In the background paper on Current Trends in Foreign Bribery Investigation and Prosecution, experts of the FACTI Panel review the existing problems of law enforcement in foreign bribery cases and the opportunities that the use of non-trial resolutions (NTRs) opens up for resolving such cases as well as specific challenges for their employment.
Law enforcement in transnational bribery cases and NTRs
The authors stress that the “traditional” criminal prosecution, i.e. a prosecution model that focuses on punishment ex post, i.e. after the act of foreign bribery has been discovered, cannot be described as “effective”, “proportionate” or “dissuasive” where the process can be so easily subverted by the corrupt actors themselves. This probability increases in large-scale corruption schemes that wreck the most havoc on society: these crimes become the most susceptible to a lack of political will to prosecute.
NTRs are now used by many countries as an alternative to the “traditional” prosecution, allowing them to hold corporate offenders liable without conducting judicial proceedings and pressing official charges. The form of an NTR may differ depending on the jurisdiction (deferred prosecution agreements (DPA), non-prosecution agreements (NPA), declinations or penalty notices), whilst their conditions depend on: 1) The extent to which a wrongdoing corporation self-reports and cooperates with prosecuting authorities to provide usable evidence of acts of foreign bribery that the agency would not have discovered on its own; and 2) The degree to which the alleged wrongdoing corporation can establish proof of mechanisms put in place to prevent acts of foreign bribery from occurring.
These agreements have been used since the respective mechanisms were established in the United States (in 2004 – the U.S. Department of Justice, in
2010 – the U.S. Securities and Exchange Commission) in the context of enforcement of the Foreign Corrupt Practices Act (FCPA). After the U.S., NTRs appeared in the United Kingdom (2013) and then in other countries: in Brazil (2014), Spain (2015), France (2016), Colombia (2016), Mexico (2017), Argentina (2018), Peru (2018), Japan (2018), Canada (2018), Singapore (2018) and Australia (the adoption of relevant bill is in progress).
Their employment somehow helps resolve a number of existing problems in law enforcement against transnational bribery. The authors of the paper list, in particular, the following problems:
1) Lack of capacity and political will on the demand-side, i.e. in the countries whose officials are bribed by transnational corporations: developed countries, following the U.S. example, start to introduce corporate liability for corrupt transactions and encourage the implementation of compliance programmes to prevent bribery, meanwhile developing countries are still far from receiving the same support, as here the governments not only enforce anti-foreign bribery legislation, but are also often beneficiaries of contracts whose signing is favoured by foreign bribery;
2) Lack of political will on the supply-side: the monopoly on initiating sanction held by the state can lead to a conflict of interest where the state does not have the political will to commence a criminal prosecution against its domestic companies. However, extraterritorial jurisdiction over bribes paid in other countries is adopted by other states, which increases the risk of prosecution;
3) Information asymmetry: very few countries have the capacity and resources to uncover, investigate and effectively prosecute offenders in complex interjurisdictional schemes; easily dissolvable, multi-layered chains or interjurisdictional structures, by using specialized intermediaries, are used to conceal such schemes, and even developed countries have to make a serious effort to obtain the proof necessary to criminally prosecute the offenders. All this can cause the criminal justice system, to rather paradoxically, strengthen the walls of impunity by the lack of successful prosecutions;
4) Collateral consequences of criminal prosecution: punishment of a corporation that has “no soul to be damned, and no body to be kicked” in practice injure its employees, shareholders and consumers and causes economic disruption. NTRs permit to avoid the “devastating consequences”, especially if a company is held liable by several jurisdictions at the same time;
5) Inadequacy of criminal prosecution as the main strategy to punish damage caused by foreign bribery: the system of “traditional” punishments is normally focused only on the fact of bribery, whilst “the most severe costs of corruption are often not the bribes themselves, but the underlying distortions they reveal”. Besides that, criminal prosecution does not take into account the damage caused by corruption and fails to sufficiently address the consequences of “successful” acts of bribery, i.e. the contracts that corporations seek to conclude with foreign governments. Conversely, NTRs focus on the prevention of negative consequences.
Arguments in favour of NTRs
The paper highlights that NTRs have a number of advantages both for states and corporations.
In particular, NTRs allow the state which enforces anti-foreign bribery laws to:
- shift the focus of anti-foreign bribery enforcement from corruption punishment to corruption prevention;
- mitigate some of the broader ramifications of the costs of corruption (political, social, and economic) by encouraging corruption prevention;
- use the influence that the corporation has over parties within its sphere of influence to foster corruption prevention;
- overcome information and power asymmetries, by putting the onus of the corporation to volunteer usable evidence about the foreign bribery act in question, to uncover “channels of corruption” and brake them up;
- encourage corporations to implement whistle-blower schemes as part of required compliance programs;
- reduce the length of time and costs of investigations (the traditional criminal process is typically slow and costly, judgments are subject to appeal, making the path of a full trial a lengthy, unpredictable and expensive process);
- mitigate the challenges for law enforcement in multi-jurisdictional foreign bribery crimes by creating the incentive and mechanism for companies to self-police, self-report and engage in pro-active corruption prevention focused compliance programs;
- make a business case for compliance that provides a rational reason for foreign corporations to resist giving bribes to foreign officials.
The advantages of NTRs for corporations can be summarized as follows:
- create a negotiating advantage for corporations who take steps to curb corruption, thus placing them in a better position to negotiate with the authorities if violations, despite best efforts, do occur;
- remove exposure to the unpredictability of domestic courts, reduce costs both in terms of the duration of the process, possibility of reduced penalties and reputational damage;
- increase internal efficiencies of corporations who take steps to curb corruption by instituting a compliance program and internal controls;
- help the compliance officer to make the business case for compliance and supports the development of integrity and an ethical corporate culture;
- facilitate coordination among anti-corruption authorities and allow for parallel resolutions or global agreements if the corporation is the subject of simultaneous prosecutions by several authorities;
- not to admit guilt and therefore not to risk debarment from public contracting.
Arguments against NTRs
However, the authors stress that there are also criticisms against NTRs.
In particular, NTRs are also seen as a “failed experiment” that erodes the rule of law in developed countries. The report cites an expert arguing that “at its core, the rule of law requires that limitations on the legal rights of individuals must be determined by laws, rather than by potentially arbitrary and unconstrained decisions of individuals and government actors” (i.e. law enforcement practitioners who make a decision on reaching an NTR without taking legal action). The absence of a court trial reduces transparency of decisions and public scrutiny. Another scholar whose opinion is provided in the paper believes that “there is little to no empirical proof that DPAs [a form of NTRs] are effective at deterring or otherwise preventing corporate crime, […] the question of whether DPAs “work” has not been answered”.
The authors of the paper highlight that there is great merit to these criticisms, especially if one transposes the NTR process onto the traditional criminal prosecution where the underlying motivation is to establish guilt and punish the wrongdoer with sufficient severity to satisfy the public need for “revenge” as well as act as a deterrent. However, the authors stress that with corruption enforcement “perfect is the enemy of good”. Only in the actual effective enforcement of anti-foreign bribery rules adopted by many countries is the rule of law upheld. Thanks to NTR induced voluntary disclosures, elaborate corporate global bribery schemes of breath-taking scale, as the authors call them, are becoming known: the very existence of these schemes, despite the now elaborate matrix of anti-corruption laws, is evidence of a gross failure of the rule of law.
NTRs are also criticised as being simply too easy on the corporation: in this context an often cited example is the case of Pfizer which was hit by three successive NTRs (for illegal marketing, bribing doctors, and other crimes). On each occasion, the company paid a substantial fine and pledged to change - then returned to the same type of behaviour. The authors stress that this is of course of great concern, but as NTRs are developing, it is increasingly being addressed within the frameworks of charging policies and analysis of the previous history of the wrongdoer and other factors that are taken into account before an NTR is entered into instead of prosecution. Besides that, the existence of an NTR regime does not remove the option of prosecuting individuals: top executives or other natural persons who are the “master minds” of the bribery schemes.
In this context, the authors stress the importance of peer pressure also from the general public on the decision to enter onto an NTR: otherwise, this instrument would become yet another vehicle of impunity. In particular, it is recommended that the following information be disclosed:
- the basis upon which an NTR was considered a suitable enforcement option,
- the motivation for the amounts reached in the settlement,
- the extent to which efforts have been made to identify and compensate victims impacted by the acts of foreign bribery.
Existing gaps in the NTR framework
In the context of widespread NTR practices the authors of the paper pay particular attention to two existing gaps in the NTR framework: the position of “victims” in the settlements discourse and demand-side accountability (i.e. foreign officials).
1) The question of how the interests of those harmed by corruption schemes are taken into account is important because NTRs typically occur between the wrongdoing corporation and the prosecuting agency: the ultimate victims are not a party to this process.
On the one hand, the corporation is obliged to take preventive measures as part of the settlement, which in the end positively affects its activities from the point of view of the “victims” of corruption, i.e. its shareholders, customers, employees, third parties and the general public.
On the other hand, the big fines, paid by companies under NTRs, go into treasuries of the countries whose laws are broken. With the adoption of anti-foreign bribery laws by many countries it is increasingly evident that the inflows of fines for foreign bribery, damaging certain countries, go into the treasuries of other states which have the laws for holding corporate offenders liable for these violations.
The authors of the paper propose several options for addressing this problem.
Firstly, there are provisions requiring the compensation of “victims” of corruption in some NTR frameworks: for example in the United Kingdom, this form of sanctions has priority over the others, such as fines, forfeiture and compensation of investigation expenses; and in France, where CJIP(NTR) regimes stipulate that the CJIP agreement may include an obligation for the wrongdoing corporation to compensate the harm caused to the victims when victims could be identified.
Secondly, the interests of “victims” of corruption can be addressed in the NTR regimes by the inclusion of provisions to fund projects and organizations fighting corruption and fraud through collective action, education and training: for instance, this conditionality was included in the agreement between Siemens and the World Bank and subsequently in the settlement of the company with the European Investment Bank. Some experts argue that such a provision in NTRs would “reallocate” a portion of the penalty money, rather than relying on recovered assets in the future.
Thirdly, the use of sleeping third party beneficiary clauses would give “victims” of corruption legal standing in any dispute or NTR arising out of a contract tainted by foreign bribery.
Finally, another possible proposal to include the interest of “victims” in the NTR discourse is presented by the bill introduced in the US Congress to establish an Anti-Corruption Action Fund in NTR cases. The bill suggests that if total criminal fines and penalties in excess of $50,000,000 are imposed against a person under the FCPA, the Attorney General shall impose an additional prevention payment equal to $5,000,000 against such person, which shall be deposited in the Anti-Corruption Action Fund to be used to support anti-corruption work and initiatives.
2) The systemic problems associated with anti-foreign bribery enforcement are exacerbated as foreign officials who demand bribes continue to act with impunity, even when the companies that bribe them are held liable. The sanctioning challenges are similar to those encountered by supply-side enforcement, namely, insufficient evidence, statute of limitations. The OECD argues that public officials are known to have been sanctioned in only one fifth of the schemes covered in the relevant report of the organisation.
The authors highlight that with the development of the NTR frameworks organisations have more incentives to prevent bribery, whilst there is little incentive not to participate in corruption for the demand-side. Therefore the experts of the FACTI Panel state that this incentive structure has to change.
In particular, a system of checks and balances should be created for foreign officials, where disclosure of bribed officials by corporate offenders included in NTRs and forming the basis of an automatic block of all assets held by such individuals within the jurisdiction of the supply-side prosecuting agency would be the “stick” (these measures would eventually include cross-blocking exercise across all jurisdictions that have a link to the corrupt transaction, and refusal of visa rights, not only to the said officials, but also to their family members). In this context, the possibility to enter an NTR and soften sanctions would be the “carrot”.
As the NTR regimes in foreign bribery cases are becoming increasingly widespread, the number of analytical materials also by international organisations focused on the employment of this instrument is growing. For instance, the OECD has recently published a study which reviews different types of settlements to resolve foreign bribery cases. Besides that, the topic of NTR frameworks and their pros and cons is often addressed by research publications, see for instance here, here, here, here and here.