Corporate settlements to deal with foreign bribery are becoming all the rage. It is hardly surprising. The US has racked up an apparently impressive enforcement record on foreign bribery that far outstrips any other country, while raking in billions of dollars in the process. What’s not to like?
Corruption Watch has produced a substantive report on the use and impact of corporate settlements around the world. It can be viewed here.
Other countries are taking note. The UK introduced Deferred Prosecution Agreements in 2014 and agreed its first one in late 2015. France has just introduced a bill to introduce settlements into the French criminal context for corporate corruption offences. The Irish Law Commission and an Australian Senate Committee are both looking at whether to introduce Deferred Prosecution Agreements into their respective countries. One Canadian company charged with corruption in Canada is claiming the country’s lack of such settlements is putting it at a competitive disadvantage globally. The use of settlements to incentivise companies to ‘self-report’ their wrongdoing is one of the main themes of the OECD Ministerial meeting on the Anti-Bribery Convention on 16th March this year.
But just as corporate settlements look set for a global roll-out, the US may be starting to row back on their use. Deferred Prosecution Agreements have become increasingly controversial in the US with critics claiming that these agreements allow culpable individuals off the hook, fail to deter economic crime or prevent recidivism, undermine the deterrent effect of the law by shielding companies from debarment from public contracting, lack regulation or oversight, and undermine the very justice system and rule of law itself.
One of the main arguments given for these settlements is that corruption cases are incredibly difficult to investigate and prosecute. Unless enforcement authorities encourage companies to come forward with evidence of their wrongdoing, the argument goes, enforcement rates will remain low. The problem with this argument is that unless enforcement bodies beef up their ability to detect corruption (it is worth noting that in the US less than 50% of cases are self-reported) and are willing to prosecute, there is little incentive for companies to report wrongdoing that they could otherwise get away with. This is the chicken and egg of the current enforcement dilemma.
The other main argument for the use of such settlements is that they protect companies from going bust, with the loss of jobs of innocent employees, and financial damage to innocent shareholders. Empirical evidence in the US where corporate prosecutions are common across a wide range of offences shows this argument to be hollow. No US company has failed due to a conviction in recent years. The 2002 collapse of Arthur Andersen following prosecution for destroying documents relating to the Enron scandal, cited by many as an example for why companies must not be prosecuted, is an exception rather than the rule. Giving too much credence to this argument has effectively given companies special pleading rights within the justice systems where settlements are used.
Before countries across the world try to emulate the US experience, they need to look long and hard at its lessons. The UK has sought to avoid some of the pitfalls of the US approach, by ensuring judicial scrutiny of settlements, but critically by using Deferred Prosecution Agreements as part of a wider enforcement strategy in which prosecution plays a critical role. But it is not clear that the UK’s use of Deferred Prosecution Agreements is going to avoid the other pitfalls of the US, such as allowing culpable individuals off the hook and failing to deter economic crime.
In a context where European countries are increasingly using some form of out of court settlement to deal with foreign bribery, the case for global standards on settlements is growing. The OECD Working Group on Bribery has long raised concerns as to whether the use of out of court settlements in various countries are offering ‘effective, proportionate and dissuasive’ sanctions as required under the Anti-Bribery Convention and are indeed deterring foreign bribery. It is time that the OECD Working Group on Bribery conducted a full and detailed examination of whether they do.
As NGOs writing to the OECD this week have argued, the Working Group on Bribery also needs to develop some best practice standards as use of these settlements spreads. The very purpose of the OECD Anti-Bribery Convention is at stake. Unless high standards for and judicious use of such settlements can be agreed on a global level in tandem with increased prosecutions, the public around the world will lose confidence that justice in relation to overseas corruption is really being done.