'Show Me The Money'---Incentivizing Whistleblowers To Report Fraud And Corruption

 
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Of late we have been saturated with reports of discovery of fraud and corruption of one kind of another in all parts of the world, fueled by greed, easy money, lax enforcement, and modern technology run amok—where a bunch of hackers in an overseas internet café, or perhaps even connected to a government or two, can steal our money, stare at us through our own computers, steal our emails, or wipe out our bank accounts. Simultaneously, a different class of criminals—corrupt corporate managers and the political and government figures who enrich each other through bribes for official acts—have dominated international headlines.

The fact is that there now exist multiple fraud schemes operating internationally that seem to confound international law enforcement. Some are enabled by technology, such as internet frauds and cyber-attacks. Some involve the many forms of money-laundering, offshore accounts, straw-entities, and similar frauds. For example, from a recent Transparency International report we learn (perhaps surprisingly) that Canada "is one of the world's most opaque jurisdictions when it comes to ownership of private companies and trusts" which allows anonymous companies and trusts to "hide behind a veil of secrecy, while giving them access to bank accounts and the means to use their illegally obtained wealth in Canada's legal economy." Such individuals use shell companies to buy real estate, driving up prices in Toronto and Vancouver. The same secrecy may be occurring in sales of the new mega-high rise condos in New York City to various wealthy miscreants from around the globe, hidden behind layers of LLC's. The Panama Papers laid bare the staggering amount of wealth being shifted around the globe, much of which may be ill-gotten in one scheme or another.

In like fashion are the numerous massive international bribery and corruption plots that are repeatedly being disclosed, often ensnaring major international companies and their senior executives. In December a South American sports marketing company entered into a deferred prosecution agreement with the Department of Justice admitting its role in a 15-year scheme to pay tens-of-millions of dollars in bribes and kickbacks to a high-ranking FIFA official to secure his support for acquiring the rights to broadcast the four future editions of the FIFA World Cup.

In another New York federal courtroom in December, Odebrecht, Latin America's largest construction company, and its affiliated petrochemical firm Braskem, pled guilty to bribing government officials in a dozen countries. The firms will pay at least $3.5 billion in penalties to authorities in the U.S., Brazil and Switzerland in the biggest FCPA settlement ever. Odebrecht, which built the Miami International Airport and has operations in 27 countries, was accused of colluding with Petrobras, the Brazilian state-owned oil company, to take more than a billion dollars in kickbacks from the oil company. That case has resulted in 112 convictions of 83 people, and has rocked that country to its core. Odebrecht created a secret internal group officially known as the "Division of Structured Operations," but called the "Department of Bribery" by prosecutors, which "systematically paid hundreds of millions of dollars to corrupt government officials in countries on three continents."

Massive FCPA settlements are becoming almost routine. Teva Pharmaceutical, an Israeli company, paid $519 million in December. Och-Ziff Capital Management Group, a hedge fund, paid $412 million in September. VimpelCom, a Dutch telecom, paid almost $400 million earlier in 2016. Together with Odebrecht/Braskem at $420 million, these were four of the ten biggest FCPA cases of all time. Not too far behind last year were J.P Morgan Chase ($264 million), and Embraer SA ($205 million). In all, 27 companies paid about $2.48 billion in 2016 to resolve FCPA cases, involving millions in bribes spread all around the globe. Many of these cases involved close cooperation between the SEC and DOJ and foreign government enforcement authorities. Long gone are the days when U.S. companies complained that they were being singled out for paying bribes while foreign competitors were never touched. Now, the big money penalties seem more often to be extracted by non-U.S. companies who are within the broad jurisdictional reach of the SEC and/or the DOJ.

In one sense, it is encouraging that so many corrupt fraudsters are getting caught. Of course these cases take years to be investigated, at great cost and effort to the enforcement agencies in multiple countries. There have been tremendous successes brought about by hard work on the part of investigators and prosecutors around the world. But we cannot help but be distressed at the obvious fact that bribery and corruption on an international scale seems to be on the rise, and are taking new and more malicious forms, particularly cyber-crime, with its ominous potential for economic, social, and political upheaval and chaos. The bribes are now in the millions, even billions, and reach into every country on earth. The cyber-attacks are constant, and ingenious. The crooks hide in the shadows of internet cafes and the bright light of boardrooms and computer screens. Billions of corrupt dollars move secretly in wire transfers and between offshore accounts. Can anything be done?

Is the International Response Enough?

What is the international community doing to combat this onslaught? How can law enforcement get the better of such malevolence, ranging from individual hackers and phone frauds to highly organized international corporate bribery involving billions, and everything in between? Fortunately, in recent years there have developed increasingly influential international efforts at curbing bribery. The Organisation for Economic Cooperation and Development (OECD) has undertaken an international effort to combat bribery and corruption of foreign officials. 41 countries are parties to its Anti-Bribery Convention, adopted in 1997, a legally binding international agreement, in which the "Parties to the Convention agree to establish the bribery of foreign public officials as a criminal offense under their laws and to investigate, prosecute and sanction this offence."1

OECD has an active "Working Group on Bribery" setting global standards for fighting foreign bribery. And as mandated in a recent Working Group report, "The Liability of Legal Persons: A Stocktaking Report" the signing parties, for example...

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