Corruption Currents: Trends To Look For In 2011
By Joe Palazzolo
================================================================================
The anti-corruption world crackled with activity in 2010, with the U.S. (again) setting Foreign Corrupt Practices Act enforcement records, the Group of 20 turning its gaze toward the United Nations Convention against Corruption and the World Bank amping up its fraud and corruption investigations unit, to name a few major developments.
- Zuma Press
But now it’s time to peer into the future, to what promises to be another groundbreaking year on several anti-corruption fronts. We’ve listed below 10 trends we expect to see in 2011. But don’t take our word for it — please, write us with your own forecasts.
More anti-corruption enforcement by foreign nations: The anti-graft group Transparency Internationalfound that seven parties to the OECD anti-bribery convention actively enforced it in 2010, up from four in 2009. The U.K. Bribery Act, which takes effect in April, has the potential to reach corruption anywhere on the globe, and U.K. investigators are eager to grab some of the market share from their counterparts in the U.S. Nigeria, meanwhile, has capitalized on U.S. anti-bribery cases, opening its own probes into Halliburton Co., Panalpina Group and others. Earlier this week, authorities in Malaysia and Honduras announced investigations that piggyback on the U.S. probe of French telecommunications company Alcatel-Lucent SA, which agreed to pay $137 million to resolve bribery allegations. And the U.S. now routinely includes language in settlement agreements requiring companies to cooperate with foreign authorities and multilateral development banks.
The year of the whistleblower: Obvious? Yes. But we’d be remiss to ignore the expected flood of complaints to the SEC that compliance officers are dreading and whistleblower lawyers are already preparing. We reported in the fall that the SEC is receiving at least one FCPA-related tip a day. The SEC’s new bounty program, created in Dodd-Frank, entitles whistleblowers who report major fraud to as much as 30% of monetary sanctions collected by the agency. The question is whether the SEC has the capacity to preside over the program effectively. The agency has delayed plans to set up its new whistleblower office, gearing up for an expected budget battle with congressional Republicans next year.
An end to facilitation payments: The U.K. Bribery Act forbids these small bribes; the FCPA does not. That makes training and policy crafting difficult for companies, and over the past six months compliance officers at several multinational corporations, from Pfizer Inc. to Lockheed Martin Corp. have said they are reworking their approach. There’s also international pressure to do so: The OECD in 2009 turned facilitation payments into a cause célèbre by calling for all parties to the anti-bribery convention to ban them outright.
More kleptocrats’ assets seized: The Justice Department has dedicated a team of department lawyers to focus exclusively on forfeiture actions against the assets of corrupt foreign officials stashed in the U.S. The Kleptocracy Asset Recovery Initiative, which Attorney General Eric Holder unveiled in a July speech in Uganda, could mark a turning point in the U.S. battle to keep the proceeds of corruption from entering the U.S financial system. In October, the Swiss Parliament passed the Return of Illicit Assets Act, which allows for an end-run of corrupt regimes that stand in the way of asset recovery. Under the law, the Swiss government would only have to show that the funds held in Switzerland by an alleged corrupt official are larger than what he could have credibly earned in office, and that the victim country is known to be corrupt.
Compliance staff hiring spree: Experts quoted in this space have said U.S. companies are still foggy on the U.K. Bribery Act, which makes not preventing bribery a crime and creates liability for any company with business in the U.K. A survey this year by Kroll found that only about a third of senior executives had a firm grasp on the Bribery Act and the FCPA. We expect the knowledge gap to create a late scramble to comply. The new whistlebower bounty program created in the Dodd-Frank Act will require companies to get creative as they seek to maintain the integrity of their internal compliance programs, which could also translate into additional personnel.
More investor attention paid to corruption risk: With penalties rising and more investors seeking returns in emerging markets, they will have to find efficient proxy measures for reducing risk. We reported here last week that the U.S. is investigating Europe’s largest insurer, Allianz SE, for possible bribery by a German printing press company in which it holds a majority stake. Carlyle portfolio company Allison Transmission is being sued by a former employee who alleges he was fired for blowing the whistle on bribes paid in China. And Sensata Technologies, a manufacturer of sensors that is backed by Bain Capital, said in October that it was investigating whether bribes had been paid by employees in China.
More challenges to the FCPA: In 2010, criticisms of U.S. enforcement of the FCPA reached a fever pitch. Proposals for reforms of the FCPA, including one by the U.S. Chamber of Commerce, flourished this year, and several academics looked askance at the 33-year-old law in scholarly articles. At least two U.S. senators, Amy Klobuchar (D, Minn.) and Chris Coons (D, Del.), have expressed some interest in tinkering with the FCPA, to make it more business-friendly. But legislation is probably less of a threat than litigation. Cheryl Scarboro, the head of the SEC’s FCPA unit, has said she expects, and her agency is prepared, to take cases to court in 2011. As the agency grows more bold in its assertion of jurisdiction — take the Allianz probe, in which the SEC is investigating a corporation that was formerly listed in the U.S. for the conduct of one of its portfolio companies — that appears increasingly likely. Several criminal trials are slated for the New Year, including those of 22 defendants charged in the now-infamous “Shot Show Takedown.” And there are three FCPA-related appeals pending.
More cross-border cooperation: Justice Department and SEC officials say they’ve never been more focused on building relationships with their foreign counterparts, and informal meetings under the auspices of the OECD and other international organizations have given them forums to do so. The FBI, for example, opens its files to the City of London police any time there is a link to the U.K. The Justice Department has invited the U.K. to be part of its international organized crime intelligence center, and U.S. prosecutors and agents are conducting joint investigations with German authorities in the Allianz and Hewlett-Packard Co. matters. In addition, the lame duck Congress passed a law that gives the department greater authority to freeze the assets of suspects under investigation by foreign law enforcement authorities.
An expansion of AML enforcement and further crackdowns on non-traditional financial channels: The Treasury Department has proposed rules that would require banks to report all electronic money transfers into and out of the U.S. and is in the process of building regulations around the sale of prepaid debit cards and gift certificates — efforts aimed at stanching terrorist financing and money laundering by drug cartels. Several cases in 2010 shed light on how terrorist financiers are exploiting hawalas and other money remitting businesses to move funds quickly and cheaply. The small sums are difficult to track, and U.S. officials are searching for ways to bring these types of businesses deeper into the regulatory fold.
More U.S. scrutiny of foreign banks: Stuart Levey, Treasury’s under secretary for terrorism and financial intelligence, testified that his office this year contacted governments and banks in more than a dozen countries to investigate possible violations of U.S. sanctions against Iran. The sanctions law, passed in July, threatens foreign financial institutions with banishment from the U.S. financial system if they do business with sanctioned people and entities in Iran. In October, U.S. regulators ordered HSBC Holdings PLC’s North American unit to bulk up its risk management and compliance with federal anti-money laundering laws after an investigation found the banking giant’s procedures to be inadequate. In an August settlement with the Justice Department, Barclays PLC of London agreed to pay $298 million and admitted to allowing payments on behalf of clients in Cuba, Sudan and elsewhere. The U.K.’s Lloyds Banking Group PLC and Credit Suisse Group AG of Switzerland agreed to settlements totaling $350 million and $536 million, respectively.
-Nicholas Elliott and Samuel Rubenfeld in New York contributed to this article.
=================================================
No comments:
Post a Comment