In July 2017, Acting Assistant Attorney, General Kenneth A. Blanco, speaking at the Atlantic Council Inter-American Dialogue Event, confirmed that the US Department of Justice (DOJ) “will continue pushing forward hard against corruption, wherever it is” and he further confirmed that the Kleptocracy Asset Recovery Initiative is specifically designed to target and recover the proceeds of foreign official corruption that have been laundered “into or through the United States”. Blanco stressed that in these kleptocracy cases, one of their goals is to return the assets to those harmed by criminal conduct.
In January this year Brazil topped the Country Count List of Corporate Investigations by the United States DOJ for purposes of enforcing the Foreign Corrupt Practices Act (FCPA) with 19 investigations. Only eight months later Brazil increased its global lead by slotting 38 FCPA Corporate Investigations. It has become a feeding frenzy with some of the biggest corruption-related fines in the 40-year history of the FCPA levied on global companies.
Brazil found itself the target of Odebrecht SA, a construction company that has constructed a ‘graft machine’ by creating fake companies, rigging contracts, using secret bank accounts to pay fake invoices submitted by fake customers, meddling in the affairs of sovereign nations, bankrolling political campaigns, using black market bankers and lawyers doing paperwork for shell companies, and drafting fake agreements to back up bribe money. It was described as a family empire built on bribery and corruption. In January 2014 Brazil enacted what became known as the ‘Clean Company Act’: the country’s first anti-bribery statute providing for corporate liability, huge fines and disgorgement. Three years later the FCPA investigations count increased from 19 to 38. The wheels of justice turn slowly, but surely. Not a pretty picture but at least Brazil, as a country, has taken responsibility for its own future by maintaining the rule of law, removing corrupt state officials and politicians, and enacting transient anti-bribery and corruption legislation followed by active prosecution.
It is clear that the US is not going to tolerate any US company, or foreign entities utilising US systems, operating corruptly in Brazil. The US and Brazil enjoy significant political and economic relations, the US being the first country to recognise Brazil’s independence in 1882.
South Africa has been going through a turbulent period. Every week, the media publishes reports of alleged corruption, often as front page news. Upon receipt of complaints of alleged improper and unethical conduct by state functionaries, and involving alleged improper relationships with a group of private individuals and corporate entities manifesting in alleged corrupt economic activity, the South African Public Protector conducted an investigation in terms of the Constitution and the Public Protector Act, No 23 of 1994. This investigation resulted in the publication of a report called “State of Capture”.
Anti-corruption efforts by South Africa’s crime combatting units have been severely criticised in the media despite the fact that the legislative framework meets international standards. This has led to the South African media taking the initiative. In an event, akin to the Panama papers exposure, a multitude of e-mails were exposed by the media placing in the public domain material allegedly illustrating grand corruption. These reports have also referred to global companies, dollar-based payments and overseas activities. Has the situation remained one of domestic relevance only, or is there evidence of global ABC transgressions calling for the extra-territorial reach of the FCPA and the UK Bribery Act?
The US has been the undisputed leading crusader against global corruption for 40 years. Countries like France, Canada, China and others have now also accepted the new paradigm and global anti-corruption standard. The UK especially has stepped up to the plate to be taken seriously. Its Bribery Act, introducing strict liability based on companies’ “failure to prevent” corruption is an extremely powerful tool to combat global corruption and has struck fear in the boardrooms of global companies. The UK also clearly illustrated its commitment to anti-corruption when their courts approved the deferred prosecution agreement (DFA) entered into between the UK Serious Fraud Office (SFO) and Rolls Royce. This UK settlement is the highest-ever enforcement action against a company in the UK for corruption-related conduct to date including disgorgement of profit and a financial penalty totalling £497.25 million plus interest. It is significant that the UK has now followed the US’s lead in opting for a settlement agreement as opposed to a full-blown trial. This will seriously speed up the UK’s success and hit rate because most companies would prefer a settlement above a painful trial. The UK’s SFO has furthermore increased its focus of enforcement against individuals, which will also play a huge role in the global anti-corruption efforts if CEOs are willing to risk the fine. The UK has recognised that it is at significant risk from illicit wealth laundered by corrupt individuals and it has taken a number of steps to help protect the UK from illicit wealth. One such step is the PSC Register: a public register of people with significant control over a UK company or its management. Transparency is a powerful tool in combating corruption. Ultimate beneficial ownership (UBO) is fast becoming a new standard in global ABC and AML.
The DOJ follows a robust interpretation of the FCPA’s extra territorial jurisdiction provisions and takes the view that US and foreign-based issuers and US citizens, nationals, residents and entities can be subject to territorial jurisdiction for any use of interstate commerce or for furtherance of a corrupt payment to a foreign official. This includes “placing a telephone call or sending an email, text message, or fax from, to or through the US” or “sending a wire transfer from, or to, a US bank or otherwise using the US banking systems”. Even a fleeting contact with US territory may constitute sufficient US nexus to assert territorial jurisdiction over foreign entities and individuals for conduct that occurred outside the US. In this regard, wire transfers through correspondent bank accounts in the US in furtherance of a bribery scheme may be sufficient to satisfy territorial jurisdiction. Territorial jurisdiction could be based solely on the transmission or storage of e-mail on servers in the US.
The devastating effects of collateral litigation by innocent third parties must also not be overlooked. Once facts are uncovered in an investigation, those facts become available for further investigations and possible prosecution by other countries and other agencies, with “piggy-backing” becoming popular.
Global illicit financial flow is estimated at 2% to 5% of global GDP with less than 1% seized by authorities. There is also an extensive and hidden global financial system of offshore financial centres and developed country banks that facilitate illicit capital flight. It has been estimated that developed country banks, mainly in the US and UK, absorb between 56% and 76% of the illicit funds coming out of developing countries. The Global Financial Integrity Report (April 2017) shows that illicit financial flow in and out of the developing world has been estimated to at least 13.8% of total trade (or $2 trillion) in 2014. Countries like the US and UK have been criticised for their double-standard approach in dealing with this problem.
Speaking in Abuja in June 2017 at the Conference on Promoting International Co-operation in Combating Illicit Financial Flows, Nigeria’s Acting President Yemi Osinbajo observed: “There is no way the transfer of this asset can happen without a handshake between the countries that they are transferred from and the international banking institutions in the countries in which they are transferred, there is no way it will happen without some form of connivance.” The High Level Panel on Illicit Financial Flows from Africa, led by Thabo Mbeki, singled out Nigeria as the source of most of the illicit fund flow out of Africa. Osinbajo called for criminalising financial institutions - this call falls against the backdrop of a corporate transparency bill which was introduced in the US Congress a few months ago that will force disclosure of Nigerians and other nationals who run shell companies registered in the US. Apparently nearly two million companies are registered in the US every year. There has been a global move toward transparency and disclosure of beneficial ownership to limit corporate abuse for criminal purposes, especially with regards to anti-corruption.
The question is whether South Africa will end up in the same position as Brazil and face the invasive corporate investigations and concomitant plethora of collateral litigation which normally follow in the wake of corruption meltdown. The media has already exposed several global companies affected by the South African alleged grand corruption, some of which have stock trading on the New York Stock Exchange and others with definite connections to the UK. The media further exposed the use of US dollars in some of the transactions and flow of funds through bank accounts overseas such as in Dubai. The emails further clearly illustrate the use of US based email and service providers, and funds channelled through US based correspondent banks. The media has also exposed the involvement of German, Chinese and Swiss companies. The authenticity, factual correctness and legal consequences of the alleged corruption remains to be tested.
At present it is not quite clear what the future holds for the alleged corruption playing out in South Africa, but one thing seems predictable: anti-corruption is a global concern with a very high priority and countries like the US, UK, Germany, France and China are committed to uphold the anti-bribery standard on a global level.
The ABC score boards clearly illustrate global companies will not escape the extra territorial reach of countries such as the US and UK, and if they fail to self-report, the company and its officials will face the consequences of the new ABC paradigm.