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The OECD Doesn’t Like Judicial Scrutiny

OECDcry

For years, these pages have highlighted how the OECD and other so-called “civil society” organizations and groups have seemingly prioritized the quantity of bribery enforcement actions (regardless of the enforcement theories and/or the resolution vehicles used) over the quality of enforcement actions.

Implicit in this prioritization is that quality enforcement actions (for instance those subjected to judicial scrutiny) might result in dismissal of charges and dismissal of charges must be bad because – after all – the charges were for bribery.

In its recent Phase 4 report on Italy’s Implementation of the OECD Anti-Bribery Convention, the OECD goes from implicit to explicit and specifically calls out judicial scrutiny in Italy of bribery cases because it has “yielded a high number of dismissals.”

In doing so, the reputation of the OECD has taken yet another hit.

The OECD report states in summary fashion:

“The Working Group is seriously concerned that foreign bribery cases litigated in Italy have yielded a high number of dismissals. Almost all foreign bribery convictions are secured through patteggiamento, a form of non-trial resolution. In cases litigated in court, however, after one conviction in 2013, the last seven trials produced five full dismissals, one partial dismissal, and one conviction. Dismissals occur partly because the totality of circumstantial evidence is not considered simultaneously. Cases that may demonstrate bribery when viewed holistically risk being dismissed because of this narrow approach. Proof of all of the details of a corrupt agreement is also necessary. Requiring proof of foreign law adds another hurdle. The defence of concussione remains available, while a new one of effective regret could be interpreted as to serve no useful purpose in foreign bribery cases.”

The report then goes into significant detail about certain legal issues and the results of Italian judicial scrutiny in specific cases. According to the OECD, when bribery and corruption cases are dismissed for “technical-legal reasons,” this apparently is cause for concern. According to the OECD, if a prosecutor feels that there is an “onerous standard of proof [that] applies to foreign bribery cases,” this apparently is a cause for concern. And the biggest joke of a statement in the OECD’s report is that Italy should “provide training and awareness-raising to judicial authorities” – presumably perhaps so that they don’t interpret the law and facts in such a way that could result in a dismissal.

None of this is made up, it is in the OECD Report!

For instance, as to the “treatment of circumstantial evidence,” the report states in pertinent part:

“102. The law in Italy on circumstantial evidence is settled. A court can deduce the existence of a fact only from circumstantial evidence that is “serious, precise and concordant” (CCP Art. 192(2)). The court in the Helicopters (India) Case stated that this requires a two-step test. Each piece of circumstantial evidence must first be assessed individually. Those pieces that are considered “an object of autonomous evidence” would then be considered together to determine whether there is sufficient evidence to prove the crime.

103. However, the application of this rule in practice has resulted in a very onerous standard of proof in foreign bribery cases because of a systematic rejection of circumstantial evidence. As mentioned above, the last seven litigated foreign bribery cases resulted in five full dismissals, one partial dismissal and one conviction (which is not yet final). The treatment of circumstantial evidence was the principal reason for the acquittals in three of the cases: Helicopters (India), Oil and Gas (Algeria), and Oil Prospecting (Nigeria). (The acquittals in the remaining cases were for technical-legal reasons; the issue of circumstantial evidence did not arise.) In each of these three cases, instead of considering simultaneously the totality of the circumstantial evidence, each piece of circumstantial evidence is generally considered individually only. An alternative, exculpatory interpretation is adopted for each item, and excluded it from the final assessment.

104. One consequence of this approach is that large opaque payments to intermediaries have been rejected as evidence of foreign bribery. In the Oil and Gas (Algeria) Case, it was held that the enormous consultant fees paid by the company were for “lobbying”. Even if this was true, fees of EUR 197 million in under four years would seem exorbitant for services of this nature. Also discounted was the absence of tangible work produced by the consultant, for the reason that lobbying activities “are difficult to document and frequently assume a confidential nature”. Consultants also provide local information such as the “political strategies of the Algerian government” and the local “socio-political and economic dynamics”. Despite there being no evidence that the consultant in this case provided such advice, or how such information could or did help the company win the contracts, the court nevertheless seemingly credited such conjecture when reaching its conclusion. In the Helicopters (India) Case, the company allegedly bribed an Indian official to obtain a EUR 556 million contract for 12 helicopters. Up to EUR 10.5 million were paid to the official’s three cousins who had no expertise in helicopters and did not provide any tangible service or work product in return. The reasons for the acquittal did not explain the purpose of these payments, but rejected the idea they related to a bribe scheme.

105. Another example of the approach to circumstantial evidence is the reluctance to attribute a bribe to a foreign official. As mentioned above in the Helicopters (India) Case, the alleged bribe was traced to the official’s three cousins. But it was held that payment to family members was not enough. Instead, there had to be direct evidence that the official received the bribe or was aware the bribe went to a third-party. In the Oil and Gas (Algeria) Case, it was held that the alleged bribe payments were made to a type of “facilitating agent” frequently used by large companies “to operate in very different countries for culture, legislation and administrative structure.” But the intermediary in this case was not just any arms-length, commercial local agent: he was presented by the minister as someone extremely close to him (“like a son”). Furthermore, it was not noted that companies may also use local agents to pay bribes, too.

106. The reasoning in the above-mentioned cases also more readily draw exculpatory rather than inculpatory inferences from circumstantial evidence in a myriad of other situations. Examples include the Oil Prospecting (Nigeria) Case, where two companies paid USD 1.3 billion to acquire an oil prospecting licence. Half of the purchase money was laundered through multiple cash transfers to currency exchanges and then distributed, including to one official to purchase a USD 4.5 million property. It was nevertheless found that the property was compensation for legal services rendered earlier by the official when he was a practising lawyer. However, the judgment did not refer to any documentary evidence (e.g. invoices) of the services rendered or the debt owed. It is also undoubtedly odd to pay for legitimate legal services with a sale of real property funded by numerous small cash payments cycled through money exchanges. A single direct cash transfer from the debtor to the official would have been more logical. The debtor in this case certainly had the means to pay the official directly: he had just pocketed USD 400 million from the sale of the oil prospecting licence. In the same case, while internal company emails contained language suggestive of bribery, the reasons for the acquittals repeatedly adopted exculpatory interpretations of the correspondence.

107. Exculpatory inferences were also adopted in the Helicopters (India) Case. For instance, a document with purported bribe amounts and recipients was rejected because it referred to “the family” and not the official. It was also noted that the intermediary who authored the note said the figures were only an estimate. But it would seem that the document should have evinced at least an intention to bribe. It was further found that it was not the allegedly bribed official but his deputy who sat on the procurement board that set the contractual requirements. This implies that it was not sufficient that the official had influence over his deputy as his boss, and that there must be direct evidence that the official actually asked his deputy to change the procurement requirements.

108. Finally, exculpatory inferences that are arguably speculative and uncorroborated have also been drawn. For instance, in the Helicopters (India) Case, alternative interpretations to the intercepted conversations between the intermediaries were adopted. Yet, even the intermediary himself did not offer such interpretations in his testimony. In the Oil and Gas (Algeria) Case, the company had been excluded from energy projects in Algeria before winning seven major contracts over four years. The reasons for the acquittals said that this was not due to bribery but to specialised skills acquired by the company. But there was no evidence that the contracts were awarded to the company for this reason.

109. One litigated foreign bribery case that has resulted in (partial) convictions rested on direct and not circumstantial evidence. In the Logistics (DRC & Niger) Case, the offenders were already under investigation for tax offences. Wiretapping and eavesdropping in Italy then yielded evidence of foreign bribery. The intercepted communications showed in detail the bribery negotiations on Italian soil between the accused and foreign officials.

110. When asked about these cases during the evaluation, Italian judges unanimously refer to the test for circumstantial evidence in CCP Art. 192(2). All state that the provision applies identically to all cases of all offences in Italy. Several judges also state that difficulties in gathering evidence from abroad in foreign bribery cases do not merit a lower standard of proof. Few would disagree with these propositions. However, the collective body of circumstantial evidence presented in each of the three litigated cases resulted in convictions in some cases that were later overturned. Also, Italian prosecutors perceive that the standard of proof as applied is unduly onerous. One states that “foreign bribery cases have a higher and higher bar”. Another prosecutor adds that courts in the past more readily accepted circumstantial proof of bribery. But the approach has “faded in recent times” and judges now “tend not to see the series but just the pieces”.

111. A prosecutor’s recent statements reinforce the conclusion that an onerous standard of proof applies to foreign bribery cases, and indicates that this view is held not only by judges but some prosecutors. The appeal of the trial acquittals in the Oil Prospecting (Nigeria) case was heard in July 2022. In conceding the appeal, according to media reports, the appellate prosecutor stated that there is a “thinness and absolute insignificance of the elements” of proof in the case, and that the evidence is “incongruous and insufficient”, which suggests “different possible reconstructions that reflect the absence of certain facts at the basis of the accusation and not of a constructive agreement that does not indicate any way”. As such, “there is no proof of a corruptive agreement, nor proof of payment of corruptive utilities”. Incidentally, the appellate prosecutor also made some ill-advised comments by describing the trial prosecutor’s attitude as “neocolonialist” and that the indicted companies “had made the wealth of Nigeria”.

112. After reviewing a draft of this report, Italian authorities point out that the cases mentioned above involved extremely complex facts and that lower courts entered convictions. This is true, but the fact remains that these convictions were overturned on appeal.

Commentary

The lead examiners are extremely concerned over the treatment of circumstantial evidence in some recent foreign bribery cases. They express the utmost respect for the independence of Italian judges, however, and do not criticise the outcomes of these cases. Nevertheless, the reasoning in these cases appears to demonstrate a troubling pattern. Each piece of circumstantial evidence may be examined in isolation and exculpatory explanations are assessed for that specific piece of evidence. Such explanations are by definition available in the abstract given the evidence’s circumstantial nature. Once such exculpatory explanation is found, the piece of evidence is then rejected. By not considering the totality of the circumstantial evidence simultaneously, cases that could demonstrate bribery when viewed in a holistic context risk being dismissed instead.

The lead examiners therefore recommend that Italy provide training and awareness-raising to judicial authorities on the treatment of circumstantial evidence in foreign bribery cases.”

Next, the OECD report discusses the “proof of details of a corrupt agreement” in Italy. According to the OECD, if “three civil society organisations opine that the Italian courts have ‘set the bar for establishing such proof extremely high,” this apparently is cause for concern. According to the OECD, “the Working Group … considered in the past that Italy’s foreign bribery offence complied with the Convention. But this was before the spate of recent acquittals that created jurisprudence on the offence.”

Again, none of this is made up, it is in the OECD Report!

Under the heading, “Proof of details of a corrupt agreement,” the report states in pertinent part:

“Proof of details of a corrupt agreement113. Italy’s principal foreign bribery offence requires proof of a corrupt agreement. It is an offence to give or promise money or other benefits that a public official “unduly receives” (CC Arts. 318-319 and 321). Courts in foreign bribery cases have held that this provision requires the prosecution to prove a corrupt agreement between the briber and the official. Italian judges and prosecutors who participated in this evaluation unanimously confirm that the corrupt agreement is an essential element of the offence. If the offer or promise of a bribe is not accepted, then the act amounts to a different offence of “incitement to corruption” (istigazione) (CC Art. 322). The Italian law is thus similar the Convention Art. 1 which prohibits the offer, promise or giving of any undue pecuniary or other advantage to a foreign public official, in order to obtain or retain business or other improper advantage in the conduct of international business.

114. The concern, however, is not the requirement of a corrupt agreement per se but the level of detail that must be proven. In the Helicopters (India) Case, both the first instance court and the Court of Appeal required proof of precisely where and when the agreement was made, and details of the act to be performed by the bribed official. The Court was equally critical of the lack of proof of the precise financial terms of the agreement:

It is not possible to know who made the corruptive proposal to the public official, and not even its economic terms (and this since the beginning, when the charges were filed), when everyone can see that in a story like the present one, relating to a contract order of five hundred and fifty-six million euros, the corruption agreement must provide for precise financial references, to be defined at the outcome of a detailed negotiation.

115. Participants in this evaluation confirm the high standard of proof that applies to the corrupt agreement. One Supreme Court judge states that the prosecution must prove details such as “the existence, object, nature and parties of the agreement”. Three civil society organisations opine that the Italian courts have “set the bar for establishing such proof extremely high”. The necessary evidence may be more readily available through wiretapping or surveillance in cases of domestic corruption but not foreign bribery. The courts’ approach “had the effect of making it nigh on impossible to obtain a conviction in Italy for international corruption.”

116. Italian authorities’ response to these observations do not assuage the concerns. The Working Group indeed considered in the past that Italy’s foreign bribery offence complied with the Convention. But this was before the spate of recent acquittals that created jurisprudence on the offence. Italy also states that proof of details of the corruption agreement is not required according to “well-established Italian case law”. This case law considered the domestic bribery offence which has the same elements as the foreign bribery offence. But the fact remains that courts hearing foreign bribery cases did not apply this case law. Finally, Italy argues that the doctrine of precedent does not apply under Italian law, and hence other courts may decide not to follow the Helicopters (India) Case. This may be too optimistic, since one Supreme Court judge and civil society organisations suggest that the approach in the Helicopters (India) Case is widely accepted. Italy also refers to case law extensively in this evaluation, which reflects the jurisprudential value of prior court decisions. Indeed, some of the Italian courts that heard foreign bribery cases have issued reasons for judgment that referred to earlier decisions in foreign bribery cases.

Commentary The lead examiners are concerned about the standard of proof for the corrupt agreement in Italy’s foreign bribery offence. In foreign bribery cases, Italian courts require proof of all of the agreement’s details, such its date, place, parties and precise financial terms, as well as the exact act to be performed by the public official. The Convention Art. 1 does not mandate the proof of a detailed agreement to such a degree. Such precise evidence is rarely available in actual instances of foreign bribery, especially where the evidence is often located overseas. When the requirement to prove such details in Italy is coupled with the challenges of using circumstantial evidence (see previous section), foreign bribery is exceedingly difficult to prove. The lead examiners therefore recommend that Italy take steps to align the level of details about the corrupt agreement that must be proven for its foreign bribery offence with that seen in practice, by taking appropriate measures including training of judicial authorities, and if necessary amending its legislation.”

Several other sections of the long OECD report concern other legal elements and other judicial decisions by Italian judges. The big picture take-away point is the same: the OECD does not like judicial scrutiny.

The OECD report on Italy reflects “the conclusions of experts from Germany and the United States.” This is rather funny given that in the U.S. a significant majority of corporate FCPA enforcement actions are resolved in the absence of meaningful judicial scrutiny (given the prominent of deferred prosecution agreements, non-prosecution agreements, and so-called declinations with disgorgement).

But then again, this appears to be what the OECD wants – more enforcement actions (regardless of enforcement theory, regardless of resolution vehicle used) just as long as it increases the quantity of enforcement actions.

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