Can Anti-Corruption Laws Help Combat Terrorists, Tyrants and Their Corporate Supporters?Published: December 05, 2012 in Knowledge@Wharton
For a wide range of legal, political and pragmatic reasons, anti-corruption prosecution is being used to isolate threats to global security and encourage popular support for regime change. In the effort to rein in rogue nations and organizations without resorting to war, officials are increasingly relying on innovative uses of anti-corruption laws not only against terrorists and tyrants, but also against companies that have assisted them.
Terrorists and criminal organizations rely on corruption, coupled with violence, to gain and maintain state sponsorship and protection -- if not full control over nations. Officials are now responding by supplementing the traditional tools of diplomacy, economic sanctions and export controls with far-reaching anti-corruption prosecutions targeting companies and individuals profiting through bribery with such regimes and organizations.
The effectiveness of this strategy enables authorities to publicize the results of their anti-corruption efforts through international media outlets, digital networks and smart devices, fomenting domestic dissent in the hopes of leading to political and legal reforms. The immediacy and magnitude of the threats posed by rogue nations, terrorist organizations and global criminal enterprises--and the necessary resourcefulness of regulators -- now more than ever -- requires corporations engaged in international commerce to continue to ensure that their controls are adequate, say David N. Lawrence, Jeremy Maltby, Stephen Labaton, Ronak D. Desai and Matthew H. Lawrence in this opinion piece.
Enforcement of anti-corruption laws is rapidly emerging as an important weapon against transnational threats to global security. With increasing frequency, officials are catching parties and conduct that otherwise have evaded the more traditional efforts of diplomacy, economic sanctions and export controls. To sustain regulatory pressure and inspire popular support for regime change, authorities will strategically leverage their efforts through traditional and online media sources, social networks and smart devices. For corporations engaged in international commerce, regulators appear to be issuing a new but familiar warning in the high-stakes arenas of compliance and risk management -- caveat emptor.
Around the world, there is a clear nexus between corruption and rogue regimes. Increasingly, terrorism and organized criminal activity have deployed corruption and violence to secure state sponsorship and, in growing instances, outright control of nations. Necessity is driving Western allies to search for innovative, non-military means to combat threats such as terrorism, nuclear proliferation, money laundering, organized crime, narcotics and arms trafficking, illicit transference of military technology, cyber-attacks and human rights violations. These dangers pose formidable challenges to traditional avenues for enforcement and diplomacy.
Risks and Responses
Right now the world confronts a host of risks. Iran is apparently developing nuclear weapons, while sponsoring terrorism and engaging in cyber-attacks against western institutions. Syria is plagued by a violent civil war with unpredictable political outcomes. An opaque nuclear North Korea continues to pose regional threats. The current range of official responses reflects the magnitude of the stakes involved. These measures -- diplomacy, trade restrictions, legal prosecutions, espionage, sabotage, drone attacks, cyber-warfare and support of dissident activities -- seek the necessary political, economic and personal pressures to effect change without war. The "clear and present" nature of these continuing threats, however, has now forced authorities to think creatively about enhancing the customary options.
Traditionally, economic and political isolation through expansive sanctions and export controls has constituted one of the United States' most effective tools of statecraft. The rationale underlying these efforts against targeted regimes is straightforward -- force behavioral and political change by shutting down the flow of capital, trade, resources and expertise, deny political elites the fruits of their positions, and foment domestic political opposition by imposing broad economic hardship. Recent high profile enforcement actions against corporations conducting business with Iran have underscored the potency of these regulations and the resolve of U.S. and foreign authorities to proceed forcefully. Officials have also demonstrated their creativity by using the media, social networks and political hearings to increase the pressure upon the international business community to comply with these trade restrictions. These efforts appear to be having an acute economic impact upon Iran. One can hope this will result in meaningful negotiations.
Yet even when sanctions and export controls are comprehensively implemented (as with Iran) their long-term sustainability poses challenges. Like all laws, the effectiveness of sanctions and export controls has been undermined, at times, by intentional evasion, jurisdictional limitations and competing policy objectives. Historically, sanctions against South Africa and Iraq, for example, were repeatedly circumvented, often through corruption. Longstanding U.S. sanctions against Cuba unfortunately have not achieved broad international support, and have generated tensions and legal disputes with allies. Russia and China have refused to fully support efforts against Iran, Syria and North Korea. Some observers even contend that the imposition of sanctions and trade controls can actually strengthen -- rather than weaken -- political resolve within targeted nations.
Other tools face similar difficulties. The United Nations and international diplomatic efforts have failed to successfully engage with Iran, Syria, North Korea and other transnational threats. There are continuing questions about the efficacy, legality, and morality of covert actions such as assassinations, drone attacks, and cyber-warfare--all of which create risks of backlash and other recriminations.
A race is on. Every day it becomes clearer that, if direct military action is to be avoided, the traditional range of foreign policy, enforcement and political options may need to be reexamined. One growing enforcement alternative has been "hiding" in plain sight. As Christian Caryl recently noted in Foreign Policy, the "corruption pandemic" is set to become "one of the defining political issues of the 21st century." Authorities now appear to be using anti-corruption enforcement -- through laws like the Foreign Corrupt Practices Act ("FCPA"), the United Kingdom's Anti-Bribery Act ("UKABA") and the OECD Anti-Bribery Convention -- as a powerful policy supplement to combat transnational threats.
U.S. and foreign officials recognize that corruption is typically pervasive in countries that are considered global security threats. Iran, Syria and North Korea, for example, all rank consistently at the bottom of Transparency International's esteemed Corruption Perceptions Index. Some of the largest trading partners of these countries demonstrate a similar propensity for corruption, as do state and non-state actors in Venezuela, Somalia, Yemen, Sudan and Pakistan. Given this correlation, it is not surprising that countries that pose risks to international security are appearing as a particular focus in the recent surge in global anti-corruption coverage and enforcement.
Some recent relevant examples have been in the headlines:
- Norwegian oil company, Statoil, paid more than $20 million in fines and spent millions more in remediation for bribes to high-ranking Iranian officials.
- Swiss-based Tyco International paid more than $26 million in penalties for bribes that its subsidiaries paid over 10 years to Middle East officials, including those in Iran and Syria.
- French oil and gas conglomerate Total SA reportedly is cooperating with authorities and has set aside approximately $500 million for a possible settlement of investigations of bribes allegedly paid to Iranian government officials.
- NGOs and the media report extensively about corruption involving Iran's clerics, central bank and Revolutionary Guard
- Continuing criminal prosecutions, sparked by a United Nations commission headed by Paul Volcker, document the widespread corruption within Saddam Hussein's former government that undermined Iraq's prior sanctions.
Anti-corruption enforcement of this kind around the world is rising. A number of factors help explain why this enforcement imperative heralds an emerging frontier against transnational threats to security.
First, anti-corruption enforcement equips authorities with powerful additional weapons to extend the policy objectives of sanctions and export control laws. The FCPA, for example, reaches far beyond the United States, allowing prosecutors to target foreign issuers of U.S. securities, as well as foreign companies and individuals that have only the slightest nexus to America. (The UKABA is similarly positioned to reach corrupt conduct around the globe.)
The imposition and threat of the FCPA's significant terms of imprisonment and fines--as well as extensive related legal costs--can thus compound the weight of sanctions and trade penalties to further deter business with rogue regimes. Under the FCPA, officials also have the added leverage to compel cooperation, internal investigations and self-disclosures, issue industry-wide subpoenas, offer whistleblower incentives, and attract media headlines that can damage market capitalization, credit ratings and client relationships.
In the same vein, the Justice Department's Kleptocracy Asset Recovery Initiative (KARI) specifically targets the proceeds of foreign corruption. Launched less than three years ago, the KARI continues to aggressively pursue the holdings of corrupt officials on a global basis.
Moreover, creative local prosecutors, such as former New York City District Attorney Robert Morgenthau and his successor, Cyrus Vance, Jr., have demonstrated repeatedly how local laws and media attention can be deployed to expose international corruption and threats to global security.
Second, through recent investigations of industries and multinational corporations, enforcement officials have developed an enormous repository of information about corrupt practices in troublesome countries. Authorities in different countries have collaborated on multi-year investigations, developed information-sharing protocols, and become more comfortable working together. The work of non-governmental organizations (e.g., Transparency International, Freedom House and Global Integrity), the media, academia, policy think-tanks and various blog sites (e.g., The FCPA Blog; WSJ corruption-currents) have also strengthened intelligence gathering, increasing the amount of information available to authorities targeting corrupt regimes and those who support them. (This may prove particularly relevant to official corruption in Iran.) As a result, past enforcement efforts are likely to lead to more cases in the future as more evidence of corruption is exposed.
Third, anti-corruption enforcement does not require the enactment of new laws or regulations. Admittedly, effective sanctions and export controls can often become mired in byzantine, time-consuming and controversial processes that ultimately require multilateral support. In contrast, there is a pre-existing international consensus against official corruption with virtually all countries already having some form of anti-corruption legislation in place. Anti-corruption initiatives can thus make an immediate impact, buying the time often necessary to avert war.
Fourth, and perhaps most important, evidence of corruption is a valuable form of political currency. Officials recognize that the strategic use and threat of anti-corruption enforcement may be effective in fulfilling critical national security goals that other measures often have difficulty achieving on their own. Popular outrage at the systemic corruption of Arab dictators was a central factor responsible for encouraging the uprisings of the Arab Spring. Recently, China's President Hu Jintao, warned China's 18th Party Congress about the causal link between China's corruption and the potential for popular revolt: "Corruption...is an important issue the people have been paying attention to. If we fail to handle this issue well, it could prove fatal to the party and even cause the collapse of the party and the fall of the state."
A Catalyst for Change
The phenomenon is hardly new. Throughout history, official corruption has been a catalyst for revolutions from eighteenth century France to the twentieth century Philippines to the present day Middle East. Relevantly, longstanding corruption helped spark the popular support for prior regime changes in Cuba in 1959 and Iran in 1979.
Significantly, today's widespread availability of technology has only accelerated citizens' access to information and the potential contagion of change. Every online and smart device user is a potential witness and judge. On an increasingly global basis, digital "vigilantes" already bypass non-democratic regimes to engage in "massive collaboration" to incite change by "outing" corrupt officials and their activities. Indeed, evidence of corruption and fraud virally linked though mobile phones, smart devices and social communities (such as Twitter, Facebook, YouTube and Wikileaks) was a central catalyst to the organized dissent that led the recent Arab Spring revolutions in Tunisia, Egypt, Libya and Syria, and helped inspire popular protests in Iran in 2009-10. As New York Times columnist Howard Beck noted about a digital world in which judgments are rendered in 140 character blasts -- "[T]here is no room for nuance and little use for patience."
A new "teachable" moment is at hand concerning corruption and its growing relevancy to effective efforts in combating expanding threats to global security. Enforcement of anti-corruption measures should continue to rise in tandem with traditional methods of isolating rogue regimes, most notably sanctions, export controls and diplomacy. As anti-corruption enforcement grows in innovative ways, international businesses must continue to ensure that their controls are sufficiently robust to avoid becoming complicit, even unintentionally, with these regimes and the threats they pose. Indeed, U.S and international anti-corruption efforts are quickly becoming enforcement's newest utilitarian "edge-of-the-wedge" to extend the global reach and range of non-military options against transnational threats to world security.
Editor's note: David N. Lawrence is Associate General Counsel and Managing Director at Goldman Sachs, and formerly served as Deputy Chief of the Criminal Division and Chief of the Public Corruption Unit for the United States Attorney's Office, Southern District of New York; Jeremy Maltby is a partner with the law firm of O'Melveny and Myers, where he specializes in a wide range of white-collar and regulatory matters; Stephen Labaton is a partner at the strategic communications firm of RLM Finnsbury and a former senior writer for the New York Times; Ronak D. Desai is an associate with O'Melveny and Myers where his practice focuses on a number of areas including Foreign Corrupt Practices Act-related matters; Matthew H. Lawrence is a graduate of Brown University (BA History)(2012), presently employed in the communications industry. The authors gratefully acknowledge the assistance of Arthur Grubert, formerly Vice-President, Goldman Sachs and senior supervisor with the Federal Bureau of Investigation; John A. Squires, is a partner specializing in intellectual property and technology at the law firm of Perkins Coie; and Navdeep Parihar, an associate at Goldman Sachs. The authors' views expressed herein are entirely their own and do not necessarily reflect the opinions of their current or former organizations.