November 11th, 2015

In The TPP, The U.S. Government Acknowledges The Commercial Aspects Of SOEs

acknowledgeThe U.S. government’s position on state-owned or state-controlled enterprises (SOEs) is amusing to say the least.

Is it too much to expect a uniform, consistent, and principled position from the U.S. government?

For instance, in the “foreign official” challenges (Carson, O’Shea, and Esquenazi / Rodriguez) the DOJ pledged allegiance to the OECD Convention and argued that the OECD Convention compelled a meaning of “foreign official” that included employees of SOEs.

As highlighted in my Supreme Court amicus brief filed in connection with the Esquenazi / Rodriguez cert petition, there were a number of problems with the DOJ’s position. Separately, the DOJ’s position was selective because it ignored OECD Convention commentary 15 which states:

“An official of a public enterprise shall be deemed to perform a public function unless the enterprise operates on a normal commercial basis in the relevant market, i.e., on a basis which is substantially equivalent to that of a private enterprise, without preferential subsidies or other privileges.” (emphasis added).

The recent Trans-Pacific Partnership (TPP) agreement has an entire chapter (Chapter 17) devoted to SOEs which rightly recognizes the commercial nature of most SOEs.

The chapter defines SOEs as follows.

state-owned enterprise means an enterprise:

(a) that is principally engaged in commercial activities; and

(b) in which a Party:

(i) directly owns more than 50 percent of the share capital;

(ii) controls, through ownership interests, the exercise of more than 50 percent of the voting rights; or

(iii) holds the power to appoint a majority of members of the board of directors or any other equivalent management body.

commercial activities means activities which an enterprise undertakes with an orientation toward profit-making and which result in the production of a good or supply of a service that will be sold to a consumer in the relevant market in quantities and at prices determined by the enterprise.

This chapter summary notes:

“[This] chapter provides broad coverage of SOEs that are principally engaged in commercial activity.”


“The SOE chapter includes commitments by TPP Parties to ensure that their SOEs make commercial purchases and sales on the basis of commercial considerations, except when doing so would be inconsistent with any mandate under which an SOE is operating that would require it to provide public services.”


“Whereas in 2000, there was only one SOE in the Fortune Global 50 list of the largest companies in the world, now there are close to a dozen.”


“SOEs exist in all TPP countries, are used for different purposes, and are regulated and managed in widely varying ways. Some SOEs provide public services, but other times, extensive government participation in economies through SOEs can distort competition to the detriment of private American firms and their workers. This can occur through SOEs that receive advantages from governments, such as preferential financing, including through State-owned banks; provision of goods or services from the government or from other SOEs at preferential prices or free of charge; direct subsidies and debt forgiveness, or other preferences. These preferences can tilt the playing field in favor of SOEs and against U.S. workers and businesses. Even where enforcement against SOEs in foreign markets has been pursued for anti-competitive behavior or other unlawful behavior, commercial SOEs have avoided prosecution by claiming sovereign immunity.”

“Concerns about the role of SOEs have grown in recent years because SOEs that had previously operated almost exclusively within their own territories are increasingly engaged in international trade of goods and services or acting as investors in foreign markets.”

Posted by Mike Koehler at 12:04 am. Post Categories: Foreign OfficialTrade Barriers and Distortions

November 10th, 2015

The TPP And Corruption

TPPTrade barriers and distortions are often the root causes of bribery.

This has long been recognized, including by Congress in the mid-1970′s when it was considering various legislative approaches to the s0-called foreign corporate payments problem.

As highlighted in “The Story of the Foreign Corrupt Practices Act,” in November 1975 Senate Resolution 265 passed 93-0 and called for executive branch agencies to pursue remedies to the corporate payments problem within the framework of the General Agreement on Tariffs and Trade (GATT).

At the same time, Congress realized that multilateral trade agreement were “largely hortatory in nature and do not include reliable enforcement machinery or sanctions for violators” and that the then-existing trade discussions already included “a large number of complex and difficult negotiating objectives” and that it was not in the U.S. interest “to add yet another major problem” into the trade discussions.

Nevertheless, trade barriers and distortions remain a frequent root cause of bribery.

A long-awaited developed occurred in the trade space last week as the Obama administration released the full text of the Trans-Pacific Partnership (TPP) agreement. As highlighted here:

“The TPP would arguably be the largest free trade agreement in history when considering the economies of the 12 Pacific Rim member countries, covering approximately 40% of the global economy. The agreement must now be individually approved by each of the 12 countries: Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, the United States, and Vietnam.”

The TPP is massive document and its potential to reduce trade barriers and distortions is country specific and indeed industry specific.

If the TPP does indeed reduce trade barriers and distortions, then it can help reduce the root causes of bribery and the reason is fairly straight-forward.

  • Trade barriers and distortions create bureaucracy.
  • Bureaucracy creates points of contact with foreign officials.
  • Points of contact with foreign officials create discretion.
  • Discretion creates the opportunity for a foreign official to misuse their position by making bribe demands.

While the potential of the TPP to reduce trade barriers and distortions is found deep within the country and industry specific information in the document, the TPP does contain an “aspirational” chapter (Chapter 26) devoted specifically to anti-corruption.

As highlighted in this U.S. government summary:

“The chapter ensures that U.S. exporters, service suppliers, investors, and other interested stakeholders in TPP have ready access to information about the laws, regulations, and other rules affecting trade or investment in TPP markets; guarantees due process rights; commits TPP Parties to have and enforce anti-bribery laws; and promotes rules against conflicts of interest in government. The chapter guarantees the full rights of governments to regulate for public health, environmental quality, and other public-policy goals.”

“The [chapter] requires TPP Parties to ensure that, to the extent possible, their laws, regulations, and administrative rulings related to any matters covered by the TPP Agreement are publicly available and that regulations are subject to notice and comment.”

Similar to the OECD Convention, the summary document highlights the following “aspirational” portion of the TPP.

“Each TPP Party commits to adopt or maintain laws that criminalize the offering of an undue advantage to a public official (or the solicitation of such an advantage by a public official), as well as other acts of corruption in matters affecting international trade or investment. Parties also commit to effectively enforce their anticorruption laws and regulations.”

One final note regarding the TPP anti-corruption chapter.

Unlike the FCPA’s definition of “foreign official” which is silent as to state-owned or state-controlled enterprises (SOEs) – as highlighted here competing bills introduced in Congress, but rejected by Congress, did contain explicit reference to SOEs – the TPP has no problem in explicitly capturing SOEs in its definition of “foreign public official” which includes “any person exercising a public function for a foreign country, at any level of government, including for a public agency or public enterprise.”

Posted by Mike Koehler at 12:03 am. Post Categories: Foreign OfficialLegislative HistoryTrade Barriers and Distortions

November 9th, 2015

The Burgeoning Uzbekistan Telecommunication Investigations

TelecomscandalFor approximately two years, Dutch telecommunications company VimpelCom  and Swedish telecommunications company TeliaSonera have been under scrutiny concerning its business practices in Uzbekistan (see here and here prior posts).

The scrutiny has sort of flown under the radar, but recent events suggest that the scrutiny, as well as related scrutiny of other companies, may be on par with arguably the most high profile instance of multi-company FCPA scrutiny (the 2009 – 2012 enforcement actions against KBR/ Halliburton, Snamprogetti / ENI, Technip, JGC Corp. and Marubeni all in connection with the Bonny Island natural gas project in Nigeria – with the exception of Marubeni all of these enforcement actions are in the top 8 in terms of overall settlement amounts).

Recently, VimpelCom, a company with shares traded on NASDAQ, disclosed:

“As previously disclosed, the U.S. Securities and Exchange Commission (“SEC”), the U.S. Department of Justice (“DOJ”), and the Dutch Public Prosecution Service (Openbaar Ministerie) (“OM”) are conducting investigations relating primarily to VimpelCom Ltd.’s (the “Company” or “VimpelCom”) business in Uzbekistan and prior dealings with Takilant Ltd. As announced in February of 2015, the Company has been exploring resolution of the Company’s potential liabilities. The Company continues to cooperate with the authorities. Based on its ongoing assessment of the investigation during the third quarter of 2015, the Company will make a provision in the amount of US$900 million in its third quarter financial statements. The discussions with the authorities are ongoing and, until concluded, there can be no certainty as to the final cost to the Company of any such resolution or the nature, likelihood or timing of a definitive resolution. At this time, the Company will make no further comments on the ongoing discussions.”

The amount mentioned in the disclosure caught many by surprise.

The disclosure amount is a bit ambiguous. For instance, does it refer to a settlement amount (and if so how will it be apportioned between U.S. and Dutch authorities)? Likewise, does the disclosure amount refer to pre-enforcement action professional fees and expenses (often the largest financial hit to a company under FCPA scrutiny) and/or expected post-enforcement action professional fees and expenses?

Regardless, it would appear that a future FCPA enforcement action against VimpelCom is likely to land on the top ten list of FCPA settlement amounts.

What is certain is that days after the above announcement, plaintiffs lawyers came out of the woodwork and filed class action securities fraud complaints (see here, here, and here).

As to TeliaSonera, a company with ADRs registered with the SEC, since 2013 the company has been conducting a review of its operations in Uzbekistan as well as other Eurasia countries including Azerbaijan.

VimpelCom and TeliaSonera are not the only telecommunications under scrutiny.

Russia-based Mobile TeleSystems PJSC, a company with shares traded on the New York Stock Exchange, has also been FCPA scrutiny in connection with Uzbekistan business and recently disclosed:

“[A]s the Company had previously disclosed, the US Department of Justice (DOJ) and the SEC are conducting an investigation into MTS’s business activities in Uzbekistan. In addition, MTS publicly confirmed that it had been referenced in a civil forfeiture complaint, filed by the DOJ, directed at certain assets of an unnamed Uzbek government official. The complaint alleges that MTS made corrupt payments to gain access to the Uzbek telecommunications market. The Complaint alleges among other things that MTS and certain other parties made corrupt payments to the unnamed Uzbek official to assist MTS entering and operating in the Uzbekistan telecommunications market. The Complaint is solely directed towards assets held by the unnamed Uzbek official, and none of MTS’s assets are affected by the Complaint. Recent announcements with regard to Uzbekistan by MTS’s peers in the market have naturally raised questions among stakeholders and partners to MTS’s management. At this time, MTS can reiterate that it is cooperating with the investigation, and it is too early to draw any conclusions based on the experiences of others in the Uzbekistan market. As there have yet been no new developments, MTS can make no further comment or provide new information.”

Last, but certainly not least, Norway-based Telenor recently announced that its CEO has resigned and that it is divesting its ownership interest in VimpelCom. Shortly thereafter the company disclosed:

“On 14 March 2014 VimpelCom announced that the company was under investigation by US and Dutch authorities for its operations in Uzbekistan. Telenor Group has status as witness in these investigations and has cooperated with the investigating authorities. As a witness, Telenor has shared all requested information, and interviews have been conducted with relevant persons in Telenor. Telenor Group sees VimpelCom’s announcement today as a serious development that significantly increases our concerns in relation to the potential outcome of the still ongoing investigations. Telenor Group has a financial participation with an economic stake of 33 per cent in VimpelCom. In its financial reporting, Telenor includes VimpelCom as an associated company.”

The above disclosure was thereafter followed by this disclosure from Telenor:

Telenor Board of Directors has assigned Deloitte Advokatfirma AS (Deloitte) to perform a review of Telenor’s handling and oversight of the minority ownership in VimpelCom. The review will focus on Telenor’s handling of its ownership in VimpelCom which covers the Telenor nominees on the VimpelCom Supervisory Board and Telenor’s follow-up as a shareholder. In addition the review will cover actions and decisions by Telenor nominees and Telenor employees in relation to VimpelCom’s investment in Uzbekistan. The review will assess facts and identify learning points for future governance and organization of Telenor’s ownerships. This would cover both the formal governance structure and the practical handling of the ownerships. The review will cover the period from 2005 until this date. The conclusions and recommendations of the review will be made public.”

What interest does the U.S. have in investigating alleged bribery of Uzbekistan officials or family members by Dutch, Swedish, Russian and Norwegian telecom companies?

Probably as much interest as the U.S. had in investigating and bringing enforcement actions against Dutch, Italian, French and Japanese companies for bribing Nigerian officials in the Bonny Island, Nigeria enforcement actions.

Posted by Mike Koehler at 12:02 am. Post Categories: Mobile TeleSystemsTelecommunications IndustryTelenorTeliaSoneraUzbekistanVimpelCom

November 6th, 2015

Addressing Corruption In An Era Of Climate Change

Climate ChangeProfessor Juliet Sorensen (Northwestern University School of Law) and Northwestern Law students Michelle Kennedy and Cassandra Myers are attending the Sixth Conference of the State Parties (CoSP) to the United Nations Convention against Corruption in St. Petersburg, Russia. For more on the opening of the Conference, see here and hereOver the next few days, FCPA Professor will be publishing various posts regarding the proceedings.  

This post is from Michelle Kennedy.


With the Paris Conference on Climate Change 2015 coming up at the end of this month, the relationship between climate change and corruption could not be more relevant. The panel that explored this topic presented unique perspectives that provided a comprehensive view of the complex issues at hand, which range from the increased frequency of natural disasters to the growing impact of the forestry sector.

To open the discussion, Tim Steele, the Senior Advisor on Anti-Corruption of the UN Office on Drugs and Crime in Southern & Eastern Africa, emphasized the urgency of the issue. The adverse effects of climate change include rising oceans, depleting forests, and an increased frequency of natural disasters, which is why he insists that this issue be addressed before it is too late.

“Catastrophe causes opportunity,” Steele urged, which was elaborated upon by Professor Juliet Sorensen of the Center for International Human Rights at Northwestern University School of Law and the co-author of the upcoming book, Public Corruption and the Law: Local, National, and International. She explained that because we are living in a world with a sharply increased frequency of natural disasters, there has also emerged the need to recover from these natural disasters more quickly. This recovery necessitates an infusion of public funds from the federal government, international organizations, and state and local resources, in order to meet the basic human needs of the victims and to rebuild the community. The vast funds that arrive quickly create ample opportunity for corruption, thus exemplifying the causal relationship between catastrophe and opportunity. For example, if recovery funds are corruptly used to award contracts to builders based on relationships rather than merit, this may result in sub par buildings and poorly constructed roads. If a natural disaster strikes again, then the damage will be greater than it otherwise would have been without corruption. The community then needs to be rebuilt again, thus perpetuating the cycle and displaying the urgent need to address corruption in an era of climate change. Sorensen urged, however, that there are encouraging opportunities in both law and policy to address these issues, such as the Disaster Fraud Task Force at the United States Department of Justice, which deals with all aspects of fraud mismanagement and corruption in the wake of natural disasters. On an international level, the European Union Emergency Response Coordination Centre is a new resource that provides real time monitoring and immediate reactions to natural disasters.

In order to assist the countries that suffer the worst effects of climate change, the polluting countries have made monetary contributions, known as climate finance, as explained by Rukshana Nanayakkara of the Asia Pacific Department of Transparency International. This financial support provided by developed countries for mitigation and adaptation action in developing countries is expected to reach $100 billion by 2020. This vast amount of money involved displays the ample opportunity for the corrupt diversion of funds.

To ensure that these climate adaptation funds are administered in a transparent manner, the Organization for Economic Cooperation and Development (“OECD”) conducts vigorous evaluations on its member countries to determine whether they are effectively pursuing allegations of bribery in the context of publicly funded post-disaster projects. Moving forward, Leah Ambler of the OECD Anti-Corruption Division proposed that combatting the significant risks involved in climate finance be accomplished by an increase in corruption risk awareness initiatives, active enforcement of anti-corruption laws, collaboration with the private sector to ensure effective anti-bribery compliance programs, and independent implementation of new regulatory schemes related to climate change mitigation.

Posted by Mike Koehler at 12:10 am. Post Categories: Climate ChangeGuest PostsUnited Nations

November 6th, 2015

The Benefits and Tribulations of Open Data in Decreasing Corruption

Open DataProfessor Juliet Sorensen (Northwestern University School of Law) and Northwestern Law students Michelle Kennedy and Cassandra Myers are attending the Sixth Conference of the State Parties (CoSP) to the United Nations Convention against Corruption in St. Petersburg, Russia. For more on the opening of the Conference, see here and hereOver the next few days, FCPA Professor will be publishing various posts regarding the proceedings.  

This post is from Cassandra Myers.


Keeping the public informed and involved in the fight against corruption can be a valuable accountability tool. Nations have long struggled to find a mechanism to better incorporate public oversight without creating intrusion.

Open data may be the answer.

Yesterday at the United Nations Convention Against Corruption Special Event, “(How) Can Open Data Prevent and Fight Corruption?,” several panelists suggested that open data directly increases government accountability and correspondingly lowers incidences of corruption. Open data describes internal information that the government publishes to the public in an accessible and understandable manner.

While critics may argue that government information has been available for years through legal channels, the concept of open data focuses on the ability of a user to easily access and understand the material. A person could then compare and analyze figures to comprehend a data set’s implications. The information gives every citizen the ability to examine his or her government, and the transparency holds governments accountable, particularly regarding their expenses. The effort hopes to increase faith in all areas of government and deter individuals who may otherwise pursue corrupt practices. As Samuel De Jaegere, a UNODC Representative, described, “If you’re involved in corruption, you end up being a victim yourself.”

The panel served as an update on Resolution 5/4 from the 2013 Convention Against Corruption in Panama City, Panama, which urged countries to increase transparency by enhancing methods for the public to obtain information. Rita Karasartieva of the Societal Analysis Public Association described the open data interface implemented in the Kyrgyz Republic as a case study. The database is available over the internet and individuals can view particular government data in a simple interface by filtering for different categories—such as budget data and contract bid results.

The inclusivity was positive on a transparency front. However, as Karasartieva bluntly pointed out, “there were some problems.” When a country creates a data system, but does not teach individuals how to use or process that information in a meaningful way, public dissatisfaction can, and likely will, result. The daily update of information to the data system in one municipality caused a “bombard[ment]” of requests to the local Parliament, demanding the government reduce completely legitimate spending that people considered frivolous.

This response led panelists to largely agree on one caveat to open data systems: the unprocessed numbers published by the government are prone to confusion. Most of those accessing the public data did not have a coherent means of analyzing it to draw statistically significant conclusions. Rather, the public took issue with raw numbers, which can seem high for any government expense. Karasartieva explained that “It’s not enough to know how much has been spent on a school; you need to know what this money has changed at that school.” The problem limits the utility of the open data and potentially hurts the transparency effort by creating fervor over non-corrupt practices.

However, in describing many of the open data successes in Africa, De Jaegere promised that making data clear and accessible was only the beginning of the open data movement. Before the member countries focus on helping every individual analyze the given records, it is important to push more countries to establish publicly accessible data in general.

The presentation ended with descriptions of some of the large efforts of open data and the resulting accountability’s effect on everyday citizens’ lives. For example, when the United Kingdom began publishing heart surgery success rates by hospital, individuals could choose their care, and survival rates improved by 50%. Similarly, when Tanzania promoted inclusivity by creating a hotline for citizens when scarce water wells ran dry, the government could respond to provide more water quickly. Open data takes many forms, but the ultimate message is the same: the accountability of the government and the inclusivity of the people improved lives.

Posted by Mike Koehler at 12:08 am. Post Categories: Guest PostsUnited Nations