Surveys And Such
Corruption Perceptions Index
Earlier this month, Transparency International (“TI”) released its annual Corruption Perceptions Index (“CPI”) (see here). The CPI ranks countries/territories based on how corrupt their public sector is perceived to be and is a composite index drawing on corruption-related data collected by a variety of reputable institutions and reflecting the views of observers from around the world including experts living and working in the countries/territories evaluated. The CPI scored 183 countries and territories from 0 (highly corrupt) to 10 (very clean) based on perceived levels of public sector corruption.
In a release (here), TI noted that “corruption continues to plague too many countries around the world” and that two-thirds of ranked countries scored less than 5. The top five (very clean) countries in the CPI were New Zealand, Finland, Denmark, Sweden and Singapore, the bottom four (highly corrupt) countries were Afghanistan, Myanmar, Somalia and North Korea.
The United States scored 7.1 in the CPI (the same score the U.S. received in the 2010 CPI – see here for the prior post) a number which placed it 24th out of 183 countries and below several other countries such as Canada, Germany, Japan, and the U.K.
The relative low ranking of the U.S. has again caused some (see here) to ask “can or should the U.S. continue to lead the fight against international graft?” Related to this topic, for some time I have been highlighting a double-standard between U.S. enforcement of the FCPA and U.S. enforcement of the domestic bribery statute (18 USC 201). See here for prior posts on the double standard. It is concerning that corporate interaction with a “foreign official” appears to be subject to greater scrutiny and different standards of enforcement than corporate interaction with a U.S. official.
While the CPI may just seem like a bunch of numbers, and while it is not the only risk assessment tool (see here and here) available, the index has real-world application as many companies and FCPA compliance professionals calibrate FCPA risk assessment to the CPI.
BRIBEline U.S. Report
Also earlier this month, Trace International released (see here) its BRIBEline U.S. Report which summarizes and analyzes 73 bribery demands in the U.S. reported anonymously to Trace’s online Business Registry for International Bribery and Extortion (BRIBEline – see here) between July 2007 and November 2011.
According to the report: “the majority of bribe demands, nearly 60%, are made by a person associated with a government, whether at the federal, state or local level, including government officials (16%), the police (14%), officials of the party in office (8%), employees of state-owned entities (7%), members of the military (5%), city officials (4%), state officials (1%) and judges and judicial representatives (1%).” The report also found that “seven of the bribes demanded by government officials were reported as originating from the Office of the U.S. President or the Office of the U.S. Vice President.” According to the anonymous bribe reporters, demands from these offices occurred between 2002 and 2007.
Most companies spend considerable time and money training employees and associated parties on foreign bribery issues, but Alexandra Wrage (TRACE President) said that “the U.S. BRIBEline data indicates that companies doing business in the United States should consider training their employees to appropriately respond to a bribe demand made by a powerful government official or business executive.”
Previous BRIBEline reports (see here) analyzed patterns of bribe demands in Brazil, Mexico, Ukraine, Russia, India and China.
Bribery Perceptions
Last week Transparency International (“TI”) released its Bribe Payers Index (see here). The index “ranks 28 of the world’s largest economies according to perceived likelihood of companies from these countries to pay bribe’s abroad.” TI’s data is derived from a survey of approximately 3,000 business executives worldwide. The executives were asked for each of the 28 countries with which they have a business relationship with (for example as supplier, client, partner or competitor) “how often do firms headquartered in that country engage in bribery in this country.”
Among the key findings in the index are that “companies from China and Russia were viewed as the most likely to pay bribes” and that “perceptions of the frequency of foreign bribery by country and business sector have on average seen no improvement since the last Bribe Payers Index published in 2008.”
As to China and Russia, the TI report states “it is of particular concern that China and Russia are at the bottom of the index.” The report states as follows. “Given the increasing global presence of businesses from these countries, bribery and corruption are likely to have a substantial impact on the societies in which they operate and on the ability of companies to compete fairly in these markets.”
As noted in this prior post, China recently passed an “FCPA-like” law, as did Russia as noted in this post.
In terms of perception of bribery by companies, the U.S. ranked a rather dismal 10th, behind Netherlands, Switzerland, Belgium, Germany, Japan, Australia, Canada, Singapore and the United Kingdom. Even though the U.S. clearly leads the world in enforcement of its anti-bribery law, the survey seems to suggest that ad hoc enforcement action of the FCPA is not having – at least in the minds of the survey participants – a meaningful deterrent effect in reducing instances of improper payments.
Survey Says
This post summarizes two recent surveys: Fulbright & Jaworski’s Annual Litigation Trends Survey and Kroll’s Global Fraud Report.
Fulbright & Jaworski’s Annual Litigation Trends Survey
Fulbright & Jaworski LLP recently released its 8th Annual Litigation Trends Survey (available for download here).
Some FCPA / U.K. Bribery Act specific findings of note.
9% of U.S. companies and 6% of U.K. companies have “engaged outside counsel to assist with a bribery or corruption investigation in the past 12 months.” Last year the percentages were 12% and 26% respectively.
11% of U.S. companies and 20% of U.K. companies “have engaged in due diligence for bribery or corruption (including FCPA matters) relating to a merger, acquisition or other business transaction with a foreign country in the past 12 months.” Last year the percentages were 17% and 28% respectively.
12% of U.S. companies “foresee changes in the way [the] company operates due to the new U.K. Bribery Act.” Last years the percentage was 11%.
General findings of note. “Fifty-two percent of the public companies and 60% of the larger companies have launched an internal investigation in the past 12 months.” “Twenty-four percent of U.S. companies and 19% of U.K. companies that conducted an internal investigation went on to report the matter to a regulatory agency.”
The Litigation Trends Survey involved a total of 405 participants, including 275 in the U.S. and 129 in the U.K. Approximately 75% of participants have the title general counsel or head of litigation.
Kroll Global Fraud Report
Kroll, a leading risk consulting company, recently released in 2011/2012 Global Fraud Report Survey (see here). FCPA / U.K. Bribery Act findings include the following.
“Despite heightened concerns, only 27% of respondents said they are well-prepared to comply with the Foreign Corrupt Practices Act (FCPA) and UK Bribery Act (UKBA). Of those companies that are subject to one of these two laws, less than half, 43%, have trained senior management, agents, vendors and foreign employees to be compliant with one of these laws, and just 39% have assessed the risks arising from them. Furthermore, only 37% of companies surveyed believe that their due diligence provides a sufficient understanding of a potential partner’s or investment target’s compliance with these acts.”
“47% of respondents consider their companies moderately to highly vulnerable to corruption and bribery. It is the leading risk causing companies to avoid investing in new regions or countries at 28%. Only 43% of respondents believe their companies have trained their managers, agents, vendors and foreign employees to be both familiar and compliant with the UK Bribery Act and FCPA. Just 39% have made a thorough assessment of risks to their organizations as a result of the UKBA or FCPA and have ongoing monitoring systems in place. Just over half (54%) of companies say they have adequate procedures in place to prevent bribery at all levels. Only 34% of respondents say their compliance regimes are more global as a result of the extraterritorial reach of the UKBA and FCPA. Only 37% believe their due diligence in advance of an acquisition, joint venture or financing provides sufficient understanding of a target’s compliance with the Acts.”
The Kroll survey involved “more than 1,200 senior executives worldwide from a broad range of industries and functions … polled in June and July 2011.” According to the survey, “nearly one-half of respondents, 47%, occupy C-suite roles and one-half of participants came from companies with annual revenues of over $500 million.”
Perhaps The Executives Are Just Being Realistic
It has turned out to be a statistics filled week on this site. If you like statistics, Deloitte’s recent “Anti-Corruption Practices Survey 2011” (here) serves up a buffet of delightful morsels.
Deloitte “surveyed 276 executives to assess how companies are managing their efforts to prevent corrupt practices in their operations around the world and ensure compliance with legislative requirements.” The Survey found that approximately 90% of executives said their company had an anti-corruption policy that covered a wide range of potentially corrupt activities.
Even so, the Survey seems to portray, as its most meaningful statistic, that “only 29% of the 276 executives … were very confident their company’s anti-corruption program would prevent and detect corrupt activities.” According to the Survey, “this low level of confidence indicates that many companies may need to evaluate and upgrade their anti-corruption efforts.”
Perhaps. Or perhaps the 29% figure indicates the stark reality that not even gold standard FCPA compliance policies and procedures can prevent or detect all problematic payments. In other words, perhaps the 71% of executives who were not very confident their company’s anti-corruption program would prevent and detect corrupt activities are just being realistic. As even Assistant Attorney General Lanny Breuer noted earlier this year before a compliance audience – “There will always be rogue employees who decide to take matters into their own hands. They are a fact of life.” (See here). Or as the U.K. Ministry of Justice stated in its Bribery Act guidance (see here) “no policies or procedures are capable of detecting and preventing all bribery.”
The Survey findings on corruption risks also caught my eye. Executives were asked to cite “significant” corruption risks. Use of third parties (not surprisingly) was the top concern and “customs clearance and importation of goods” and “entertainment related to government business/relations” were the 2nd and 3rd highest concerns respectively. These findings confirm my own observations from participating in executive roundtable forums during which I am always struck that business leaders are most worried about issues Congress did not even have on its radar when it passed the FCPA – yet are worrisome issues given the DOJ’s enforcement positions.
For instance, the enacting Congress specifically excluded from the FCPA’s “foreign official” definition any employee of a foreign government “whose duties are essentially ministerial or clerical.” The relevant Senate Report states, in pertinent part, as follows. “The statute does not […] cover so-called ‘grease’ payments such as payments for expediting shipments through customs or placing a transatlantic telephone call, securing required permits, or obtaining adequate police protection, transactions which may involve even the proper performance of duties.” Similarly, the relevant House Report states, in pertinent part, as follows. “The language of the bill is deliberately cast in terms which differentiate between [corrupt payments] and facilitating payments, sometimes called ‘grease payments.’ […] For example, a gratuity paid to a customs official to speed the processing of a customs document would not be reached by this bill. Nor would it reach payments made to secure permits, licenses, or the expeditious performance of similar duties of an essentially ministerial or clerical nature which must of necessity be performed in any event. While payments made to assure or to speed the proper performance of a foreign official’s duties may be reprehensible in the United States, the committee recognizes that they are not necessarily so viewed elsewhere in the world and that it is not feasible for the United States to attempt unilaterally to eradicate all such payments. As a result, the committee has not attempted to reach such payments.”
Yet, as the Survey results suggest, executives are indeed significantly worried about such issues and compliance dollars are disproportionately spent on such issues.
Bribes, the reason Congress passed the FCPA in 1977, was identified as a “significant” risk by only 27% of Survey respondents.
Final statistic of note. On voluntary disclosure, the Survey states as follows.
“Executives were asked whether they thought that if an executive in their industry (not specifically in their own company) uncovered a significant violation of the company’s anti-corruption policy, they would report it to the SEC or the DOJ. Executives were divided on how they thought the typical executive in their industry would respond, with 36 percent saying it was very likely that an executive would report such a violation, 39 percent thinking it was somewhat likely, and 25 percent saying it was not likely. Only 27 percent saw significant benefits in self-reporting violations, while an additional 43 percent saw some benefits.”
*****
A good weekend to all.
DOJ Prosecution Of Individuals – Are Other Factors At Play?
A post earlier this week (here) noted that since 2008, the DOJ has criminally charged 64 individuals with FCPA offenses. 60% of the individuals charged have been in just three cases and 78% of the individuals charged by the DOJ since 2008 have been in just six cases. Considering that there has been 42 “core” corporate DOJ FCPA enforcement actions (NPAs, DPAs, Pleas, or Convictions) since 2008, this was a rather remarkable statistic. The previous post also noted that of the 42 “core” corporate DOJ FCPA enforcement actions, 30 (or 71%) have not (at least yet) resulted in any DOJ charges against company employees. I noted that during this era of the FCPA’s resurgence, the DOJ has consistently stated that prosecution of individuals is a “cornerstone” of its FCPA enforcement strategy. Yet, the numbers paint a different picture – at least in certain enforcement actions.
Yesterday’s post (here) further crunched the numbers on DOJ prosecutions of individuals and exposed (what sure seems like) a public-private divide. Of the 64 individuals charged since 2008, 50 of the 64 individuals charged (78%) were employees or otherwise affiliated with private business entities. This was a striking statistic given that 37 of the 42 ”core” corporate DOJ FCPA enforcement actions since 2008 (88%) were against publicly traded corporations.
I concluded yesterday’s post by asking whether FCPA enforcement has resulted in two tiers of justice and/or whether other factors are at play? I do believe FCPA enforcement has resulted in two tiers of justice (see here for a prior post), but I also believe that other factors are at play as well.
In connection with my testimony at the November 2010 Senate FCPA hearing, I submitted a written statement (here) in which I observed that a possible reason for the absence of individual FCPA criminal charges in many corporate enforcement actions “may have more to do with the quality of the corporate enforcement action than any other factor.” I noted that given the prevalence of non-prosecution agreements (NPAs) and deferred prosecution agreements (DPAs) in the FCPA context, and the ease in which DOJ offers these alternative resolution vehicles to companies subject to an FCPA inquiry, companies often agree to enter into such resolution vehicles regardless of the DOJ’s legal theories or the existence of valid and legitimate defenses. In many cases, it is easier, more cost efficient, and more certain for a company to do so than it is to be criminally indicted and mount a valid legal defense – even if the DOJ’s theory of prosecution is questionable. This dynamic contributes to what I have called the “facade of FCPA enforcement” (see here). Individuals, on the other hand, face a deprivation of personal liberty, and are more likely to force the DOJ to satisfy its high burden of proof as to all FCPA elements.
So the question is raised – what impact do NPAs or DPAs have on individual FCPA criminal prosecutions? The below numbers suggest a significant impact.
According to my analysis, since alternative resolution vehicles were first used in the FCPA context (December 2004 – an NPA as to InVison Technologies), there have been 61 “core” corporate DOJ FCPA enforcement actions. 47 of the 61 “core” corporate DOJ FCPA enforcement actions (77%) have been resolved via an NPA (19 instances) or a DPA (28 instances). In these 47 “core” corporate DOJ FCPA enforcement actions, only 7 enforcement actions (15%) have resulted in any individual FCPA criminal charges against company employees.
In other words, when the DOJ resolves an FCPA enforcement action via a NPA or DPA, there is only a 15% likelihood that individual criminal charges will be filed against any company employee or those affiliated with the company. The 7 “core” corporate DOJ FCPA enforcement actions resolved through an NPA or DPA that have resulted in individual criminal charges are as follows:
Armor Holdings (NPA) / Richard Bistrong;
Alliance One International (NPA) / Bobby Elkin;
Alcatel-Lucent (DPA) / Christian Sapsizian and Edgar Acosta;
ABB Ltd. (DPA) / John Joseph O’Shea and Fernando Maya Basurto;
Omega Advisors (NPA) / Clayton Lewis;
Schnitzer Steel (DPA) / Si Chan Wooh; and
Willsbro Group (DPA) / Jim Bob Brown, James Tillery, Paul Novak and Jason Steph.
In contrast, in the 14 “core” corporate DOJ FCPA enforcement actions resolved (since invention of NPAs/DPAs in the FCPA context) through actual, prosecuted criminal charges, 10 of these actions (71%) resulted in related prosecution of company employees or those affiliated with the company. The 4 DOJ FCPA enforcement actions that resulted in actual, prosecuted criminal charges, yet no individual prosecutions of company employees are Siemens, BAE (recognizing that this was an FCPA-related prosecution), DPC Tianjin, and ABB Vetco Gray. In short, when a corporate entity is actually prosecuted for FCPA violations, there is a 71% chance that a company employee will also be prosecuted.
In summary, when the DOJ resolves an FCPA enforcement action via a NPA or DPA, there is only a 15% likelihood that individual criminal charges will be filed against any company employee or those affiliated with the company. On the other hand, when the DOJ files actual, prosecuted criminal charges against a company, there is a 71% chance that a company employee will also be prosecuted.
So are there other factors at play? Yes, there are and I believe a contributing factor to the lack of individual prosecutions in many corporate DOJ FCPA enforcement actions has to do with the quality of the corporate enforcement action in the first place. As Reynolds Holding recently stated in a Reuters BreakingViews column (here) the current era of enforcement and the dynamics at play “encourage prosecutors to pursue what they can punish, not what the law prohibits.”
Perhaps the question should not be why do so few DOJ corporate FCPA enforcement actions result in individual prosecutions, but rather do many DOJ corporate FCPA enforcement actions actually evidence proof beyond a reasonable doubt that FCPA violations occurred?