Recently, the International Law Association (ILA) requested comments on its paper which addresses the following “three fundamental questions: How did the fight against corruption progress in the last fifteen years; what are the chief barriers to fighting corruption today; and, how to overcome them and take the fight to the next level.”

Here is my comment.

Government – through law enforcement – can’t enforce its way out of the bribery problem. Rather, trade barriers and distortions are often the root causes of bribery and a reduction in bribery will not be achieved without a reduction in trade barriers and distortions.

The ILA paper states:

“There is widespread recognition that the legal and institutional framework put in place in the last 25 years is now largely adequate; however, bribery and other forms of corruption continue to persist beyond any acceptable level.

[…]

The main challenge both at the domestic and international levels remains implementation. The term “implementation” is used in its broadest sense and covers various situations (inadequate national implementation of international norms, lack of enforcement, uneven level playing field, etc.).

[…]

[C]ountries know what they need to do but are unable or unwilling to do what needs to be done. While they have passed the laws and regulations and institutions, in some cases the application of those laws is still in the early days. In other cases, the laws have been in place for some time, but enforcement remains limited. More generally, there is little evidence of follow-up, in terms of impact assessment, to the adoption of these anti-corruption and anti-money laundering laws. There is, in fact, a gap between the importance of the fight against corruption on the political agenda (domestic and international) and the actions on the ground. The speeches are there, but the actions are lacking. Even today, very few countries have adopted coherent and actionable anti-corruption strategies.”

Elsewhere, the paper discusses the “lack of political will to fight corruption” – “sometimes it is due to authoritarian political regimes or weak institutions,” “insufficient human and financial resources,” and “insufficient coordination and cooperation amongst international institutions.”

One of the oddest issues discussed in the paper is “increasing cooperation with the private sector in the repression of bribery” and how “involvement in the repression of bribery takes the form of a company’s cooperation with law enforcement proceedings, in particular through voluntary disclosure and contribution to the ensuing investigation and case resolution.”  In other words, business organizations roll over and play dead when under scrutiny for a bribery offense, don’t challenge the government’s view of the underlying facts, don’t question the legal theories, just accept everything the government is saying because by doing so you are helping to reduce bribery. How laughable.

An issue not discussed in the ILA’s 50+ page paper is how trade barriers and distortions (most often in the form of bureaucracy or protective rules and regulations by a foreign country) are often the root causes of bribery and a reduction in bribery will not be achieved without a reduction in trade barriers and distortions.

Consider just a few examples from FCPA enforcement actions.

As highlighted here, several FCPA enforcement actions have focused on conduct in Angola (particularly on the oil and gas sector). Most of these enforcement actions have involved relationships with Sonangol employees, and many of these enforcement actions have, as a root cause, Angola’s local content requirement which requires foreign companies to partner with Angolan companies. As stated in the Halliburton enforcement action:

“Sonangol officials told Halliburton management that Sonangol was considering vetoing further subcontract work for Halliburton in Angola because Halliburton had insufficient local content and was not compliant with Angola’s local content regulations governing foreign companies operating in Angola. Sonangol officials made it clear that Halliburton needed to partner with more local Angolan-owned businesses in order to satisfy local content requirements.”

Stated differently, if Angola did not have local content regulations governing foreign companies operating in Angola, would the enforcement action have occurred?

As highlighted here, several FCPA enforcement actions have focused on conduct in South Africa. A seeming root cause of the enforcement actions were that, pursuant to South Africa’s Broad-Based Black Economic Empowerment Act of 2003 and the South African government policies implementing it, and other subsequently promulgated policies, including the Supplier Development & Localization Plan (collectively the BEE Program), a company’s ability to obtain certain contracts depended in part on the engagement of certain local South African subcontractors.

As highlighted here, here and here, three companies (Diageo, ABInBev, and Beam) in the alcohol beverage industry resolved FCPA enforcement actions in India. Why? Well, it probably has something to do with the fact that the government controls various aspects of the industry. As stated in the Beam enforcement action:

“In India the alcoholic beverage industry is highly regulated by government authorities. Beam India, and third parties acting as agents on its behalf, had numerous interactions with government officials related to importation of distilled mixes for its spirit products, shipments to its bottling facility in Behror, Rajasthan, various inspections of the Behror plant, shipments from the factory in Behror to distribution warehouses in multiple states in India, label registrations required to distribute each brand of liquor in each state, licensing of warehouses in states prior to retail distribution, and sales to retail stores that were operated by the Indian government. Introduction of new spirit products and distribution warehouses required new applications for label registrations and licensing of the warehouses in each state. Label registrations and warehouse licenses also required yearly renewal in Rajasthan and in the twenty-six Indian states where Beam sold its products or had warehouses.”

If these companies could have introduced new products, produced products, and otherwise engaged in its business without Indian government regulation and interference, the FCPA enforcement actions likely would not have occurred.

In short, the way to reduce bribery is not just to bring more corporate enforcement actions (largely the focus of the ILA paper).  Rather, it is to address the root causes of bribery by seeking a reduction in trade barriers and distortions.

The formula for bribery is often not complex.

  • Trade barriers and distortions create bureaucracy.
  • Bureaucracy creates points of contact with foreign officials.
  • Points of contact with foreign officials create discretion.
  • Discretion creates the opportunity for a foreign official to misuse their position by making bribe demands.

 

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