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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.

Report Cards

Imagine I give a test to the 37 students in my class. However, because of reasons uniquely relevant to many of the students, not all students are equally capable of passing the test.

I hope all would view this test to be a bit empty.

This post summarizes the OECD Working Group on Bribery Annual Report and Transparency International’s Annual Progress Report of the OECD Anti-Bribery Convention.

For reasons discussed below, these two report cards suffer from the same dynamic described in the above hypothetical.

In many OECD member countries there is no such thing as corporate criminal liability – or even if there is – such corporate liability can only be based on the actions of high-ranking executives or officers. This of course is materially different than in the U.S. where, under respondeat superior principles, a business organization can face legal liability (civil and criminal) based on the actions of any employee to the extent the employee was acting within the scope of his or her duties and to the extent the conduct was intended to benefit, at least in part, the organization.

In most OECD member countries prosecuting authorities have two choices – to prosecute or not to prosecute – there is no such thing as non-prosecution or deferred prosecution agreements (NPAs/DPAs). Not so in the U.S. where the majority of these alternative resolution vehicles are used to resolve FCPA enforcement actions. As the OECD itself stated in its Phase 3 Report of U.S. enforcement of the FCPA – “it seems quite clear that the use of these agreements is one of the reasons for the impressive FCPA enforcement record in the U.S.” (See here for the prior post). Former DOJ FCPA enforcement chief Mark Mendelsohn was asked directly – if the DOJ “did not have the choice of deferred or non prosecution agreements, what would happen to the number of FCPA settlements every year,” and he stated as follows: “if the Department only had the option of bringing a criminal case or declining to bring a case, you would certainly bring fewer cases.”

In certain other OECD member countries, there is a compliance defense relevant to the prosecution of bribery and corruption offenses. (See here for the prior post).

Given these differing dynamics (among others), it is fairly obvious why OECD member countries have varying degrees of enforcement of bribery and corruption offenses.

With that in mind, on to the report cards.

Transparency International Progress Report 2011 – Enforcement of the OECD Anti-Bribery Convention

On May 24th, Transparency International (TI) released (here) its seventh annual Progress Report on Enforcement of the OECD Convention.

The report “shows no improvement in the enforcement of the OECD Anti-Bribery Convention in the past year and warns that this could signal a dangerous loss of momentum in the fight against corruption.”

The report covers 37 countries and “shows that there are still only seven countries with active enforcement, nine with moderate enforcement, and 21 with little or no enforcement.” Huguette Labelle, Chair of TI, stated that “the collective commitment to stamp out foreign bribery made by all OECD parties is undermined when a large number of countries have inadequate enforcement.”

The introduction of the report includes the following statement.

“Continued lack of enforcement in 21 countries a decade after the Convention entered into force, notwithstanding repeated OECD reviews, clearly indicates lack of political commitment by their governments. And in some of those with moderate enforcement, the level of commitment is also uncertain. This is a danger signal because the OECD Convention depends on the collective commitment of all parties to ending foreign bribery.”

The reports “major conclusions” include the following: “risk of loss of momentum” and “lack of political commitment.”

As to the former, the report states as follows. “The Convention has not yet reached the point at which the prohibition of foreign bribery is consistently enforced. With little or no enforcement by half of the signatory governments, backsliding by enforcing governments is a serious threat. This concern is aggravated in a troubled global economy in which companies are scrambling for business. Business organisations have increasingly criticised anti-bribery enforcement as a competitive obstacle. The present position of the Convention is unstable, and unless forward momentum is recovered, the progress made in the past decade could unravel.”

As to the “lack of political commitment”, the report states as follows. “Reviews conducted by TI experts indicate that the principal cause of lagging enforcement is lack of political commitment by government leaders. In countries where there is committed political leadership, the OECD’s rigorous monitoring programme has helped improve laws and enforcement programmes. However, in the absence of political will, even repeated OECD reviews have little effect.”

Once again, Canada received a public lashing from TI.

Under the heading “lack of progress in Canada,” the report states as follows. “Canada is the only G7 country in the little or no enforcement category, and has been in this category since the first edition of this report in 2005. It is also the only OECD member that does not provide nationality jurisdiction, which presents a serious obstacle to enforcement. […] TI welcomes that the government of Canada has publicly reported the number of investigations for the first time. It is promising that 23 foreign bribery investigations are under way. If these investigations lead to prosecutions, Canada may finally move out of the little or no enforcement category.” (A future post will summarize the recent Canadian enforcement action against Niko Resources).

TI’s 2010 report (see here for the prior post) included reference to many big picture enforcement issues such as the use of negotiated settlements (NPAs and DPAs), judicial scrutiny of enforcement actions, and the proper amount of fines and penalties. However, TI’s 2011 report was silent as to many big picture issues.

OECD Working Group on Bribery Annual Report

On April 20th, the OECD Working Group on Bribery released its annual report (here). The release (here) states as follows. “Most governments are not meeting their international commitments to clamp down on bribery and corruption in international business, with only five signatories to the OECD Anti-Bribery Convention having sanctioned individuals or companies in the past year.”

The TI Report

[Before turning to the TI Report, I am pleased to share that FCPA Professor has been named a “Top 25 Business Law Blog” by LexisNexis. Voting is open for the top blog, which will be announced on November 3rd. Here is the link to vote. Thank you for your support]

Earlier this week, Transparency International a “global civil society organization leading the fight against corruption” released its annual Corruption Perceptions Index (“CPI”) (see here).

As TI’s report explains, the CPI “draws on different assessments and business opinion surveys” to compile an index “relating to bribery of public officials, kickbacks in public procurement, embezzlement of public funds, and questions that probe the strength and effectiveness of public sector anti-corruption efforts.”

In a release TI noted that the “2010 CPI shows that nearly three quarters of the 178 countries in the index score below five, on a scale from 0 (perceived to be highly corrupt) to 10 (perceived to have low levels of corruption), indicating a serious problem.

The United States scored a 7.1 in the CPI index – 22nd out of 178 countries and below several European countries, New Zealand, Australia, Japan, Qatar, the United Kingdom, and others. As others have reported (here) “this was the lowest score awarded to the United States in the index’s 15-year history and also the first time it had fallen out of the top 20.”

In a video release (here) TI’s Chair, Hugette Labelle, stated that “corruption remains a serious obstacle and cause for concern” and that a “vital issue remains enforcement without which all the laws in the world will be of little value.”

While the CPI may just seem like a bunch of numbers, the index has real-world application as many companies and FCPA compliance professionals calibrate FCPA risk assessment to the CPI.

The TI Report

[Before turning to the TI Report, I am pleased to share that FCPA Professor has been named a “Top 25 Business Law Blog” by LexisNexis. Voting is open for the top blog, which will be announced on November 3rd. Here is the link to vote. Thank you for your support]

Earlier this week, Transparency International a “global civil society organization leading the fight against corruption” released its annual Corruption Perceptions Index (“CPI”) (see here).

As TI’s report explains, the CPI “draws on different assessments and business opinion surveys” to compile an index “relating to bribery of public officials, kickbacks in public procurement, embezzlement of public funds, and questions that probe the strength and effectiveness of public sector anti-corruption efforts.”

In a release TI noted that the “2010 CPI shows that nearly three quarters of the 178 countries in the index score below five, on a scale from 0 (perceived to be highly corrupt) to 10 (perceived to have low levels of corruption), indicating a serious problem.

The United States scored a 7.1 in the CPI index – 22nd out of 178 countries and below several European countries, New Zealand, Australia, Japan, Qatar, the United Kingdom, and others. As others have reported (here) “this was the lowest score awarded to the United States in the index’s 15-year history and also the first time it had fallen out of the top 20.”

In a video release (here) TI’s Chair, Hugette Labelle, stated that “corruption remains a serious obstacle and cause for concern” and that a “vital issue remains enforcement without which all the laws in the world will be of little value.”

While the CPI may just seem like a bunch of numbers, the index has real-world application as many companies and FCPA compliance professionals calibrate FCPA risk assessment to the CPI.

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