Hello, welcome back to our course on corruption. This is week three, lecture four. And today we're going to talk about the sanctions that are imposed on individual firms and individual people when they engage in corruption. Most people think primarily of criminal sanctions, but I also want to talk about private dispute settlement and administrative sanctions. With respect to criminal sanctions, every country in the world criminalizes the bribery of its own bureaucrats, Albania, Azerbaijan, all of the A countries, to Zimbabwe, Zambia, all of the Z countries. Every single country criminalizes the bribery of its own bureaucrats. Almost all countries criminalize other forms of corruption. Nepotism, embezzlement, theft, fraud, most countries criminalize those as well. And then, of course, many countries, particularly the major market-oriented countries, criminalize private sector corruption, kickbacks, etc. This is a chart of the countries that are either in the top ten investment receivers, investment senders, or trade recipients, trade senders, all right. And it's just an example of the punishments that are meted out for corruption. Of these punishments, my personal favorite is Japan, which imposes hard labor for business people that have engaged in corruption. With respect to corporate liability that's a very complicated issue. Corporate criminal liability is something that is distinct from corporate administrative liability. Both, however, result in some form of liability for the organization as well as for the individual persons who have engaged in corruption. And most countries impose that kind of liability as well in some form or another. Now, it's frequent, it's often heard, someone will say, yeah, that's what the law says, but everyone's doing it. It's the norm there, it's what happens. There's a lot of reasons to be very, very careful about that kind of an argument. In the first place, the argument that everyone's doing it doesn't necessarily mean that everyone's doing it. It also doesn't mean that it's accepted, all right? It could be that only a thin strata of people are engage in corruption. And that happens to be the strata of people that a transnational firm or transnational business person or a stranger to that country happens to be interacting with. It's also very important to remember that just because corruption happens doesn't mean that people like it. Then to the extent that people despise corruption, and that's the reaction that scholars have found in every country that they've studied, to the extent the people despise corruption, there is always the risk of prosecution. In general, when one engages in a crime, one is always at risk for prosecution under that crime. And who knows why prosecution may occur? It may be that a business or business person becomes a pawn in a political game between two politically powerful people. That's a sad reason for being prosecuted, but it is a reason nonetheless, and prosecution is possible. It may be that a country or a polity decides now we need to put some foreign business people on trial for engaging in corruption. That's an unfair, singling out, but it is a singling out that happens. And the prosecution is a prosecution. We are always at risk when we engage in crimes. The local prosecutions are magnified by local national laws that criminalized transnational corruption. Transnational corruption occurs when a person, an organization, a business firm from one polity engages in corruption involving or occurring in another polity. So a firm from Moldova might be sitting in an office in Moldova. But if they're bribing someone from Romania, that's transnational corruption. A person might be sitting in an office in New York. If they transmit a bribe to someone in London, that's transnational corruption. Transnational corruption is not a narrow concept. And for businesses that engage in any sort of transnational activity, they're within the boundaries of the kinds of behaviors that could be included should they engage in corruption. It was once the case that only two countries had rules prohibiting transnational corruption, Sweden and the United States. And of those two countries, the United States' Foreign Corrupt Practices Act was the best known. In fact, if you want to win a bet at a bar sometime, bet people that there were actually two countries and not one back in the 1970s that had these kinds of laws. Now, however, well over 50 countries have laws prohibiting transnational corruption. Now, again, not many of these countries have prosecuted people under these laws. Not many firms have been caught under these laws. Two things to be concerned with. One, the Organization of Economic Cooperation and Development is understandably very anxious that countries and prosecutorial agencies from countries who are party to and members of the OECD increase the prosecutions, that they create a more level prosecutorial field. And secondly, as we talked about with reference to local laws, these laws are on the book. A firm that engages in transnational corruption is always vulnerable to prosecution. You may be the first, it's still a prosecution. The result of these 50 plus countries with laws prohibiting transnational corruption is a kind of web, a kind of grand scheme that captures most transnational behavior. It would be very, very difficult for a firm, regardless of the country from which they originate, to engage in transnational activity and not be subject to at least some of the laws enacted by these 50 plus countries. In essence we have a pretty level playing field for transnational firms. The prosecution of these laws is catching up. It's not just about the laws, however. It's also about the rules that govern relationships between parties. And often these rules are enforced privately. In fact, far, far, far more firms are going to be involved in arbitration than will ever be involved in a criminal prosecution. It's important to understand that the rules of international arbitration clearly state that contracts that involve corruption are non-enforceable. This goes back to the 1960s when arbitrators, upon finding or learning that there was corruption involved, would sometimes say this is a contract that we simply cannot exercise our jurisdiction over. And that rendered it unenforceable. International arbitrators now actively exert jurisdiction over these types of contracts. But they do so for the purpose of finding them unenforceable. It may seem unfair to a business that has been in its eyes forced to pay a bribe to enter into some kind of business relationship with a country that that country can then turn around and say, there was bribery involved, that contract is non-enforceable. But in the eyes of international arbitrators, this is not an unfair outcome. The firm did not have to yield. It didn't have to enter into a business relationship that involved corruption. It could have walked away, albeit losing that kind of business. And therefore arbitrators have no compunction in not enforcing these contracts. In fact, some arbitrators suggest that they have an affirmative duty to investigate whether or not there was corruption involved in a transaction. This stems from international treaties which state, if corruption was involved in a business transaction, then an arbitral finding can be set aside. And the investigative agencies, prosecutorial agencies, or civil courts of that polity can intervene. Because the arbitral finding can be set aside, arbitrators suggest, well, we have an affirmative duty to prevent that. We have an affirmative duty to actually look into whether or not corruption was involved. And if they find corruption, not only not enforce the contract but also report that corruption to enforcement agencies in all of the involved countries. The result of these rules is that corruption is the single leading reason for public policy-based, non-enforcement of contracts. And that is a pretty severe sanction imposed on business, a pretty large cost of engaging in corruption. Finally, I'd like to talk about administrative sanctions. Administrative sanctions are different than criminal sanctions. An international financial institution or an administrative agency cannot imprison a person for engaging in corruption. And they certainly cannot sentence a person to hard labor because that person has engaged in corruption. They can, however, bar a business firm or an individual from working on transactions that involve that particular international financial institution or that particular administrative agency. And in fact, the major international financial institutions, particularly the development banks, have a sharing agreement. And so, if a person or if a business firm is debarred from interacting with transactions involving one particular international financial institution, it is debarred from engaging in relationships with transactions that involve any of the IFIs. There are a few very interesting examples of, there's a tragic number of examples, but a few interesting ones that might illustrate this process. Oxford University Press, one of the icons of the academic publishing industries, their subsidiary organization in Tanzania, Oxford University East Africa Press, paid bribes on two occasions to government officials in Tanzania to have Oxford University Press material used in a World Bank project and educational projects in primary schools in Tanzania. I stress that Oxford University press cooperated fully with the World Bank. They disciplined the workers who were involved in the payment of these bribes, they severed relationships. Through negotiations with the World Bank, Oxford University Press, one of the icons of academic publishing, was placed on a three-year ban. For three years Oxford University Press could not be involved in transactions involving World Bank projects or transactions involving relationships with any of the large international financial institutions. More recently SNC-Lavalin, a very large multinational construction firm based in Canada was placed on the debarment list. SNC-Lavalin was working with a number of other firms, a number of financial institutions, on a large bridge construction project in Bangladesh. The project was riddled with allegations of corruption. The World Bank took note of these allegations, sent an investigative team both to Bangladesh and to the headquarters of a number of firms that were involved. SNC-Lavalin cooperated with the investigation, but the investigation was very thorough, as they all will be. There was a essentially an adjudicatory process. SNC-Lavalin was investigated and prosecuted not in a criminal sense but in an administrative sense. And the result was a ten-year ban on involvement with any World Bank or other development bank projects that involved financing by any of these organizations imposed on SNC-Lavalin. Now [COUGH] development banks, international finance institutions, they're not imposing the criminal sanctions. They are, however, involved in a great number of projects, particularly in emerging and developing countries. And those are the countries where most economists, most forecasters expect the majority of growth to occur over the next 30 to 50 years. That means that even though not a criminal sanction, these sanctions imposed by the international financial institutions are quite severe and do impose a real cost on businesses and individuals that engage in corruption. And the IFIs are not alone. Governments also impose bars or bans on individuals and firms that engage in corruption. The process is somewhat similar. Most countries have their own prosecutorial or investigative agencies independent of the administrative agency that imposes bans. Here in the United States, for example, commerce will turn to the Department of Justice for investigation of allegations that corruption has been involved in a transaction. The adjudicatory process may be administrative, it may be done through a court. But the results will be similar, a ban for a period of time on transactions with or involving the government of that particular country. And again, in some countries, this can be a very severe sanction, particularly when we're talking about emerging and developing countries that are still relatively statist. In other words, countries in which the government is deeply involved in what otherwise would be private economy. Bans on relationships with transactions involving the government in those countries is quite a severe penalty. But even in the non-statist countries, the government tends to be a large consumer of services and of goods. And a ban or a bar is a pretty severe sanction. When we talk about sanctions, we're generally talking about three kinds of sanctions. The sanction that most people think of right away is a criminal sanction, and those are there. They're there both at the local level and at the transnational level. And one should always be cautious. One should never assume that just because other people are getting away with it, that person can get away with it. The risk is always present. But the sanctions that are imposed on a firm or on an individual by engaging a corrupt act are not limited to criminal sanctions. They also are deeply felt with private dispute settlement. And they can also be relatively severe when we're talking about administrative sanctions. Thank you very much. And I really do look forward to seeing you for our next lecture.
