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Entries in Trace International (21)


With Compliance, More Isn't Always Better

Alexandra Wrage is the founder and president of TRACE International, a non-profit anti-corruption organization.

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The Compliance Professionals

TRACE said this week it's starting a certification program for antibribery speacialists.

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The Compliance World Series

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.


Global Enforcement's Bad Math

American business people have always been troubled by the Foreign Corrupt Practices Act. It's not that they want to pay bribes overseas. They don't. But they also don't want companies from other countries paying bribes to win work.

The U.S. government agrees. For more than three decades, the feds -- led by the DOJ and the Commerce Department -- have been working hard to spread the anti-corruption enforcement message. Despite their efforts, the level playing field remains a distant dream.

Just how distant was made clear last week. Trace International released its first Global Enforcement Report (GER). It's a remarkable summary of "all known international anti-bribery enforcement actions since the FCPA’s passage some 33 years ago." And although it shows the U.S. isn't alone in the battle against graft, our few allies are a long, long way behind.

Of 515 outbound, or foreign, enforcement actions recorded by Trace, more than 75 percent are U.S. matters. The remaining 25 percent are the result of the combined efforts of 21 other nations. The United Kingdom ranks a distant second in the number of outbound bribery cases with 4.3 percent of the total.

Trace, with understatement, says a lot remains to be done. No one will disagree.

The GER won't bring welcome news to those who hoped the level playing field was at hand. It's not. But the GER is very welcome for another reason. For the first time, and with hearty thanks to Trace, the state of global antibribery enforcement is in plain sight. It may not be pretty, but just by being visible it's an eloquent and high-decibel call for other countries to join the battle.

Download a copy of Trace International's 2010 Global Enforcement Report here.


Second Chances And More

What a difference a year or so makes. In December 2007, Lucent Technologies Inc. -- which became part of Alcatel SA in November 2006 -- settled Foreign Corrupt Practices Act charges. It had illegally paid millions of dollars for Chinese officials to take more than 300 trips to the U.S., Europe and elsewhere. They were supposed to be business missions but ended up being junkets -- "sightseeing, entertainment and leisure." Lucent paid $2.5 million to resolve the offenses.

But last month, Alcatel-Lucent signed agreements in Washington, D.C. worth $1.7 billion with China Mobile and China Telecom. The company said the agreements are the first of many that will help Chinese companies roll out 3G technology.

We've said before that we believe in corporate redemption and second chances. It looks like Alcatel-Lucent is making the most of its freshly cleaned slate. The winners will be its stakeholders, Chinese partners, and the Chinese people who'll benefit from upgraded technology. (And we like its nifty 3D logo, above.)

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Corruption in Iraq is so bad that it's blocking the country's recovery. The New York Times' Sam Dagher wrote a great story about it (here). Here's how he started:

Iraq’s main anticorruption watchdog has no shortage of cases, as its new report makes clear: embezzlement of $80 million; tampering with government tea imports; the theft of 50 Italian-made Beretta pistols; procuring forged Ph.D.’s; and scores of other crimes.

The real problem is the difficulty of prosecuting people for corruption, which is so widespread that it has become one of the main obstacles to stability and progress in Iraq, according to Iraqi and American officials. Among the barriers, the officials say, are laws that give ministers the right to pardon offenders, as well as partisan and sectarian interference, pressure, infighting, vendettas, blackmail and death threats.

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The expense-account scandal in the British Parliament sure is . . . grubby. Petty corruption always looks that way. And that goes for FCPA-compliant "facilitating payments" too.

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Mahatma Gandhi's 1948 message about graft in India is universal:

Corruption will go when the large number of persons given unworthily to it realize that the nation does not exist for them to exploit but that they exist to serve the nation. This requires morals, and extreme vigilance on the part of those who are free of the taint. Indifference will be criminal…
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Our friends at Trace International sent us "Toxic Transactions: Bribery, Extortion and the High Price of Bad Business," their hour-long anti-bribery training video. The interviews with current and former prosecutors and others make one thing clear -- those who pay bribes are likely to be caught and punished, with jail a real possibility. So compliance is the only option that makes sense. Great message. Congratulations to Alexandra Wrage and Trace. Clips from the video can be seen here.

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The FCPA has been around for more than 30 years now and, as Trace's video shows, people are getting better at talking about it. That includes those from government, private practice and corporations. So the subject seems a lot less mysterious than it used to and more accessible. That's good news. It's also a gentle plug for the books at the right -- Bribery Abroad and the newly released Bribery Everywhere (both are in stock and can be ordered now). Anyway, we're glad people are more comfortable these days talking about the FCPA in a way that's less formal and not so legalistic.


Obama On Corruption

With his family ties to Kenya and Indonesia, and who can forget Chicago, Barak Obama should know plenty about public corruption -- and he does. The subject was clearly on his mind when he visited Kenya in 2006 (he's pictured left with his 83-year-old Kenyan grandmother).

A speech from that trip is now posted at wrageblog, a new antibribery compliance site from Alexandra Wrage. She's the founder of Trace International, the global non-profit group that conducts due diligence and stages compliance training. Few have done more for antibribery compliance than Alexandra. If anyone can give the blogosphere a good name, she can.

Getting back to Kenya -- it ranks a dismal 147th on the 2008 Corruption Perception Index, tied with Bangladesh, Russia and Syria. On the current Index of Economic Freedom, it's number 90, earning special condemnation for its weak rule of law: Lax property rights and extensive corruption hold down overall economic freedom. Corruption is perceived as pervasive, giving Kenya one of the world's worst scores in this vital area. Non-transparent trade regulations and customs inefficiency hurt overall trade freedom. As in many other Sub-Saharan African nations, Kenya's judiciary is underdeveloped and subject to the political whims of the executive.

No wonder, then, that when he spoke to a crowd at the University of Nairobi during his 2006 visit, then-Senator Obama didn't pull any punches. He warned that everything they've worked for, including their freedom, is threatened by corruption. From a talk covering the big themes of capitalism, bureaucracy, transparency and accountability, here's some of what he had to say:

Corruption is not a new problem. It’s not just a Kenyan problem, or an African problem. It’s a human problem, and it has existed in some form in almost every society. My own city of Chicago has been the home of some of the most corrupt local politics in American history, from patronage machines to questionable elections. In just the last year, our own U.S. Congress has seen a representative resign after taking bribes, and several others fall under investigation for using their public office for private gain.

But while corruption is a problem we all share, here in Kenya it is a crisis - a crisis that’s robbing an honest people of the opportunities they have fought for - the opportunity they deserve. . .

It is painfully obvious that corruption stifles development - it siphons off scarce resources that could improve infrastructure, bolster education systems, and strengthen public health. It stacks the deck so high against entrepreneurs that they cannot get their job-creating ideas off the ground. In fact, one recent survey showed that corruption in Kenya costs local firms 6% of their revenues, the difference between good-paying jobs in Kenya or somewhere else. And corruption also erodes the state from the inside out, sickening the justice system until there is no justice to be found, poisoning the police forces until their presence becomes a source of insecurity rather than comfort. . . .

In the end, if the people cannot trust their government to do the job for which it exists - to protect them and to promote their common welfare - all else is lost. And this is why the struggle against corruption is one of the great struggles of our time. . . .

We know that the temptation to take a bribe is greater when you’re not making enough on the job. And we also know that the more people there are on the government payroll, the more likely it is that someone will be encouraged to take a bribe. So if the government found ways to downsize the bureaucracy - to cut out the positions that aren’t necessary or useful - it could use the extra money to increase the salary of other government officials.

Of course, the best way to reduce bureaucracy and increase pay is to create more private sector jobs. And the way to create good jobs is when the rules of a society are transparent - when there’s a clear and advertised set of laws and regulations regarding how to start a business, what it takes to own property, how to go about getting a loan - there is less of a chance that some corrupt bureaucrat will make up his own rules that suit only his interests. Clarifying these rules and focusing resources on building a judicial system that can enforce them and resolve disputes should be a primary goal of any government suffering from corruption.

In addition, we know that the more information the public is provided, the easier it will be for your Kenyan brothers and sisters out in the villages to evaluate whether they are being treated fairly by their public servants or not. Wealth declarations do little good if no one can access them, and accountability in government spending is not possible if no one knows how much was available and allocated to a given project in the first place. . . .

An accountable, transparent government can break this cycle. When people are judged by merit, not connections, then the best and brightest can lead the country, people will work hard, and the entire economy will grow - everyone will benefit and more resources will be available for all, not just select groups. . . .


And don't forget . . . the Securities Docket has information about a January 28, 2009, webcast on "game-changing developments in 2008 in the enforcement of the Foreign Corrupt Practices Act." The full scoop is here.


A Gold Medal For Opinion Procedure Release 08-03

Foreign organizations in China have been vexed for years by the need to pay or reimburse Chinese journalists who attend local press events. The journalists can't afford to travel on their own and their employers don't reimburse them. But because most media outlets in the PRC are state-owned, the journalists are "foreign officials" under the Foreign Corrupt Practices Act. That means paying their expenses might violate the FCPA.

Facing this dilemma, foreign companies either don't pay the journalists anything and pass up domestic press coverage for their events in China, or they pay the local journalists (sometimes on the advice of counsel) and risk violating the FCPA.

Now, thanks to the efforts of Trace International, there's help. The DOJ has said the payments may fall within the FCPA's affirmative defense for so-called promotional expenses. That defense allows the payment or reimbursement of expenses of foreign officials that are directly related to “the promotion, demonstration, or explanation of products or services." 15 U.S.C. §§ 78dd-1(c)(2)(A) and 78dd-2(c)(2)(A).

In its opinion request, TRACE told the DOJ that for a press conference in Shanghai next week to announce the BRIBEline results for China, it will provide local and out-of-town journalists with the following benefits:

Local Journalists -- A cash stipend of RMB 200 (approximately $28) for each journalist based in Shanghai. The stipend is intended to cover lunch, local transportation costs, and incidental expenses. The cash stipends will be handed openly to each journalist upon signing in for the press conference.

Out-of-town Journalists -- A cash stipend of RMB 425 (approximately $62) for each journalist based somewhere other than Shanghai. The stipend is intended to cover lunch, local transportation costs, incidental expenses, and two additional meals. The cash stipends will be handed openly to each journalist upon signing in for the press conference. Reimbursement for economy-class inter-city domestic air, train, bus, and taxi travel upon submission of a receipt. One night's lodging for out-of-town journalists will be provided at the hotel where the press conference is being held. The lodging costs, not to exceed $229 per journalist, will be paid directly to the hotel by TRACE.

TRACE represented that:

  • Members of the state-owned PRC media are not typically reimbursed by their employers for work-related travel expenses or meals when covering an event such as the TRACE press conference.
  • TRACE will make the stipends and expense reimbursements equally available to all journalists who attend the press conference regardless of whether or not the journalists subsequently provide coverage of the press conference and regardless of the nature of such coverage.
  • The 200 RMB and 425 RMB stipends TRACE intends to pay to local and out-of-town journalists, respectively, are reasonable approximations of the costs likely to be incurred by such journalists in attending a press conference in Shanghai.
  • TRACE will send letters to the invited journalists' employers in advance of the press conference, advising that the stipend will be paid, its purpose, and TRACE's understanding that the payments are permitted under PRC laws and regulations. The letter will invite anyone with a different understanding of the applicable rules to so inform TRACE.
  • TRACE has no business pending with any PRC government agency.
  • TRACE has obtained written assurance from an established international law firm that TRACE's payment of the stipends is not contrary to PRC law.
  • TRACE will accurately record the payments in its own books and records.

The DOJ said it won't take enforcement action. "Based on TRACE's representations, the stipend and expenses TRACE intends to pay on behalf of foreign officials fall within the FCPA's promotional expenses affirmative defense in that the expenses are reasonable under the circumstances and directly relate to 'the promotion, demonstration, or explanation of [TRACE's] products or services.' 15 U.S.C. § 78dd-2(c)(2)(A)."

In an unusual reminder to other companies, the DOJ said that it "places no weight on the fact that it may be a common practice for companies in the PRC to provide such benefits to journalists attending a press conference."

Great work by TRACE -- and just in time to help the many sponsors and other foreign organizations coming to Beijing for the August 8th start of the 2008 Summer Olympics.

And kudos to the Justice Department for responding to TRACE's request in just four days.

View DOJ Opinion Procedure Release 08-03 (July 11, 2008) here.


The Dog Ate Our Homework

We had a nice post ready for today. Really. Then we remembered the 11:59 p.m. deadline on May 31 for the 2008 TRACE International essay contest on fighting public bribery. There were only a few hours to go so in desperation we sent our post off as our entry. TRACE, by the way, is a non-profit group that conducts due diligence and compliance training for intermediaries -- agents, joint venture partners, distributors and the like. We wanted to be part of the essay contest, which drew 120 entries last year. So here we are with no post and a rather flimsy excuse on top of it.

It's embarrassing to have mailed away the blog's work product. If we hadn't done that, we'd be using this space right now to talk about our favorite subject: in-house compliance training. How much we always learn from the sessions. How we enjoy talking about the Foreign Corrupt Practices Act with company personnel from management, marketing, operations and more -- and how the training sessions go far beyond the mere words of the FCPA.

But we can't say too much. TRACE, we noticed, has rules intended to protect the integrity of its essay contest. Entries must be original and unpublished. So we're scrupulously avoiding any hint of self-plagiarizing. Imagine how bad it would look if the FCPA Blog triggered a scandal in an essay contest about fighting corruption through ethical practices? Oh boy. We'd need a new identity just to get dinner at home.

So until the post flew out of our hands, we intended to mention that FCPA training is required for an effective compliance program. Now, constrained by the rulebook, we can't even talk about that. We can only reproduce below part of the 2005 Federal Sentencing Guidelines, trusting that curious readers will ponder why:

The organization shall take reasonable steps to communicate periodically and in a practical manner its standards and procedures, and other aspects of the compliance and ethics program, to the individuals [responsible for compliance] by conducting effective training programs and otherwise disseminating information appropriate to such individuals’ respective roles and responsibilities.

And finally, to tie it all together, we would have tossed in some nice examples to show how training can prevent FCPA violations; or uncover them; or even reveal who in the company may be heading for a compliance meltdown.

Gosh, it really would have been a good post. Too bad all we've got to show for it is the fuzzy screen shot above. Here's our plan, though. If we win the essay contest, we'll seek permission to "reprint" our post right here, with full credit to TRACE for all the great compliance work they're doing. If we lose, which we concede to be the overwhelmingly probable outcome, we'll be free to use the post anyway.

The judges will decide by September, TRACE says. Meanwhile, we'll get back to work -- and hope this humbling editorial debacle will soon be forgotten.

Visit TRACE International here.

View Chapter 8 - PART B - §8B2.1. ("Effective Compliance and Ethics Program") of the 2005 U.S. Federal Sentencing Guidelines here.


The FCPA For Everyone

Wikipedia -- "the free encyclopedia that anyone can edit" -- has a page on the Foreign Corrupt Practices Act here. It defines the FCPA this way:

The Foreign Corrupt Practices Act of 1977 (15 U.S.C. §§ 78dd-1, et seq.) is a United States federal law known primarily for two of its main provisions, one that addresses accounting transparency requirements under the Securities Exchange Act of 1934 and another concerning bribery of foreign officials.

The article sets out the elements of an antibribery offense like this:

The antibribery provisions of the FCPA, prohibit: 1. Issuers, domestic concerns, and any person 2. From making use of interstate commerce 3. Corruptly 4. In furtherance of an offer or payment of anything of value 5. To a foreign official, foreign political party, or candidate for political office 6. For the purpose of influencing any act of that foreign official in violation of the duty of that official or to secure any improper advantage in order to obtain or retain business.

So far so good.

But be very careful with this article. For example, a paragraph about the application of the FCPA, which strangely appears under the heading "History," makes some good points. But an unqualified statement about "the brother of the minister of finance" misses the mark: The meaning of foreign official is broad. For example an owner of a bank who is also the brother of the minister of finance would count as a foreign official according to the U.S. government. Not really. Consanguinity might be important but it has never been a definitive test of foreign-officialdome under the FCPA.

Wikipedia's article -- one of 2,274,622 in English-- is not among the site's better entries. We're confident, though, that it'll improve with time.

On a higher note, in the article's "External Links" section is one of our all-time favorite FCPA-related pages. Trace International's BRIBEline here says everything you need to know about the universality of public bribery.

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