Anti-Corruption Views

By Luke Balleny

A critical look at some of the good governance stories from the past week.

Major pension fund to vote against Wal-Mart board

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By Tom Picken

International efforts to protect forests and the people that live in them have failed so badly that just 20 per cent of forest remains untouched by commercial activity. It is really, really crucial that we find a global system that looks after what remains of the world’s lungs.

The question of how best to do this lies at the heart of a recent public debate between Global Witness and WWF over the credibility of the latter’s flagship timber sustainability scheme, the Global Forest and Trade Network (GFTN). 

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By Chandu Krishnan

Claims of UK police bribery are usually shocking enough on their own to elicit a strong reaction. Recent allegations, however, that bribes were paid to members of the Met's Anti-Corruption Unit shock deeper still. One of the officers in question is suspected of selling information regarding a Nigerian official, James Ibori, who laundered millions of pounds of public money from his homeland.

It is appalling that a shadow has now been cast over what is otherwise an extremely valuable Met Unit, specially set up in 2006 to strengthen the UK's ability to combat overseas corruption. In fact, Ibori was convicted on anti-corruption charges last month thanks to the work of this very team.

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By Matteson Ellis

In January 2012, FCPAméricas reported on how Brazil is currently considering an overhaul of its foreign bribery law (see Another BRIC in the Anti-Corruption Wall). In March, we reported on how a special committee created by the Brazilian Congress to analyze the bill made revisions to the draft that bolstered certain provisions (see Road to Corruption Overhaul). Reports now indicate that Brazilian businesses have begun a significant lobbying effort to weaken the bill. These interests have already made some progress in getting it sidelined. 

Key features of the Draft Bill 6.826/2010 under consideration by the Brazilian Congress would dramatically strengthen the country’s bribery laws. For example, the bill would establish the direct civil liability of corporations making them liable for the acts of their directors, officers, employees, and agents under the theory of respondeat superior. It would also create strong sanctions, establish credit for voluntary disclosure, cooperation, and compliance programs, and put in place a broad definition of “foreign official.” The revised version clarifies and makes more important the voluntary disclosure and compliance program credits. Such changes have the potential to incentivize Brazilian businesses to take compliance more seriously, which would work to reduce corruption in a country where it is prevalent and reduce risks to outside investors as well.

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By Anna Nadgrodkiewicz

"It turned out that ousting Mubarak was easy but removing his corruption is mission impossible." This view is common among Egyptians like Tarek Mahmoud who had been waiting long months for a license to set up a snack stall in Cairo. In fact, seemingly innocuous phrases such as "I wish you a trouble-free day" or "offer me a cup of tea" remain common euphemisms for a bribe in interactions with public officials.

Protesters who rose against Hosni Mubarak last year had many grievances against the regime, from political oppression to the lack of economic opportunity. Corruption, both grand and petty, had been at the core of that regime and as such bore the brunt of the protesters’ ire. However, even though Mubarak’s rule is over, the problem of corruption persists and raises serious questions about the future of Egypt’s transition.

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By Michelle Witton

Last week Ernst & Young announced findings of their Fraud team’s research that 72% of middle managers are unaware of the UK Bribery Act. Of the 28% of middle managers who are aware of the Act, only 55% felt they had received adequate training. With the anniversary of the Act’s introduction, 1^st July 2011, fast approaching John Smart of Ernst & Young commented, “firms should ramp up their compliance procedures to ensure that clear anti-bribery policies are in place…and that relevant staff at least receive sufficient training.” This begs the questions, “who are relevant staff?” and “what is sufficient training?” both for staff and an organisation.

Who should receive Anti-bribery training?

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By Megan MacInnes

Imagine being woken in the middle of the night by bull-dozers destroying your garden. When you go to investigate, a man from the government tells you that your house and garden have been sold to a foreign company, along with the rest of your street. They’re clearing the area to build a factory; all part of the country’s economic boom. You have no right of reply, you can’t see the documents behind the deal, and you won’t be getting any compensation. And if you don’t go quietly, soldiers will make you wish you had.

Seems unbelievable in this day and age, doesn’t it? But versions of this scenario are taking place more and more often across the developing world, as population growth, industrialisation, consumption and financial speculation drive an increasingly competitive market for land.

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By Luke Balleny

‘Share and share alike,’ some parents love to tell their offspring. But when it comes to fines or settlements from foreign bribery cases, the issue of sharing is a contentious one.

The U.S. government receives all proceeds from fines or settlements that companies pay it in connection with violations, or alleged violations, of U.S. anti-bribery laws.

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By Ian Leist QC

In March 2012, the UK’s Solicitor General, Edward Garnier QC, confirmed to Parliament that so-called Deferred Prosecution Agreements (DPAs) are to be added to the armoury of prosecutors in this jurisdiction by way of legislation to be introduced no later than Spring 2013.

The details of how these DPAs are to work in practice are as yet unclear but this is undoubtedly a welcome announcement, both for prosecutors and defence lawyers, following the Bribery Act 2010 and the Guidelines on civil settlements and self reporting.

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The phrase “conflicts of interests”, aside from sounding like the title of a Hollywood blockbuster, has become, I believe, a “term of art”. People nod knowingly when the phrase is used, but may well take more time to explain what the phrase means if asked. So, what is a “conflict of interests”?

A “conflict of interests” is when personal interests interfere with, or appear to interfere with, your ability to perform your job/duty without bias to the interests of your employer. It is when a private or personal duty conflicts with your duty to your employer - and the “higher duty” to your employer must take precedence.

Examples include:

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By Mark Vlasic

This weekend Robert B. Zoellick, the 11th president of the World Bank Group, will preside over his last Spring Meetings. And while many of the private discussions at the international forum of ministers and development officials will likely focus on Jim Yong Kim, the Dartmouth College president recently selected to serve as the next World Bank president, it is worth taking a moment to consider the legacy that Mr. Zoellick will leave behind.

In many ways, Zoellick spent the last five years juggling a World Bank "turnaround," in both reputation and effectiveness, all while managing one global crisis after another. He entered an institution that was tarnished, inside and out. Scandal had dented not just the Bank's external reputation, but in some ways, also its internal core -- the impressive collection of international technocrats and development experts who drive the Bank Group's operations in every corner of the world, but whose good work was sadly overshadowed, for a time, by an eager media, sometimes more interested in sensational headlines than the development matrixes and economic models that are central to helping create "a world free of poverty."

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 (Alison Frankel writes the On The Case blog for Thomson Reuters News & Insight http://newsandinsight.com. The views expressed are her own.) 

   By Alison Frankel 

   NEW YORK, April 23 (Reuters) - The follow-up to the New York Times' blockbuster scoop on Wal-Mart's <WMT.N> alleged cover-up of $24 million in Mexican bribes has, quite rightly, focused on the company's potential Foreign Corrupt Practices Act exposure. But that's not the only law Wal-Mart and its executives should be worrying about. 

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By Graham Gordon

The big question in all of our work is how do we know that what we are doing makes any difference? How can we tell if we were successful? Questions I posed this week in Puerto Vallarta, Mexico at the High-Level Dialogue on Anti-Corruption.

When asked what was needed to make the fight against corruption successful, many speakers focused on the need for effective rule of law, strong business leadership and clear systems, training, procedures and structures. And progress reported on specific initiatives such as the Construction Sector Transparency Initiative (CoST).

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Today is the one-year anniversary of the deadline for the U.S Securities and Exchange Commission (SEC) to issue the final rules for Section 1504 of the Dodd–Frank Wall Street Reform and Consumer Protection Act. Section 1504 requires all oil, gas, and mining companies listed on U.S. stock exchanges to disclose all payments to governments throughout the world, including taxes, fees, contracts, bonuses, and other material benefits on a project-by-project basis. This transparency provision is an important tool for concerned citizens around the world to hold their governments accountable when dealing with the extractive industries.

A year after the deadline, established by Congress when Dodd-Frank passed, the SEC has still not yet issued the final rule on Section 1504. The delay comes as the regulator faces intense pressure from oil industry lobbyists, including from the American Petroleum Institute (API). The API wrote a letter to the SEC laying out the basis for a legal challenge to potential rules, which some have characterized as an implicit threat of expensive litigation. These demands include shifting the reporting requirement from a project-by-project basis, which is explicitly required in the statute, to a geographic basis, such as by a geological basin or province. This move would maintain opacity in the extractive industries, and allow an environment that fosters corruption and bribery to continue.

The SEC needs to stop delaying and issue the strong transparency rules that Congress passed nearly two years ago. Further delay only serves as an invitation to industry lobbyists to continue to push for loopholes that allow them to execute unaccountable deals with governments. These rules are already long overdue.

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By Sola Afolabi and Niels Rasmussen, USAID West Africa Trade Hub

You’d have to be a particularly devoted hermit to not know that business in Africa is rapidly expanding. The world’s fastest growing economy in the world is in Africa – and may be for some time given the confluence of many trends.

The opportunities to do business are enormous only matched by the impact they would bring on poverty. But here’s what’s truly and frustratingly remarkable: They could be significantly greater. Consider one salient fact: up to 40 percent of agricultural goods in West Africa are lost to spoilage between the farm and the markets in the region.

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By Matteson Ellis

In January, FCPAméricas reported on how Brazil is currently considering an overhaul to its foreign bribery law (see Another BRIC in the Anti-Corruption Wall). The post described key features of the draft bill under consideration by the Brazilian Congress that would dramatically strengthen the law. The post noted how this development is happening at a time when Brazilian multinationals are going global and confronting foreign bribery risks of their own (see Embraer’s current corruption issues), and corruption at home is under the spotlight (the President’s administration has lost a seventh Minister to corruption allegations since the last post). 

Now, a Special Committee created by the Brazilian Congress to analyze bill 6.826/2010 has recently presented a revised draft that bolsters certain key provisions and keeps other significant ones the same. The House aims to vote on the legislation before July 2012.

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The “Arab Spring” was fuelled in part by popular desire to weed out corruption. But could graft in fact be on the rise in Egypt and Tunisia?

It could indeed be rising massively, according to Nicola Ehlermann-Cache, a senior policy analyst at the Paris-based think-tank, the Organisation for Economic Cooperation and Development (OECD).

“Unfortunately, informal reports have been made to me – certainly in Tunisia, Egypt and Iraq – (by) people claiming that corruption is rising tremendously,” she said last week as a panelist at the International Bar Association’s (IBA) annual Anti-Corruption Conference in Paris.

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If the Foreign Corrupt Practices Act is Peyton Manning, the Travel Act could turn out to be his little brother Eli.

Allow me to explain. As we all know, until the last several months, FCPA has been one of the Justice Department’s Hall of Fame success stories. Prosecutors have reaped billions in settlements with corporations accused of bribing foreign officials to obtain state-sponsored contracts. The list of FCPA defendants that signed plea deals — including Siemens and Halliburton — is long and sobering, which means the Justice Department met the dual goals of buffing up its prosecution record and satisfying the larger U.S. policy interest in deterring overseas corruption. But of late the department’s FCPA record has taken a hit (sort of like Peyton’s neck) with the dismissal of the Lindsey Manufacturing and Africa sting case.

Is this the moment for the Travel Act to catch up with its better-known brother, a la Eli Manning?

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After two hours of putting their heads together, even a group of international anti-corruption lawyers was stumped this week when trying to define what ‘foreign official’ means in the context of corruption.

The get-together in question was a session at the International Bar Association’s (IBA) annual Anti-Corruption Conference in Paris this week.

Russia, China and the United States all have laws prohibiting the bribing of foreign officials. Similar laws are working their way through the legislative process in Indonesia and India. There is also an international convention that holds its signatories to do the same – the Organisation for Economic Cooperation and Development’s (OECD) “Convention on Combating Bribery of Foreign Public Officials in International Business Transactions”.

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By Sabrina Basran, Researcher, Institute of Business Ethics

Siemens, Alstom, Citigroup, Torex Retail, Innospec – just some of the companies who were recently named and shamed by the media for incidences of bribery, corruption and fraud.

The Institute of Business Ethics’ latest Briefing, Concerns and Ethical Lapses, 2010 & 2011 provides an overview of major ethical concerns and lapses in 2010 and 2011, as recorded in the IBE’s weekly media monitoring of business ethics related stories featured in the UK and international quality news media.

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 (Alison Frankel writes the On the Case blog for Thomson Reuters News & Insight (http://newsandinsight.com). The views expressed are her own.) 

   By Alison Frankel 

   NEW YORK, Feb 27 (Reuters) - For the Justice Department's Foreign Corrupt Practices prosecutors, last week was the best of times and the worst of times. A federal judge in Houston sentenced the former CEO of the Halliburton spin-off KBR Inc <KBR.N> to 30 months in prison for his role in a 10-year scheme to pay $182 million in bribes to Nigerian officials in order to secure $6 billion in military contracts. Albert Stanley's sentencing marked the end of one of the DOJ's most successful FCPA prosecutions, in which KBR agreed to pay $579 million in criminal fines and disgorged profits -- the second-highest fine in an FCPA case at the time the guilty plea and Securities and Exchange Commission settlement was announced in 2009. The KBR case is an FCPA paradigm, a classic demonstration of the law's power to expose and punish corruption that would otherwise have stayed in the shadows. 

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By Luke Balleny

The pledge to crack down on corruption is an absolute vote winner in many countries and during many elections. But what happens when the rhetoric doesn't match the results, or when an anti-corruption drive meets resistance?

Filipino President Benigno Aquino was elected in 2010 promising to be the one to put an end to the Philippines’ endemic corruption problem. A year earlier, President Susilo Bambang Yudhoyono of neighbouring Indonesia was re-elected for a second and final term - also on a platform to tackle rampant graft.

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By Ian Leist QC, barrister and partner at Fulcrum Chambers

As the London Olympics draws closer this summer, rumours abound that compliance departments in the wealthier businesses and institutions in the City of London are getting  jumpy as they learn the size of hospitality budgets for the Games.

While many ordinary folk have failed miserably to get tickets to any event at all, corporates are reputedly spending a cool £4000 for a morning at the swimming pool to see a an event  where Great Britain has high hopes of a  gold medal.

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Following is a transcript of a Monday speech given by the director of India’s Central Bureau of Investigation (CBI), AP Singh at the 1st Interpol Global Programme on Anti-Corruption and Asset Recovery in New Delhi, India.

The CBI is one of two federal bodies tasked with investigating corruption in India, the other being the Central Vigilance Commission (CVC).

“On behalf of the Central Bureau of Investigation, I extend a very warm welcome to all of you present here today for the inauguration of the 1st Interpol Global Programme on Anti-Corruption and Asset Recovery.

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By Steve Mintz

Is it right to spy on an employer and violate one’s confidentiality obligation in order to be financially rewarded for blowing the whistle on corporate wrongdoing? This is an important question from an ethical perspective in light of the greater acceptance by society of those who blow the whistle in part due to the increased level of fraud in government contracts and Medicaid programs, and fraudulent financial statements.

Estimates range from $60 - $80 billion fraud in Medicare based on $528 billion Medicare spending by the government in 2010. The government is actively seeking to recover fraudulent Medicare payments by encouraging employees to blow the whistle on illegal billing practices. It’s not just Medicare. Whistleblowing has come to the forefront since the early 2000s because investors have lost billions of dollars due to accounting fraud and homeowners have watched home values fade away because of the financial meltdown of banks and other financial institutions.

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By Roli Mahajan

How much longer will taxpayers remain immune to the sight of their money being brazenly wasted by their politicians?

For residents of the Indian state of Uttar Pradesh, this month’s legislative election provides an opportunity for change.

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By Tiffany Clarke of Transparency International's Defence and Security Programme

The Indian government’s recent $11 billion decision to purchase the Rafale fighter jet from Dassault Aviation brings with it an accompanying $6 billion offset contract. Given the large risk for corruption in offset agreements, both parties should be stringent about applying the highest levels of transparency and accountability in the offset contract as they finalise the agreement.  

An opaque part of the defence industrial landscape, defence offset programmes pose a significant risk for corruption that is largely over-looked and poorly understood.  Often unconnected to the main defence contract, offset contracts outline a set of additional investments in the country that the defence company agrees to make with the purchasing company’s government. These investments range from direct technology transfers and producing some of the parts in the purchasing company’s own country to building roads and other projects unrelated to the defence procurement. Offsets are often worth just as much or even more than the main contract to which they are attached, but lack scrutiny and monitoring.

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Companies have brandished their ‘support’ of the Extractive Industries Transparency Initiative (EITI) as a badge proving their unquestionable commitment to transparency. For the most part their behaviour has failed to reflect their rhetoric. In fact, many companies hide behind EITI while waging an unsavoury battle against transparency legislation. Companies should not be allowed to have their cake and eat it. If they wish to derive the reputational benefits of participating in a transparency initiative they ought to act appropriately.

Threatening to sue the US Securities and Exchange Commission if it publishes effective transparency rules – for a law which has already been passed – is hardly appropriate behaviour.

Disappointingly, the process to become an EITI supporting company is neither rigorous nor – it would seem – strictly enforced.

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This weekend I attended a bachelor party near Yuma, Arizona. We canoed 40 miles down the Colorado River, the section of the river south of the Grand Canyon that separates California from Arizona. The group consisted of several young guys working in a variety of industries. One was back from two tours in Iraq. We asked each other about our work. They were unfamiliar with the U.S. Foreign Corrupt Practices Act (FCPA). When I explained the law, many of them reacted the same way: “Isn’t the FCPA bad for U.S. business?”

FCPA practitioners often get this question from those outside of our immediate professional circles. Here is the five-part response I gave.

1. Yes, In Part. It is pretty obvious that the FCPA can be a disadvantage for a U.S. company operating in a country where corruption is commonplace. The FCPA prohibits the company from engaging in certain business activities that might otherwise give it an advantage. When U.S. companies are permitted to pay bribes to win business, they can compete by giving more to foreign officials than their competitors do.

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By Saad Mustafa of Transparency International's Defence and Security Programme

A significantly under-researched and often overlooked subject, military-owned businesses (MOBs) pose a significant corruption risk within the defence and security sector. They are usually, but not exclusively present in weak or transitioning democracies attempting to assert a certain degree of civilian control. However, by allowing militaries such influence and authority, the civilian government essentially weakens its position and allows the armed forces to play a significant role in society.

Given that this is such a pressing issue in countries that receive large amounts of overseas development assistance funds – Egypt, Pakistan, and Turkey to name a few, Transparency International UK Defence and Security Programme’s (TI-DSP) new report provides a timely first-look into how such businesses are structured, what some of the inherent corruption risks are, and why and how some countries have reformed their respective MOBs.

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