Balance II here, and Beyond Balance III here.

Russia Signs OECD Anti Bribery Convention

Russian President Dmitry Medvedev, left, on Wednesday signed the Anti-Bribery Convention of the Organization for Economic Co-operation and Development (OECD).

The convention requires signatories to criminalize overseas bribery by their citizens and impose punishment for violations. It also requires cooperation among members to prosecute graft.

Signing the 1997 convention is a prerequisite for joining the OECD. Russia has applied for membership. Non-OECD members can also sign the convention.

China hasn't yet joined the convention but is also seeking OECD membership.

According to a report from RIA Novosti, Transparency International Russia lobbied the Kremlin for twelve years to sign the convention. The report said blogger and whistleblower Alexei Navalny also pushed for the action.

OECD members are: Australia, Austria, Belgium, Canada, Chile, Czech Republic, Denmark, Estonia, Finland, France, Germany, Great Britain, Greece, Hungary, Iceland, Ireland, Israel, Italy, Japan, Luxembourg, Mexico, the Netherlands, New Zealand, Norway, Poland, Portugal, the Republic of Korea, Slovakia, Slovenia, Spain, Switzerland, Sweden, Turkey, and the United States.

Non-member signatories to the OECD anti bribery convention are Argentina, Brazil, Bulgaria, and South Africa.

The OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions can be downloaded here.

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The Russian President's office issued this statement on February 1:

Dmitry Medvedev signed Federal Law On Russia’s Accession to the Convention on Combating Bribery of Foreign Public Officials in International Business Transactions.

The Organisation for Economic Cooperation and Development (OECD) adopted the convention on November 21, 1997.

The convention is an effective instrument of combat against corruption implemented by the signatory countries through the UN, G8, Council of Europe, APEC, IMF, World Bank, and other international organisations.

By joining the convention, Russia will facilitate efforts in international cooperation on combating bribery of foreign public officials, and also fulfil one of the conditions for joining the OECD.

Implementing the federal law on joining the convention will require up to 100,000 euros in additional federal budget funding, to finance Russia’s contribution for participation in the OECD Working Group. This money will be paid as part of the yearly budget funds allocated to the Russian Foreign Ministry.  

The bodies vested with powers regarding the convention will be defined by presidential executive order.

Anti-Corruption Benchmarking Report As A Self-Assessment Tool

By Jeffrey M. Kaplan

U.S. enforcement officials – including the Attorney General himself – have stressed the importance of self-assessments to achieving anti-corruption compliance program efficacy. Such assessments are also an important part of anti-corruption compliance program standards issued by the UK Ministry of Justice and the OECD anti-bribery working group.  

For a variety of reasons, such assessments should – where reasonably possible – be conducted by an independent expert in anti-corruption compliance programs. But for some companies, this optimal approach may not be practical.

The report based on the anti-corruption compliance program benchmarking survey that Rebecca Walker and I conducted earlier this year with the FCPA Blog can be helpful to organizations seeking to use only internal resources to assess their compliance efforts. Specifically, companies can:

• Use the report to see what best practices relating to a wide range of anti-corruption compliance measures are.

• For areas where they do not apply a best-practices approach, ask themselves: Given the nature of my organization’s anti-corruption risks, can I persuasively explain/defend the approach that we do have.

• For areas where the answer to this question is “Yes,” document the basis for the finding.

• For areas where the answer to this question is “No,” develop and document appropriate improvement plans.

• Report on the initial process/results to senior management and the board of directors (or appropriate committee thereof), and periodically report back on a) progress in implementing improvement plans, and b) any changes to the company’s risk profile that  should impact the initial findings.

For more information about the Anti-Corruption Compliance Program Benchmarking report, please click here.

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Jeffrey M. Kaplan, a partner in the Princeton, New Jersey office of Kaplan & Walker LLP, has practiced in the compliance law field since the early 1990’s. He serves as Adjunct Professor of Business Ethics at NYU’s Stern School of Business. He can be contacted here.

Breuer Defends The FCPA, As Is

Associate Attorney General Lanny Breuer, left, defended the FCPA today and argued that now is not the time to water it down.

In remarks to the National Conference on the Foreign Corrupt Practices Act in Washington, D.C., he said amending the statute now, as proposed by the Chamber of Commerce and others, would send exactly the wrong message to the rest of the world.

He said,

Particularly since it has become increasingly clear over the past year that the trend across the globe is toward criminalization of foreign bribery.  The U.K. Bribery Act took effect in July.  Russia recently passed an anti-bribery law; has ratified the U.N. Convention against Corruption; and is expected soon to accede to the OECD Anti-Bribery Convention. China, too, recently passed an anti-bribery law and is an observer at the OECD’s Working Group on Bribery.

Breuer admitted that other countries are still far behind in enforcement. 'A stark reminder that the road ahead is long is that, in a report released last week, China and Russia ranked 27th and 28th, respectively, out of 28 countries on Transparency International’s 2011 Bribe Payers Index.'

But, he said, it took decades for the FCPA to become a strong an enforcement tool. 'Having come this far on what I believe is a noble journey, we cannot, and should not, start going backwards. On the contrary, the United States must continue leading the charge against transnational bribery.'

The DOJ has considered suggestions about FCPA enforcement, he said, meeting business leaders at roundtables organized by the Department of Commerce, 'during which industry representatives expressed their views on a wide range of issues related to the FCPA.'

Next year, the DOJ expects to release detailed new guidance on FCPA enforcement. Breuer hopes it will be 'a useful and transparent aid.'

And in response to the OECD’s Phase 3 Review of FCPA enforcement, Breuer said the DOJ is reworking the lay person’s guide to the FCPA (here in pdf) and 'consolidating within it much of the information that is already available from the DOJ's FCPA site.

9/11 And The FCPA

What happened that day a decade ago changed the way the world looks at corruption.

The tracks of the 9/11 perpetrators and those who helped them led back to corrupt third-world countries -- Afghanistan, Sudan, Somalia, Yemen, and others. Those regimes had leaky borders, weak passport control, unreliable law enforcement agencies, poor anti-money laundering programs -- just what the bad guys needed.

That led then President George W. Bush to ramp up enforcement. He signed into law Presidential Proclamation 7750. It protects democratic institutions and national security by banning from the U.S. foreign kleptocrats and their family members and friends involved with corruption or benefitting from it.

The policy review had taken a few years -- it was August 2004 when Proclamation 7750 became law.

Around the same time, FCPA enforcement went into high gear. As the Wall Street Journal said a week ago, the DOJ brought 24 enforcement actions in 2010, up from five in 2004. Penalties increased from about $11 million in 2004 to nearly $2 billion in fiscal 2009 and 2010 combined.

What now? There's no turning back.

The Obama Administration's emphasis on enforcement in its May 2010 National Security Strategy can be traced straight back to 9/11. Other parts of the government -- the State Department, the IRS, Homeland Security, Immigration and Customs Enforcement -- have responded with their own anti-graft initiatives, either alone or with inter-agency task forces headed by the DOJ.

The Western democracies and developed economies now understand the risks. That's partly why Britain adopted the Bribery Act, why Canada is now enforcing its anti-corruption law, and why the OECD is pushing everyone else to get on board.

What happened on 9/11 taught that public corruption isn't a local problem but a global threat. In the years since, countries have finally started working together to fight cross-border graft. The DOJ has mentioned cooperative agencies in the U.K., Germany, France, Haiti, and Costa Rica, among others.

Welcome to the post-9/11 world.