by Matthew Stephenson
Today’s guest post is from Sam Hickey, a lawyer and former regular GAB contributor:
Given the Trump Administration’s decision to pause FCPA enforcement and disband the DOJ’s Money Laundering and Asset Recovery Section, the United Kingdom has become an even more important actor in international efforts to remediate those most impacted by foreign bribery, and the global fight against corruption more generally.
Together with the Basel Institute on Governance, I have written a report on the UK’s use of Deferred Prosecution Agreements (DPAs) to compensate the victims of foreign bribery. Given the inherent difficulties in seizing, forfeiting, and repatriating illicit wealth through traditional asset recovery frameworks, DPAs possess immense potential to remediate the victims of corruption in low-income countries. But this practice also raises a number of questions and challenges, which the report seeks to address. Here are some of the more serious ones:
First, many people worry that money returned under these DPAs will be repurposed for corrupt ends. To be sure, not everyone thinks this is a legitimate concern: Some believe that Western nations should simply pay compensation with no strings attached, as anything else would be paternalistic and condescending. While I see the logic here, I respectfully disagree, for reasons that are practical rather than political: No government agency, in the UK or elsewhere, is likely to agree to pay compensation monies if there is a significant risk that this money might be stolen or used for corrupt ends. At the same time, this risk should not be overstated. It is possible to retain third party auditors and administrators to ensure the transparency and integrity of compensation initiatives. In certain cases, international organizations might even assist in this process. The BOTA Foundation case, which involved both third-party compliance monitors and the World Bank, provides an excellent example of what this looks like in practice. And when the risk of misappropriation is too high in direct victim compensation, compensation could instead take the form of benefits for the general populace, for example through infrastructure investment or the purchase of public assets—both of which the UK has done in the past (see here, and here). True, there will inevitably be cases in which the risk of “repeat-corruption” is simply too great to transfer money to entities in the country where the corruption took place, but in these cases compensation monies could still be paid to anticorruption instrumentalities and initiatives, such as those run by international organisations and NGOs. The U.S. DOJ once negotiated a DPA with terms along these lines (see here).
Second, it may seem extremely difficult to quantify the harms wrought by corruption, and by extension, calculate the appropriate compensation amount. That is true, but we should not let the perfect become the enemy of good. Under UK law, judicial approval of a DPA requires only that the court satisfy itself that the agreement is in the interests of justice and that its terms that are fair, reasonable, and proportionate. There is no need to craft a compensatory remedy that corresponds precisely to quantifiable losses as there might be in a tort or contract claim. Parties should take advantage of the innate flexibility of DPAs to deliver some form of compensation, even if calculating compensation isn’t an exact science. When determining an appropriate compensation amount, the Serious Fraud Office (SFO) can and should take into account a range of factors, including a victim’s discernible losses, the value of the bribe, a percentage of fines and penalties, and the defendant’s gross profits. If there is doubt regarding the amount a defendant should pay, the parties to the DPA should simply opt for whichever of these measures is the greatest on the facts of a given case.
Third, some have raised concerns that the UK’s law enforcement agencies—staffed with lawyers rather than foreign aid workers—are not really equipped to design and monitor compensation awards. But this concern is overblown. The UK Government’s official Compensation Principles authorize regulatory agencies to liaise with government agencies that do have foreign aid expertise. And even before these principles existed, the SFO showed the initiative and resourcefulness to work with the old Department for International Development (which had since been folded into the Foreign, Commonwealth & Development Office (FCDO)). The FCDO and Home Office have “boots on the ground” in many low-income countries and have the expertise to distribute funds. What is more, if institutional limitations stem from a lack of funding, the appropriate response is to better fund those institutions, not to forego compensating the victims of corruption.
Finally, although I don’t delve into the issue in the report, questions sometimes arise regarding which victims to compensate in these agreements. In general, the appropriate approach is to prioritize compensating victims in poorer countries, who have fewer means for redress and will often lack the resources and standing to seek compensation through Western courts. Victims in wealthier countries, by comparison, can rely on civil claims to pursue compensation. While, as a matter of principle, the citizens of wealthy states might have just as much of a right to compensation in the form of infrastructure investment as poorer ones, it seems sensible for prosecutors to exercise sound discretion when determining whether there is an actual need for compensation in a given case.
The report concludes with several recommendations for reform, including the following:
Clearly delineating the responsibility of regulatory agencies like the SFO and Crown Prosecution Service (CPS) on one hand, and agencies with foreign aid competence like the FCDO and the Home Office, on the other;
Dispensing with the restrictive logic of compensation orders and adopting a multi-tiered approach that would, in every foreign bribery case, deliver compensation to either identifiable victims who have suffered ascertainable loss; the public at large (through infrastructure investment or public asset purchases); or anticorruption initiatives run by international organisations or NGOs;
Embracing a diversity of approaches for quantifying the appropriate amount of compensation;
Establishing a procedure for states to request compensation.
Adopting definitions to reflect the different types of harm, victimhood and means of distributing compensation monies to provide much-needed conceptual clarity; and
Adjusting the way compensation is integrated into the DPA approval process more generally, with the SFO first making a recommendation regarding the quantum and means of distributing compensation to the FCDO and the Home Office, and seeking an agreement from those agencies that they’re willing to distribute compensation monies. The SFO could adduce this information as part of its application for DPA-approval, and the Crown Court could then approve the DPA on the understanding that these agencies would take the SFO’s recommendations into account when quantifying and distributing money.
As I write in the report, the UK has made laudable efforts to target foreign bribery and has also committed to compensating the victims of corruption. Nonetheless, as Lord Edward Garnier KC made clear in a speech before the House of Lords last year, there have been challenges in practice in efforts to compensate the victims of overseas bribery. Overcoming these through technical and legal reforms would help cement the UK’s reputation as a pioneer in this space, at home and abroad.
