Archive for the ‘Guest Posts’ Category

A Compliance Professional Speaks

Wednesday, November 12th, 2014

myster person2Today’s post is from a compliance professional who wishes to remain anonymous.

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When you’re the Chief Compliance Officer (“CCO”) of a company that ends up in the middle of one of “those” all-encompassing FCPA investigations (as if there’s any other kind), people often want to know . . . what is it like?  How does it feel to be at ground zero of pure FCPA adrenaline?   This is my answer,  based on my repeated experiences.  I wish I could say it just happened once.  This is also based on my discussions with other CCOs.

It’s a rollercoaster with few ups and a lot of downs.

There’s that moment at the beginning when you know something is wrong.  Usually you know it’s not going to be trivial.  So you dig a bit more. Or have someone else dig a bit more.  Somewhere along the line, it strikes you.  This is going to be big.  Very big.  We can just call that the “oh crap” moment.  Every CCO I know has had at least one.

You feel a rush.  An excitement.  It’s what you’ve trained for, and read about.  And now it’s happening.  But there is invariably, immediately, a sense of dread.  Depending on the size of the issue and the seniority of the people involved, that sense of dread can range from a knot in the stomach to downright nausea.  Will the C-suite management understand it?  (Do you even have the ear of the C-suite management?) Will they do the “right thing”?

You know exactly what should happen next.  You should get on the phone with your favorite skilled, independent investigations counsel.  But before you can do that, you have to be a salesman.  You need to convince someone (sometimes the CEO, sometimes the General Counsel, sometimes a non-executive director) that this is something.  Or at the very least, it’s not nothing.  With any luck, you can make them see sense.  Most of the time, they’ve never been through this.  The education process can be slow and tedious.

You know who the right counsel are . .  . but not so fast.  You don’t have the budget.  Many times, you don’t even have the ability to hire outside counsel  without the approval of your General Counsel.  Do you have the GC’s backing?  Do they see compliance as a help or as a nuisance?  Do they believe you when you say this needs independent investigation?  Or do they think you’re just being alarmist?  What if the GC (or someone else) wants to investigate themselves?  Or hire the go-to corporate counsel?  Or hire their buddy, the jovial law school classmate of the GC who has never actually done an investigation but, really, how hard can it be?  You have to explain – calmly, rationally and often repeatedly – why that just isn’t the right thing to do.

In the meantime, a clock may be ticking. The company may be facing a quarterly SEC filing or the signing of a deal contract or the receipt of monies on the deal.  All of these have implications.  All of your powers of (gentle) persuasion are brought to bear.

And your reward for all of this?  If you’re lucky, they listen to you. The right outside counsel walks in the door and the matter rests in their capable hands. It’s a leap of faith to put something this sensitive in the hands of outside counsel.  Or, more specifically, outside counsel’s judgment of when enough is enough.   These issues always reach higher than you think.

More often than not, the legal group squeezes you out.  Compliance, after all, is not generally part of legal.  You may be kept in the loop, or you may be completely excluded.  If you’re very lucky, you are kept abreast of what is happening and people seek out your guidance and opinion.  But honestly?  Don’t hold your breath.  Particularly if this all results in a report to a regulator, you’ll definitely be pushed to the side.  Privilege is held in a tight circle that doesn’t generally include you.  So just go back to your office and keep the compliance program moving along.

What if you’re not lucky?  What if you can’t get anyone to understand? What if the issue is too subtle, or involves too senior a salesperson (they bring in the revenue, after all) or too important a client?  Not many can just stake out the moral (and legal) high ground and resign.  Sometimes the situation is that bad, or you have regulatory obligations, and you’re forced into that decision.  I know a brave few who have actually done that.  Put yourself in their shoes.  Think what it would mean for yourself and your family to walk away from a steady (and often healthy) paycheck.  What a price to pay for your convictions.

It’s far more common that you hold your tongue and bide your time. You find a way to rationalize the situation.  You compromise.  Being a CCO is, above all else, about compromise.  Does that surprise or appall lawyers in private practice or working for the government?  It shouldn’t.  Good CCOs are always “commercial” (whatever that is supposed to mean). As a CCO,  you’re being “business friendly.”  Or, to be less cynical, you’re doing your job.  You’re there to balance the company’s interests with the legal requirements.

But mostly you hope and pray that you’ve done the right thing.  And that a regulator never second guesses your actions.  That seems to be happening more and more.  I know too many CCOs  who are being subpoenaed to give testimony and defend their actions in front of regulators.  Sometimes as witnesses, but sometimes (rarely) as suspects.  So much for regulators seeing CCOs as the guys in the white hats.

Even if the  (right) lawyers do come in and they investigate, you hope that you didn’t raise a false alarm.  Then you hope none of your friends in the business were involved (CCOs always have friends in the business).   And when it turns out you were exactly right, and it really was worse than what you thought, it’s a hollow victory.  People lose their jobs.  People that you know and sometimes people that you like and who weren’t malicious or evil.  They were just doing their jobs and got caught up in the tide.  Sometimes they are sued or brought up on criminal charges.  The rest of the company is left in a state of shock.  You may have been trained to spot a FCPA issue when it arises, but there’s very little training on how to deal with the human element.  It is far and away the worst part of the job.

Supreme Court Asked To Review Crime-Fraud Exception To The Attorney-Client Privilege In The Context Of An FCPA Inquiry

Monday, November 3rd, 2014

This previous post highlighted a Third Circuit decision that Foreign Corrupt Practices Act practitioners should have reviewed regarding the crime-fraud exception to the attorney client privilege.  The litigant in the case has petitioned the Supreme Court to review the decision and in this post Mara Senn (Arnold Porter) highlights the amicus brief she filed in the case on behalf of the National Association of Defense Lawyers (NACDL).

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The issue the Supreme Court is being asked to address is a fascinating, and frightening, crime-fraud issue coming out of the Third Circuit.  Basically, a client approaches a lawyer stating that he is planning to give a bonus to someone at a multilateral bank for helping him get financing and to help speed up a transaction and wants to know whether there is any issue with the payment.  The lawyer comes across something called the FCPA.  He goes back to the client, hands him a copy of the statute, and asks the client whether the banker is a foreign official.  The lawyer says that he is not sure whether the payment is illegal but thinks that the client shouldn’t make it.  The client says that the payment would not violate the FCPA and that he is thinks he is going to make the payment.  The client proceeds to make the payment to the banker’s sister a month later.

The district court ruled that the government could subpoena the attorney to testify because the crime-fraud exception applied and used a “a reasonable basis to suspect” standard of proof.  The district court found that the client had the intent to commit the crime at the time he sought the advice and that he used the legal advice in furtherance of the crime.  The Third Circuit affirmed.  The company is now trying to appeal to the Supreme Court.  In the amicus, we argued that the Supreme Court should take the case because there is a circuit split about the standard of proof to use for the determination of the crime-fraud exception, that the standard of proof needs to be at least probable cause, and that the Third Circuit case sets a dangerous precedent.

Takeaway: As I am sure that most of you would agree, this sounds like a typical situation we all face with our clients.  Our clients are not sure what to do, but may be leaning in one direction or another.  They come to ask us our advice.  We provide some sort of legal advice.  Considering the advice, our clients make a decision about what to do.  This sort of interaction falls within the core of the attorney-client privilege.  However, under the reasoning of the Third Circuit, if there is some suspicion that a client committed a crime after receiving advice, there appears to be a retroactive inference that the client intended to commit the crime at the time he sought the advice, and therefore the government may question the attorney about previous conversations with his client under the theory of the crime-fraud exception.  This of course undermines the purpose of the attorney-client privilege.  The general rule would become that merely having the government suspect you of committing a crime is enough of a justification to allow them to talk to your lawyer about what you said.

Timing:  This case is set for conference at the Supreme Court on November 7, where they will decide whether to hear the case.  Given the corrosive influence this could have on the attorney-client privilege, let’s hope the Court takes the case.

Is There Successor Liability For FCPA Violations?

Monday, October 20th, 2014

A guest post today from Taylor Phillips (an attorney with Bass Berry & Sims in Washington, D.C.).

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Imagine you deliver pizza for a living.  You are good at your job, but there is another deliveryman who is the best in the business – Hiro Protagonist.  Thanks to a remarkably fast car, Hiro always makes his deliveries on time.

One day, however, Hiro asks if you are interested in buying the car.  He tells you that he had a “near miss” with a pedestrian and, shaken, he has decided to hang up his insulated pizza bag for good.  Because he offers you a good price on the car, you accept.

A few months later, the police show up at your door.  They inform you that Hiro did not have a “near miss” – he hit a pedestrian while making a delivery.  Worse, they say that because you bought substantially all of Hiro’s business assets, you are criminally culpable for the hit-and-run.  Moreover, because pizza delivery is a highly regulated industry, the Sicilian Edibles Commission brings an administrative action against your business based on Hiro’s failure to properly account for expenses related to the hit-and-run.

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Obviously, this hypothetical is grossly oversimplified, but its patent injustice highlights the problems with expansive successor liability.  As FCPA practitioners know, successor liability is a key part of the government’s enforcement of the FCPA.  Consequently, as the FCPA Professor put it recently, “the FCPA is a fundamental skill set for all business lawyers and advisers, including in the mergers and acquisitions context.”

Of course, many attorneys who are not well-versed in the FCPA will look first to the DOJ and SEC’s Resource Guide to the U.S. Foreign Corrupt Practices Act.  It emphasizes that “[a]s a general legal matter, when a company merges with or acquires another company, the successor company assumes the predecessor company’s liabilities. . . . Successor liability applies to all kinds of civil and criminal liabilities, and FCPA violations are no exception.”  But is that right?

To assess the statement in the Resource Guide, it’s worth stepping back and considering how companies are purchased by other companies.  The most common acquisition structures are mergers, stock purchases, and asset purchases.  In a statutory merger, the resulting company assumes all the civil and criminal liability of its predecessor companies.  Thus, no transactional lawyer should be surprised that FCPA liabilities will transfer in a merger.  Conversely, in a stock purchase, there is no “successor”—the purchased company still exists, with all its existing liabilities.

Thus, asset purchases typically are the only cases in which “successor liability” is meaningfully analyzed by courts.  Interestingly, the rule is different from that stated in the Resource Guide: as a general legal matter, when a company acquires substantially all of another company’s assets, it does not assume the seller’s liabilities – even when it continues the seller’s business, brand, and contracts.

Of course, most rules have their exceptions, and there are four commonly recognized exceptions to the general rule of nonliability for asset purchasers.  The first exception—express or implied assumption of liabilities—simply states that where an acquirer intends to assume the liabilities of the seller, the law will enforce that intent.  The second exception—fraud—applies when the sale of assets would work a fraud on the seller’s creditors.  Finally, the third and fourth traditional exceptions—“mere continuation” and de facto merger—commonly are considered to be a single exception which can involve a number factors, depending on the idiosyncrasies of state law.  Critically, however, continuity of ownership between the buyer and seller typically is considered to be an indispensable factor for these two exceptions.  Thus, in accordance with traditional common law, an arms-length buyer that does not intentionally assume the seller’s liabilities nor engage in fraud will not be liable for the seller’s legal violations.  In other words, if only these exceptions applied to the hypothetical, the police would be wrong, and you would not have any successor liability, civil or criminal, for Hiro’s hit-and-run (even if you were well aware of it prior to the transaction).

Given this fairly clear answer, what explains the government’s silence regarding asset purchasers in the Resource Guide?  One potential answer is the “substantial continuity” exception.  In addition to the four traditional exceptions to successor nonliability referenced above, some federal courts have applied federal common law to find arms-length asset purchasers liable for violations of the seller where the asset purchaser (1) knew of the liability prior to the acquisition and (2) continued the enterprise of the seller.  Thus, unlike the traditional exceptions of “mere continuation” and “de facto merger,” the “substantial continuity” exception does not require continuity of ownership – merely continuity of enterprise.  Thus, if the substantial continuity exception applied to FCPA violations, there would be a plausible argument that China Valves had successor liability for Watts Waters’ FCPA violations (and that you would be at least civilly liable for Hiro’s hit-and-run).

Supreme Court precedent, however, strongly suggests that federal courts should incorporate state law rather than expand federal common law.  In particular, the Supreme Court’s decisions in United States v. Kimbell Foods, 440 U.S. 715 (1979), and United States v. Bestfoods, 524 U.S. 51 (1998), indicate that federal courts should adopt state law, rather than create a federal law of corporate liability.  Accordingly—as many circuit courts have found in other contexts—state successor liability law is applicable to many federal causes of action.  Because most states do not recognize the federal substantial continuity exception, several circuits do not apply the exception except in environmental, labor, and employment cases.

In short, there is a compelling argument that arms-length asset purchasers—even asset purchasers who continue the business of the seller and know about the seller’s FCPA violations—do not, as a matter of law, have successor liability for the FCPA violations of the seller.  For additional development of this argument see The Federal Common Law of Successor Liability and the Foreign Corrupt Practices Act, ___ William & Mary Business Law Review ___ (forthcoming).

Despite the general rule of successor nonliability, the Resource Guide does not squarely address FCPA liability for asset purchasers.  If only there was some way to ask the government for guidance on its present enforcement position with respect to successor liability…

Billy Jacobson’s Various Vantage Points

Wednesday, October 8th, 2014

Billy Jacobson has experience with the Foreign Corrupt Practices Act from a number of vantage points few can claim.  He has been an Assistant Chief for FCPA enforcement in the DOJ fraud section.  He has been a Senior Vice President, Co-General Counsel and Chief Compliance Officer for Weatherford International Ltd., a large oil and natural gas services company that does business around the world.  Currently, he is a lawyer in private practice at Orrick and was previously a lawyer in private practice at other firms.

This Q&A explores Jacobson’s unique FCPA insight and experience.

Q: What specific vantage point of a DOJ FCPA enforcement attorney do in-house FCPA counsel and outside FCPA counsel fail to understand or appreciate?

One issue that often gets misunderstood is the notion of “trends” within FCPA enforcement.  While certain actions can be grouped together by those looking to categorize, each case is handled by a Fraud Section prosecutor on its own merits as opposed to being thought of as part of a larger trend.  For sure, there have been, for example, “industry sweeps” in the pharma and medical device industries and there have been many prosecutions of oil and gas companies, but I don’t describe those enforcement actions as trends.

Rather, the prosecutors go where the evidence leads them: if that is to conduct in China, so be it; if it’s to several medical device companies because one has been caught and there is reason to believe others are going about their business in the same fashion, so be it.  And, of course, with oil and gas companies operating in the world’s most important industry and in the world’s most corrupt countries, one will unfortunately find corruption. The term “trend” to describe these enforcement actions is a misnomer, in my opinion.

Q:  What specific vantage point of an in-house FCPA counsel do DOJ FCPA enforcement attorneys and outside FCPA counsel fail to understand or appreciate?

One thing that attorneys other than in-house counsel fail to appreciate sometimes is the level of effort required to create and then maintain a truly robust anti-corruption compliance program.  When I was about to begin at Weatherford, someone told me that my entire perspective would change once I was in-house.  I thought was that was overstated as I tried to be empathetic to the demands on in-house counsel in my other roles over the years.  But, I distinctly recall looking up from my desk at the end of my first week in-house and thinking, “my entire perspective has changed.”  It was true.  Outside counsel gives recommendations about a company’s compliance program and the government (often) criticizes a program, but it’s the in-house counsel that actually has to make the program a reality and maintain the program.  This requires daily coordination with other functions within the company and political negotiations with senior management and the Board in a way that is not always appreciated by those outside.

Q:  What specific vantage point of an outside FCPA counsel do DOJ FCPA enforcement attorneys and in-house FCPA counsel fail to understand or appreciate?

In-house counsel have to work hard to maintain a “world view” and not become so enmeshed in just their company that they lose sight of what’s going on around them.  This can be extremely challenging given the various things going on within a company at any one time.  It is helpful for in-house counsel to attend events sponsored by associations of other in-house counsel, compliance conferences, government presentations, etc., so as to maintain this broader perspective.   FCPA enforcement attorneys, for their part, should appreciate that in-house counsel are dealing with many, varied legal and compliance issues in a given day and it’s not all about the FCPA 24/7.  Outside counsel may have a good perspective in this regard given their role in assisting companies with a variety of different legal and compliance challenges and the many different areas of expertise brought to bear by any one law firm.

Q: Which job category of the three is the most difficult and why?

Without question, in-house counsel has the hardest job of the three.  First, if it ever was true that lawyers went in-house to relax and work 9 to 5, it certainly is not true anymore.  Given the myriad risks faced by companies and the every-expanding reach of regulators, in-house counsel is constantly juggling many responsibilities.  And, increasingly, they are doing so with fewer and fewer resources at their disposal.  “Do less with more,” has become a cliché only because it is a mantra being constantly repeated in every C-suite in the country.

Q:  Which job category of the three can best advance the objectives of the FCPA?

I’m really showing a certain bias here, but I think it is in-house counsel that can best advance the objectives of the FCPA.  It’s with in-house counsel and corporations generally where the rubber meets the road.  DOJ can bring all the cases it wants and outside counsel will do their best to defend those cases, but unless corporations live and breathe their anti-corruption program, corruption will remain a problem.  Incidentally, I think we’ve seen tremendous strides in that direction in the past decade, at least in the US.

Q: In April 2012, while an in-house attorney, you wrote an article (previously highlighted in this post) in which you stated:  ”Current FCPA enforcement policy punishes rather than rewards companies that do all they can reasonably be expected to do to deter corruption and to cooperate with the government.”  More than two years has passed.  Comment on your previous comment – have things gotten better or worse?

I don’t think things have changed in that regard.  I still believe the sort of reform I described in my Bloomberg piece is the best approach to FCPA enforcement reform.  It wouldn’t require any legislation or formal rule making and would result in tangible benefits for the government.  DOJ’s main priority should be prosecuting individuals involved in corruption and my proposal furthers that end while also stressing the importance of a robust corporate compliance program.

When Worlds Collide: How International Arbitration Deals With Corruption

Tuesday, September 2nd, 2014

Today’s post is from Paul Cohen (Perkins Coie).

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Regular readers of FCPA Professor can be forgiven for wondering what role anti-corruption laws could possibly play in international arbitration.  The two fields seem, at first blush, to have as much in common as toxic torts law has with trusts and estates.

The reality, however, is that international arbitration practitioners constantly grapple with allegations of bribery and corruption.  If arbitrators resolving these issues get them wrong from time to time, that may be because the FCPA/anti-corruption bar and the great-and-good of the international arbitration world rarely mix.  Indeed, they prefer to treat each other, in Stephen Jay Gould’s phrase about science and religion, as non-overlapping magisteria.

As one of the small number of practitioners with one foot in each field, I’ve tried from time to time to expound on the state of anti-bribery law to my arbitration colleagues.  I’m grateful to Professor Koehler for the invitation to do the reverse here.

International arbitration is a form of dispute resolution between parties from different jurisdictions.  Arbitrators appointed by the parties, rather than courts, decide the issues. Thanks to a 1958 treaty on the recognition of arbitrators’ decisions (the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, aka the New York Convention) to which 150 nations subscribe, it is easier to enforce those decisions, known as “awards,” worldwide than it is to have a foreign court judgment recognized and domesticated.  That accounts in large part for international arbitration’s popularity.

Then there is the additional fact that other dispute resolution options prove unpalatable to one of the parties.  In contracts between an American entity and one from, say, one of the BRIC countries, the American entity is unlikely to accept the neutrality or efficacy of the counterparty’s home court for the purpose of dispute resolution.

By the same token, the counterparty will often reject a US court jurisdiction clause, coming as it does with the prospect of extensive discovery, expense, and potentially a jury trial.

These disputes between private parties pursuant to contracts with arbitration clauses come under the rubric of international commercial arbitration.  These arbitrations are often non-public, so information about them is often incomplete.

There is a second, and increasingly frequent, species of arbitration that occurs pursuant to trade and investment treaties between nations.  Under these treaties, a private party from one country that invests in the territory of another can arbitrate directly against the other country – no sovereign immunity – if it can allege that the other country violated pertinent terms of the treaty.

To take a (stereo)typical example: if an American oil company invests billions of dollars in oil exploration in Country X, and Country X’s government then nationalizes the oil industry, the American company may have a claim against Country X for expropriation of its assets.  This kind of arbitration is known, intuitively enough, as investment treaty arbitration.

Because these arbitrations involve sovereign nations (and often large, publicly-traded companies), their proceedings and conclusions are better-known and better-publicized.

What does all this have to do with corruption? Increasingly often, one party or another alleges that bribery of some kind played a part in the underlying transaction on which the arbitration turns.  Perhaps that should not come as a huge surprise: a plurality of arbitrations involve energy and mineral resources in places that would be considered the usual suspects in any corruption survey.

Moreover, with the number of arbitrations on a steady upswing and allegations of corruption showing no sign of abating, look for more opportunities for these two traditionally distinct fields to overlap and interact.

These issues first appeared in arbitration more than half a century ago.  At the time, “consulting” agreements with third parties – the kind we warn clients today are red flags in international business transactions – were commonplace for companies seeking to do business with sovereigns and state-owned entities.  Occasionally, parties to these agreements decided that they would renege on their arrangements with the “consultants.”  They then found themselves in arbitration for breach of contract.

In one such dispute, an engineer with close connections to Argentina’s Peron regime brought arbitration against a British electrical manufacturer looking to sell equipment to Argentine power plants.  It was self-evident that the agreement between the engineer and the electrical manufacturer was effectively a vehicle to funnel corrupt payments to Argentine decision-makers.

The arbitrator hearing the case rejected the claim.  He stated:

“[T]here exists a general principle of law recognised by civilised nations that contracts which seriously violate bonos mores [good morals] or international public policy are invalid or at least unenforceable and that they cannot be sanctioned by courts or arbitrators [...] [P]arties who ally themselves in an enterprise of the present nature must realise that they have forfeited any right to ask for assistance of the machinery of justice (national courts or arbitral tribunals) in settling their disputes.”

Note that this decision came in 1963, fully 14 years before the enactment of the FCPA.  Bribing foreign officials was not yet a crime in the US or elsewhere, but that did not make contracts for which the very purpose was corrupt enforceable.

Several arbitral decisions followed in similar vein.  All of them dealt with the issue of whether arbitrators could enforce contracts that effectively rewarded a party for funneling bribes to foreign officials.  All of them agreed that they could not.

This left open a separate question: what happened when parties arbitrated in a case where there may have been corruption in the original transaction?  For example, going back to our original hypothetical about an American oil company in Country X: if it transpired that the oil company had secured a concession to drill for oil through a bribe two decades earlier, how might this affect the arbitrators’ consideration of the oil company’s expropriation claim?

The answer seems to be that arbitrators will acknowledge that the contract itself is legitimate, despite having been procured by bribery, but that they will not award any damages to a party involved in the bribery.  But because of the reasons arbitrations arise in the first place, the practical effect of this distinction is that sometimes states and state entities get a free pass when they misbehave.

That is what happened in the case of Siemens and Argentina.  Siemens had won $200 million in an investment treaty arbitration after a tribunal adjudged that Argentina had expropriated Siemens’ assets in that country.  That was in early 2007.  As every FCPA practitioner knows, Siemens subsequently admitted to having engaged in large-scale bribery of foreign officials, including in Argentina.  Siemens discontinued efforts to enforce the arbitral award. Argentina effectively walked away $200 million better-off.

The other (in)famous example involves the Government of Kenya in an arbitration against the World Duty Free company.

World Duty Free had contracted to build a duty free outlet at the Nairobi Airport.  The company was implicated in a fraud involving the President’s re-election campaign.  The Kenyan Government froze World Duty Free’s assets and transferred its shares to a different owner.  World Duty Free later proved that the fraud allegations had been false, but by then the damage had been done.

The company brought an arbitration against Kenya pursuant to the contract Kenya had signed with it to build the duty free facility.  During the arbitration proceedings, it came to light that World Duty Free’s principal had made a “personal donation” to the President of Kenya, consisting of $2 million cash in a suitcase, at the time that the parties were negotiating the contract.

The tribunal concluded that it could not award any damages to World Duty Free under the circumstances.  As a legal matter, that was probably an easy call; as a moral question, it is much more nuanced.  The Kenyan government escaped liability for a wrongful taking; it did so by invoking a transaction in which its own President solicited and received a $2 million bribe (for which, naturally, he was never prosecuted).

The circumstances of the World Duty Free case were unusual: the principal admitted that he had made the “personal donation” to the President of Kenya (although, laughably, he said he did not consider the “donation” to be a bribe); the proverbial suitcase full of cash really was a suitcase full of cash.  This was the territory of truth being stranger than fiction.

In other cases, an allegation of bribery is much harder to prove.  Arbitrators, devoid of subpoena power and without the sanction of criminal prosecution, have been loath to investigate allegations, and likewise leery of concluding that bribes have occurred.  In one arbitration, EDF v. Romania, a Tribunal opined:

“[C]orruption must be proven and is notoriously difficult to prove, since, typically, there is little or no physical evidence. The seriousness of the accusation of corruption in the present case, considering that it involves officials at the highest level of the Romanian Government at the time, demands clear and convincing evidence. There is general consensus among international tribunals and commentators regarding the need for a high standard of proof of corruption.”

Some commentators and practitioners have countered that the “clear and convincing evidence” standard has no place in an arbitration, where criminal or punitive sanctions will not be applied.  Others have suggested that the burden shift to the party alleged to have been involved in corruption once the accusing party has made a prima facie case that something illegal occurred.  Since international arbitrations are not bound by precedent, it is unlikely that there will be consensus on how to approach these allegations.

We have yet to see large investigations arising out of corruption allegations first made in an arbitration.  As noted above, arbitrators are reluctant to read any duty or power to compel investigations in their mandate to decide a case.  Companies implicated in corruption allegations have likewise been slow to conduct independent investigations of any such allegations when they arise in arbitrations.  This may be due to the fact that such independent investigations are relatively recent phenomena outside the United States.

Nonetheless, as the tide of arbitrations shows no sign of waning, and as corruption investigations by non-US regulators gather strength, expect to receive calls from your arbitration colleagues in the future.