U.S. Anti-Bribery: Big Payouts, Low Enforcement Volume Create Concerns

 In Anti-Money Laundering, Trending

As the ongoing global battle against illicit finance rages on, anti-corruption and bribery enforcement efforts appear to have also taken a major step forward over the past decade with respect to America and its overseas counterparts. In 2020, the United States shattered the previous domestic record for total dollar amount of fines levied under the Foreign Corrupt Practices Act (FCPA) – a federal law prohibiting American citizens and entities from making payments to foreign government officials in exchange for promoting their respective business interests. Altogether, $7.76 billion worth of fines were handed out to entities found to be in violation of the anti-bribery laws around the world in 2020, with the Department of Justice (DOJ) Criminal Division estimating that approximately $3.21 billion of this total was paid to the United States.

The bulk of the funds collected by the U.S. last year in relation to foreign bribery resolutions came from one case of historical magnitude. Late in 2020 a $2.9 billion global settlement was reached with financial services conglomerate Goldman Sachs in relation to the group’s role in the notorious 1MDB scandal – arguably one of the largest financial scandals in the history of the modern world. Goldman Sachs (among countless other big names across the financial sector) was found to have ties to the now-infamous state economic development fund launched by former Malaysian Prime Minister Najib Razak. On the surface, the fund was supposed to promote strategic developments into areas such as energy, real estate, tourism and other key fund-raising industries while bringing tangible progress to a country with a long-stifled economy. 1MDB managed to raise billions of dollars with assistance from Goldman Sachs, with Najib and his associates later accused of siphoning off approximately $4.5 billion from this grand total. The DOJ also accused Najib & Co. of laundering a significant portion of the aforementioned funds through the purchases of lavish real estate, priceless artwork and personal expenses (including private jet and luxury vehicle purchases). Goldman Sachs ultimately agreed to pay a $2.3 billion fine to the Justice Department and other international regulators for their role in the ploy, and another $600 million in disgorgement of ill-gotten gains to settle the U.S. probe and avoid a criminal conviction at the group level.4 Another major contributor to the gross pool of FCPA enforcement funds collected in 2020 was the global bribery scandal involving European aerospace firm Airbus, which agreed to pay €3.6 billion (U.S. $4 billion) in penalties to prosecutors in the United States, UK and other jurisdictions over their involvement in paying large bribes to officials in upwards of 20 foreign countries to land lucrative contracts between 2011 and 2015. The DOJ collected approximately $583 million for Airbus’ violations of the FCPA and the International Traffic in Arms Regulation (ITAR).2

Despite the large dollar amount tied to these cases, the total number of foreign bribery enforcement actions brought forth in the United States actually fell in 2020 by a whopping 29 percent. This is noteworthy, considering that bribery enforcement figures from other major international jurisdictions largely held steady in comparison to the year prior, this according to anti-bribery business association TRACE International’s recently released 2020 Global Enforcement Report. In a recent press release, Trace President Alexandra Wrage lauded the efforts of countries small and large with respect to stopping bribery of public sector officials. Wrage noted:

“The fact that more countries are opening more investigations into possible transnational bribery occurring within their own borders is a promising sign that enforcement authorities globally are building investigative capacity and taking anti-corruption seriously. We expect that this momentum toward accountability will only increase as a result of the ongoing global health crisis. Enforcement authorities have repeatedly emphasized that the pandemic isn’t an excuse for lapses in anti-corruption compliance.”4

It appears that while other countries have been recognizing the importance of investing in their anti-bribery efforts, weaknesses in U.S. laws, oversight and enforcement are being exploited by bad actors for personal gain. The fact that billion dollar settlements are being reached means that major problems with respect to bribes being paid persists in today’s society, though it remains to be seen if the U.S. will follow in the footsteps of its international allies in committing the necessary resources to take a proactive stand against domestic and foreign bribery. While the strain of the ongoing COVID-19 pandemic likely dampened many of the efforts of U.S. enforcement bodies in both collecting identifying and subsequently trying bribery-related cases in 2020, the United States also received its lowest score on Transparency International’s 2019 Corruption Perceptions Index  (CPI) – an assessment measuring perceptions of public sector corruption in 180 countries and territories around the world – since 2011.

When it comes to financial institutions themselves, these entities must be aware of how this growing problem can affect their interests and their reputation at the international level, or risk facing crippling penalties like those issued to Goldman for their failures in this regard. The first step to curtailing illicit activity of this variety is in increasing awareness of which industries are most often involved in bribery cases. The industry of extractives, unsurprisingly, is currently the most prevalent sector with respect to global bribery investigations.1 Countries that are wealthy in natural resources tend to be breeding grounds for corruption, as many companies involved in bribery efforts are state-owned and conducting business across international borders. The Financial Services industry immediately follows extractives as the second-most investigated industry, which is followed by manufacturing/services providers. Financial institutions would be wise to pay close attention to the financial activity of their customers dealing in these industries. Until the U.S. government chooses to revamp their relatively weak anti-bribery efforts, illicit activity in this form will only increase in prevalence. Time will also tell if the shift from the Trump Administration to that of freshly-minted Commander in Chief Joe Biden will have any effect on these efforts moving forward.

 

Citations

  1. Jaeger, Jaclyn. “TRACE: U.S. Bribery Enforcement Declined in 2020.”Compliance Week, 11 Mar. 2021.
  2. Hodge, Neil. “Airbus Resolves Global Bribery Scandal for Record $4B.”Compliance Week, 31 Jan. 2020.
  3. Latiff, Rozanna. “Understanding Goldman Sachs’ Role in Malaysia’s 1MDB Mega Scandal.”Reuters, Thomson Reuters, 22 Oct. 2020.
  4. “TRACE Releases 11th Annual Global Enforcement Report.”PRN Newswire, 9 Mar. 2021.

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