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Further To The Need For Responsible Statistical Analysis In FCPA Research

Statistical Analysis

Today’s post is from Peter Leasure J.D. (current Ph.D. candidate, University of South Carolina, Department of Criminology and Criminal Justice).

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This previous FCPA Professor post and related article showed that FCPA researchers and the entire legal field, especially those publishing legal journals, could greatly benefit from a better understanding of statistics.

This post will once again demonstrate this need. In an article recently published (Annalisa Leibold, The Extraterritorial Application of the FCPA Under International Law, 51 Willamette L. Rev. 225 (2015) and a subsequent post on the FCPA Blog, it was stated that firms with foreign headquarters were paying larger fines than firms with U.S. headquarters in FCPA cases. The author said as follows:

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Revisiting The Benefits Of Voluntary Disclosure With Responsible Statistical Analysis

Statistical Analysis

Today’s post is from Peter Leasure J.D. (current Ph.D. candidate, University of South Carolina, Department of Criminology and Criminal Justice).

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When asked about all sorts of automotive and household repairs, a dear friend used to reply, “I know just enough to get into trouble.”

Such can be the case with statistics and Foreign Corrupt Practices Act (FCPA) research. While statistical research within the FCPA is sparse[1], some efforts have been made. However, some of these efforts fell short and the entire legal field, especially those publishing legal journals, could greatly benefit from a better understanding of statistics.

My new article forthcoming in the Journal of Financial Crime titled “Embracing Fragility in Our Data: A Cautionary Example from Research on the FCPA and Voluntary Disclosure” (click here to download) provides a clear example of the need for a greater understanding of statistics in FCPA research.

“Embracing Fragility in Our Data” critiques the methodology of a previous study [2] which looked at whether there are benefits to voluntary disclosure of FCPA misconduct. In the study being critiqued, results showed that voluntarily disclosing companies faced nearly two and a half times higher total fines than companies that did not voluntarily disclose. A simple Google Scholar search yields twenty eight manuscripts that have relied upon and cited the findings noted by that previous study. It is no doubt likely that several other academics and practitioners have also relied upon and communicated those findings.

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Misuse Of Visa Invitation Letters In China Travel

Visa

Today’s guest post is from Eric Carlson. Carlson is a Shanghai-based partner of Covington & Burling LLP. He specializes in anti-corruption compliance and internal investigations, with a particular focus on China and other regions of Asia. He speaks Mandarin and Cantonese and can be contacted here.

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In recent years, some 17 settled FCPA enforcement actions involved, in whole or in part, allegations of improper travel benefits to Chinese citizens, often involving leisure travel to the United States.[1]

This post outlines travel restrictions imposed by the Chinese government on its citizens and how companies may inadvertently facilitate leisure travel through visa invitation letters.

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Checking In Down Under

Australia

Today’s post is from Robert Wyld (Partner, Johnson Winter & Slattery – here).  Wyld is the Australia Expert for FCPA Professor.

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This post highlights several important recent developments in Australia including:

(i) new false accounting criminal offences;

(ii) amendments to the foreign bribery offence that become law; and

(iii) the Attorney General’s Department submission on Senate foreign bribery review.

New False Accounting Criminal Offences

For many years, the OECD, Transparency International Australia and experts have criticised Australia for failing to have in place any meaningful false accounting laws which can apply generally or in particular, to foreign bribery cases.

The US history of books and records offences

In addition to its anti-bribery provisions, the United States Foreign Corrupt Practices Act (FCPA) has always contained books and records and internal controls provisions that have been primarily enforced by the US Securities and Exchange Commission.  While the US criminal offences require a degree of intentional conduct, the US civil books and records and internal control offences do not – that is, they merely require listed entities to maintain books and records in a manner that a company would be reasonably expected to maintain.  These laws have been particularly fruitful for the US authorities in prosecuting companies for foreign bribery related offences.  The US Department of Justice (DOJ) focuses on the criminal offences while the US Securities and Exchange Commission (SEC) focuses on the civil cases (the books and records and internal controls offences), often in parallel with the DOJ.

On 27 November 2015, the Australian Government finally addressed this glaring gap in our laws by introducing the Crimes Legislation Amendment (Proceeds of Crime and Other Measures) Bill 2015 to Parliament.  The proposed laws are to be enacted in a new Part 10.9 – Accounting Records section in the Criminal Code Act 1995 (Cth) (the Criminal Code).  (See here for the link).

The False Accounting Offences

There are two primary offences

Intentional false dealing with accounting documents

The essential elements of this offence (proposed s490.1(1) Criminal Code) are as follows:

  • the person commits an offence where the person:

makes, alters, destroys or conceals an accounting document; or

 fails to make or alter an accounting document where the person is under a duty to so make or alter the document; and

  • the person intended the making, alteration, destruction or concealment of the document to facilitate, conceal or disguise the occurrence of one or more of the following:

the person receiving a benefit that is not legitimately due;

the person giving a benefit that is not legitimately due to the recipient or intended recipient;

another person receiving a benefit that is not legitimately due;

another person giving a benefit that is not legitimately due to the recipient or intended recipient;

loss to another person; and

  • one or more circumstance applies as set out in s490.1(2) of the Criminal Code.

The reckless false dealing with accounting documents

The essential elements of this offence (proposed s490.2 of the Criminal Code) are as follows:

  • the person commits an offence where the person:

makes, alters, destroys or conceals an accounting document; and

 fails to make or alter an accounting document where the person is under a duty to so make or alter the document; and

  • the person is reckless as to whether the making, alteration, destruction or concealment of the document facilitates, conceals or disguises the occurrence of one or more of the following:

the person receiving a benefit that is not legitimately due;

the person giving a benefit that is not legitimately due to the recipient or intended recipient;

another person receiving a benefit that is not legitimately due;

another person giving a benefit that is not legitimately due to the recipient or intended recipient;

loss to another person; and

  • one or more circumstance applies as set out in s490.1(2) of the Criminal Code.

The qualifying circumstances (or jurisdiction) for each offence

The proposed s490.1(2) sets out certain circumstances, one of which must apply for an offence under s490.1 or s490.2 of the Criminal Code.

The relevant circumstances are that:

  • the person is:

a constitutional corporation, a corporation incorporated in a Territory or a corporation whose core or routine activities are carried out in connection with a Territory; or

an officer or employee of a constitutional corporation acting in the performance of his or her duties or carrying out his or her functions; or

engaged to provide services to a constitutional corporation and acting in course of providing those services; or

a Commonwealth public official acting in the performance of his or her duties or carrying out his or her functions;

  • the person’s act or omission referred to in s490.1(1)(a) or act referred to in s490.1(2)(a):

occurs in a Territory; or

occurs outside Australia; or

concerns matters or things outside Australia; or

facilitates or conceals the commission of an offence against the Commonwealth,

  • the accounting document:

is outside Australia; or

is in a Territory; or

is kept under or for the purposes of a law of the Commonwealth; or

is kept to record the receipt or use of Australian or foreign currency.

Penalties for False Accounting Offences

The penalties for a contravention of s490.1, the intentional conduct offence, are:

  • for an individual:

imprisonment for not more than 10 years;
a fine of not more than 10,000 penalty units (currently AU$1.8 million); or
both imprisonment and a fine,

  • for a corporation:

a fine of not more than 100,000 penalty units (currently AU$18 million);
three (3) times the value of a benefit directly or indirectly obtained or which is reasonability attributable to the conduct; or
if the value cannot be determined by a Court, 10% of the annual turnover of the body corporate during the 12 month period ending where the relevant conduct occurred.

The penalties for a contravention of s490.2, the reckless conduct offence, are:

  • for an individual:

imprisonment for not more than 5 years;
a fine of not more than 5,000 penalty units (currently AU$900,000); or
both imprisonment and a fine,

  • for a corporation:

a fine of not more than 50,000 penalty units (currently AU$9 million);
three (3) times the value of a benefit directly or indirectly obtained or which is reasonability attributable to the conduct; or
if the value cannot be determined by a Court, 10% of the annual turnover of the body corporate during the 12 month period ending where the relevant conduct occurred.

Definitions

The amendments define an “accounting document to mean “any account” or “any record or document made or required for any accounting purpose”.

In addition, it is not necessary that the prosecution prove that a defendant or any other person in fact received or gave a benefit or that loss was suffered by a person.

Commentary on the Proposed False Accounting Offences

The Minister of Justice, when he introduced these amendments into Parliament, made it clear that these offences were being introduced in order to address Australia’s obligations under the OECD Foreign Bribery Convention.  For many years, the OECD and Transparency International had criticised Australia for the lack of such laws.

The penalties are substantially more than any existing false or misleading account offences in the Corporations Act 2001 (Cth) (see s286, s1307 and s1309).  The offences reflect the significant penalties applicable to the primary foreign bribery offence in the Criminal Code.  However, these new offences are not predicated upon an underlying foreign bribery offence, so corporations need to be alive to the increasing likelihood that these offences will be used by the Commonwealth to prosecute companies and individuals for any conduct where false accounting has occurred, whether by intentional or reckless conduct.

As a practical example, in August 2012, David Ellery as the former Securency CFO, was convicted of one count of false accounting (pursuant to s83(1)(a) of the Crimes Act 1958 (Vic)) involving the dishonest falsification of an invoice for approximately $80,000, being money paid to a Malaysian intermediary for expenses purportedly incurred but in fact were not incurred.  The intermediary told Securency that he had to “disburse certain expenses accrued” and this and other information was recorded in emails received by, sent to and copied to Mr Ellery.  When a debit note was received from the intermediary, outlining certain “marketing expenses”, which Mr Ellery then processed with a request for payment, he knew, in the Court’s view, that no such expenses had been incurred.  The Court found that Mr Ellery’s knowledge that what he was doing was dishonest by the later attempts to conceal what had actually occurred.

In this scenario, it is highly likely that an offence would have been committed under the proposed false accounting offences.  It is likely that Mr Ellery made an accounting document being the request to process the payment, or alternatively, he failed to alter the request for payment by refusing to pay it in circumstances when he knew the payment was not for any legitimate services and was not therefore legitimately due to the recipient (the Malaysian intermediary).  Mr Ellery by his subsequent conduct in concealing the true nature of the transaction, intended (or even was reckless as to the effect which was) to conceal the fact that another person (the intermediary) had received a benefit that was not legitimately due to him and a person (Securency) had incurred a loss.  Mr Ellery was an officer (and employee) of Securency carrying out his duties or functions, his conduct concerned matters or things outside Australia and the accounting document was kept for the purposes of a law of the Commonwealth (taxation laws as to expenses incurred by the company in generating income) or otherwise recorded the use of Australian currency.

These proposed laws have the potential to apply far more broadly than might at first blush be anticipated.  While the proposed laws grew out of a concern to target foreign bribery and international corruption, the breadth of the drafting of the proposed laws mean that they may apply to a much wider range of domestic and international commercial and financial transactions and give rise to unanticipated consequences, serious and criminal in nature, for those companies and individuals who engage in transactions where “accounting documents” (within the meaning of the proposed law) play a critical part.

Australia – Amendments to Foreign Bribery Offence

In March 2015, the Australian Government proposed amending the foreign bribery offence in section 70.2 of the Criminal Code to make it easier for prosecutors not to have to identify a particular foreign public official who was offered or in fact paid a bribe.

On 26 November 2015, the Crimes Legislation Amendment (Powers, Offences and Other Measures) Act 2015 (Cth) received the Royal Assent.

From 26 November 2015, for the purposes of the foreign bribery offence under section 70.2, it is not necessary for a prosecutor to prove that:

  • the person offering or paying a benefit (not otherwise legitimately due) intended to influence a particular foreign public official; and/or
  • the business, or a business advantage to be obtained (from the offending conduct), does not need to be actually obtained or retained.

Australia – Attorney General’s Department Submission to Senate Foreign Bribery Review

In September 2015, the Attorney General’s Department (AGD) has filed a multi-agency submission to the Senate Economics Committee’s review of Australia’s foreign bribery laws.

Highlights from AGD Submission

The following can be drawn from the AGD submission:

  • Australia is committed to combatting corruption and foreign bribery yet the submission is silent on the financial resources to be dedicated to the task (perhaps naturally so leaving that to the Government as a political matter);
  • Australia’s updates to the OECD Working Group on Bribery have been well received, so we need to wait until the next OECD review to independently assess how Australia is in fact tracking on the various benchmarks identified by the OECD over many years;
  • the AFP hosted National Fraud & Anti-Corruption Centre is coordinating investigations and ASIC and the AFP are working together under an MOU in a manner that clearly implies that nothing else needs to be done, despite numerous other submissions calling for a closer look at how foreign bribery investigations and prosecutions are conducted;
  • the Government has now proposed new, more substantial criminal false accounting offences (see above);
  • the submission says nothing as to whether a self-reporting regime, such as the Deferred Prosecution Agreement scheme that exists in the United Kingdom, should be introduced into Australia and appears content to leave the present very unattractive system in place providing little real incentives to companies or individuals to report potential offences;
  • the submission implicitly states that the Australian Government should not issue any Resources Guide or other guide to business, simply because “it is a matter for business” and “Australia does not have any case law in this area”, neither of which appear to be reasons of any great weight or merit; and
  • on facilitation payments, the submission is silent on whether they should be banned, as almost all submissions called for.

Review of the AGD Submission

Overall, the AGD submission, while illuminating in certain respects in highlighting the inter-agency relationships (particularly as between the AFP and ASIC) is underwhelming on a number of levels.  While the submission highlights the improved level of inter-agency cooperation, it fails to address anything of substance to the consistent calls for more clarity in the Government’s work in promoting foreign bribery awareness, it ignores calls for any resources guide for business, it fails to address the need to improve self-reporting by offering a better, more focused self-reporting process in the criminal law system (such as deferred prosecution agreements) and it is silent on facilitation payments.  While the AGD may be reluctant to put forward ideas as policy, it fails to engage in any intellectual debate on these topics, preferring to remain silent.  That is regrettable given the overwhelming call in the majority of submissions for action on these matters.

Addressing Corruption In An Era Of Climate Change

Climate Change

Professor Juliet Sorensen (Northwestern University School of Law) and Northwestern Law students Michelle Kennedy and Cassandra Myers are attending the Sixth Conference of the State Parties (CoSP) to the United Nations Convention against Corruption in St. Petersburg, Russia. For more on the opening of the Conference, see here and hereOver the next few days, FCPA Professor will be publishing various posts regarding the proceedings.  

This post is from Michelle Kennedy.

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With the Paris Conference on Climate Change 2015 coming up at the end of this month, the relationship between climate change and corruption could not be more relevant. The panel that explored this topic presented unique perspectives that provided a comprehensive view of the complex issues at hand, which range from the increased frequency of natural disasters to the growing impact of the forestry sector.

To open the discussion, Tim Steele, the Senior Advisor on Anti-Corruption of the UN Office on Drugs and Crime in Southern & Eastern Africa, emphasized the urgency of the issue. The adverse effects of climate change include rising oceans, depleting forests, and an increased frequency of natural disasters, which is why he insists that this issue be addressed before it is too late.

“Catastrophe causes opportunity,” Steele urged, which was elaborated upon by Professor Juliet Sorensen of the Center for International Human Rights at Northwestern University School of Law and the co-author of the upcoming book, Public Corruption and the Law: Local, National, and International. She explained that because we are living in a world with a sharply increased frequency of natural disasters, there has also emerged the need to recover from these natural disasters more quickly. This recovery necessitates an infusion of public funds from the federal government, international organizations, and state and local resources, in order to meet the basic human needs of the victims and to rebuild the community. The vast funds that arrive quickly create ample opportunity for corruption, thus exemplifying the causal relationship between catastrophe and opportunity. For example, if recovery funds are corruptly used to award contracts to builders based on relationships rather than merit, this may result in sub par buildings and poorly constructed roads. If a natural disaster strikes again, then the damage will be greater than it otherwise would have been without corruption. The community then needs to be rebuilt again, thus perpetuating the cycle and displaying the urgent need to address corruption in an era of climate change. Sorensen urged, however, that there are encouraging opportunities in both law and policy to address these issues, such as the Disaster Fraud Task Force at the United States Department of Justice, which deals with all aspects of fraud mismanagement and corruption in the wake of natural disasters. On an international level, the European Union Emergency Response Coordination Centre is a new resource that provides real time monitoring and immediate reactions to natural disasters.

In order to assist the countries that suffer the worst effects of climate change, the polluting countries have made monetary contributions, known as climate finance, as explained by Rukshana Nanayakkara of the Asia Pacific Department of Transparency International. This financial support provided by developed countries for mitigation and adaptation action in developing countries is expected to reach $100 billion by 2020. This vast amount of money involved displays the ample opportunity for the corrupt diversion of funds.

To ensure that these climate adaptation funds are administered in a transparent manner, the Organization for Economic Cooperation and Development (“OECD”) conducts vigorous evaluations on its member countries to determine whether they are effectively pursuing allegations of bribery in the context of publicly funded post-disaster projects. Moving forward, Leah Ambler of the OECD Anti-Corruption Division proposed that combatting the significant risks involved in climate finance be accomplished by an increase in corruption risk awareness initiatives, active enforcement of anti-corruption laws, collaboration with the private sector to ensure effective anti-bribery compliance programs, and independent implementation of new regulatory schemes related to climate change mitigation.

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