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Friday Roundup

Roundup

Funny, also funny, corruption in the anti-corruption industry, the head of the DOJ’s FCPA Unit writes, reasons for the general increase in FCPA enforcement, scrutiny alert, asset recovery, and for the reading stack. It’s all here in the Friday roundup.

Funny

This recent FCPA Blog post asked “what’s the most important FCPA case ever” and stated: “The Africa Sting showed how far the feds would go to make a splashy FCPA case. But the final lesson was that using a big sting to concoct a supposed industry-wide conspiracy was a bad idea. The judge didn’t buy it, and neither did a couple of juries.”

Funny that the post doesn’t mention that the the person at the center of this failed, manufactured case was its current Contributing Editor and training partner Richard Bistrong.

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Sure, Non-Profits Have A Role To Play, But Being Informed, Impartial And Responsible Is Important Too

Important

This recent guest post on the FCPA Blog by the Executive Director of the U.K. Chapter of Transparency International stated that not-for-profits have an “important role” to play in “the crowded anti-bribery and compliance space.”

True, non-profits have an important role to play and previous posts (here and here among others) have noted the good work of certain non-profits in raising awareness of bribery and its effects and seeking to reduce bribery and corruption around the world.

However, along with this important role comes an implicit duty to be informed, impartial and responsible and this post highlights how certain non-profits in the bribery and corruption space seemingly fail these important metrics.

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Compliance Professionals Should Take The Corruption Perceptions Index With A Grain Of Salt

Grain of Salt

Transparency International, a global civil society organization dedicated to the fight against corruption, released today its annual Corruption Perceptions Index (“CPI”).  (See here for TI’s release).

As stated by TI, the CPI “scores and ranks countries/territories based on how corrupt a country’s public sector is perceived to be” and 176 countries were ranked with Denmark, New Zealand, Finland, Sweden, and Switzerland topping the list (i.e. low levels of perceived corruption) and Somalia, South Sudan, North Korea, Syria, and Yemen on the bottom of the list (i.e. high levels of perceived corruption). The U.S. was ranked a rather paltry 18th behind many peer countries.

The CPI generates a lot of media coverage and is a popular tool for business organizations in ranking risk (and thus prioritizing compliance). However, for the reasons highlighted in this post compliance professionals should take the CPI with a grain of salt.

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Compliance Professionals Should Take The Corruption Perceptions Index With A Grain Of Salt

saltTransparency International, a global civil society organization dedicated to the fight against corruption, recently released it annual Corruption Perceptions Index (“CPI”).  (See here for TI’s release).

As stated by TI, the CPI “scores and ranks countries/territories based on how corrupt a country’s public sector is perceived to be” and 168 countries were ranked with Denmark, Finland, Sweden, New Zealand, the Netherlands, and Norway topping the list (i.e. low levels of perceived corruption) and Somalia, North Korea, Afghanistan, Sudan, South Sudan, and Angola on the bottom of the list (i.e. high levels of perceived corruption).

The CPI generates a lot of media coverage and is a popular tool for business organizations in ranking risk (and thus prioritizing compliance). However, for the reasons highlighted in this post compliance professionals should take the CPI with a grain of salt.

For starters, just because compliance professionals should take the CPI with a grain of salt, does not mean that the CPI (or other similar rankings) should be ignored.

Indeed, in a rare appellate court decision in the FCPA space, the Second Circuit in the Bourke case listed circumstances which provided “ample evidence” to support Bourke’s trial conviction on a conscious avoidance theory under the FCPA’s third-party payment provisions and specifically stated that “Bourke was aware of how pervasive corruption was in Azerbaijan generally.”

Nevertheless, query whether the CPI is a reliable or meaningful measure of the specific risks specific business organizations face when competing in the global marketplace for the following reasons.

  • The CPI is merely a survey, and a survey of perceptions at that. This is not a dig on the CPI itself, after all how does measure an issue like bribery and corruption (particularly since there is no universal definition of these terms). To its credit, TI itself recognizes the limitations of the CPI. As stated by TI, “there is no meaningful way to assess absolute levels of corruption in countries or territories on the basis of hard empirical data.” Moreover, TI rightly acknowledges that the CPI does not tell the full story of corruption in a country because it “is limited in scope, capturing perceptions of the extent of corruption in the public sector from the perspective of business people and country experts.”
  • The CPI is composed of distinctions without differences. Each country in the CPI is assigned a numerical score between 100 (the best score) and 0 (the worst score). Sure there is a meaningful distinction between Denmark (91) and Somalia (8), but you probably did not need the CPI to inform this perspective. However, as a practical matter is there a meaningful distinction between a score of 39 (El Salvador) and 30 (Tanzania)? Hardly, but these scores result in a substantial difference in the CPI rankings (El Salvador – 72nd and Tanzania – 117th).
  • The CPI is country specific, not province or region specific. We all recognize that certain states in the U.S., indeed certain cities within those states, have higher levels of actual or perceived corruption and the same is true in foreign countries. However, the CPI score is only on a country basis and is not province or region specific. In short, bribery and corruption is often localized and thus the CPI can both induce complacency (i.e. the business is fine because the country’s overall score is fine, even though a specific region in which the company operates may have higher levels of actual or perceived corruption) as well as result in needless worry (i.e. while the country overall has higher levels of actual or perceived corruption, the specific region in which the company operates may have substantially less).
  • At its core, FCPA risk is the function of specific business actors (employees and agents) coming into contact with specific foreign officials, in the context of specific foreign business conditions. None of these factors are adequately captured by the CPI. Indeed, one can easily imagine a scenario where because of the industry, because of the product or service, and because of the go-to-market strategy, Denmark presents more of a risk than Somalia.
  • The CPI perpetuates stereotypes. No surprise that Finland is, as it always has been, atop the CPI list and that Kenya is, as it always has been, near the bottom of the list. Yet to state the obvious, there are millions of hard-working, honest and ethical people in Kenya. On the flip side, there are some dishonest and unethical people in Finland.

In short, while I enjoy each time this year looking at the CPI map, I don’t think it is a very useful tool for business organizations when adopting policies and procedures designed to minimize FCPA risk.

FCPA risk is best minimized through a risk assessment unique to a business organization in which the following questions provide a good starting point.

  • Who are the company’s customers or potential customers in each country?  Is the customer a government (whether federal, state, or local) department, agency or instrumentality?  Does a government department, agency, or instrumentality, or individual associated with such units, have an ownership or equity interest in the customer?
  • How does the company do business and/or interact with customers or potential customers in the country?  Does the company use third parties in the foreign countries?
  • How does the company’s product enter and exit the country? Does the company use the services of a customs broker or freight forwarder?
  • What licenses, permits, or certifications does the company need to do business in the country?  As to each license, permit or certification, how does the company obtain such approvals?
  • Is the company subject to other unique forms of government regulation in the country?  What other points of contact does the company have with foreign government in the country (such as tax and immigration authorities)?

Are Transparency International’s Defense Company Rankings Defensible?

TI

Imagine FCPA Professor ranked the “Top FCPA Law Firms” and one factor in the rankings was whether the law firms either donated to FCPA Professor and/or had lawyers “graduate” from the FCPA Institute.

I sure hope you would look askance at such rankings because they are based on subjective factors that have little relevance to the substantive issue being ranked.

Recently Transparency International UK released this “Defense Companies Anti Corruption Index 2015” – an index that attempted to “assess the ethics and anticorruption programs of 163 defense companies from 47 countries using publicly available information.”  (See also here).

The only companies to receive an “A” ranking were Bechtel, Fluor, Lockheed Martin and Raytheon.

What’s interesting though is that each of these companies are substantial contributors to Transparency International (“TI”).  (See here).

This of course does not automatically mean that Transparency International had a conflict of interest in ranking these four companies. Perhaps the companies are just really committed to Transparency International regardless of whether its financial contributions to the organization could impact such things as the rankings.

However, contributing and/or belonging to Transparency International did indeed elevate a company’s score in the recent rankings.

Such details are found deep within specific company reports.

For instance this specific company report indicates that a factor impacting the company’s “Leadership, Governance and Organization” score was “based on public information, there is evidence that the company is a member of TI-USA …”.  Similarly, this specific company’s score was elevated because “based on public information, there is evidence that the company …  is a member of Transparency International Norway.”

Transparency International is not the only organization that promotes anti-corruption or business ethics with a significant focus on anti-corruption.  Surely, Transparency International factored in a company’s membership or association with all other reputable groups?

Apparently not.

For instance, this specific company report states:

“Based on public information, there is no readily available evidence that the company belongs to one or more national or international initiatives that promote anti-corruption or business ethics with a significant focus on anti-corruption. TI notes the company’s membership of TRACE, but this alone is insufficient evidence” concerning the question of whether “the company belong to one or more national or international initiatives that promote anti-corruption or business ethics with a significant focus on anti-corruption?”

In short, it is troubling that giving money and/or being a member of Transparency International impacted Transparency International’s recent rankings.  It leaves the impression that Transparency International’s scores are a reflection, at least in part, of cooperation in Transparency International initiatives rather than a strict reflection of a specific company’s compliance efforts.

For prior posts critical of Transparency International rankings, etc. see here, here, here, here and here.

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