Corruption and Commerce: The Costs and Benefits of Policing International Markets
President, Global Financial Integrity
Of Counsel, Litigation, Wachtell, Lipton, Rosen & Katz
President and Founder, TRACE International
Senior Policy Advisor, Global Witness
Experts discuss the effects of corruption and illicit financial flows on international commerce, and how the Foreign Corrupt Practices Act has helped advance U.S. multinational corporations.
VITTORI: Good morning, ladies and gentlemen. I am delighted to start the second panel this morning of the Council on Foreign Relations workshop on the intersection of corruption and U.S. national interests. Today I will be leading the second panel, which is going to deal specifically with the linkages and commerce, corruption and U.S. foreign policy.
My name is Jodi Vittori. I am a senior policy adviser with a nongovernmental organization, Global Witness.
And as was pointed out in the first panel this morning with Senator Cardin, it’s a very, very complex environment, both internally within the United States vis-à-vis corruption and internationally as well.
In the new administration there is a lot of ambivalence, it seems, about corruption overall. We do have a president who has said that the Foreign Corrupt Practices Act is a horrible law, which makes—which is slightly awkward for those of us in the anticorruption community, of course. (Laughter.)
One of the first pieces of legislation that was signed into office was a CRA resolution that lifted some rules on oil, mining and gas anticorruption transparency measures. Those rules now have to go back to the drawing board.
But at the same time we’ve had statements from an assistant attorney general that says we—the United States and the Department of Justice will still be doing aggressive enforcement of the Foreign Corrupt Practices Act and working with the Kleptocracy Initiative. And the national security adviser used to head a counter-corruption task force, and it’s been very public and emphatic on the role of corruption and national security. So it’s a very ambivalent relationship.
At the same time you cannot open the newspaper, whether the world politics section or the commerce section, and not see the role that corruption is playing in both of them today. Take South Korea, for example, a major U.S. trading partner. As its northern neighbor is lobbing missiles into the Sea of Japan, its political class is currently riled up as its president has been impeached and arrested for corruption at this time, as well as the head of its largest company, Samsung—or the largest economy in Latin America, Brazil, where we have, again, a president that’s been impeached not necessarily on corruption, but certainly that was a big role in that impeachment process, and an economy that shrunk over 3 percent last year, much of it associated with the linkages of this massive corruption scandal in the state oil company, Petrobras, and a large construction firm, Odebrecht. Or take the role of corruption in Ukraine, the role of corruption in the Arab Spring—you name your issue, and there is a major role of corruption being played into it. So it’s a very dynamic and complex environment.
And for that reason, I think we have one of the great panels to be able to discuss these really complicated concerns today.
So immediately to my right is Raymond Bacon—Raymond—I’m so sorry, Raymond Baker. It’s one of those mornings. So he is the president of Global Financial Integrity, which is a wonderful, wonderful advocacy and research organization that looks into the roles of illicit financial flows.
Next I have Marshall Miller. He is on—counsel at Wagtell, Lipton, Rosen & Katz. But prior to that he worked as a principal deputy assistant attorney general in the Criminal Division of DOJ, where amongst his responsibilities included those who enforce the Foreign Corrupt Practices Act as well as the Kleptocracy Asset Recovery Initiative.
And finally is Alexandra Wrage. Alexandra is the founder and president of TRACE International, a firm that helps businesses deal with the linkages and due diligence concerns, corruption issues for those businesses themselves operating in a very complex and dynamic environment today as well as a prolific author in her own right.
So today first, I wanted to start with a conversation that came up under Senator Cardin in the first panel but one that has occupied many discussions in the counter-corruption community right now, and those are those statements about the Foreign Corrupt Practices Act. In 2012 on MSNBC, then-private citizen Trump said that the Foreign Corrupt Practices Act is a horrible law. There are—there is one report that that was repeated that it cost Americans job in February within the White House itself. And certainly in my line of work I hear it regularly that businesses lose out when they cannot take part in the types of activities that other businesses can take part in, that they lose competitive advantage in that.
So I really wanted to address this particular topic and hear what all three of your opinions were. But first I wanted to start with you, Alexandra.
WRAGE: Great. Thank you.
So it’s interesting that then-businessman Trump made that comment. Obviously, you can say different things as a businessman than what you might say as a president. But he was also the CEO of an organization at the time, and an organization that was doing business in some really tough neighborhoods. So it’ll be kind of an interesting balancing act. He’s spent far more of his life as a businessman than as a president.
But I think the idea that it’s a horrible law has been pretty thoroughly debunked. I think that was sort of the response 20 years ago, 20 years into the now 40-year-law FCPA. But, you know, we don’t talk to people that speak like that anymore. People understand that there is a knock-on benefit from good governance. And businesspeople want predictability. They want enforceability. You can’t enforce a bribe-tainted contract. They want the predictability that comes from, you know, we’re going to sell our product, a good product at a reasonable price and know that that’s going to stick. And they want that kind of transparency in the markets that they’re operating in. You know, as a transaction, a bribe might win you the business. I pay you something, you give me the contract. But as a long-term strategy, it’s disastrous. Companies don't invest in R&D if they know they can just pay something under the table and sell a shoddy product at an inflated price, so—
MILLER: Well, I think I’d agree. I come at it from a slightly different perspective, first as someone involved in the legal side but also from an enforcement standpoint up until about a year and a half ago. And I think from my perspective, I think one of the interesting criticisms that came from then-private citizen Trump as well as other members of the administration before they joined the administration—another good example is the SEC chair, who’s up for confirmation, who also said some disparaging things years ago about FCPA enforcement and the effect on American business—and I do think that there is—that it’s a slightly anachronistic criticism. And what I mean by that is there really has been a significant shift in the way not only the FCPA has been enforced but other anticorruption laws around the world have been enacted and enforced over the last, say, 10, 15, 20 years that have taken that criticism which might or might not 20 years ago have had some purchase and made it a lot less significant.
What do I mean by that? Well, first off, from the FCPA enforcement perspective, the idea that it’s hurting American business just really isn’t borne out by the facts of who’s being enforced against, so—for better or for worse, but, you know, as someone who worked in the enforcement area, I think this is just where the facts lay. Most of the most significant resolutions have been brought against foreign companies. That is, they haven’t been brought against U.S.-based companies. They’ve been brought against foreign companies that either are issuers here in the United States but based overseas or for one reason or another came under the jurisdiction of the FCPA, perhaps through activity in the United States relating to corruption overseas. So, for example, I think it’s seven of the 10 largest FCPA resolutions in dollar figures in terms of the fines and penalties that were paid involved foreign companies. And that’s played out as well in 2016 where, again, I think it was eight of 10—of the high—of the 10 highest enforcement numbers were against foreign-based companies. So I don’t think—the basic criticism just isn’t borne out by the facts that this hurts American companies.
And that doesn’t even bring into play the fact that the world is changing in terms of the passage of laws and, even more importantly, the enforcement of those laws by other countries and not just the United States. So, you know, we now have a convention against bribery associated with the OECD where there are 41 signatory countries. And there is an annual review of each of those signatory countries that I was lucky enough to participate in and see how it worked. And it’s interesting, there’s a peer review, essentially, of how those laws are being enforced. And there’s sort of a shame factor of having to come forward and say, well, we didn’t do any enforcement this year, and then, you know, the eyes of all the sort of international community in this room that I got to sit in on and watch are upon you.
And so there is a positive change going on in the world community. Seventeen countries I think have now engaged in enforcement actions of those 41, significant enforcement actions, and the numbers are growing. So when you add the fact that the FCPA really doesn’t target just American businesses, it targets businesses over which it has jurisdiction, which are foreign and American businesses, and you add to it the fact that there is a global and accelerating trend towards enforcement, not just in the United States but all over the globe, I think it undermines that criticism and suggests that it’s a bit dated.
And I don’t want to eat up all the time because lots of people want to have important points, but I just would add and echo the idea that I think businesses have now invested significantly in FCPA compliance infrastructure, anticorruption compliance infrastructure in their businesses, and they’re not ready to walk away from that. They want that investment to yield results, and the results being good business efforts on their part and also on the part of their counterparts to have a level-playing field where corruption doesn’t influence the marketplace.
BAKER: The idea that we lose business to others who indulge in corrupt practices has an element of truth in it, but it has to be balanced against how much business we gain by doing our activities honestly around the world.
I did business in dozens of developing countries for 35 years before I segued into the think tank world. I’ve lost business due to other people’s corruption. I gained business by trying to play it—play it straight.
I think the—without question the Foreign Corrupt Practices Act and the additional conventions that have been adopted by the U.N. or the OECD and Russia and China and most countries and so forth has advantaged American corporations because we’ve made the world—we’ve influenced the world to be much more receptive to the way that we prefer to do business. This has been a huge accomplishment over the past 20 years. We’ve moved the world in the direction that helps American business. The spread of American multinational corporations across the globe is a testament to that. Is it our way of doing business that is gaining traction. And the last thing we want to do is to take any steps to weaken that approach.
So, with U.S. as a leader in establishing the Foreign Corrupt Practices Act to begin with, where do you think the United States in an ideal world should be moving forward with when it comes to foreign corrupt practices, the act itself, or overall? So, Marshall?
MILLER: Sure. Well, I think—as much as I think the FCPA has had a positive effect and other anticorruption laws have had a positive effect on creating a fairer marketplace and hopefully influencing in a positive way the reduction of corruption worldwide, I think—one area where I think businesses are thirsty for a better approach to the FCPA enforcement is through greater consistency. I think what businesses are looking for is consistent enforcement and enforcement that recognizes that when they invested in compliance infrastructure, when they tried to do the right thing, when they followed the guidelines that have been put forth by the SEC, DOJ, the United States sentencing guidelines regarding what a good anticorruption compliance program would look like, that there’ll be some sort of benefit from that investment. They want—executives want to be able to tell the board why they’re making that investment and that it’s going to yield fruit. It’s going to yield fruit from the point of view of doing good business, but it’s also going to yield fruit from the point of view of not being the target of a high number enforcement action.
And so I think to the extent that I think what the Department of Justice should be looking at is not reducing enforcement but ensuring that it is separating the wheat from the chaff, in other words, that it’s trying to figure out where there are companies that are investing in anticorruption programs and good compliance structures worldwide, they should be rewarded for that. And where companies are failing to invest, those are the folks who should be the targets of more significant enforcement actions.
And so I think if you asked the—you know, your—if you picked 10 random corporate executives at high-quality companies and asked them, you know, do you want to continue to invest in anticorruption, they will tell you, yes, I think it is a positive for the company, not only because I think there are spillover effects in either direction—if you invest in anticorruption, you have the right tone form the top; I think that has positive spillover effects to the company, less likely to be a place where fraud could take hold, stronger internal controls, protecting the systems of the company and protecting shareholders. Conversely, I think you’d see the opposite happen. If you reduce your anticorruption investment, you’re going to create an environment where fraud could take hold and other problems could take hold. So I think they’ll say, yes, but they’ll also say, I want to get some kind of certainty out of this that when I invest and I do the right thing and I create a strong anticorruption infrastructure, I’m not going to have something go wrong in some far-flung office of mine or subsidiary of mine that’s going to blow up in my face and cost me billions of dollars.
And so I think as DOJ implements the FCPA and SEC implements the FCPA and thinks about enforcement actions they’ve been thinking about it for the last few years, they should continue thinking about how to separate those different kinds of companies out, enforce in the right places. And I think you may see from the administration some thought around whether there are legislative areas that—or legislative fixes that could be made. And those need to be looked at with great care, because at the same time that that’s an important goal, greater consistency, greater predictability, you want to make sure it doesn’t undermine the enforcement of the act itself.
WRAGE: Yeah, I would go to a broader picture issue than that. I’ve been out of the country almost every week since the inauguration. And everywhere I go people are asking, particularly the people in the compliance space and at corporations, what is going to happen next? Because if the U.S. pulls back from its leadership role, we are not going to have the same enthusiasm—our government is not going to have the same enthusiasm for this as they have had. A couple of people actually took a contrarian position, and said if the U.S. steps back, you know, we’re likely to step forward, just to sort of show them. And I’m not sure if that’ll really take hold. But there is real insecurity about this issue.
So, to repeat the very good point made by Senator Cardin before this panel, if the administration could come out with a strong statement that this issue is a priority, without all the details and the holy grail of the compliance defense—you know, just come out in one of those morning tweets and say: Transparency is really important to this administration. And we are—(laughter)—not going to channel the president. (Laughter.) But, you know, some sort of statement that makes it clear that this—that they’re not going to be stepping back from this. And, you know, we got a statement from AG Sessions that he will enforce all the laws. Well, that’s not a surprising statement from an attorney general. (Laughter.)
So something a little more detailed, a little more fulsome than that I think would be incredibly valuable, regardless of what the enforcement pipeline looks like now. We’re not going to see any impact one way or the other for at least a year. There are cases in the pipeline. Those are going to keep coming through. But if the administration could repeat the leadership statements that have been made by past administrations. And, you know, both past administrations of each party about how important this is to American businesses, to American interests. We’ve talked about this, but the nexus—the nexus with national security, with all other transnational crimes—trafficked labor and narco-trafficking. This is a really important issue, even if you set aside the details of what we’re going to prioritize and deprioritize in individual enforcements. Let’s just, you know, maintain that leadership role that’s been hard-fought for 40 years—well, 20 of the last 40 years.
BAKER: What we’re hearing in part is the need to clarify ambiguities in the law or positions in the Foreign Corrupt Practices Act that don’t adequately define what is a foreign government official or the impact of corruption the parent companies done by—we’re hearing—we’re hearing the argument that there should be a lot of clarification of this. One of the reasons the Foreign Corrupt Practices Act is complicated is because it leaves open the door to private bribery. It is not illegal to bribe a foreign private citizen. The U.K. Bribery Act does the opposite. It makes it against the law to bribe a foreign government official or a private citizen. The OECD’s guidelines do the same thing.
We complicate it when we try to have our cake and eat it too, in these situations. If I could digress for a half a second, I’m—personally, I’m in favor of a law that does both, a law that is quite simple and straightforward, that says it’s illegal to bribe anybody. Give an example of how clarity in the law can work and can reduce compliance cost: In the wake of 9/11, senators Levin and Kerry and Grassley and others pushed into the USA Patriot Act legislation that took foreign shell banks off the table.
Shell banks have been a major avenue for corruption. And the law says it’s illegal for an American financial institution to receive money from a foreign shell bank. The law says it’s illegal for any other financial institution in the world to send money to the United States that it has received from a foreign shell bank. And this includes wire transfers that might touch New York City for a brief moment before flitting off somewhere else. Elise Bean was staff director of the Permanent Subcommittee on Investigations that helped push this. The law makes it absolutely clear that you cannot do business with shell banks.
As a consequence, shell banks declined from hundreds if not thousands in the early years of this century to a handful now. Almost overnight, shell banks went out of business all over the world. There are some still operating in Europe and Asia, being very careful to see that their wire transfers never go to New York. But essentially, shell banks were taken off the table with the clarity of the law that had no ambiguity in it. Furthermore, the cost to banks of complying with that legislation are close to zero. It’s just flat against the law. You can’t do it. You clarify and simplify the world when the law is utterly clear as to what you’re trying to accomplish.
VITTORI: So, moving from the shell banks idea to another shell. And that is, we’ve just had the one-year anniversary of the Panama Papers, which was a Panama-based law firm that, through a leak of over 4 million documents had indicted how all sorts of entities were using anonymous shell companies to hide various assets. There’s legitimate reasons why one would use an anonymous shell company, but there were also a number of probably illegitimate reasons for using those anonymous shell companies. Whether it was politicians that were involved, we had individuals who were supplying fuel for barrel bombs in Syria, to use something in the—in the current events right now. And there was a study in 2012 that noted that one of the easiest facilitators if you wanted to open an anonymous shell company was actually to use a United States corporate service provider. And that was even in a situation when they set up a test that should have raised red flags for terrorism finance-related issues.
Raymond, did you want to talk a little bit about how it is that U.S. business practices, for good or for bad, can either facilitate corruption, but also provide that limit to that corruption, and how that affects U.S. foreign policy issues?
BAKER: Getting rid of shell companies is the most fundamental step we can take in fighting corruption. The complication in the United States is the fact that corporations are formed at the state level. And the 50 states, as has been confirmed to be recently, 50 states—all 50 states of the United States—permit corporations to be formed by company formation agents. And they are not obligated to note for whom they are forming those corporations. OK, changing the law in 50 states might be complicated, but the way around that is for the Treasury Department to make it clear that, OK, you have a private—you can have a disguised corporation, but that corporation can’t have a bank account. A bank account—the bank has to know, who are the natural persons owning those accounts.
Now, Treasury Department took a crack at this over a period of four or five years, and produced a law that still has some loopholes in it. Let’s be clear: There is no argument in favor of not knowing with whom you are doing business. Insist on knowing who are the—either the owners of the business or the owners of the bank account. But take anonymous shell companies off the table.
VITTORI: Alexandra, how do you feel?
WRAGE: Well, when we do due diligence on companies, and the companies will always sort of push back and say, oh, this is so onerous. What is the single most important piece of this? How can we prioritize it? It has to be getting to true beneficial ownership. If you don’t know who you’re dealing with, then the—you can be violating the FCPA and not even be aware of it, obviously, because you could have inadvertently hired your government customer and incentivized them with a commission to sell to themselves.
So you need that information. And right now in most countries, you are relying on that third party to tell you who their owners are. And even though you can collect that information and you can do you best to verify it, there are only a handful of countries where you can have any kind of certainty. So certainly I would agree, there’s no argument in favor of doing business with a company whose ownership you can’t identify. I think that’s really simple. I do think it’s important to recognize that, you know, just banking offshore and those sorts of things are not in and of themselves illegal, and that there are some valid security reasons and other reasons to do that.
But when we went out to the tens of thousands of entities in our database and said: Can we disclose your true beneficial ownership, 67 percent of those that responded said yes. And I was expecting 5 percent and some rude comments from the others. And 67 percent said, yeah, we’re not doing this because—we’re not banking in this way or configured as a private company because we have something to hide. There are other reasons that we’re doing it. But, yes, you can make our ownership of these privately held companies publicly available. And that was—that was striking. So I think there are a whole lot of good actors that are being caught up in the reputational damage associated with the Panama Papers.
MILLER: You know, I think I’ll echo the idea that ensuring that beneficial ownership information is available is critical to understanding, for everybody—for governments, for businesses that want to do business with other counterparties that are good actors as well. So I agree with that. The only thing I would add, I think, is that I’m a little reluctant to say that the way this should pay out is through the Treasury Department putting the onus on banks to root out the information as to who beneficial owners are, and to essentially add another layer on the banks’ responsibilities through their—whether it’s their Bank Secrecy Act AML obligations or some other obligations to sort of do the part, because our Congress or whoever would pass the law doesn’t want to actually pass a law to make that happen. Instead, we want to make it the bank’s responsibilities to take away bank accounts or refuse to do business or bank with clients who don’t reveal that information.
I think that’s a kind of a circuitous way to get to the goal. And I do think that while, obviously, our financial institutions have important responsibilities, and responsibilities that have been perpetually increased over the past decade or so in terms of their responsibilities for avoiding sanctions, avoiding being sort of complicit or aiding and abetting sanctions violations, identifying their customers from the point of view of ensuring there’s no money laundering going on. The list of requirements of what banks are supposed to be doing to assist law enforcement grows and grows. And I think some of that is part and parcel of working in the financial industry. But I think there can become a tipping point.
And actually, I don’t want to sidetrack us but it’s an interesting important point, which is what you’re seeing from some of these financial institutions is a phenomenon that is sometimes called de-risking, where essentially what they’re doing is they’re saying, you know what, we’re not even going to bank those people. We’re not going to bank that region. We’re not going to provide banking services for these kinds of companies. And you’re essentially forcing areas where what you want is for responsible financial institutions to increase transparency. What you’re really doing is pushing that problem into a darker corner. And so I think there is a tipping point at which asking more and more of the financial institutions, because our political organizations don’t have the will to actually pass a law to force something to happen can be the wrong route to a worthy goal.
VITTORI: You look like you’d like to respond.
BAKER: I would put the onus on the accountholders. If I was president of a bank, I would say to all of my accountholders: I want to know who are the beneficial owners behind this company or this entity or this account. You’ve got six months to comply. If I don’t have that information, we’ll close the account. You put the onus on the accountholder to identify that. You also make it clear that if you’re given misinformation at any point in this process, you of course retain the right to block that account from further dealings until you get the right information. This is not a heavy compliance cost. You put the—you put the onus on the accountholders.
VITTORI: All right. Thank you.
Now we’re up to opening us up to a broader participation. As a reminder, this is on the record and being web broadcast, which means also your comments and questions will be broadcast as well. Please limit yourself to one question. Please speak into the microphone and give your name and affiliation. And who would like to go first? I think that’s Sarah’s hand in the back.
Q: Just to kick us off, Sarah Chayes from the Carnegie Endowment.
Back to the first set of comments on FCPA and wheat and chaff and things like that—(laughs)—I’m wondering also about more strategic targeting of FCPA and how that targeting could potentially be linked into kleptocracy enforcement. In other words, there’s a lot of FCPA focus on bribe-givers. There’s kleptocracy focus on bribe-takers. I haven’t seen much in terms of how you could strategically link those two.
MILLER: I’d be happy to take that one on. So, while I was at the Department of Justice, the kleptocracy initiative was launched. It was launched back in 2010. And like all government programs, there’s a ramp up time. But I think over the last couple of years, you’ve started to see some significant fruits of the work that has been done. This is a great question about sort of the two sides of the coin. One of the goals of the kleptocracy initiative from the beginning was to focus not just on bribe-payers but also on bribe-takers. The FCPA focused very much through its terms on those businesses or individuals that pay bribes. There was a lot of question of, you know, are we—at the Department of Justice and in the executive branch, is enough being done to target the bribe takers?
And so there are different ways that the Kleptocracy Initiative goes after folks on the receiving end of bribes. Some of it is through creative use of existing statutes—money-laundering statutes, for example; the Travel Act, which criminalizes certain kinds of criminal activity when state lines are crossed; different ways of doing that.
But then there’s also the use of civil-forfeiture capabilities and enforcement tactics to go after the monies that are stored in the United States, whether in bank accounts or in real property or in some other form; seizing that property, bringing a civil-forfeiture action against the property and ultimately returning it to the country from which it was essentially stolen. So those are the ways of doing it.
Your question about how that’s targeted is a very valid one. And I think, again, you’re starting to see the fruits of that. If you followed the VimpelCom case, which came out towards the end of last year—or actually toward the beginning of last year, and I think it was in February of 2016—what you saw was a significant FCPA settlement against a big Dutch company, VimpelCom, one of the biggest telecommunications companies in the world.
I think it was about $800 million resolution, including a guilty plea, I think, of a subsidiary, as well as a deferred-prosecution action against VimpelCom itself; interesting also that it involved, as you’re seeing more and more of, a coordinated effort between the U.S. government and a foreign government, in this case the Dutch government, so that the $800 million went towards both paying fines and penalties in the United States and in the Netherlands. So that’s an interesting trend.
But the other thing you saw was public filing of civil-forfeiture actions against funds that were stolen, or essentially bribed, the recipient took and then placed in accounts in the United States, and overseas, by the way. It doesn’t have to just be kleptocracy actions against U.S. bank accounts. If the money flowed through the U.S. system and then ended up in foreign bank accounts, as happened allegedly in that case, according to the filed civil-forfeiture actions, they actually went and froze accounts in Europe where the monies were stored, because the money was routed through the United States.
So I guess it’s a long way of answering your question that I think you’re starting to see exactly what you’re talking about, which is actions brought on the FCPA side against the bribe payer, actions brought through the Kleptocracy Initiative to at least take back the funds that were the proceeds of that bribery activity with the goal of routing it back to the country in question.
Now, that raises a whole nother fascinating question of how do you get it to the country in question if, as in that case, allegedly, at least, the bribe taker may well have been a family member of the person who’s running the country itself. So that raises very interesting questions about how you handle that.
And we had an interesting question earlier to Senator Cardin about, you know, a U.N. program and how you manage the situation of a similar nature. And I think usually the way DOJ has handled that is to try to find a nongovernmental organization to which to give that money and then have the money be used for the benefit of the population.
So I hope that sort of got at your question. I think you’re going to see more of that.
VITTORI: All right. Sir.
Q: Thanks. Steve Charnovitz, GW Law School.
So the topic is costs and benefits of policing international markets. And we—the panel has talked about some of the costs of lost business, and then a number of you talked about the costs for the company of compliance, particularly with regulations that are unclear. And a lot of these costs are transnational—the U.S. law applying to other countries and vice versa.
Does anyone attempt to calculate the costs and benefits of this type of regulation? I would assume the benefits exceed the costs. But are any NGOs or U.N. or OECD or governments attempting to look at that?
WRAGE: We look just at the anecdotal evidence. And we look at that, you know, fairly consistently and comprehensively. But it’s international crime, and it’s just really difficult to collect data on this. We talk to companies constantly about the benefits. And what we’re hearing from companies—I talked about—we both talked about the transition over time, over the last 10 years, where companies are really embracing this.
And they’re not necessarily embracing it on moral grounds. You know, these are companies with shareholders. But they’re embracing it because they see a knock-on benefit, again, for covering other misconduct in their team and in the markets that they’re in. They are seeing a reputational bump for being associated with a company that says all the right things—I hope does all the right things, but says all the right things with respect to governance.
You know, if I’m in a developing country, you know, I’ll ask people, is there a preference, one way or the other, for dealing with companies of any particular nationality? And there is still a sense that you are going to be dealing with a better corporate citizen if you are dealing with a company, U.S. or perhaps OECD, that is committed to this issue. So you’re going to lose some transactions. There’s no question at all. But over the long run, the markets that these companies are trying to sell into are demonstrating that they place a value on it.
Measuring that, I don’t anybody who’s tried to do it. It’s really difficult. But I can tell you that the trend in conversations—it was just a discussion of cost previously. And now, when I say to people are you going to change your programs at all under the current administration, they say, no, there’s—we’re not just doing this because of enforcement, first of all; long statute of limitations, and we don’t know where things are going to be in four or five years. (Laughter.) But we’re not just doing it because of enforcement. We’re doing it because it has all of these other benefits. We’re doing it for reputational reasons. Part of due diligence is doing screening to make sure you’re not dealing with people on sanctioned list and Interpol’s most wanted.
There are a whole lot of other benefits that have grown out of and been recognized to grow out of good antibribery programs. So I don’t see companies abandoning this for all of those reasons, regardless of the enforcement trends.
BAKER: Compliance costs rise when you’re trying to walk the line between what is legal and what is not legal. Compliance costs are lower when you have a clear-cut prohibition against bribery.
The more determined a corporation is to eliminate it and make it clear that this is unacceptable in the parent company, the subsidiaries, or for anybody else, the lower its compliance costs, quite honestly, because you’re not out there constantly trying to see whether—constantly trying to check on the nuances of the enforcement of the law. Compliance costs go down when the prohibition is the clearest.
WRAGE: Can I just tie that back to your previous remark, because you made the very good point that the FCPA only addresses bribery of government officials and not private-sector bribery. But if you’re going to be the sort of company that tries to figure out whether you can bribe somebody because they’re a private citizen or not, you’re going to spend far more money, because you’re going to have to ascertain who’s a government official. And it is very complicated analysis.
I don’t know any companies that are saying knock yourselves out—bribe private citizens; just stay away from the government officials—because it is easier, safer, and less expensive to say don’t bribe anybody. So that’s exactly to your point.
MILLER: A couple of quick thoughts on that too. I think there are also—there are really three provisions, but two sets of provisions in the FCPA. One is the antibribery provisions, which is what we’ve been talking most about. But there’s a whole nother set of accounting provisions which are super-important, and they get at a little bit of this idea that maybe you could get away with private-sector bribery. And that is, the FCPA requires not just around corruption activities but more generally that there be valid books and records that accurately describe the activities of the company, as well as internal controls towards the way that funds are spent, as well as around the idea of accurately recording where monies are going that might reveal bribery, for example.
So if you’re a company that was ready to put in your books and records this went to private-sector bribery, well, then maybe you wouldn’t violate the internal controls or accounting provisions. But nobody’s going to do that, for lots and lots of reasons. And so you—while this is a little more complicated than suggested, you know, a different regime, the law effectively makes it impossible for an issuer from a U.S.—this applies to public companies—for a public company to engage in essentially sort of overseas private-sector bribery, because there’s no way that they could essentially abide by the accounting provisions of the FCPA.
So I just want to put that out there as one thought. And that also gets a little bit, Steve, to your point about thinking about how to record the benefits, because the benefits do go beyond just the antibribery context. They go towards being a corporate entity, at least on the public-company level, that has books and records that can be relied upon. It goes to being a company that has the kinds of internal controls around its overseas facilities and its overseas operations that can comply with the FCPA’s accounting provisions.
And so there are additional benefits to just—that go beyond just, you know, whether or not bribes would have won you a contract or lost you a contract.
VITTORI: Gentleman in the back.
Q: Thank you. Keith Henderson, American University Law School.
As we all contemplate how to get Trump to issue another tweet about supporting the FCPA, maybe a better strategy would be to get him to tweet about being against corruption. And this kind of builds on Sarah’s question. You know, I think there are so many other—there are so many other relevant issues to bribery, you know, that we don’t talk about. And we’re not even talking much about them on this panel.
I get a little concerned, you know, when there’s intense focus on the FCPA but it’s not really linked to a lot of the other initiatives, like the Kleptocracy Initiative, money laundering, shell companies, asset recovery. All of those are strongly supported by virtually everyone. So I would just suggest that as a strategy we may want to think about trying to broaden the discussion in these kinds of forums to include other closely related issues that already have an awful lot of support from the global law-enforcement community and policymakers.
And the other note I have is regarding the Panama Papers. I think we also need to focus very much on the role of lawyers in creating shell companies. And what are their legal and ethical and moral obligations not to engage in that kind of activity when it’s clear to them that they’re supporting criminal networks, if you will, and promoting money laundering and the like?
So the Panama Papers reveal—prove for the first time what an integral role lawyers play in creating shell companies. And they couldn’t—shell companies couldn’t exist without lawyers.
VITTORI: Thank you.
Q: Keep in mind, I am a lawyer. But I think this is a very important issue for our profession. Thank you.
VITTORI: Marshall, would you like to respond?
MILLER: Well, I think you bring up a good point, which is the FCPA shouldn’t be viewed—the first point—the FCPA shouldn’t be viewed kind of in a silo, that it is part of a much broader effort to fight corruption. I think it was brought up earlier, I think, in Senator Cardin’s discussion, the point that the U.S. isn’t number one in anticorruption at home. We don’t score at the highest level.
And anybody who has spent time, you know, in state capitals across America would know, and has been following some of the corruption, domestic corruption prosecutions that have been engaged in, mostly at the federal level, but also at the state level over the last couple of decades, has seen that we have a lot of corruption issues here at home.
And I think, coming back to your point about the tweet, I think there was a lot of talk in the Trump campaign about fighting corruption. It wasn’t focused on FCPA. It was much more focused on, you know, corruption here at home domestically. So I think the two issues can be linked. I think it’ll be interesting to see.
There was a decision by the U.S. Supreme Court in McDonnell that cut back, in some ways, on the ability of prosecutors to bring corruption cases domestically over issues, for example, of sort of selling access. And it’ll be interesting to see how Congress responds to that, the Trump administration responds to that, as well as the Citizens United case that was brought up earlier and some of its effects on corruption domestically.
So I think that’s a very good point. And I certainly, you know, from my experience at the Department of Justice and in the law-enforcement community, know that in that community they’re viewing these things as very integrated, along the lines of the question that got brought up before about the Kleptocracy Initiative being thought of as a sort of second side of the FCPA coin.
So I think law enforcement looks at it that way. And I think it’s an interesting idea as to how to raise the issue to the consciousness of the American people, as well as within the administration, as something they could get behind rather than looking at the FCPA as this special animal that should be looked at by itself.
BAKER: Keith, you brought a lot of things into your question, a lot of aspects of this problem. I do want us to be clear that the global shadow financial system that facilitates the flow particularly of cross-border corruption is a phenomenon developed by us in the West. This was not something that was done by drug dealers or corrupt government officials or so forth. We did this. This goes back to the `60s when we started developing the whole structure that facilitates the movement of this money for the purpose of moving or shifting money, you know, in an opaque manner across borders.
If I could share with you just briefly an example, I sat down with an Interpol official in France 20 years ago and I asked him to tell me about what he was seeing in fighting crime around the world, the different techniques that were used and so forth. And he spent two and a half hours going through examples of how drug dealers and traffickers and so forth were shifting their money around the world. And then, very self-confidently at the end of that, he leaned back and he asked me, do you have anything to add?
And I told him you haven’t cited a single example of moving criminal and corrupt money that I haven’t seen years ago in the movement of commercial money in a secret and an opaque manner. He was absolutely stunned that everything he had worked on for the time that he was at Interpol had its antecedents in ways of moving commercially tax-evading money—money that is intended to shift across borders in a disguised manner. Let’s be absolutely clear: we created this system, and we can also un-create it if we choose to do so.
VITTORI: TRACE is a business association, so our community is 100 percent businesses. So we tend to talk about bribery rather than corruption—the transaction and not just the FCPA, of course, the U.K. Bribery Act and others.
But we are also trying to harness some of that energy, and it’s really challenging because these people have, you know, finite amounts of time. We also did an event at Cambridge last year called the Greed Project to try to get the business community and civil society—and, you know, the general counsel from the OECD and others were there—to talk about how we can bridge and harness this energy because companies are spending collectively more money on antibribery than anybody. And it’s really challenging because they are—they have their blankets on and they are protecting their company and that’s perfectly appropriate, but they also know very well that if they can suppress demands for bribes, that’s going to make their jobs easier. But I don’t think anybody has quite cracked the problem of harnessing the incredible business compliance community—and, you know, not all companies are getting this right, but those that are tend to me, you know, real leaders in this space—and use that to advance the broader agenda that you outlined. I’m not sure we’re there yet.
All right, Heather?
Q: Thank you. Heather Lowe with Global Financial Integrity.
The elephant in the room or not in the room, I’m not entirely sure, in this whole discussion, actually, is the U.S. Chamber of Commerce. The U.S. Chamber of Commerce introduced potential amendments to the Foreign Corrupt Practices Act that the U.S. Department of Justice, the OECD et cetera, civil society organizations around the world saw as very much undermining the Foreign Corrupt Practices Act. They did not get legs, but it was a hard won, you know, battle there against that. In addition, they have consistently, since the first iteration of the incorporation transparency bill was introduced by Senator Levin, have basically been challenging and been against any moves to get rid of anonymous companies in the U.S.
So I’m hearing so much talk about businesses being really onboard and really understanding the importance of this. So how do we get them to reverse the U.S. Chamber of Commerce’s position on all of these areas because that, quite frankly, from, you know, the perspective of members of Congress is a really big, important issue.
WRAGE: So I can’t really—I understand the problem very well, but I can’t really speak to how we get the Chamber of Commerce sort of reversed on this. Our community of companies is not talking like that. Nobody wants to throw open the FCPA because of the fear of where things land when everybody is finished with it. Frankly, our companies are more concerned about it being eroded in small ways: de-prioritizing prosecution, cutting headcount—just making that department at the Department of Justice, you know, less prestigious for growth within the department. You know, we don’t really interact with the Chamber of Commerce in the United States, but we do a lot of events overseas with various chambers and they are incredibly supportive. So I’m not really sure. I think we could probably benefit from a little more transparency into which companies at the Chamber of Commerce are financing these because it’s my understanding that a lot of these projects, including the one you described—initiatives, like the one you described, are financed by just one or two companies, and it’s also my understanding that we don’t get a lot of visibility into that. So one very well-heeled company can lead an initiative like that even if we have, you know, over 300 member companies who are saying, no, we don’t support that. I—yeah, I can’t really speak to it more directly than that, but when you poll individual companies, the majority that I speak to do not support that.
MILLER: Let me see if I can try to give you a sense of where I think the Chamber of Commerce is coming from and maybe that’ll help give a sense for why there might be some delta between what individual companies are saying about the general idea of anticorruption laws and activity versus the particular arguments that the Chamber of Commerce is making about the FCPA.
So here’s where I think they’re trying to come from—whether they come up to a good proposal or not, I’ll leave to other people to decide. But where they’re coming from is this: the U.S. has a pretty much unique view of corporate liability and when a corporation should be criminally liable for the actions of its agents, essentially, and it comes from an old doctrine called respondeat superior. And basically, what it means is if somebody at any part of the company engages in criminal activity anywhere, no matter how big the company, if, at least in part, that person was doing so they thought to help the company, then the company is criminally liable. And so it leaves up to the prosecutor whether or not the prosecutor, if they can prove the criminal liability of a single individual somewhere in the company—and they may not even have to prove that, by the way; there’s some idea of this idea of collective knowledge that the entire company’s mens rea. If everybody knew enough to know that something was criminal, even if one person didn’t, then the company can be liable as well. But putting that aside for the moment, no matter what the company did in terms of a compliance program, no matter what the company did in terms of trying to stop that one individual from engaging in that activity, even if every single day they told them not to engage in the activity, at least in principle, the Department of Justice could bring a criminal prosecution against the company.
Q: But we all know they never do.
MILLER: I understand. I’m just—
Q: It never happens.
MILLER: I’m—well, that—look, I think there are companies that feel like it’s going to happen. And so the point is, I guess, in—they—the idea that the Chamber Commerce is coming up with is that that’s too much, and that there should be some ability for the company to create—to put forward a defense that says: we didn’t—we did everything we could to try to stop that individual from engaging in that activity, everything you would expect us to do, and therefore, the company shouldn’t be criminally liable.
Q: But that’s not what—
Q: —(off mic)—the sentencing part.
I would also love to hear your thoughts on the incorporation of transparency.
MILLER: Yeah, so that—and just to finish that thought, I mean, the problem is also when you’re a corporation, if you’re a public corporation, you can’t get to sentencing or you can’t get to a judge, even. Because if you get indicted for an FCPA violation by the Department of Justice, the fear is that your company will essentially go under. And so there’s also a feeling—and again, this is just something to understand what the other side of this coin is and why there are—even though there may be companies that say we support the idea of anticorruption enforcement, we don’t want to be—you know, sort of have lightning strike on us and be the company that gets afoul with the Department of Justice, even though we’ve done everything we possibly could—the point is, if it all resides, the entire power to decide whether or not the company has to take an enforcement action, they view it as is all within the Department of Justice. They don’t get a chance to get to a neutral arbiter because an indictment is effectively—is viewed by public companies as close to a death penalty of the company. And so that’s what’s driving the Chamber of Commerce, I think, to make its proposals, and I think it’s worth understanding both sides of, kind of, the arguments, and then thinking through whether the proposal is one that has any value.
VITTORI: Alexandra, did you want to respond to those comments and the back-and-forth?
WRAGE: Well, just to add that, of course, the companies are saying—all companies are going to say we’re in favor of transparency and we’re against corruption, even if they’re just doing it because their PR teams are making them do it. They’re not going to say they’re opposed to transparency. But I think it’s a little bit more than that. I think increasingly companies recognize that—you know, the companies that are getting this issue right, they’re not really living in fear. There have not been that many outlier cases. It is true that there’s no de minimis standard under the FCPA and you could be prosecuted for, you know, giving somebody a logoed BiC pen, but that doesn’t happen.
So on the whole, companies are getting more guidance these days from the Department of Justice, and I think they’re getting more comfortable with this. And I think that on balance—and I—you know, I can’t speak for all of them obviously, but on balance, I think they really do see that the downward pressure on bribes of their competitors is worth the additional burden of compliance under the FCPA given that that burden now carries these other benefits—you know, avoidance of other misconduct, better books and records, better reputation overseas.
So I don’t think it’s just—your arguing for—you know, for more clarity under the law, and they’re saying no corruption. I really do think the companies that understand the burden that the FCPA puts on them are still on the whole not asking for a rollback in enforcement or—well, the compliance defense is tricky because the prosecutors obviously think that’s just—they’re trying to identify a lion in the sand and then they’ll all rush right up to it and stand there, and I’m not sure that’s really how it works.
BAKER: Heather’s my boss; I’m not going to argue with her. (Laughter.)
VITTORI: The front had a couple questions. The gentleman in the very back row.
Q: Hi, there. Jonathan Jacoby from the Open Society Foundations. I work on business in human rights.
My question is—maybe to take us out one step broader—even though this is already a pretty broad topic—to good governance and the way that companies, in particular that you’re in contact with, would relate to these questions. In essence, to the extent that there’s a trend towards some liberalizing democracies—abroad, but also arguably here—I’m wondering then, are companies starting to link their anticorruption compliance efforts to any other questions around rule of law, independent judiciaries, independent press, independent civil society, human rights concerns—
you know, thinking of this as the broader good governance agenda in a sense that might be applicable in what feels, to some degree, like a new era.
WRAGE: So there are two challenges to that. One is I think it’s probably too soon. I think people are still reeling. And the other is that my contacts within companies are very much compliance-oriented. I know that’s a bit dull, but it’s true, and people who are working within those companies on human rights issues—and I know some of them and it’s happening—are in a different function within the company.
So I believe that is ramping up, but it’s not ramping up in conjunction with the antibribery effort, and that’s actually a lot of worrying because silos develop, right, and you lose the opportunity for a company to get some real momentum around these issues. But I think the answer is—at least on human rights issues—yes, that is.
On independent judiciary, sadly, I’m just seeing companies flee to arbitration and kind of give up hope on a lot of local courts, but that’s—a lot of that is speculative because it’s not the same people working on antibribery.
VITTORI: All right, we have time for one more question.
The gentleman up here in the white shirt.
Q: Thanks. My name is Jeremy, and I’m an investigative journalist with Al Jazeera.
Alexandra and Marshall, both of your bios mention the FIFA corruption case, and I’m wondering if you can talk a little bit about what makes that investigation unique and also what the future holds for it? One of my concerns with Jeff Sessions taking the helm of the Department of Justice is he may not know that football actually means soccer in the rest of the world—(laughter)—and if he thinks we’re investigating college football or something, he might just throw the whole thing out. (Laughter.)
WRAGE: I can talk about mine.
MILLER: Well, I’m a little limited in what I can say because I supervised the prosecution for a substantial amount of time. So you know, I’ll try to give whatever thoughts I can based on the public record information.
It is an interesting case. It’s a case, I think, that reflects the growing importance of coordination involving law enforcement around the world. I think it’s a case where there was activity in all parts of the world and involvement of prosecutors from Switzerland, involvement of the attaining of evidence from all over the world. And so I think in that way it highlights what is an extremely important development, but also an extremely difficult challenge for law enforcement going forward, which is that more and more complex activity—whether it be FCPA corruption activity, whether it be kleptocracy—(audio break)—or the coordination and the gathering of evidence of efforts by law enforcement actors in multiple countries, in that case, in an environment where there’s a lot of public attention—I mean, football for AG Sessions or whoever wants to call it that—soccer—is the in many ways the most important global sport that ties together the world over our interest in that sport. So there was a lot of eyes on it and a lot of political interest in it all the way down to kind of the regular person on the street in many, many countries. So I think it also raises the issue of how do you police an international organization. So there’s all these really interesting topics around that case that were—that I think highlight challenges for the Department of Justice and its counterparts around the world going forward in lots of different kinds of matters. So that’s sort of one thought.
There’s also an interesting, I think, development in that case around what the world thought of America as a global policeman—whether they thought it was a good thing or whether they thought it was a bad thing, and as a general matter, I think if you polled—do you want the U.S. to be a global policeman around the world, you’d probably get pretty low numbers. You know, the polls probably wouldn’t be the kind that the president likes to say aren’t super good. I think the numbers would be low. So—but if asked, are you happy that the U.S. was the global policeman in the FIFA case, I think you’d get extraordinarily high numbers.
So that’s an interesting, kind of, dynamic in and of itself and, I think, led to some attacks on the prosecution as being an overreach—not so much in the public sphere but in the courtroom and in sort of the legal community. Did the U.S. overreach and try to impose its laws on the world? And I think what you’ve seen so far in court with the number of successful convictions so far and with motions, more or less, on those grounds being denied, I think what you’re seeing is that the prosecution did a pretty good job so far. We’ll see how it shakes out, but at least as publicly decided so far—in focusing its legal and prosecutorial efforts on crimes that violated U.S. law and weren’t sort of overly, you know, or too extraterritorial. So those are just some general thoughts.
WRAGE: I would just add that my bio said I was the member of the failed FIFA Independent Committee. (Laughter.) So that tells you a great deal, I think. It was the most egregious example of shoddy governance that I have ever seen. And so I did the work entirely pro bono. I just want to point that out. I never took any FIFA money. That’s important. (Laughter.) And I ultimately resigned from the whole process. But I would echo the remarks that it has been a really interesting message about American leadership on this issue. It’s true, you know, you used to travel internationally and everybody would say, you know, why is the U.S. policing the world? And now they say, except for FIFA. Keep at that. (Laughter.)
So you know, I think that’s been a nice bump for us, and it would be very sad if it went away. But we should be very clear that the whole story—like, that shoddy governance goes back a long, long ways. And the story broke because, you know, Chuck Blazer turned informant and wore a wire. (Laughs.) And it wasn’t until that that anybody was getting a look into the misconduct there. So a lot of these cases shouldn’t be—I mean, I know it’s always harder than I expect. But they shouldn’t be all that hard to make, because, you know, we had an informer—an informant on the inside, wearing a wire. So we’ll see what happens. But if the—if the U.S. steps back from FCPA generally, that will be distressing to a small community. If the U.S. steps back from the FIFA investigation just in sheer numbers, that’s really going to resonate. (Laughter.)
VITTORI: As a we close out our panel, Raymond, did you have a final comment?
BAKER: Just let’s keep the Foreign Corrupt Practices Act strong. There’s no question in my mind that it is good for both U.S. economic and security interests.
MILLER: I think—as I said, I think the FCPA has led sort of a worldwide movement. And that, I think, is in many ways what I find the most heartening about the changes that have happened. If it was just the U.S. by itself sort of moving forward on the FCPA, you’d be in a different environment, and one that’s—I think what’s heartening about the FCPA efforts, the FIFA case and other cases, is it shows—and this is critical for things like cybercrime and others crimes that are becoming growingly international in nature, that these coordinated efforts between U.S. law enforcement and foreign law enforcement working together are critical to the future. And so the FCPA I think has played a role in creating that environment.
VITTORI: And very briefly?
WRAGE: Yeah, the U.S. has spent decades establishing its leadership role in the field. And I think we can lose it very quickly and should guard it very, very closely.
VITTORI: So I’d like to thank all of our panelists today and the Council on Foreign Relations for hosting this panel.
I do have an announcement. Unfortunately, Senator McCain has had to cancel his session. So we are going to move up session four. It will now take place at 12:15. So with that, please enjoy your lunch. (Applause.)
This is an uncorrected transcript.
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