This module is a resource for lecturers
Responses to private sector corruption
Owing to its serious societal impact, the fight against private sector corruption has gained traction in international law and policy in recent decades. One of the most significant shifts in anti-corruption legislation affecting the private sector was the enactment, in 1977, of the Foreign Corrupt Practices Act (FCPA) of the United States. Given its extraterritorial reach, the FCPA affects companies globally. The impact that FCPA had on companies' overseas activities pushed other countries to create similar anti-bribery laws, for instance, in 2013 the United Kingdom adopted the UK Bribery Act which has extraterritorial application (both FCPA and the UK Bribery Act are further discussed in Module 12 and Module 13 of the E4J University Module Series on Anti-Corruption). In the international context, by the late 1990s, an international consensus had emerged regarding the liability of legal persons (i.e. corporations) for acts of corruption. Two important events are worth mentioning in this regard. First, in 1994, the Organisation for Economic-cooperation and Development (OECD) established Working Group on Bribery in International Business Transactions, which led to the adoption, in 1977, of the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions. Second, in 2003, the international community adopted the United Nations Convention against Corruption (UNCAC) which requires States parties, in its article 26, to hold legal persons liable for committing acts of corruption. UNCAC also defines certain anti-corruption norms as specifically applicable to the private sector. Criminalizing private sector corruption and ensuring that companies can in fact be held liable for corruption and be effectively sanctioned - under criminal or civil law - serve both retributive and deterrence goals, because corporate misconduct is punished and justice is done, which sends a message that deters companies from engaging in misconduct. Moreover, these responses to business corruption also incentivize companies to develop preventive anti-corruption measures, such as ethics and compliance programmes, codes of ethics, risk assessments, and due diligence procedures for business partner scrutiny. These measures are discussed below. Following a discussion on criminalization, liability and sanctions in relation to business corruption, the Module goes on to address preventive anti-corruption measures in companies.
Criminalizing private sector corruption
A major response to private sector corruption is the application of criminal anti-corruption norms to corporations, and their enforcement through effective sanctions and incentives. For example, UNCAC defines the crimes of bribery and embezzlement in the private sector, as well as the related offences of concealing these crimes, laundering their proceeds, and obstructing justice. The OECD Anti-Bribery Convention, on the other hand, focuses on the offence of bribery in overseas business activities and establishes the responsibilities of legal persons in this regard. The enforcement of these norms - from the detection and reporting of corruption to the investigation, prosecution and trial stages - is discussed in Module 6 and Module 13 of the E4J University Module Series on Anti-Corruption. While those Modules discuss enforcement measures in general, the present Module clarifies the particularities of applying them to corporations.
Criminal law is mainly associated with individual criminal responsibility and therefore usually applies to natural persons (individuals) and not to legal persons (corporate entities). To effectively enforce anti-corruption norms on corporations, States need to incorporate the notion of "corporate liability" (or liability of legal persons) into their law. Corporate liability, a concept discussed in more detail below, opens the door to imposing various sanctions on companies that violate anti-corruption norms. Such sanctions can include fines, confiscation, contract remedies, suspension and debarment, loss of benefits, and liability for damages. A discussion of the range of sanctions and incentives that have been developed to prevent and address corruption in the private sector is available in the United Nations Office on Drugs and Crime (UNODC) publication entitled A Resource Guide on State Measures for Strengthening Corporate Integrity . Given the limited scope of this Module, the discussion below focuses on only one of these sanctions, that of suspension and debarment, which States and international organizations are increasingly using in the fight against corruption. When natural persons break the law in a serious criminal manner, they can be imprisoned. As the threat of imprisonment is limited to individuals, suspension and debarment can be a comparable deterrent for companies, especially if the company relies on government contracts.
Historically, corporations were outside the scope of the criminal law, which focused on personal guilt and notions of culpability and blame. Anti-corruption enforcement, accordingly, was aimed at individuals and primarily targeted public officials engaging in bribe-taking and embezzlement of public funds and individuals offering bribes - although the latter were targeted to a much lesser degree. Recently, however, the debate on how to get companies to comply with domestic and international anti-corruption laws and regulations has intensified. Many of the biggest corruption investigations concern legal persons rather than natural persons. The liability of legal persons such as corporations is also known as "corporate liability" and is a key feature of the global fight against corruption (Lee-Jones, 2018).
Corporate liability was introduced partly because traditional legal tools, such as individual criminal responsibility, have proved insufficient to curb crime. Decentralized corporate structures and complex decision-making processes make it difficult to identify individual wrongdoers. In most cases of corporate corruption, senior management might not directly participate in the behaviour constituting the actual offence but nonetheless play an important role by failing to supervise employees effectively or by incentivizing the behaviour that leads to the offence. Case studies of large corporations reveal that senior management may have created or cultivated a corporate culture that incentivizes wrongdoing by more junior employees. In that situation, senior management may have moral responsibility. It is, however, difficult to pursue charges against individual managers owing to the very nature of corporations and their extensive systems of delegation. For an analysis of contemporary case studies that illustrate how delegation and responsibility are approached in corporations such as General Motors, BP and Wells Fargo, see Buell (2018).
Standards of corporate liability may be objective or subjective. Objective liability, also known as strict liability or vicarious liability, attributes to the corporation any wrongdoing committed by its employees within the scope of their duties. Once an employee has committed an offence, the corporation is also liable. Therefore, pure objective liability systems encourage the implementation of preventive policies, but discourage self-reporting of wrongdoing and cooperating with the authorities during investigations.
Subjective liability, also known as fault-based liability, imposes a duty on companies to prevent wrongdoing by educating employees and implementing internal controls on company activities. Pure subjective liability systems excuse companies that have otherwise complied with their duties, which are usually defined by the law as implementing an effective compliance programme. Subjective liability systems also have risks: since the companies concentrate on ticking boxes with respect to the elements listed in the law that define effective compliance systems, measures may exist on paper but not in practice. Furthermore, there are no incentives for aligning crucial policies with the compliance system, e.g. compensation, promotion, and bonuses. For a related discussion on the relationship between duty, ethics and integrity, see Module 1 of the E4J University Module Series on Integrity and Ethics.
Global frameworks such as UNCAC do not prescribe a specific type of liability, but there is a trend towards hybrid liability systems. In an increasing number of jurisdictions, companies may receive reduced fines if they can prove they have made a significant effort to prevent corruption, for example by implementing effective internal controls and procedures, educating employees, and preventing misconduct by third parties acting on behalf of the company. In some jurisdictions such as Australia, Hungary and Slovenia, self-reporting wrongdoing and cooperating with authorities during the investigation may also reduce penalties. For an analysis of how each OECD jurisdiction regulates corporate liability for corruption, see OECD (2016).
Suspension and debarment
Debarment from procurement is an important regulatory mechanism against corruption. Debarment policies can exclude certain suppliers and contractors from profitable contracts owing to their engagement in corrupt and unethical practices (Acorn, 2016). Debarment determinations take a variety of pathways. In Canada, for example, there is a "rules based and automatic" debarment system. In the United States, the approach is much more discretionary, focusing on "present responsibility" (Acorn, 2016, p. 1)
On an international level, the World Bank's suspension and debarment system, overseen by the Office of Suspension and Debarment, is a comprehensive defence against wrongdoers (World Bank, 2015). The system sanctions corrupt, fraudulent, collusive, coercive and obstructive practices (see World Bank, 2015, for full definitions). There are five different sanctions that could be imposed: debarment with conditional release, fixed period debarment without conditional release, conditional non-debarment, public letter of reprimand and restitution. The World Bank assesses aggravating and mitigating factors when determining which one of these five possible sanctions to apply (World Bank, 2015).
While the threat of imprisonment is limited to individuals, suspension and debarment can be a comparable deterrent for companies that rely on government contracts. Companies may also be required to dismiss employees as a condition of settlement. Although technically not a State sanction, this can be an effective deterrent for individuals, particularly managers or other senior personnel who may have difficulty finding comparable alternative employment. An organization's managers and employees should understand, as part of their anti-corruption training, that bribery is not only detrimental to all stakeholders, but an offence that would lead to the termination of their employment (a "zero-tolerance policy").