Bribing foreign public officials used to be legal in the entire developed world. It was first outlawed by the U.S. by the Foreign Corrupt Practices Act in 1977, but this law was never robustly enforced until about 2005. As for the rest of the developed world, it wasn’t until 1999 that the OECD agreed on a convention that asked member countries to pass into the law something like the FCPA.
I’ve long argued that plenty of bribery was getting by despite claims of vigorous enforcement, and now the latest survey by the OECD seems to support that case.
According to the OECD report, The United States has sanctioned (convicted or settled with) individuals and entities in connection with 128 separate foreign bribery schemes since the convention was ratified in 1999. In that same time, the number in Germany (where foreign bribery used to be tax deductible) is just 26 sanctions. The numbers elsewhere are even more sluggish: Eleven sanctions in Korea, Italy and Switzerland, and just six in the U.K.
Even accounting for smaller populations, that’s not a lot of convictions. Sadly, convictions are taking even longer to get. The report says that in 1999 the time elapsed between the last criminal act of foreign bribery and a conviction or settlement was two years. That number had blown out to more than seven years by 2013. As I argued almost ten years ago, once the low hanging fruit gets picked off (the clumsy crooks who can’t help but get caught), bribery is very difficult to detect.
The main reason is that it’s a conspiracy and without one of the conspirators blowing the whistle, there’s often no good reason for the payoff to come to light. Even when you suspect a payoff, tracing money is a long and expensive process. Offshore tax havens make it very difficult to figure out the beneficial ownership of companies based there. Such ownership can sometimes be gotten at with pressure from a government, but if a government is involved in the bribery, good luck getting the tax haven to open its corporate registry.
Little wonder that of the more than 400 cases looked at by the OECD, nearly a third came as a result of self-reporting, often when companies came across bribery schemes during merger due diligence or some other kind of internal review.
A mere two percent came from whistleblowers.
We have been asked many times to perform due diligence on executives suspected of or involved in a foreign bribery scheme. Despite the low number of whistleblowers cited, the best way to get a lead on a foreign bribery scheme is by doing interviews. Talking to people is critically important because:
- The documentary evidence of the bribery will not be a matter of public record.
- The sheer volume of company documents, agency agreements and foreign subsidiaries that could be the repositories of bribes will require some human guidance. Without that, you get a sea of paperwork and as in the UK or Canada, just a handful of convictions in 15 years.
Our favorite piece of advice for detecting large amounts of ill-gotten gains is to work backwards.
Re-creating the pathway of money from a French company to an African official, to an Isle of Man trust to a Caymans partnership (and onward) will take many years. Instead, ask the question, “How does he pay for things?” We have seen instances in which the urge to spend outweighs the need to launder money, and a record of a property purchase will reveal funds from the offshore account of a company nobody’s ever heard of. That company then becomes the center of the investigation.
By attacking bribery from the payee’s spending end instead of the briber’s bribing side, we can get to the heart of the matter a lot faster.
It still takes time and it doesn’t always produce results. But as the OECD report makes clear, even with their superior resources and subpoena power, governments are not always striking fear into the hearts of the corrupt.