A big shout-out to our fellow EALR colleagues for successfully hosting the East Asia Law Review annual symposium on February 10, 2012, on the subject of Combating Corruption in Asia! This post is designed to give our blog’s readers some sense of what the discussion between our panel of scholars and practitioners was like—but please also feel free to follow a video of the entire event, available here (a set of photos of the event are available here).
We’d like once again to thank Amy Gadsden, Associate Dean and Executive Director of International Programs at the University of Pennsylvania Law School, who provided opening remarks for our event, and Jacques deLisle, Stephen A. Cozen Professor of Law, who moderated the panel discussion, and above all our distinguished panelists themselves, for coming out to Penn Law and for making this event possible. We are happy to dedicate this blog post to them.
Keynote Speech by Ms. Laurie Sherman: Corruption in Asia: Challenges and Progress
Our keynote speaker was Ms. Laura B. Sherman, Senior Legal Advisor at Transparency International-USA, a non-profit organization which devotes its efforts to combating corruption internationally and promoting transparency and integrity in government, business and development assistance. Her speech provided a macro perspective on corruption in Asia, relying on TI’s global indices. Ms. Sherman observed, “Asia runs the gamut in perceived corruption,” that Singapore and Japan are ranked at top while Vietnam and Indonesia are close to the bottom of the list. However, she explained also that Asian countries have reached a shared consensus on the importance of combating corruption and have jointly undertaken significant international obligations in this direction. Besides current international conventions and APEC agendas, Ms. Sherman pointed out that Trans-Pacific Partnership (TPP), a multilateral trade agreement—if it turns out to be successful—can be anticipated to play a significant role in setting high-level enforceable obligations. More detailed information on corruption can be found in the following Transparency International publications:
- Corruption Perception Index
- Bribe Payers Index
- Anti-Corruption Plain Language Guide
- Global Corruption Barometer
Panel Discussion, Moderated by Professor deLisle
Innocents Abroad: Culture, Corruption and Compliance Challenges in East Asia
Roger Magnuson, the head of the National Strategic Litigation Group and Partner in the Trial group at Dorsey & Whitney LLP, addressed key trends and issues in anti-bribery enforcement, focusing on penalties, provisions and prosecutors.
Penalties for violations of anti-bribery provisions are severe (and in some cases, extreme). For example, under the Foreign Corrupt Practices Act (FCPA), in a criminal prosecution individuals can face fines of up to $100,000 per violation and/or up to 5 years in prison. Business entities face fines of up to $2 million per violation. In a civil action under the FCPA, the penalty can be up to $10,000 per violation. Moreover, in SEC enforcement actions, courts may impose an additional fine not to exceed the greater of the gross amount of gain, or from $5,000 to $50,000 in the case of an individual and from $50,000 to $500,000 in the case of a company.
The bribery provisions are expansive. Generally, FCPA anti-bribery provisions prohibit issuers and U.S. domestic concerns and organizations and individuals acting for them from offering or bribing foreign government officials in order to obtain or retain business. Under the current provisions, there is no need to prove actual knowledge as long as knowledge is proved circumstantially.
Additionally, as Mr. Magnusson explained, prosecutors are “excited.” The government created the SEC FCPA Specialized Unit, staffed by 21 attorneys, 8 assistant directors (over half of whom are in regional offices). New surveillance techniques adopted by Department of Justice are used to detect and discover FCPA violations. Another provision incentivizing the discovery of bribery is the Dodd-Frank whistleblower provision. The provision provides strong financial incentives for anyone who voluntarily provides the SEC with original information that leads to a successful enforcement action resulting in monetary sanctions in excess of $1 million.
The Moral Imperative for Nonstate Actors to Refrain from Corrupt Acts
Professor Philip M. Nichols is an Associate Professor of Legal Studies at the Wharton School of the University of Pennsylvania. Prof. Nichols’s talk focused on the moral component of corruption in emerging economies. For instance, he argued that engaging in corruption does not yield the best outcome for a business. Most well-managed businesses understand that idea at an intuitive level and would prefer to avoid corruptive behavior. However, in many contexts, particularly in Southeast Asia, a business that does not engage in corrupt actions is vulnerable to businesses that do; in the absence of some form of assurance that other businesses are not cheating then a business faces a dilemma: cheat and face the definite consequence of performing sub-optimally or do not cheat and face the equal possibilities of performing better or of being destroyed.
Prof. Nichols has written extensively on corruption in new economies, including on the experience in East Asia and Southeast Asia. A list of his relevant publications can be accessed here.
Who bribes authoritarian rulers and why—evidence from China
Yuhua Wang, an Assistant Professor at the Department of Political Science at the University of Pennsylvania, shared his research on who bribes authoritarian rulers in China and why. Professor Wang noted that Chinese domestic private firms are more likely than foreign invested firms to bribe. He also theorized that investors in weak rule-of-law regimes must bribe to build political connections as a substitute for the protections that would otherwise be afforded for property rights-protective institutions. Prof. Wang summarized empirical findings on this subject which he is publishing in a forthcoming article.
The article tests his theory about the incentives to bribe using firm-level survey data from China. The paper creatively proposes—in a field where hard numbers can be very hard to come by—to use entertainment and travel costs (ETC) as a proxy for estimating graft by China firms. Based on his analysis of these numbers and his qualitative interviews, Prof. Wang argues that firms’ bribing behavior can be predicted by internal and external incentive structures of the firm. Internally, firms with stricter internal auditing rules spend less on ETC (and presumably, to bribe officials). Externally, firms operating in jurisdictions with relatively-weak property rights can be shown to spend more on ETC. This may generate a strong inference that firms operating in weak property rights regimes must rely on political connections as a substitute for formal legal protections.
Prof. Wang’s research can be accessed here.
The “Production” of Corruption in China’s Courts and Its Broader Implications
Dr. Ling Li is Senior Research Fellow at the U.S.-Asia Institute of New York University School of Law. Dr. Li addressed judicial corruption in China, arguing that it is an institutionalized activity which is systematically inherent in the particular decision-making mechanism which is guided by the Chinese Communist Party’s instrumental “rule-by-law” ideal.
Dr. Li shed light on the decision-making process in Chinese courts. The judge who sits and hears a case first drafts a judgment. The judgment cannot be issued, however, unless it receives the approval by the head of the division where the judge sits. This system grants the supervising judge, who has not heard the case, discretionary decision-making power. Moreover, the approval process is formalistic with little emphasis on the legal grounds or procedural rights.
See a discussion on how these issues in China’s judicial decision-making mechanism are deeply-rooted in the country’s legal infrastructure here.
Financial Journalism—Conflicts of Interest and Ethics
Dr. Damian Tambini, Senior Lecturer in the Department of Media and Communications at the London School of Economics, joined our discussion via Skype (see an image of Dr. Tambini addressing the audience here). Dr. Tambini talked about the key role that journalists and media play in the phenomenon of corruption. His talk was based on research he conducted in Hong Kong to better understand the role of the legal framework versus self-regulation and internal codes of conduct in the realm of business journalism (including interviews with professional journalists, editors and other experts in the region). Dr. Tambini argued that Chinese media played sort of propaganda role for the government, instead of the role of the supervisory watchdog which we might expect. Moreover, he pointed out that corruption exists within journalists themselves.