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The Rule Of Law Seems To Be A Major Factor In The General Lack Of Demand-Side Prosecutions

The OECD recently released this report [1] titled “Foreign Bribery Enforcement- What Happens to the Public Officials on the Receiving End?”

The report seems to lament the lack of prosecutions against “foreign officials” involved in alleged bribery schemes. However, as highlighted below, a major factor identified for the general lack of demand-side prosecutions seems to be rule of law issues including fundamental concepts such as the lack of evidence, statute of limitations and other issues.

The report begins:

“The supply side of foreign bribery relates to what bribers do – it involves offering, promising or giving a bribe to a foreign public official to obtain an improper advantage in international business. In contrast, the demand side of foreign bribery refers to the offence committed by public officials who are bribed by foreign persons. This study explores whether there is a “flip side” to enforcement actions that ended in sanctions for the supply-side of a foreign bribery transaction. It focuses on what happened on the receiving end of this transaction. That is to say, were the public officials in the demand-side country also sanctioned or otherwise disciplined?”

As acknowledged by the report, the sample size for the survey was rather small.

“The findings are based a survey of Parties to the Anti-Bribery Convention. In the survey, 20 countries received a total of 55 questionnaires about their demand-side actions for a sample of cases in which sanctions were imposed for a supply-side offence by another Party to the Anti-Bribery Convention between 2008 and 2013. This time period was chosen to give the demand-side country time to react to the supply-side information. Forty-three responses were received from 18 countries. These consist of 33 completed questionnaires and 10 responses saying that the demand-side countries could find no information about the case.”

Among the main findings of the survey was the following:

“Enforcement actions do take place on the demand side, but public officials are known to have been sanctioned in only one fifth of the 55 schemes covered by the survey. Public officials are subjected to law enforcement actions in a considerable number of cases. Of the 33 cases for which information was provided, 30 cases were investigated in the demand-side countries. Enforcement actions such as prosecutions were then undertaken in 20 of these cases and criminal sanctions are known to have been imposed on at least one public official in 11 cases. In addition, 11 actions are still pending at either the investigative or prosecutorial stages.”

[2]

Yet, the following survey finding seems to be the most relevant to those who value quality of prosecutions over quantity of prosecutions.

“When public officials were not sanctioned, the survey responses often attribute it to standard problems encountered in criminal law enforcement: insufficient evidence (5 cases) and statute of limitations (4 cases). In one case no sanctions were imposed because the “effects of some offences on society were insignificant” and in another because key documents disappeared from the Ministry associated with the bribe. Finally, in 2 cases, sanctions were not imposed because the payments in question were not deemed to be illegal under the demand-side country’s law.”

Call me old-fashioned or a rule of law purist, but I do not view the above survey findings as being problematic.

To its credit, the report acknowledges that there is unlikely to be a “perfect flip-side symmetry” between supply-side prosecutions and demand-side prosecutions. As stated in the report:

“Even in a perfect world of completely effective law enforcement in all jurisdictions, a sanctioned case of supply-side foreign bribery might not be associated with a matching demand-side action for a variety of reasons:

The facts of the case. For example, if a company is convicted for offering (but not giving) bribes, then it may be the case that the public official(s) in question did not accept the offer.

Gaps in substantive law. Differences in substantive laws between supply-side and demand-side jurisdictions may create gaps in enforcement. For example, if the bribery offence is not described in the same terms between the demand-side and supply-side jurisdictions, it may be possible to prosecute in one jurisdiction and not in the other.

Procedural hurdles. Such hurdles are potentially numerous. They include: different evidentiary standards across jurisdictions; different statutes of limitations; and delays in obtaining MLA when a crime occurs in another country. Such hurdles may prevent enforcement proceedings in the country that has, or should have, jurisdiction over the “flip side” of a foreign bribery transaction. Numerous examples of such procedural obstacles are found in the survey results.”

In addition, the survey rightly notes:

“[T]he survey results show that, in practice, the geometry of foreign bribery enforcement is more complex than one of simple symmetry. In fact, in addition to finding that a supply-side case in one jurisdiction is often matched with demand-side case in another, the study also finds that supply-side bribers are pursued in the demand-side jurisdictions and, at times, demand-side bribe recipients are pursued in supply-side jurisdictions. Thus, both demand-side and supply-side actions take place in both jurisdictions, leading to a more complex pattern of law enforcement in which some of the more active countries target the full range of offenders that fall under their jurisdiction.”

For instance, an example of demand-side recipients being pursued in supply-side jurisdictions is the growing number of U.S. prosecutions of alleged “foreign officials” for money laundering offenses.

A major deficiency in the OECD report is that most of the information for its report came from DOJ and SEC FCPA enforcement actions. As stated in the report:

“32 out of the 39 sanctions for supply-side bribery in the survey sample were concluded by the US Department of Justice (DOJ), the Securities and Exchange Commission (SEC) or both (sometimes in parallel with other law enforcement agencies). Their websites were the source of much of the information provided to the demand-side countries.”

This is a deficiency because it is widely acknowledged that FCPA enforcement actions do not necessarily represent provable FCPA violations, but rather risk averse corporate decisions to resolve matters through resolution vehicles not subjected to any meaningful judicial scrutiny and/or matters in which the company does not admit or deny the government findings. In such situations, would one necessarily expect a related demand-side prosecution?

For instance, the report makes specific reference to a case “involving a charitable contribution made for re-furbishing a castle in Eastern Europe – the ‘pet project’ of a regional health care official.”

This is an obvious reference to a portion of the SEC’s 2012 FCPA enforcement action against Eli Lilly [3] (note: the 2004 Schering-Plough enforcement action also involved this allegation but the OECD report is based on matters between 2008 and 2013). However, the SEC did not allege that this conduct violated the FCPA’s anti-bribery provisions, but rather the FCPA’s books and records and internal controls provisions. Moreover, Eli Lilly resolved the matter without admitting or denying the SEC’s allegations.

In short, not even the SEC (the supply-side jurisdiction) alleged that this conduct consisted of bribery. Why should the demand-side jurisdiction? Indeed, the OECD Report states: “the demand-side jurisdiction investigated and found no evidence that the contributions ‘were associated with performing any public function’ by the director of the health fund.”

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