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March 25, 2010

TRACE Issues 2010 BRIBEline Mexico Report

Posted by wrageblog under BRIBEline, FCPA, Mexico, enforcement, environment | Tags: , , , , , , , , , , , , , , |
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How great are the anti-bribery compliance risks faced by companies with operations, customers or projects in Mexico?

We know public corruption exists in Mexico (and everywhere else).  And we know that Mexico has garnered the attention of both U.S. and international enforcement agencies.  A recent search of the TRACE Compendium reveals ten cases and investigations involving bribery of Mexican government officials.

U.S. enforcement agencies have brought eight cases – Crawford Enterprises, ABB/North America, Hioki, Paradigm, Pride International, Siemens, Silicon Contractors and Syncor.  Nearly all of these cases involve corrupt payments to employees of Mexican state-owned entities, with a particular emphasis on Pemex, the state-owned oil company, and Comisión Federal de Electridad, a state-owned utility company.  (Pride is the lone outlier: according to the SEC complaint, Pride made corrupt payments to Mexican customs officials to persuade them to either overlook customs violations or expedite exports).

International enforcement agencies have recently joined the fray.  The Federal Public Prosecutor’s Office in Switzerland is investigating allegations that Alstom, a French company that provides equipment and services to the energy and rail transport sectors, engaged in a widespread bribery scheme to secure public works projects in Brazil.  Alstom reportedly made over US$230 million in corrupt payments to foreign officials in Singapore, Indonesia, Venezuela, Brazil, Italy, Zambia and Mexico.  In addition, the Investigating Magistrate of Spain is looking into whether Banco Bilbao engaged in corrupt activity with officials in Columbia, Peru, Venezuela and Mexico.  And, of course, the Munich Public Prosecutor’s Office made a big splash with the Siemens investigation and blockbuster settlement.

These cases provide insight into bribery’s tail risks – prison terms and huge fines, invasive investigations and long-term reputational damage.  They also give us a look into the fairly unimaginative way companies try to disguise bribes on their books and records:  in the accounting parlance of corporate bribery, vague “commission payments” are becoming what “off-balance sheet SPVs” were to Enron.

What these cases don’t give us is a granular view of a bribe transaction.  Who are the common sources of bribe demands?  How frequently are bribes demanded?  And how much?  The BRIBEline country reports, issued by TRACE, set out to answer these questions.

TRACE today issued its BRIBEline 2010 Mexico Report.  This report presents information about 151 incidents of bribe demands made in Mexico and reported to BRIBEline as of January 6, 2010.

Key Findings from the report reveal that:

• Over 85% of the reported bribe solicitations in Mexico were made by people associated with the government, including 45% of bribes in Mexico reportedly made by the police.

• Over 55% of survey respondents reported that a bribe demand was recurring (i.e., a bribe was to be provided more than once).  Fifteen percent of those who reported receiving recurring bribe demands indicated that they had received bribe solicitations more than 100 times in a given year.

• Cash (or its equivalent) was demanded in more than 80% of the reported incidents of
bribe demands in Mexico.

• Sixty-five percent of all reported bribe demands made in Mexico were for amounts less than US$5,000.  On the other end of the spectrum, 6% of all reported bribe demands in Mexico were for more than $50,000.

• Almost half of the Mexico reports cited extortion as the primary purpose of the bribe demand.  For example, in these cases the bribe was demanded in order to avert harm to personal or commercial interests (23% of all bribe demands in Mexico), to receive delivery of services to which the intended bribe payor was already entitled (15%) or to receive payment for services already rendered (6%).

The 2010 BRIBEline Mexico Report is the fifth BRIBEline report published by TRACE.  Please visit www.TRACEinternational.org to view the full 2010 BRIBEline Mexico Report, as well as reports on China, India, Russia and Ukraine.

 

March 1, 2010

Cambodia’s Long-Awaited Anti-Corruption Legislation

Posted by wrageblog under Asia, Cambodia, environment | Tags: , , |
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TRACE’s Anne Richardson received the following update from an attorney friend currently working in Phnom Penh:

“Last month a senior Cambodian official stated that Cambodia’s long awaited anti-corruption legislation will likely be passed next month. There have been, however, a litany of statements foretelling the ‘imminent’ passage of this law since 1994, when it was first proposed. Whether this is another empty statement remains unclear, but several signs point to its passage. First, the main reason officials have been giving for delay all these years – the need for an updated penal code – is no longer present. Last year Cambodia passed a new penal code, part of which is already in force, and the rest of which will come into force December 31st. Second, the Council of Ministers has already passed the draft anti-corruption law and handed it over to the National Assembly – a significant step in the legislative process. Third, the contents of the law have remained a closely guarded secret. Indeed, the one thing that is more difficult than determining when the draft law will be passed is ascertaining what substantive protections, penalties and enforcement mechanisms the law will contain. Lawmakers have been tight-lipped about the contents of the law, refusing to release a copy of the bill and so foreclosing all public comment and debate. Proceeding in this way, of course, will  allow lawmakers to take credit for passing an anti-corruption law while ensuring the law does not infringe any ‘ongoing interests.’

Whatever its substance, the law cannot reduce corruption overnight. The pattern and practice of corruption in Cambodia is rampant at all levels. From police officers who openly request and accept bribes from motorists to high ranking officials whose mansions exuberantly display ill-gotten gains, the evidence is everywhere. And all this while the majority of the people eke out a living, earning little more than a dollar a day. Sadly, corruption has been endemic to politics in Cambodia even infiltrating the language. In Khmer the verb ‘to reign’ literally translates ‘to eat the kingdom,’ and government officials have thus far lived up to the billing. The passage of an anti-corruption law would bring a glimmer of hope to the situation in Cambodia, and be a step – even if only a ceremonial one – in the right direction. Over time, and after implementing appropriate enforcement mechanisms, perhaps the daily scourge of corruption – the pervasive demands and the widespread acquiescence – can be vanquished.”

 

October 19, 2009

Compliance Surprises in Cuba’s Closed Economy

Posted by wrageblog under Cuba, environment | Tags: |
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All things come to an end, eventually, even John F. Kennedy’s ban on U.S. trade with Cuba. Sensing impending change, we headed to Havana in March to see how bribery works there, as compared to in Russia or India or Mexico. We were startled at how little evidence of commercial bribery we found.

Billboards everywhere exhorted citizens to “defend the revolution”: Patria o Muerte! Fatherland or Death! The government seemed to count on slogans more than salaries to motivate the workers. Everyone works for the State and the salaries the state pays range from US$16 to US$20 per month, whether you earn it by pumping gas or by transplanting hearts. The government ensures that salaries are equal, even if they are not adequate. No one can live on such wages, and no one, not even the government, pretends that they can. Even with free health care and education and subsidized rations of rice, beans, eggs and cooking oil, no one makes ends meet on US$20 per month (One heart surgeon decorates cakes on the weekends).

The government knows that its citizens supplement the income it provides and for the most part looks the other way while they do. Pilferage (though not bribe-seeking) seemed practically universal. Those whose jobs give them access to a car siphon gas to sell on the side. Those whose jobs take them to an office take offi ce supplies to distribute. Bartenders save the good rum to trade and serve drinks that are thin and watery. Waiters grab food to barter and blatantly pad the checks they present to foreigners.

What does this mean for employers? Well, in Cuba, the state is the employer, so constant low-grade pilferage of goods to sell on the Black Market is just another way to redistribute the wealth. Cubans we spoke to didn’t seem to consider this stealing exactly, because, well, everything belongs to everyone, right? People in Cuba shrug a lot and turn up their hands.

Foreign businesses have another way to reward their employees. These companies have to pay their employees’ US$20 per month wages directly to the state, but they are permitted to pay a “top up” directly to the employees. This is called a “gratifi cation.” This isn’t legal in Cuba; in fact it is a violation of the stated national value of egalitarianism. But the Cuban government looks the other way until tax time, then requires employees to declare their “gratifi cations” and be taxed, so the state benefi ts in hard currency. One company pays the offi cial rate of US$20/month and an unofficial “top up” of US$2000/month.

A foreign business ready to pay “gratifications” should have no trouble hiring, but the government makes the hiring process difficult. A company can find someone and then ask the government employment agency to vet and approve them, but they will wait a long time. Alternatively, they can ask the government employment agency to send over two or three people to choose from. Reject all three and they will wait a long time for another candidate. One employer that got itself crosswise with the government has waited several years to fill 35 open spots. A company that attempts to dismiss someone will wait, yes, a very long time for a replacement.

For Cuba’s highly educated population, there is little cost to losing a job; the government will assign another. Jobs in industries with scarce portable goods bring opportunities for “slippage” of inventory. Soap is rationed in Cuba and very scarce; working in a soap factory is a plum job. A chance of travel abroad is attractive, although such travel rarely materializes. The approval process is long by design. In a recent speech, Raul Castro announced that international travel for business would be cut dramatically.

Companies enjoying any success in Cuba have partnered with savvy locals who guide them through the dense, opaque bureaucracy. Such companies must convince the government that they are there for the long haul. They cultivate relationships and, invariably, they sponsor charity cigar auctions or kids’ “go-kart” rallies. But, by all reports from many sources, they don’t pay bribes.

This was surprising. Robert Klitgaard says that a centralized government with a great deal of discretion and a low level of accountability will be a playground for bribe seekers. We went to Cuba expecting rampant bribery, but we didn’t find it.

We did hear about widespread, low-level, non-threatening demands from policemen and officials, but they sounded more wistful than threatening: “I haven’t had a cup of coffee yet today…” one policeman said. Some people pay and others decline. Declining seems to bring no consequences. Middle level employees of state-owned joint ventures had reputations that were a little worse. As for bribery higher up the chain, we heard it was rare.

The party, it seems, really does pay homage to “revolutionary consciousness.” Schoolchildren sing “We will be like Ché,” and apparently one cannot “be like Ché” and demand bribes. Moreover, the party believes that corruption toppled the Soviet Union, so it is reported to move swiftly and severely against bribe takers. The Cuban Penal Code stiffens the penalties as one climbs the hierarchy of government officials, something we haven’t seen elsewhere.

We spoke to a European businessman with responsibility for Latin America and asked him how Cuba compares to other countries for transparency. He quickly placed it above Mexico, all the countries of Central America and Venezuela. Then he added Ecuador, then Brazil and Argentina, then Chile, South America’s transparent golden child. Slowly, and with apparent surprise, he declared it “among the best in the region.” But he added that he didn’t quite understand why.

Near the end of the trip, I asked a Cuban businessman what would happen if U.S. sanctions were lifted and U.S. companies started arriving with money to spread around. “Oh no, tell them not to do that. That won’t help at all. But they’ll need the money. Patience is the key, and patience can be very expensive.”

This article was originally published by Alexandra Wrage in Ethisphere magazine in Q1 2009.

 

October 1, 2009

The Water In Which We All Swim

Posted by wrageblog under FCPA, TRACE, US Government, enforcement, environment, voluntary disclosure | Tags: , , |
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As a follow-on to our September 17, 2009 post – The Latest FCPA Forecast From U.S. Regulators – Anne Richardson of TRACE shares some of the comments of Edward Cooper, the Program Manager for the International Corruption Unit at the FBI and a retired Special Agent. Mr. Cooper appeared on a government enforcement panel with Mark Mendelsohn of the DOJ and Cheryl Scarboro of the SEC at a conference in Washington last month.

“Mr. Cooper began his comments with an allusion to the 1974 film “Chinatown,” citing the conversation between Noah Cross (played by John Huston) and J.J. “Jake” Gittes (played by Jack Nicholson) over a breakfast of broiled fish at the Albacore Club. Trying to size up the police officer investigating the murder of his daughter’s husband, Cross asks Gittes whether the officer is a capable man, to which Gittes responds: “Very.” Cross then asks if the officer is honest, to which Gittes replies: “Far as it goes – of course he has to swim in the same water we all do.“

While we can debate whether or not Jake Gittes is cinema’s greatest postmodern hero, Mr. Cooper’s allusion in an FCPA conference is apt. What is not open to debate is the fact that today bribery is high on the agendas of governments, financial institutions and companies around the world. U.S. and international enforcement of foreign bribery laws is on the rise, as is the focus on corruption as the pivotal obstacle to economic development and political stabilization across the globe, from Afghanistan to Zimbabwe. While we may all swim in the same water, that water is shifting.

Public corruption in general is the highest priority of the Criminal Investigative Division at the FBI, according to Mr. Cooper. He described public corruption cases as the most sensitive, the most political, the longest running, and the hardest to provide. One must, after all, start by proving whether a crime was even committed. These difficulties are only amplified when the conduct occurs abroad.

Unlike most FBI criminal investigations, which are coordinated at the field office level, all FCPA investigations are initiated in Washington, DC and FBI investigators work closely with DOJ prosecutors throughout an investigation. Mr. Cooper recalled that his special agent training in 1980 included not a single reference to the FCPA. The water is different today. Last year, the FBI established a dedicated team of special agents in its Washington Field Office to work exclusively on FCPA cases and these agents undergo a specialized FCPA training course. The FBI has also created an International Contract Corruption Task Force, based in Washington, to focus on contract corruption and procurement fraud (particularly in Iraq, Kuwait, and Afghanistan).

So will this dedication of FBI resources mean that more FCPA violations will come to light through the use of sophisticated FBI investigative techniques, rather than through voluntary disclosures? Not yet, it appears, though we may be moving in that direction. Mr. Cooper estimated that about one-third of open FCPA cases were the result of companies’ self-reporting. The remaining two-thirds come from a variety of sources, including (i) informants; (ii) whistleblowers; (iii) disgruntled former employees; (iv) competitors; (v) other investigations; (vi) news media; and (vii) referrals from other U.S. and international agencies. He emphasized that cooperators in existing investigations are a very important source of information, as they are usually extremely motivated.

With newly committed resources and an energized FBI, there is little doubt about which direction FCPA enforcement is heading. The water in which we all swim is becoming less hospitable to the bribe-payers.”

 

April 23, 2009

Earth Day

Posted by wrageblog under environment | Tags: , , , , , , , , |
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Today is Earth Day and it doesn’t take much imagination to follow the trail from a lot of environmental destruction back to bribery.

 

Indonesia is facing terrible deforestation.   Western multinationals, sensitive to the campaigns of environmental nonprofits, shy away from the reputational damage that operating in poorly regulated markets like Indonesia can bring.  Neighboring Malaysia, by comparison, has worked to develop a better-managed and regulated logging industry that enables the Malaysians to sell timber to companies seeking to avoid the political and environmental issues surrounding Indonesia timber.   Taking advantage of this, Indonesian loggers need only bribe their way across the border to Borneo, where their wood can be legitimized with the “Malaysian” label and easily sold on the international market.  A single bribe-taker at the border exacerbates the deforestation, reduces the revenue to Indonesia for its lumber – sold illicitly at reduced rates – and undermines Malaysian efforts to establish a credible timber industry through government regulation.

 

Cambodia has, at times, launched widespread reforestation efforts.   In that country, struggling to recover from the environmental devastation wrought by Pol Pot’s regime, Virachey National Park sits at the center of an ecotourism effort.   But, in the “is nothing sacred?” category, the former governor of the province, the former police chief and the park director have all been sentenced for their part in a US$15 million bribery scheme.  They accepted bribes in exchange for permitting widespread illegal logging in the fragile national park they were meant to protect.

 

International trade in illegal wildlife products is estimated to be as high as US$10 billion annually.   In the 1970’s, emergency measures were taken to protect India’s declining tiger population.  Sariska National Park in Rajasthan was one of twenty-eight tiger reserves created in India.   The Indian tiger population began to recover until the 1980s when demand grew for tiger parts used in traditional Chinese medicine.  By 2005, the Indian government conceded that every last tiger had disappeared from Sariska National Park.   India’s Central Bureau of Investigation referred only to park employees having “developed vested interests”.  The rangers – employed by the state and paid with tax dollars – are widely rumored to have colluded with the poachers in exchange for modest bribes.   They sold-out the country’s natural heritage that they were hired and trained to defend.

 

Entrenched habits of bribery double the difficulty of many of the environmental challenges we face.