Extraterritoriality and International Bribery

A Collective Action Perspective

Branislav Hock

• Publisher: Routledge
• Year: 2019
• Print ISBN: 9780367777173
• eBook ISBN: 9780429662768
• Edition: 1
• Topic: Business
• Subtopic: Business General
• Index: Business

The book presents a collective action perspective to explain how extraterritoriality functions and assess when, and to what extent, extraterritoriality is effective. A collective action perspective provides a new account of foreign anti-bribery laws and their extraterritorial enforcement that draws on theories discussed in the field of economic governance. Within this framework, the book offers an intensive analysis of US foreign anti-bribery law such as the Foreign Corrupt Practices Act (FCPA), international law as it emanates from the OECD Anti-Bribery Convention, and comparative insights into UK law and German law. To test the theory in practice, the book provides a unique data set of more than 40 foreign anti-bribery enforcement actions conducted by the US Department of Justice (DOJ) and the Securities and Exchange Commission (SEC), and other examples from comparative jurisdictions.

Extraterritoriality and International Bribery is ideal reading for academics and students with an interest in global governance, economic crime, criminology, and law and economics, as well as practitioners concerned with foreign anti-bribery enforcement, including compliance officers, lawyers, investigating and prosecuting authorities, and business leaders. The book also discusses governance alternatives existing outside international anti-bribery law and offers policy and legal reforms proposals. The book suggests a decentralized enforcement model with the delegation of some enforcement tasks to an external body as the most appropriate governance alternative.

1 Introduction

This book attempts to come to grips with extraterritorial enforcement in the area of international bribery. Extraterritoriality is the key driver of foreign anti-bribery enforcement: national enforcement authorities can sanction subjects, both domestic and foreign, acting beyond the borders of a given country. While extraterritoriality stems from international treaties such as the Convention on Combating Bribery of Foreign Public Officials in International Business Transactions (the OECD Convention),¹ each national enforcement authority has its own perception regarding whether, how, and why a specific case of bribery should be prosecuted. It leads to a wide array of enforcement responses accompanied by legal and political uncertainty and a controversy over the desirability of extraterritoriality.

This study introduces the framework of collective action to analyze and evaluate extraterritoriality. The book argues that extraterritoriality has initiated collective action to fight international bribery. This gives extraterritoriality a price because it has been an alternative to regulatory failures and markets in which corruption and bribery are in practice not sanctioned. The ultimate question, therefore, is not whether extraterritoriality has a price. It is whether, and when, that price is worth paying. Then, how much public good extraterritoriality can produce? And, conversely, what are the limits of extraterritorial enforcement in initiating and sustaining collective action?

1.1 Foreign anti-bribery enforcement and competitive disadvantage

Businesses generally disfavor heavy regulation. More than anything else, however, businesses hate laws that provide their competitors with an edge. The same is true in the field of international anti-bribery law in which businesses have lobbied hard for the level playing field rather than for a lighter regulation. Paradoxically, the effect of business lobby has been the establishment of an international anti-bribery regime and global increase in catching and punishing companies for international bribery.

1 OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions, Paris, 17 December 1997, in force 15 February 1999, 37 ILM 1 (hereinafter OECD Convention). Available in OECD (2011).

Even the advent of the Trump’s administration associated with the rise of trade protectionism has not weakened international anti-bribery law. President Trump called the Foreign Corrupt Practices Act (FCPA)² a “horrible law.” This view of US foreign anti-bribery law has been common among many business people since the adoption of the FCPA in 1977. What they see as “horrible” is that American firms that bribe in far-away jurisdictions face potentially harsh sanctions in the US.³ In Bonny Island bribery scheme, for example, KBR LLC and its parent companies Halliburton and KBR Inc. secured four contracts to design and build natural gas plants in Nigeria worth more than $6 billion. In order to do so, they bribed Nigerian government officials. The United States Department of Justice (DOJ) and the Securities and Exchange Commission (SEC) sanctioned these American businesses with criminal charges and civil penalties of $579 million. One could say: if they did not bribe, other businesses would bribe and secure the contracts.

Nonetheless, such view of the US foreign anti-bribery law is becoming out of step with the times. One does not need to lighten strict national standard to level the playing field. Powerful states can impose such standard on foreigners: 27 out of the 40 largest enforcement actions between the years 2008 and 2018 were directed against non-US corporations (see Chapter 7). What President Trump underestimated is that Halliburton and other US firms are not the only corporations sanctioned by the US authorities. In Bonny Island, French, Italian, Dutch, and Japanese firms were also charged with violations of the FCPA alongside the US firms and paid approximately $1 billion in sanctions to the US treasury.⁴ In March 2019, the US authorities have started sanctioning even Russian national champions. Consider MTS, the largest telecommunication company in Russia that was charged with $850 million for paying bribes in Uzbekistan.⁵ Therefore, the US foreign anti-bribery enforcement is not an action directed exclusively against US businesses that bribe but also against non-US businesses.

2 Foreign Corrupt Practices Act of 1977, 15 U.S.C. §78dd-1 et seq. (hereinafter FCPA).

3 “They [the U.S.] prosecute for going over to China and Mexico and other countries and getting business and creating jobs in this country. [...] Now, every other country goes into these places and they do what they have to do. [...] We are like a policeman of the world it is ridiculous. Every other country in the world is doing it, we’re not allowed to. It puts us at a huge disadvantage.” CNBC, Trump: Dimon’s Woes & Zuckerberg’s Prenuptial (15th May 2012) <https://www.cnbc.com/video/2012/05/15/trump-dimons-woes-zuckerbergs-prenuptial.html?play=1> accessed 25 February 2019.

4 The FCPA makes it an offense to provide anything of value to a foreign official for the purposes of securing any improper advantage in order to assist the actor in obtaining or retaining business. 15 U.S.C. §§78dd-1(a), 78dd-2(a), 78dd-3(a). United States Department of Justice and United States Securities and Exchange Commission, ‘A Resource Guide to the U.S. Foreign Corrupt Practices Act’ (2012) 10 <https://www.justice.gov/sites/default/files/criminal-fraud/legacy/2015/01/16/guide.pdf> accessed 27 February 2019.

Moreover, the American businesses lobby worked hard to establish an international anti-bribery regime in order to subject non-American businesses to an anti-bribery standard similar to the US standard (Rose, 2015: 1). They were successful. Besides the introduction of extraterritorial jurisdiction under the 1998 amendments to the FCPA, also other countries introduced foreign anti-bribery laws.⁶ More recently, non-US enforcement authorities have started enforcing their own anti-bribery laws. Consider Rolls-Royce, Telia Company, and SBM Offshore, global companies which all entered into global foreign bribery settlements, and agreed to pay fortunes to the US, UK, Brazilian and Dutch authorities because of their bribing. These global settlements indicate that the time when the US was the only enforcer of foreign anti-bribery laws has passed. The foreign anti-bribery regulatory landscape is undeniably becoming global.

In this context, the view that every non-US country in the world is tolerating foreign bribery is misleading. It is true that the extraterritorial enforcement of foreign anti-bribery laws was a unilateral effort of the US. Recently, however, non-US jurisdictions have stepped forward with their own regulatory responses and the enforcement has become a multilateral effort. At the same time, it would be misleading to argue that US extraterritoriality is without limits. Especially companies from China and India have not been sanctioned for international bribery. This is partly because many Chinese and Indian companies are not subject to the FCPA and other anti-bribery laws. Yet, this is partly also because the US enforcement authorities did not treat Chinese and Indian corporations in the same way as other non-US corporations that are subject to the FCPA (see Section 7.3.2). This dynamic may well change soon as the DOJ has recently established the Initiative to Combat Chinese Economic Espionage. One priority of the initiative is to prioritize international bribery cases that include Chinese companies and individuals (Section 10.2.1).⁷

5 United States Department of Justice, Mobile TeleSystems PJSC and Its Uzbek Subsidiary Enter into Resolutions of $850 Million with the Department of Justice for Paying Bribes in Uzbekistan (Press Release 7 March 2019) <https://www.justice.gov/opa/pr/mobile-telesystems-pjsc-and-its-uzbek-subsidiary-enter-resolutions-850-million-department> accessed 18 April 2019.

6 The International Anti-Bribery and Fair Competition Act 1998. Prior to the 1998 amendment of the FCPA, the US approach was based only on territorial jurisdiction.

7 United States (2018) Attorney General Jeff Session’s China Initiative Fact Sheet <https://www.justice.gov/opa/speech/file/1107256/download> accessed 28 April 2019.

1.2 Extraterritoriality and international bribery

A collective action perspective introduced in this book highlights two crucial advantages that extraterritoriality offers. The first one is that extraterritoriality can offset failures of some states to regulate international bribery. The second is that extraterritoriality can incentivize non-US jurisdictions to step forward with their own anti-bribery enforcement. This potential gives extraterritoriality a price that should be analyzed and evaluated (see Section 1.3 and Chapter 2). The collective action perspective should inform a broader discussion about the desirability of extraterritoriality, in general, and in the specific context of international bribery. This section summarizes the broader discussion about the desirability of extraterritoriality.

1.2.1 Extraterritorial legislation as a response to global problems

More generally, extraterritoriality of national laws can be seen as the states’ response to the rising economic and regulatory powers of multinational corporations (MNCs). While MNCs create jobs, wealth, and innovate, MNCs act mostly in their private interest, in order to maximize profits (Danielsen, 2005). The pursuit of private interest, without good governance, however, results in financial breakdowns, infringements on human rights, and other global problems (Leisinger, 2009).

To address global problems in both the US and the European Union (EU), national states and the EU have increasingly subject MNCs to extraterritorial forms of legislation. In areas such as cybersecurity, environment, and human rights, they have unilaterally, or under the auspices of international law, adopted statutes allowing them to extend their jurisdiction to both domestic and foreign firms (Parrish, 2009: 852–856; Zerk, 2010; Coffee, 2014; Scott, 2014). International bribery is one global problem that has been tackled by extraterritoriality.

International bribery is a hard nut to crack. There is a universal agreement that bribery in international business transactions is undesirable because it undermines overall productivity and public welfare (Shleifer and Vishny, 1993; Méon and Khalid, 2005). Yet, most of the states have struggled to regulate international bribery effectively. They have struggled because they do not have sufficient laws, expertise, political will, and resources to address the transnational character of bribery. Bribery is based on the use of complicated systems of corporate veils to bribe glo...

Table of contents

• Cover
• Half Title
• Series Page
• Title Page
• Copyright Page
• Dedication Page
• Table of Contents
• Preface
• List of abbreviations
• Acknowledgements
• 1 Introduction
• 2 International bribery and collective action problems
• 3 The evolution of foreign anti-bribery legislation
• 4 The OECD Anti-Bribery Convention and national foreign anti-bribery laws
• 5 Foreign anti-bribery enforcement schemes
• 6 Patterns of foreign anti-bribery enforcement
• 7 The effectiveness of extraterritorial anti-bribery enforcement
• 8 How should the OECD anti-bribery enforcement regime foster collective action?
• 9 Beyond the OECD: international court and other alternatives
• 10 Conclusion
• Table of cases and settlements
• International Agreements
• Statutes
• Recommendations, guidelines, and reports of public authorities and international organizations
• Index