Practicing and Prosecuting Foreign Corruption

lady-justice-677945_1280

KleptoCast 10: Casey Michel talks to Steve Levine, Adjunct Professor at Georgetown University, about the Foreign Corrupt Practices Act, a controversial case study, and prospects under the Trump administration.

 

By Casey Michel

James Giffen, according to US District Judge William Pauley III, is a hero. At least, that was Pauley’s assessment in 2010, when the judge ruled in what was, at that time, the largest case ever brought relating to the US’s Foreign Corrupt Practices Act (FCPA). Initially charged with everything from conspiracy and money laundering to violating the FCPA outright, Giffen watched the case against him unspool into a farce of bickering governmental agencies, questionable diplomacy, and post-Soviet kleptocrats manipulating Western businesses to their own ends.

All told, Giffen stood accused of funneling over $80 million to, among others, Kazakhstani President Nursultan Nazarbayev. However, Pauley found Giffen guilty of merely failing to report a foreign bank account in his tax returns. With the ruling finally handed down some seven years after the initial charges came against Giffen, the case, as one analyst wrote, came to a “sputtering” close. Or as Pauley added during his ruling, “This ordeal must come to an end.”

In addition to the ruling, however, the case hammered the credibility of the FCPA, widely regarded as one of the US’s primary tools for combatting foreign corruption. Now, almost a decade after Giffen escaped any serious ramifications for his actions, questions once more surround the FCPA. Despite a recent surge in enforcements in FCPA-related cases, the new administration in Washington may well be looking to unwind the gains the Act has brought to bear in corralling international bribery, both commercial and diplomatic. Despite the FCPA’s largely positive impact, the fallout from the Giffen case continues to hang – and may well be a harbinger of things to come.

Forming Enforcement

 In order to assess how the FCPA may transform – or dissolve – under the administration of US President Donald Trump, it’s worth tracing the Act’s developments since its inception under former President Jimmy Carter. Congress originally passed the FCPA in 1977, noting that bribery, as The New York Times found, “embarrasses friendly governments, causes a decline in foreign esteem for the United States and casts suspicion on the activities of our enterprises, giving credence to our foreign opponents.”

The FCPA was, at the time, an outgrowth of investigations pertaining to both Watergate and the Church Committee – and as the University of Cambridge’s J.C. Sharman recently wrote, the FCPA helped kick off the US’s “unusual commitment to the cause of fighting international corruption.” Jointly enforced by both the Securities and Exchange Commission (SEC) and Department of Justice (DOJ), the FCPA was, as Southern Illinois University Law Professor Mike Koehler noted, the “first law in the world governing domestic business conduct with foreign government officials in foreign market.”

Broadly, and since its commencement in 1977, the FCPA has prevented American individuals and companies from bribing “foreign government officials to assist in obtaining or retaining businesses.” In 1998, the FCPA was expanded, such that the Act would additionally apply to individuals – including non-American firms and persons – found guilty of “corrupt payments” within the US proper. As the SEC specified, the FCPA “can apply to prohibited conduct anywhere in the world.”

Still, despite the FCPA’s breadth, enforcement remained an issue. As Grinnell College’s Brad Graham and Davidson College’s Caleb Stroup wrote in 2015, the Act “was virtually unenforced during the first twenty years of its existence.” That, however, began to shift in the late years of the George W. Bush Administration and early years of the Barack Obama Administration, as both the DOJ and SEC stepped up their enforcement campaigns.

Diplomacy by Snowmobile

It was in this milieu that Giffen – a smart-mouth, swashbuckling American businessman – first started building his links across the post-Soviet space in earnest. With friends like former Soviet Premier Mikhail Gorbachev and Nazarbayev, Giffen became one of the primary actors linking Western hydrocarbon companies with post-Soviet governments, especially those lining the Caspian Sea. Eventually, according to prosecutors, those hoping to take advantage of Giffen’s connections included oil majors like ExxonMobil, BP, and ConocoPhillips.

Per documents relating to Giffen’s case, the schemes linking payments from foreign hydrocarbon companies to the Nazarbayev regime appeared relatively straightforward. For instance, as prosecutors laid out, Mobil paid Giffen some $51 million for his help in negotiating a deal with Astana. Giffen then transferred half of those funds to a Swiss account and, according to the NYT, “then sent the money on a circuitous path through a number of other accounts, including one registered to a British Virgin Islands company.” Other material included within the bribery allegations surrounding Giffen and Nazarbayev were snowmobiles, fur coats, and at least one speedboat.

However, Giffen’s dealings soon caught the eye of Washington, and federal agents arrested him as he attempted to board his plane in New York. (Among the material on Giffen’s person when he was arrested: a diplomatic passport issued by Kazakhstan.) As Georgetown University’s Steve Levine, who chronicled the post-Soviet scramble for Caspian energy, wrote in Foreign Policy, “The case seemed open and shut, since the prosecutors presented a detailed paper trail — provided by a Swiss magistrate — of Giffen slicing payments into tiny discrete pieces for transfer into secret Swiss bank accounts, rather than shifting them as a whole, a classic method of money laundering.” As Levine found, US diplomats said that Nazarbayev – who remains the lone post-Soviet leader still ensconced in power – “so dreaded being tarnished by a Giffen conviction that both he and his envoys pleaded repeatedly for the George W. Bush Administration to order the case be dropped.”

But then, the prosecution faltered. Giffen’s lawyers argued that their client wasn’t simply a “counselor” to Nazarbayev; rather, he was an individual furthering American interests in the post-Soviet space, all while maintaining Washington’s approval. Giffen requested classified documents from the CIA to back his claims; Pauley, upon perusing classified documents, then noted that Giffen had “act[ed] as a conduit for communications on issues vital to America’s national interest in the region.” Shortly thereafter, the prosecution officially collapsed. As Pauley said, “How does Mr. Giffen reclaim his reputation? This court begins by acknowledging his service.”

The case, as Levine wrote, acted as something of an “inflection point” for the FCPA. “The lesson was clear: If you had the nerve and the deep pockets, not to mention some chutzpah and creativity, you could defy the Justice Department on foreign bribery, and win,” Levine noted. While enforcement has actually increased in the time since – 2016 saw a record-number of enforcements from the SEC, for instance – corporate America “assum[ed] an increasingly adversarial posture” toward the FCPA around the time the prosecution against Giffen began in earnest. (For those interested, The FCPA Blog continues to list ongoing enforcements and news surrounding the Act.)

Now, despite evidence the FCPA remains at the forefront of combating foreign bribery cases, a new administration has come to Washington with a distinct history of opposing the Act. Trump, for instance, called the FCPA in 2012 a “horrible law,” with related enforcement “absolutely crazy.” But as Wall Street Journal’s Samuel Rubenfeld found, there remains the outside possibility that Trump, with an eye toward being perceived as combating corruption, may be willing to at least maintain the FCPA’s current structure.

Still, questions hang as to where the FCPA goes from here. But regardless of what Trump does with the FCPA, it’s clear that the Act remains one of the US’s primary tools for combating foreign corruption – even if it wasn’t quite enough to prevent a post-Soviet autocrat from landing a pair of snowmobiles along the way.

Casey Michel has worked as a journalist and researcher in the U.S. and former Soviet Union.

Steven Levine is an Adjunct Professor at the Center for Security Studies at Georgetown University’s School of Foreign Service.