deterring transnational corruption:

the need for private enforcement of

international law

Paul D. Carrington*

Draft of May 12, 2009**

This essay addresses a problem of growing international concern: the corruption of weak governments by firms engaged in transnational business.  It suggests a response based on American experience in resisting and deterring corruption by empowering and rewarding private citizens for their assistance in law enforcement.  Many of the weak governments around the globe could become more effective if they were enabled to deter corrupt practices.  One method to achieve a measure of deterrence is to recruit private citizens and non-governmental organizations to share responsibility for the initiation and conduct of proceedings to enforce laws prohibiting corrupt practices.  The many governments and international institutions responsible for making and enforcing transnational laws on corruption might usefully consider the need to encourage and assist weak national governments in acquiring the services of effective private law enforcers such as those who assist in enforcing American law.

The American Experience: False Claims Law

Americans have long been familiar with the problem of governmental corruption.  Ben Franklin long ago observed that “[t]here is no kind of dishonesty into which otherwise good people more easily and frequently fall than that of defrauding the government.”[1]  This is so because to most citizens their government is a distant nobody.  And they are aware that the line of moral conduct for those in public service is not always clearly drawn.  The faint line between a campaign contribution and a bribe is an American example of this lack of clarity.[2]  Family interests, longstanding friendships, cultural or subcultural connections,[3] and political alliances supply others.  And in many impoverished nations, a little corruption here and there is the “grease” that enables government to recruit the officers it needs.  But such complexities do not cloud the simple problem of plain bribery of powerful public officers by the private firms or persons with whom they deal transnationally.

Mindful of the corrupt practices observed in the Continental Congress,[4] Franklin’s contemporaries in the early years of the nation recognized and addressed the impediments to effective public enforcement of laws forbidding corrupt practices.  Borrowing from an ancient English practice, they encouraged private citizens having the fortitude to initiate lawsuits and pursue claims in the name of the United States against any person or firm defrauding the government.[5]

This method of law enforcement became important in the 19^th century. During the Civil War, the Secretary of War was dismissed by President Lincoln for paying his friends twice the going rate for cavalry horses that turned out to be afflicted with “every disease horse flesh is heir to.”[6]  Such scandals led to the enactment in 1862 of the False Claims Act, then known as “Lincoln’s Law.”[7]  That law required the offender guilty of defrauding the government to pay double damages, half of which would be paid to the “relator”, i.e. the citizen who commenced and maintained a case on behalf of the United States. Thereafter, numerous relators came forward to enforce the public law by pursuing governmental claims against contractors who were proven to have sold the army rifles without triggers, gunpowder diluted with sand, or uniforms that could not endure a single rainfall.[8] 

“Lincoln’s Law” was reinforced and made to provide for treble damages under the False Claims Amendments Act of 1986.[9]  That law continues to assure the relator of a substantial reward if the defendant is shown to have defrauded the government.

Proceedings under the False Claims Act are not criminal proceedings and so proof “beyond a reasonable doubt” is not required; a “preponderance of proof” will, if credited, suffice to support a judgment against the defendant. Full use may be made of the rights conferred on civil litigants by American rules of civil procedure to compel disclosure of possible evidence[10] and to compel non-party witnesses to supply their evidence as well.[11]  And much of the government’s files are exposed to private investigation as a result of the Freedom of Information Act enacted in 1966.[12]

The Department of Justice is entitled to intervene and take control of such a false claim proceeding, but even if it does, the case continues as a civil action and the private relator remains a party to be compensated if it is successful.[13]  And if the Department of Justice does not intervene, the private relator is entitled to maintain the action in the name of the United States and for its benefit. Such a relator, if successful, is then entitled to receive at least twenty-five percent of the trebled damages, plus reimbursement for costs including attorneys’ fees.[14]  And if the relator is unsuccessful in proving the case, there is of course ordinarily no liability for the legal expenses of the defense.[15]  This scheme serves to assure the availability of private legal counsel for plaintiffs with credible claims based at least in part on some bit of personal knowledge held by the relator. The relator is also provided with rights protecting him or her from retaliation by an employer.[16]

Retained in the present law is a provision enacted in 1942 that requires a plaintiff seeking compensation as a whistle-blower to be an “original source” source of the information on which the claim rests.[17]  In 2007, the Supreme Court held that the relator is not entitled to compensation when the case is taken over by the Department of Justice and won on a ground different from that initially advanced by the relator.[18]  Pending legislation would reverse that holding.[19]

Over 10,000 false-claim cases had been filed pursuant to the 1986 statute. A majority of these cases were initiated by whistle-blowing citizen-relators; thirty-three whistle-blowers came forward in 1987 and the number has risen to about one a day.[20]  Although historically, the bulk of the false claims actions were directed at those who provide goods or services to the military, other industries have become frequent targets for claims. Now, four out of five current false-claims cases are brought against health-care providers accused of overpricing goods or services paid for by the Department of Health and Human Services.[21]

In 2006, Congress enacted a provision rewarding states for enacting similar laws applicable especially to health care providers.[22]  Thirty states have done so.[23]  And other applications of the law have evolved; educational institutions, for example, are being sued to recover the value of student loans made by the Department of Education and used for tuition to pay for programs that failed to meet the minimum standards of accreditation organizations.[24]

A charitable organization, Taxpayers Against Fraud, provides tips, information, and support to a variety of relators.[25]  It complains that the Department of Justice does not invest sufficient resources in the enforcement of the law, even failing to spend funds that have been appropriated specifically for that purpose. It also complains that government contractors are not providing their employees with information about the law so that they are aware of opportunities to serve as a whistle-blowing relator.[26]  But even as it stands, the American False Claims Law stands as a model of private law enforcement worthy of consideration by governments seriously afflicted with corruption.

The International Problem

The weakness of many governments can have serious transnational consequences.  Given the rise of terrorism and piracy in weakly governed lands, and the declining physical condition of the planet we share, one need not be an ardent humanitarian to be concerned about the spreading deterioration of governments in many former imperial colonies.  The present reality is that citizens of many nations are now having experiences with their governments not so different from the earlier American experience mentioned, or worse.

Indeed, there are many failing states that might be identified by kickbacks on anything that can be sold to government including mineral leases, medical supplies, textbooks, building construction, roads, railways, tourism concessions, new airports, agricultural equipment, or even imaginary enterprises and activities. And the corrupt ruling elites who receive bribes often wisely invest the proceeds overseas, not at home, thus contributing yet further to the economic attrition of their own failing states and the peoples they purport to serve.[27].  The problem is especially grave in nations endowed with natural resources highly valued by people in wealthier nations.[28]  Firms extracting minerals in distant nations are often careless about the environmental consequences of their extractions, but the concern of ruling elites about those consequences is often quite limited and reconciled by the rewards they receive as controllers of weak governments unable to deter either corruption or environmental recklessness.  We are told by the World Bank that bribes totaling a trillion dollars were paid in 2002.[29]  A large share of that amount was undoubtedly paid by firms that extract and export natural resources for sale in the developed world to public office holders.  And, alas, foreign aid to such nations provided by the World Bank or the International Monetary Fund tends to end up in some official’s secret bank account.

Unless and until means can be devised to deter bribery in failing and failed nations, globalization can be of scant benefit to “the bottom billion” who are destined to be governed weakly if at all.  Their ungoverned states will continue to export poverty and to serve as havens for all sorts of gangsters and terrorists.

The Foreign Corrupt Practices Act

Recognition of the problem of transnational corruption as a matter for American national concern dates from the Cold War.  American firms had long been accustomed to bribing officials of foreign governments in violation of their laws to induce them to invest public funds in American goods and services.  It was fair to assume that such payments were sometimes indispensable conditions of foreign trade because contracts were often going to the highest bidder, i.e. the firm offering the best bribe.[30]  Bribes paid to foreign officials were deductible expenses, regardless of their illegality under foreign law, and thus were in a sense subsidized by the United States government.[31]

The Watergate scandal and the misuse of corporate money to fund President Nixon’s 1972 presidential campaign led to an investigation by the Securities and Exchange Commission (SEC) of reported expenses that might have been payments made for the purpose of gaining illicit advantage with government officials.  The investigation coincidentally revealed widespread use of false accounting methods to conceal bribes paid to foreign officials.[32]  The SEC initiated the practice of investigating such reporting and seeking injunctions to compel companies to make full disclosures in the financial statements they distributed to investors.[33]  It also initiated a voluntary disclosure program that led to the revelation that more than 450 companies had concealed at least $400 million in bribes paid to foreign officials in one year.  Among the scandals revealed was the payment of a million dollars by The Lockheed Aircraft Corporation to Prince Bernhard of the Netherlands to secure a sale of military aircraft.[34]

The political reaction to these scandals led to enactment of the Foreign Corrupt Practices Act (FCPA) modifying the Securities Exchange Act to require transparent accounting for payments to foreign officials by all firms subject to federal regulation.[35]  All firms, American or foreign, in which Americans were likely to invest were thus made subject to punishment for concealing illegal payments or offers of payment to officers of foreign governments as well as those paid in the United States.  It was presumed that shareholders would disapprove payments such as that made to Prince Bernhard.

It was also noticed at that time that the SEC had authority only over firms that are required to file public accounting statements that might be read by investors, and had no authority over those American firms that were privately owned.  To correct this imbalance, a criminal law to be enforced by the Department of Justice was deemed essential, and was also enacted.[36]  It was adopted by a unanimous vote in both Houses of Congress and signed by President Carter in 1977.[37]  This criminal law prohibits “corruptly in furtherance of an offer, [any] payment, promise to pay, or authorization of the payment of any money, or offer, gift, promise to give, or authorization of the giving of anything of value” directly or indirectly to a foreign official for the purpose of influencing an official decision with respect to securing or retaining business.[38]  These prohibitions were imposed on all American domestic concerns whether or not they were registered on a stock exchange, so long as any part of the transaction occurred in the United States (or in its territorial waters), in interstate commerce, or by use of the mails.  The regulated firms are generally responsible for the corrupt conduct of their employees.[39]   But the prohibitions of the 1977 law did not apply to foreign nationals acting on behalf of foreign subsidiaries of American firms if their misconduct occurred outside the United States.[40]

The International Chamber of Commerce (ICC) gave a salute to the new American law when a year later it promulgated its Rules of Conduct to Combat Extortion and Bribery.  The leadership of the Chamber recognized that bribery as a cost of international transactions does nothing either for the profits of its members or for the quality of the goods or services they provide.  These ICC rules were declared to be “ineffective as a practical matter,”[41] but they were a first international acknowledgment of the adverse global consequences of corrupt governments disserving the weakest states.

The FCPA was written only as public law to be enforced by the SEC and the Department of Justice; no provision was made for enforcement in civil actions brought by private plaintiffs.[42]   While it was to be enforced by prosecutors in both the SEC and the Department of Justice, the number of enforcement prosecutions was until recently never large.[43]  The Department of Justice was mindful that American investors made money and American workers found jobs by making deals with foreign governments many of whose officers expected to share the bribers’ good fortune even if it might impose a cost on the peoples they were purporting to serve.

But there was another legal consequence of the FCPA.  A violation resulting in harm to competing firms exposes the offender to civil liability under the Racketeer Influenced and Corrupt Organization Act (RICO).[44]  And bribery is also a violation of state tort law if it causes foreseeable harm to a business competitor or others.[45]  As Judge Richard Posner opined: “bribery is a deliberate tort, and one way to deter it is to make it worthless to the tortfeasor by stripping away all his gain.”[46]  Indeed, it is the sort of deliberate tort that may expose the wrongdoer to liability for punitive damages.  As with criminal prosecutions, private claims in American courts for damages allegedly resulting from violations of the Corrupt Practices Act have been few.  Yet the deterrent effect of the Act may have been enhanced by the prospect of civil liability imposed by private citizens.  In this respect as in others, the law of torts often operates as a form of private enforcement of public law in addition to that provided by relators advancing claims in the name of their government.

The weak enforcement of American criminal law against transnational corruption has changed.  The Department of Justice has in recent years substantially enlarged its staff responsible for corrupt practices enforcement.[47]  We are told that American businesses creating joint ventures with Chinese companies or acquiring Chinese outfits are especially exposed to criminal liability because of the probability that their ventures are corrupt.[48]  And the Department has now for the first time begun to prosecute individual officers who participate in the briberies and to require their employers to disgorge profits from deals acquired by their crimes.  Among those being prosecuted is a member of Congress who is alleged to have cooked a deal with Nigeria on behalf of an American firm.[49]

And substantial sums have been paid in the federal treasury.  The Halliburton Company disgorged $550 million in a fine imposed in 2008 on its corrupt practices in Nigeria.  $382 million was paid to the Department of Justice and $177 million to the SEC.[50]  Albert Jack Stanley, who managed the Halliburton subsidiary under the supervision of Richard Cheney, then the Halliburton CEO, to reduce his own sentence to three years in prison became a primary witness in federal prosecutions for bribery of public officers in Iraq[51] as well as Nigeria.[52]  Halliburton, long centered in Houston, moved its corporate headquarters to Dubai, apparently in hope of reducing its exposure to federal law enforcement.[53]  Its relationships in Iraq are not presently the subject of criminal proceedings, but there are ample reasons to question its conduct there.[54]

Also to be noted is the prosecution of the German firm, Siemens, whose registration with the SEC exposed it to federal prosecutions for bribes paid to the Nigerian government.  This prosecution came on the heels of a German prosecution.[55]  It resulted in a $*** fine paid by Siemens to the United States, in addition to that paid to Germany.

Such foreign corrupt practices prosecutions can be politically very difficult for public prosecutors.  For example, James Giffen, an American citizen, was indicted in 2005 for bribing President Nursultan Nazarbaev of Kazakhstan on behalf of Mobil, Texaco, Phillips/Conoco and BP.  His alleged offense had gained public attention in 2000.  After four years of investigation, Giffen was charged with thirteen counts of violating the FCPA and thirty three counts of criminal money laundering.  President Nazarbaev, who is a friend of American foreign policy in the Middle East, has been critical of the prosecution and could perhaps lose his office as a result of it.[56]  Government witnesses have received death threats.  An interlocutory appeal by the defendant was entertained for most of 2006 and then dismissed for want of appellate jurisdiction.[57]  The trial has been repeatedly postponed but will perhaps be held some day.[58]

This case illustrates a fundamental difficulty with public enforcement of any law forbidding bribery of foreign officials.  The public officers so engaged are required to punish their own countrymen, with whom they may have diverse connections and shared interests, in order to protect a distant government with whom they have no connection.  This problem of conflicting moral responsibilities may be less in a nation as large and diverse as the United States because its co-citizens are less firmly bound to one another and sentiments of loyalty and mutual interest can generally be set aside by public officials to prosecute malefactors.  But the conflict is everywhere a serious impediment to enforcement of such laws, especially by prosecutors serving smaller and more cohesive nations.

Because of this difficulty, laws enacted to deter the bribery of foreign officials may be especially suited to the methods and procedures of private enforcement of public law that was envisioned by those who enacted the first False Claims Act.  One ought be very cautious in holding out American legal institutions as a model to be replicated elsewhere, but in confronting transnational corruption the American experience may be exceptionally instructive.

Internationalization of Criminal Law Against Corruption

In the last decade of the 20^th century, other nations, in conformity with the approval of the International Chamber of Commerce, began to align themselves with the American policy imposing criminal punishment on citizens who bribe officers of foreign governments.[59]  The international campaign had its origins in the Asian financial crisis of the 1990s.  That event elevated interest in international regulation of trade to provide greater stability in developing economies.  The United States was especially interested in persuading other nations to join in regulating transnational bribery in order to level the playing field for American firms subject to its FCPA.  As a result of its urging and concerns heightened by the crisis, the Organization for Economic Cooperation and Development (OECD) (a group of nations including the United States and supported by the International Chamber of Commerce) in 1997 promulgated a new international Convention on Combating Bribery of Foreign Public Officials in International Business Transactions.

This Convention obligates signatory nations to enact criminal laws “functionally equivalent” to those prescribed and to cooperate with the enforcement efforts of other signatory nations.[60]  In support of the latter obligation, a system of private peer review was established by OECD; it subjects signatory nations to periodic reviews by teams of specialists from at least two other states.[61]  One substantive difference between the Convention and the FCPA is that the Convention does not forbid campaign contributions to foreign candidates, as the FCPA does.  And the Convention does not obligate signatory nations to enact accounting and record-keeping standards corresponding to those enforced in the United States by its Securities Exchange Commission.

The 1997 Convention marked the beginning of an international movement based on the premise that we all have a stake in the integrity of the global marketplace.[62]  Much energy and rhetoric is now being expended around the globe in campaigns to protest and deter transnational corrupt practices.  The campaign can be seen and heard in such venues as the International Monetary Fund, the World Bank, the United Nations, the International Chamber of Commerce, the International Bar Association and the institutions that rate the corruption of governments and courts.  Support was expressed by German observers concerned that German firms engaged in corruption abroad may have brought the practices home, i.e., that “globalization has become a motor for corruption in Germany”.[63]

The American FCPA was amended again in 1998 as the International Anti-Bribery and Fair Competition Act[64] in order to bring American law into line with the new international Convention.[65]  One change of substance made for this purpose was to legitimate “grease,” i.e. small rewards or tips to lower-ranking officers “to expedite or to secure the performance of a routine governmental action.”[66]  At the lower levels, grease may be indispensable to the operation of some impoverished governments.[67]  Another reform was an extension of the law to criminalize bribes paid to officials of “public international organizations.”[68]  And foreign nationals working for American firms were brought within the group subject to criminal liability for illicit payments or officers.  But those working for foreign subsidiaries were still not included, leaving open a means of evasion that remains in use.

As of 2007, thirty-six nations had ratified this OECD Convention including the governments of most of the major players in international commerce.[69]  Also, in 1997, the Organization of American States promulgated the Inter-American Convention Against Corruption;[70] it is even more explicit in requiring that its ratifiers enact specified criminal laws.  In 2002, the Council of Europe‘s Criminal Law Convention on Corruption entered into force, with forty-six signatories.[71]  In 2003, the African Union opened for signature its similar convention.[72]   In 2006, the European Union adopted a resolution calling for the return of assets of illicit origin to nations victimized by corrupt practices.[73]

Also in 2003, the United Nations opened its Convention Against Corruption[74] negotiated by the UN Office on Drugs and Crime in Vienna.  It has been ratified by over one hundred nations and is also now in force.  Its general tone is reflected in Article 17:

Each State Party shall consider adopting such legislative and other measures as may be necessary to establish as a criminal offence, when committed intentionally, the abuse of functions or position, that is, the performance of or failure to perform an act, in violation of laws, by a public official in the discharge of his or her functions, for the purpose of obtaining an undue advantage for himself or herself or for another person or entity. (emphasis added)

A similarly tentative tone is expressed in the UN Convention’s suggestions that each State Party take action to proscribe deliberate concealment of bribes[75] or obstruction of justice,[76] and provide for civil liability “if necessary.”[77]  It has been said that this UN Convention is to be a “focal point” of the United States’ campaign against corruption.[78]

Public Enforcement of the International Conventions

One may admire the sincere efforts of all those who have secured the promulgation and ratification of these international conventions and yet question whether they are effective in serving their stated purpose.  There is not yet a thorough empirical study revealing an effect on the realities of weak governments, but the available data has led to a conclusion that “enforcement must be re-energized.”[79]

The problems are obvious, previously noted, and illustrated in the Kazakhstan case in the United States.  Are public prosecutors in the nations signing a convention likely to be restrained in prosecuting their fellow nationals or local firms that employ many of their fellow nationals?  For paying a bribe to a foreign official in order to secure a contract or other benefit that will indirectly serve the interests of their fellow nationals?  How much effort can prosecutors reasonably be expected to expend investigating possible violations of such criminal laws?  Vigorous prosecutors risk being seen as unpatriotic.  And how much money will presently impoverished parliaments and legislatures facing competing demands on public resources appropriate to fund such investigations and prosecutions?  Can the system of peer review established by the OECD secure adequate answers to these questions?  And when impoverished nations invest the needed resources and moral commitment to accuse and convict their officials and the foreign nationals who bribed them, can they expect that OECD nations in which the convicted foreigners reside will assist in imposing punishments on their own countrymen?  Corruption is so easily denied that exposure and proof generally require serious investigative effort that could perhaps be applied elsewhere to better serve the public good.[80]

The weakness of the global resolve to punish foreign corrupt practices through criminal laws enforced by public servants has been on display in numerous places.   For example, despite the disincentives, prosecutors in Lesotho, with the support of the World Bank, have recently sought to punish Canadian, French, and Italian nationals and their firms for corrupt practices related to the Lesotho Highlands Water Project.  Convictions resulted in penalties imposed on some subsidiary corporations, but convicted individuals remain at large.  OLAF, the anti-fraud office of the European Union did supply some data on the corporate defendants, but other help to Lesotho has not been forthcoming.[81]  Such events are obviously discouraging to prosecutors in developing nations who need to consider competing needs for their scarce professional resources.

And in 2004, the United Kingdom, having enacted its criminal law as required by the new international convention, initiated an inquiry into bribes allegedly paid by BAE Systems, a British weapons firm, to secure contracts with the government of Saudi Arabia.  In November 2006, it was reported that Saudi Arabia would break diplomatic relations with the United Kingdom if the investigation were not dropped.[82]  The next month, the investigation was dropped “after balancing the need to uphold the rule of law with the wider public interest.”  Prime Minister Blair justified the action by calling attention to the needs to secure the help of Saudi Arabia in dealing with Palestinian affairs and to secure thousands of jobs of workers hired to perform the corrupt contract,[83] considerations said to overbalance the rule of law.  Mr. Blair’s successors have been told by the High Court of Justice to reconsider his decision to discontinue the investigation.[84]  Perhaps the British commitment to enforcement of this criminal law will in time prove adequate to the task, but it seems very unlikely that that will be true in all the nations enacting such laws.  A “summit” conference was held in London in 2009 to explore the options.[85]  And it is apparently leading to other such conferences.[86]

 Anti-corruption laws do have a better chance of being locally enforced when a new regime takes over the corrupted government.  This happened in Nigeria in 2007.[87]   And the Nigerian episode led to an investigation of Siemens, the German technology firm by the German government enforcing its new foreign corrupt practices law enacted pursuant to the international initiatives.  Siemens was in 2007 identified with 77 cases of bribery in Nigeria, Libya, and Russia.

Siemens’ Nigerian subsidiary had in 2006 acquired a contract to build a power sector, paying about $18 million to Nigerian officials to seal the deal.  Exposed in 2007, it not only lost a contract but its parent firm became the object of criminal investigations in Germany the United States, where its stock is traded and it is subject to the laws governing accounting in publicly traded firms.  The German parent firm cooperated in the investigation and won a measure of restraint in the part of the prosecutors.[88]  It appears that it budgeted $40 to $50 million a year in bribes paid from 2002 to 2006.  The parent firm has now paid fines of $1.6 billion to the governments of Germany and the United States.  Yet the effect of that case on business practices in Nigeria has not been demonstrated.  Siemens has declared its intent never to do it again.  But will its experience suffice to deter other firms from other nations with less vigorous and less well-endowed prosecutors?  A blacklisting has been lifted and Siemens has in 2008 acquired new contracts with Nigeria to construct its power sector.[89]

  It is reported that France, like Germany, has become actively engaged in anti-corruption law enforcement.  That may be substantially the reality throughout the European Union.  Nevertheless, a skeptic may well doubt that the criminal laws pose a very serious threat to most of those many firms around the world whose profits seem to depend on their willingness, or at least the willingness of their subsidiaries and their local officers, to participate in the corruption of the foreign governments to whom they provide goods or services.  Of course, such criminal laws express a moral judgment, and businessmen are not immune to moral suasion.  But as Adam Smith noted as a predicate to his celebration of the marketplace,[90] moral constraints lose force as they are applied over greater distances.  The moral force of such international law is therefore weak.  And corrupt practices are by definition secret crimes that can be prevented or deterred only by vigorous investigation and forceful legal sanctions that may not be forthcoming.

The Possibility of Private Enforcement in the United States

of International Foreign Corrupt Practices Law

In recognition of the problem of weak public enforcement, the Council of Europe in 1999 adopted the Civil Law Convention on Corruption.  Its aim, as stated by the Council is to take “into account the need to fight corruption and in particular provide for effective remedies for those whose rights and interests are affected by corruption.”[91]  Its signers are obliged to authorize civil actions for compensation of firms damaged by corrupt practices.[92]  This Convention entered into force in 2003.

The Civil Law Convention provides for actions for compensation for all damages suffered as a result of corruption,[93] and also provides for the protection of whistle blowers,[94] the acquisition of evidence[95], and provisional remedies.[96]  In addition, it requires transparency in company accounts[97] and strives to promote international co-operation and monitoring.  With this Convention, the Council of Europe acknowledged the need for an enforcement mechanism imposing real adverse economic consequences on firms that bribe foreign governments.  Civil liability is surely the primary legal sanction deterring firms from bribing one another’s employees in the private sector, and it is the integrity of governments that is the global problem most in need of a plausible threat of civil liability.

While the Civil Law Convention is a significant step forward, there are few reports of civil actions against offenders.  Primary attention seems to be given to the possible invalidation of contracts tainted by corruption as the civil sanction to be imposed.  There appears to be no effort to date to bring the Council of Europe into line with the law of the United States recognizing bribery of foreign officials by American firms as a tort[98] remediable and subject to punitive damages under the federal RICO or the common law of American states.[99]  Nor, it appears, have other nations been inclined to reward private relators or whistleblowers who take personal responsibility for the needed law enforcement by bringing civil actions against those who have harmed their governments.

A useful example of frustration in the private enforcement of international law is the 2006 decision of an arbitration panel denying compensation to one Nasir Ali for a clear breach of contract by the government of Kenya.[100]  Nasir had bribed the President of Kenya to acquire a place of business at the Nairobi airport for his duty-free shop.  But the Republic revoked the contract and leased the space to a rival owner.  It made no effort to recover the bribe from the former president who had received it; and it was not demonstrated that the successor business had not also paid a bribe to secure the repudiation of the contract with Nasir.  The arbitrators complained that the former president was the person most in need of deterrence and expressed frustration that the Republic had not sought a judgment against him.

If the Civil Law Convention were modified to reward private enforcement, there would remain the problem that European and Japanese courts are generally less hospitable to plaintiffs bringing civil tort cases.  For example, few if any adhere to “the American rule” that a plaintiff who advances a tort claim but loses is not liable for the defendant’s expenses, including attorneys’ fees.  While there are variations on laws governing attorneys’ fees, European plaintiffs in cases arising under the Civil Law Convention would not be likely to be permitted to retain counsel for a fee contingent upon his or her success in the case.[101]  While European courts often conduct penetrating factual inquiries, private plaintiffs enforcing public law in most of the member nations are rarely empowered to conduct private investigations of the sort permitted by the discovery rules in use in American courts.  It is also questionable whether a plaintiff would have access to government records of the sort opened to plaintiffs by “Freedom of Information” or state “sunshine” legislation in the United States.  And few European judges are empowered to issue injunctions enforceable by fines or imprisonment for those who fail to produce needed information or documents.  Seldom would plaintiffs in European courts be permitted to aggregate their claims to make their assertion more economic, as might be possible in an American proceeding.

While, as noted, the Civil Law Convention takes a few gentle steps in that direction, they seem unlikely to be sufficient to deter European firms motivated by the marketplace to engage in corrupt practices, except for the most blatant misdeeds.[102]

Notwithstanding the possibilities that remain open, one viewing the present situation might reasonably assess the enactments of the United States and the other nations since 1998 conforming to all these conventions as a benign gesture but one of apparently limited consequence.  If an act of transnational corruption should attract substantial public notice, the signatory nations have empowered themselves to stand on the side of integrity in government by conducting a criminal prosecution, or in Europe maybe even a civil action, against their nationals who offend.  The United States is no longer alone in taking that moral stand.  And perhaps their enactments will serve to enlarge the force of moral suasion against corrupt practices.  But the threat of punishment, even in the United States, is still remote and often evadable.

A model of a different sort of private or civil law enforcement is the previously mentioned American False Claims Act.  Presumably a foreign government that has agreed to provide for civil enforcement of the Conventions against transnational corruption could enact a similar law authorizing the citizens of the victimized state to invoke the jurisdiction of the courts of the enforcing state to blow the whistle on those local firms who have corrupted the relator’s government.

Indeed, the United States could amend its law to enable a citizen of Kazakhstan, like its own citizen, to take on the role of a relator and bring suit in an American court in the name of his government, against those who have allegedly bribed his or her president.  On this False Claims Act model, such a plaintiff might recover for his government of Kazakhstan treble damages from the firm that paid the bribe, a share of which would be paid to the relator as a reward for useful service to the public interest.  Damages might be measured by the size of the bribe or perhaps evidence might reveal the secondary consequences of the corrupt contract and provide a basis for a more generous recovery to be imposed on the offending firm.  Likewise, a citizen of Kenya might be permitted to bring a claim in a United States court against either Mr. Nasir or the former president of Kenya to secure a judgment favoring that Republic with a treble damages recovery, one third of that sum to go to the private plaintiff as a reward for his public service.

If the United States were to amend its law to provide for such private enforcement of the foreign corrupt practices act, the reform would not be without some deterrent effect.  But, as with the original Foreign Corrupt Practices Act, the deterrent effect would be felt only by those firms tempted to bribe a foreign official who are subject to the jurisdiction of American courts and also exposed to effective enforcement of an American judgment.  While one might hope that foreign courts would lend a hand in collecting the judgments rendered pursuant to such legislation and against firms that are within the constitutional reach of American courts, experience suggests that this is unlikely unless a change could be made in the governing transnational law to commit foreign courts to enforce judgments rendered in the United States.  Recent experience with efforts at The Hague to reach agreement about the enforcement of foreign judgments lends scant encouragement to such a hope.[103]  A possible impediment to agreement is a longstanding international tradition that the courts of one nation do not enforce the public revenue or punitive laws of another,[104] a tradition reflecting the sharp distinction between public and private law familiar to the legal systems of many nations, but less noticed in the United States.

Also a problem with such an extension of the American false claims laws to transnational bribery is that under that law the victimized government would be given the opportunity to take over the case.  It would be unlikely, to say the least, that public lawyers employed by the government of Kazakhstan, for example, would vigorously pursue claims arising from bribes paid to the president of their republic.  On the other hand, many foreign governments might welcome the opportunity to take over such cases from the relators in order to assure that the claims are not effectively advanced.  There are the advantages to private enforcement that no public official is required to take personal responsibility for what may be an impolitic action, and that it might enrich the national treasury.

An advantage of treating the matter as one fit for resolution in a civil rather than a criminal proceeding in an American forum is that the relator or the foreign government (if it took over its case) would not be required to prove the bribery or the resulting damages “beyond a reasonable doubt.”  A “preponderance of proof” would, if credited, suffice to support a judgment against the defendant.  In the United States, full use could also be made of the right to conduct discovery.  Evidence available in the United States or in the possession of an American citizen would be available at trial.  Foreign government claimants would also share the right to compel disclosure of possible evidence by the accused firm[105] and to compel non-party witnesses to supply their evidence as well.[106]  And discovery of evidence from witnesses and their files in other nations is available and assisted by many foreign governments, or at least by those committed to the Hague Convention on the Taking of Evidence Abroad in Civil or Commercial Matters.[107]  And a defendant refusing to provide documents or other evidence upon demand may be subjected to an adverse judgment on the merits of the dispute, it being reasonably inferred by an American court that the evidence it refuses to produce on request would prove the allegation of the adversary.[108]  And if the relator or his government is unsuccessful in proving the case, there would ordinarily be no liability for the legal expenses of the defense.

For all these reasons, it might in all respects be less expensive and more effective for a foreign government to proceed in a civil case in an American court than to conduct either criminal prosecutions or civil actions in their own forum.  And if the private lawyers retained to conduct such a case are exposed to substantial income tax liability by the United States, it is not unlikely that the United States could show a net profit on the sale of judicial services to foreigners bringing such cases to its courts.[109]  Nevertheless, not only because of the problems associate with the limited jurisdiction of American courts and the reluctance of some foreign courts to enforce civil judgments rendered by American courts, it might be deemed impolitic for the United States alone to venture forth to provide private enforcement of its Foreign Corrupt Practices Act that could have no more than limited effect.

Private Enforcement in Courts of Other Nations

or in Arbitration

The American false claims laws are not entirely unique.  The United Kingdom, Korea, and the Netherlands, and perhaps some other nations, have enacted laws to reward and protect whistle-blowers who alert prosecutors to frauds on their governments.[110]  India empowers its citizens to prosecute corrupt public servants, but only with the sanction of the appropriate higher official, or to secure a writ forbidding continuation of corrupt practices.[111]   And the idea of private claimants representing the monarchy has an ancient history.[112]

Might the institutions seeking to deter transnational corruption therefore advance the idea of enabling private enforcement in the courts of all nations along the lines suggested by the American model, or at least those of the “developed nations” of OECD.  They could imaginably agree to enact versions of the false claims act applicable to transnational corruption so that the deterrent effect of such law would be spread among firms in all the “developed” nations.

But an obvious problem with this scheme is that American courts would be the courts chosen by most plaintiffs whenever that choice were open.  A judicial member of the House of Lords some years ago observed that “[a]s a moth is drawn to the light, so is a litigant drawn to the United States”.[113]  The sources of the attraction are advantages available to plaintiffs in American courts.  Those attractions evolved as a consequence of a distinctive national history resulting in enlarged reliance upon private enforcement of public law.  While the courts of other nations that have ratified the Civil Convention of the Council of Europe would also be open in theory to private enforcement of the international law and might thus also impose a risk of civil liability on offenders who engage in bribery and on the firms that employ them, they do not generally offer the same package of procedural rights available to plaintiffs in American courts, and few citizens would be well-advised to advance corruption claims in their courts.  Some Europeans already resent the pretentiousness of American courts sitting as “world courts” as they are sometimes prone to do.[114]

In what forum, then, might the anti-corruption conventions be privately enforced?  What is needed is an international tribunal commanding the respect and acceptance, of all the governments willing to subscribe to the principle that citizens are entitled to protect their governments from bribes paid by foreign firms to secure contracts at inflated prices.  And that those firms who can present convincing evidence that they could and would have provided goods and services of equal quality at lower prices than those a state has agreed to pay in response to corrupt practices also have rights to participate in open markets when peddling goods or services to a foreign government.

Special dispute-resolving schemes have been incorporated in numerous multilateral agreements,[115] including some bearing on environmental controversies.[116]  And there is an existing model for an international forum in which environmental or corruption claims might be heard and decided.  Such a forum could be established and empowered with the features of American practice that enable private law enforcement.

The model is the International Center for the Settlement of Investment Disputes (ICSID), an autonomous international institution established by the World Bank under the 1965 Convention on the Settlement of Investment Disputes between States and Nationals of Other States.[117]  ICSID provides an arbitral forum whose jurisdiction is conferred by the contracts made between member governments and the foreign firms with whom they deal.  The Kenya case mentioned above was decided by an ICSID panel. 

There are 143 member states that have ratified the ICSID Convention and are thus subject to the Center’s jurisdiction.[118]  There are presently 122 cases pending on its docket; all involve disputes between firms engaged in international trade and the member governments with whom they have made contracts.  While, as with other privately established arbitral tribunals, one may be more concerned about the independence of the judges,[119] the Center’s monetary awards are enforceable under the 1958 Convention on the Recognition and Enforcement of Foreign Arbitral Awards[120]  that has been ratified by all but a very few nations.[121] 

Given the absence of alternatives and the utility of arbitral tribunals in resolving private disputes arising in international trade, the ICSID model is not only the best available, but one worthy of a measure of public confidence.[122] Cautions have been expressed such as that uttered by Cesare P. R. Romano that while arbitration “has some merits, it is by and large a vestige of an old world where adjudication was ultimately regarded as a sort of continuation of diplomacy by judicial means, to paraphrase a famous quote from Carl von Clausewitz.”[123]  And the Republic of Ecuador, although presently engaged in an ICSID arbitration proceeding with Occidental Petroleum arising from the government’s response to alleged environmental harms resulting from its extractions in Oriente Province, has now withdrawn its consent to future proceedings of this sort,[124]

But if Ecuador seeks future investments in similar enterprises by transnational firms, it will likely find it necessary to submit to a jurisdiction such as that of ICSID, or a different but similar center established by the World Bank,[125] Such an arbitral tribunal could be empowered by contract to resolve corruption claims brought by suitably qualified citizens or non-governmental organizations.  To be a member of such a center, a state could be required to make submission to the center’s jurisdiction a condition of any contract made with a foreign national or a transnational firm or its subsidiary for the government’s purchase of goods or services, or for authorization to extract minerals or engage in other enterprises identified as creating avoidable environmental hazards.

As an additional condition of the submission of corruption claims to such an arbitral tribunal, it would seem necessary to require a member state to establish reasonable accounting standards to be observed by its public officials and by those international firms with whom they might deal.  And, as a constraint on the misuse of the investigative power conferred on the party alleging a corruption claim and his or her counsel, it would be appropriate to require him or her at the outset to identify a personal source of information suggesting the likelihood of a corrupt practice worthy of investigation.

To facilitate effective private law enforcement of either international environmental laws or anti-corruption laws, the civil procedure employed by a center’s arbitral panels would need to differ from that conventionally employed in the arbitration of contract disputes.  It would be necessary to include provisions empowering: the parties’ private counsel to expose pertinent records of the government and its contracting parties and to examine witnesses under compulsion to give evidence.  And to empower the arbitral panel to render an enforceable and punitive monetary award against a firm or person who failed to cooperate reasonably with the investigation conducted by counsel for any of the parties.[126] The American rules of procedure empowering private investigation surely need not be explicitly incorporated, but they serve to illustrate what would be needed to empower private counsel to investigate and reveal corruption or a firm’s responsibility for environmental harms.[127]  Effective international law would also foreclose government secrecy so that officials and their files would be subject to judicial scrutiny. [128]

An obvious problem in establishing such forums is the identification of suitable members of the arbitration panels.  As the American experience confirms, finding suitably disinterested decision-makers is not easy and perfection cannot be achieved.  But the peer review system employed by OECD suggests a place to begin the search. 

Another problem is the prospect for enforcement of awards.  The present Convention on Foreign Awards vests discretion in any enforcing court to refuse enforcement of awards offending its notions of local public policy.[129]  It is clear that this provision is intended to be read narrowly, and at least in the United States it is.[130]  And an award might be denied by enforcement by a court persuaded that the arbitral panel was itself corrupt or unqualified.

Conclusion

It seems unlikely that the ICC or the World Bank or the United Nations, or any other organization will in the immediate future undertake to create legal forums in the ICSID model that could enable and reward effective private enforcement of international anti-corruption law.  The complexities of the tasks are not to be understated.[131]  But the needs clearly exist and the time has come for serious consideration of the limited possibilities.  Others have noted the difficulty as well as the need for transnational institutions that might gain measure of trust from the humanity in whose behalf they presume to govern.[132]  If a legal forum were created, it would need some of the features that cause plaintiffs “like moths to the light” to be attracted to American courts.  These include a right of audience for contingent fee lawyers representing private citizens or non-governmental organizations empowered to compel witness testimony and disclosures and to examine files.  Such a means of private enforcement in an international forum  would not cure the disease but it would reduce the suffering.

NOTES