The OECD Working Group on Bribery – the group responsible for monitoring implementation of the OECD’s Anti-Bribery Convention – has just closed a request for comments on the topic of liability of legal persons for foreign bribery. I submitted a comment, and I hope that others did as well, but I am afraid that instead of focusing on the issues I was asked to comment on I focused on my worries about the overall purpose of the exercise.
There is no question that the issues raised by the OECD are important. Imagine if the U.S. legal system did not have corporate criminal liability, how would it affect the scope and the intensity of corporate compliance? Would we still have compliance officers reporting directly to the board, supplier agreements replete with anti-corruption reps and warranties, and multi-million dollar internal investigations? Consider the potential effects of even a modest reform, such as treating the existence of an effective compliance program as a complete defense. Or, moving in the opposite direction, what if firms convicted of foreign bribery were automatically disbarred from all government contracts?
I have no doubt that the consultation will collect valuable information about how the legal systems of the 41 countries that are members of the Anti-Bribery Convention deal with the issue of organizational liability for foreign bribery. The background paper released when the consultation was announced already provides a wealth of information on the laws of the various member states. The consultation itself invites comments on how well those laws are working. Topics of interest include the advantages and disadvantages of: criminal versus non-criminal liability, holding organizations liable for actions of low-level employees regardless of their compliance efforts, and various types of settlements. The consultation document also invites comments on how to impose liability on organizations that pay bribes through intermediaries or successor companies, or entirely outside the territory of the relevant state.
So why am I worried about the consultation? I am pre-occupied by the fact that the OECD plans to use the results of the consultation to inform its efforts to monitor the implementation of the OECD Anti-Bribery Convention. I suspect this will include using insights from one system to guide the evaluation of other systems. My worry stems from doubts about whether insights from any one legal system can be generalized to other legal systems. Decades of comparative law scholarship teach us that that the impact of any particular feature of a legal system is likely to be highly context-dependent. This means not only that the same rule may have different impacts in different contexts, but different rules might have the same impact in different contexts.
Think about the U.S. approach to organizational liability, which holds companies liable for the actions of all agents or employees acting in the scope of their employment but considers an array of potential mitigating factors in both the exercise of prosecutorial discretion and sentencing. The U.S. enforcement model is distinctive because a significant portion of the costs of investigations are borne by the organizations suspected of misconduct and many proceedings are resolved through settlements.
For the sake of argument, suppose commenters report that the benefits of the U.S. approach to organizational liability, as implemented in the U.S., outweigh the costs. What would this tell us about whether to transplant the U.S. model to countries whose organizational liability regimes are reported to be less successful? My guess is, not that much. I seriously doubt that the benefits and costs of the U.S. model will be the same inside and outside the U.S. context.
The U.S. model is explicitly designed to induce organizations to engage in self-regulation. The associated benefits are likely to be greatest in a legal and cultural environment that places few restrictions on private companies’ ability to self-regulate, in other words, to monitor, investigate and terminate relationships with employees, agents, and trading partners (including sellers of businesses). Not every legal system grants companies all those powers. In some countries, behavior that would be perfectly acceptable in the U.S. is considered to violate local employment or antitrust laws. The weaker are companies’ regulatory powers, the lower the benefits of pressuring them to get involved in self-regulation.
The costs of organizational self-regulation also seem likely to depend on the context. For instance, the U.S. practice of allowing organizational sanctions to be determined through settlements with little or no judicial oversight would present a grave risk of being abused in a system with prosecutors who lack the expertise and incentives of US federal prosecutors.
The private sector actors who help firms conduct internal investigations may also be critical features of the U.S. model. In the U.S. system, the investigative costs associated with expansive corporate criminal liability are probably mitigated by the fact that investigations can be outsourced to specialized service providers. The common criticism of these service providers — the much-maligned “FCPA Inc.” – is that they operate in accordance with free market principles and seek to profit from other people’s misfortune. This might also be a virtue; competition encourages service providers both to minimize costs and maintain a reputation for providing high-quality services. In the absence of this kind of competitive market for investigative services, U.S.-style corporate criminal liability is likely to result in higher investigative costs than it would in the U.S., making the model significantly less attractive.
These are just a few of the reasons why I believe that the OECD should refrain from using the results of this consultation to draw general conclusions about the best approach to organizational liability. Information about how particular features of organizational liability regimes have worked in specific contexts provides at best a limited basis for generating hypotheses about how they might work in other contexts, and those hypotheses should always be tested against experience. When it comes to the laws of organizational liability for foreign bribery – and probably most other laws – there is no reason to believe that one size fits all.
Kevin E. Davis is Vice Dean and Beller Family Professor of Business Law at NYU School of Law.
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