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The U.S. has a chance to target demand-side bribery with the CROOK Act

Companies have long complained, rightly, that they bear the brunt of most anti-bribery efforts. Bribes are, at their simplest, transactions between two parties, but companies are prosecuted aggressively while the misconduct by grasping government officials typically escapes notice, or at least prosecution. At the same time, those who live in corrupt nations are increasingly chafing at the status quo. This dynamic has become problematic for corporations and governments alike.

Liberal democratic countries of the West have long championed the rules-based international order built on a social contract between the governed and their governments, which guarantees free and fair elections, separation of powers among the branches of government, rule of law, a market economy with reasonably equal access for all participants, equal protections for human and civil rights, political freedoms and private property rights. Corruption poses a threat to this social contract by eroding each of its elements and undermining public trust. This threat concerns more than just lawyers, academics, and a handful of politicians.

The Arab Spring of 2010-2012, Ukraine’s Revolution of Dignity in 2014, Armenia’s anti-corruption protests in 2018, and similar mass actions in many other countries have richly demonstrated that regular people are growing impatient with unchecked corruption and corrupt elites who believe themselves to be above the law. But these spontaneous outcries of popular anti-corruption sentiments often fizzle out or, having disrupted the corrupt status quo, fail to achieve sustainable government reform. There is a need for mechanisms that support and fuel grassroots anti-corruption efforts to achieve a lasting positive change.

Currently, we don’t have such a mechanism, but the U.S. Congress has a chance to establish one by adopting the Countering Russian and Other Overseas Kleptocracy (CROOK) Act that was introduced with bipartisan support in both houses last year. The key provisions of the CROOK Act would establish a permanent anti-corruption “action fund” to provide urgently deployed and targeted assistance to countries that are presented with rare opportunities for democratic transition and a chance for local anti-corruption reform to root out deep-seated corruption. Such funding would help provide technical assistance to outsiders who come to power on anti-corruption platforms.

It would also offer funding to nongovernmental grassroots organizations that work to curb corruption or develop rule of law-based governance structures in their countries. In order to find money for the fund at a time of skyrocketing budget deficits, the bill drafters propose a $5 million surcharge on criminal penalties levied against companies for violating the FCPA, but only when these penalties exceed $50 million. So, in effect, companies found to have violated the FCPA in some egregious manner will pay to address the underlying causes of the sort of foreign corruption in which they were embroiled.

Substantial FCPA penalties are generally paid by multinational corporations that otherwise value and benefit from conducting business in the rules-based international order where market demand is largely predictable, and contracts are enforceable; these corporations are likely to support efforts to increase transparency and reduce corruption. While this may seem counterintuitive, few at companies that have lived through an FCPA enforcement action have any appetite to repeat the experience. Most companies would prefer a simpler world where a good product sells at a reasonable price without the market distortions corruption introduces.

These efforts are more urgent as the world grapples with the pandemic’s economic consequences by boosting government spending, expanding the government’s role in the economy, and taking other emergency measures, which all can lead to significantly increased corruption fueling legal risk for companies and public unrest more generally.

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2 Comments

  1. Very interesting blog Alexandra.

    A 2018 OECD report sets out some depressing data on how demand side is handled even by Parties to the OECD Anti Bribery Convention (https://www.oecd.org/corruption/Foreign-Bribery-Enforcement-What-Happens-to-the-Public-Officials-on-the-Receiving-End.pdf).

    Other initiatives like the NGOs push in France (the “bien mal acquis” case) or the Unexplained Wealth Order (UWO) in UK are also steps in the right direction.

    What we are missing though is an OECD Anti Bribery Convention focussed on the demand side !!

  2. Thanks Alexandra for introducing us to these interesting legislative developments & fully agree with Nicola’s comment. I don’t have first-hand knowledge of the draft CROOK Act but, reading Alexandra’s account, it seems to mix anti-corruption and a push for regime change. This makes anti-corruption look like a bit of a pretext for something else, which may end up deserving the cause. Happy to discuss !


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