1. Introduction
This paper argues that for the last ten years at least, the
prosecutions of foreign bribery cases resemble some kind of global prosecution market, where strong
enforcement agencies (SEA) from developed countries reach settlements with
corporate wrongdoers that deceive those parties most affected by the illicit
transactions: shareholders, stakeholders and the nations that have been deprived
of the honest services of their public officials.
American, German, Swiss and
other leading SEA and regulators should be mindful of certain unexpected direct
and collateral effects of the ways in which they conduct their investigations,
and agree on different kinds of settlements in cases related to foreign bribery
violations. This is especially relevant when it comes to assessing their
profound impact over constituencies and victims within other jurisdictions.
They might also consider amending current legislation, protocols
and guidelines, aiming to ensure fair outcomes for all parties involved,
including other nation states, weak enforcement agencies (WEA), victims and
stakeholders. Furthermore, in a joint effort with enforcement agencies (EA) from
other nations, they could unite to promote urgent, much-needed improvements to
the OECD Antibribery Convention.
This document is structured as follows: (1) Introduction, (2) Considerations
on the Global Prosecution Market, (3) Lessons Learnt from Plea Agreements with
Odebrecht, Siemens and PetroTiger, (4) Assessment of the Global Prosecution
Market and Policy Recommendations, and (5) Conclusions. Finally, in part (6),
the sources used in the preparation of this paper are presented.
I believe this
work makes a relevant contribution to discussions around the positive and
negative elements of plea agreements reached by enforcement agencies of
developed countries with corporations and individuals for foreign bribery
offenses. Also, it makes its own, perhaps modest, contribution to providing
alternatives and ideas that may serve to improve the global fight against
corruption and to enhance the deterrent effect of joint and coordinated action
from enforcement agencies.
2. Considerations on the Global Prosecution Market
Prosecution of foreign bribery is on the rise. This is the case
not just for the United States but also for many other nations, especially OECD
members and signatories of the OECD Anti-Bribery Convention. Over the last few years,
this Convention has secured 43 signatories, each of whom face strict, regular assessment
by the OECD Working Group on Bribery. Some countries, however, stand out as strong
and active enforcers, including Germany, the United Kingdom and Switzerland,
namely SEA (Strong Enforcement Agencies).
However, annual reports from the Working Group on Bribery show
that the United States is the most aggressive and successful enforcer of
foreign bribery in recent history, and this is particularly true since the late
1990s. Despite the fact that the US had the Foreign Corrupt Practices Act
(FPCA) enacted in 1977[1],
which prohibits and allows for punishment of foreign bribery offenses, effective
prosecution only became systematic after OECD countries agreed to play by the
same rules, as argued by Brewster, 2017.[2]
Enforcement against foreign bribery in the US is led by the Department
of Justice (DOJ)[3],
which prosecutes individuals and corporations for criminal violations of FCPA
provisions, as well as by the FCPA Unit
of the Securities and Exchange Commission (SEC) (created in 2010) for those cases
where a company issuing stock in the US has been involved in bribery of foreign
officials to secure contracts or other business.[4]
Both agencies have proved to have a strong capacity to achieve effective
punishment for FCPA infractions.
According to the 2017 OECD report on the enforcement of foreign
bribery, as of December of that year, 23 member countries had sanctioned
foreign bribery at least once. On the other hand, 18 years after the adoption
of the Anti-Bribery Convention, 21 parties have never sanctioned foreign
bribery.[5]
Whilst the success or failure of the Convention may be subject to
controversy, it remains a fact that prosecutions for foreign bribery are increasing
and that more and more countries are joining the Convention, including Israel
and Peru, who signed up this year. But what is less clear is whether the
Convention, and the improvement of domestic legislation and enforcement for
foreign bribery from member states, is proving to be a deterrent to potential wrongdoers.
On the one hand, payers of foreign bribes don’t seem to need be unduly
concerned about the risk of individual criminal prosecution. The histogram
below, prepared using OECD data, shows that only 11 individuals have been found
guilty and sentenced to serve more than 5 years in prison. The rest, adding up
to 86 individuals, have been sentenced to less than 5 years. Not a bad outcome
for people who corrupted dozens of public officials, rigged multi-billion-dollar
deals, and filled their pockets with the proceeds of shady contracts.
On the other hand, in a significant number of emblematic cases,
individuals are never even charged for any of their wrongdoings. In some cases,
they even obtain protection or immunity against prosecution in other countries
or competing agencies. The price for such protection is the payment of
considerable fines and criminal penalties, which are charged to the company,
and ultimately to its shareholders, who in almost all cases have also been
deprived of the honest services of the company´s management – and therefore are
victims too.
It is also true that in many jurisdictions the probability that EA
will do any credible effort to investigate, prosecute and punish foreign
bribery is close to zero. As of the end of 2017, at least 21 parties to the
Convention had never sanctioned a
company or individual for foreign bribery.[6]
Deterrence, therefore, is undermined by a lack of effective prosecution in at
least half of OECD members, as well as by immunity agreements that protect
individual criminals while allocating the burden for the payment of fines on
shareholders – something especially concerning when the companies engaged as the
‘active’ or supply side of the bribe are owned by a foreign government.
This may help explain the increase in the number of foreign
bribery cases worldwide. A quick look at Standford´s Law FCPA Blog brings us to
the conclusion that foreign bribery cases are not just increasing in number,
but that some corporations – despite observing check-box compliance obligations
– remain sympathetic to engaging in corrupt practices in their home countries
and elsewhere in order to secure contracts and businesses.
Against this backdrop, the countries on the ‘passive’ or demand side
of the bribe are, on the majority of occasions, not taken into consideration by
the US, Germany, the UK or Switzerland, just to name a few examples. Therefore,
they suffer a large number of complex consequences. Firstly, they are deprived
of the honest service of their officials; secondly, they are not recompensed for
the wrongdoing, given that the fines are paid to American or other EAs; and
thirdly, they cannot prosecute the payers of the bribes, because they have
reached settlements with EAs of other countries.
This dismal picture is further accentuated by the fact that
enforcement agencies often compete in the global
prosecution market to get the largest possible share from liable
corporations. Irrespective of what these agencies commonly say in press
conferences or press releases when a big case is unveiled, cooperation is, in
many cases, thwarted by harsh rivalry and self-interest.
In spite of the efforts made by US, UK, German or Swiss authorities,
in this paper I contend that the outcome of prosecutions performed by SEA can
produce unfair results when viewed from the perspective of the governments of
the demand side. This unfair outcome is in part due to the first come, first served philosophy that underlies foreign bribery
enforcement in the global prosecution market.
I also argue that such unfair outcomes help make the case that we are in urgent
need to improve the OECD Anti-Bribery Convention, making some suggestions and
recommendations in Chapter 4.
This is particularly true in light of the growth potential of the global prosecution market. Whilst 560
individuals and 184 entities have been sanctioned for foreign bribery cases
since 1999, currently over 500 investigations are ongoing in 30-member states.
Likewise, at least “155 criminal proceedings (against 146 individuals and 9
entities) are ongoing for foreign bribery in 11 Parties.”[7]
The years to come will undoubtedly see greater tensions between competing
jurisdictions, unless steps are taken to ensure fair outcomes for all parties
involved.
I believe that there are at least seven major reasons
to question the way in which the global prosecution
market for foreign bribery violations is working. Firstly, the first come,
first served philosophy is creating incentives for negative competition
between enforcement agencies instead of cooperation; secondly, investigated corporations have a counter incentive to
deceive prosecution agencies and withhold information that prevents effective multi-state
prosecution and punishment; thirdly, the
prosecution often passes the punishment onto innocent shareholders and
stakeholders, whist granting immunity to wrongdoers; fourthly, it may facilitate impunity both in the supply and demand
sides of
the bribes; fifthly, it leaves
countries unprotected against aggressive litigation by corporations in domestic
courts and arbitration tribunals; sixthly,
FCPA and OECD AntiBribery Convention enforcement are having counterproductive
effects in some countries; and, finally, number seven, it damages confidence and credibility in democracy and its
institutions.
2.1. First Come, First Served
EAs compete in the global prosecution market to effectively prosecute cases that
fulfill the triple purpose of (i) sending a signal to the public that helps to
deter wrongdoers from engaging in criminal activity, (ii) punishing individuals
and corporations for their misdeeds, and (iii) collecting multi-billion dollar
fines and penalties.
In some cases, SEA of the countries of bribe payers
and business facilitators – such as banks, accountants or shell companies –
cooperate amongst themselves, but exclude EAs from those countries where the
bribes where paid. Upon occasion, they might offer and ask for cooperation, yet
they only do so when things are pretty much a done deal. Also, it is common for
SEA to require and effectively receive more cooperation than they actively
give, especially to developing nations.
Therefore,
SEA that receive the first tip that there have been foreign bribery infractions
get to mobilize rapidly to collect evidence through the gathering of documents,
interviews, wiretaps, bank statements, search and seizure proceedings or various
other methods. They also get to engage in conversations with defendants and
their legal counsel, reaching agreements that may vary in form and reach, such
as deferred prosecution or plea agreements.
Such agreements define the terms of the
collaboration of the corporation and individuals with the SEA: the admission of
guilt, the obligation to improve compliance and the adoption of an independent
monitor, among others. In addition, they define the fines to be paid, and the
distribution of such funds. As expected, only those governments of the SEA that
are actually investigating the case and talking to the firm involved are
included in such agreements.
This
is the first come, first served
philosophy. Only the first EAs that undertake investigations and reach
agreements with firms manage to collect and share the proceeds of the fines and
penalties imposed or reached. The case of Odebrecht, which I will explain in Chapter
3, is the perfect example. In that case, EAs from three countries managed to
cut a deal (two deals in fact) with Odebrecht-Braskem, under which such
companies admitted their guilt in conspiracy to violate FCPA provisions, and then
had to pay 2.6 billion USD in fines to the US, Brazil and Switzerland. What
stands out here is that none of the nations where the bribes were paid – with
the exception of Brazil – received or will receive any compensation related to
the agreement.
I believe that the first come, first served philosophy is creating incentives for
negative competition between EAs rather than cooperation. Bearing in mind that
many firms involved with foreign bribery cases related to officials of
countries with weak EAs (WEA) prefer to negotiate with SEA in the first
instance than with their own EA, it is more likely that WEA will not be
involved in the negotiations at all or will be so only at a later date when everything is very much settled. If
lucky, an MLAT[8]
for judicial cooperation will facilitate their way into the final settlement
with the firm.
From the perspective of the WEAs, a question arises:
Why cooperate with SEAs if the settlement or decisions they (the SEAs) reach
with the firm are likely to (i) leave the firm without enough resources to
actually pay the fines that would be imposed as a result of the WEAs action,
and (ii) omit the fact that the State of the WEA is also a victim that deserves
reparation?
From the perspective of overall fairness, the final
outcome is not good. In actual cases where companies self-report, they prefer
to go to SEAs and then deal later with those that they view as weaker. Furthermore,
when they finally reach an agreement, they are clueless about what will happen
in the country of the soliciting party. Therefore, such firms remain subject to
new investigations in countries that were not part of the overall settlement.
From the perspective of effective enforcement, the
outcome is also poor. WEAs have low incentives to cooperate with SEAs.
Therefore, the timely collection of evidence becomes more difficult and costly,
and as a result, the good guys have a
higher chancer to lose in their fight against corruption.
2.2. Incentivizes corporations to deceive competing enforcement agencies
Firms know how poor the cooperation between
competing EAs can be. They also know that such cooperation grows weaker when
the distance of capacities between EAs from interested nations is higher. For
example, firms could easily expect that cooperation between the US and the UK
in an FCPA/UK-Bribery-Act investigation for a crime related to accounting fraud
and payment of bribes would be high or very high, whereas cooperation between
the US or the UK and Bolivia, Ecuador or Haiti would be weaker.
Because of this, firms and their legal counsel in
these cases tend to assess the pros and cons of the different available battlefields
for litigation and/or cooperation. Thus, they prioritize reaching agreements
with SEAs yet in some occasions go on to litigate the same cases before/against
the WEA. During this process, corporations might lie, misguide or deceive both
SEAs and WEAs in many ways, including on their real capacity to undertake
remedial action and to pay fines or compensate the victims or affected parties for
their criminal actions.
I elaborate on this idea below by mentioning the
case of Odebrecht, who reached a 2.6 billion USD settlement with the DOJ,
Brazil and Swiss authorities, after being initially fined 3.5 billion USD, using
the argument that the company could not pay more than this lower amount ($2.6 billion USD). Then, in January 2017,
Odebrecht agreed to pay 200 million USD to Dominican Republic. Later, in December
2018, it agreed to pay 180 million USD to Perú, and it has also offered a
further 30 million USD to Colombia. Where is this money coming from? Supposedly
Odebrecht didn´t have more available funds.
On the other hand, because conversations oriented to
reach plea agreements, DPAs or other kind of agreements, are normally kept
confidential, and led by the parent company, in some cases the subsidiary moves
toward settlement and negotiations with no real sense of what is really going
to happen. They go into it blind. In other instances, managers simply lie to
the WEA authorities in order to keep the big agreement with SEAs confidential
and protected.
2.3. It punishes innocent shareholders and stakeholders while granting immunity to wrongdoers
I have argued
that there are at least seven reasons to question how the global prosecution market is operating.
One of them, has to do with the negative consequences of the first come, first served principle. Another
is related to the incentives that firms have to deceive both WEAs and SEAs when
they believe that cooperation between EA is unlikely. Now I will outline a
third reason: the way in which the global
prosecution market operates is punishing innocent shareholders and stakeholders,
whereas it grants immunity to wrongdoers.
Modern corporations are complex entities, which in
some cases can have thousands or even hundreds of thousands of shareholders.
This is especially true when companies are publicly traded. When managers of such
companies commit FCPA infractions, the global
prosecution market facilitates the wrongdoers to go into a forum shopping
expedition, under the guidance of their legal counsel. As a result, criminals
have a higher chance of reaching settlements with EAs that will translate into
big fines for their corporations, that is to say their shareholders, whilst
obtaining guarantees and assurances of non-criminal prosecution against them as
individuals.
The consequences of the crime are therefore
externalized. Criminals that breached their fiduciary duty remain immune,
whilst the innocent shareholders are punished. This is possible because law
firms and companies involved in foreign bribery infractions have specialized in
detecting loopholes or legal strategies that will allow them to remain out of
prison, whilst putting the burden of reparation on the company.
This externalization also occurs when firms are
partly State-owned. In those cases, it may very well happen that the State decides
that it needs to capitalize the company in order to guarantee their payment of
the fines or to undertake new investments or operations, due to a lack of
resources (given that they have been used to pay the fines imposed by SEA).
2.4. Facilitates Impunity in Both Supply and Demand
The global
prosecution market can facilitate impunity in both the supply and demand
sides from the perspective of countries where the ‘passive’ side of the bribe
was located. Because SEAs work to ensure the imposition of the highest possible
sanctions allowed by their own regulations, liable firms will likely exhaust
their available resources in order to pay fines or compensations imposed by those
SEAs, to the detriment of any other EA. Furthermore, because, in many cases,
the agreement will include an obligation for the SEA to withdraw from taking
further criminal actions against employees or managers of the company, competing
EAs face a steep hill to climb if they wish to punish individuals or firms,
particularly if they are a WEA.
This is particularly true when interested countries do
not have an extradition treaty in place between them, or when the nation where
the defendant is located does not allow for extradition. This is the case in
Brazil, according to article 5 of its 1988 Constitution[9],
amongst others.
Also, because defendants are unlikely to be
extradited, as long as they can provide sufficient cooperation in the criminal
or administrative proceedings led by the SEAs or their own country´s EA, the
probability that they will effectively cooperate with the investigations led by
EAs of other governments is very low. They have no incentive for that
whatsoever, and it is unclear who would be in charge of supervising that such
cooperation would be made to the greatest possible extent. This, of course, adds
to the difficulty of achieving successful prosecutions against the demand side
of bribery cases, as Arrieta 2016[10] has argued.
In the case of Odebrecht, despite the fact that the company admitted
to paying bribes for securing contracts in 12 countries, in some cases the
company´s agents didn´t fully disclose which specific contracts had been
tainted by corruption. Therefore, countries like Colombia, Peru, Argentina or
México had to embark in a Kafkian process to ascertain their own role in the
scandal, which took years. This could have been avoided were it not for the first come, first served way in which
the US, Switzerland and Brazil prosecuted the case.
In the Siemens case, it became clear that some level of impunity
was going to take place, which wouldn´t be so much of a problem were it not for
those nations from the ‘passive side’ of the bribes who did not have the
opportunity to utter a word on these cases. If they had, a key issue which
later became quite problematic, could have had a general solution within the
plea agreement, rather than solutions offered on a case-by-case basis, depending
on the domestic legislation of the affected country – namely, the continuity or
nullity of tainted contracts. In a press conference held in December, 2008, the
DOJ answered some pointed questions made by journalists, as follows:
“QUESTION: Does Siemens get to complete all these projects that
they obtained through bribes. ACTING ASSISTANT ATTORNEY GENERAL FRIEDRICH: Let
me put it this way. There is not, for example, a disgorgement process as part
of a plea. Now, it may depend on, for example, if specific proceeds are
identified or if a specific payment is located someplace, then there may be,
for example, asset forfeiture measures that could be taken into account. But
the disposition today resolves the criminal matter completely.”[11]
This somewhat vague
answer given by the Assistant Attorney General Friedrich shows the scant
concern shown by the DOJ with regard to the impact that this case would have on
the projects or contracts obtained in LATAM and elsewhere using bribes. This is
astounding given the clear consequences that the plea agreement would have over
hundreds of thousands of workers, contractors and shareholders worldwide.
In civil law countries, a general principle of contract law is
that a contract that has been entered
into with illicit cause of object (purpose) is to be deemed void, this is, as
if it had never existed. And of course, the payment of a bribe is an
illicit cause. The problem is that, whilst it is true that in some FCPA or
foreign bribery cases the firm does admits guilt to conspiracy to commit a
crime, it does not formally admit the guilt to a specific crime related to a
contract – which the public already knows was tainted by corruption. Firms do
that because in many countries the law says that the State cannot enter into, nor
execute, a contract that is signed with a corrupt company or with a company
managed or owned by someone punished for corruption. This can prove to have a
major, distressing impact when it comes to public opinion, that demands the
termination of such contracts, and contributes to aggressive litigation strategies
adopted by firms that live or die by the outcome.
In the same press conference quoted above, a journalist asked:
“QUESTION: You and Mr. Persichini both said that corporate
executives were willfully engaged in this practice as standard operating
procedure over a period of years widespread. Why does the investigation need to
continue? It sounds like you had identified executives who were engaged in this
patterned practice of behavior. Why were no individuals charged?”[12]
The DOJ
representative gave an equally vapid answer, as follows:
“ACTING ASSISTANT ATTORNEY GENERAL FRIEDRICH: I'll say it's not
infrequent that a disposition is reached first vis-a-vis a company and then
there are individual prosecutions after that. I'm not commenting on this case
in specific. I'm talking about the practice generally. I wouldn't draw the
conclusion that you're drawing.”
Despite the lawyer-like response, the truth remains that criminal
liability of individuals was not a priority for American prosecutors in the
Siemens case. This is true for perpetrators both on the demand and supply side.
What happened in Siemens, Odebrecht and other cases, simply confirms that the
system is – with or without intention – designed in a way that diminishes the
possibility of reaching effective punishment of individuals in highly sensitive
cases. An OECD report issued in December 2018 has stated likewise that:
“11/12/2018: Public officials accepting bribes
from OECD-based companies run little risk of being punished, according to a new
OECD report. The report looks at what happened to the public officials in
a set of 55 concluded cases between 2008 and 2013 where OECD-based companies
were punished for bribing foreign public officials. In only one fifth of the 55
concluded foreign bribery cases were formal sanctions imposed on one or more
public officials. This is particularly striking because it is for cases in
which both sides of the bribe transaction – the briber and the public official
on the receiving end – were subject to the jurisdiction of Parties to the OECD
Anti-Bribery Convention (…).”[13]
Likewise,
in the case of Odebrecht, Marcello Odebrecht and some of his close Brazilian
collaborators were indeed tried and convicted for corruption charges by the Brazilian
authorities, but the managers of the companies that paid the bribes in other
nations remain free. In sum, the global
prosecution market creates incentives that allow for impunity on the supply
and demand side in some cases, sending equivocal signals to the public and
companies.
2.5. Leaves countries unprotected against aggressive litigation by corporations in domestic courts and arbitration tribunals
The global prosecution market provides a
number of compelling reasons for firms to engage in aggressive legislation
against the states where the bribes where made.
Because plea agreements say nothing about litigation of the company
against the countries or entities whose public officials they bribed, it is
commonplace for firms to bring charges against governments for a number of
reasons.
A paradigmatic case
is Odebrecht. This Brazilian company has brought several new cases to domestic
and arbitration tribunals against Peru and Colombia. In the plea agreement of
December 2016, signed with the DOJ, the company admitted to having paid bribes
to Colombian and Peruvian public officials – as well as officials of ten other
countries. However, they reserved the right to enter into civil or
administrative litigation against such governments. In a global prosecution market with greater cooperation between EAs, it
would be easier to work together to prohibit these kinds of litigation within the plea agreements
or DPAs reached with the companies. Or, at the very least, it would be possible
to demand that the company receive the funds from any such litigation in an
escrow account until any investigation related to the payment of bribes has
been fully concluded.
A change of this
nature would be most useful, especially bearing in mind that the governments of
developing nations have scarce or weak resources to take on civil or arbitral
litigation in highly sophisticated cases. It would also prevent any legal bullying
perpetrated by firms and their armies of lawyers, who, in cases, can seek this
kind of litigation in order to gain leverage in the negotiation of plea
agreements in criminal or administrative proceedings developed by the EAs of
such governments, fully funded by hedge funds or private equities.[14]
Recently,
the Administrative Tribunal of Cundinamarca, Colombia, adopted an exemplary
decision against Odebrecht, at the request of the Public Ministry: it mandated
the immediate termination of the contract between Odebrecht and the nation for
Ruta del Sol II, also ruling that Odebrecht should pay 300 million USD to the
Colombian government in compensation, and not the other way around, as
Odebrecht wanted.
Odebrecht has also deployed an overtly aggressive litigation
strategy in all countries subject to their bribery schemes, including Peru and
Argentina. In Peru Odebrecht won awards for nearly 254 million USD in awards
issued by arbitration tribunals. 19 arbitrators are under investigation for
alleged solicitation of bribes in those cases. I will elaborate on this below.[15]
2.6. FCPA and the OECD Antibribery Convention are having a counterproductive effects in some countries
The final outcomes and timing of decisions taken by EA in the global prosecution market are difficult
to grasp and explain to the average member of society, including politicians. In
many countries, legislators, policy makers and enforcement authorities are
being repeatedly challenged by their own constituencies to take a strong stance
against corruption, which is of course good.
What members of each country see is that other SEAs do a lot and
get a big cheque after their
investigation, whilst their own countries get nothing. This of course,
translates into a certain attitude being adopted by their leaders who think
that their countries are being left behind, which often later leads to populist
anticorruption rhetoric and poor anticorruption legislation. The failed
anticorruption referendum voted in Colombia in August this year, which intended
to reduce the salary of Congressmen and prohibit plea agreements in corruption
cases as means to fight corruption, is a good example.[16]
In many countries, therefore, constituencies demand stronger
legislation, higher fines and longer jail sentences. They also demand to
eradicate concepts such as the principle of opportunity, non-prosecution
agreements and deferred-prosecution agreements from criminal and administrative
proceedings , which they find weak and vicious. And of course, their leaders
follow, for fear of receiving reprisals or punishment in the next elections.
If this trend continues, it is more than likely that the global
whistleblowing ecosystem will be negatively affected, as firms would have lower
incentives for disclosing the problems or crimes that they have detected. This
is not a positive scenario, particularly if we take into consideration that NPA
and DPAs are an increasingly powerful tool to detect and punish FCPA
infractions in the US and in other countries such as the UK. In the US, NPAs
and DPAs have nearly tripled over the last few years.
Source: Gibsonn Dunn, 2016[17]
The result of the fear and distrust of WEAs and their
constituencies toward NPAs and DPAs is the adoption of equivocal legislation,
that hinders rather than facilitates more effective corporate prosecution.
2.7. It Hinders Democracy and its Institutions
The operation of the global prosecution
market creates public distrust in institutions, democracy and the rule of
law. It is a system that happens to produce a broad array of cases settled
through NPAs, DPAs or plea agreements, therefore it is highly likely that people
will lose confidence in the capacity of their institutions to protect the rule
of law and institutions. For now, this is an assumption that cannot be
substantiated by any verifiable data, and that, therefore, requires further
analysis and assessment.
For the moment, I will say two things: firstly, that there is
plenty information and news in the public domain that demonstrate that leaders,
politicians and activists support this approach; and secondly, that even though
it is true that we may not have a clear explanation of causality between the lack
of confidence in institutions, the justice sector and democracy with the
outcomes of the global prosecution
market, a look at the latest results of the 2018 Survey of the Barometer of the
America´s should prove sufficient in raising awareness about the way in which
civil society and common citizens perceive the justice systems that we have
designed.
Table 1: Confidence in Institutions, LATAM, 2018
LatinoBarometer,
2018
It is clear that confidence in the judicial branch is low for all
LATAM countries, but that these perceptions have declined since 2005.
Table 2: Confidence in the Judicial Power. LATAM, 1996-2018
LatinoBarometer,
2018
Likewise, it is clear that the perception of corruption as the
most important problem faced by the nations of the interviewees, is quite high.
Table 3: Corruption is the largest problem faced by the country?
LatinoBarometer,
2018
Posing the following question would be a good way of further
assessing the effectivity and convenience of the current performance of the global prosecution market: Is the final
outcome of such prosecution producing positive results in terms of justice and fairness
for LATAM or other countries?
In summary, I believe that it is clear that the global prosecution market requires adjustments
that call for changes both at a domestic and international level. But this is a
subject that I will return to in Chapter 4. For now, I will move on to Chapter
3, were I make a short summary of some problems that were identified in some
recent FCPA cases, such as Siemens, Odebrecht and PetroTiger.
3. Lessons Learnt from Prosecutions Against Odebrecht, Siemens and PetroTiger
Odebrecht and Siemens are emblematic cases from the point of view
of LATAM anticorruption activists and enforcement agencies. PetroTiger is
relevant because it shows the egregious outcomes that can sometimes result from
the global prosecution market. Below,
I make some short remarks related to these
cases, with the purpose of highlighting some of the most problematic concerns related
to the operation of SEAs in the context of the global prosecution market.
3.1. Odebrecht
In December 2016, the DOJ announced that it had reached a 2.6
billion USD plea agreement with Odebrecht for a corruption scheme that involved
public officials from 12 countries and nearly 800 million USD in bribes. The countries involved were Angola,
Argentina, Brazil, Colombia, Dominican Republic, Ecuador, Guatemala, Mexico,
Mozambique, Panama, Peru, Venezuela.[18] Switzerland and the US had jurisdiction over the case, due to
infractions of their foreign bribery regulations.
This announcement, which was seen initially as a promising step in
the fight against corruption, indeed helped to bring down corrupt officials in
some of the aforementioned countries; but at the same time brought a broad
array of difficulties, which could have been foreseen and prevented, and that
ended up increasing public distrust over the enforcement ecosystem, rather than
the opposite.
3.1.1. The SEAs Perspective
According to official documents, the DOJ, Brazilian and Swiss
authorities reached a plea agreement that was assumed would send the right message
to the world: anticorruption enforcers worldwide will not tolerate corruption. Also,
that international cooperation in the fight against corruption was key in achieving
the desired outcomes. When it came to the punishment, “U.S. District Judge
Raymond Dearie said at a hearing in Brooklyn federal court that about $93
million will go to the United States, $2.39 billion to Brazil and $116 million
to Switzerland.”[19]
Such a punishment added up to nearly 2.6 billion USD. However, it
is worth noting that the parties to the case had agreed that “the gross pecuniary gain resulting from
the offense is $3.336 billion. Therefore, pursuant to 18 U.S.C. § 3571(d),
the maximum fine that may be imposed is twice the gross gain, or $6.672 billion
per offense.”[20]
Further, based on that, the parties agreed that “the appropriate total criminal penalty is $4,503,600,000. This reflects
a 25 percent discount off of the bottom of the applicable Sentencing Guidelines
fine range for the Defendant's full cooperation and remediation.”[21]
And
furthermore, it was stated that “the
Defendant has made representations to the Fraud Section, EDNY and the Brazilian
authorities that the Defendant´s an inability to pay a criminal fine in excess
of $2,600,000,000 (…). Based on those representations, the Defendant has agreed
to a criminal penalty of $2,600,000,000 payable to the United States, Brazil,
and Switzerland (…)” P.17
Nearly four months later, a judge approved the 2.6 billion USD
agreement as of April 2017. The whole package would be distributed between
three countries and there would not be a single penny allocated as compensation
or remediation for other countries.
This is even more shocking if we consider that the DOJ had eyesight
over the scope of the payment of bribes in other countries, countries that were
defrauded of the honest services of their own public officials. According to
the document of December 12 2016, filed by the DOJ (Files Charges – Case
Initiation), “ In or about and
between 2001 and 2016, ODEBRECHT made and caused to be made approximately $439
million in corrupt payments to foreign political parties, foreign officials,
and their representatives, in countries outside of Brazil, including Angola,
Argentina, Colombia, the Dominican Republic, Ecuador, Guatemala, Mexico,
Mozambique, Panama, Peru and Venezuela, in order to secure an improper
advantage to obtain and retain business for ODEBRECHT in those countries.
ODEBRECHT benefited more than $1.4 billion as a result of these corrupt
payments.”[22]
Instead of being invited in a timely manner to join the
investigation, help gather evidence and benefit actively from the fines
imposed, the WEAs remained isolated and had to make their own way to collect
evidence and impose sanctions.
3.1.2. Angola
According to the plea agreement of December 12 2016, between 2006-2013
Odebrecht made corrupt payments of 50 million US to corrupted Angolan
officials, in order to ensure public work contracts. From those contracts,
Odebrecht received nearly 261.7 million USD.[23]
Angola did not receive any part of the total fine imposed to Odebrecht. A good
reason for that may be that Angola under the rule of President Dos Santos seem
to be a safe haven for corrupt individuals and companies. Forbes Magazine has
reported that Isabel dos Santos, the eldest daughter of the President, has
become Africa´s first female billionaire, with a fortune estimated to be around
3.3 billion USD.[24]
In 2017, Reuters explained that Angola has no incentives to
prosecute corruption, as the consequences would affect powerful individuals. In
addition, Paula Cristina Roque, “an Oxford University-based Angola analyst,
said Odebrecht projects in Angola were often secured without having to go
through a public tender process” and added that “Many Angolans believe the
company enjoyed close ties to President dos Santos”.
Nevertheless, the DOJ and Odebrecht could have agreed to create an
escrow account in favor of Angola, in anticipation of better – and more
democratic – conditions.[25] They could have also donated these funds to charities or other
agents doing work for democratization or strengthening the rule of law in Angola, such as the World Bank or the
African Development Bank or similar international organizations.
Here I must admit that it is perfectly reasonable, in instances
where countries are governed by
autocrats, or when there is no rule of law nor respect for human rights or
democratic values, to make a more conservative approach to EAs cooperation and
coordination.
3.1.3. Argentina
According to the December 2016 plea agreement, Odebrecht made over
35 million USD in corrupt payments to Argentinian intermediaries, on the
understanding that they would be passed on to public officials. The payments
were made in connection with three infrastructure projects, which generated a
profit of 278 million USD [26]
for Odebrecht.
Argentina did not participate in the settlement reached by
Odebrecht, the DOJ, Swiss authorities and Brazil. Worse still, Brazilian
authorities and Odebrecht became a difficult and painful obstacle for
Argentinian prosecutors in charge of the investigation to overcome. Only by
August 2018, more than a year and eight months after the December 2016 plea
agreement was disclosed, were Brazilian authorities and Odebrecht ready to
cooperate with the investigation in Argentina.[27]
The negotiation process for the terms of cooperation between Argentina and
Brazil took nearly five full months of conversations. Such drama could have
been avoided with a broader and more inclusive plea agreement.
Argentina has faced other problems and setbacks related to the
case. In 2018, Odebrecht called for an arbitration tribunal against the State,
arguing that the decision of Argentinian authorities to terminate the Enhacement of Gas-Pipes Contract was
unlawful. Odebrecht sued Argentina in this case for nearly 50 million USD. This
strategy is being replicated by Odebrecht in several LATAM countries, including
Peru and Colombia. It is said that in many cases Odebrecht has been awarded
contracts with artificially low costs, which are later recuperated through
corrupt arbitration tribunals. In the case of Argentina, a court ruled to stop
the claim of Odebrecht.[28]
3.1.4. Colombia
According to the plea agreement between the DOJ and Odebrecht, the
company paid nearly 11 million USD to Colombian officials, in order to secure
at least three public contracts worth nearly 2 billion USD, including the Ruta
del Sol II and Ocaña-Gamarra. Later it became apparent that the information
that Odebrecht had provided to the DOJ was incomplete. The bribes in Colombia were
actually much higher, almost 30 million USD.[29]
It later became clear that instead of working in good faith to cooperate
and resolve the problems resulting from the
tainted contracts, the only thing that the Colombian government could expect
from Odebrecht would be increased trouble. Odebrecht has filed several civil
and administrative actions against the Colombian government, requiring the State
to compensate the Brazilian company for problems related to the execution of
some of the contracts with the country. Given that the contracts were obtained
under false, corrupt, pretenses, it is shameful that they have chosen to
respond in this way. The last claim that Odebrecht filed against Colombia, as
of August 1 2018, asks for a 1.3 billion USD in compensation.[30]
This is nearly half the total of what Odebrecht has paid in bribes that have
promoted corruption over the last ten years or more.
In their claim, the company asserted that the Colombian government
was performing a persecution campaign against Odebrecht by employing hostile
acts that range from precautionary measures to disciplinary proceedings against
the company, and even the illicit appropriation of the project Ruta del Sol.[31]
Therefore, instead of cooperation and joint efforts by the
company, or the appointment of a compliance monitor and a person in charge of
restructuring its operations and contracts, what happened was that the company
embarked on an aggressive legal quest to protect the contracts that it had
obtained by illegal means and to obtain “reparations” derived from the work
that it had done to further said contracts.
In the midst of
this legal battle, Colombian EAs and the Administrative Tribunal of
Cundinamarca have taken landmark decisions related to Odebrecht. Firstly, the
Colombian Attorney General and the Comptroller General rejected the plea
agreement offer made by Odebrecht, who offered 30 million USD to settle the
criminal and fiscal proceedings. Secondly, the Administrative Tribunal of
Cundinamarca ruled that all contracts between the State and Odebrecht would
need to be immediately terminated and that the company and its business
partners would have to pay a fine of 400 million USD[32]
to the Ministry of Transport.
The abovementioned excesses from
Odebrecht could have been avoided had the EAs from all interested parties
worked cooperatively rather than competing in the global prosecution market. Now that Colombia has imposed such a
high sanction of 400 million USD to Odebrecht, one can start to speculate where
that money might come from? Odebrecht had said that they only had 2.6 billion USD…
And what if we include other fines, such as the one included in the plea
agreement reached by Peru with Odebrecht for 180 USD? I will come back to this later.
3.1.5. Dominican Republic
According to the DOJ, “In or
about and between 2001 and 2014, ODEBRECHT made and caused to be made more than
$92 million in corrupt payments to government officials and intermediaries
working on their behalf in the Dominican Republic. Odebrecht realized benefits
of more than $163 million as a result of these corrupt payments.”[33] The
Dominican Republic government did not receive a cent from the 2.6 billion USD agreement.
However, Dominican authorities
did manage to perform search and seizure operations in Odebrecht´s headquarters
in the Dominican Republic, though this was only in January 2017, some days
after the DOJ made the information public.
Despite the delay in the search
and seizure operations, the Dominican government reached a 184 million USD settlement,
twice the amount that had been paid in bribes, as regulated under Law 448-06,
the Dominican Antibribery Law. It was then agreed that the 184 million USD would
be paid during a period of 8 years.
Odebrecht agreed to cooperate
with the investigation led by the Dominican Prosecutor General in exchange for
immunity for their executives, as well as for a permit to continue operating in
the Dominican Republic, where it was developing the construction of the Punta
Catalina thermal energy plant, among other projects.[34] Those
184 million USD were not mentioned, included or accounted for in the December
2016 plea agreement signed by the DOJ and Odebrecht.
So, something doesn’t seem to add
up. Remember that: “the Defendant has
made representations to the Fraud Section, EDNY and the Brazilian authorities
that the Defendant´s an inability to pay a criminal fine in excess of
$2,600,000,000 (…). Based on those representations, the Defendant has
agreed to a criminal penalty of $2,600,000,000 payable to the United States,
Brazil, and Switzerland (…)”.
One of two things could therefore
be true: either the DOJ was deceived in the December 2016 agreement or the
Dominicans were in their January 2017 agreement, which was finally executed in
April that year. Regardless of that, Dominican Republic´s EAs proceeded with
their investigation. To-date, 14 people have been indicted and 10 arrested,
including congressmen, former ministers and businessmen.
Finally, it must be said that
contrary to Odebrecht’s approach and attitude in many LATAM countries, they
have been altogether more cooperative and committed to procedures undertaken by
EAs and other government agencies of Dominican Republic.
3.1.6. Ecuador
According to the plea agreement
of December 2016, “In or about and between 2007 and 2016, ODEBRECHT made and caused
to be made more than $33.5 million in corrupt payments to government officials
in Ecuador. Odebrecht realized benefits of more than $116 million as a result
of these corrupt payments.”[35]
Out of the 2.6 billion USD that were the supposedly the most that
Odebrecht could pay, nothing will go to Ecuador. Again, something doesn´t
seem to add up.
3.1.7. Panama
According to the plea agreement
of December 2016, “In or about
and between 2010 and 2014, ODEBRECHT made and caused to be made more than $59
million in corrupt payments to government officials and intermediaries working
on their behalf in Panama in order to secure, among other things, public works contracts.
ODEBRECHT realized benefits of more than $175 million as a result of these
corrupt payments.”[36]
Just as has been the case in the other instances detailed within this paper,
out of the 2.6 billion USD that were the supposedly the most that Odebrecht
could pay, nothing will go to Panama.
However, Panama did manage to indict at least 17 individuals
related to the bribes paid by Odebrecht, including Ricardo and Jose Enrique
Martinelli, the sons of former President Ricardo Martinelli.[37]
Ricardo Jr. and José Enrique were arrested in the United States in November
2018.[38]
Also, Panamanian authorities and Odebrecht reached a settlement whereby Odebrecht
agreed to pay a fine of 220 million USD for using the Panamanian banking
systems for money laundering. The millions keep on adding…
3.1.8. Peru
According to the plea agreement
reached by Odebrecht and the DOJ in December 2016, between 2005 and 2014
Odebrecht made and caused to be paid nearly 29 million USD to government
officials in Peru in order to secure public contracts. Those contracts
generated benefits worth over 143 million USD.[39] Nevertheless, the plea agreement
did not involve the Peruvian government in any way, despite the fact that it
had been defrauded of the honest services of those public officials that
solicited or received the bribes.
However, after nearly two years
of investigation and domestic prosecution, as of December 4 2018 Reuters reported
that, according to three sources, Odebrecht had reached a plea agreement with
the Peruvian Attorney General´s Office in exchange for information on officials
that had been bribed, according to the company.[40]
Such an agreement would include
the obligation to pay 180 million USD to the Peruvian government. Apparently,
the plea agreement would allow Odebrecht to continue with the execution of those
contracts that were awarded through corrupt means. It would also ensure that
Odebrecht´s officials in Peru would not be criminally prosecuted by enforcement
authorities.
3.1.9. Other Countries and the Brasilia Agreement
Mozambique, Mexico, Guatemala and other countries where bribes
were paid by Odebrecht faced similar developments to the ones mentioned above.
In no instance did the countries receive remuneration from the initial 2.6
billion USD basket. However, they did make some progress at a later date owing
to their own independent investigations.
3.1.10. The Brazilia Declaration
After the bombshell declaration
by the DOJ at the end of 2016, all EAs from LATAM countries were put under huge
pressure by their own constituent bodies. As is natural, most – if not all –
contacted their counterparts in the US and Brazil, seeking all possible
cooperation for the development and progression of the investigations.
It was agreed that a meeting would be held in Brazil by mid
February 2017. There, the heads of the EAs from eleven nations signed the Brazilia Declaration, where they agreed
to mutually “provide the most ample,
rapid and effective cooperation” related to the corruption involving
Odebrecht. The US did not sign the declaration.
The language used in the Declaration provides a good indication of
the actual levels of intent from the signatories to cooperate. Whereas the
Declaration states that the signatories agree to cooperate, the first pages of
the Declaration made it very clear, albeit subtly, that cooperation would be
slow or nearly impossible. Competing interests of competing parties in the global prosecution market were clearly
the parameters within which such a Declaration of good intentions had been
signed.
The Declaration stated, among other things, that: “In
consideration that the Ministry Public of Brazil signed two plea agreements
with Odebrecht and Braskem, and signed cooperation agreements with 78
individuals related to both companies, with the intent of enhancing the reach
of its investigation, as well as protecting public interest; and that “the
leniency agreements and those of cooperation are subject to confidentiality
duties, according to the Brazilian legislation and the provisions thereof”, the
parties assumed the commitment to “mutually provide the most ample, rapid and
effective cooperation…”.
Such an agreement
would be more part of the show that the Prosecutors had to stage for their own public,
rather than the basis for effective collaboration and prosecution. Some days
after the Brazilia Declaration, the Prosecutor General of Colombia issued a strong
attack against the Brazilian EA, against the loopholes of the OECD Antibribery
Convention and the Brazilia Declaration itself (which he had reluctantly
signed).
In March 2017, Mr. Martínez said that “the AntiBribery Convention
is not effective because it is designed to advance the interest of
industrialized countries… over the interest of affected countries”. He added
that “this creates obstacles to do the investigations in the country of the
passive side of the bribe, because in the case of Odebrecht, the collaboration
agreement reached by the 78 officials of the company (in Brazil) gives them
immunity against criminal prosecution and allows the company to engage in
public contracts with the affected governments.”[41]
3.1.11. And Switzerland?
In a press release dated 21 December 2016, Swiss authorities
reported their own participation in the Odebrecht plea agreement. They stated
that the investigation had initiated in a suspect banking transaction from the
Money Laundering Reporting Office. They went on to say that based on that
information, they could later ascertain that various companies in the
construction industry had paid bribes in order to secure contracts. Their investigators
had traced the payments back to, among others, Odebrecht.[42]
Swiss authorities
also reported that “In a summary penalty
order issued on 21.12.2016, the OAG found Odebrecht SA and CNO guilty of a
violation of corporate criminal law (Art. 102 para. 2 Swiss Criminal Code
(SCC)), in that they did not take all reasonable organisational measures
required to prevent the offences of bribing foreign public officials (Art.
322septies SCC; CNO) and money laundering (Art. 305bis SCC; Odebrecht SA and
CNO).”
They added that the “two
companies have been held jointly and severally liable to pay Switzerland the
sum of CHF 117 million”, and that “The
company Braskem SA also paid bribes via the same channels as Odebrecht SA and
CNO”.
In this statement, contrary to what happened with other EA, Swiss
authorities acknowledge that “Proceedings
in Switzerland against Braskem SA have been abandoned as the company is being
held accountable in the USA for offences that include the acts of bribery under
investigation in Switzerland. However, the Swiss decision to abandon the
proceedings involves the company paying compensation of CHF 94.5 million.” This
shows that, on this occasion, the Swiss authorities recieved significant gains
from the first come, first served rule,
as well as from effective cooperation with
the US and Brazil in the global
prosecution market.[43]
Regardless of the closer cooperation with authorities from those
two countries, Swiss authorities reported in 2017 that they were processing and implementing over 50 requests for
mutual judicial assistance. They added that over “CHF 1 billion in assets have
been seized (…) It is a particular concern of the OAG that Switzerland refunds
seized assets to their rightful owners. So far, over CHF 200 million has
already been refunded to the Brazilian authorities in relation to the Petrobras
/ Odebrecht cases.”[44]
Once again, the 3 countries from the leading EAs of this case remain the sole
beneficiaries of the plea agreement with Odebrecht.
3.1.12. Some final considerations on Odebrecht
According to the Plea Agreement between Odebrecht and the DOJ,
signed on 21 December 2016, “the
Defendant received full cooperation credit for its cooperation with the Fraud
Section and EDNY's investigation (…)”[45]. Moreover,
due to that cooperation, “after
considering (a) through (h) above, the Defendant received an aggregate discount
of 25 percent off of the bottom of the applicable U.S. Sentencing Guidelines
fine range.”
Moreover, this Plea Agreement
also stated that “At the request of the
Fraud Section and EDNY, the Defendant shall also cooperate fully with other
domestic or foreign law enforcement and regulatory authorities and agencies, as
well as the MDBs, in any investigation of the Defendant, its affiliates,
including Braskem and its affiliates, or any of its present or former officers,
directors, employees, agents, and consultants, or any other party, in any and
all matters relating to corrupt payments, false books and records, the failure
to implement adequate internal accounting controls, investment adviser fraud,
mail, wire, securities, bank fraud, or false statements to a bank, obstruction
of justice, and money laundering.”[46]
As seen above, it is questionable as to whether
Odebrecht has fulfilled their obligation to cooperate with other “domestic or foreign law enforcement and regulatory authorities and agencies” in good faith.
Whereas in some countries Odebrecht and Odebrecht´s officials have become
active litigators, poor or elusive witnesses and even “enemies of the state” as some have called the company and their
officials, in others Odebrecht and its agents have given valuable cooperation
in dismantling networks of corrupt public officials and bribe payers from the
private sector.
3.2. Siemens: More of the Same
In 2008 Siemens was involved in a huge corruption scandal that
affected Argentina, Bangladesh and Venezuela. That year, Siemens AG pleaded
guilty before US District Judge Ricard Leon in the District of Columbia to
charges for violations of the FCPA´s provisions on internal control and books
and records. Siemen S.A. Argentina pleaded guilty to similar charges, as did
Siemens Bangladesh Limited and Siemens S.A. Venezuela. Siemens Bangladesh and
Siemens Venezuela also pleaded guilty to counts of conspiracy to violate the
antibribery provisions of the FCPA. Combined, the companies of the conglomerate
agreed to pay a total criminal fine of 450 million USD.[47]
The corruption of Siemens had reached – however – even higher
levels. Four Siemens subsidiary companies had been involved in the Oil for Food
Program scandal in Iraq, for acts committed between 2000 and 2002. Specifically,
these were named as Siemen S.A.S. France, Siemens Sanay ve Ticarte A.S. of
Turkey, Osram Middle East FZE and Gas Turbine Technologies S.P.A., all of which
were wholly owned by Siemens or other of its subsidiaries.
These companies were awarded 42 contracts totalling more than 80
million USD, with the Ministry of Electricity and Oil in Iraq. In order to get
them, the Siemens group had paid at least 1.7 million USD in bribes to the
Iraqi government. As a result, Siemens earned collectively over 38 million USD
in profits.[48]
As a result of American and German investigations, Siemens reached
settlements with SEAs from both countries. Specifically, Siemens agreed to pay
a fine of 350 million USD in an agreement with the Securities and Exchange
Commission of the US in a “disgorgement of profits relating to those
violations”[49]. It
was also agreed that Siemens would pay a criminal fine to the United States to
the tune of 450 million USD.[50] Furthermore, it also reached an agreement with the Munich Public
Prosecutor´s Office to pay 569 million USD based on its corporate failure to
supervise its officers and employees.[51]
Shockingly,
Siemens didn´t admit explicitly to having paid bribes. [52]
They only admitted to accounting fraud and conspiracy to pay bribes, which of
course, has different legal consequences than admitting to actually having payed
the bribes themselves. According to the press release dated 15 December 15 2008,
“in the case of Siemens Venezuela, the prize was a $340 million contract to
build two city rail systems. In the case of Siemens Bangladesh, corrupt payoffs
there resulted in a $40 million mobile phone project. And in the case of
Siemens Argentina, the goal was a USD 1 billion dollar contract for work on
Argentina's national identity card.”[53]
In
conclusion, as a result of the investigation and settlement, Siemens agreed to
pay a combined amount of 1.6 billion USD in criminal and civil penalties in the
US and Germany. Not one USD dollar would go to the victim states, countries that
had been defrauded of the honest services of their public officials.[54] Therefore, the big winners in this
illustration of the global prosecution market were the US and Germany, that is to say
the countries from where the bribes originated. Then there are the lawyers
hired by Siemens.
According to “Siemens’ latest estimates, over 1.5 million hours of
billable time by Debevoise and Deloitte professionals have been devoted to the
investigation. This includes the extensive and sustained participation of
approximately 100 lawyers and 100 support staff from Debevoise and 130 forensic
accountants and support staff from Deloitte. The investigative work has taken
place in 34 countries and has involved over 1,750 interviews and over 800
informational meetings.” This keeps the legal, accounting and audit industries
very happy and well-financed, whilst Argentina, Bangladesh and Venezuela, were excluded
from all deals and didn’t receive a single dollar in compensation.
Interestingly enough, it has been documented that when certain
governments from the victim states took strong measures against Siemens and
their corrupt actions, such as terminating contracts, Germany’s diplomatic
services in-country applied strong pressure to protect Siemens’ investments there.
For example, after Argentinian officials took the decision to terminate
contracts, the German Ambassador began a lengthy campaign requesting that Argentina
protect German investment in the country. It also became vox populi that the harsh position of Germany against Argentina in
the IMF after the economic collapse of the latter nation was a retaliation for
Argentina´s tough position on Siemens Argentina.[55]
3.3. PetroTiger: Story of a Failed Trial
In 2014, the Secretary of the Presidency of Colombia disclosed a
corruption case involving bribes totaling almost 333,500 USD that PetroTiger, an
oil and gas company domiciled in the United States, had paid in 2009-2010 with
the intention of securing the adjudication of an oil exploitation contract with
Mansarovar, an instrument of the Colombian State-controlled oil company,
Ecopetrol.[56] The
Mansarovar contract was valued at around 39.6 million USD and, as of 2014, had
produced more than 3.5 million USD in profit. The mastermind of the payments was
Joseph Sigelman, an American citizen and Harvard Business School Graduate.[57]
Prosecution began in Colombia, and several public officials were found guilty.
One of them was sentenced to 16 years’ imprisonment in 2017.
Parallel, the DOJ had begun investigations in the US in 2014 after
a self-disclosure of PetroTiger, which occurred after a change of control of
the company. After a long litigation and a complex trial where one of its
witnesses was put under fire by the defense, the DOJ decided to settle with
Joseph Sigelman by mid-June 2015. Sigelman and the DOJ entered into a plea
agreement. The former accepted to pay a 339,115 USD penalty, did not spend a
single day behind bars and instead received probation for 36 months.[58]
The agreement reached between Mr. Sigelman and the DOJ was such
that it would be most unlikely that Mr. Sigelman be extradited to Colombia, in
case of a formal request from the Colombian authorities. Therefore, the final
result for Colombia was far from positive. Whilst the wrongdoer In Colombia was
held to account, it could not and probably would never be able to bring the
payer of the bribe to account, given that he was now protected by the American
government.
Furthermore, despite the fact that Sigelman and the US settled the
case for a 339,115 USD penalty, none of that would be sent to Colombia. So,
having invested hundreds of hours in the case, many of which were focused on ensuring
constructive and positive international cooperation with the US, Colombia left
the case empty handed. The global
prosecution market in this case too shows nothing short of wickedness. All
for the powerful, nothing for the weak… first
come, first served.
4. Assessment of the Global Prosecution Market and Policy Recommendations
I began this paper by saying that there are seven
major reasons that allow us to question the way in which the global prosecution market for foreign
bribery violations is working. I believe the cases presented in this paper help
to support that idea. The first come, first
served philosophy, that expressed itself in the unfair distribution of
penalties and fines, excluding the victim countries, is creating negative
incentives for international cooperation between EAs, particularly when it
comes to cooperation between SEAs and WEAs. The efforts of global corporate
prosecution should ensure that, contrary
to what happens today, a win-win result is put in place for all parties that
have been victim of and participated in these kinds of investigations.
The all-for-me
result of cases such as Siemens, Odebrecht and PetroTiger is nurturing strong
feelings of resentment, from which nothing good is to be expected. The
Declaration of Brazilia is a symbol of that. Heads of EAs from 11 LATAM
countries, trying to find ways to cooperate, where the US was not a party to
the discussion, is symptomatic of how LATAM EAs perceive the US. Furthermore,
statements such as that of Nestor Humberto Martinez, Prosecutor General of
Colombia, show the lack of confidence and credibility that could all too easily
spread throughout EAs in the region.
Indeed, because the global prosecution market is operating based on competition and not
on real and sound cooperation, investigated corporations tend to hide
information or deceive EAs of WEAs or even SEAs as they know that the
cooperation between such agencies is low. Firms know that each EA wants to be
the first to get to the bottom of the case, reach an agreement with them and secure
as much money as possible for their own country, in furtherance of the first come, first served philosophy.
Therefore, firms are better off withholding information from some weak EAs whilst
they reach an agreement with the most powerful. Such agreements, as we have
seen with Odebrecht and Siemens, are not necessarily the best outcome in terms
of fairness and justice… at least not from the perspective of the state where
the public official was bribed.
Likewise, the cases analysed in this paper help to support
the conclusion that the global
prosecution market is allocating the costs of the punishment for foreign
bribery infractions on innocent shareholders and stakeholders, whereas the
actual criminals that used the company with criminal intentions receives immunity.
Whilst it might be true that companies should be fined, based on the respondent superior principle, it is
nevertheless also the case that the wrongdoers end up having immunity.
Now, the key problem here is this: SEAs are
protecting corrupt businessmen domiciled not just in their own country but also
those domiciled in foreign countries. The latter, who worked for subsidiaries
of the parent company, conspired, paid and/or aided and abetted the commission
of those crimes in foreign soil. But the EAs of the countries where those crimes
were committed end up in a situation where all those people become protected
witnesses of the SEAs. Thus, the enforcement proceedings of the WEAs face a
higher risk of failure.
Moreover, such immunity, added to exhaustion of
resources of the firm that reached an agreement with a SEA, is likely to
facilitate impunity in many cases, both on the supply and the demand side. This
is even more concerning if we look at the overtly aggressive attitude of some
of these corrupt firms towards some governments. During the last decade,
Odebrecht has sued Peru in at least 24 arbitration tribunals[59],
some of which were being “bought” by Odebrecht paying bribes to the tribunal
members.[60]
Therefore, the lack of improved coordination between
EAs interested in these corruption cases, leave victim states unprotected
against the litigation strategies of firms that intend to gain leverage and
recover lost terrain by taking governments to court and arbitration tribunals.
Another relevant conclusion is that the global prosecution market is working in
such a way that, instead of building trust relationships between EAs across the
globe, and instead of enhancing the trust of the constituents of countries
involved in corruption cases with their own EAs, it is creating an environment
of distrust and competition, that on occasion pushes for absurd or
counterproductive legislation. The pragmatic approach of SEAs is hard to
understand by constituents of victim states when they don´t see any concrete
benefit for their own country as a consequence of such agreements, and when
they see that their own EAs have been left behind. Therefore, they demand
harder, tougher and stronger measures against the corrupt. The problem with
this is that key witnesses and criminals in such cases become protected by SEAs,
and prosecution undertaken by WEAs end up going nowhere.
Finally, the cases presented in this paper also
support the idea that the current operation of the global prosecution market hampers democracy, trust and confidence
in institutions. Though this requires further analysis and data, we will leave
this for a future paper. Last, I will make what I hope and believe to be
valuable policy recommendations for key actors competing in the global prosecution market.
4.1. Renewing the OECD Anti-Bribery Convention
The OECD Anti-Bribery Convention remains an
important tool to combat foreign bribery. Recently countries like Israel and Peru
have signed up to the Convention.[61]
More will probably do so in the near future. However, the Convention has
shortfalls. For instance, it focuses too heavily on the supply side, and too
little on the demand side. Because of that, the global prosecution market is producing some negative outcomes.
Particularly, when it punishes only the supply side, yet also impedes
cooperation between EAs to ensure effective punishment on the demand side.
Also, the Convention does not develop rules related
to the distribution of the proceeds of fines and criminal penalties amongst
member states. Nor does it develop any rules on the repatriation of proceeds from
the crimes. Therefore, I believe that OECD members could explore a draft
amendment of the Anti-Bribery Convention, that looks to enhance the overall
fairness and efficacy of transnational antibribery efforts.
4.2. Increase Cooperation with EAs of Demand Side Countries Before DPAs or NPA are Agreed with Firms
Enhancing cooperation between SEAs
and EAs from demand side countries
would have a positive impact in corporate prosecution for corruption-based
crimes. This could protect countries against retaliation and
litigation-bullying by the subsidiaries of corrupt companies that on occasion try
to gain leverage through the application of this kind of pressure. It would
also improve the overall fairness of the distribution of fines and criminal
penalties, which should go some way towards repairing the countries of the demand
side of the bribes. This would also facilitate better collection of evidence,
access to key witnesses and would improve monitoring measures undertaken by the
company in order to advance its compliance system to a new level.
4.3. Reform Prosecution and Sentencing Guidelines
Given that foreign bribery is an
offense that affects not only the interest of supply side countries and of the
shareholders of the companies, but also the demand side countries, who are
deprived of the honest services of their public officials, the SEAs should
consider reforming their prosecution and sentencing guidelines in such a way
that would acknowledge the importance of giving full reparation to the demand
side countries too.
4.4. Monitor
For cases such as Odebrecht or
Siemens, where SEAs demand the firms to appoint a special monitor, SEAs could also
consider requesting the appointment of additional monitors who would report to
the special monitor and the SEA for each demand side country. Usually in “FCPA
actions, just one monitor is stipulated for the corporate parent”, as is
commonly known.[62]
It seems to me that is not enough, especially for firms with tens of thousands
or even hundreds thousands employees.
5. Conclusions
The day the DOJ announced the
agreement reached with Siemens, the press release stated: “But what is potentially even more significant, and as this case
makes clear, is the fact that the United States is not the only player at the
table. We aren't the only ones fighting global corruption. Other nations are
joining us in this effort, and I'm here to tell you that's a good thing, and
something that we will only see more of in the future.”[63]
Despite the fact
that the DOJ acknowledged the importance of international cooperation, the fact
remains that many countries with interest in the case were never part of the
equation. The global prosecution market
operated in such a way that benefited the powerful and ignored the weak.
Something similar happened with Odebrecht between 2016-2018.
Nevertheless, the
DOJ was right to say that: “Corruption is not a gentlemen's agreement where no
one gets hurt. People do get hurt. And the people who are hurt the worst are
often residents of the poorest countries on the face of the earth, especially
where it occurs in the context of government infrastructure projects, contracts
in which crucial development decisions are made, in which a country will live
by those decisions for good or for bad for years down the road, and where those
decisions are made using precious and scarce national resources.”[64]
To evolve this thinking, I
conclude that the US, Germany and countries with SEAs could make use of a more
collaborative approach to global corporate prosecution, especially when it
comes to corruption cases. A new approach such as this could greatly improve
results in the global effort to fight corruption.
6. Sources
§ Brewster,
Rachel. Enforcing the FCPA: International Resonance and Domestic Strategy.
Virginia Law Review. 2017.
§ http://www.oecd.org/corruption/data-on-enforcement-of-the-anti-bribery-convention.htm http://www.eurosur.org/constituciones/co22-2.htm
§ ATTACKING
BRIBERY AT ITS CORE: SHIFTING FOCUS TO THE DEMAND SIDE OF THE BRIBERY EQUATION.
Arrieta, Lindsay B . Public Contract Law Journal ; Chicago Vol. 45, Iss. 4,
(Summer 2016): 587-612.
§ DOJ.
Second Press Release. Siemens v. Argentina. December 15, 2008.
§ Press
Conf Siemens. P.7.
§ Plea agreement. 21 Dic. 2016.
§ Document of December 12, 2016 filed by DOJ.
Files Charges. Case initiation.
§ La Justicia frenó una demanda millonaria de
Odebrecht. https://www.lanacion.com.ar/2143431-la-justicia-freno-una-demanda-millonaria-de-odebrecht
- Suscribite al periodismo de calidad – Copyright. La Nación. June 13, 2018.
§ https://www.cnbc.com/2018/12/04/reuters-america-odebrecht-peru-close-to-plea-bargain-to-protect-it-from-liquidation-source.html; https://www.reuters.com/article/us-peru-odebrecht-exclusive/exclusive-odebrecht-peru-agrees-to-plea-deal-with-peruvian-authorities-over-bribery-scandal-sources-idUSKBN1O70U4?feedType=RSS&feedName=businessNews&utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+reuters%2FbusinessNews+%28Business+News%29 ; and https://gestion.pe/peru/politica/procurador-jorge-ramirez-acuerdo-odebrecht-publico-nndc-253302
§ https://www.elespectador.com/noticias/judicial/criticas-del-fiscal-general-al-caso-odebrecht-articulo-682607
March 2, 2017
§ Report
of the Office of the Attorney General of Switzerland on its activities in 2017
for the attention of the supervisory authority. P. 22
§ Plea
Agreement. Odebrecht-DOJ. December 21, 2016. P. 4.
§ Siemens
Case. First Press Release.
§ Transcript
of Press Conference Announcing Siemens AG and Three Subsidiaries Plead Guilty
to Foreign Corrupt Practices Act Violations. December 15, 2008. P. 6.
§ Press
release by the DOJ. December 15, 2008.
Second Press Release
§ Second
Press Release. Siemens Case.
§ Case
1:13-mj-02087-JS Document 1 Filed 11/08/13. Criminal Complaint.
§ http://www.fcpablog.com/blog/2016/12/29/reconsidered-odebrecht-and-braskem-are-on-our-fcpa-top-ten-l.html Press Release caso de Siemens. DOJ.
§ Press
Release. Siemens. P. 3.
TABLE
OF CONTENTS
4.2. Increase
Cooperation with EAs of Demand Side Countries Before DPAs or NPA are Agreed
with Firms
[2] Brewster, Rachel. Enforcing the FCPA:
International Resonance and Domestic Strategy. Virginia Law Review. 2017.
[8] Mutual Legal Assistance Treaty.
[10] ATTACKING BRIBERY AT ITS CORE: SHIFTING
FOCUS TO THE DEMAND SIDE OF THE BRIBERY EQUATION. Arrieta, Lindsay B . Public
Contract Law Journal ; Chicago Vol. 45, Iss. 4, (Summer 2016): 587-612.
[11]
Siemens v. Argentina. Second Press Release of the Department of Justice.
December 15, 2008.
[12] Idem.
P.7.
[16] Consideraciones sobre la Consulta Anticorrupción. Instituto Internacional
de Estudios Anticorrupción. August, 2018. https://www.estudiosanticorrupcion.org/
[17] https://www.google.com/imgres?imgurl=https://www.gibsondunn.com/publications/PublishingImages/2012YrdEndDPA1.jpg&imgrefurl=https://www.gibsondunn.com/2012-year-end-update-on-corporate-deferred-prosecution-agreements-dpas-and-non-prosecution-agreements-npas/&h=274&w=526&tbnid=i2H5BIbYUrynAM:&q=non+prosecution+agreements+and&tbnh=111&tbnw=214&usg=AI4_-kT5q7eUJEdVpGqilB23mv3srQ_GTQ&vet=12ahUKEwjy0a_Hna_fAhVuTd8KHfqVAyUQ9QEwAHoECAAQBg..i&docid=Xs0KCKTwhwd2MM&client=firefox-b-1-ab&sa=X&ved=2ahUKEwjy0a_Hna_fAhVuTd8KHfqVAyUQ9QEwAHoECAAQBg#h=274&imgdii=c9kYS6wcwxoFlM:&tbnh=111&tbnw=214&vet=12ahUKEwjy0a_Hna_fAhVuTd8KHfqVAyUQ9QEwAHoECAAQBg..i&w=526
[20] Plea agreement. 21 Dic. 2016.
[21] Idem. P. 17.
[22] Document of December 12, 2016 filed by Department
of Justice. Files Charges. Case initiation. P. 16.
[23] Idem. P. 17.
[26] Idem. P. 17.
[28] La Justicia
frenó una demanda millonaria de Odebrecht.
https://www.lanacion.com.ar/2143431-la-justicia-freno-una-demanda-millonaria-de-odebrecht
- Suscribite al periodismo de calidad – Copyright. La Nación. June 13, 2018.
[33] Document of December 12, 2016 filed by DOJ.
Files Charges. Case initiation. P. 19.
[35] Document of December 12, 2016 filed by DOJ.
Files Charges. Case initiation. P.19.
[36] Idem. P.19.
[39] Document of December 12, 2016 filed by DOJ.
Files Charges. Case initiation. P.19.
[40] https://www.cnbc.com/2018/12/04/reuters-america-odebrecht-peru-close-to-plea-bargain-to-protect-it-from-liquidation-source.html; https://www.reuters.com/article/us-peru-odebrecht-exclusive/exclusive-odebrecht-peru-agrees-to-plea-deal-with-peruvian-authorities-over-bribery-scandal-sources-idUSKBN1O70U4?feedType=RSS&feedName=businessNews&utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+reuters%2FbusinessNews+%28Business+News%29
; and https://gestion.pe/peru/politica/procurador-jorge-ramirez-acuerdo-odebrecht-publico-nndc-253302
[41] “Críticas
del fiscal Martínez a la cooperación internacional en caso Odebrecht. El fiscal
general Néstor Humberto Martínez hizo fuertes críticas a los sistemas de
cooperación internacional para la lucha contra los sobornos transnacionales.
Enfatizó en que la Convención Anticohecho de la Organización para la
Cooperación y el Desarrollo Económico (OCDE), (…) no es efectiva porque está
diseñada bajo intereses de países industrializados que privilegian sus
legislaciones sobre las de los países afectados. (…) El sistema de cooperación
de la OCDE privilegia a los países de los que son procedentes las empresas
corruptoras, dijo (…) Agregó que eso crea dificultades para hacer
investigaciones en el país receptor de sobornos, pues en el caso de Odbrecht,
el acuerdo confidencial al que llegaron los 78 directivos les da inmunidad para
ser procesados penalmente y permite que la constructora siga contratando con
los Estados. Según Martínez, la situación genera graves líos, pues la entrega
de pruebas y la cooperación internacional queda sujeta a los beneficios que le
otorgaron Oderbecht en Brasil y no obliga a comparecer a los responsables de la
constructora ante las autoridades de otros países.” https://www.elespectador.com/noticias/judicial/criticas-del-fiscal-general-al-caso-odebrecht-articulo-682607 March 2, 2017
[43] Idem.
[44] Report of the Office of the Attorney General
of Switzerland on its activities in 2017 for the attention of the supervisory
authority. P. 22
[45] Plea Agreement. Odebrecht-DOJ. December 21,
2016. P. 4.
[46] Plea Agreement. Pp. 9-10.
[47] Siemens Case. First Press Release.
[48] Siemens. 2008. 1st Press Release.
[50] Idem.
[51] Siemens. 2008. 1st Press Release. P. 3.
[52] Transcript of Press Conference Announcing
Siemens AG and Three Subsidiaries Plead Guilty to Foreign Corrupt Practices Act
Violations. December 15, 2008. P. 6.
[53] Press release by the DOJ. December 15,
2008. Second Press Release
[54] Siemens. 2008. Second Press Release.
[56] Case 1:13-mj-02087-JS Document 1 Filed
11/08/13. Criminal Complaint.
[64] Press Release. Siemens. P. 3.
