The FCPA Blog

Holding countries publicly accountable for antibribery enforcement is a key to global compliance. Measuring performance inning by inning and posting the results on the scoreboard tells each government where it stands. And it tells the citizens of each country what their leaders are doing to fight global graft.

Last week we talked about Trace's contribution to the compliance scoreboard with its first-ever Global Enforcement Report -- a remarkable summary of "all known international anti-bribery enforcement actions since the FCPA’s passage some 33 years ago."

This week there's more good news. The OECD's Working Group on Bribery has just published enforcement data from 37 of its 38 members that measures  enforcement activity. It includes "criminal, administrative and civil cases of foreign bribery that have resulted in a final disposition, such as a criminal conviction or acquittal, or similar findings under an administrative or civil procedure." The numbers go back to 1999, the year the OECD's Antibribery Convention came into force.

The highlights: One hundred forty-eight individuals and 77 entities were sanctioned under criminal proceedings for foreign bribery in 13 Parties (member countries) between 1999 and the end of 2009. At least 40 of the sanctioned individuals were sentenced to prison. Combined fines of up to €1.24 billion have been imposed on companies sanctioned for foreign bribery. About 280 investigations are ongoing in 21 Parties to the Antibribery Convention.

The low-lights: Germany records the most acquittals in enforcement actions with 24. Japan, the world's second largest economy, reported eight enforcement actions during the 10 years from 1999, and France, the world's fifth largest economy, reported one. (Hungary, with about the world's 70th biggest economy, reported 27 enforcement actions).

The Working Group's enforcement data can be downloaded from the OECD's site here.

In a policy shift that could lead to the international arrest and trial of kleptocrats, the White House last week said it views widespread corruption as a violation of basic human rights and is working to advance that view globally.

According to the administration's May 2010 National Security Strategy, the U.S. will "promote the recognition that pervasive corruption is a violation of basic human rights and a severe impediment to development and global security." Although the prior administration linked corruption to global and national security, viewing graft as a human-rights violation is a new position.

The administration said:

Strengthening International Norms Against Corruption: We are working within the broader international system, including the U.N., G-20, Organization for Economic Cooperation and Development (OECD), and the international financial institutions, to promote the recognition that pervasive corruption is a violation of basic human rights and a severe impediment to development and global security. We will work with governments and civil society organizations to bring greater transparency and accountability to government budgets, expenditures, and the assets of public officials. And we will institutionalize transparent practices in international aid flows, international banking and tax policy, and private sector engagement around natural resources to make it harder for officials to steal and to strengthen the efforts of citizens to hold their governments accountable.

The International Criminal Court in the Hague hasn't been used against kleptocrats. The Rome Statute that created the court extends to "crimes against humanity" but no one knows if that includes graft. Commentators, academics and activists have been pressing the case that grand corruption should be internationally outlawed. This is the first formal indication that President Obama, who may be frustrated that the FCPA doesn't reach corrupt foreign officials, could be putting his weight behind the idea as well.

There's a catch. As of today, the United States isn't one of the 108 State Parties to the Rome Statute. Under the Clinton administration, the U.S. joined the 60 countries that supported the founding of the International Criminal Court. But the Bush administration reversed that policy, citing risks to national sovereignty, and never signed the Rome Statute.

Download the May 2010 National Security Strategy here.

Special thanks to an astute reader in Washington for help with this post.

Last week we wondered why there hasn't been a new FCPA enforcement action from the DOJ since Daimler's on April 1. Among our guesses were personnel changes, trial-team stresses, and strategic reviews. But here's another -- prep time for the Phase 3 Review under the OECD's Anti-Bribery Convention. 

The OECD holds members accountable by naming and shaming -- what it calls "a dynamic process of mutual evaluation and peer pressure." For each member, there's a regular cycle of public review, starting with a questionnaire, followed by an on-site visit and more written questions.

The review cycle is eight years. That last inspection of the U.S. happened in 2002. That means the OECD's group will descend on Washington again this year -- next month according to the published schedule. After eight years, including the last five in FCPA hyperdrive, the DOJ (in tandem with the SEC) has plenty to report.

The OECD's Phase 3 questionnaire is 13 pages of intense accountability -- the instructions for it are 110 pages. In 2002 -- still sleepy days for the FCPA -- the OECD's Working Group on Bribery Phase 2 evaluation report needed 53 pages for the U.S. response. This year's inspection covers the busiest stretch in FCPA history. It's easy to imagine the DOJ folks scrambling to assemble their Phase 3 deliverable by the month-end deadline. We're guessing a fulsome response could bury the FCPA team for six to eight weeks at least.

Under OECD procedures, the country being inspected is supposed to assemble expert witness panels for the examiners to speak with during the onsite visit. And to supplement the questionnaire, the OECD's lead examiners typically come up with country-specific questions that are eventually made public. It all takes work.

in 2005, the U.S. drafted its follow-up written report on its implementation of recommendations made during Phase 2. The report, authored by the U.S. government, can be found here. 

Meanwhile, there are some signs of life. The DOJ's FCPA unit doesn't typically announce international cooperation. But a few days ago a member of the Russian Duma apparently leaked news that the Justice Department had just delivered to its Russian counterpart documents concerning the Daimler investigation.

By Jeffrey M. Kaplan

In 1991, the U.S. government established a compelling and original model for promoting legal compliance by businesses. The federal sentencing guidelines applicable to organizations -- sometimes called the Corporate Sentencing Guidelines -- offered companies both strong incentives for implementing compliance and ethics (“C&E”) programs and meaningful guidance on how to do so. But until recently only a small number of other nations had followed this lead.

That changed dramatically with the recent issuance of anti-bribery compliance recommendations by an OECD working group representing 38 nations (the “Recommendation for Further Combating Bribery of Foreign Public Officials in International Business Transactions”). In U.S. Guidelines-like fashion, the Recommendation provides that “member countries should encourage . . . companies to develop and adopt adequate . . . [C&E programs] or measures for the purpose of preventing and detecting foreign bribery. . . . .”

The OECD Recommendation goes even further than the U.S. Guidelines regarding the “why” of C&E, by specifying that such countries should consider in some instances C&E programs “in their decisions to grant public advantages, including public subsidies, licences, public procurement contracts, contracts funded by official development assistance, and officially supported export credits.”

The Recommendation also offers guidance for the “how” of anti-bribery compliance. This includes, as one would anticipate, expectations concerning anti-bribery policies, training, internal controls, reporting systems, discipline for violations, compliance incentives, accountability for program management and program assessments. There is also considerable emphasis on third-party compliance measures. In fact the suggested measures resemble in many ways those from the U.S. Guidelines, recently summarized in the FCPA Blog's post Pop Quiz.

What may be of greatest interest to C&E officers and those who practice C&E law is the potential for this U.S. Guidelines-like approach to be expanded globally beyond the anti-bribery realm. This very real possibility is based on the fact that aspects of the Recommendation speak in a general (i.e., not anti-bribery specific) way to the need for C&E programs, and also on the experience of an Italian corporate criminal law being expanded beyond its original anti-corruption focus to cover areas such as insider trading compliance.

Download the OECD's Recommendation for Further Combating Bribery of Foreign Public Officials released December 9, 2009 here.

Download the OECD's Good Practice Guidance on Internal Controls, Ethics and Compliance dated February 18, 2010 here.

Download the U.S. Federal Sentencing Guidelines, Chapter 8 (Sentencing Organizations) here.

Jeffrey M. Kaplan, a partner at Kaplan & Walker LLP, has practiced in the compliance program area since 1991. He can be reached at jkaplan@kaplanwalker.com. Together with his partner Rebecca Walker, who is also a contributor to the FCPA Blog, Jeff is currently writing a chapter for the BNA/ACC Compliance Manual on Compliance with the Foreign Corrupt Practices Act.

Andy Spalding, a lawyer on a year-long Fulbright Research Grant in Mumbai, India, writes to us from time to time. Here's his latest dispatch:

Dear FCPA Blog,

I have just returned from a week in Almaty, Kazakhstan, which your readers know to be an FCPA hot spot. I tried to preach the anti-corruption message through a series of lectures at one of the law schools, and interviewed a number of local practitioners.  This experience taught two undeniable lessons:

1.  It is nearly impossible to overstate the importance of curbing corruption in Kazakhstan. Graft is endemic (the country ranked a miserable 120 on the 2009 Corruption Perception Index) and perpetuates all manner of legal and social pathologies. The citizens of Almaty are perhaps as cynical about their government as any I have ever met, and with very good reason. Worse yet, U.S. companies have participated in, and reinforced, this culture of corruption, as we all learned through watching the James Giffen case explode in 2003. But this brings me to the second lesson:

2.  The present FCPA enforcement regime has done that country tremendous harm. How did the U.S. respond to the discovery of systematic bribery by U.S. companies in Kazakhstan? The same way that we respond to nearly every such revelation: we slapped severe criminal sanctions on myriad U.S. persons and hoped that other companies would get the message. Those companies did indeed get a message; whether it is the message we want to convey is a very interesting question. Since Giffen's arrest, western investment in the oil and gas sector in Kazakhstan has dropped precipitously. This is hardly surprising, and some would argue that it is precisely the desired outcome. But consider what happened in its wake. In that same period of time, investment has gone up, just as rapidly, from a well-capitalized country that has refused to adopt the OECD Convention: China.

Query: is Kazakhstan any better off now? I can tell you that the Kazakhstanis most certainly do not think so. There is a level of apprehension there about rising Chinese investment and influence that is quite shocking. A lawyer from a leading U.S. firm said, "My clients used to all be from the west, and now they're almost all Chinese."  Another lawyer said, "The Chinese don't like to spend as much on lawyers, because they solve their legal problems through other means." Those of us in anti-corruption circles know exactly what that lawyer meant. The law students are petrified by the prospect of working for, or with, Chinese companies -- "they don't do business the same way," so many of them told me. And yet, many of these same students are taking Chinese language classes.

Will corruption go down in Kazakhstan after the Giffen case? Certainly not. Has our withdrawal of FDI from Kazakhstan somehow set that country on the road to reform? This answer is also certain.

What's the remedy? Finding a way to enforce the FCPA that deters bribery without deterring investment in developing countries like Kazakhstan. We're smart enough to figure it out. Simply washing our hands of corruption by pulling out of developing countries like Kazakhstan, leaving them to be ravaged by companies that bribe without any fear of penalty, is morally irresponsible.

Thanks,
Andy Spalding

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Readers with experiences in Kazakhstan or similar countries are welcome to comment as well.