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
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* 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
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
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
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,
(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
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)
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
(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
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
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
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
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
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
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
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
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
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 ....
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
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
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
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. '""
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."'
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
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
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
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
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:
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
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"
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
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
(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
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
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
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
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
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
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
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
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
The perpetrator will also be subject to sentencing if he commits the principal act of
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
293. See id. at 340-41 (describing Swiss attempts to maintain consistency with
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
C. NAZI GOLD AND Swiss BANK ACCOUNTS OF NAZI HOLOCAUST
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
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.
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
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
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"
D. ITALIAN CORRUPTION: SWISS COOPERATION AND JUDICIAL
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
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*
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).
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
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
339. See 15 U.S.C. § 78dd-1 (1994); see also Low et al.. supra note 132, at 276
340. See Low & Burton, supra note 62 (discussing the jurisdictional reach of
AM. U. INT'L L. RE v.
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
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
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
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).
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.
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
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
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
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
(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
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
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
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.