Recently, Representative Bill Keating (D-Mass.) and Representative Brian Fitzpatrick (R-Pa.) introduced a bill titled “Countering Russian and Other Overseas Kleptocracy Act” (“CROOK Act”).
As explained below, the Act seeks “an amount equal to five percent of each civil and criminal fine and penalty imposed pursuant to actions brought under the FCPA … that would otherwise be deposited in the Treasury of the United States” to fund the Anti-Corruption Action Fund.”
As further explained below, the Act demonstrates a poor understanding of FCPA enforcement actions.
The goal of the CROOK Act, as stated in the preamble, is “to promote international efforts in combating corruption, kleptocracy, and illicit finance by foreign officials and other foreign persons, including through a new anticorruption action fund, and for other purposes.”
The CROOK Act is based upon the following “findings”
“(1) Authoritarian leaders in foreign countries abuse their power to steal assets from state institutions, enrich themselves at the expense of their countries’ economic development, and use corruption as a strategic tool both to solidify their grip on power and to undermine democratic institutions abroad.
(2) Global corruption harms the competitiveness of United States businesses, feeds terrorist recruitment and transnational organized crime, enables drug smuggling and human trafficking, and stymies economic growth.
(3) Illicit financial flows often inconspicuously penetrate a country through what appears to be legitimate financial transactions, as kleptocrats launder money, use shell companies, amass offshore wealth, and participate in a global shadow economy.
(4) The Government of Vladimir Putin in Russia is the leading model of this type of foreign kleptocratic system, using corruption to erode democratic governance from within and discrediting democracy abroad, thereby strengthening his authoritarian rule.
(5) Russia uses stolen money to— (A) purchase key assets in other countries, particularly with a goal of attaining monopolistic control of a sector; (B) gain access to and influence the policies of democratic countries; and (C) directly fund political parties and organizations that advance Russian interests in other countries, particularly those that undermine confidence and trust in democratic systems.
(6) Thwarting these tactics by Russia and other kleptocratic governments requires the international community to strengthen democratic governance, the rule of law, and international cooperation in combating illicit finance, especially by empowering reformers in foreign countries during historic political openings for the establishment of the rule of law in those countries.
(7) New reformers in foreign countries must act quickly to seize political openings for anti-corruption reform, but as these reformers are often outsiders with little government experience, they may need significant technical assistance to root out deep-seated corruption.”
The CROOK Act seeks to authorize the Secretary of State to establish a fund to be known as the “Anti-Corruption Action Fund” to aid foreign states to prevent and fight public corruption and develop rule of law based governance structures, including accountable investigative, prosecutorial, and judicial bodies, and supplement existing foreign assistance and diplomacy with respect to such efforts.”
In terms of funding the “Anti-Corruption Action Fund,” the CROOK Act states:
“An amount equal to five percent of each civil and criminal fine and penalty imposed pursuant to actions brought under the Foreign Corrupt Practices Act on or after the date of the enactment of this Act that would otherwise be deposited in the Treasury of the United States shall be deposited in the Anti-Corruption Action Fund … to be available without need for subsequent appropriation and without fiscal year limitation.”
The Anti-Corruption Fund is then to be used to support “governmental and nongovernmental parties in advancing the goals specified [above] and shall be allocated in a manner complementary to existing United States foreign assistance, diplomacy, and the anti-corruption activities of other international donors.”
The CROOK Act then states that “preference” should be given to projects that:
“(1) assist countries that are undergoing historic opportunities for democratic transition, combating corruption, and the establishment of the rule of law;
(2) are important to United States national interests; and
(3) where United States foreign assistance could significantly increase the chance of a successful transition described in paragraph (1).”
The CROOK Act further provides under the heading “Public Diplomacy” as follows:
“The Secretary of State shall publicize that funds provided to the Anti-Corruption Action Fund originate from actions brought under the Foreign Corrupt Practices Act so as to demonstrate that monies obtained under such Act are contributing to international anti-corruption work under this section, including by reducing pressure that United States businesses face to pay bribes overseas, thereby contributing to greater United States competitiveness.”
As highlighted numerous times on these pages, a substantial root cause of many FCPA enforcement action (i.e. pressure that United States businesses face to pay bribes overseas) is foreign trade barriers, distortions and other conditions of doing business in a foreign country.” Sending U.S. money to foreign governmental and nongovernmental parties will do little to address these root causes.
Moreover, regardless of the merits of the CROOK Act, it demonstrates a poor understanding of FCPA enforcement actions. Specifically, the largest component of SEC FCPA enforcement actions are disgorgement amounts and thus would not be captured by the CROOK Act which seeks to fund the Anti-Corruption Action Fund with “an amount equal to five percent of each civil and criminal fine and penalty” imposed pursuant to actions brought under the FCPA. Although less prominent in DOJ FCPA enforcement, in recent years the DOJ has begun to use so-called declinations with disgorgement resolution vehicles as well.
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