World Bank Hosts Panel to Discuss Demand-Side Corruption Reply

546px-World-bank-logoOn Monday, June 17, the World Bank hosted a panel discussion on demand-side corruption with Mark Pieth, Chairman of the Organization for Economic Co-operation and Development (OECD) Working Group on Bribery and Nicola Bonucci, the OECD’s Director for Legal Affairs. The panel was moderated by Pascale Dubois, the Sanctions Evaluation and Suspension Officer (EO) for the World Bank.

In introducing demand-side corruption Pieth said that it was an area of anti-bribery that has largely been ignored until recently.  Yet “solicitation of bribes or extortion are an everyday reality in many parts of the world,” Pieth remarked.  One solution to this problem is a joint initiative by the OECD and the Basel Institute of Governance called “the High Level Reporting Mechanism” (HLRM).

The initiative is currently taking the form of a proposal for countries to institute a kind of national ombudsman who would have authority to act on allegations of improper demands by government officials for bribes.  “The idea is to build a second channel next to law enforcement that would inform the government that ‘something is wrong,’” said Pieth.  The concept is based on collective action principles, whereby both the private sector and government, working together, would address allegations of solicitation of bribes.  Pieth remarked that the program was not meant to replace traditional law enforcement roles, but was rather meant to be a type of preventative tool of last resort for companies facing bribery demands.

There are already two pilot programs for the plan being introduced in Colombia and Ukraine.  In an address by the President of Colombia, Juan Manuel Santos, last April, the President introduced Colombia’s High-Level Whistleblowing Mechanism, remarking that the program would work as “a preventive mechanism that could issue early warnings in public procurement procedures” and would be aimed at “gain[ing] in transparency without sacrificing efficiency.”

Although these pilot programs show promise for creatively tackling the issue of demand-side corruption, Pieth admitted that many practical questions remained when trying to implement such a mechanism.  In Ukraine, for example, he said that stakeholders were still trying to figure out whether to make the ombudsman public or private, how to fund the mechanism, and whether it could be applicable to all issues in procurement, such as unfair business practices.  Still, he was hopeful that the mechanism, when ultimately in place, would be a major step in addressing demand-side corruption problems in that country as well.

A few days earlier, at the G8 Plenary Session, World Bank Managing Director Caroline Anstey gave closing remarks on what efforts the Bank is taking to encourage transparency.  Anstey told listeners that the Bank supported implementation of the Extractive Industries Transparency Initiative (EITI) standards, paying particular attention to beneficial ownership information.  “Transparency around beneficial ownership is crucial to halting illicit financial flows, promoting anti-corruption, recovering stolen assets, and combating terrorism financing, tax evasion and other financial crimes,” she said.  Anstey also announced that the World Bank was launching an “Open Contracting Partnership” to increase disclosure and participation in public contracting as well as an “Open and Collaborative Private Sector Initiative” to leverage corporate data and to incentivize governments to increase transparency of their corporate registries.  Anstey also stated that, starting on July 1, 2013, the Bank would begin publishing all contract awards of World Bank Group-executed contracts above $250,000.  Her full remarks can be found here.

A Look at Insurance Coverage for FCPA Investigations and Enforcement Actions Reply

It’s no secret that investigations under the Foreign Corrupt Practices Act (“FCPA”) don’t come cheap.  The latest reports are that Walmart’s FCPA probe has already hit the $230 million mark; looking ahead, the company will still likely have to pay DOJ penalties, SEC fines and may end up settling several related shareholder suits.  That costs keep getting higher has spurred some to suggest that companies consider using insurance coverage to offset the high price of an FCPA investigation.

Aaron Schildhaus, President and CEO of D & O Supplemental International Insurance LLC , recently published an article in the American Bar Association’s International Law News entitled Anticorruption Compliance and Insurance Coverage: Offsetting the High Costs of Investigations, explaining why companies, managers and directors may need to pay closer attention to this issue:

“Companies often believe that their existing D&O [director’s and officers’ insurance] coverage is adequate and/or that purchasing targeted coverage against FCPA investigation costs would be prohibitively expensive.  Today’s reality means that companies should more seriously consider expanded D&O coverage.”

Mr. Schildhaus is an experienced international attorney, well-known expert in the field of international anti-corruption law, and previously chaired the American Bar Association’s Section of International Law.  In addition to companies giving the issue more attention, Schildhaus also believes that it’s time for insurance companies to more competitively offer coverage for FCPA-related liabilities.  He points out that while some policies will cover the costs of defending directors and officers, dishonesty and personal profit exclusions will normally preclude coverage should there be a finding of fact that the individuals  “caused financial losses to the entities they served as a result of their own dishonesty, criminal conduct, or personal profit, or of the improper advantage they may have realized.” More…

A Look at Anti-bribery Efforts in Israel, Part One – Israel’s History with the OECD Reply

We are excited to say that TRACE International will be conducting a one-day workshop this fall in Tel Aviv to explore the current anti-corruption regulatory and enforcement environment in Israel and to update participants on best practices to enhance compliance.  Last month also marked the fourth anniversary of Israel’s adoption of the OECD Anti-Bribery Convention.  It seems fitting then that TRACE is running a two-part guest blog series authored by our good friend Daniel Kessler, who now lives in Israel and is a seasoned lawyer with extensive in-house and private practice experience in U.S. and international anticorruption and trade law.  This first entry examines Israel’s involvement with the OECD’s Working Group on Bribery and the challenges and successes it has faced in implementing the Convention.  

Israel Flag

For Israel, the focus on international anti-bribery began about four years ago.  It was then, on May 10, 2009, three months after ratifying the UN Convention against Corruption, that Israel became party to the OECD Convention on Combating Bribery of Foreign Public Officials in International Transactions (the “Anti-Bribery Convention”). While perhaps not quite as popularly recognized as the United Nations, the Organization for Economic Co-operation and Development, or OECD, has become one of the most important intergovernmental organizations in the spread of common anti-bribery principles worldwide. One reason for this is that not only must each country in the OECD enforce the Anti-Bribery Convention, but the OECD Working Group on Bribery monitors the country’s enforcement efforts and makes public its reports.  There are currently 40 countries that are being monitored under the OECD Anti-Bribery Convention.  This monitoring occurs in three phases: Phase 1 evaluates the country’s implementation of the Anti-Bribery Convention, Phrase 2 assesses whether the country is applying its anti-bribery laws effectively, and Phase 3 addresses outstanding recommendations.

Back in March 2009, Israel completed the first stage of the OECD’s Working Group on Bribery review.  It was then that the Working Group concluded that Israeli legal framework met the Anti-Bribery Convention requirements, and Israel proceeded to the second stage review.  In December 2009, the Working Group recognized that Israel took the necessary steps to implement Anti-Bribery Convention requirements.  These steps included the Israeli Attorney General’s guidelines for prosecuting foreign bribery offenses, the Civil Service Commission requiring government employees to report suspected foreign bribery acts, establishing a reporting duty on Israeli diplomats abroad, and the introduction of anti-bribery clauses in Israel’s export credit agency.

But the report also contained a series of recommendations to strengthen Israel’s battle against foreign bribery.  These recommendations included increasing applicable sanctions, ensuring that the Legal Assistance mechanisms are adequately resourced, obligating the Military Censor to disclose any relevant suppressed information to law enforcement authorities and clarifying that tax laws prohibit deduction of bribery payment as a deductible expense.

Israel heeded the Group’s recommendations, and in May 2012 the OECD acknowledged that the Israeli government had implemented 16 out of 22 recommendations.  It noted that another four had been partially implemented, and only two had not been implemented at all.  The efforts of the Israeli government indicated its commitment against bribery, and the OECD recognized the country’s efforts to implement stronger anti-corruption regulations. More…

We’re Baaaack…Compliance Monitors 2.0 Reply

Like it or not, compliance monitors are back, and this time they’re here to stay.  At least that seems to be one message to take from last week’s deferred prosecution agreement between French company Total S.A and the Department of Justice.  Total admitted to bribing Iranian officials and violating the Foreign Corrupt Practices Act (FCPA), agreeing to pay a $398 million fine and enter into a 3-year compliance monitor program.

inspectorFor a period of time, it appeared as if there were a trend away from using compliance monitors in FCPA settlements, but today corporate monitorships remain fairly common, as evidenced both by last week’s Total settlement as well as DOJ settlements last year with Smith & Nephew, Biomet and Eli Lilly, to name just a few.  So here’s a quick refresher for those who need to brush up on corporate compliance monitors:

What is a compliance monitor?

A compliance monitor is a government-appointed third party hired by the company under the terms of a negotiated settlement with the government to oversee the company’s efforts to fix its compliance program.  They are not required by law, but compliance monitors are frequently imposed as a condition of settlement with the DOJ and are, at the very least, contemplated under the comments section of the Federal Sentencing Guidelines as experts that may be employed by the courts to “assess the efficacy of a compliance and ethics program.” (Guidelines Manual §8D1.4).

What a compliance monitor actually does will usually depend on the specific terms of the company’s settlement agreement.  Often they are part-investigator, tasked with figuring out what went wrong in the company, and part-senior executive, tasked with restructuring the company’s compliance program to fix any outstanding issues.  Quite often the settlement agreement will stipulate that the compliance monitor has full access to the company’s records and provide a yearly report to the government detailing what progress has been made in such areas as third-party due diligence, risk management and employee training.

Why are compliance monitors so controversial?

Besides being intrusive, companies often complain that compliance monitors are overly expensive.   The list of those who have served as compliance monitors in the past includes a former German Finance Minister (Siemens), a former FBI director (Daimler), and a former Attorney General (Zimmer Holdings), none of whom came cheap.  In the case of Zimmer Holdings, former Attorney General John Ashcroft estimated that his 18-month contract with the company was worth between $28 million and $52 million, a sum that seemed especially egregious given that Ashcroft had been appointed by then-New Jersey prosecutor Chris Christie in what many viewed as a politically-motivated maneuver by Christie to help out his former boss. More…