A Convergence of 1996 and 1997 Global Efforts to Curb Corruption and Bribery in International Business Transactions: The Legal Implications of the OECD Recommendations and Convention for the United States, Germany, and Switzerland

American University International Law Review, Sep 2018

Nora M. Rubin

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A Convergence of 1996 and 1997 Global Efforts to Curb Corruption and Bribery in International Business Transactions: The Legal Implications of the OECD Recommendations and Convention for the United States, Germany, and Switzerland

A Convergence of 1996 and 1997 Global Efforts to Curb Corruption and Briber y in International Business Transactions: The Legal Implications of the OECD Recommendations and Convention for the United States, Germany, and Switzerland Nora M. Rubin 0 0 This Article is brought to you for free and open access by the Washington College of Law Journals & Law Reviews at Digital Commons @ American University Washington College of Law. It has been accepted for inclusion in American University International Law Review by an authorized administrator of Digital Commons @ American University Washington College of Law. For more information , please contact , USA - * J.D. Candidate, 1999, American University, Washington College of Law; B.A., 1993, Trinity College, Washington, D.C. This Comment is dedicated to my husband, Cary, and my children, Paul and Cara. for their constant love, tireless patience, and unqualified support. Special thanks to my mother. Eileen Sloyan. and my sister, Eileen Sloyan-Bhanderi. for always being there. Thanks also to Professors Padideh Ala'i and Nicholas Kittrie, for their ideas and encouragement. to Leslie McKay for her invaluable critique, and to my very able colleagues at the American UniversityInternationalLa isReview for their assistance. III. A GLOBAL ISSUE: INTERNATIONAL DIMENSIONS OF EFFORTS TO CURB CORRUPTION ................... 275 A. FOREIGN GOVERNMENTS, INTERNATIONAL FINANCIAL INSTITUTIONS, AND NON-GOVERNMENTAL ORGANIZATIONS .................................................. 275 1. Foreign Governments.: The European Union .......... 275 2. InternationalFinancialInstitutions: The World Bank andIMF .............................................. 276 3. Non-governmental Organizations: Transparency International.......................................... 280 B. INTERNATIONAL ORGANIZATIONS .......................... 282 1. The UnitedNations ................................... 282 2. The OrganizationofAmerican States.................. 282 3. OECDRecommendationsand 1997 Convention ....... 283 IV. GERMANY: IMPLICATIONS FOR CRIMINAL AND TAX LAW S ................................................. 289 A. BRIBERY: CRIMINAL LAW INFLUX ......................... 289 B. BRIBERY IN FOREIGN COUNTRIES .......................... 290 C. CIVIL LAWS AND REGULATIONS ............................ 291 D. TAX LEGISLATION AND DEDUCTIBILITY .................... 291 E. LEGISLATIVE AND POLITICAL DEVELOPMENTS SINCE 1994.. 293 V. SWITZERLAND: IMPLICATIONS FOR BANK SECRECY LAWS ........................................... 298 A. HISTORY, CORRUPT DICTATORS, AND ABUSES ............. 298 B. LEGAL BASIS FOR SWISS BANK SECRECY ................... 301 1. The Civil Code, Code of Obligations, and Federal Banking Act ........................................... 301 2. CriminalLiability..................................... 301 3. Exceptions and Conflict: Article 305bis and Article 305ter ................................................ 302 C. NAZI GOLD AND SWISS BANK ACCOUNTS OF NAZI HOLOCAUST SURVIVORS ................................... 304 D. ITALIAN CORRUPTION: SWISS COOPERATION AND JUDICIAL A SSISTANCE ............................................... 307 VI. RECOMMENDATIONS .................................... 310 A. THE UNITED STATES AND OECD MEMBER COUNTRIES ..... 310 B. G ERMANY ................................................. 316 C. SWITZERLAND ............................................. 317 CON CLU SIO N ................................................. 319 INTRODUCTION The paying of a bribe to somebody is not a crime, sometimes the representative might say, I don't need anything unless the sales (or project) goes ahead; but if it does, then include 5% in your price for me. Only that 5% may be 10%, 15%. or even 20%. On an order of $100,000 worth of goods, $10,000 may not ring any alarm bells: but what if the order is for $100 million? These "success fees" lie at the heart of a grand corruption.! In his statement, George Moody-Stuart captured some of the realities of doing business in the global marketplace during the last decade of the twentieth century. Transnational corruption has become too "grand"2 to ignore; bribes are still corruption's main 1. The TI Source Book Part B: Applying the Framework (visited Sept. 20, 1997) <http://www.transparency.de./sourcebooklPart_B/Chapter..13/index.html> (statement of George Moody-Stuart. Transparency International ('TI") at a 1994 conference on corruption). TI is a not-for-profit, non-governmental organization (NGO) launched in 1993 to mobilize anti-corruption actions by international organizations. See Helping Countries Combat Corruption: The Role of the World Bank; at 62, The World Bank (September. 1997) [hereinafter World Bank Role) (describing methods through which TI aims to curb corruption): see also Beverly Earle, The United States Foreign Corrupt Practices Act and the OECD Anti Bribery Recommendation: When Moral Suasion Won't Work, Try the Money Argument, 14 DICK. J. INT'L L. 207, 232-33 (1996) (examining the enforcement of the Foreign Corrupt Practices Act (FCPA), the United States legislation prohibiting foreign bribery, and describing TI's mission to curb corruption and bribery in international business transactions). TI aims to curb corruption by developing national and international coalitions that will pressure governments to change laws and policies that directly or indirectly foster the continuation of corrupt business practices. See World Bank Role, supra at 62. A one-issue NGO, TI is based in Berlin, Germany, and has more than seventy chapters worldwide, including one in Washington, D.C. See id. TI has been surprisingly successful at focusing the attention of countries and international organizations on the need to address corruption. See Andrew Adonis, Politics,Money, and Crime:A World on the Take - 1994 hasseen CorruptionMaking HeadlinesAcross the Globe.FIN. TIMES, Dec. 30, 1994, at 4 (describing TI's evolutionary approach to fighting global corruption as combining publicity with, among other things, the promotion of tougher laws and technical assistance). 2. See World Bank Role, supra note 1. at 9-10 (describing the differences between "grand" and "petty" corruption). "Grand" or "wholesale" corruption occurs when the benefits realized, or amounts given, are enormous; and it is often associated with international business transactions involving politicians as well as bureaucrats. See id. at 9. In contrast, the sums involved in "petty" corruption are small, and this type of corruption is usually practiced by lower-level officials with tools,3 and bribery across borders is not necessarily criminal.4 In fact, transnational bribery is actually tax-deductible in Germany, France, and several other Member countries of the Organization of Economic Co-operation and Development ("OECD").' Moreover, in the past, poor salaries. See id. at 9-10 (describing petty theft of state assets). Petty corruption may, however, be so pervasive throughout a country's public sector that its aggregate costs can exceed those of grand corruption. See id. at 10. The exact scale and impact of bribery is hard to measure empirically. See generally,Graham Bowley et al., Goodbye Mr 10%, FIN. TIMES, July 22, 1997, at 15 (noting that the exact scale and impact is unknown). According to the World Bank, if bribes equal five percent of foreign direct investment ("FDI") and imports into developing countries-where corruption is most damaging-the total would be almost $80 billion annually. See id.Demands of thirty percent are increasingly replacing the old ten percent rate, and Western businesses "are balking at paying such inflated kickbacks." Id. 3. See World Bank Role, supra note 1, at 9. 4. See OECDActions to Fight Corruption, at 3, OECD Doc. C/MIN(97)17 (May 25, 1997) (Note by the Secretary-General to the Council at Ministerial Level, May 26-27, 1999) (describing OECD Member countries actions to fight corruption and noting the Council's recommendation that OECD Member countries should enact laws criminalizing the bribery of foreign officials by the end of 1998) . The United States is one of the few countries to criminalize transnational bribery through the FCPA. See id. at 2. Anti-bribery legislation in several other Member countries-Canada, Greece, Hungary, Mexico, South Korea, Sweden, Turkey, the United Kingdom-is broadly drawn and facilitates the prosecution of bribery of foreign public officials in certain situations. See Id.In other OECD Member countries, bribery of foreign public officials is not criminal. See Id.But see Rolf Saligmann, Implementation of the OECD Recommendations on Bribery In International Business Transactions of May 27, 1994, in Germany, 1, 4 <http://www.transparency.de./organization/chapters/germany/tid-rep2.htm> (visited October 26, 1998) (noting recent German ratification and implementation of the 1997 OECD Convention) . In response to the OECD recommendations, some government attitudes are changing. See Bowley et al., supra note 2. For instance, Japan now supports the OECD's efforts to address the supply side of corruptioni.e., the noncriminal status and tax-deductibility of bribes in the majority of states in the developed world. See id. 5. See Implementing the 1996 OECD Recommendation on the Tax DeductibilityofBribes to ForeignPublicOfficials, OECD (May 26, 1997) (Report by the Committee on Fiscal Affairs ("CFA") to the OECD Council at Ministerial Level) [hereinafter Implementation of Tax Deductibility Recommendation] (describing current member state practices regarding the tax treatment of overseas bribes). Attitudes of OECD Member countries concerning the deductibility of bribes to foreign officials vary greatly. See id. at 7. The laws vary accordingly but in most countries, bribes across borders are deductible as business expenses. See id. at 7-8; M. Javade Chaudri, OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions (Conference on the bank secrecy laws of Switzerland, another member of the OECD, enabled dictators to effectively launder and safeguard the proceeds of corrupt business transactions.' In the nineties, the soaring volume of trade and international business transactions contributes to the increased awareness of, and agitation about, corrupt transnational business practices There is no proof that corruption is more prevalent now than ever before in Corruption, American University, Washington College of Law. April 6. 1998). in 2 COMBATING CORRUPTION-RECENT MULTILATERAL INITIATIVES 252 (1998) [hereinafter 2 COMBATING CORRUPTION I (on file with author) (summarizing and analyzing the OECD Convention, listing the signatories to its provisions, and noting that foreign bribery and related tax-deductibility is an accepted German business practice). The OECD Member countries are: Australia, Austria, Belgium. Canada, Czech Republic, Denmark, Finland. France. Germany. Greece. Hungary. Iceland, Ireland, Italy, Japan, Luxembourg, Mexico, Netherlands. New Zealand, Norway, Poland, Portugal, South Korea, Spain. Sweden. Switzerland. Turkey. United Kingdom, United States. See id. at 261. 6. See Simon Holberton, MarcosMoney ClaimantsAfeet FIN. TIMES. Jan. 16. 1996, at 6 (reporting the existence of $475 million held in Swiss bank accounts in the name of the former president of the Philippines. Ferdinand Marcos - now claimed by his widow; and noting the corrupt governance and abuse of power that made the accounts possible); see also Michela Wrong, The Dinosaurat Bay FIN. TIMES, Nov. 2-3, 1996, at 7 (discussing Mobutu Sese Seko's corrupt theft of millions of dollars from-the then named Zaire's-state coffers). Swiss banks accepted stolen Zairean monetary assets used by Mobutu to finance a lavish lifestyle in Europe and in his own impoverished country. See Id.: see also Ndiva Kofele-Kale, Patrimonicide: The InternationalEconomic Crime of Indigenous Spoliation, 28 VAND. J. TRANSNAT'L L. 45 (1995) (characterizing as indigenous spoliation the systematic theft of monetary assets by corrupt leaders like Mobutu and Marcos). 7. See Martin Wolf, Corruption in the Spodight, FIN. TIMES, Sept. 16. 1997, at 23 (detailing the increased international consciousness of corruption and its damaging effects). Explanations abound for the attention being paid to the issue. See id. The end of the Cold War and the command economies of the former Soviet Union and Central and Eastern Europe exposed the extent of the informal .corrupt" sector that had been necessary to make their economies work. See id. The current privatization process in those same economies yields ample opportunities for increased corruption, at least in the short-term. See id.: see also Daniel Kaufman and Paul Siegelbaum, Privatizationand Corruptionin Transition Economies, 50 J. INT'L AFF. 419 (1996) (discussing the unprecedented scale of privatization now underway in the former Soviet Union and Eastern Europe and the perception that endemic corruption threatens the transition from command to market economies and democracy). Globalization and a resulting increase in business transactions are further explanations for the increased awareness of corrupt practices, as is focused attention on the role of the state brought on by a consensus on the superiority of the market. Wolf, supraat 23. history.' There are, however, continuing international efforts to decrease corruption's pervasiveness in international business transactions.' These efforts reflect a major change in the attitudes of countries about corruption,'0 dispelling the myth that corruption, as a matter of "culture," is acceptable." The ideas set forth by the apologists for corruption"2 have lost their appeal and validity in the brave new world of economic competitiveness and interdependence. 8. See Wolf, supra note 7. See generally Daniel Kaufmann, Corruption: The Facts, 107 FOREIGN POL'Y, 114 (1997) (noting the ancient nature of corruption, Its links with trade, and the differing viewpoints about its positive and negative aspects). 9. See Wolf, supra note 7 (noting the increased international attention being given to the phenomenon of corruption); see also OFFICE OF THE CHIEF COUNSEL FOR INTERNATIONAL COMMERCE, U.S. DEPARTMENT OF COMMERCE, ANTICORRUPTION REVIEW (1997), reprintedin COMBATING CORRUPTION SUPPLEMENTRECENT MULTILATERAL INITIATIVES (1998) (Conference on Corruption, American University, Washington College of Law, April 6, 1998) [hereinafter COMBATING CORRUPTION SUPPLEMENT] (on file with author) (detailing the current multinational efforts by the United States, foreign governments, international and non-governmental organizations like the OECD, and international financial institutions, to combat corruption in international business transactions). 10. See generally COMBATING CORRUPTION SUPPLEMENT, supra note 9 (detailing the rationale and commitment to serious reform behind the multiplicity of efforts to combat corruption); discussion infra Part III (noting the global awareness about the pervasiveness and economically detrimental effects of corruption). 11. See The TI Source Book: Executive Summary (visited Sept. 20, 1997) <http://www.transparency.de./sourcebooklsummary.html> (writing provocatively on the pervasiveness of corruption, its causes, and how best to combat It). TI is openly skeptical about the idea that corruption can be understood in a "cultural" context. See id. This anti-corruption NGO implies that developed nations conveniently use this illusion as a pretext for continuing the non-criminal, taxdeductible status of transnational bribery within their legal systems. See Id. TI notes that the Swiss numbered bank accounts do not generally characterize any country's traditional culture. See id. In fact, most people living in societies where corruption is endemic bitterly resent its practice. See id. Moreover, domestic bribes are typically illegal and criminal (although laws are not enforced) in most so-called corrupt cultures. See id. 12. See SAMUEL P. HUNTINGTON, POLITICAL ORDER IN CHANGING SOCIETIES 68, 69 (1969) (defending a limited amount of corruption in societies that are generally not corrupt on the theory that corruption helps broaden the political system, stimulates economic development-by reducing obstacles to economic growth-and hastens modernization of the developing country); Joseph S. Nye, CorruptionandPoliticalDevelopment: A Cost-BenefitAnalysis, 61 AM. POL. SCI. REv. 417 (1967) (arguing that corruption is the best substitute for the lack of an Private sector corruption, while of concern because of the difficulty of monitoring or controlling the practice, is beyond the scope of this comment. The area of public procurement, a concern of the World Bank,' 3 the International Monetary Fund ("IMF")," and governments,' is more appropriately addressed as a separate topic, and this comment does not attempt to do so. Instead, this comment examines the 1997 multilateral efforts to curb bribery and corruption in international business transactions, as well as the implications of the 1997 OECD Convention for the United States' Foreign Corrupt Practices Act ("FCPA").'6 Furthermore, this comment specifically examines the Convention's significance for Germany and Switzerland. These countries exemplify two different aspects of the supply side of bribery. Before the recent ratification and implementation of the 1997 OECD Convention in Germany, domestic law permitted overseas bribery by German businesses and individuals, and tax laws still treat bribes as tax-deductible business expenses." Switzerland's stringent bank secrecy laws facilitate the safeguarding of financial assets for all prospective account holders regardless of the assets' criminal or corrupt origin. 1 Part I of this comment briefly defines corruption and explores the possible reasons for current international consensus and actions on essential infrastructure in countries in the early stages of development); Kaufmann. supranote 8, at 114-18 (introducing and arguing against pro-corruption ideas). 13. See WorldBank Role, supra note 1, at 29-32. 14. See generally INTERNATIONAL MONETARY FUND, GOOD GOVERNANCE: THE IMF'S ROLE (Aug. 1997) (addressing the IMF's role in promoting good governance through the encouragement of transparent accounting, regulatory, and procurement procedures). 15. See id. at 1-10 (discussing the IMF's role in helping governments create transparent procurement systems). 16. 15 U.S.C. §§ 78a, 78m(b), 78dd-1, 78dd-2. 78ff (1994). 17. See Robert S. Leiken, An End to Corruption,WASH. POST, Apr. 16, 1996, at A15; see also discussion infra Part IV (analyzing Germany's criminal and tax codes). 18. See Holberton, supra note 6 (discussing Ferdinand Marcos' use of Swiss bank secrecy laws to safeguard looted Philippine assets deposited in his name); Wrong, supra note 6 (describing Mobutu Sese Seko's plundered fortune in Swiss bank accounts); see also discussion infra Part V (analyzing Swiss banking and criminal laws that treat the right of financial privacy and confidentiality as inviolate). the issue. Part II analyzes the FCPA and considers its relevance to current international anti-bribery efforts. Part III reviews recent multilateral initiatives to curb bribery. Part IV analyzes applicable provisions of the German Criminal and Tax Codes, and Part V notes possible ramifications for Swiss bank secrecy laws. Finally, this comment recommends that individual OECD Member countries ratify, implement, and enforce the 1997 OECD Convention criminalizing transnational bribery. This comment also recommends that OECD Member countries eventually reform tax codes that presently allow tax deductions for amounts paid in bribes. I. CORRUPTION PERVADES INTERNATIONAL BUSINESS A. DEFINITION Corruption may be simply defined as "the abuse of public office for private gain."" A broad range of human actions and many different forms of corruption are consistent with that definition.20 The solicitation, acceptance, or extortion of a bribe by a public official for private enrichment constitutes abuse of public office,2' or the offense of passive corruption.2 A private agent who offers a bribe to a government official for competitive advantage and profit also 19. World Bank Role, supra note 1, at 8 (emphasis omitted); see id. at 19-20 n. 1 (providing a detailed definition of corruption, including a statement by World Bank General Counsel, Ibrahim Shihata). Mr. Shihata describes the level, extent, impact, and types of corruption in societies and all branches of governmentwhether democratic or authoritarian-in private and public sectors. See id. 20. Seeid.at 19 n1. 21. See id. 22. See A Union Policy Against Corruption: Communication from the Commission of the European Communities to the Council and the European Parliament, COM(97)192 final, at 2 n.1 [hereinafter EU Commission]. The Commission defines passive corruption as: The deliberate action of an official who requests or receives, directly or through a third party, advantages of any kind whatsoever, for himself or for a third party, or accepts a promise of such an advantage, to act or refrain from acting in accordance with his duty or in the exercise of his functions, in breach of his official duties .... OECD COMBATS CORRUPTPRACTICFS abuses public office,23 and commits the legal offense of active corruption. 4 Abuse of public office for personal gain can occur in the absence of bribery through patronage or nepotism," the systematic theft of state assets, 6 or the diversion of state revenues. 7 Political and bureaucratic corruption may be independent of each other, or there may be collusion." In recent years, media coverage of election laws, campaign finance contributions, and conflict of interest problems has uncovered inherent weaknesses in the United States' political system that render it susceptible to corrupting influences."' Although corruption in societies can be systemic or isolated,3' it is found in 23. See WorldBank Role, supranote 1. at 8. 24. See EU Commission, supra note 22. at 2 n.l. The Commission defines active corruption as: The deliberate action of whosoever promises or gives, directly or through a third party. an advantage of any kind whatsoever, to an official for himself or for a third party, for him to act or refrain from acting in accordance with his duty or in the exercise of his functions, in breach of his official duties .... Id. 25. See WorldBank Role, supranote 1, at 8. 26. See Kofele-Kale, supra note 6. at 56 (including in the definition of indigenous spoliation, the systematic theft of monetary assets by corrupt leaders who use state treasuries as their private bank accounts): David Hoffman, ho Will Control Market Economy? WASH. POST, Sept. 26, 1997. at A17. For example. western investors wonder whether Russia's leaders will be able to clean up rampant corruption in a post-Soviet economy torn between "bandit capitalism" and "people's capitalism." See id. The transition to market capitalism in Russia is fraught with setbacks, as "bribery and protection rackets sap every Russian business." Id. 27. See Commission Annual Report (1996) on the Fight Against Fraud Protecting the Community's Financial Interests, COM(97). at 7 (detailing the fraud and irregularities affecting the European Union budget in 1996): Commission. Explanatory Report on the Convention on the Protection of the European Communities' Financial Interests, 1997 O.J. (C191) 2. 3 (noting amounts totaling ECU 1.33 billion, or 1.5% of the Community budget. siphoned into private hands in 1994). 28. See WorldBank Role, supranote I, at 10. 29. See Edward Walsh, Tamraz Defends Political Donations, WASH. POST, Sept. 19, 1997, at Al (reporting international businessman Roger Tamraz's unapologetic stance regarding his "gift" of $300,000 to the Democratic Campaign Committee during the 1996 elections, and his regrets for not giving $600,000). 30. See WorldBank Role, supra note 1. at 10. AM. U INT'L L. REv. every society. Formal and informal rules clash when systemic corruption exists.31 When surrounded by widespread societal corruption, individuals, businesses, and government officials tend to submit to rather than resist the prevailing systemic corruption "trap. 02 B. CAUSES Rooted in the history, political and economic development, and bureaucratic traditions of nation states, corruption's causes are always diverse.33 Corruption is more prevalent where legal institutions are weak, and power is exercised in an authoritarian fashion. Many have voiced concerns about rampant corruption in Eastern Europe, Russia, and the other countries of the former Soviet Union ("FSU") . While there is no doubt of the positive correlation between privatization and corruption, one Ukrainian official stated: "If you think privatization is corrupt, try without it. '"" Western analysts assert that the extent of corruption in the FSU and Eastern Europe is not surprising given the inadequacy of their legal systems to address private property ownership, individual autonomy, or limitations on the authority and discretion of government officials." 31. See id. at ll. 32. See id. 33. See id. at 12 (examining factors that can encourage corruption). See generallyMichael Johnston, What Can Be Done About EntrenchedCorruption?in ANNUAL WORLD BANK CONFERENCE ON DEVELOPMENT ECONOMICS 1997, at 69 (Boris Pleskovic & Joseph E. Stiglitz eds., 1997) (discussing corrupt processes, their social settings, and corruption equilibria). 34. See Keith Henderson & Michael Shea, GOOD GOVERNANCE AND CORRUPTION: THE NEW INDEPENDENT STATES (NIS) OF THE FORMER SOVIET UNION, March, 1998 (discussing the link between corruption and the generally low credibility of government in the NIS). 35. See Hoffman, supra note 26 (discussing the Russian government's efforts to create a more transparent and rule-governed society); see also Kaufman & Siegelbaum, supra note 7, at 421 (describing the privatization process and attendant corruption in the FSU and Eastern Europe). 36. Kaufman & Siegelbaum, supra note 7, at 419 (quoting an anonymous official's response to the Ukrainian Parliament's decision to halt the privatization program on the grounds of possible corrupt methods). 37. See id. at 423-24 (noting shortcomings in the legal systems of FSU countries). See generallyRobert Klitgaard, Cleaning Up and Invigoratingthe Civil OECD COMBATS CORRUPTPRAcTICES Western political commentators hope that the emergence of democratic institutions will solve the problem in the future, and they believe that a corrupt transition period is preferable to the absence of privatization.3 Russia's 1998 financial collapse, however, illuminates corruption's role as the lubricant of the post-Soviet economy, and reinforces a belief that the nature of Russian corruption is more enduring than transitional.Y Moreover, a highlyorganized Russian mafia controls the emerging business environment, and spreads a brutal strain of corruption in commercial dealings with Western countries."' C. ECONOMICS While corruption may show some positive economic effects in some political economies, this is true only for a static short-run impact." Studies on the negative effects of corruption on economic Service, 17 PUB. ADMIN. & DEV. 487, 500 (1997) (using the equation C (corruption) = M (monopoly) + D (discretion) - A (accountability) to explain the dynamics of corruption in transition and systemically corrupt economies). 38. See Kaufman & Siegelbaum, supra note 7, at 456, 458 (citing expert opinion suggesting corruption is more prevalent in non-privatized sectors). 39. See Carol J. Williams, The Germ of Post-Soviet Russia is Corruption: Bribe-Taking and Cronyism in Government Lead to Corner-Cutting and Scofflaws in Private Enterprise, L.A. TIMES, Sept. 20, 1998, at Al (describing the tenacity and extent of corruption that played a key role in Russia's recent economic collapse). Businessmen blame powerful ex-Communist bureaucrats, robber barons, a "resilient Soviet-era mentality," and the absence of the rule of law or enforcement mechanisms for the continuation of flourishing and destabilizing corruption). See id. All agree that Western expectations of a simple solution are naive. See id. 40. See id.(commenting on the globalization and violence of the Russian mafia in international business); see also Scott P. Boylan, Organized Crime and Corruptionin Russia: Implicationsfor U.S. and InternationalLan 19 FORDHIAM INT'L L.J. 1999 (1996) (linking bribery, corruption, and organized crime in Russia and abroad, and examining the resulting threat to Russia's emerging social structure). 41. See World Bank Role, supra note 1, at 15 (reviewing arguments for the benefits of corruption before pointing out its more pernicious long-term effects). See generallySusan Rose-Ackerman, When Is CorruptionHarmfulZ Background Paper for the World Bank's 1997 WORLD BANK DEVELOPMENT REPORT (1996) at 9-33 (analyzing some positive short-term effects of corruption in different economies); Susan Rose-Ackerman, Corruption and Development. in ANNUAL WORLD BANK CONFERENCE ON DEVELOPMENT ECONOMICS 1997 35. 36-42 (Boris AM. U. INT'L L. REv development are accumulating, and the World Bank is coordinating a great deal of literature on the subject." According to a study by Paolo Mauro, an economist for the IMF, corruption significantly lowers the level of foreign direct investment ("FDI") in developing countries." Three central findings emerge from another recent study concerning corruption and FDI in East Asia.44 First, a "rise in either the tax rate on multinational firms or the corruption levels in a host country reduces inward [FDI]."'4 For example, an increase in the corruption level of Singapore-a low corruption level country-to that of Mexico-a high corruption level country-is the equivalent of raising the tax rate by over twenty percentage points." Second, "there is no support for the hypothesis that corruption has a smaller effect on FDI into East Asian host countries."47 Third, "American investors are averse to corruption in host countries, but not necessarily more so than average OECD investors, in spite of the [FCPA]." ' This finding implies that United States companies indulge in bribery practices to compete, and risk prosecution under United States law. Pleskovic & Joseph E. Stiglitz eds., 1997) (detailing numerous reasons for bribes, such as clearing markets for scarce goods, motivating poorly paid officials, reducing costs, gaining influence, and generally making a distorted market work better). 42. See World Bank Role, supra note 1, at 14-15 (summarizing two major lines of research); see also Susan Rose-Ackerman, When Is CorruptionHarmfulz supra note 41, at 59-66 (enumerating a comprehensive list of scholarly sources on the economics of corruption and bribery). 43. See Paolo Mauro, Corruptionand Growth, 110 Q.J. EcON. 681, 683 (1995) (analyzing data consisting of subjective indices of corruption, the amount of red tape, the efficiency of the judicial system, and political stability for a cross section of countries). 44. See Shang Jin-Wei, How Taxing is Corruptionon InternationalInvestors, National Bureau of Economic Research Working Paper 6030 (1997) at 1. 45. Id. at 1, 22-23. 46. See id.at22-23. 48. Id.at 1. 49. See id.at 1. 47. Id.The study finds that although the annual FDI inflow into China has been large in the past ten years, over 60% of the total investment comes from overseas Chinese-especially those in Hong Kong. See id. at 24. China is In fact an underachiever as a host for FDI from the major source countries. See id. This implies that overseas Chinese are less sensitive to corruption, possibly because they can use personal connections to substitute for the rule of law. See id. D. LINKS TO THE DRUG TRADE, MONEY LAUNDERING, AND ORGANIZED CRIME Federal Officials estimate ten to twenty-five percent of the drugs smuggled into the United States each year from Mexico are transported across the U.S.-Mexican border with the help of corrupt United States Customs and law-enforcement officials who pocket huge bribes and look the other way." A Justice Department agent describes the price demanded as between $30,000 and $60,000 per transaction.5 ' On the Mexican side, corruption is systemic, reaching into the highest levels of Mexican state and municipal governments.'2 Given the impoverishment of the border area,"3 the extent of bribery raises concerns about the drug trade's corrupt influence on democratic institutions on both sides of the border. Drug traffickers successfully launder as much as $100 billion of the $500 billion earned each year on illegal drug sales." Profits from 50. See William Branigin & John W. Anderson, Drug Corruption Heading North; Some U.S. Agents Succumb to Lure of Traffickers' Cash, WASH. POST, Nov. 3, 1997, at Al. 51. See id. Indictments for drug distribution, money laundering, and official corruption were recently brought against police officers who used their police cruisers to escort drug shipments to delivery points. See id. In southern Texas, a county judge, a county clerk, the sheriffs of three counties, a local district attorney, and a jail administrator were all convicted of drug crimes. See id. See generally, William J. Olson, International Organized Crime: The Silent Threat to Sovereignty,21 FLETCHER F. WORLD AFF. 65 (1997) (explaining the links between the drug trade and organized crime, and observing that the huge sums of money involved make corruption pervasive and difficult to solve). The author notes that the United States decertified Colombia in 1996 because of the degree to which the drug trafficking cartels had subverted the political process. See id. at 65. Decertification mandates certain sanctions, like suspending most forms of United States' assistance. See id. 52. See Branigin & Anderson, supranote 50, at Al: see also John Anderson, A Mexican's Mystery Millions: Riches of Ex-President's Brother Mfay Soon Be Explained,WASH. POST, Oct. 12, 1998, at A14 (reporting that millions of dollars were accumulated and laundered in foreign banks by Raul Salinas. brother of former Mexican president Carlos Salinas). Swiss investigators found that Raul Salinas controlled most of the drugs transshipped through Mexico throughout his brother's presidency from 1988-94. See id. 53. See Branigin & Anderson, supra note 50 (discussing the extent of poverty along the United States-Mexico border). 54. See Lisa A. Barbot, Money Laundering: An International Challenge. 3 TUL. J. INT'L & COMP. L. 161, 168 (1995) (discussing the money laundering the drug trade and from organized crime are potent corruption tools. 5 Factors such as the trend towards open economies and the instantaneous nature of financial transactions simplify corrupt transactions. 56 Criminals are able to exploit the advanced technology that expedites international transactions. Drugs, profits, corruption, money laundering, and organized crime are interconnected issues in the public consciousness because of the media attention given to the war on drugs, and the astronomical sums of money involved.58 These links give added impetus to the anti-corruption momentum at both the international and national levels. 9 II. THE FOREIGN CORRUPT PRACTICES ACT: ANTI-BRIBERY PROVISIONS A. ELEMENTS, LIABILITY, AND PENALTIES The United States enacted the FCPA 0 in 1977 as a response to a number of overseas bribery scandals involving United States 57. See id. 59. See id. process and international initiatives to combat it); see also Paulina L. Jerez, Proposed Brazilian Money Laundering Legislation: Analysis and Recommendations, 12 AM. U.J. INT'L L. & POL'Y 329, 330-34 (1997) (describing the money laundering process, its link to the international economy, and Its challenge to societies and governments in the preservation of law, order, and stability). 55. See Barbot, supra note 54, at 164, 169; see also Olson, supra note 51, at 75-78 (discussing the vast amounts of money available to criminal organizations from the drug trade, and its inherent power as a tool for bribery and corruption): Boylan, supra note 40 (linking drug profits to bribery, corruption, and organized crime in Russia). 56. See Bruce Zagaris & Scott B. MacDonald, Money Laundering,Financial Fraud,and Technology: The Perilsofan InstantaneousEconomy, 26 GEO. WASH. J. INT'L L. & ECON. 61, 63 (1992) (examining the potential for abuse of financial technology, and proposing legal measures to combat it). 58. See supranotes 50-58 and accompanying text (describing the vast amounts of money made in the drug trade, and its corruptive influence). 60. 15 U.S.C. §§ 78m, 78dd-1, 78dd-2, 78ff (1994). corporations.6' Under the FCPA, bribery of foreign government officials, political parties, or political office candidates with offers of money, gifts, promises, or anything of value for the purpose of obtaining or retaining business is illegal. 2 Additionally, the FCPA forbids making payments to third parties "knowing" that the payments will be used for bribery purposes.0 This standard is intended to discourage a "conscious disregard" or "willful blindness" approach. The FCPA applies to both issuers 5 of securities under United States law and to domestic concerns." Required elements of the offense are: (1) the use of an instrumentality of interstate 61. See DONALD R. CRUVER, COMPLYING WITH THE FOREIGN CORRUPT PRACTICES ACT 1-9 (1994) (describing transnational bribery schemes involving prominent American corporations like Gulf Oil, Exxon, and Lockheed). See generally GEORGE C. GREANIAS & DUANE WINDSOR, THE FOREIGN CORRUPT PRACTICES ACT: ANATOMY OF A STATUTE 12-13 (1982) (discussing previous attempts to proscribe overseas bribery). 62. See 15 U.S.C. §§ 78dd-l(a), 78dd-2(a); see also Mark Shaffer & Anna Welch, Foreign CorruptPracticesAct, 34 AM. CRiM. L. REV. 697. 702 (1997) (describing the broad scope of the FCPA); Lucinda A. Low & Michael L. Burton. Anti-Bribery Pact: Corruption Is Target of MultilateralEfforts. NAT'L L. REV.. May 4, 1998, at C5 (describing the FCPA's criminalization of money payments or anything of value to a foreign official). 63. See 15 U.S.C. §§ 78dd-1(a)(3). 78dd-2 (a)(3); see also Low & Burton. supra note 62 (stating that in addition to actual knowledge of an illicit payment, awareness that such a payment is probable or likely is also covered by this provision of the FCPA). But see Bowley et al., supranote 2, at 15 (stating that the FCPA's provisions are often evaded by setting up joint ventures, with the non-U.S. partner paying the bribe). 64. See 15 U.S.C. §§ 78dd-1()(2), 78dd-2(h)(3). see also Low & Burton. supra note 62 (noting that "conscious disregard of 'red flags' may give rise to vicarious liability"). 65. See 15 U.S.C. § 78dd-l(a) (incorporating the definition of "issuers" from the Securities and Exchange Act, 15 U.S.C. §§ 78a-7811 (1994)); Low & Burton, supra note 62; see also Shaffer & Welch, supra note 62. at 698-99 (defining issuers as companies which have to register with the Securities and Exchange Commission (SEC), and whose stock is publicly traded in the United States). 66. See 15 U.S.C. § 78dd-2(a) (1994). "Domestic concerns" are defined exhaustively as "any individual who is a citizen, national, or resident of the United States, and any corporation, partnership, association. . . or sole proprietorship which has its principal place of business in the United States .... ." 15 U.S.C. § 78dd-2(h) (1). Thus, United States citizens, legal residents, and all business entities organized under United States' law are covered. See Low & Burton, supra note 62. commerce, 67 in furtherance of, (2) a payment or offer to pay something of value,68 (3) to a foreign official, political party, or political candidate, 9 (4) for the corrupt 70 purpose of inducing the official to act or refrain from acting,7' (5) to assist the company In obtaining, retaining, or directing business. The FCPA provides for civil and criminal penalties.73 A corporation may be liable for fines of up to two million dollars, 74 and company owners, directors, stockholders, agents, and employees also may be liable individually regardless of the corporation's criminal culpability. 75 If convicted, an individual may be sentenced to fines, a prison term, or both.76 Moreover, the company cannot indemnify convicted individuals. United States courts have determined that foreign recipients of bribes from American companies are beyond the reach of the FCPA, and cannot be prosecuted like their American counterparts. In a number of federal jurisdictions, courts have also held that the Act does not provide for a private right of action.7" 67. See 15 U.S.C. §§ 78dd-l(a), 78dd-2(a). 68. See 15 U.S.C. §§ 78dd-l(a)(3), 78dd-2(a)(3). 69. See 15 U.S.C. §§ 78dd-l (a) (1)-(2), 78dd-2(a)(1)-(2). 70. See Shaffer & Welch, supranote 62, at 703 n.55 (noting that "corruptly" is used in the text of the Act to make clear that a payment, gift, or offer, must be made with the intent of inducing the recipient to wrongfully misuse his official position to give preferential treatment to the briber). 71. See 15 U.S.C. §§ 78dd-l(a)(1)(2)(3), 78dd-2(a)(1)(2)(3). 72. See 15 U.S.C. §§ 78dd-l(a)(1)-(2), 78dd-2(a)(1)-(2). 73. See 15 U.S.C. § 78ff. 74. See $24.8 Million Paidby Lockheed, N.Y. TIMES, Jan. 28, 1995, § 1, at 35 (describing a 1995 fine paid by Lockheed for violations of the FCPA when the company acknowledged bribing an Egyptian legislator and her husband in order to receive a sales contract for three C-130 transport planes). 75. See 15 U.S.C. § 78ff(c). 76. See 15 U.S.C. § 78ff(c)(1)-(2). 77. See 15 U.S.C. § 78ff(c)(3). OECD COMBATS CORRUPTPRACTCS7 B. EXCEPTIONS OR "GREASE" PAYMENTS Following complaints from United States businesses that the FCPA put them at a competitive disadvantage overseas, Congress amended the act in 1988.8 As amended, the FCPA allows certain exceptions, and expressly permits "grease" or "facilitating" payments that expedite or secure the performance of a routine government action.8 ' A low-level official in the scope of that official's nondiscretionary, clerical, or processing duties ordinarily performs this type of action." The FCPA distinguishes these routine activities from obtain a foreign government's imposition of price controls on foreign tobacco. See id. at 1027-30; see also Citicorp Int'l Trading Corp. v. Western Oil & Refining Co., 771 F. Supp. 600, 606-07 (S.D.N.Y. 1991) (holding that no private right of action is available under the FCPA for shareholders allegedly injured by their corporation's attempt to bribe foreign officials). Courts in Lamb and Citicorp relied on a four-factor test set out by the United States Supreme Court in Cort v. Ash, 422 U.S. 66, 78 (1975). For a finding of a private right of action: 1) The plaintiff must be a member of the class for whose special benefit the statute was enacted; 2) The legislative history creates an intent to create or deny such a remedy; 3) Creation of a private right of action is consistent with the underlying purposes of the act; 4) The cause of action is one traditionally relegated to state law, so that it would be inappropriate to infer a cause of action based solely on federal law. See id. at 78. 80. See Foreign Corrupt Practices Act Amendments of 1988, Pub. L. No. 100418, §§ 5001-5003, 102 Stat. 1107, 1415-25 (amending the FCPA); Earle, supra note 1, at 207 (noting the criticism of the 1977 FCPA that led to the 1988 amendments); see also RALPH H. FOLSOM & MICHAEL W. GORDON, INTERNATIONAL BUSINESS TRANSACTIONS 311-38 (1995) (surveying the FCPA and the 1988 amendments) . 81. See 15 U.S.C. §§ 78dd-l(b), 78dd-2(b) (1994); Low & Burton, supra note 62, at C5. 82. See ARTHUR ARONOFF, ANTI-BRIBERY PROVISIONS OF THE FOREIGN CORRUPT PRACTICES ACT (1994), reprinted in I COMBATING CORRUPTIONRECENT MULTILATERAL INITIATIVES 63, 65 (1998) (Conference on Corruption, American University, Washington College of Law. April 6. 1998) [hereinafter I COMBATING CORRUPTION I (on file with author) (discussing the 1988 amendments to the FCPA, and the permitted exceptions) . Acceptable actions in response to payments include: procuring licenses, permits, or other official documents authorizing a person to do business within a country; the processing of paperwork. visa, or work orders; the provision of police protection, the picking up and delivering of mail, providing phone service and utilities; scheduling inspections, loading and unloading cargo, and protecting perishable goods. See id. at 65; see also 15 U.S.C. §§ 78dd- 1( (3)(A), 78dd-2 (h) (4)(A) ( 994). larger official decisions to award contracts, new continue business with a particular party.8 3 business, or C. DEFENSES The FCPA provides for two affirmative defenses.84 Although the scope of the defenses is not clear, a "payment, gift, offer, or promise of anything of value" to a foreign official, is allowed as long as it is legal in the host country,85 or if the payment is a "reasonable and bona fide" business expenditure. The expenditures must be "directly related" to either the promotion of products or services or the performance of a contract. 87 D. UNITED STATES PRESSURES OTHER COUNTRIES TO FOLLOW SUIT The United States in 1977 enacted the FCPA in keeping with a post-Watergate morality. No country rushed to emulate its example because the moral costs of bribery were of no consequence. In 1997, the United States succeeded in pressuring its trade partners to follow suit with persuasive arguments that evoked the deleterious economic costs associated with bribery.0 Emerging empirical 83. See 15 U.S.C. §§ 78dd-I (f)(3) (B), 78dd-2(h)(4)(B) (1994). 84. See 15 U.S.C. §§ 78dd-l(c), 78dd-2(c) (1994); ARONOFF, supra note 82, at 66 (finding that the defendant, not the prosecutor, has the burden of showing that the payments meet the requirements for this type of expenditure). 85. See 15 U.S.C. §§ 78dd-l(c) (1), 78dd-2(c)(1) (1994); Low & Burton, supra note 62 (noting that the FCPA requires that local law permit these types of payments). 86. See 15 U.S.C. §§ 78dd-1(c)(2), 78dd-2(c)(2) (1994). Travel and lodging expenses incurred by or on behalf of a foreign official are considered reasonable and bone fide. See ARONOFF, supra note 82, at 66. These payments are normally made when associated with product demonstrations, facility tours, or contract performance. See Low & Burton, supranote 62. 87. See 15 U.S.C. §§ 78dd-l(c)(2)(A)-(B), 78dd-2 (c)(2)(A)-(B) (1994). 88. See Earle, supra note 1, at 224 (describing the moral and ethical indignation in the United States incited by Watergate revelations of international slush funds). 89. See id.at 224. 90. See id. at 208, 226 (asserting that economic indicators, not moral or altruistic precepts, drive current OECD efforts to criminalize bribery and OECD COMBA Ts CORRUPT PRA TIcEs evidence links poor economic performance with a global business environment that tolerates, fosters, or ignores bribery. 9' In addition, the global anti-corruption momentum is rooted in a generalized feeling of unease regarding the widening scope of bribery, its links to the drug trade, money laundering, and organized crime."' In the international regulatory marketplace, and particularly at the OECD, the United States is using bribery's detrimental economic indicators to influence international law and policy.93 III. A GLOBAL ISSUE: INTERNATIONAL DIMENSIONS OF EFFORTS TO CURB CORRUPTION A. FOREIGN GOVERNMENTS, INTERNATIONAL FINANCIAL INSTITUTIONS, AND NON-GOVERNMENTAL ORGANIZATIONS 1. ForeignGovernments: The European Union Self-interest motivates European Union ("EU") efforts, as set out in the May 1997 Communication to the Council and The European Parliament on a Union Policy Against Corruption ("EU Communication")." It is also clear that the EU is watching OECD corruption). The author contends that European companies and governments recognize that corrupt market practices have negative effects on business in rapidly changing global economic markets. See id. at 226. 91. See supranotes 41-48 and accompanying text (evaluating the recent studies equating poor economic performance with high corruption levels in a nation's economy). 92. See supra notes 50-58 and accompanying text (describing the economic temptations that result in a link between drug trafficking. money laundering, organized crime, and profits from corruption). 93. See discussion infra Part III (detailing the scope of international efforts to ban business bribery and corruption). 94. See EU Commission, supra note 22, at 1. The EU is concerned about the prevalence of intra-community fraud in connection with general EU funds dispensed to member states for EU-approved expenditures. See id. There is also concern about corruption's links with organized crime, drug trafficking, and money laundering. See id. at 2. The tone of the Communication Indicates that the EU does not want the OECD making policy for member states of the EU. See id.at 1-4; see also Simone White, ProposedMeasuresAgainst Corruptionof Officials in the European Union,21 E.L. REV. DEC. 465 (1996) (detailing corruption problems OECD COMBATS CORRUPTPRACTCES29 Switzerland remaining resolutely neutral." 2 In addition, while manufacturing is important in the Swiss economy, the country's prosperity and high standard of living are based on earnings from banking and tourism services 6 3 To preserve Switzerland's historical tradition of neutrality, the individual right of financial privacy has been a hallowed principle of the Swiss banking system for centuries."' Created to protect Huguenots fleeing religious persecution in seventeenth-century France,265 bank secrecy laws in Switzerland evolved in the 1930s and 1940s to accommodate the needs of European Jews and others to safeguard financial assets threatened by the Nazi regime. " In the process, Switzerland has built one of the most efficient and competitive banking industries in the world.Z7 Nevertheless, misconceptions persist about the nature of its bank secrecy laws'" In recent decades, critics have questioned the truth of Switzerland's noble bank secrecy rationale."Z' Ferdinand Marcos of 262. See id.at 8-10 (noting Switzerland's pride in the traditional neutrality that. unlike Germany, kept it out of both World War I and II, and in recent decades, out of the EU). 263. See id.at 12. 264. See DENNIS CAMPBELL, INTERNATIONAL BANK SECRECY 663 (1992). 265. See id.at 663; see alsoMoser, supranote 99, at 321. 266. See CAMPBELL, supranote 264, at 664. 267. See Paolo Grassi & Daniele Calvarese. The Dut' of Confidentiality of Banks in Switzerland: Where it Stands and Where it Goes. Recent Developments and Experience. The Swiss Assistance to, and Cooperation with the Italian Authorities in the Investigation of Corruptionamong Civil Servants in Italy (The "Clean Hands" Investigation): How Much is Too Much? 7 PACE INT'L L. REV. 329, 331, 336 (1995) (insisting that abuses of the Swiss bank secrecy system are only an insignificant component of total banking activities). 268. See CAMPBELL, supra note 264, at 673 (explaining that one popular and erroneous belief relates to the anonymity of Swiss bank accounts). Anonymous numbered accounts do not exist. See id.The name of the account holder is always known to at least one bank official. See id. 269. See Grassi & Calvarese, supra note 267, at 336. See generally,Richard T. Preiss, Privacyof FinancialInformationand Civil Rights Issues: The Implications for Investigating and Prosecuting International Economic Crime 14 DICK. J. INT'L L. 525 (1996) (discussing the tensions between the legitimate needs of law enforcement and the desire for confidentiality of an individual's financial affairs). Preiss concludes that bank secrecy rules grounded in privacy and confidentiality rights are more concerned with economic, political, and sovereignty rights of AM. U. INTI L. Rv. the Philippines7 ° and Mobutu Sese Seko of Zaire, " ' two of the world's notoriously corrupt dictators, funneled millions of dollars looted from national treasuries of capital-poor developing countries into Swiss bank accounts.273 Members of the family of Benazir Bhutto, former prime minister of Pakistan, recently had their Swiss accounts frozen in connection with corruption inquiries.274 Switzerland has also been fiercely criticized as the money laundering center of the world,2 75 mainly because of its long resistance to United States and European efforts to enlist its cooperation in fighting international economic crime. 171 nations than with civil rights. See id. 270. See Holberton, supra note 6, at 6 (discussing Marcos' corrupt theft of millions subsequently held in Swiss bank accounts). 271. See Wrong, supranote 6, at 7 (describing Mobutu Sese Seko of Zaire as "a walking bank balance with a leopard skin cap," and attributing the description to Bernard Kouchner, a former French humanitarian aid minister). The article discusses Mobutu's corrupt theft of millions of dollars from Zaire's state coffers, making the country one of the first to be described as a kleptocracy, See Id. Switzerland is trying to repair the damage to its banking Industry's reputation for integrity by acknowledging past acceptance of assets "of dubious origin from heads of state [like Mobutu]." William Hall, Cott! Reassures Swiss Bankers, FIN, TIMES, Sept. 6, 1997, at 2. Flavio Cotti, the Swiss foreign minister, stated that it was "in the deepest interests of the financial centre to keep such monies at a distance." Id. Nevertheless, Switzerland is apparently the banker of choice for African heads of state, whose account assets in Swiss banks total twenty billion dollars. See Earle, supra note 1, at 227 (describing how this element of the supply side of bribery and the accommodation of corruptly-obtained assets hurts the citizens and country of the assets' origin). 272. See Kofele-Kale, supranote 6, at 45, 53. 273. See id. 274. See Farhan Bokhari & William Hall, Bhutto Bank Account in Switzerland Frozen, FIN. TIMES, Sept. 16, 1997, at 24. 275. See JEAN ZIEGLER, LA SUISSE LAVE PLUS BLANC [THE SWISS WASH IT WHITER] 16 (1990). 276. See Barbot, supra note 54, at 201 n.101 (discussing the inherent conflict between anti-money laundering legislation and Swiss banking and criminal laws). In an effort to protect the integrity of its banking system, and in response to foreign pressure to combat international financial criminal activity and money laundering, Switzerland signed international agreements with other countries. See Moser, supra note 99, at 332. A treaty with the United States was signed in 1975. See Id.; see also Treaty on Mutual Assistance in Criminal Matters, May 25, 1975, U.S.Switz., 27 U.S.T. 2019. Disclosure of financial information was not permitted unless the crime being investigated was also a crime in Switzerland. See Moser, OECD COMBATS CORRUPTPAcTicEs B. LEGAL BASIS FOR SWISS BANK SECRECY 1. The Civil Code, Code of Obligations,and FederalBanking Act Bank secrecy laws are enshrined in a number of Swiss legal codes. 77 In the Swiss Civil Code, Article 28(1) refers to a person's right to be free from invasions of privacy, and specifies: "Whosoever suffers an illegal offense against his person is entitled to ask the judge for help against anyone joining in the offense. " M The duty of secrecy also derives from the contractual relationship between the bank and its client, and the duty of loyalty to be observed by the bank as agent.7" Article 47 of the Bank and Savings Bank Act of 1934 280 and the Penal Code 8' are unique to Switzerland in the area of bank secrecy. 2. CriminalLiability A violation of bank secrecy in Switzerland subjects the offender to criminal penalties and is a state crime. a Article 47m stresses the almost absolute duty of banking employees to abide by strict confidentiality principles regarding the accounts of holders, and delineates severe penalties for infringement of professional secrecy. 28 Article 273 of the Penal Code is intended to guard Swiss public interests and economic sovereignty285 by imposing the duty of bank secrecy to limit the intrusion of foreign countries."' 3. Exceptions and Conflict:Article 305bis and Article 305ter In 1990, Switzerland adopted Article 305(bis) on Money Laundering and Article 305(ter) on Lack of Due Diligence in Financial Transactions in the Swiss Penal Code.28 Article 305(bis) criminalizes the act of laundering the monetary proceeds derived from criminal activity, 88 subjecting guilty individuals to punishment Every person working at a bank has a duty to keep secrets: Third parties who lead others to infringe the secrecy duty are also to be punished, even if the offense never takes place; Infringement due to pure negligence, as well as intentional infringement, Is to be punished; The infringement of bank secrecy may be prosecuted by a court on Its own initiative: The penalties are a prison term not to exceed six months or a fine not to exceed SFr. 50,000; either penalty may be cumulated; Breach of professional secrecy remains punishable even after termination of a public or private employment relationship or the practice of a profession, and Bank secrecy is not absolute; in specific legal circumstances, Swiss authorities are to be granted the right of access to private banking records. Banking Act, art. 47 (Switz.). 285. See CAMPBELL, supranote 264, at 667. 286. See id. at 667-68 (noting that Article 273 provides that a person who makes business information available to foreign officials is criminally liable, and punishable by imprisonment and/or a fine). 287. See Grassi & Calvarese, supra note 267, at 348 (explaining that Articles 305(bis) and 305(ter) were necessary to create a legal basis for fighting organized crime). 288. See id. at 348, n.100. The Code states: Whosoever undertakes actions which lend themselves to defeat the ascertainment of origin, the discovery or collection of assets which, as he knows or must assume, emanate from crime, will be subject to punishment by imprisonment or a fine. In severe cases punishment is seclusion up to five years or imprisonment. Added to this penalty of detention is a fine of up to one million francs. A severe case is if the perpetrator: a) acts as a member of a criminal organization; b) acts as a member of a criminal organization whose purpose is the continued practice of money-laundering: c) realizes a large turnover or considerable profit from professional money laundering activities. The perpetrator will also be subject to sentencing if he commits the principal act of 1998] OECD COMBATS CoRRuPTPRAcTzcEs by imprisonment or a fine.2 Under Article 305(ter), a bank employee who fails to verify the identity of the owner of financial assets, is also criminally liable."' Article 305(ter), when combined with Article 47 of the Banking Code, created a dilemma for Swiss financial officers."' By requiring a banker to report suspicious activity, or money of questionable origin, Article 305(ter) essentially required a violation of Article 47 of the Banking Act." 2 Failure to communicate a suspicion of criminal behavior to authorities led to criminal liability for money laundering, with no legal defenses." 3 Swiss legislators amended Article 305(ter) in 1994,m and changed the communication obligation of a banker to a "right.""' The decision is therefore left to a banker's discretion, and resolves his dilemma. The original reporting requirement is replaced with a violation abroad and such act is also punishable in the place of perpetration. CP art. 305 (bis) (Switz.). 289. See Grassi & Calvarese, supra note 267, at 348. 290. See id., n.101. The code states: Whoever professionally accepts, keeps in safe custody, assists in the investment or transfer of assets which are the property of others and falls to apply the relative due diligence required for establishing the identity of the economic beneficiary. Is subject to punishment by imprisonment of up to one year or a fine. 291. See Moser, supra note 99, at 340 (explaining that Article 305(bis) and 305 (ter) were passed in response to United States pressure). 292. See id. at 340-41 (noting that Article 305(ter) can be considered a 'due diligence" provision). 293. See id. at 340-41 (describing Swiss attempts to maintain consistency with international norms). 294. See id. (noting Swiss Legislator's amending of Article 305(ter) to address conflicts between national law and international agreements). 295. See id. The Swiss Penal Code Article 305(ter), Paragraph 2, as amended, provides: Marginal Note: want of vigilance in financial operations and the right to conmunicate. Second Paragraph: the persons designated by the first paragraph (305ter) have the right to communicate observations that enable the conclusion that assets were the proceeds of crime to the interior authority of penal pursuit and to the federal authority designated by law. CP art. 305 (ter), Marginal Note & Para. 2 (Switz.). discretionary version,296 and is less than satisfactory from the standpoint of countries anxious to curb international economic 7 crime. 1 C. NAZI GOLD AND Swiss BANK ACCOUNTS OF NAZI HOLOCAUST SURVIVORS More recently, in 1996 and 1997, the integrity of the Swiss banking industry was further tarnished by revelations about its wartime role in handling looted Nazi gold.298 Allegations of grand larceny persist because Switzerland is also accused of hoarding the money entrusted to its banks by Jews and others who perished in Nazi concentration camps.299 After World War II, Swiss banks refused to give money or information to survivors of Holocaust victims, demanding account numbers and death certificates as proof of claims."' Dormant accounts came to light in 1996,"' and Swiss 296. See Moser, supra note 99, at 341 (creating a resolution to the conflict between Article 305 (ter) and Article 47). 297. See id. at 351 (explaining that the amendment to 305(ter) will not satisfy the goals of other international actors, such as the U.S. or E.U., with whom Switzerland works). 298. See Anne Swardson, Report on Nazi Gold Extends Swiss Role; Banks Reportedly Handled$450 Million, WASH. POST, Dec. 2, 1997, at A20 (noting that Swiss banks processed $450 million of the Nazis' gold during World War II, which would be worth $4.5 billion today): David B. Ottaway, Quest for Nazis' Loot: Dispute Focuses on Role of Swiss Banks, WASH. POST, Dec. 8, 1996, at AI (describing the failure of Allied negotiators to get Switzerland to acknowledge that its banks had dealt in looted gold from Germany). The wartime business transactions between Swiss banks and both Jewish Holocaust victims and their Nazi persecutors are themselves seen as corrupt. See Henry I. Sobel, Neutrality, Morality, and the Holocaust, 14 AM. U. INT'L L. REV. 205, 206 (1998). Rabbi Sobel asserts that Swiss laundering of then-bankrupt Germany's gold bars, conducted behind the shield of Swiss bank secrecy laws, shows opportunistic and calculating indifference to the origin and makeup of the bars. See id. 299. See Sobel, supra note 298, at 205 (describing the Holocaust as not just genocide, but as a "sinister and cynical act of larceny" by Switzerland and other nations who profited from racial slaughter and the horrors of the conflict); see also John M. Goshko, Swiss Banks Reveal Hidden War Accounts: Funds May be Assets of Holocaust Victims, WASH. POST, July 23, 1997, at Al; Richard Cohen, They Danced With the Devil, WASH. POST, July 24, 1997, at A21 (describing the creation of bank accounts by desperate Jews during World War II that were "conveniently" forgotten by the Swiss banking industry until 1996). 300. See William Drozdiak, Swiss Banks Release New List ofAccounts, WASH. 1998] OECD COMBATS CORRUPTPRACTICFs banks have since then cooperated with a team of international auditors and accountants to locate accounts and possible survivors of original owners.0 2 In an unprecedented departure from steadfast adherence to confidentiality principles, the banks published lists of names of account holders in leading international newspapers in 1997.03 The World Jewish Congress ("WJC"),7 American Jews, and politicians35 vehemently criticized the Swiss reaction to the disclosures.3 6 Furthermore, they noted the marked differences in the POST, Oct. 30, 1997, at A25 (discussing the inability of survivors to pierce the veil of Swiss bank secrecy and retrieve access to the second list of 14,000 dormant accounts of Holocaust victims published in 1997 by Swiss banks) . 301. See William Hall, Swiss Bankers Uncover More Dormant Accounts, FIN. TIMES, July 24, 1997, at 2 (describing Swiss bankers' discovery of more than twice the number of dormant accounts from World War II than they believed they had one and one-half years earlier). 302. See William Hall, Volcker to Lead Holocaust Cash Hunt. FIN. TIMES, July 30, 1996, at 2 (discussing the agreement by the Swiss to allow an independent search for dormant accounts to be led by Paul Volcker, former United States Federal Reserve chairman); see also William Hall, Holocaust Victims' Accounts: Auditors Step Up Search, FIN. TIMES, June 27, 1998, at 2. Four accounting firms and a total of 375 outside auditors are searching the wartime files of 27 Swiss banks for dormant bank accounts of Holocaust victims. See Id. The firms are Arthur Andersen, Coopers & Lybrand, KPMG, and Price Waterhouse. See id. 303. See Drozdiak, supranote 300, at A25 (reporting publication of a second list of 14,000 dormant accounts); Hall, supra note 301, at 2 (stating that Swiss banks planned to publish lists of dormant accounts). 304. See Drozdiak, supra note 300, at A25. The World Jewish Congress ("WJC") believes that $7 billion in "unclaimed Jewish assets' were deposited into Swiss accounts during the Nazi-era, an amount much larger than estimated by Swiss banks. See id.As a result, the WJC characterized Switzerland's response as begrudging, belated, and woefully inadequate. See id. 305. See Arthur Spiegelman, D'Amato: Switzerland Used Holocaust Victims Assets to compensate its Citizens, WASH. POST, Oct. 17, 1996, at A6 (reporting that Senate Banking Committee Chairman Alfonse D'Amato charged the Swiss government with using "Jewish assets to compensate its citizens- for the nationalization of properties taken from them in communist East Europe in 1949). 306. See William Hall, UBS GuardEscapes Charges,FIN. TIMES, Oct. 2, 1997. at 2. Security guard Christoph Meili, who saved historical files from a Union Bank of Switzerland ("UBS") shredder, was fired from his post and fled to the U.S. following alleged death threats. See id. Swiss prosecutors finally dropped a criminal investigation of his action in bringing the documents to a local Jewish organization. See id.; see also Alfred Defago, The Swiss Defense: Slowly but Surely, We are Confronting our Past. WASH. POST. Aug. 24. 1997, at Cl. estimations of the monetary amounts involved. 0 7 State banks in New York and California stopped dealing with Swiss banks,"' and Holocaust survivors filed a consolidated class action lawsuit in the United States seeking twenty billion dollars in damages.0 9 Following acrimonious disagreements, threats of further litigation and sanctions by associated parties,3 '0 and extraordinarily contentious negotiations (discussing the debate about Switzerland's wartime role, the less-than-exemplary actions taken by Swiss officials against Jews during the war, and the failings of the banking industry with regard to looted gold and bank accounts of Holocaust victims). Defago is the Swiss ambassador to the United States. See id. Defago notes the reactive defensiveness of Swiss leaders and citizens who are angered by arguments that Swiss wartime neutrality was opportunistic. See id. Some Swiss citizens feel they are being unfairly blackmailed by the World Jewish Congress's threat of a banking boycott. See The Swiss and the Holocaust,FIN. TIMES, Jan. 27, 1997, at 19. 307. See The Swiss and the Holocaust,supra note 300 (finding that while the WJC believes that $7 billion in unclaimed assets were deposited and never reclaimed by Nazi concentration camp victims, Swiss banks estimate the amount to be $30 million); see also John Authers et al., Suit Filed Against Swiss Central Bank, FIN. TIMES, July 1, 1998, at 6 (discussing a lawsuit filed by United States' lawyers against Switzerland's central bank alleging the bank's wartime handling of stolen gold and other assets). The WJC estimates that the total value of Jewish assets is between $9 billion and $14 billion, worth $140 billion at 1998 prices. See id. 308. See U.S. States Chided on Swiss Policy, WASH. POST, Oct. 16, 1997, at A24, (quoting the United States Ambassador to Switzerland, who criticized the decisions of New York and California to end state dealings with Swiss banks because of the banks' handling of Holocaust bank account issues). 309. See Charisse Jones, Survivor Leads Fight for Lost Holocaust Money: In Lawsuit against Swiss Banks, a Hope to do Justice to a Father'sMemory, N.Y. TIMES, Nov. 12, 1996, at BI (reporting the class action lawsuit filed in a New York federal court by Holocaust survivor Gizella Weisshaus); Wendy R. Leibowitz, The Swiss Bank Affair; Getting the Gnomes of Zurich to Cough Up, 19 NAT'L L.J. 12 (1997). The civil suit asked "for $10 billion for conversion and $10 billion for unjust enrichment, punitive damages, and attorney fees." See id. The evidentlary problems facing the plaintiffs were formidable, with claims over fifty years old, and plaintiffs scattered worldwide. See id.The difficulties of finding records and reconstructing accounts were exacerbated by the changes that have occurred in Swiss banking, and the existence of hundreds of banks and institutions that are the products of multiple mergers over the years. See id, 310. See Bill Hall & John Authers, The Holocaust'sFinal Chapter,FIN. TIMES, June 23, 1998, at 19 (explaining the bitter arguments between the Swiss banks and lawyers in the class-action suit). Multiple parties associated with the negotiations include: the New York-based World Jewish Congress; New York City Comptroller Alan Hevesi; the nine-member Volcker Commission; 40 law firms representing between the main parties, an eventual settlement of $1.25 ended the two-year feud in August 19982" billion D. ITALIAN CORRUPTION: SWISS COOPERATION AND JUDICIAL ASSISTANCE In 1992, Italian law enforcement authorities requested Swiss legal assistance in an inquiry dubbed the "Clean Hands" investigation of corruption and bribery among Italian civil servants and politicians."' 80,000 potential claimants; and the Swiss banks. See id. In September, 1997, Mr. Hevesi barred UBS from underwriting a New York City bond issue in retaliation for the bank's apparent destruction of dormant accounts. See id. The United States Department of State condemned the city comptroller's action, because the Department feared spillover and damage to United States-Swiss relations. See id.: John Authers, Swiss Banks Prepareto Fight Possible 'Nazi Gold' Sanctions, FIN. TIMES, June 29, 1998, at 20 (reporting litigation threats by Swiss banks in the event of future sanctions imposed by United States' state and city authorities). Insults and counter-insults dominated the intense verbal exchanges. See Id. Lawyers representing the victims denounced the amount offered as "shabby." and a Credit Suisse spokesman accused the lawyers of being motivated primarily by desires to generate fees. See id.; see also Richard Wolffe & John Authers, Officials Warn AgainstSanctions on Swiss Banks, FIN. TIMES, June 30, 1998, at 1 (warning against the imposition of sanctions on Swiss banks by New York state and city officials). See id.Negotiators for the Swiss banks threatened to bring legal action to challenge the constitutionality of sanctions by a state or municipal entity like New York, asserting that foreign sanctions are the province of the federal government. See id.; see also John Authers. US Pension Funds Set to Impose Sanctions on Swiss Banks, FIN. TIMEs, July 2, 1998. at I (announcing the decision of officials of the three largest public pension funds in the United States to impose sanctions on Credit Suisse and UBS). Officials of California state pension funds planned to stop investing with Swiss banks. See id. New York state and city comptrollers threatened to block Swiss banks from underwriting municipal bonds and from the pension fund business generally. See id.. 311. See James Bone, Swiss Pay $1.25 bn To End Feud with HolocaustJen,, TIMES (London), Aug. 14, 1998, at 13 (recounting the settlement and the bitter dissension between lawyers for Nazi Holocaust survivors, Jewish organizations, American states and municipalities, Swiss banks, and the Swiss government, about the unacceptability of initial Swiss monetary offerings); John Authers, Swiss Banks Agree $1.25 bn Payment over Holocaust,FIN. TIMES. Aug. 13, 1998. at 1 (noting that the agreement averts the prospect of drawn-out litigation in United States courts); Michael Hirsh, After 50 Years, a Deal,NEWSWEEK. Aug. 24. 1998, at 41 (describing the key role of United States judge Edward Korman in brokering a deal between the fractious parties). 312. See Grassi & Calvarese, supra note 267. at 358-71 (detailing the facts and process of the Italian investigation): see also Corruption Continues Despite Crackdown, says Scalfaro,AGENCE FR.-PRESSE, Nov. 10, 1995, availablein 1995 Before requesting Swiss assistance, Italian investigators found evidence that the payment of bribes had occurred by way of money transfers between accounts in Swiss banks.1 3 Swiss banks and accused account holders appealed decrees of the cooperating Instruction Judge and Swiss Prosecutor relating to the disclosure of information and seizure of assets. 4 The Swiss Court of Appeals partially confirmed the judicial decree against thirteen of forty-four investigated persons," conditioned execution against seventeen others on the supply of further information by Italian authorities, 36 and repealed the decree against the remaining fourteen persons."' The Swiss Supreme Court upheld the Court of Appeals decisions. 8 WL 11468958 (noting remarks of then Italian President Oscar Scalfaro about continuing corruption in Italy, despite the judicial "Clean Hands" investigations of more than 4000 people - politicians, bankers, civil servants, judges, designers, and military). 313. See Grassi & Calvarese, supranote 267, at 358. 314. See id. at 364-70 (explaining that the applicable law regarding judicial assistance between Switzerland and Italy is the European Convention, supplemented by domestic law). 315. See id.at 367. 316. See id. 317. See id. 318. See Grassi & Calvarese, supra note 267, at 371. The basis and limits of Swiss bank secrecy law were further clarified by the Swiss Supreme Court in a more recent case, which held that absolutism must yield to Swiss international obligations. See Switzerland: Limits of Swiss Banking Secrecy, 16 INT'L FIN. L. REV. 50 (1997), available in LEXIS, Legnws Library, Allnws File. An Italian customer in the "Clean Hands" probe opposed the order requiring several banks to disclose information about accounts of persons being investigated. See Id. He argued that: 1) Bank secrecy is a right protected by the Swiss Constitution: and 2) Bank secrecy prevails over Italy's interest in prosecuting wrongdoers as a matter of Swiss national policy. See id. The Federal Supreme Court rejected both arguments. See id. The Court held that 1) Bank secrecy is not a constitutional right, only a right protected by statutory provisions; and 2) the right does not generally prevail over competing interests, but may have to take second place to Swiss legal obligations arising out of international treaties. See id. In addition, while mere disclosure of the data of an account-holder does not endanger the vital state interests of Switzerland, safeguarding criminal money accounts damages Its reputation. See id.As long as requests for judicial assistance in criminal matters do not infringe upon human or civil rights, Swiss bank secrecy does not provide a basis for refusal. See id. The importance of the banking sector to Switzerland's economy is undisputed." 9 While abusing the system, corrupt leaders and criminals benefited from its protections."l In the last decade, Switzerland promulgated internal controls and laws to prevent continuing abuse.' Due diligence"2 is now a right of bankers. m Confidentiality principles have survived intact3. ' To the Swiss, their abrogation is as untenable as abolishing Miranda rights in the United States even though their strict application has resulted in the release of murderers."' In the wake of the Holocaust disclosures, it is probable that the OECD bank secrecy provisionZ6 will increase existing international pressure on Switzerland to execute its bank secrecy laws in a less absolute manner."' 319. See Hall, supranote 271, at 1. Flavio Cotti, Switzerland's foreign minister, stated that the Swiss government must stand by the Swiss banking sector "in the interests of the entire country." See id. The Swiss banking industry is a "central pillar of the Swiss economy," generating 10% of gross domestic product, 11% of tax revenues, and employing 108,000 people. See id.at 1-2. 320. See Grassi & Calvarese, supra note 267, at 332. 321. See discussion supra Part VII.B.3 (discussing the money laundering provisions of the Swiss Penal Code). 322. See Code penal suisse [CP] art. 305(ter) (Switz.) (defining due diligence as establishing the identity of account holders and being alert for signs of assets* criminal origin). 323. See CP art. 305 (ter), Marginal Note and Para. 2 (Switz.) (giving bankers the right to communicate suspicions of criminality, but not requiring them to do so): see also supranote 295 and accompanying text (describing art. 305ter. as amended by the Swiss legislature in 1994). 324. See Grassi & Calvarese, supra note 267, at 372 (noting that the 1994 amendments ensure the survival of confidentiality principles). 325. See id.at 332. 326. See 1997 OECD Convention, supranote 145. art. 9.3. 327. See supra note 284 and accompanying text (describing the stringent provisions of Article 47 of the Swiss Banking Act). VI. RECOMMENDATIONS A. THE UNITED STATES AND OECD MEMBER COUNTRIES The ratification and implementation of the 1997 OECD Convention3 28 will require compromise by the United States, a nation whose goal of "leveling the playing field" is the driving force behind this historic agreement. The United States should not utilize the 1997 OECD Convention's jurisdictional provisions to expand the FCPA on very broad terms. Congress should promptly approve the Clinton administration's jurisdictional "mirror-image" proposal 329 by amending the FCPA for the second time in its twenty-year history.3" The amendment will require the adoption of nationality jurisdiction in line with the United States' OECD partners. A comparative analysis of United States' law and the 1997 OECD Convention reveals similarities and differences between the FCPA and the agreement's provisions. 3 ' The 1997 OECD Convention's broader and narrower aspects have implications for the United States and its OECD partners,332 particularly in the area ofjurisdiction 33 First, the OECD measures embrace a broader category of bribe payors than the FCPA 334 and proscribe corrupt payments by any person acting in whole or in part within a country's borders. 35 The United States must therefore amend the FCPA to cover the actions of any person or entity, regardless of nationality or domicile, if the 1998] OECD COMBATS CoRRUPTPRACTIcES actions have a sufficient nexus to United States' territory." In addition, the United States must determine the extraterritorial scope of the Convention according to its own jurisdictional legal principles. Under the FCPA, jurisdiction is based primarily on the nationality principle in conjunction with the requirement of a nexus to United States commerce for domestic concerns " ' and issuers) 4 In contrast, civil law OECD Member countries assert jurisdiction on the nationality principle alone 3 ' holding nationals accountable 336. See Id.; see also Low, supra note 332, at 7 (discussing the implications of the 1997 OECD Convention's broader provisions for the United States) . 337. See 1997 OECD Convention, supra note 145. arts. 4.2, 4.4; see also Low & Burton, supranote 62 (discussing the jurisdictional implications of the OECD antibribery pact for the United States): JORDAN PAUST ET AL.. INTERNATIONAL CRIMINAL LAW 116-40 (1996) (discussing existing bases of jurisdiction in international law, in particular the principles of nationality and territorial jurisdiction). Under the nationality principle, a state is competent to prescribe laws regulating the conduct of its nationals, wherever and whenever they commit offenses. See id. at 122. The territorial principle of jurisdiction recognizes 1) subjective territorial jurisdiction, where offenses occur within a state's borders: and 2) objective or "impact" territorial jurisdiction, involving extraterritorial acts (i.e. acts committed outside the United States) that are intended to produce and actually do produce effects within the United States. See id. at 123-27: see also United States v. Fernandez, 496 F.2d 1294, 1296 (5th Cir. 1974): United States v. Layton, 509 F. Supp. 212, 216 (N.D. Cal. 1981) (recognizing the intent and effects theories as bases for United States' jurisdiction); United States v. Yunis. 681 F.Supp. 896, 899-903 (D.D.C. 1988) (summarizing the five traditional bases of jurisdiction over extraterritorial crimes under international law). In addition to territoriality and nationality principles, the three other general principles of jurisdiction are 1) protective jurisdiction, which bases jurisdiction on injury to the national interest; 2) universal jurisdiction, which confers jurisdiction in any forum having physical custody of a perpetrator of particularly heinous crimes: and 3) passive personal jurisdiction, where jurisdiction is based on the crime victim's nationality. See PAUST, supraat 130 (excerpting United States v. Yunis); see also Low et al., supra note 132, at 277 n.121 (1998) (noting the five international principles of jurisdiction). The discussion focuses on the similarity between the OAS and OECD Conventions in the area of jurisdiction, and analyzes the jurisdictional changes and challenges that both Conventions pose for the United States. See id. at 274-78. 338. See 15 U.S.C. § 78dd-2 (1994); see also Low et al., supranote 132. at 276 n.119 (noting other countries' criticism of the United States' overly-broad assertion of jurisdiction over foreign corporations through their United States subsidiaries). 339. See 15 U.S.C. § 78dd-1 (1994); see also Low et al.. supra note 132, at 276 n.119. 340. See Low & Burton, supra note 62 (discussing the jurisdictional reach of AM. U. INT'L L. RE v. not subjecting non-nationals to extraterritorial worldwide, but jurisdiction.34' The 1997 OECD Convention's application to all persons, coupled with existing jurisdictional principles under the FCPA's commercial link, would inordinately expand the FCPA's extraterritorial reach beyond that of civil-law countries."' Such an extension of jurisdiction would encompass foreign subsidies of United States companies, 34 3 as well as foreign persons and entities previously not bound by the act,3 creating new asymmetries between the United States and its international business competitors.345 In the United States, implementing legislation amend the FCPA to ensure conformity with the must therefore Convention's provisions.3 ' The Clinton administration proposes the adoption of "mirror-image" implementation in the jurisdictional sphere and the elimination of the FCPA's territorial nexus requirement.4 Under this proposal, an amended FCPA would replicate the nationality jurisdiction principle,4 and non-nationals would not be subject to United States jurisdiction.349 civil-law nations); see also Low et al., supra note 132, at 276 (describing the differences between United States jurisdiction under the FCPA and nationality jurisdiction in civil-law countries). 341. See Low et al., supra note 132, at 276 (differentiating between nationality jurisdiction and United States jurisdiction under the FCPA). 342. See Low & Burton, supra note 62 (noting the dilemma created for the United States because of the OECD Member countries' reliance on nationality jurisdictional principles). 343. See Chaudri, supra note 5, at 259 (discussing the respective scopes of the FCPA and the 1997 OECD Convention and noting that the United States will potentially be able to directly prosecute international subsidiaries of American companies if it ratifies the Convention) . 344. See Low & Burton, supranote 62. 345. See id. (identifying the excessively extraterritorial reach of the combined FCPA and OECD provisions); see also Low, supranote 332, at 8 (noting the irony of an agreement originally intended to "level the playing field" inadvertently creating new competitive imbalances). 346. See Low & Burton, supra note 62 (identifying the Convention's requirement for signatories to enact and implement proper laws). 347. See id. (describing the legislative package that the administration submitted to Congress). 348. See id. (defining the national jurisdiction/principle under which nationals Second, signatories to the 1997 OECD Convention adopted an expanded definition of bribery."' This definition applies to money payments made not just to obtain and retain business 5 ' but to secure "other improper advantages" ' like tax or regulatory benefits or environmental waivers.353 The Clinton administration's proposed amendments to the FCPA recommend the codification of this principle.354 Congress should avail itself of the opportunity to expand the reach of anti-bribery laws. Third, the Convention broadly defines "foreign public officials," covering officials and employees in all branches and instrumentalities of government and in state-owned enterprises. '5 Legal commentators believe that the more expansive standard for qualification as a state-owned entity, possibly encompassing subsidized private companies, while theoretically attractive, could be difficult to apply.5 ' The United States should encourage countries to 352. See id. 354. See id. are held accountable on a world-wide basis, but where non-nationals are not subject to extraterritorial jurisdiction): see also Low et al., supranote 132. at 27478 (discussing the similarities and challenges of jurisdictional provisions for the United States under the OAS and OECD Conventions, and advising the U.S. not to retain the nexus to commerce provision of the FCPA). 349. See Low & Burton, supra note 62. 350. See 1997 OECD Convention, supra note 145. art. 1.1: see also Low & Burton, supra note 62 (noting the similarity of the Convention's definition of bribery to the interpretation by United States' courts). 351. See 1997 OECD Convention, supranote 145. art. 1.1. 353. See Low & Burton, supranote 62 (comparing the 1997 OECD Convention and the FCPA) . 355. See 1997 OECD Convention, supra note 145, art. 1.4(a). As in the FCPA. the degree of ownership or control necessary for an entity to qualify as a parastatal is not defined in the Convention. See Low, supra note 332, at 7 (noting that language in the accompanying commentaries to the 1997 OECD Convention suggests that the test is probably narrower than the one applied by the United States); see also Commentaries on the Convention Combating Briber" of Foreign Public Officials in InternationalBusiness Transactionsi1 14-15. adopted by the Negotiating Conference, November 21. 1997 [hereinafter Cormentaries. The Commentaries indicate that private companies could be treated as parastatals or semi-state entities if they receive subsidies or other competitive advantages from the government. See id. 356. See Low, supranote 332, at 7. adopt and enforce the broader standard. In OECD Member countries where privatization or partial privatization of state entities occurs, decreasing opportunities for bribery of those entities' officials is consistent with the 1997 OECD Convention's goals."' Circumventing potential loopholes for bribery should be a key element of a vigilant international strategy. Since the 1997 OECD Convention is not self-executing, all parties must implement its provisions by enacting domestic laws prohibiting and punishing transnational bribery.5 Within the OECD, doubts and fears will emerge about the implementation and enforcement efforts of co-members. The OECD has no supranational powers to ensure compliance if one country decides another OECD Member country is not enforcing the new laws vigorously. 359 These understandable concerns must not delay the 1997 OECD Convention's prompt implementation and ratification by the United States and other OECD Member countries.36 Effective enforcement by individual 357. See 1997 OECD Convention, supra note 145, preamble (delineating the Parties' goals of effectively combating transnational bribery). 358. See RAJ BHALA, INTERNATIONAL TRADE LAW 299 (1996) (explaining that a non-self-executing agreement by the executive branch of the United States government is not operative until an additional independent act occurs). The 1997 OECD Convention, although signed by the United States, is not the law in the United States until appropriate implementing legislation by the United States Congress takes place. See id. at 300; see also Low & Burton, supra note 62 (describing the Clinton administration's proposed legislative package to the House and Senate Banking Committees, and the transmission of the Convention to the Senate Foreign Relations Committee in April, 1998). 359. See Swardson, supra note 169 (reporting on details of the Convention and anticipated enforcement problems). 360. See Low & Burton, supra note 62 (noting the importance of maintaining momentum by ratifying, implementing, and properly enforcing the Convention's provisions); see also Editorial, A Vote Against Bribes, WASH. POST, Oct. 7, 1998, at A20 (encouraging the United States House of Representatives to quickly implement the OECD Convention already ratified by the Senate, and noting that competing House business threatens timely implementation); Editorial, Last Chance on Bribes, WASH. POST, Oct. 17, 1998, at A20 (castigating the United States Congress for holding up implementing legislation, and predicting that most OECD nations will not ratify or implement the Convention if the United States fails to do so); H.R. 4353, 105th Cong. (1998) (listing the provisions of the proposed amendment to the FCPA); 144 Cong. Rec. H 11672 (daily ed. Oct. 20, 1998) (statement of Rep. Dingell) (explaining Congressional delay in implementing the 1997 OECD Convention, and the controversial extraneous legal regimes will also be crucial to the 1997 OECD Convention's ultimate success.36' The OECD agreement has symbolic importance. 62 Receiving a tax subsidy for violating a foreign country's bribery laws sends an inappropriate message to developing countries where corruption is systemic. The 1997 OECD Convention will test the credibility and commitment of the developed world by the eventual success or failure of OECD Member countries to diminish bribery by their business emissaries abroad. for measures against corruption. Legislatures can find the political will to enact those measures, as the United States did in 1977."3 Nonetheless, there must be effective enforcement so businesses see the advantage in obeying the laws. Many large corporations have their own codes of conduct for employees representing them in international commercial transactions. ' While there is some evidence that tough private corporate standards enhance international competitiveness, 5 there is no substitute for binding national satellite provisions holding up passage in the House of Representatives) . 361. See Low & Burton, supranote 62. 362. See Payback Time, FIN. TIMES. May 29, 1997, at 19 (reporting corruption's supply side, with western companies doing the bribing). In developing nations where corruption as culture is a Western accusation, serious reform of OECD criminal laws permitting bribery in those nations would send a much-needed message that the West is finally changing its own perceptions. See id. 363. See supra notes 60-87 and accompanying text (describing the enactment and implementation of the FCPA in the United States). 364. See Michael A. Almond & Scott D. Syfert. Beyond Compliance: Corruption, Corporate Responsibility and Ethical Standards In the New Global Economy, 22 N.C. J. INT'L L. & COM. REG. 389, 442 (1997) (contending that present multilateral initiatives to fight corruption are motivated by the economic self-interest of countries and businesses who believe that honesty and efficiency are closely linked). Furthermore, competitive businesses are those that have established rigorous codes of corporate conduct. See id. at 444. An example is General Motors, which put tough anti-corruption guidelines into place recently in its Adam Opel plant in Germany. See id. at 445. General Electric. Euron, ColgatePalmolive, and other large corporations have similarly adopted tough standards. See id.at 444-45. 365. See id. at 446 (discussing how this outgrowth of the Total Quality Management ("TQM") movement has led to a rising standard of business conduct). B. GERMANY The 1997 OECD Convention's category of bribe recipients fails to include political parties, party officials, and candidates for elective office. 6 In this respect, the 1997 OECD Convention is narrower than the FCPA3. 7 Legislators are included,"8 however, making German Members of Parliament now subject to criminal sanctions.369 Postimplementation amendments to Germany's laws must criminalize this type of domestic bribery, but its laws may still permit bribery of political parties. Dialogue between Member countries on this issue should continue.37° Some analysts view the new legislation as a significant reversal of the status quo ante.37' Nevertheless, the exclusion of companies and organizations from the new law's requirements will negatively impact the effectiveness and viability of the enforcement process. The newly-elected SPD/Greens coalition7. and German public reaction to recent domestic bribery scandals73 may overcome the resistance of both German legislators and businesses to international anti-bribery efforts. Notwithstanding the failure of the 1997 OECD Convention to proscribe the tax-deductibility of overseas bribes,374 the United States 366. See 1997 OECD Convention, supranote 145, art. 1.4(a) (including persons holding legislative, administrative, or judicial office; exercising public functions: and officials of public international organizations). 367. See Low & Burton, supranote 62. 368. See Low, supra note 332, at 7 (noting that some OECD members tried to exclude legislators exempted from their domestic bribery laws). 369. See 1997 OECD Convention, supra note 145, art. 4(a) (broadly defining "foreign public official" to include persons holding legislative office); see also supra notes 188-90 and accompanying text (describing the legality of the "passive" acceptance of bribes by German legislators). 370. See Low & Burton, supra note 62 (noting that this topic will be considered by the OECD in the future). 371. See Telephone Interview with Carel Mohn, supra note 182 (giving a positive assessment of Germany's new laws criminalizing foreign bribery). 372. See supra note 225 and accompanying text (discussing the composition of the new German government). 373. See Norman, supra note 233 (describing the proliferation and magnitude of corruption within Germany itself). 374. See Low & Burton, supra note 62; see also supra notes 206-18 and accompanying text (discussing German laws allowing tax-deductibility of overseas should persist in pressuring co-signatories like Germany to do so. In this regard, the CFA, CIME, and Working Group on Bribery should monitor and promote German and other OECD Member countries' efforts to change current laws permitting tax-deductibility."' United States tax laws target transnational bribery under Section 162(c) of the Internal Revenue Code.7 Congress added Section 162(c) to the Internal Revenue Code in 1958, denying tax deductibility for an illegal kickback or bribe payment under Section 162(a) of the Code.7 Section 162(c) also prohibits the deductibility of any payment that is unlawful under the FCPA.378 As the 1997 OECD Convention does not contain a similar tax deductibility provision, the United States cannot dictate this type of revolutionary change to a business rival and democratic partner. Rather, such change should occur principally as a result of pressure from voters in the German political economy. 379 The recommendations and mechanisms for achieving goals are based on a realization that change must be compatible with democratic institutions in OECD Member countries. C. SWITZERLAND Domestic corruption in Germany and the Holocaust revelations in Switzerland show that western OECD Member countries can no bribes); Implementation of Tax Deductibility Recommendation, supra note 5 (describing the OECD's recommendations that states eliminate these deductions). 375. See OECD Actions to Fight Corruption,supra note 4. at 8-9 (proposing specific follow-up and monitoring procedures). 376. See I.R.C. § 162(c) (1994). 377. See I.R.C. § 162(c) (1994). Under Section 162(a) of the Code. United States taxpayers are allowed to deduct all "ordinary and necessary expenses paid or incurred... in carrying on any trade or business...." I.R.C. § 162(a) (1994): see also Low et al., supra note 132, at 280 (explaining the tax deductibility provision of United States law and describing the amendment to Section 162(a) of the Internal Revenue Code). These tax measures were passed to affect corporate behavior of United States companies. See id.They were in force for almost twenty years before Congress enacted the FCPA. See id. 378. See I.R.C. § 162(c) (1994). The burden of proof is on the government to prove the illegality of the tax action by clear and convincing evidence. 26 U.S.C. § 7454 (1994); see ARONOFF, supra note 82, at 68 (referring to tax deductibility forbidden by the FCPA). 379. See GERMANY: EIU COUNTRY PROFILE. supra note 176, at 3. 9 (defining Germany as a parliamentary democracy). longer claim presumed moral superiority on the issue of business corruption.38 ° Switzerland's bank secrecy laws could be a major constraint on international cooperation in a necessarily global fight against corruption.381 Article 9(3) of the 1997 OECD Convention prohibits the use of bank secrecy laws as a basis for refusal to cooperate with countries prosecuting corruption and bribery crimes.382 The concept of a banker's duty of confidentiality will be subject to harsher scrutiny by international actors, and Switzerland's co-signatories. In the wake of the Holocaust scandal and Switzerland's concern about its international image,383 this bastion of neutrality should adopt the 1997 OECD Convention and comply with its bank secrecy provision. The era of blind application of bank secrecy laws must end and yield to Switzerland's obligations to assist its OECD partners in prosecuting corrupt crimes. Notwithstanding the Swiss economy's reliance on its banking and financial services industry,384 Swiss bankers and employees in the financial services industry must be willing to enforce the 1997 OECD Convention bank secrecy provision after ratification by the Swiss legislature. Switzerland's current aggressive investigation into the illicit drug and money laundering activities of Raul Salinas, brother of former Mexican president Carlos Salinas, signals a positive commitment to its international obligations3.85 The decision by a Swiss federal court 380. See discussion supraParts IV.E, V.C (describing the extent of corruption In Germany and disclosures about wartime financial dealings by Switzerland). 381. See Moser, supra note 99, at 321-22 (noting Switzerland's past tendencies to guarantee absolute financial confidentiality, regardless of the assets' source). 382. See 1997 OECD Convention, supra note 145, art. 9(3) (describing OECD Member countries' obligations to render mutual legal assistance). This provision is similar to Article XVI of the OAS Convention, which prohibits the Invocation of bank secrecy as a basis for refusing legal assistance. See OAS Convention, supra note 133, art. XVI. 383. See discussion supra Part V (describing the history and abuses of Swiss bank secrecy laws, the missing World War II assets of Holocaust victims, and recent cooperative efforts by Switzerland to repair its tarnished international image). 384. See SWITZERLAND: EIU COUNTRY PROFILE, supra note 261, at 23 (describing Swiss pre-eminence in global asset management). 385. See Anderson, supra note 52, at A14 (reporting the investigation by Swiss Attorney General Carla del Ponte, and the extent of Swiss cooperative efforts with United States and Mexican authorities); see also Anne Swardson, Swiss Call to return illegally deposited Marcos funds to the Philippines is also encouraging.3 CONCLUSION Corruption and bribery in the world economy have pernicious effects on the conduct of international business.! Skeptics believe that their existence has mostly inspired rhetoric, grandiose reformposturing, conferences, and writings, but not action internationally-' The number of global efforts underway refutes that belief. Discussion of the problem is no longer taboo.M Many organizations and groups are focusing the efforts to tackle the cancer of corruption in the world economy.39 The 1997 OECD Convention is the most ambitious effort,3 1' and has important legal implications for the Salinas Drug Profiteer, Seize Bank Funds, WASH. POST, Oct. 21. 1998, at Al (describing the seizure of $114 million in drug assets of Raul Salinas by Swiss authorities). 386. See Switzerland: Court Clears Transferof MarcosAfillions to Philippines, TI NEWSLETTER, RECENT REFORMS (Transparency International. Berlin, Germany), June 17, 1998, (visited Oct. 13, 1998) <http:/wIv.transparency.deJ documents/newsletter/98.2/reforms.html> (reporting the April 1998 decision to return $520 million deposited by Marcos in Swiss banks) . 387. See discussion supra Part I.C (discussing the economic effects of corruption on development); see also Bowley et al., supra note 2 (describing the spiraling bribery rates that are increasing the cost of doing business internationally). 388. See Kaufmann, supra note 8, at 130 (portraying World Bank. IMF. and OECD efforts as merely positive first steps, when a revolution is necessary). 389. See TransparencyInternational:Annual Report 1997 at 3 (visited Sept. 20, 1997) <http:lvww.transparency.de.h/an-report97.html>. Peter Eigen. Chairman of TI's Board of Directors, expresses satisfaction that shattering the taboo against frank and open discussion of corruption, one of TI's goals. is now accomplished. See id. The global efforts against corruption and bribery in international business transactions effectively achieved that goal in a relatively short space of time. See id. 390. See discussion supra Part III.B.3 (describing the scope of international efforts by the United Nations, EU, OAS, OECD. the World Bank. IMF, and TI to control corruption and bribery in international business transactions). 391. See discussion supra Part III.B.3 (discussing OECD efforts since 1994 to combat bribery in international business transactions, including the OECD Recommendations and Convention on criminalizing overseas bribery and eliminating the tax-deductibility of bribes). United States, Germany, Switzerland, and other OECD nations.92 Implementation of OECD directives will not be easy, and must amount to more than a change of laws and a conspicuous inability to change business behavior. 93 The World Bank and IMF face daunting institutional challenges in developing countries. 94 Corruption will never be eradicated, but it must be contained. Enforcement of the OECD Convention through binding national legislation would be an auspicious beginning. 392. See discussion supra Part VI.A,B,C (analyzing the legal implications of the 1997 OECD Convention for the United States, Germany, Switzerland, and other OECD Member countries) . 393. See discussion supra Part IV (discussing the German criminal laws permitting transnational bribery and tax-deductibility of overseas bribes, and the reluctance of Germany to change its laws); see also Norman, supra note 233, at 27 (implying that competitive bidding has essentially developed into competitive bribery within Germany, and that internationally, German firms rely on bribery to compete). INTRODUCTION ............................. ................ 259 I. CORRUPTION PERVADES INTERNATIONAL B U SINESS .................................................. 264 A . D EFINITION ............................................... 264 B . CAUSES ................................................... 266 C . ECONOM ICS ............................................... 267 D. LINKS TO THE DRUG TRADE , MONEY LAUNDERING , AND ORGANIZED CRIME ........................................ 269 II. THE FOREIGN CORRUPT PRACTICES ACT: ANTIBRIBERY PROVISIONS ................................... 270 A. ELEMENTS , LIABILITY , AND PENALTIES .................... 270 B. EXCEPTIONS OR "GREASE" PAYMENTS ..................... 273 C . D EFENSES ................................................. 274 D. UNITED STATES PRESSURES OTHER COUNTRIES TO FOLLOW SUIT ............................................. 274 78 . See United States v. Blondek , 741 F. Supp . 116 , 120 (N.D. Tex . 1990 ), aff'd sub nom . United States v. Castle , 925 F.2d 831 ( 5 Cir. 1991 ). 79 . See Lamb v. Phillip Morris , Inc., 915 F.2d 1024 , 1027 - 30 ( 6h ' Cir . 1990 ) cert. denied, 498 U.S. 1086 ( 1991 ) (holding that the FCPA creates no implied 328. See supra notes 165-67 and accompanying text (describing the ratification 329. See Low & Burton, supranote 62 . 330. See supra note 80 and accompanying text (recounting 1988 Congressional 331. See Low & Burton, supra note 62; supra notes 170-73 and accompanying 332. See id.; see also Lucinda A Low, Historic OECDAnti-briberyPact Signed by 33 Countries , 1 TRANSLEX 6 ( 1998 ) (comparing the 1997 OECD Convention 333. See Low & Burton, supranote 62 . 334. See 15 U.S.C. §§ 78dd-1- 2 ( 1994 ) (defining issuers and domestic concerns 335. See 1997 OECD Convention , supranote 145 , arts. 1 . 1 , 4 .1.


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Nora M. Rubin. A Convergence of 1996 and 1997 Global Efforts to Curb Corruption and Bribery in International Business Transactions: The Legal Implications of the OECD Recommendations and Convention for the United States, Germany, and Switzerland, American University International Law Review, 2018,