Sites in other countries have sprung up.  Some, like Kosovo’s kallxo.com, are sponsored by agencies like the United Nations, in partnership with local NGOs.  Kenya’s site, called Kuhonga (“bribery” in Swahili), enables Kenyans to report bribe solicitation and/or payment involving low and high level officials.  The reports are made through a mobile phone application which allows posting on Twitter or directly on the Kuhonga website.  Bribespot.com is a site founded in 2011 by activists from Estonia, Lithuania, Finland and Iran.  It aims at recording bribery around the world, and allows the reporting of bribe demands and payments using a smartphone application that allows posting by email, on Facebook or Twitter. Pakistan’s site was also founded in 2011.  There is bribestory.com in Malaysia, and ipaidabribenaija.com in Nigeria, established in 2012. In South Africa there is info@corruptionwatch.org.za, and in Uganda activists are working on establishing a site.  Attempts to establish a popular site in Russia have unfortunately floundered, while others like www.phongchongthamnhung.vn, www.oscac.gov.vn and www.oscac.vn in Vietnam, are sponsored by the government. Most of the sites provide useful information such as how much the fine really is, and whether it can be paid in cash to the requesting officer/clerk or not. In the U.S., organizations such as the New York City Police Department have their own site where residents can report corruption within the police department.  The U.S. Department of Justice offers a portal for reporting bribes by email to the Fraud Division, and an address specifically for FCPA violations as well.

Today, most major international companies offer whistleblowers an anonymous web-based reporting option.  With the recent implementation of the Wall Street Reform and Consumer Protection Act (“Dodd-Frank”) to add incentives for potential whistleblowers, these sites may eventually have significant impact on combating corruption. TRACE International has its own site, the Business Registry for International Bribery and Extortion (“Bribeline”), a secure, multi-lingual website through which companies and individuals can make anonymous reports about corporate bribery. Numerous incidents of corruption have been reported on Bribeline since it was established in 2007; TRACE synthesizes these into reports available at TRACEInternational.org.

All in all, the internet age has brought about positive developments in anti-corruption activity, and has placed useful tools in the hands of ordinary citizens.

A sixth defendant pleads guilty in CCI case.   On 29 May 2012, Paul Cosgrove, former head of Worldwide Sales at Control Components Inc. (“CCI”), pleaded guilty to FCPA violations.  Cosgrove was indicted in April 2009 along with five other individuals.  Although the defendants have yet been sentenced in the case, former CCI  vice president for sales in Europe, Africa and the Middle East Flavio Ricotti, former president Stuart Carson, and former director of sales for Taiwan and China Hong “Rose” Carson, have also pleaded guilty.  David Edmonds, CCI’s former vice president of worldwide customer service, faces trial in June. The sixth defendant, Han Yong Kim, former president of CCI’s Korean office, has not been charged. In a related case, Mario Covino, CCI’s former director of worldwide factory sales, and Richard Morlok, former CCI finance director, pleaded guilty to one count each of conspiracy to violate the FCPA.

These executives, Cosgrove included, are reported to have made improper payments to officials in state-owned utility companies in 36 countries, both directly and through agents.  In addition to cash payments, CCI sponsored vacations to tourist destinations, paid the college tuition of children of employees of state-owned enterprises, and bought expensive gifts for the foreign officials.  Cosgrove initially pleaded not guilty to the FCPA charges, but changed his plea to guilty. At sentencing, scheduled for 27 August 2012, Cosgrove faces up to 15 months in prison.

The defendants’ former employer, CCI, pleaded guilty in 2009 to FCPA, conspiracy and Travel Act charges.  The company was ordered to retain a compliance monitor for three years, and to pay a criminal fine of USD 18.2 million.  It was also put on organizational probation for three years.

The complete Compendium summary for this case is available here.

Haiti Teleco official’s sentence reduced to 18 months.  Robert Antoine, who pleaded guilty to money laundering charges in the case involving Florida companies that paid employees of Haiti’s state-owned Telecommunications D’Haiti to obtain lucrative service contracts, had been sentenced to four years in prison in June 2010.  Antoine served as Director of International Relations at Haiti Teleco.  He has given testimony in the government’s cases against former company executives; based on this cooperation he requested a sentence reduction, which was granted on 29 May 2012.  One of the eight defendants convicted in the Haiti Teleco case, Joel Esquenazi, was sentenced to 15 years in prison — the longest sentence ever imposed on an individual for FCPA violations.  Esquenazi and co-defendant Carlos Rodriguez have appealed their convictions.

The complete Compendium summary for this case is available here.

Facebook, Twitter, and blogs have become key vehicles for addressing problems of corruption in many locations.  Private citizens, politicians and public officials are all using social media platforms for this purpose.  A good example is former President Medvedev, who conversed regularly on Twitter, providing an informal forum for interaction with the public.  In February 2011, a well-known Chechen blogger dubbed “Timur Stigal” took advantage of this, writing directly to Mededyev that he had been asked to pay USD 300,000 to meet with Vladislav Surkov, one of the top officials in the president’s administration.  An observer might see this as quite risky. In this case, however, Medvedev tweeted back, “Showed your tweet to V.U. Surkov.  Call his office.  Tell who is asking for money.”

Medvedev is not the only CIS politician to use Twitter to converse with constituents about issues of corruption.  Marat Abenov, a member of the Kazakh parliament, uses Twitter, Facebook, and his official blog to expose and, as a result, diminish corruption.

Activists in India have made well-publicized use of Twitter and Facebook as well.  When Anna Hazare began campaigning for Lokpal anti-bribery legislation, thousands of followers expressed their support through sites like India Against Corruption – and then expressed their outrage when the site “disappeared” in November 2011.  It has since been restored.  Team Hazare has faced unanticipated challenges, but there is no doubt about the importance of social media in raising awareness of corruption, and empowering the public to take a stand against it.

There are, of course, those who use Twitter to boast about corruption rather than to resist it. Like South African law student Sabina Essa, who tweeted on 6 May, “Just got out of a R2 500 fine for going 140 in a 60 zone. R30! Bwahahahaha. I LOVE JMPD,” adding later in response to a Tweeter’s question about whether she had offered the bribe, “I didn’t offer…They asked what I had.  Of course I’m gonna take the offer.”  In Ms. Essa’s case, the chairperson of Justice Project South Africa noticed the Tweet.  Essa changed her story, then denied that any such event occurred and finally deleted all related Tweets.  The exchange sparked a much broader conversation in South Africa largely condemning the attitude of citizens who may be willing not only to participate in bribery, which is a crime in South Africa just as it is elsewhere, but also to gloat about having done so.   Comments on the incident emphasized the obligation of all citizens to refuse to pay bribes, and to report bribe solicitations when they happen.

The advent of sites empowering ordinary people to report bribe requests (and payments) will be the topic of an upcoming blog.

The changes presented by long-time FIFA president Joseph Sepp Blatter will change the way the organization investigates and prosecutes corrupt practices.  The statutory changes also provide for the creation of a specially appointed body to assess the propriety of persons selected to serve on the executive board.    The new rules provide for a two-tiered structure within an expanded ethics committee, which separates the investigatory and adjudicatory functions.  The provisions also create a new authority to audit and monitor spending, and ensure compliance, and revise the code of conduct.  In a press conference convened to conclude the 63rd Congress, Swiss law professor Mark Pieth, Chairman of the Independent Governance Committee (IGC) congratulated FIFA on its unanimous decision to begin the process of self-regulation and reform.  Mr. Pieth introduced TRACE president Alexandra Wrage as the committee’s specialist on integrity investigations.  Wrage was appointed to serve on the IGC in January 2012.

FIFA has been plagued by scandals in current, recent – and not so recent — years.  The new ethics and oversight structure is designed to improve transparency.  Two other positive developments also took place at this year’s FIFA Congress.  The first is the ratification of the appointment of the first female member of the FIFA’s board.  Lydia Nsekera has headed the Fédération de Football du Burundi since 2004.  She is currently the only female head of a national soccer association, and is set to become the first woman to serve on FIFA’s executive committee.  The second item was to welcome the newly independent Republic of South Sudan as the 209^th member of FIFA.

The opening ceremony ended with a speech by Hungarian Prime Minister Viktor Orban, who noted, “Since the Second World War, we have never had such an important sport/political event. Sport is made to unify people, not to divide them.  Football teaches us everything – team spirit, capacity to fight.”

Of course, Mr. Orban did not mention the burning, existential  question of penalty kicks…

In its SEC Form 20-F filed on 20 April 2012, Turkcell describes its expanding business ventures in Turkey and in Azerbaijan, Georgia, Kazakhstan, Moldova, Northern Cyprus, Ukraine, Belarus and Germany.  The Company also put investors on notice of potential problems, explaining, “We have also entered into and are exploring new investment opportunities, primarily in emerging markets such as the CIS region, Eastern Europe, the Middle East, the Balkans and North Africa. Along with Turkey, these countries are generally considered by international investors to be emerging markets…Their legal systems, including telecommunications regulations, are relatively underdeveloped, their economies have only recently begun to open to market principles and their respective institutions and commercial practices are weaker and less developed. Some of these countries also suffer from relatively high rates of fraud and corruption.”

The Company goes from these generalities to describing the specifics of potentially improper payments made in connection with the operations of a mobile operator called GSM Kazakhstan (“ KCell”), in Kazakhstan.  The chain of ownership of KCell is as follows:  Turkcell owns 41.45% of Fintur Holdings B.V. (TeliaSonera holds the remaining 58.55%).  Fintur owns 51% of KCell (with the state telecom company, Kazakhtelecom, owning 49%).  In recent months, Turkcell’s board of directors discussed the bribery allegations; the board of directors asked for an independent investigation.  Meanwhile, TeliaSonera began its own investigation at the behest of the Fintur board of directors.  Although at the date of filing, the Fintur board had completed its internal investigation, and the allegations have not been substantiated, “no assurance can be given that there will not be further requests for investigation.” These allegations were not mentioned in the Company’s SEC Form 6-K filed only a few days later, on 4 May 2012.

The disputes that are listed as pending in the Company’s 6-K include an arbitration proceeding against Iran for not abiding by the terms of the Agreement on Reciprocal Promotion and Protection of Investments signed by between Turkcell and other consortium members with the Islamic republic and described in TRACE’s earlier blog on the topic.

Pending disputes also include the lawsuit filed by Turkcell against MTN in the United States on 28 March 2012, to recover damages from loss of the contract in Iran.  Although Turkcell states that “newly received information by the Company indicating that the signing of the license agreement with MTN instead of the Company was a consequence of MTN’s actions at that time” forms the basis of the lawsuit, no further details are given.  The dispute, described in the previous blog, is of enough concern to MTN for it to have issued no fewer than 12 press releases on the subject to-date.  Memoranda attached to Turkcell’s complaint reveal involvement at the highest levels of government and the MTN hierarchy, payments to Iranian officials, manipulation of voting on international committees, and secret arms deals.

On 18 May 2012, the company announced the dismissal of four executives:  the head of the risk management division, a former country manager, former human resources manager, and a former CFO.  The managing director of IKEA France, Stefan Vanoverbeke, stated publicly, “We confirm that there have been practices within Ikea France which do not meet the level of either our values or our ethical standards.  These practices are intolerable, unacceptable, and I sincerely regret this.”

This is not the first time IKEA has found itself in the position of making public statements about ethical conduct.  Three years ago, the company made a name for itself as something of an anti-corruption crusader.  Rather than bending to attempts by electric company employees to extort bribes in exchange for electrical service to its new stores, IKEA rented generators and went on the anti-corruption warpath in 2009.  Unfortunately, however, IKEA’s anti-corruption efforts in Russia did not end well. The manager in charge of renting the generators turned out to be corrupt, taking many thousands of dollars in kickbacks while  inflating the rental charges and defrauding his employer.  And to make matters worse, IKEA may have been swindled into paying the damages of the ensuing breach of contract case twice.

In June 2009, when the company had declared that it would not pursue plans to build additional stores outside the Moscow region because it was not possible to expand without bribing officials to issue the necessary permits, IKEA’s managing director in Russia, Per Wendschlag, articulated the message emphatically:  “We have zero tolerance on corruption and we have a very clear policy.”  IKEA was eventually able to continue its ten year, USD 4 billion expansion in the Russian market – constituting about 5% of IKEA’s business worldwide.  But in February 2010, IKEA dismissed two senior executives in Russia because an intermediary working for the company did pay bribes to electric company officials.  At the time, IKEA Group’s CEO and president, Mikael Ohlsson, echoed the company’s earlier statement, saying that the bribes were “totally unacceptable,” and that “Corruption is totally unacceptable for Ikea, and therefore we take this matter very seriously and will act fast and determined.”

By March 2011, IKEA was again threatening to halt expansion in the interior, until officials in Samara and Ufa agreed to issue the permits required under Russian law – in this case, the issue was safety inspections, not electricity.  And just as two years earlier, when IKEA was financially damaged by the boomerang effect of its anti-corruption stance, in December 2011 the company was accused by Russian enforcement authorities of trying to extort money from local business partners, and three IKEA managers in Russia were arrested on criminal corruption charges.  (In the Russian market, IKEA often opens an entire shopping center anchored by the furniture retailer, and then rents space in the center to other businesses; it was from these lessees that the IKEA managers were accused of seeking kickbacks.)

While IKEA was expanding rapidly throughout Russia, Wal-mart was assessing its options in the Russian market.  One wonders what parallels might exist between the routes taken by these large retailers in various markets.

Recent Enforcement Developments

Duperval sentenced in Haiti Teleco case.  After being convicted in March on conspiracy and money laundering charges, Jean Rene Duperval, former head of international relations at Haiti Teleco, was sentenced on 21 May 2012 to nine years in prison and three years of supervised probation.  Duperval testified in his own defense at trial, claiming that the payments he received in exchange for granting low long distance calling rates to companies operated by some of the other defendants, were “tokens of appreciation,” not bribes.  In addition to the prison term, Duperval was ordered to forfeit USD 497,331.

Two of the eight individuals convicted in the case, Joel Esquenazi and Carolos Rodriguez, appealed their convictions earlier this month, questioning on 9 May 2012 “Whether the District Court erred as a matter of law in its jury instruction regarding what constitutes an “instrumentality” of a foreign government for purposes of construing the counts, including the money laundering counts, that were dependent upon the Foreign Corrupt Practices Act (“FCPA”)” (Rodriguez), and “Whether the appellant] is entitled to an acquittal because employees of Haiti Teleco were not ‘foreign officials’ within the meaning of [the] FCPA simply because the National Bank of Haiti owned shares of Haiti Teleco and the Haitian government appoint board members and directors.” (Esquenazi).   Decisions in these cases are pending.

Three additional defendants named in the case remain fugitive:  Washington Vasconez Cruz, Amadeus Richers and Cecilia Zurita.

The complete Compendium summary for this case can be accessed here.

What has not been mentioned, however, is the close connection between new Chinese wealth, old Chinese political power, and opaque transactions that present bribery risks.  During China’s economic boom, Mr. Heywood may have learned this lesson the hard way.  A recent article in The New York Times describes some of the relationships between modern business and relatives of the old Communist guard, and raises the question whether a concentration of wealth in these families stands in the way of progress toward reining in corruption.

Compounding the risks found in these complex relationships are signals that China is increasing its efforts to recognize and prosecute corruption.  The government announced last year that the Supreme People’s Procuratorate  had investigated 25,000 cases of bribery, and that it planned to make the bribery convictions database available to the public.  This database would be of value to compliance officers by giving them visibility into the companies and individuals who are disqualified from participating in public contracts in China.

In addition to the numerous cases being added to the bribery database, there have been cases of prominent officials convicted of bribery — Lai Changxing, convicted on 18 May 2012 of smuggling and bribery on behalf of Jia Qinglin, a high-ranking Communist Party official; or Xu Maiyong, deputy mayor of Hangzhou, who was convicted and executed in 2011 for exploiting his office to facilitate real estate deals, and accepting USD 22 million in bribes; or another deputy mayor, Jiang Renjie (of the city of Suzhou), who suffered the same fate as Xu after having been convicted of receiving USD 16 million in kickbacks.

Indeed, it turns out that family standing and wealth cannot always protect one in China.  Gu Kailai, Bo Xilai’s wife, currently under investigation for Neil Heywood’s murder, is the daughter of General Gu Jingsheng, a well-known revolutionary. And Bo Xilai fell from grace despite his family ties to Mao Zedong, and his father’s status as one of the eight elders of the Chinese Communist Party.  He may be following in the fateful footsteps of his father, who was imprisoned for twelve years after falling out of political favor.

As the huge Chinese market continues to attract direct investment from the US, now is a good time for compliance officials to ensure that they understand with whom they are working in China, and that family relationships matter.  The joint ventures between Dreamworks and three Chinese companies are illustrative.  The industrial mogul Jiang Mianheng heads one of Dreamworks’ partners, the Shanghai Alliance Investment Ltd.   Jiang is the son of Jiang Zemin, former General Secretary of the Communist Party, and former President of China. And there is Wen Yunsong, son of Prime Minister Wen Jiabao, who heads Unihub Global Networks, a communications company.  Certainly, there is no indication that these relationships are improper.  However, they are material facts from a due diligence perspective.

Over ten years ago, in April 2002, the Secretary General of the United Nations published the results of a survey on implementation of the United Nations Declaration against Corruption and Bribery in International Commercial Transactions. Although Saudi Arabia was one of the 47 states that responded to the survey, its responses returned again and again to the refrain, “information is not available” on this topic. Among the kingdom’s few substantive responses were the fact that bribery of foreign public officials was punishable by fine, that recidivism was considered an aggravating factor when assessing the fine, and that “illicit enrichment by public officials was provided for in Royal Decree No. 16 on the investigation of sources of enrichment.” Not much more information was elicited.

Then came BAE.  After a lengthy and well-publicized investigation, the company pleaded guilty in February 2010 to corruption charges, and paid fines of nearly USD 450 million in the U.S. and the UK.  Over the course of two decades, the company had paid billions of dollars to Saudi officials in order to secure lucrative defense contracts.

It seems, though, that despite the awareness that came from the BAE case, the potential for corrupt transactions throughout the Middle East appears to be of interest to enforcement authorities. For example, enforcement agencies all over the world are currently investigating public corruption involving Saudi officials. GPT, a subsidiary of the Netherlands-based European Aeronautic Defence and Space Company N.V. (EADS) has been under investigation by the UK Serious Fraud Office since May 2011, although political considerations may have put the investigation on hold. The Brazilian aircraft manufacturer Embraer is under investigation by the DOJ and the SEC for potential violations of the FCPA in three countries, one of which is apparently Saudi Arabia.

The defense industry is not the only one under investigation for dealings in Saudi Arabia. Pharmaceutical companies such as Glaxo Smith Kline are being investigated for activities in the Saudi Kingdom. Health services manager HealthSouth is still under investigation by the DOJ for paying annual kickbacks to the director of a Saudi Arabian foundation that owned the hospital managed by the company.  Likewise, chemicals, fertilizer and equipment manufacturer Koch Industries and oil drilling contractor Nabors Industries, are also under scrutiny for possible engagement in corrupt practices in Saudi Arabia.

Transparency International ranks Saudi Arabia 57^th in the 2011 Corruption Perceptions Index, in close proximity corruption-wise with its geographical neighbors Kuwait and Jordan, ranked 54^th and 56^th, respectively.  In another Transparency International measure, the Saudi Kingdom was placed 22nd out of 28 (2011 Bribe Payers Index). With some Middle Eastern countries struggling to make the best of the post-Arab Spring reality, and other countries still in the throes of change, Saudi Arabia has remained relatively stable, and supremely prosperous. But with 70% of the Saudi population under the age of 30, use of the internet is increasing dramatically. And with the internet – even a monitored, censored internet – comes dialogue. Sparked to some extent by horrendous flooding which caused hundreds of deaths in Jeddah in November 2009 (and which some Saudis blame on land grabbing by the royal family and on corruption), Saudis are talking to one another these days, and to the rest of the world. Floods in Jeddah again proved deadly in January of 2011.  Two months later, in March 2011, the King issued a royal decree enabling the establishment of an anti-corruption commission, and just over a year ago, on 7 May 2011, the rules and regulations of the National Anti-Corruption Commission were announced.  As politics, society and the economies of Middle Eastern countries evolve, it will be interesting to observe changes in the way corruption is addressed in each of those countries.

Studios put a lot of effort into obtaining one of the coveted slots within the limited quota of films approved for import.  The difference between potentially sky-high revenues (which the authorities have now raised to as much as 25% of box-office receipts) and the flat USD 1 million offered for distribution rights for films not admitted within the quota inspires companies to pursue every avenue in order to  maximize their chances of obtaining a prized license.

The companies’ persuasive efforts are focused on the China Film Group Corporation, a state-owned enterprise that decides questions of censorship, co-production and distribution.  It is headed by a well-known Chinese producer named Han Sanping, and controlled by SARFT, the State Administration of Radio, Film and Television (SARFT is an executive branch of the State Council).

But in recent months, U.S. entertainment companies, like their cosmetic, medical device (here, here, here) and pharmaceutical counterparts (here, here, here and here), have come under scrutiny for their dealings in China’s burgeoning market.  In March, at least five film studios received letters from the SEC asking about potentially improper payments to Chinese officials.  The letters follow tip-offs from a whistleblower; they are confidential, and the companies have remained silent as to their content – not mentioning the letters in their SEC filings dated May 2012. Apparently 20^th Century Fox, Dream Works Animation, and Disney are involved, among others.  And apparently the SEC is concerned about potential FCPA violations, possibly involving China Film Group.  Chinese accounting regulations may complicate the process of obtaining company records.

It is too early to tell how the SEC’s inquiries will evolve.  But the tension between an opaque government-dominated system, an increasingly affluent population hungry for consumer goods and Western entertainment, and Western and Chinese companies ready to turn a profit and willing to expend considerable effort in doing so, offers fertile ground for speculation.  The breathtaking pace of economic expansion in China, the country’s new foreign anti-corruption provisions, and the seemingly selective enforcement of domestic anti-bribery laws – resulting, in some cases, in death sentences – magnify these speculations a hundred-fold.