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Selva Ozelli: Why are heads of state facing more enforcement actions?

During the first calendar quarter of 2018, there was a dramatic increase in enforcement actions globally involving allegations of bribery against heads of state. What's behind the increase?

A report from TRACE International last month showed that 30 countries conducted 266 bribery investigations of foreign officials, while 82 countries conducted 218 bribery investigations of domestic officials.

During the first quarter of 2018, the number of countries pursuing enforcement actions against heads of state -- defined narrower than government officials in the Trace report -- was 27, and the actual enforcement actions against heads of state stood at 34.

This is a 283 percent increase from 12 cases brought during 2017 and a 213 percent increase from the record-setting 16 cases brought in each of 2009 and 2011. 

From 1977 when the FCPA was enacted to 2017 -- 23 countries pursued 349 bribery enforcement actions against foreign officials, with the United States bringing 236 enforcement actions (68 percent), according to the Trace Report.  

There are three likely factors behind the dramatic increase during Q1 2018 of non-U.S. enforcement actions with allegations of bribery against heads of state. First is the wide-spread adoption in 2017 of the Organization for Economic Cooperation and Development's Tax Transparency Rules. Next is the information that became publicly available via the Panama Papers. And third is the increased international cooperation in worldwide corruption investigations.

Let's look at each factor.

OECD’s Tax Transparency Rules. Twenty of 26 (78 percent) of non-U.S. countries now adhere to the OECD's 15-point action plan to combat base erosion and profit shifting. And and 10 of the 26 (38 percent) Non-U.S. countries adhere to OECD’s common reporting standards.

During 2017, multinational companies for the first time began adhering to country-by-country reporting requirements as well as beneficial ownership disclosure rules. At the same time, many countries adhering to the OECD’s common reporting standards began exchanging non-resident financial account information with the tax authorities.  

And beginning January 1, 2018, EU member states established interconnected registries to record details of the beneficial ownership of companies and trusts. 

Panama Papers Investigation. Another factor for the increase in enforcement actions against heads of state was the corruption investigations of domestic officials in Saudi Arabia and Pakistan, which accounted for 17 of 34 (50 precent) of the increase during Q1.  Given that neither country adheres to the OECD’s common reporting standards, the increase in enforcement actions in those countries might be attributable to information provided in the Panama Papers.

International Cooperation. International cooperation continues to be a hallmark of corruption enforcement worldwide. For example, Brazil’s Operação Lava Jato (Operation Car Wash) corruption investigation involves the heads of states of Brazil, Peru, Guatemala, Ecuador, Mexico, Venezuela, Colombia and Panama. During Q1 2018, Car Wash contributed 5 out of 34 (15 percent) non-U.S. enforcement actions and 4 of 7 (57 percent) non-U.S. corruption investigations.


Selva Ozelli, Esq., CPA, pictured above, is an international tax attorney and CPA who frequently writes about tax, legal and accounting issues for Tax Notes, Bloomberg BNA, other publications and the OECD.