Two to Tango: Attacking the Demand Side of Bribery

“The United States will continue to target corrupt foreign officials . . . so U.S. companies can compete fairly in transparent business climates.”
– National Security Strategy of the United States of America1

“The U.S. Department of State has made anti-corruption a national security priority.”
– “U.S. Anti-Corruption Efforts,” United States Department of State2

Aggressive enforcement of the Foreign Corrupt Practices Act (FCPA) by the Department of Justice and the Securities and Exchange Commission, alongside the U.S. government’s diplomatic efforts to promote the OECD Anti-Bribery Convention, have created an atmosphere in which foreign bribery—once considered an appropriate tax deduction—is now universally recognized as a crime, and anti-corruption compliance is essential for multinational companies.

Nevertheless, bribe demands remain a significant problem for many honest companies. Unfortunately, the FCPA, which has proven to be such a valuable tool in combatting corruption, only criminalizes the giving or offering of bribes, not demanding or receiving them. This omission makes it difficult for U.S. authorities to prosecute the foreign kleptocrats who drive so much international corruption, and places U.S. law at odds with the international standards that the United States has itself partly spawned.

Amending U.S. criminal law to cover bribe-receiving would bring the United States closer to international best practices, and would further the U.S. government’s efforts to stamp out transnational corruption. But it would also protect honest businesses, which are increasingly faced with illegal demands from foreign officials in corrupt regimes and unscrupulous competition from companies, including state-owned enterprises in such countries. 

While it is impossible to know who initiates most bribe situations, the giver or the receiver, one thing is clear: No bribe can take place without both. As the OECD has noted, “To have a globally effective overall enforcement system, both the supply-side participants (i.e., the bribers) and the demand-side participants (i.e., the public officials) of bribery transactions must face genuine risks of prosecution and sanctions.”3 It is for this reason that international anti-corruption conventions frequently encourage state parties to address both sides of bribery through their national laws. For example, Article 16 of the United Nations Convention Against Corruption (UNCAC) states that

Each State Party shall consider adopting such legislative and other measures as may be necessary to establish as a criminal offence, when committed intentionally, the solicitation or acceptance by a foreign public official or an official of a public international organization, directly or indirectly, of an undue advantage, for the official himself or herself or another person or entity, in order that the official act or refrain from acting in the exercise of his or her official duties.

Similarly, UNCAC Article 18(b), entitled “Trading in influence,” states that

Each State Party shall consider adopting such legislative and other measures as may be necessary to establish as criminal offences, when committed intentionally: […]

(b) The solicitation or acceptance by a public official or any other person, directly or indirectly, of an undue advantage for himself or herself or for another person in order that the public official or the person abuse his or her real or supposed influence with a view to obtaining from an administration or public authority of the State Party an undue advantage.

The Council of Europe Criminal Law Convention on Corruption (COE Convention) has similar requirements. Consistent with these general precepts, and in contrast to the United States, countries including the United Kingdom, France, the Netherlands, Switzerland, Malaysia, Albania, Armenia, Bosnia and Herzegovina, Bulgaria, Croatia, Estonia, Georgia, Kazakhstan, Kyrgyzstan, Latvia, Lithuania, Macedonia, Moldova, Montenegro, Romania, Russia, Serbia, Slovenia and Ukraine have all criminalized foreign bribe receiving. The Council of Europe’s anti-corruption monitoring body, GRECO (Groupe d’Etats Contre la Corruption) has criticized the United States for its failure to adequately address bribe-taking by foreign government officials and, in its 2014 compliance report on the United States, noted that its recommendation that passive bribery be criminalized had not been fully implemented.

In addition to aligning U.S. laws with international norms, criminalizing foreign passive bribery would serve several other valuable purposes.

First, even if the bribe-takers are never extradited or prosecuted, a U.S. indictment would make it difficult for them to travel (lest they travel to a country that has an extradition treaty with the United States) and to spend their ill-gotten gains.

Second, the fact of an indictment could be used to support other penalties, such as sanctions under the Global Magnitsky Act (GMA), which applies to foreign government officials responsible for serious human rights abuses and corruption.

Third, U.S. charges would put pressure on foreign governments to bring domestic charges against the bribe-takers (something that, as explained below, rarely happens now).

Finally, it would help honest companies use the FCPA as a shield to resist bribe demands. Or, to put it another way, the argument that “we can’t pay because we could be prosecuted under the FCPA” would obviously be much more powerful if coupled with the statement “and you too.”

U.S. opponents of criminalizing foreign bribe-taking typically cite (1) the fact that such cases can be prosecuted under other statutes, such as money laundering and wire fraud, (2) the greater interest of the bribe-taker’s government in prosecuting the passive side of the offense, (3) the possible political fallout that could result from criminally charging foreign government officials for bribe-taking, and (4) the jurisdictional challenges of bringing such cases. Examining each of these arguments individually reveals that they are unpersuasive.

The GRECO report cited above notes that in addressing GRECO’s criticisms about passive bribery, the U.S. respondents pointed out that “the United States can and has prosecuted foreign officials based on corruption through (1) money laundering charges (as foreign corruption is a predicate offence to money laundering), (2) wire fraud, and (3) the Travel Act.” Thus, the report noted, “GRECO accepts that the [U.S.] law enforcement authorities in practice may deal with and prosecute in situations involving passive bribery of foreign public officials and others to a large extent; as it appears often as money laundering.”

However, GRECO correctly concluded that this response was only partially satisfactory given the additional elements required to prove a mail or wire fraud case. For example, money laundering requires proof of financial transactions beyond the receipt of a bribe, which may be extremely difficult to prove, especially if a bribe is paid in cash. Mail and wire fraud require proof of an intent to defraud which may not always exist in a bribery case and the Travel Act, which in pertinent part criminalizes “interstate and foreign travel or transportation in aid of racketeering enterprises,” requires proof of travel in, or the use of, interstate or foreign commerce to violate state law.

The DOJ U.S. Attorneys Manual (USAM) is also instructive on this point. Section 9-27.300 of the USAM discusses the situation when a criminal act may be prosecuted under more than one statute. In such situations, the USAM cautions:

[T]he attorney for the government should bear in mind that he/she will have to introduce at trial admissible evidence sufficient to obtain and sustain a conviction, or else the government will suffer a dismissal, or a reversal on appeal. For this reason, he/she should not include in an information, or recommend in an indictment, charges that he/she cannot reasonably expect to prove beyond a reasonable doubt by legally sufficient and admissible evidence at trial.

In connection with the evidentiary basis for the charges selected, the prosecutor should also be particularly mindful of the different requirements of proof covering similar conduct. […]

[A] Federal prosecutor should initially charge the most serious, readily provable offense or offenses consistent with the defendant’s conduct. (emphasis added)

The principles set forth in the USAM do not appear to be well served by charging bribe-taking as money laundering, mail/wire fraud, or interstate travel in aid of racketeering. In addition, these non-bribery statutes are unlikely to generate the collateral benefits identified above—foreign governments are less likely to be shamed into prosecuting an official who has been charged with fraud than one who has been charged with extorting a bribe, and the possibility of prosecution for bribery is more likely to deter corrupt government officials than is the threat of prosecution under a convoluted theory of money laundering, fraud, or interstate travel in aid of racketeering.

Finally, many of the countries that criminalize foreign bribery have money laundering statutes that are even broader than the corresponding statutes in the United States. For example, the UK Proceeds of Crime Act (POCA) applies to the proceeds of all crimes, not just specified crimes, as in the United States. Nevertheless, the United Kingdom does not consider POCA to be a substitute for a foreign passive bribery statute.

The Global Magnitsky Act is also not an adequate substitute for an appropriate criminal statute. The GMA does not carry criminal penalties and therefore does not create a risk of arrest or extradition to the United States, which means that it does not have the same deterrent effect as criminal charges. In addition, sanctions under the GMA are imposed by the State Department and the Treasury Department without being vetted by a grand jury and are not subject to the same kind of judicial review as a criminal indictment. They therefore tend to be perceived as more political than legal, and for that reason have less credibility in world public opinion than criminal charges. Finally, the majority of designations under the GMA relate to human rights abuses rather than to corruption, which suggests that the main focus of the GMA, in practice, will continue to be human rights rather than anti-corruption.

The GRECO report also cites the statement of the U.S. respondents that “the country where the individual is an official is the most damaged by the acceptance of a bribe and should, if possible, prosecute that official domestically for taking the bribe.” However, the U.S. government’s argument is again undermined by the USAM which, in Section 9-27.240, states:

In determining whether prosecution should be declined because the person is subject to effective prosecution in another jurisdiction, the attorney for the government should weigh all relevant considerations, including . . . [t]he other jurisdiction’s ability and willingness to prosecute effectively.

In this respect, it advises U.S. prosecutors to “be alert to any local conditions, attitudes, relationships or other circumstances that might cast doubt on the likelihood of the other authorities conducting a thorough and successful prosecution.”

Applying these principles makes clear that, as crimes go, foreign bribe-taking is generally not one that should be left to foreign authorities to prosecute. In contrast to ordinary crimes, bribe-taking is necessarily a sensitive matter for foreign governments. Foreign officials who take bribes often share a portion of their illegal proceeds with their superiors, and bribe-taking officials frequently threaten to expose the higher-ups with whom they shared if they are not protected. Even without such a blackmail threat, serious independent investigation and prosecution of such a crime may expose corruption at high levels. Therefore, it is not surprising that FCPA prosecutions so rarely involve corresponding “demand-side” prosecutions of the bribe-takers. Indeed, a recent study by the OECD of demand-side prosecutions found that public officials were sanctioned in only one-fifth of the schemes covered by the survey.4 In short, applying the USAM criteria, foreign jurisdictions often do not have the “ability and willingness to prosecute effectively,” making such cases inappropriate candidates for deferrals to foreign prosecutors.

Opponents of criminalizing foreign bribery may also argue that indicting foreign government officials is undesirable because it will subject the United States to political fallout, and possibly retaliation. However, the fact that DOJ is already charging foreign government officials under other statutes such as money laundering undermines this argument, and suggests that the government has already decided to accept this risk. For example, in 2014, then-Assistant Attorney General Leslie Caldwell stated:

And now we also are prosecuting the bribe takers, using our money laundering and other laws. And, importantly, we have begun stripping corrupt officials of the proceeds of their corruption involving both bribes and kleptocracy, using both criminal and civil authorities.

The Criminal Division’s FCPA enforcement program and our Kleptocracy Initiative are really two sides of the same anti-corruption coin. We bring those who pay bribes to justice, no matter how rich and powerful they are. But by itself, that is not enough. We also attack corruption at its source – by prosecuting and seizing the assets of the corrupt officials who betray the trust of their people.5

In 2018, Assistant Attorney General Trevor McFadden (now a Federal judge) made clear that this policy would continue under the new administration when he stated:

The FCPA has been described as a “supply-side” statute in that it governs only the conduct of the bribe payer, not the government official who receives the bribe. Nevertheless, the department has regularly charged certain “foreign official” bribe recipients with other related crimes, such as money laundering. […]

When we cannot charge a crime under the FCPA, in addition to crimes such as money laundering, false statements, and obstruction of justice, there are multiple legal theories we may use in order to prosecute corruption.6  

Similarly, the Trump Administration’s National Security Strategy states “the United States will continue to target corrupt foreign officials.”

In any event, any risks of political fallout could be mitigated by imposing a requirement of Attorney General approval for indictments of sitting high-ranking foreign government officials, such as is included in 18 U.S.C. Section 2332, which criminalizes the overseas homicide of U.S. nationals in connection with terrorist offenses. 18 U.S.C. Section 2332(d) provides:

No prosecution for any offense described in this section shall be undertaken by the United States except on written certification of the Attorney General or the highest ranking subordinate of the Attorney General with responsibility for criminal prosecutions that, in the judgment of the certifying official, such offense was intended to coerce, intimidate, or retaliate against a government or civilian population.

Finally, the threat of political fallout has not stopped the U.S. government from imposing visa bans and asset freezes on various foreign government officials including Evgeniy Shkolov, an Aide to the President of the Russian Federation; Nikolai Patrushev, the Secretary of the Russian Federation Security Council; Igor Sergun, the head of Russia’s military intelligence service (GRU); Abdulhamit Gul, the Minister of Justice of Turkey;7 Suleyman Soylu, the Minister of Interior of Turkey;8 and Francisco Javier Diaz Madriz, Nicaraguan National Police Commissioner.

Opponents of criminalizing foreign passive bribery may also cite alleged jurisdictional obstacles to prosecuting foreign bribe-takers. However, this does not seem to have been a problem in the wire fraud, mail fraud, and Travel Act cases cited by DOJ. Moreover, DOJ has frequently charged foreign companies that are not publicly traded in the United States with FCPA violations on the theory that they conspired with U.S. companies or that some part of the crime took place on U.S. territory.9 Furthermore, Congress has passed laws establishing extra-territorial jurisdiction over certain crimes. For example, 18 U.S.C. Section 2332 makes it a crime to kill, attempt to kill, or engage in a conspiracy to kill, or engage in physical violence with intent to cause, or resulting in, serious bodily injury to a U.S. national outside of the United States if such act is done with the intent of political coercion. Similarly, 18 U.S.C. Section 2332a makes it a crime to use, threaten, or attempt or conspire to use, without lawful authority, a weapon of mass destruction against a national of the United States while such national is outside of the United States. 18 U.S.C. Section 2339 criminalizes harboring or concealing terrorists, regardless of where the act occurs. These statutes are clearly designed for extraordinary national situations arising from terrorist threats. However, the State Department and National Security Council have both defined anti-corruption as a national security priority,10 and there can be no doubt that corruption props up various regimes that pose serious national security threats to the United States.

Now, corporations are penalized for paying bribes, but the foreign officials who solicit such bribes largely escape U.S. prosecution. While some may contend that changing U.S. law to cover foreign bribe receiving is not possible because of jurisdictional limitations in the FCPA, we believe that this problem can be addressed by amending the passive bribery provisions of Title 18 (rather than the FCPA) to cover foreign officials. Such an amendment could also be supplemented by civil remedies, such as providing a private right of action in U.S. courts for companies that have lost contracts in foreign countries because of local corruption. Current awareness of the political threat of grand corruption, challenges faced by U.S. businesses operating overseas and connections between kleptocracy, human rights abuses, and national security suggest that now may be a particularly good time for such an important legislative initiative.

1The White House, National Security Strategy of the United States (December 2017).

2U.S. Department of State, “U.S. Anti-Corruption Efforts.”

3OECD, Foreign Bribery Enforcement: What Happens to the Public Officials on the Receiving End? (2018).

4Ibid.

5Leslie R. Caldwell, Assistant Attorney General, U.S. Department of Justice, “Remarks at the American Conference Institute’s 31st International Conference on the Foreign Corrupt Practices Act” (Nov. 19, 2014).

6Trevor N. McFadden, Acting Principal Deputy Assistant Attorney General, “Remarks at the American Conference Institute’s 7th Brazil Summit on Anti-Corruption” (May 24, 2017).

7Sanctions were lifted on November 2, 2018.

8Sanctions were lifted on November 2, 2018.

9United States v. Keppel Offshore & Marine Ltd., No. 17-cr-697 (E.D.N.Y. 2017), available at https://www.justice.gov/opa/press-release/file/1020711/download (charging Keppel Offshore & Marine Ltd., based in Singapore, with conspiracy to violate the FCPA’s anti-bribery provisions for improper payments to Petrobras officials and other Brazilian officials); United States v. SBM Offshore, N.V., No. 17-CR-00686 (S.D. Tex. 2017), available at https://www.justice.gov/opa/press-release/file/1014861/download (SBM Offshore N.V. pleading guilty to conspiracy to violate the anti-bribery provisions of the FCPA for series of bribery schemes involving officials from state or state-affiliated energy or oil companies in Brazil, Angola, Equatorial Guinea, Kazakhstan, and Iraq); U.S. v. JGC Corporation, No. 11-00260 (S.D. Tex. 2011), available at https://www.justice.gov/sites/default/files/criminal-fraud/legacy/2011/04/27/04-6-11jgc-corp-info.pdf (charging JGC Corporation, headquartered in Japan, with one count of conspiracy and one count of aiding and abetting violations of the FCPA for improper payments to Nigerian government officials made by its Nigerian JV).

10See notes 1-2.

The post Two to Tango: Attacking the Demand Side of Bribery appeared first on The American Interest.

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Author: Sean Keeley


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