the dynamic of general compliance with …expect signatories to the convention, most of which had...

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Crime, Law and Social ChangeAn Interdisciplinary Journal ISSN 0925-4994Volume 69Number 5 Crime Law Soc Change (2018)69:615-656DOI 10.1007/s10611-018-9768-9

The dynamic of general compliance withthe OECD anti-bribery convention: twointerpretative approaches

Lianlian Liu

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The dynamic of general compliance with the OECDanti-bribery convention: two interpretative approaches

Lianlian Liu1

Published online: 1 March 2018# Springer Science+Business Media B.V., part of Springer Nature 2018

Abstract The way in which people understand the dynamic of signatories’enforcement of the OECD Anti-Bribery Convention determines the way in whichthey formulate policy recommendations, and a comprehensive understanding ofthe dynamic of signatories’ Convention enforcement demands the coordination oftwo different analytic approaches— the rational-choice approach and the institu-tional approach. The popular rational-choice approach in current literature high-lights the Bunder-enforcement^ problem of the Convention, assumes the decisiveinfluence of signatories’ self-seeking nature on Convention enforcement, andseeks to identify the structural failure of the anti-bribery collaboration whichgenerates unsatisfactory cost-benefit calculations and encourages signatories toshirk. While a branch of the rational-choice account converges on the failure ofthe existing monitoring system in deterring free riders by borrowing wisdom fromcooperation theories, it fails to illustrate that the anti-bribery collaboration by itsvery nature is incompatible with a centralized monitoring approach— a conven-tional effective solution to cooperation dilemmas. To fill this gap, Part I & II ofthis study lays bare the incompatibility of a centralized monitoring approach withthe anti-bribery collaboration based on the findings of current rational-choiceaccount and frames a decentralized monitoring system as an alternative. On theother hand, Part III of this study argues that another face of the dynamic ofConvention enforcement— the developmental reality in leading jurisdictions, isalso noteworthy. An institutional approach which highlights the relevance offavorable domestic institutional contexts to robust Convention enforcement isproposed as a counterpart to the rational-choice approach. By analyzing the caseof the SEC’s increasingly zealous enforcement of the FCPA in the US during the

Crime Law Soc Change (2018) 69:615–656https://doi.org/10.1007/s10611-018-9768-9

* Lianlian [email protected]

1 School of International Studies, Peking University, Beijing, China

Author's personal copy

period from the 1980s to the 2000s, this study concludes that local agencies’adherence to other official duties in an ever-evolving institutional context mayresult in an effect of Bunconscious enforcement^ of anti-bribery laws.

Introduction

In 1997, the OECD Convention on Combating Bribery of Foreign Public Officials inInternational Business Transactions (Bthe OECD Anti-Bribery Convention^ or theBConvention^)1criminalized acts of bribery in international business transactions glob-ally.2 Since the Convention’s entrance into force in 1999, the successful incorporationof treaty obligations into national legal frameworks, 3and the enactment of otheragreements on like theme,4 academic attention, which was focused on the legitimacyof such a global anti-corruption campaign in the past decades, 5 was shifted tosignatories’ domestic enforcement of the Convention.6

While the data on Convention enforcement exists objectively, the way in which it isinterpreted is profoundly affected by scholars’ ideological beliefs. While an Bunder-enforcement^ label leads to a search for disincentives that encourage defection, anBeffective-enforcement^ label draws academic attention to the developmental reality inleading jurisdictions. In view of people’s high hopes on the Convention in combatingtransnational bribery 7 and the fact that most signatories still keep zero records of

1 The US enacted the Foreign Corrupt Practices Act (the BFCPA^) in 1977, criminalized transnational briberyfor the first time in human history. In 1997, another 33 countries joined the US approach and established theOECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions.As of May 2014, the Convention has had 41 signatories.2 The Policy for tax deduction was abolished in the US in the 1950s (Technical Amendments Act of 1958),and was abolished by European countries after the OECD published 1996 Recommendation of the Council onthe Tax Deductibility of Bribes to Foreign Public Officials.3 For information on how Convention obligations have been incorporated into domestic legal frameworks ofsignatories see Phase 1 reports of all signatories. Available at: http://www.oecd.org/daf/anti-bribery/countryreportsontheimplementationoftheoecdanti-briberyconvention.htm (last visited: 23 June 2014)4 Other agreements promulgated in this period include but is not limited to: OAS Inter-American Conventionagainst Corruption (29 March 1996); EU the first Protocol to the Convention on the Protection of theEuropean Communities’ Financial Interests No. C 313, 23 (October 1996); and EU Convention againstCorruption No. C 195, (25 June 1997). The OECD Anti-Bribery Convention is most influential andenforceable among these international legal documents.5 The US was the first country in human history criminalizing transnational bribery by enacting the FCPA in1977. Because the FCPA revolutionarily criminalized transnational bribery, routinized supply-side control ofbribery and extraterritorial enforcement of criminal law, and also created a disadvantage for US companies ininternational markets, its wisdom was initially questioned. Attributed to the efforts of governments, NGOs,and scholars, opinion shifted toward approval of the FCPA-style regulation since the 2000s. For articlesdiscussing the legitimacy of supply-side control of corruption see e.g., Sung [1], Holmes [2], and Baughn et al.[3]. For articles discussing the legitimacy of extraterritorial application of national laws see e.g. Salbu [4–6],and Nichols [7–9].6 See e.g., Nesbit [10], Doig [11], Low [12], Pieth [13], Williams and Beare [14], Zagaris and Ohri [15], andHealy et al. [16]7 People’s disappointment can be attributed to the intellectual atmosphere of the early 2000s which placedhigh hopes on the OECD Anti-Bribery Convention in transnational bribery control. Much of anti-corruptionliterature prior to the 2000s highlights the Bcorruption^ nature of transnational bribery so as to justify the anti-bribery initiative. See Liu [17], Viewing transnational bribery as another type of corruption, people used toexpect signatories to the Convention, most of which had managed to cope with domestic corruption, wouldcontrol transnational bribery effectively as well. For people’s optimistic expectation see e.g., Clinton [18], andOECD [19].

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prosecutions by 2013,8 many scholars were convinced of the Bunder-enforcement^ ofthe OECD Anti-Bribery Convention,9 from the perspective of which the question ofhow signatories enforced the Convention becomes a question of why so many signa-tories defected. The voice of scholars which argues about the Beffective enforcement^of the Convention,10 is much lower.

The rational-choice approach, which highlights the centrality of signatories’ politicalwill and self-seeking nature in the process of Convention enforcement, is widelyapplied by the causal analyses of the said Bunder-enforcement^ problem.11 In thisprism of rational-choice ideologies, signatories are conceived of as unitary rationalactors inclined to compare the utility of alternative courses of actions and would onlystick to the strategy of faithful compliance with the Convention when the payoff issatisfactory.12 Given the popular belief that unilateral enforcement against transnationalbribery would disadvantage a state’s export interests, scholars following this approachtend to explain this Bunder-enforcement^ of the Convention as resulting from aregulatory competition between signatories and a strategy of trade protectionism.13

Given that cooperation theories have contributed a lot of wisdom on the unity of well-

8 The OECD WGB Annual Report [20, 21] suggests that the prosecution records of foreign bribery cases inmost signatories were poor. Between 1999 and 2010, there were totally 164 convictions imposed onindividuals and 59 convictions imposed on entities for the offence of foreign bribery and for failures toprevent a proven case in 38 signatories. Another 87 cases were brought as administrative and civil proceed-ings. A closer observation of the data suggests a surprisingly unbalanced distribution of the decided cases. 139of the 164 convictions imposed on individuals were brought by 5 signatories; 45 of the 59 convictionsimposed on entities were brought by 3 signatories. By the end of 2013, the number of convictions imposed onindividuals and entities rose up to 333 and 111 relatively. However, the problem of unbalanced distribution ofthe decided cases remains. 95.5% of convictions imposed on individuals were brought by 8 signatories.9 For example, Tarullo (62, 682) states that BUnfortunately, the Convention does not appear to have inducedmany signatories and companies to adopt the requisite cooperative strategy .̂ ([22]: 8) suggests that BCurrentlevels of enforcement are too low to enable the Convention to succeed…^ Schmidt [23] comments thatBalthough the United States are most European nations passed strict laws to prohibit transnational bribery, lessaccord exists in the enforcement of these laws.^ Brewster [24] states that BCompliance with the OECD treatyis lacking because governments see an advantage to cheating on the agreement.^ Magnuson [26] commentsthat Bthe Anti-Bribery Convention… has suffered from severe under enforcement by its member-states.^Burger & Holland [27] even considered the US’s enforcement of the FCPA as ineffective. Also see Cheng andAhmad [28], and Graves [29]10 See e.g., Razzano and Nelson [30], Heimann & Dell (31), Trace [32], and OECD Anti-Bribery Reports [20,21, 33–35], Spahn [36] and Samanta and Sanyal [37]11 The rational-choice theory has its roots in the economic thoughts of Adam Smith, and has significantinfluence on paradigms of other social science disciplines such as politics and law. The application of rational-choice theory to define inter-state relations can trace its source to structural realism and neoliberal institution-alism in international politics theory, which conceives of sovereign states as unitary, self-seeking actors inworld politics and international transactions. See Von Neumann [38], Tucker [39], Olson [40], Waltz [41],Keohane [42], Powell [43], Nye and Keohane [44], Wendt [45], Mulford and Berejihian [46], Goldsmith &Posner ([47], [48]) and Capraro [49]12 See e.g., Kaikati & Label [50], USGAO [51], Kim [52], Beck and Maher [53], LeVine [54], Hall [55],Hines Jr. [56], Salbu [4, 57]: 18), George et al. [58], Zagaris and Ohri [15], Clinton [18], Copeland and Scott[59], Davis [60], German [61], Holmes [2], Nadipuram [63] and Magnuson [26]13 See e.g., Chaikin [64]: 289), Davis [60], Tarullo (62: 671), Pieth [13, 65], Schmidt [23], Brewster [24],Magnuson [26] and Graves [29]

The dynamic of general compliance with the OECD anti-bribery... 617


crafted institutions to deter potential defectors, 14 scholars following this approachfurther argue about how the institutional infrastructure of the anti-bribery collaborationfails to achieve this goal.15 The traditional worry of free-riding problem in collectiveactions, the lack of coercive power of international law and the absence of effectivemonitoring and sanction mechanisms in international organizations, were seen as maincauses accounting for this Bunder-enforcement^ problem.16

Despite the rich landscape of causal analyses contributed by the rational-choiceapproach, its excessive commitment to orthodoxies prevents it from grasping the unique-ness of the anti-bribery collaboration. As a result, it fails to foster a thorough examinationof the institutional flaws of the OECD anti-bribery system. One example is that whilemuch of current rational choice account suggests that the exploitability of individualregulatory efforts in the anti-bribery collaboration the absence of effective informationchannels (e.g., central monitoring system) account for the Bunder-enforcement^ of theConvention, they soon find that the surreptitious nature of corruption and theimmeasurability of national regulatory efforts fail conventional solutions prescribed bycooperation orthodoxies (e.g., a central monitoring mechanism).17

A more significant limitation of the rational-choice approach is its failure todraw experience from the developmental reality in leading jurisdictions (e.g.,the US, and Germany) which indeed enforce the Convention robustly. Thereare also much of current academic and policy literature highlights the progressin institutional reform at an overall level and the increasing numbers ofenforcement actions brought by leading jurisdictions like the US and Germa-ny, 18and labels the enforcement of the Convention in the past decade asBeffective^.19 This limitation is inherent in the rational-choice approach whichattaches excessive importance to the Bpolitical will^ of signatories but ignoresthe institutional context which delimit domestic agencies’ choices set. Aca-demic literature across social science disciplines have challenged The

14 For literature on cooperative dilemmas from which the Bcooperate or defect^ issue emerges see e.g., ([38]),Tucker [39], Olson [40], Powell [43], Waltz [41], Keohane [42], Goldsmith & Posner ([47], [48]) and Capraro[49]. For literature on the effectiveness of well-crafted institutions to prevent defection see e.g., Boyd andRicherson [66], Fender [67], Fehr and Gächter [68], Kosfeld & Riedl [69], Fehr and Schmidt [70], Veszteg &Narhetali [71], Piquero et al. [72], Carpenter et al. [73], Shutters [74], Tan and Xiao [75] and Rosecrance [76],Jones [77], Keohane [42], Goldsmith & Posner [48], Wang et al. [78] and McIntosh et al. [79]15 For articles that apply the prisoner’s dilemma and collective action theory to explain signatories’ perfor-mance in the international anti-bribery collaboration see e.g., ([64]: 289), Davis [60], Tarullo (62: 671),Schmidt [23], Brewster [24], Magnuson [26] and Graves [29]16 See e.g., Nichols [7], Tarullo (62: 687), Veszteg & Narhetali [71], Brewster [24], Cheng and Ahmad [28],,Magnuson [26] and Graves [29]17 See Burger & Holland [27], Cheng and Ahmad [28] and Graves [29]18 For example, Mark Pieth, former Chairperson of the OECD WGB states that, Bsince 2011, the WorkingGroup on Bribery took a number of important steps to take the fight against foreign bribery forward…we haveled a full and productive agenda in 2011.^ See OECD [34]. Cuervo-Cazurra [80] examines the impact ofcorruption on foreign direct investment and suggests that Bcorruption results in relatively lower FDI fromcountries that have signed the…Convention... This suggests that laws against bribery abroad may act as adeterrent against engaging in corruption in foreign countries.^ ([82]: 151) did a set of statistical analyses andconcluded that Bthe perceived level of bribe-giving by firms from the major exporting countries has beendeclining. This decline has occurred at a time when…international treaties against bribe-giving have beenadopted and increasingly enforced.^19 See e.g., Razzano and Nelson [30], Heimann & Dell (31), Trace [32], and OECD Anti-Bribery Reports [20,21, 33–35], Spahn [36] and Samanta and Sanyal [37]

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intellectual predominance of the rational-choice approach across social sciencedisciplines has been challenged by an institutional approach which emphasizesthe role of impersonal forces (e.g., cultures, conventions and values).20 Anti-corruption literature also argues about the relevance of institutional context toanti-corruption initiatives.21

This article seeks to fill this gap from two aspects. On the one hand itadheres to the ideological label of the Bunder-enforcement^ of the Conventionand highlights the causality between signatories’ political will and this conse-quence. By fitting in the rational-choice ideologies, it seeks to carry thearguments of current rational-choice account forward by highlighting theuniqueness of the cooperative dilemma in the anti-bribery collaboration andprescribing targeted solutions. On the other hand, it adheres to the ideologicallabel of Beffective enforcement^ of the Convention and highlights how apreexisting and ever-evolving institutional context delimits the choices set fordomestic agencies. While the rational-choice approach examines how materialincentives for signatories’ Bconscious shirking^ of their treaty obligations, aninstitutional approach is proposed to illustrate how signatories’ Bunconsciousenforcement^ of their treaty obligations accounts for the positive impetus ofConvention enforcement in leading jurisdictions.

Accordingly, this article proceeds as follows. Part I reviews the arguments ofcurrent rational-choice literature which succeed to identify causal factors of theBunder-enforcement^ problem but fails to prescribe solutions. Part II follows thelogical lines of current rational-choice literature but highlights the uniqueness ofthe anti-bribery collaboration as an inter-state collective action. In particular, itargues about how the surreptitious nature of corruption and the exploitability ofnational regulatory efforts intertwined to an unconventional cooperative dilem-ma that fails central monitoring mechanisms. Part III proposes an institutionalapproach which highlights the relevance of institutional contexts and drawcausality from the developmental reality in leading jurisdictions. A case studyof the historical trajectory of the US SEC’s effective enforcement of the anti-bribery prong of the FCPA in the past decades to illustrates how domesticagencies’ performance of their official duties in an evolutionary institutionalcontext may result in Bunconscious enforcement^ of treaty obligations.

Arguments of the rational-choice account

The rational-choice approach in current literature highlights the causality be-tween signatories’ political will, behavior and the level of Convention enforce-ment. Given the rational-choice assumption that conceives of signatories’ polit-ical will to stick to a strategy as resulting from satisfactory calculations of

20 Such academic works in the domain of economics see e.g., Hodgson [83, 84], and in the domain ofinternational relations theory see e.g., Gilpin [85], Keohane [42] and Wendt [86].21 See e.g., Bayley [87], Nye (88), Elliott [89], Rose-Ackerman (90, 91), Bertok (92), Gutterman [93],Cuervo-Cazurra [80], Berkman (81), Chaikin [64], Diog [94] Dion [95], Davis [96], Arantes [97] and Davisand Machado [98]



interests,22 any Bunder-enforcement^ problem in the anti-bribery calculation isattributed to disincentives in the regulatory environment that discourage faithfulenforcement of the Convention. 23Identifying and resolving disincentives thatlead to unsatisfactory calculations of interests is therefore central to any causalanalyses of the Bunder-enforcement^ problem. Payoff of faithful enforcementagainst transnational bribery for signatories includes benefits of perfect compe-tition in clearer international markets which bring competitive companies morebusiness opportunities, and good reputations for sticking to commitments. Costof faithful enforcement, on the other hand, often refers to operational costs(e.g., prosecution costs) and opportunity costs (e.g., the loss of business oppor-tunities). As the net payoff for a given signatory can be expressed by anequation as net payoff = total benefit - total cost, signatories can maximizetheir net payoffs through working hard to increase the total benefit, or throughcutting down the total cost of regulating transnational bribery. The anti-briberycollaboration succeeds when signatories work to increase the total benefit butfails when they avoid cost.

Empirical data on Convention enforcement in the past decade convincesmany scholars that most signatories have adopted a strategy of defection. By2014, the Convention has entered into force for 15 years. The level of Con-vention enforcement, however, does not meet people’s expectation that signa-tories would control transnational bribery as well as domestic corruption.24 Abig number of signatories still keep zero records of enforcement actions againsttransnational bribery. The number of investigations and prosecutions is alsovery small in most of the rest signatories. Only a few signatories have broughtenforcement actions in the double or three digits. Many scholars conclude ofthe Bunder-enforcement^ of the Convention by signatories.25

Grounded in the rational-choice ideology and in the prism of the Bunder-enforcement^ of the Convention, causal analyses of the dynamic of signatories’compliance with the Convention tend to identify disincentives at two levels inthe regulatory environment that encourage signatories’ defection from the anti-bribery collaboration: (1) disincentives in the very nature of transnational bribeyregulation or a collective action that account for the cooperative dilemma; and(2) unsuccessful institutional design in the OECD anti-bribery system that failto reduce operational costs or resolve the cooperative dilemma.

22 A cost-benefit analysis is often used by policymakers to evaluate the desirability of a given strategy. Bydoing this, policymakers assess whether the payoff of a strategy would outweigh its cost, and by how muchrelative to alternative strategies. See Cellini and Kee [99]23 For a detailed discussion on the behavioral logic of countries in international occasions in internationalrelations theory see Waltz [41] and Keohane [42]. For anti-corruption works that adopts a rationalist approachand emphasizes the central role of political will of signatories in Convention enforcement see e.g., Salbu [4],Nichols [7, 8], Davis (60), German [61], Tarullo (62), Brewster [24], Davis (25) and Magnuson [26]24 See e.g., Clinton [18], and OECD [19].25 For empirical data see OECD WGB 2014 Annual Report. Although scholars like Burger & Holland [27],Chaikin [64], and Tarullo (62: 689) have questioned whether the number of enforcement actions is the rightindicator of Convention enforcement, scholars like Krever [100], Brewster [24], Cheng and Ahmad [28],Black [101], Graves [29] are convinced of the ineffectiveness of Convention enforcement and attribute it to theunsatisfactory cost-benefit calculations of the strategy of faithful enforcement.

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Disincentives that account for a cooperative dilemma

Current anti-bribery literature counts poor expected interests in transnational briberyregulation, the conventional worry of free riding problem in collective actions, and theexistence of a large group of outsiders as major disincentives accounting for thecooperative dilemma:

Poor expected interests

A few scholars argue that the anti-bribery collaboration is destined to fail because somesignatories had no intention of faithful fulfilment of treaty obligations from the verybeginning. International politics theory has suggested that the rise of globalism hasresulted in increasing gaps among sovereign states in economic and political leveragein international affairs, and powerful states are therefore inclined to manipulate con-straints and impose international institutions on others so as to maximize their ownbenefits.26 The OECD Anti-Bribery Convention which is more favorable for advancedeconomies whose companies produce and export high-quality, low-price products issuch a product of unequal powers. For less developed states less competitive ininternational markets, they expect little welfare improvement from such an unprece-dented anti-bribery initiative. Although their asymmetrical economic and politicaldependence on powerful states makes it difficult to refuse the Convention, under-developed countries are highly likely to accept the norms for strategic purposes butshirk the enforcement thereafter.27 In view of the US’s use of aggressive economicsanctions and diplomatic strategies in the 1990s to market its anti-bribery initiative, andthe OECD’s zealous efforts to expand the coverage of the Convention in the 2000s,28 itis quite reasonable to suspect that some signatories entered into the Convention simplyfor removing diplomatic pressure from powerful countries.29

Some other scholars consider the high operational costs of such an anti-briberyinitiative as another factor discouraging national regulators with political will to controlcorruption. The extraterritorial application of domestic laws against transnationalbribery tends to incur higher costs of investigation, evidence collection, and prosecu-tion than those in domestic corruption control. For less-developed signatories poorly-equipped to combat corruption, transnational bribery regulation is costly and techni-cally prohibitive. Rational prosecutors are probably disinterested in allocating resourcesto such cases, but would rather Bcontinue to allocate their time and energies prettymuch as before^ following the Binertia^ of law enforcement.30

26 As Nye & Keohane [44] suggests, BWe do not regard the involvement of international organizations intransnational and trans-governmental coalitions as necessarily contributing to global welfare or equity…Insome cases it might even lead to the pursuit of the interests of well-placed groups at the expense of the interestsof less fortunate but larger sectors of the population.^27 See Tarullo (62: 680–690)28 See Liu [102]29 See Hathaway [105], and Tarullo (62: 680)30 Logically, scholars tend to seek resolutions which help reduce operational costs of transnational briberyregulation. One popular opinion suggests to make use of private entities to expose transnational bribery deals.See Council of Europe ([107]: Article 3), German [61], Burger & Holland [27] and Lord [108]



The worry of free-riding problem in collective actions

Many scholars argue about the multilateral nature of the anti-bribery collaboration whichgenerate collective action problems. Given the worldwide condemnation of transnationalbribery, this line of arguments formulates the enforcement of the OECD Anti-BriberyConvention as a Bcommon good^ for theworld rather than for any single state.31 Signatoriesare motived to cooperate toward a clear international market because they would be betteroff provided the collaboration succeed. Meanwhile, however, this line of arguments realizesthat the collective enforcement of the Convention satisfies the feature of a Bpublic goodsgame^ where diligent members would not necessarily be better off because producers of apublic good cannot delimit consumers. Members of a public-goods game are alwaystrapped in temptation to free ride others and by a fear of being exploited by others.32

Without external institutional intervention, a public-good game can hardly survive.33 Sincethe OECD anti-bribery collaboration is established on the basis of all signatories’ promise toregulate transnational bribery34 and no one delimit beneficiaries of their regulatory outcome,members’ worry of being exploited is severe and the likelihood of defection is high.35

The existence of a large group of outsiders

Another factor aggravating the cooperative dilemma is the existence of a large group ofoutsiders.36 The anti-bribery collaboration is an international affair affecting the welfareof all exporting countries and a satisfactory group size of collaborators is the guaranteeof satisfactory state compliance. For this reason, the indicator of group size was treatedas the precondition for the OECD Anti-Bribery Convention’s entry into force in 1999,37

and existing members are sparing no efforts to recruit new allies.38Despite the increas-ing number of signatories from 34 to 41 in the past 15 years, however, the economicleverage of the group of signatories decreases— As OECD Data suggests, the totalexport share represented by OECD members declined from 75% to 57.6% during thisperiod, and that represented by non-members increased from 25% to 42.4%.39

Unsuccessful institutional design that fails to overcome the cooperative dilemma

Given the high costs of transnational bribery regulation, the worry of free-riding problem,and the existence of a large group of outsiders, the anti-bribery collaboration is not self-

31 See e.g., Nesbit [10], Copeland and Scott [59], Rose-Ackerman [109], Sung [1] and Vega (110)32 See e.g., Holcombe [111], Mulford and Berejihian [46] and Veszteg and Narhetali [71]33 See e.g., Mulford & Berejihian [46], and Bennett & Naumann [112].34 See ([57]:7–27), [113]: 685–700), Ackerman [109], and Almond and Syfert [114]35 It has been argued that in situations with free riding incentives, insecure state actors tend to adopt self-defense strategies (e.g. shirking) so as to guard against free riders. One common strategy is stoppingcontributing. Then they would become reactive free-riding defectors. See Boyd & Richerson [66]36 Nadipuram [63] has discussed how this effect takes place.37 Article 15 of the OECD Anti-Bribery Convention stipulates that the Convention would only enter into forceprovided that Bfive of the ten countries which have the ten largest export shares…and…represent bythemselves at least 60 % of the combined total exports of those ten countries, have deposited their instrumentsof acceptance, approval, or ratification.^38 Liu [102]39 See OECD Economic Outlook [33, 34]

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sufficient to survive in the absence of appropriate regulatory intervention. Well-craftedinstitutions which restructure incentives for signatories and foster favorable interactionsare therefore necessary.

Cooperation theory suggests two major types of institutions to overcome thecooperative dilemma in collective actions: credible sanction and effective monitoring.Sanction often attracts more academic interests because it puts pressure on potentialfree riders in a more ambitious and aggressive way than monitoring, and thereforeprevent defection more effectively.40 Accordingly, many papers have discussed theutility of a sanction mechanism in guaranteeing compliance,41 and the low compliancepull is therefore attributed to the absence of a sanction mechanism in the OECD anti-bribery collaboration.42 However, since the idea of establishing a sanction mechanismis politically difficult, this line of causal attribution does not help solve the problem itidentified. 43 More pragmatic scholars emphasizes how sufficient information flowsprovided by effective monitoring mechanisms would promote compliance level.44

The utility of a monitoring mechanism to overcome the cooperative dilemma

Cooperation theories suggest that high quality of information can guarantee cooperation inthe absence of normal exogenous restraints.45 With sufficient information about others,participants who fulfill Convention obligations can monitor others, reducing the concern ofbeing exploited by others; and potential free ridersmay be concerned about their reputation,as well as for the criticism and retaliation of others.46 An effective monitoring mechanismthat provides information about Convention enforcement and identifying defectors istherefore considered to be central to the success of the collaboration. 47 Logically, the

40 Academic scholarship across behavioral science has adopted in-depth analysis to compare whetherincreasing the probability or the severity of punishment is a more effective deterrent for violators. See e.g.,Mendes and McDonald [115], Piquero et al. [72], and Murata et al. [116]41 See Boyd and Richerson [66], Fender [67], Fehr and Gächter [68], Kosfeld & Riedl [69], Fehr and Schmidt[70], Veszteg & Narhetali [71], Piquero et al. [72], Carpenter et al. [73], Shutters [74], Tan and Xiao [75] andRosecrance [76]42 See e.g., Nichols [7], Tarullo (62: 687), Veszteg & Narhetali [71], Cheng and Ahmad [28], Magnuson [26]and Graves [29]43 Although in some cases autonomous states would commit a certain amount of sovereign power to establisha central sanction mechanism to guarantee long-term and stable interactions with others— of which the disputesettlement mechanism in the WTO is a good example, the applicability of central sanction is often limited tocases with reciprocity and the possibility of retaliation. In public-good-producing collaborations, the absenceof central sanction and mutual sanction is predicted to be an unchangeable reality. See WTO Press Release,BDispute settlement^, available at: http://www.wto.org/english/tratop_e/dispu_e/dispu_e.htm (last visited:March 19, 2013). For comments on the conditions for an effective control-oriented regime see Keohane [42]44 See e.g., Tarullo (62: 689), and Heimann and Dell [22]. For a general analysis of mecahnisms by whichinternational law can be enforced see e.g., Goldsmith and Posner [48], and for arguments on the effects ofreputation in collective actions see e.g., Wang et al. [78], and McIntosh et al. [79]45 See Jones [77], Keohane [42], Goldsmith & Posner [48], Wang et al. [78] and McIntosh et al. [79]46 See Wang et al. [78] and McIntosh et al. [79]47 Pieth [65] suggests that the OECD monitoring mechanism was a tempting factor that motivated the US tochoose the OECD as the platform of the Anti-Bribery Convention. After the formation of the OECD Anti-Bribery Convention in [117], Clinton [18] claimed that Bthe United States intends to work diligently, throughthe monitoring-process to be established under the OECD, to ensure that the Convention is widely ratified andfully implemented.^



problem of unsatisfactory Convention enforcement is attributed to the failure of the OECDmonitoring mechanism to monitor individual behavior.48

The failure of the OECD monitoring mechanism to monitor individual behavior

The OECD established a peer-review monitoring system as soon as it proclaimed waragainst transnational bribery in 1994. This monitoring system was expected to evaluatesignatories’ fulfillment of treaty obligations and figure out the inadequacies of their nationalanti-bribery institutions.49 In the OECD anti-bribery collaboration, it is theOECDWorkingGroup on Bribery (theOECDWGB)— a special agency of the OECDwhich is in charge ofthe enforcement of the Convention— that coordinates the whole peer-review work.50 Thispeer-review monitoring program, according to the scheme of the OECD, reviews compli-ance of member states individually and takes place in three phases.

Phase 1 evaluates the adequacy of a state party’s legislation to implement theConvention by reviewing written documents. Take the Phase-1 review of the U.S.as an example. The working group evaluated how the Convention terms wereincorporated into the US national laws. It examined how the offence of bribery offoreign public officials is defined under the FCPA, the responsibility of legalpersons, sanctions, jurisdiction, enforcement, statute of limitations, money laun-dering, accounting, mutual legal assistance, extradition, responsible authorities, thecounterparts of which can be found in the Convention.51

Phase-2 evaluates whether the signatory applies this legislation in an effective way.When Phase-2 review starts, the OECDWGB organizes a team to do an on-site visit tothe state party. This team is composed of examiners from peer countries and staff ofthe OECD Secretariat. They meet relevant officials of the examined country, andevaluate the country’s compliance with its treaty obligations. 52 In 2002, the USbecame the first country entering into Phase-2 review. The working group especiallyfocused on whether the US mechanisms against foreign bribery are effective.53

Phase 3 focuses on the enforcement of the regulatory documents of theOECD and tailored recommendations from Phase-2.54 Different from Phase-

48 As Heimann & Dell points out, BOECD must continue a stronger follow-up monitoring programme...Unless this is done, there is serious danger that the Convention could fail.^49 See OECD Press Release, BPeer Review ,̂ available at: http://www.oecd.org/site/peerreview/ (last visited:August 2, 2012)50 See OECD Press Release, BCountry Monitoring of the OECD Anti-Bribery Convention^, available at:http://www.oecd.org/daf/briberyininternationalbusiness/countrymonitoringoftheoecdanti-briberyconvention.htm (last visited: November 23, 2012)51 See US Phase-1 Report ([118]: 20)52 See Burger & Holland [(27]: 55)53 The monitoring results were reflected in the US’ phase-2 report. Different from Phase-1 review whichmainly examined laws-on-the-books, Phase-2 review gave subjective evaluation of the effectiveness of theanti-bribery mechanisms of state parties, together with recommendations for the improvement of their anti-bribery mechanisms. As of January 2013, except Russia and Columbia, Phase-2 review in all membercountries was completed. See OECD Country Reports, available at: http://www.oecd.org/daf/anti-bribery/countryreportsontheimplementationoftheoecdanti-briberyconvention.htm (last visited: May 4, 2013)54 See OECD Press Release, BCountry Monitoring of the OECD Anti-Bribery Convention^, available at:http://www.oecd.org/daf/briberyininternationalbusiness/countrymonitoringoftheoecdanti-briberyconvention.htm (last visited: November 23, 2012)

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1 review and Phase-2 review which evaluate a signatory’s anti-bribery lawsfrom an overall perspective, Phase-3 focuses on individualized, detailedissues of the examined state party. In 2010, the U.S. became the firstcountry entering into Phase-3 review.55

In the past years, researchers began to realize that the function of thismonitoring system is limited to the phase of signatories’ incorporating Conven-tion obligations into national legal systems. The OECD WGB started Phase-1review on state compliance with the Convention in 1999, and have achievedsatisfactory results.56 By 2014, all the 40 signatories established their own anti-bribery laws. When the anti-bribery campaign stepped into the phase ofenforcing incorporated treaty obligations, the performance of the monitoringsystem is below expectation.57At this stage, it is no longer possible to establishconcrete criteria to observe compliance and evaluate achievements. Membersfrequently refused the recommendations from the WGB with an explanationthat these recommendations were unnecessary according to their enforcementexperience. 58 These explanations might be sincere. But when Benforcementexperience^ became a reasonable excuse to rebuff external scrutiny, as Tarullonoted, BIt may not be an easy matter to distinguish instances of good faith non-prosecution from instances where prosecutors have ignored overseas bribery inorder to boost the competitive position of their country's firms.^59

The unquantifiability of national regulatory efforts which fails a central monitoringmechanism

Scholars have realized how difficult it is to monitor national regulatory efforts due to thesurreptitious nature of bribery and unquantifiability of regulators’ anti-bribery efforts.

Transnational bribery is a secretive enterprise that prosecutors can never have anaccurate understanding of the number of transgressions. Though the OECD WGB hasbeen trying to compare efforts and achievements of signatories in their domestic enforce-ment of the Convention by way of publishing the number of enforcement actions againsttransnational bribery in recent years,60 it can hardly convince people that this number

55 See OECD Country Reports, available at: http://www.oecd.org/daf/anti-bribery/countryreportsontheimplementationoftheoecdanti-briberyconvention.htm (last visited: May 4, 2013)56 See OECD Press Release, BPeer Review ,̂ available at: http://www.oecd.org/site/peerreview/ (last visited:August 2, 2012)57 See e.g., Tarullo (62: 685), and Pieth [65]58 For example, in US Phase-2 Report, the examiner gave 14 recommendations on the anti-foreign-briberyapproaches of the US, at least 7 of which were not addressed when the OECD did their follow-up jobs. Thegeneral forms of explanation are Bthe United States has carefully considered this recommendation andpresently believes that the level of deterrence provided by the FCPA is generally reasonable. We do notpresently intend to expand the coverage of the books and records provisions of the FCPA to non-issuers^;BThe United States believes that existing internal controls, legislative requirements, Congressional oversight,and scrutiny by civil society presently provide adequate mechanisms to review and evaluate FCPA^; BTheUnited States has reviewed this recommendation and based on our enforcement experience, does not believethat specific guidance, beyond that afforded by the Opinion Procedure, is appropriate or necessary.^ See USFollow-Up on Phase 2 Report [119]59 Tarullo (62: 689)60 See e.g., OECD WGB Annual Report [20]



reflects the real degree of corruption or the achievement of anti-corruption efforts.61 Thetentative instrument of Transparency International (TI),62 is also not convincing. TI hascreated multiple tools to monitor and quantify corruption. Among all its techniques, BribePayers Index (BPI) is most relevant to our topic.63 First issued in 1999, BPI measures therelative propensity to pay bribes in foreign countries of companies from leading exportingcountries. The data sources mainly come from interviews with businessmen in emergingeconomies. Because it is compiled on the basis of data from emotional human beings,however, the methodological reliability is in constant disputes.64

Besides, as the legal system of each signatory has its own logic, it is also impossibleto make general criteria for measuring the efforts of signatories on enforcing theConvention.65 A given signatory’s specific anti-bribery approach is bound up to itsjudicial tradition, economic reality and cultural factors. There habits of resourcesallocation, their political structure which defines coordination between domesticenforcing agencies, and their abilities to extraterritorially enforce anti-bribery laws, varydramatically. Moreover, the investment of different signatories in transnational briberyregulation, which includes costs of investigation, evidence collection, and litigation, isnot measurable and comparable. Besides, the peer review which measures law enforce-ment by collecting and publishing data on investigations and prosecutions in memberstates, is argued to have no direct correlation with the actual level of enforcement.66

The failure of the rational-choice account to explain BWhy the OECDMonitoringSystem Fails?^

The rational choice account has told us empirically how the OECD monitoring systemunderperforms, and has attributed this roughly to the surreptitious nature of corruptionand the immeasurability of national anti-corruption efforts. What is missing here is,however, a reflection on the structural flaws of the monitoring system and possibleremedies. In particular, it tells us virtually nothing about how two separately solvableproblems–the exploitability of individual efforts in the anti-bribery collaboration, andthe surreptitious nature of transnational bribery, have woven into a nonroutine problem67

61 As Burger & Holland states ([27]: 46), Bwithout knowing the number of transgressions, an increase ofofficial investigations does not guarantee that a higher percentage of wrongful acts is being detected andpunished.^ Tarullo (62: 683, 689) notes that, BBy its very nature, most corruption is practiced surreptitiously.Unlike so many other economic phenomena, bribery is not systematically reported to government or privatedate collectors. This characteristic of the problem complicated the campaign for the OECD Convention. It alsocomplicates evaluation of the Convention’s effects…The OECD Convention is more difficult to monitor thanmost economic agreements.^ Tarullo (62: 683, 689). Trace Global Enforcement Report [32] endorsed thisconcern by stating that, BResearch on global anti-bribery enforcement is complicated by the secrecy surround-ing international law enforcement…it is difficult to accurately estimate how many enforcement actions areunknown and thus not yet in the Compendium or the GER 2011.^62 See TI Press Release, BMission, Vision and Values^, available at: http://www.transparency.org/whoweare/organisation/mission_vision_and_values (last visited: March 5, 2014)63 See TI Press Release BBribe Payers Index^, available at: http://archive.transparency.org/policy_research/surveys_indices/bpi, (last visited: August 3, 2012)64 See e.g., Chaikin [64]65 See Pieth [65]66 See e.g., Burger & Holland [27], and Trace Global Enforcement Report [32]67 A routine problem, as Savranshy [120] defines, is one permitting repetitive, already known solutions; and anonroutine problem is one for which at least one critical solving step is unknown insofar as people’sexperience allows.

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that fails a central monitoring system— an effective instrument to overcome cooperativedilemmas under most situations. In the collective history of humanity, corruption hasever been prevented, but has never been accurately measured or monitored. Thisinherent part of corruption control have distinguished the anti-bribery collaborationfrom other international public-good agreements and thus failed conventional solutionsto collective action problems. Therefore, the rational-choice approach which borrowswisdom from anti-corruption doctrines or cooperation theories should be improved toadapt to the uniqueness of the anti-bribery collaboration.

An improved rational-choice approach to prescribe innovative solutions

Academic literature categorizes architectures of monitoring systems into two generalcategories: a centralized approach and a decentralized approach. A centralized approachrefers to a situation in which members are under the monitoring of a central supervisor.It often results from members’ delegation of power to a central authority to perform theduty of assessing individual performance. In contrast, a decentralized approach meansmutual monitoring between members laterally. Members do not necessarily delegatepower to a central authority, but evaluate others’ behavior, identify free riders andpunish them by themselves.68 When a game among collaborators is repeated, memberscan take a Btit-for-tat^ strategy69 or other retaliatory measures to punish free riderseffectively.70 Given that sometimes central institutions are unavailable or prohibitive,though they are effective, some other scholars suggest that pure interactions amongmembers can lead to successful collective actions too provided that interactions amongmembers are repeated and targeted retaliation is possible.71

The OECD monitoring system satisfies the characteristics of a centralized mode. Asnoted, this monitoring system is coordinated by a special agency — the OECD WGB.When the OECDWGB evaluates the enforcement of treaty obligations in their nationallegal systems, it organizes monitoring teams to do on-site visits to examined countries.These monitoring teams are comprised of examiners from OECD and examiners frompeer countries who review regulatory efforts of examined countries and give recom-mendations to them in the name of the OECDWGB.72 Besides, the OECD WGB doesnot give out public information regarding the nationalities of the examiners. Informa-tion on individual performance is collected by the OECD WGB from signatories and

68 See e.g., Boyd and Richerson [66]69 Milinski [121] defines the Btit-for-tat^ strategy as that Bthe player cooperates on the first move and thereafterdoes whatever the opponent did on the previous move^ and considers it as an effective approach to guaranteecooperation.70 Based on the work of some economists and political scientists, ([122]: 685) suggests that BWhen aprisoner’s dilemma is repeated indefinitely, individual can adopt conditional (trigger) strategies designed toreward cooperation and punish defection. In the context of trigger strategies, an individual who behavesopportunistically today must forego the fruits of cooperation in subsequent periods. Provided that actors do notdiscount the future too heavily, there exists an appropriate trigger strategy that will sustain cooperationperpetually. By this logic, individuals can surmount the prisoner’s dilemma in a completely decentralizedsetting.^71 See e.g., Kosfeld & Riedl ([69, 122]: 685)72 For information on the members of the OECD monitoring teams see OECD Country Reports, available at:http://www.oecd.org/daf/anti-bribery/countryreportsontheimplementationoftheoecdanti-briberyconvention.htm (last visited: 20 September 2014)



then signatories acquire information on other signatories’ performance from the OECDWGB monitoring reports. The essence of the OECD monitoring system is a centralizedsystem coordinated by a special agency, rather than a decentralized monitoring systemlaunched by peer countries.

A centralized architecture is not necessarily superior, however. Though anumber of papers across social science have stressed broadly the efficiency ofa centralized approach in collecting information on individual performance,73

they seldom consider whether it is objectively possible for a supervisor or peersto acquire information on individual behavior. As noted, transnational bribery isa secretive enterprise and national regulators also have their own logic toenforce anti-bribery laws. Whether a monitoring approach is effective is pri-marily a question of how information necessary for signatories to remove theworry of being exploited could be collected and channeled to all signatories.Ultimately, the institutional structure of the OECD monitoring system should betested against the extent to which it makes information collection and informa-tion flows among all signatories possible.

The failure of the central monitoring system to collect necessary information

The OECD monitoring system can only be effective when it is able to collect necessaryinformation for signatories to remove most signatories’ worry of being exploited. Forthis reason, whether the information acquirable in the centralized monitoring systemcan achieve this goal becomes the central concern.

Figure 1 presents a multilevel structure of major stakeholders in the OECD anti-bribery system, which has defined the way in which the central supervisor collects andtransmits information on individual performance. There are players at four levels fromthe top to the bottom: (1) the central supervisor — the OECD WGB which collectsinformation on individual performance from signatories and sharing it with all othersignatories. (2) signatories coordinated by the OECD WGB (marked as Country A andCountry B). Signatories are also regulators of business activities of their domesticcompanies in overseas markets. (3) Market players that carry out business activities inforeign markets (marketed as Company A and Company B). They are potential bribepayers and also potential victims of their counterparts’ acts of paying bribes in interna-tional markets.74 (4) Potential bribe payees — foreign officials in international markets.

Figure 2 illustrates how the OECD WGB collects information on nationalregulatory efforts and transmits it to all signatories. As depicted, the OECDmainly carries out the monitoring activity in Region 1, directly from national

73 For academic work that compares the effects of centralized and decentralized monitoring methods see e.g.,Bendor & Mookherjee (106), Schwartz and Tomz [122], Kosfeld and Riedl [69], Gorman et al. [123], andVeszteg and Narhetali [71]74 According to customary international law, business activities of companies are not only regulated bynational regulators of their home countries based on active personality jurisdiction, but also regulated byjurisdictions where they do business based on the territoriality principle, or even regulated by jurisdictionswhere they are publicly listed on a stock exchange. However, as the OECD anti-bribery system is establishedon the basis of active personality jurisdiction, which stresses the regulatory responsibility of home countries,the central focus of this article is on the regulatory relationship between home countries and the multinationalcorporations incorporated in those countries and conducting business abroad.

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regulators (Country A), and then transmits the collected information to all othernational regulators (Country B). It is completely isolated from Region 2, wheretransnational bribery deals between companies and foreign officials really takeplace. This means that the institutional structure of the OECD monitoring systemhas merely structured direct contacts between the OECD WGB and nationalregulators of signatories. The central supervisor remains remote from informationregarding what is going on in international markets.

Since the OECD WGB collects information on individual regulatory efforts fromsignatories by way of reviewing their written laws, interviewing relevant officials andother agencies, but not from companies or foreign officials who are direct participants of

Supervisor:OECD WGB

International MarketsForeign Officials

Coordination

Regulation

Regulator: Country A

Potential Bribe Payer:Company A

Trade

Coordination

Regulator: Country B

Competitor of Company A:Company B

Regulation

Trade

Fig. 1 Stakeholders structure in the OECD anti-bribery system

Supervisor:OECD WGB






Region 1

Region 2

Fig. 2 Information channels under the OECD monitoring system



foreign bribe exchange, it does not collect first-hand information on instances of transna-tional bribery violations, but rather documentary evidence from laws-on-the-book andanecdotal evidence provided by the administrators of national law in signatories. After theOECDWGB collected information on individual regulatory efforts, it has the discretionarypower to process the information and censure shirking signatories in the country reports,which are accessible for all signatories and non-signatories. During this process, signatoriesare not connected directly with each other and share first-hand information, but obtainedsecond-hand information through the intermediary — the OECD WGB.

This institutional structure of the OECD monitoring system makes the acquirementof accurate information on individual performance impossible. Compared with mem-bers in other global collective actions, signatories to the OECD Anti-Bribery Conven-tion have harsher demands for information so as to maintain effective control over eachother. This argument could be better understood by a comparison of the efficacy of theOECD monitoring system which that of the Financial Action Task Force (FATF), aninter-governmental body established by ministers of member countries to promoteeffective implementation of regulatory measures for combating money launderingand related threats. 75 The institutional structure of the FATF resembles that of theOECD monitoring system: By developing recommendations, monitoring the imple-mentation of regulatory measures by members, and identifying national-level vulner-abilities, the FATF seeks to reinforce the global campaign against global threats such asmoney laundering. One probable reason for the more favorable comments76 receivedby the FATF in information collection is that the worry of being exploited by othercollaborators in this area is not so severe as that in the anti-bribery collaboration.Without so much mutual distrust among collaborators as that in the anti-briberycollaboration, information collected from collaborators is sufficient for maintaining abenign collective action.

On the contrary, the information collected by the OECD monitoring system fails toachieve this goal. The public belief in the altruistic nature of transnational briberyregulation aggravates mutual distrust among signatories in the anti-bribery collabora-tion. Grasping the information on the likelihood of exporting firms of other signatoriesto pay bribes in international markets is critical to assure signatories that their regula-tory efforts will not disadvantage themselves. Following this logic, the central moni-toring mechanism which develop recommendations, monitor the implementation ofregulatory measures and review the operational measures by members, but isolatesfrom the first-hand information in global markets 77 is inadequate to overcome thecooperative dilemma in the OECD anti-bribery system.

Given the impossibility of an overall understanding of the tendency of foreigncompanies to pay bribes, information on specific instances of transnational briberyoffence for signatories to impose political pressure on the national regulators of the

75 See FATF, http://www.fatf-gafi.org/about/ (last visited: November 13, 2016)76 See e.g., Johnson and Desmond Lim [124], Gardner [125], Ferwerda [126], Jensen and Png [127], andShahin et al. [128]77 For information on Transparency International’s attempts to quantify corruption level see TransparencyInternational Press Release, BBribe Payers Index^ available at: http://archive.transparency.org/policy_research/surveys_indices/bpi, (last visited: August 3, 2012) For critiques on the reliability of TransparencyInternational Indexes see e.g., Chaikin & Sharman [130]

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bribe-paying companies. However, the current structure of the OECD monitoringsystem determines that information on specific illicit payments is also unavailable. AsFig. 2 depicts, the monitoring system of the OECD WGB is completely isolated fromRegion 2, where transnational bribery offences take place. The OECD WGB, as thecoordinator of the monitoring program, is neither authorized, nor equipped to monitorbusiness activities of companies around the world. It cannot even compel signatories todisclose all information on corrupt behavior of their companies. As Burger & Hollandstate, Bthey lack the power to compel OECDMember States to provide documents, andthey can only encourage cooperation, which depends on the good faith of foreigngovernment officials.^78 Without accurate information on signatories’ compliance withthe Convention, shirking signatories can easily defy criticism from faithful signatoriesand the OECD WGB, and make justifications for their laissez-faire attitude.79

The way in which the OECDWGB processes information worsens the situation. AsCarpenter et al. suggests, individuals in social circumstances are bound by a socialnetwork, in which individuals can only obtain information on those who are connectedto them, but cannot have knowledge of those isolated from them.80 Fig. 2 shows that inthe OECD anti-bribery system, there is only a one-way information channel fromsignatories to the central supervisor and then back to signatories, but no directinterconnections between signatories. As a result, signatories can only acquiresecond-hand information already processed by other signatories in providing it to theOECD WGB and then processed again when storing it. 81 This arrangement forinformation flow indicates that the reliability of the information depends both on thegood faith of other signatories.

Towards a decentralized monitoring system which engages the private sectoras whistleblowers

Considering that an overall quantification of corruption level is unrealistic, academicattention should be shifted to the likelihood of exposing concrete, specific corruptionscandals which can embarrass a shirking national regulator. Accordingly, designingeffective detection devices to collect first-hand clues of illicit payments from privatesector actors would probably work.

The term Bprivate sector^ refers to any private individuals, enterprises or organiza-tions that have personal knowledge of hints of bribery, and the idea that private sectoractors should play an important role in combating corruption is a broad consensusacross current anti-corruption literature.82 A private sector actor can be a victimizedcompany suffering a loss of business because of others’ acts of paying bribes. Inbusiness transactions, companies are motivated to pay bribes so as to obtain anadvantage over business competitors. During this process, competitors of bribe-paying companies may lose tenders that they would have won on product price and

78 Burger & Holland [27]79 As Tarullo (62: 689) suggests, Bwhile the United States and other advocates of the OECD Anti-BriberyConvention are well aware that the Convention is not being rigorously implemented, they have difficultyidentifying specific instances of non-implementation (i.e., non-prosecution) in a convincing manner.^80 See Carpenter et al. [73].81 See Burger & Holland [27]82 See e.g., Burger and Holland [27] and Young [131]



quality. Their desire for combating corrupt behavior and reporting bribery offencesshould therefore be taken into account.83As Fig. 2 shows, if Company A pays bribes toforeign officials for the purpose of winning business opportunities, Company B maysuffer a loss of business which it should have got by way of fair competition. As themost direct stakeholder and potential victim of an act of bribery committed byCompany A, Company B will closely watch the activities of its competitors evenwithout external encouragement.

Private sector actors are also in a good place to monitor transnational corruptiondeals. Because transnational bribery offences take place in foreign countries, it isdifficult for national prosecutors to obtain leads. Private sector actors, who are likelyto have close contacts with both bribe payers and bribe payees, as well as professionalknowledge regarding the quality and price of the products sold, 84 should play anaffirmative part in the anti-corruption campaign, so as to free up public resources fromthe burden of collecting information on possible corrupt behavior. In particular, scholarsadvocate that members of the private sector should be vested with private rights toinitiate civil actions against bribe payers and/or bribe payees because the burden of prooffor civil actions is much lower than that of public officials in criminal proceedings.85

With private sector actors as information sources, as Fig. 3 illustrates, publicresources can be free from the burden of collecting information on corrupt behaviorand victimized private sector parties can be compensated. This is why both scholars andpractitioners show strong interest in providing an institutional guarantee for privatesector actors who suffer damage in corrupt behavior to initiate civil claims. Manyinternational treaties and national legal systems have confirmed the private rights ofvictimized companies or persons of corrupt behavior to initiate lawsuits. In November1997, the Committee of Ministers of the Council of Europe issued The Twenty GuidingPrinciples for the Fight against Corruption, Article 17 of which requires its membersBto ensure that civil law takes into account the need to fight corruption…^ 86 InNovember 1999, Council of Europe enacted Civil Law Convention, Article 3 of whichstates that, B1. Each Party shall provide in its internal law for persons who have suffereddamage as a result of corruption to have the right to initiate an action in order to obtainfull compensation for such damage.^87 According to the Explanatory Report to the CivilLaw Convention on Corruption, member countries should Btake the necessary measuresto protect employees, who report in good faith and on the basis of reasonable groundstheir suspicions on corrupt practices or behavior from being victimized in any way.^88

83 Burger & Holland [27].84 As Tarullo suggests, B[A] serious bidder is likely to have extensive knowledge of the relevant context withinwhich the bidding takes place — the cost structure for the contracted work, the capabilities of its competitors,the preferences and proclivities of the government officials involved, and so forth. Thus, even short of explicitreports of bribery, a losing bidder may be best placed to recognize circumstantial evidence particularly to theirown governments, about losing contracts because of bribery by their competitors.^ Tarullo (62: 699).85 As Global Monitoring Report 2006 puts it, a civil lawsuit against corruption Bempowers victims to litigateon their own initiative, potentially relieving public prosecutors of a complicated burden. Civil courts are lessonerous, have a longer reach, and their burden of proof is less demanding than in criminal courts, makingrecovery of assets more likely.^ World Bank (129: 183). Also see Young [131], Burger and Holland [27], andCarrington [132].86 Council of Europe ([133]: Article 17).87 Council of Europe ([107]: Article 13).88 Council of Europe ([134]: 66).

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Article 35 of the UN Convention against Corruption obliged signatories to take mea-sures to make sure Bentities or persons who have suffered damage as a result of an act ofcorruption have the right to initiate legal proceedings against those responsible for thatdamage in order to obtain compensation.^89

Towards a decentralized monitoring system which facilitates cooperationbetween the private sector and the public sector

Yet the strength of private sector actors in an anti-corruption campaign is limited. Aconstant barrier for private sector actors to initiate civil actions against a suspected bribepayer is the difficulty of gathering solid, credible evidence that can ensure them to wina lawsuit because private sector actors are less skilled than prosecutors in evidencecollection.90 As a result, civil lawsuits initiated by private sector actors are somethingBeasy to start^ but Bhard to win^.91 An even more practical barrier is, currently, privatesector actors therefore have to initiate lawsuits in the home countries of either bribe-paying companies or bribe-accepting officials because they have jurisdiction overtransnational bribery offences. They may be hesitant to sue in the courts of homecountries of bribe-accepting officials because they may do not want to initiate a lawsuitthat would definitely displease public officials of the country where they run business.92

Private sector actors may also be hesitant to sue in the courts of countries home tobribe-paying companies because there is a high probability of trade protectionismpolicies taken by national prosecutors there..93

Given this limited role of private sector actors in collecting solid evidence, thecomparative advantage of private sector actors in gaining first-hand knowledge ofcorruption should be integrated with the comparative advantage of public officials incollecting solid evidence. This monitoring system encourages private sector actors thathave easier access to original information on transnational bribery offences which isinsufficient for winning a civil lawsuit to report the information to public authorities.Once the offence is verified, private sector actors could claim damages or rewardsbased on the findings of public authorities.

This idea of incorporating the forces of the private sector actors into theforces of the public sector is embodied in the Federal False Claims Act94 and

89 UN ([135]: Article 35).90 See Burger & Holland [27]. When the World Bank presented the advantages of civil lawsuits againstcorruption in its 2006 report, it also suggests that BDrawbacks (of civil actions) are that civil courts lack thestrong evidence-gathering methods available to criminal courts and that they require adequate resources on thepart of the litigators.^ World Bank (129: 183).91 See Young [131].92 See Tarullo (62: 700).93 See Young [131], Tarullo (62: 700), but Burger & Holland [27]94 The Federal False Claims Act was enacted in 1863 to combat the fraud perpetrated by military companiesthat sold supplies to the Union Army. According to the 1863 version of this Act, private actors who havepersonal knowledge of the fraud offence can bring a civil lawsuit into the court on behalf of the government.After the plaintiff won the case, the offender who defrauded the government are required to pay doubledamages, and half of the damage would go to private actors who initiated the lawsuit. This Act was notseriously enforced until 1986. In 1986, Congress amended the False Claims Act, and increased the damagesliability of those guilty of defrauding the government from double damages to treble damages. The FalseClaims Act, which encourages qui tam Actions, has been regarded as the most effective tool for federalgovernment to control fraud against the Federal Government. See ([132]: 150), Stengle [136], Scammell [137]



Dodd-Frank Wall Street Reform and Consumer Protection Act (referred to asBDodd-Frank Act^),95 which create a role for private informants, and stress anincorporation of the advantage of private sector actors in obtaining first-handinformation and the advantage of public power in collecting solid evidence onviolations in a holistic institutional arrangement.

However, the utility of the US model of qui tam action and thewhistleblower program depends on the political will of national regulators totake such actions, which is unlikely in the anti-bribery collaboration.96 Underthe OECD Anti-Bribery Convention, it is countries home to bribe-paying

95 The Dodd-Frank Act is directly related to transnational bribery regulation. According to the Dodd-FrankAct, any persons have credible information on violation of securities law, in which transnational bribery isincluded, no matter whether they are stakeholders of the violation, can report this information to nationalauthorities and get reward if the report results in a successful enforcement action. Regarding to the function ofthe whistleblower program established under the Dokk-Frank Act of 2010, in transnational bribery regulation,as the DOJ & the SEC stated in A Resource Guide to the US Foreign Corrupt Practices Act (2012),BAssistance and information from a whistleblower who knows of possible securities law violations can beamong the most powerful weapon in the law enforcement arsenal. Through their knowledge of the circum-stances and individuals involved, whistleblowers can help SEC and DOJ identify potential violations muchearlier than might otherwise have been possible.^ The Whistleblower Program of the US established under theDokk-Frank Act of 2010 provides another example of how the advantage of private forces and the advantageof public forces can be incorporated in a holistic model. Regarding to the function of the whistleblowerprogram in controlling corruption, as A Resource Guide to the US Foreign Corrupt Practices Act (2012)suggests, BAssistance and information from a whistleblower who knows of possible securities law violationscan be among the most powerful weapons in the law enforcement arsenal. Through their knowledge of thecircumstances and individuals involved, whistleblowers can help SEC and DOJ identify potential violationsmuch earlier than might otherwise have been possible.^ ([138]: 82).96 As Carrington states, Bthere would remain the problem that most national courts who would be asked tohear such claims are less hospitable to plaintiffs bringing such civil tort cases. And perhaps many would beespecially unreceptive to foreign claimants invoking international or foreign tort law against domesticdefendant.^ Carrington [132].

Supervisor:OECD WGB




Bribe Exchanges



Business Transactions

CompetitorMonitoring

Region 1

Region 2

Regulation Regulation

Fig. 3 Information flows through civil lawsuits

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companies that have jurisdiction over transnational bribery offences.97 When avictimized competitor (Company B) wants to initiate a civil lawsuit against abribe-paying company (Company A), it has to make a claim in the court of thehome country of Company A (Country A). Then whether Company B can winthe lawsuit badly relies on the political will of national authorities of Country Ato combat acts of transnational bribery of their domestic companies. Groundedin the rational-choice theory, national regulators in the home countries of bribe-paying companies are unlikely to motivated to regulate act of transnationalbribery of their own companies.98 Therefore, the monitoring problem in OECDanti-bribery collaboration cannot be resolved unless there is a holistic solutionmodel which resolves the difficulty in collecting information on transnationalbribery at the level of companies and the regulatory competition among nation-al regulators in the same institutional framework.

Towards a decentralized monitoring system which takes advantageof the competition between signatories

Signatories to the OECD Anti-Bribery Convention are not only collaborators in anti-bribery collaboration, but also competitors in international markets. They are not onlymotivated to regulate acts of transnational bribery of domestic companies as they havepromised, but even more strongly motivated to protect domestic companies’ legalbusiness interests from being plundered by bribe-paying foreign companies in foreignmarkets. Perhaps national regulators of most signatories are not materially incentivizedto combat acts of paying bribes to foreign officials by their own companies, yet they aresurely motivated to prevent foreign companies which are competitors of their domesticcompanies from paying foreign bribes.

Compared with victimized companies, national regulators in the home countries areoftenmore powerful to initiate a dialogue with national regulators in the home countries ofbribe-paying companies, and then impose political pressure on them if they shirk theirregulatory duties.99 According to the arrangement of the OECDAnti-Bribery Convention,it is national regulators in the countries home to bribe-paying companies that are autho-rized to handle cases of foreign bribery. The whole process of detecting and investigating

97 It is a conventional approach around the world that countries home to bribe-accepting officials also havejurisdictions over transnational bribery offences. As most countries condemn corruption, countries home tobribe-accepting officials might have motives to investigate transnational bribery offences. However, on the onehand, home countries of bribe-accepting officials are often less developed countries that have not yet addressdomestic corruption, they might be poorly-equipped to investigate corruption even if they have a political will.On the other hand, the discussion in this article is oriented to addressing the prisoner’s dilemma inside OECDanti-bribery collaboration. Home countries of bribe-accepting officials that are member countries of thecollaboration can definitely play a role, but when they are non-member countries, they are beyond theinstitutional arrangement of the collaboration. Therefore, the jurisdiction of home countries of bribe-accepting officials is not discussed in-depth here.98 They also might unreasonably question the credibility of information provided by private actors. See Tarullo(62: 689), and Pieth [65].99 Considering the relative power imbalances in world politics, it could be very difficult to carry out a dialoguebetween national regulators from different countries. However, in a relative sense, the discursive power ofnational regulators is definitely be stronger than that of victimized companies, and in reality, it is indeedcommon for national regulators to dialogue and cooperate with each other. So the institutional arrangement isfeasible in practice, despite its imperfection in theory.



foreign bribery is completely under the control of national regulators in the countries hometo suspected bribe-paying companies. National regulators in the countries home tovictimized companies can hardly access this process even if they are motivated to doso. Lack of external scrutiny makes it possible for national regulators home to suspectedbribe-paying companies to shirk their duties for the benefit of domestic companies.100 Theparticipation of national regulators in the country home to the victimized company wouldimpose political pressure on national regulators in the country home to the suspectedbribe-paying company. Then the power of the victimized company and that of thesuspected bribe-paying company are well balanced.

The institutional structure of a decentralized monitoring system

Now all the elements of the decentralized monitoring system have been laid out: First,two levels of competitive relationships are introduced into this framework, illustratedby the solid linkage between Company A and Company B and that between Country Aand Country B. At the level of companies, it should enable competing companies andany other private sector actors who have personal experience of corrupt behavior todisclose evidence of transnational bribery offences. Victimized companies shouldpresent relevant information to the home country of the bribe-paying company as wellas their own home country authority. At the national level, institutional connectionsbetween home countries of bribe-paying companies (Country A) and home countries ofvictimized companies (Country B) should be established to facilitate the participation ofnational regulators of Country B in the information processing dominated by nationalregulators of Country A. This means the restructured network of information flows inthe anti-bribery collaboration aim to provide national regulators of one country oppor-tunities to participate in, or at least to be informed of, the investigation of anothercountry regarding a transnational bribery offence from which their own companies mayhave suffered a loss of business.

When the competitive relationships in the private sector and in the public sector are bothintroduced into the monitoring mechanism, connections at the level of market players andat the level of national regulators are established. More frequent interactions among actorsmakes it possible for national regulators of one country to gain a better understanding of thelevel of another country’s enforcement of the Convention (See Fig. 4).

An institutional approach which highlights the positive impetusof convention enforcement

Empirical data has suggested that the current level of Convention enforcement is notonly characterized by the Bunder-enforcement^ of the Convention by many signatories,but also characterized by the increasingly robust enforcement of the Convention by aseveral leading jurisdictions such as the US and Germany.101 The popular rational-choice account, which highlights the free-will intention and the economic rationality ofsignatories, has to explain all the different patterns of compliance across signatories as

100 See Tarullo (62: 689), and Burger & Holland [27].101 See Heimann & Dell (31: 8)

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resulting from different payoffs for signatories in the same strategy of faithful enforce-ment of the Convention. In that case, it calls into question its own assumption thatunilateral enforcement of the Convention disadvantages domestic companies in inter-national markets.102 While the rational-choice approach succeeds in explaining whymost signatories Bconsciously shirk their treaty obligations^, it fails to explain howleading jurisdictions such as the US and Germany Bunconsciously fulfill their treatyobligations^. A supplementary interpretative approach is therefore in demand to proceedour understanding of the dynamic of signatories’ enforcement of the Convention.

To outline an institutional approach

The intellectual predominance of the rational-choice approach has been frequentlychallenged by an institutional approach which highlights how an preexisting andever-evolving institutional context delimits the choices set for agents. For the purposeof analytic clarity, here only some of the most relevant studies are mentioned.

The theoretical basis for an alternative approach

Economists and political scientists have criticized the rational-choice approach for itsexcessive emphasis on the Bstructure^ in which members interact strategically and ratio-nally, and its overlook of the institutional context in which members interact. As early as atleast in the 1980s, political scientists like Keohane and Wendt already called into questionthe utility of the rational-choice approach in explaining state compliance with internationalagreements. Keohane et al. points out the importance of taking into account historicity foran understanding of state compliance with international agreements. 103 Wendt argued

102 For a detailed description about the assumptions of the rational-choice account see Magnuson [26]103 See Keohane [139, 42]

Supervisor:OECD WGB


Coordination



Bribe Exchanges

Coordination



Business Transactions

CooperationMonitoring

Region 1

Region 2

Regulation Regulation

Fig. 4 Restructured information flows



against the rationalist approach and called attention to the process in which identities andinterests of states are endogenous to interaction. 104 North introduces the notion ofBinstitutional path dependence^, juxtaposes an institutional analysis with the rational-choice approach, and highlights the constraints of institutions on the set of choices forindividuals. 105 These arguments, all together, suggests that identities and interests ofcountries which were treated as given by the rational-choice theorizing would changeduring the process of interactions among state actors.

In addition to the claim that Bhistorical matters^, scholars like Boettke et al. empha-sizes the necessity to analyze Bhow history matters^.106 Boettke et al. proposed theconcept of Binstitutional stickiness^ to assess the relationship of newly-introducedinstitutions to existing institutions may affect the ability of new institutions to takehold in that institutional context. In their opinion, informal institutions like cultures andconventions serves as the glue that gives new institutions their stickiness. The closernew institutional arrangement to those informal institutions, the stickier it is to the oldframework, and the more likely that it would function in a desired manner.107

Gutterman adopted a norm-based analysis to explain variation in the US, Germany,France andUK’s incorporation of treaty obligations of theOECDAnti-Bribery Conventioninto their national legal frameworks and argued that Bstate compliance with internationalcommitment is a function of the effectiveness with which the global norm at stake in thatcommitment is articulated in a state’s domestic politics^.108 This study borrows construc-tivist ideas to challenge previous rational-choice arguments on that subject matter, tookculture, norms, ideas as crucial determinants of state identities and interests, and arguesinstead normative considerations are at the center of an actors’ decision to comply withinternational agreements. As this theory directed toward compliance problem of the OECDAnti-Bribery Convention, it is more relevant to the theme of this article. However, thistheory only focused on the phase of the incorporation of treaty obligations into nationallaws, but did not mention a lot of the phase of law enforcement.109

To outline an institutional approach

An institutional approach which views the dynamic of signatories’ Convention en-forcement as resulting from domestic enforcing agencies’ insistence to their ownofficial duties in a preexisting and ever-evolving institutional context. This formulationis first of all based on the fact that transnational bribery regulation relies on theperformance of domestic enforcing agencies in an evolutionary institutional context.110 These domestic agencies might perform their official duties rationally in a givencontext. However, driven by their own official duties, of which the connotation evolveswith the institutional context constantly, domestic agencies’ commitment to their ownofficial mission may result in an effect of Bunconscious fulfilment^ of incorporatedtreaty obligations.

104 See Wendt [45]105 See North [140]106 See Boettke et al. [141]107 See Boettke et al. [141]108 Gutterman [93]109 Gutterman [93]110 See Rachlinski & Farina [142], and Black [101]

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An institutional approach also highlights the interaction between newly-establishedanti-bribery laws and the preexisting institutional environment (including laws andvalues). One example is the development of private rights against transnational briberyin the US. The FCPA had provisions on civil actions at the moment it was created, yetthe original version of civil proceedings was a counterpart to criminal procedure thatwas in the charge of the DOJ and SEC, not indicating any private rights of damagedbusiness competitors.111 After the FCPA criminalized transnational bribery, however,the private rights of business competitors of bribe-paying companies became a logicalconclusion according to the spirit of the US Tort Law, which expanded the channels ofinformation on acts of transnational bribery and channels for stakeholders to expresstheir demands. This means, the existing legal framework defined the tort nature oftransnational bribery which was not stipulated by the FCPA. The circumstance has anability to modify, supplement or enrich the connotation of new institutional arrange-ment. As a result, even if the legislators have their own intentions, once the laws are putinto effect, the society would give tendentious interpretations to them according to theestablished common values of the society. This process is irrevocable. Althoughpolicymakers have the power to modify the legislation in force which goes againstnational interests, they can only make remedies on the basis of existing circumstancewhich has already been off the track of their original prediction.

An institutional approach also highlights the Bunconscious enforcement^ of incor-porated treaty obligations by domestic agencies and considers it as a function of theextent to which treaty obligations have been woven into the habitual behaviors ofdomestic agents pursuing their own ends. As Boettke et al. suggests, the distancebetween the process of institutional design and the location of hoped effect is consid-erable, 112 so an institutional context that does not tolerate domestic corruption isunlikely to tolerate transnational bribery too.

Because an institutional approach involves historicity, an overall analysis of thedevelopmental reality in all signatories is not anything can be completed in one article.Yet it is possible for us to take the developmental trajectory of the US SEC’s enforce-ment of the FCPA in the past decades as a piece of empirical evidence to illustrate howthe actual level of Convention enforcement by a signatory can be attributed to theindependent performance of official duties by domestic agencies in a preexisting andevolving institutional context, rather than the Bpolitical will^ of a state. In other words,we seek to illustrate how the effect of Bunconscious enforcement^ takes place.

Case study: The SEC’s Bunconscious enforcement^ of the FCPAin the past decades

When the FCPA was enacted in 1977, the Congress authorized the SEC to share theenforcement authority with the DOJ. While the DOJ is responsible for criminalprosecutions, the SEC is authorized to enforce the accounting provisions and the civilpart of the anti-bribery prong of the FCPA in addition to its original duty of maintainingfair, orderly and efficient markets in securities in the US and regulates exchanges,issuers of securities, broker-dealers, investment funds, significant aspects of the

111 See Young [131]112 See Boettke et al. [141]



accounting industry.113 By 2014, the SEC has enforced the FCPA for 37 years. It is awidely-held viewpoint that Year 2001 is a watershed of SEC’s enforcement of the anti-bribery prong of the FCPA and a cornerstone indicating that the US began to enforcethe FCPA aggressively.114 By adopting an institutional approach to analyze how thisdevelopmental trajectory takes place, this part seeks to illustrate how the adherence ofthe SEC to its original mission in an evolving institutional context accounts for itsachievements in FCPA enforcement in the past decades.

(1) The SEC’s reluctance to enforce the anti-bribery prong of the FCPA in the first twodecades

As the stock market crash of 1929 led to the collapse of public confidence in capitalmarkets, there was an urgent need for regulatory intervention of the Government torestore public faith. Accordingly, the Government enacted a series of laws obligingpublic companies to promote the level of information disclosure,115 one of which is theSecurities Exchange Act of 1934 that created the SEC to oversee key participants in thesecurities world116 and promote Bthe disclosure of important market-related informa-tion, maintain fair dealing, and protecting against fraud.^117 Prior to 1977, the SecuritiesExchange Act of 1934 did not authorize the SEC to supervise the internal managementand business activities of companies that were not securities intermediaries.

In 1971, an investigation over questionable funds provided for President Nixon’s re-election campaign led to the revelation of a series of false accounting methods of publiccompanies for concealing transnational bribery,118 Thereafter, a voluntary disclosureprogram initiated by the SEC led to the revelation of questionable or illegal payments inexcess of $ 300 million to foreign government officials made by US countries.119 Thisfinding of the SEC unexpectedly resulted in the enactment of the FCPAwhich gave an

113 See §78dd-1 of Foreign Corrupt Practices Act of 1977. Also see § 30A of the Securities Exchange Act of1934 and ([138]: 4).114 Prior to 2001, the SEC brought only a few enforcement actions involving violations of the FCPA. Since2001, SEC’s enforcement effort increases steadily. For articles describing the increasingly aggressive enforce-ment of the FCPA by the US see e.g., Sanyal and Samanta [82], Hansberry [143], Black [101], Blume andMcConkie [144], and Thomas [145]. For press release see e.g., BSEC Enforcement Actions: FCPA Cases^,available at: http://www.sec.gov/spotlight/fcpa/fcpa-cases.shtml (last visited: 29 July 2014).115 See SEC Press Release, BThe Investor’s Advocate: How the SEC Protects Investors, Maintain MarketIntegrity, and Facilitates Capital Formation^, available at: https://www.sec.gov/about/whatwedo.shtml#.U2YBm_mSz6Q (last visited: 4 May 2014).116 As § 4 (a) of this Act provides, BThere is hereby established a Securities and Exchange Commission…tobe composed of five commissioners to be appointed by the President by and with the advice and consent of theSenate. Not more than three of such commissioners shall be members of the same political party, and inmaking appointments members of different political parties shall be appointed alternatively as nearly as maybe practicable.^ § 4 (a), Securities Exchange Act of 1934. Also see the SEC Press Release, BThe Investor’sAdvocate: How the SEC Protects Investors, Maintain Market Integrity, and Facilitates Capital Formation^,available at: https://www.sec.gov/about/whatwedo.shtml#.U2YBm_mSz6Q (last visited: 4 May 2014).117 SEC Press Release, BThe Investor’s Advocate: How the SEC Protects Investors, Maintain Market Integrity,and Facilitates Capital Formation^, available at: https://www.sec.gov/about/whatwedo.shtml#.U2YBm_mSz6Q (last visited: 4 May 2014).118 The event was known as the BWatergate Scandal^. For a detailed description of the revelation of the issueof transnational bribery see Koehler [146].119 United States Department of Justice, BForeign Corrupt Practices Act Anti-Bribery Provisions^ in A.B.Levenson et al., Corporate Compliance and the FCPA, 1997, p.131, cited in Sporkin [147].

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overall prohibition of both false accounting methods and acts of foreign bribery.120

Since the SEC defined its own mission as overseeing information disclosure of publiccompanies on business activities,121the accounting prong of the FCPA was preciselywhat the SEC had requested at the time.122 However, the SEC neither thought it wasnecessary to prohibit transnational bribery, 123 nor thought of itself as the properenforcing agency.124 Despite the SEC’s resistance, however, the Congress insisted onallocating the responsibility of supervising the civil enforcement of the FCPA overissuers to the SEC for several reasons.125

Throughout the 1980s, the SEC sought to get rid of its responsibility of enforcing theanti-bribery prong of the FCPA for several times. It reasserted that transnational briberyregulation which referred to intervention into the substantial part of a company’sbusiness activity was inconsistent with the SEC’s central mission. 126 However, allthese proposals passed the Senate but did not pass the House.127

The SEC’s resistance to enforcing the anti-bribery prong of the FCPA reflects a gapbetween the SEC’s statutory duty of enforcing the anti-bribery prong of the FCPA andits original mission — to enhance the quality, safety and fairness of the securitiesmarkets and promote transparency of corporate management. Prior to the enactment ofthe FCPA, the SEC regularly prosecuted licensed intermediaries such as investmentcompanies and broker dealers for breaches of law, but only policed the informationdisclosure of non-financial issuers. This workload was used to allocate staffing and

120 See Liu [102]121 For a detailed discussion on the evolution of the SEC’s enforcement program prior to 1977 see Atkins &Bondi (103: 372–383).122 As the SEC expressed this objective in its 1976 report to the Congress, it wanted an Act containing (a) Baprohibition against the falsification of corporate accounting records^; (b) Ba prohibition against the making offalse and misleading statements by corporate officials or agents to those persons conducting audits of thecompany’s books and records and financial operations^; and (c) a requirement for corporate management Btoestablish and maintain its own system of internal accounting controls designed to provide reasonableassurances that corporate transactions are executed in accordance with management’s general or specificauthorization^. Rubin [148].123 As it suggested in its 1976 report to the Congress, B…the question of illegal or questionable payments isobviously a matter of national and international concern, and the Commission, therefore, is of the view thatlimited-purpose legislation in this area (without bribery prohibition) is desirable in order to demonstrate clearCongressional policy with respect to a thorny and controversial problem.^ Rubin [148].124 Foreign Corrupt Practices and Domestic and Foreign Investment Disclosure: Hearing before the Com-mittee on Banking, Housing, and Urban Affairs, United States Senate, 95th Congress, first session, on S. 305,1977, 124–125, cited in Black [101].125 The Congress had its own consideration: in any sense, most (if not all) of revealed transnational briberycases were made by companies registered with the SEC, and the bribes were revealed by the SEC’s disclosureand investigative programs. The SEC seemed to be the most appropriate agency for enforcing both accountingrequirements and the new prosecution of anti-bribery under the FCPA. See Report of the Committee onBanking, Housing, and Urban Affairs United States Senate to Accompany S. 305, together with AdditionalViews, 12, 95th Congress, first session, on S. 305, 95th Congress, 1st Session, Report No. 95–114, 28March 1977.126 For information on the SEC’s attempts to get rid of its responsibility of enforcing the anti-bribery prong ofthe FCPA see Black [101], Evans (104: 11), Business Accounting and Foreign Trade Simplification Act: JointHearing before the Subcommittee on International Finance and Monetary Policy and the Subcommittee onSecurities of the Committee on Banking, Housing, and Urban Affairs, United States Senate, 98th Congress, 1stSession, 24 February 1983, pp..48–49, and S. Report 99–486 Part 1, available at: http://beta.congress.g o v / b i l l / 9 9 t h - c o n g r e s s / s e n a t e - b i l l / 4 3 0 ? q =% 7B% 2 2 s e a r c h% 2 2% 3A%5B%2 2foreign+trade+simplification%22%5D%7D (last visited: 10 May 2014)127 See Evans (1983: 11)



material resources; the SEC also had established a large body of regulations specificallydesigned for this purpose. It was this objective that caused the SEC’s concern with theissue of false accounting problem revealed by the BWatergate Scandal^.128 The anti-bribery prong of the FCPA, however, seemed to be remote from its central mission.

Some ideological beliefs also prevented the SEC from adjusting to its new statutoryduty. One ideological belief was that its regulatory behavior should keep a distanceaway from the concrete activities of the real (i.e., non-financial) economy aside fromensuring adequate disclosure, so as not to inhibit the freedom and creativity of thebusiness community. For this reason, the SEC was always trying to achieve a balancebetween maintaining effective regulation of capital markets and avoiding over-reachingintervention. Another ideological belief of the SEC was about its relation with indus-trial and commercial issuers. Prior to the 1990s, the SEC defined itself as more likely aBcoordinator^ that sought to amend technical issues in its Bdisclosure-based^ work orremedy aggrieved investors, instead of one prescribing sanctions over misconductingmarket players. Throughout the 1980s, a series of insider trading scandals led to theenactment of legislations in which the Congress provided the SEC with powers toimpose variable penalties.129 Yet the SEC showed reluctance to accept this authoriza-tion, restating that the enforcement program of the SEC was designed for remedialpurpose instead of punitive purpose.130

As a result, the SEC treated the accounting prong of the FCPA and the anti-briberyprong of the FCPA differently in the following two decades. While the SEC achieved greatprogress in enforcing the accounting prong of the FCPA, its achievement in the anti-briberyprong was insignificant. One piece of evidence is that by 1983, the SEC had brought 24enforcement actions under the accounting prong of the FCPA, but only 2 enforcementactions under the anti-bribery prong.131 Another piece of evidence is that after the FCPAentered into force, the SEC took a series of measures to implement the accountingprovisions into its routine procedures. In June 1979, for instance, the Commission issueda release to improve the independence of accountants that provided non-audit services forpublic companies.132 The accounting profession also took active response to the require-ment of the FCPA on internal accounting control systems. 133 Meanwhile, the SEC’sadherence to the accounting portion of the FCPA was also reflected in its resistance totremendous pressure from the business community. From 1981 on, the SEC received

128 See Goelzer [149]129 See Insider Trading Sanctions Act of 1984, Pub. L. No. 98–376, § 2, 98 Stat. 1264 (codified as amended inscattered sections of 15 U.S.C.). For a summary of the new authority of the SEC to impose penalties seeAktins & Bondi (81: 387–388).130 See Memorandum from John S.R. Shad, Chairman, U.S. Sec. & Exch. Commission, to Rep. Timothy E.Wirth, Chairman, Subcomm. Telecomms., Consumer Prot., & Fin. of the H. Energy and Commerce Comm.350, 22 February 1984, cited in Atkins & Bondi (103: 384).131 Business Accounting and Foreign Trade Simplification Act: Joint Hearing before the Subcommittee onInternational Finance and Monetary Policy of the Committee on Banking, Housing, and Urban Affairs, UnitedStates Senate, 98th Congress, first session, on S. 414, 24 February 1983, 47 (testimony of John Shad).132 See 1979 SEC Annual Report, 45th Annual Report of the Securities and Exchange Commission for thefiscal year ended September 30, 1979, vi.133 As the 1980 annual report of the SEC suggested, the AICPA’s Special Adversary Committee on InternalAccounting Control, as well as individual accounting firms, endeavored to developing guidance for evaluatingthe effectiveness of internal accounting controls and for public reporting on internal accounting controls, so asto fulfill obligations provided by the accounting portion of the FCPA. See 1980 SEC Annual Report, 46thAnnual Report of the Securities and Exchange Commission for the fiscal year ended September 30, 1980.

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frequent complaints from the business community that the FCPA had disadvantaged themin international competition.134 On critical characteristic of these complaints was about therigor of requirements on making records and establishing internal accounting control.135

However, the SEC insisted on not lowering the accounting standards.136 The businesscommunity also complained about the ambiguity of the accounting provisions,137 and theSEC considered this concern as the Brough edges^ of a new piece of legislation whichshould be solved in the Bforces of time and practical experience^.138 The SEC promised toplay an active role while it encouraged companies to contribute their thoughts andsuggestions.139 It sought to foster an innovative environment in which the FCPA’s originalpurpose, instead of the text, would be achieved.140

In contrast, the SEC almost forgot the anti-bribery prong of the FCPA. The 1981GAO report also complained that the anti-bribery prong of the FCPA had disadvan-taged US companies,141 which was endorsed by many government officials.142 Despitethe broad consensus on the adverse effect of the anti-bribery provisions of the FCPA onUS business,143 it was not a result of the enforcement effort of the SEC. The SECbrought only two enforcement actions against bribery by 1983 — which, as John Shadstated in 1983, Bhave been brought under this provision also include antifraud anddisclosure allegations and could have been brought without reference to section 30A.^144 Another piece of evidence for the SEC’s omission is, while the 1981 GAO reportsuggests that 60% of respondents had updated their internal accounting control systemsas a response to the accounting prong of the FCPA,145 a 1995 survey conducted byWayne State University suggests that only 35.9% of respondents had anti-bribery terms

134 See Business Accounting and Foreign Trade Simplification Act: Joint Hearing before the Subcommittee onInternational Finance and Monetary Policy of the Committee on Banking, Housing, and Urban Affairs, UnitedStates Senate, 97th Congress, 1981,82 (testimony of William Brock) 1981, cited in Adler [150].135 See USGAO [51] (statement of comptroller general of the US)136 See Williams (151: 21–23)137 Many respondents complained that the ambiguity of accounting provisions and anti-bribery provisionscaused US companies to forego legitimate business opportunities. USGAO [51]138 See Williams (151: 22)139 1980 SEC Annual Report, 46th Annual Report of the Securities and Exchange Commission for the fiscalyear ended September 30, 1980, ix.140 1980 SEC Annual Report, 46th Annual Report of the Securities and Exchange Commission for the fiscalyear ended September 30, 1980, ix.141 See USGAO [51]142 See statements of Senator D’Amato, Senator Heinz and Lionel Olmer in Business Accounting and ForeignTrade Simplification Act: Joint Hearing before the Subcommittee on International Finance and MonetaryPolicy of the Committee on Banking, Housing, and Urban Affairs, United States Senate, 98th Congress, firstsession, on S. 414, 24 February 1983: 2–57, and Statement of Commission Policy Concerning Section 30A ofthe Securities Exchange Act of 1934, Exchange Act Release No. 17099, 20 SEC Docket 1258, 1262 (28August 1980).143 See e.g., Chaikin (152: 289), Wallace [153], and Magnuson [26].144 See Business Accounting and Foreign Trade Simplification Act: Joint Hearing before the Subcommittee onInternational Finance and Monetary Policy of the Committee on Banking, Housing, and Urban Affairs, UnitedStates Senate, 98th Congress, first session, on S. 414, 24 February 1983, 53 (testimony of John Shad). By1998, among over 300 enforcement actions of the SEC, only four actions were under the anti-briberyprovisions. See Hearing on the International Anti-Bribery and Fair Competition Act of 1998 before theSubcommission on Finance and Hazardous Materials of the Comm. on Commerce, 105th Congress, (state-ment of Paul V. Gerlach, Associate Director of Division of Enforcement, SEC), cited in Black [101]. Also seeRossbacher & Young [154].145 See USGAO [51]



in their codes of conduct, and only 8.7% had taken measures to ensure briberyprohibition to be enforced.146

The situation began to change since the 2000s. During the period from 2001 to2006, there was a steady increase in the number of enforcement actions against foreignbribery brought by the SEC; and since 2007, the number began to increase dramati-cally.147 A review to the changes in the nature of the SEC’s enforcement actions fromthe 1990s onwards caused by new regulatory challenges in the capital markets helps toexplain this developmental reality.

The zealous enforcement of the accounting prong of the FCPA by the SEC which leadto institutional improvement

The SEC’s zealous enforcement of the anti-bribery provisions of the FCPA is the side-effect of the SEC’s zealous enforcement of federal securities laws. One popular view acrossscholarship on securities regulation is that loose regulation causes scandals and thenscandals led to the creation of new legislations and more aggressive regulatory tools.148

The growing number of insider trading cases and other corporate scandals led to theenactment of a series of laws during the period from the 1980s to the 2000s. The SEC wasauthorized stronger power to deter and penalize violations of federal securities laws, whichunexpectedly led to an increase in the enforcement of the anti-bribery provisions.149

In the 1980s, as a response to several insider trade scandals,150 the Congress enacted theInsider Trading Sanctions Act of 1984, the Insider Trading and Securities Fraud Enforce-ment Act of 1988, and the Securities and Enforcement Remedies and Penny Stock ReformAct of 1990 (also referred to as Bthe RemedyAct^), which provide the SECwith the powerto impose civil penalties against violators of federal securities laws to the SEC.151 During itssubsequent enforcement practice in the 1980s, the SEC gradually realized the inadequacyof its existing tools (i.e., injunctions and disgorgement) in deterring violations of federalsecurities laws,152 and the necessity of seeking variable approaches to penalize violators.Yet the Commission remained quite prudent in applying those penalty provisions.153

146 See ([155]: 23–25)147 See SEC Press Release, BSEC Enforcement Actions: FCPA Cases^, available at: http://www.sec.gov/spotlight/fcpa/fcpa-cases.shtml (last visited: 29 July 2014). Several examples of papers holding thisviewpoint are Hansberry [143], Magnuson [26], and Black [101].148 See generally Prentice [156] and Atkins & Bondi (103).149 See Prentice [156].150 See Katz [157].151 For detailed discussion on the history of this Act see Atkins & Bondi (2008: 385–394). At the beginning,the SEC adhered to the ideological belief of non-substantial intervention and thought that there was no urgentneed for but potential negative externalities of introducing additional civil penalties into areas aside frominsider trading cases. See, e.g., Memorandum from John S.R. Shad, Chairman, U.S. Sec. & Exch. Comm’n, toRep. Timothy E. Wirth, Chairman, Subcomm. Telecomms., Consumer Prot., & Fin. of the H. Energy andCommerce Comm. 350 (Feb. 22, 1984), cited in Atkins & Bondi (103: 384).152 See Atkins & Bondi (103: 386).153 In 1990, Gary Lynch, the Director of Enforcement of the SEC stated that, BI think it is important for theCommission to maintain its historical focus on achieving remedial relief, rather than taking punitive action inevery case, and that the Commission should still continue to judge the effectiveness of the Commission’senforcement program based on what it actually accomplishes, as opposed to what the dollar amount is that isordered in a particular case.^ The Securities Enforcement Remedies Act of 1989: Hearing before theSubcommittee on Securities of the Committee on Banking, House, and Urban Affairs, United States Senate,101st Congress, 2nd session, 1& 8 February 1990, p. 116 (statement of Gary G. Lynch).

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In 1995, the Enactment of Section 301 of the Private Securities Litigation ReformAct of1995(BSection 10A^) 154 mandated independent auditors to detect and report clues offraudulent corporate acts to the SEC provided certain conditions are met. The legislativehistory of BSection 10A^, which significantly expanded the channel for the SEC to obtaininformation on instances of corporate misconduct, was relevant to our topic here.Riesenberg classifies BSection 10A^ to three basic prongs: the BAudit Procedures^ prong,the BLet the Board Know^ prong, and the BLet the SEC Know^ prong.155 The BAuditProcedures^ prong is about specific procedures for public accounting firms to detect illegalcorporate acts.156 The BLet the Board Know^ prong requires public accounting firms toinform the corporate management of a suspect illegal act.157 The BLet the SEC Know^prong requires an auditor to report the suspectedmisconduct which has amaterial effect butthe issuer fails to take remedial action after the auditor reported to it.158

The content of first two prongs, in essence, is consistent with existing auditing standards.The uniqueness of Section 10A lies in the BLet the SEC Know^ prong, which for the first

154 As this Section was incorporated in the Securities Exchange Act of 1934 as Section 10A, it is referred to asBSection 10A^ in the following part.155 See Riesenberg [158].156 § 10A (a) of the Securities Exchange Act of 1934 provides that, BEach audit required pursuant to this tile ofthe financial statements of an issuer by a registered public accounting firm shall include, in accordance withgenerally accepted auditing standards, as may be modified or supplemented from time to time by theCommission— (1) procedures designed to provide reasonable assurance of detecting illegal acts that wouldhave a direct and material effect on the determination of financial statement amounts; (2) procedures designedto identify related party transactions that are material to the financial statements or otherwise require disclosuretherein; and (3) an evaluation of whether there is a substantial doubt about the ability of the issuer to continueas a going concern during the ensuring fiscal year.^ § 10 A (a) of the Securities Exchange Act of 1934.157 § 10A (b) (1) provides that, BIf, in the course of conducting an audit pursuant to this tile to whichsubsection (a) applies, the registered public accounting firm detects or otherwise becomes aware of informa-tion indicating that an illegal act (whether or not perceived to have a material effect on the financial statementsof the issuer) has or may have occurred, the firm shall, in accordance with generally accepted auditingstandards, as may be modified or supplemented from time to time by the Commission— (A) (i) determinewhether it is likely that an illegal has occurred; and (ii) if so, determine and consider the possible effect of theillegal act on the financial statements of the issuer, including any contingent monetary effects, such as fines,penalties, and damages; and (B) as soon as practicable, inform the appropriate level of the management of theissuer and assure that the audit committee of the issuer, or the board of directors of the issuer in the absence ofsuch a committee, is adequately informed with respect to illegal acts that have been detected or have otherwisecome to the attention of such firm in the course of the audit, unless the illegal act is clearly inconsequential.^ §10 A (b) (1) of the Securities Exchange Act of 1934.158 § 10A (b) (2) provides that, BIf, after determining that the audit committee of the board of directors of theissuer, or the board of directors of the issuer in the absence of an audit committee, is adequately informed withrespect to illegal acts that have been detected or have otherwise come to the attention of the firm in the courseof the audit of such accountant, the registered public accounting firm concludes that— (A) the illegal act has amaterial effect on the financial statements of the issuer; (B) the senior management has not taken, and theboard of directors has not caused senior management to take, timely and appropriate remedial actions withrespect to the illegal act; and (C) the failure to take remedial action is reasonably expected to warrant departurefrom a standard report of the auditor, when made, or warrant resignation from the auditor engagement; theregistered public accounting firm shall, as soon as practicable, directly report its conclusions to the board ofdirectors.^ § 10A(b) (3) provides that BAn issuer whose board of directors receives a report under paragraph(2) shall inform the Commission by notice not later than 1 business day after the receipt of such report andshall furnish the registered public accounting firm making such report with a copy of the notice furnished tothe Commission. If the registered public accounting firm fails to receive a copy of the notice before theexpiration of the required 1-business-day period, the registered public accounting firm shall— (A) resign fromthe engagement; or (B) furnish to the Commission a copy of its report (or the documentation of any oral reportgiven) not later than 1 business day following such failure to receive notice.^ § 10 A (b) (2) & (3) of theSecurities Exchange Act of 1934.



time requires independent auditors to inform the SEC of Billegal acts that directly andmaterially affect the financial statements^ of issuers.159 The BLet the SEC Know^ prongnot only expanded the information flow for the SEC to grasp instances of corporatemisconducts, but also provides a new tool for the SEC to supervise the work of auditors.

In August 1999, the SEC issued the SEC Staff Accounting Bulletin (in the followingpart referred to as BSAB 99^),160 in which the SEC gave a broad interpretation of itspower authorized by BSection 10A^. While BSAB 99^ has direct impact on the SEC’senforcement of the accounting prong of the FCPA, it also has indirect impact on theanti-bribery prong: First, BSAB 99^ requires issuers and auditors to comply withSection 13 (b) (2)–(7) of the Securities Exchanges Act of 1934 — the accountingprong of the FCPA. As noted, the accounting prong of the FCPA did not have thestandard Bmateriality^ as the threshold of violations of the law,161 so the SEC requiredauditors not to apply a standard of Bmateriality^ when they audit the accounting recordsof their clients. 162 Second, BSAB 99^ requires that financial management or theregistrant’s independent auditors should not rely on mere quantitative benchmarks toassess Bmateriality^ which was the threshold of their reporting obligation to the SEC.163

Third, BSAB 99^ made an extensive interpretation of the term of Billegal act^. 164

Fourth, the SEC declared its power to impose civil penalties on independent auditorswho violate the BLet the Board Know^ prong in BSAB 99^.165

159 See Deming [159]160 SEC Staff Accounting Bulletin No. 99— Materiality (Release No. SAB 99), 1, available at: https://www.sec.gov/interps/account/sab99.htm (last visited: 12 May 2014).161 As SAB 99 summarizes,§13 (b)(2)–(7) of the Securities Exchange Act of 1934 require issuers Bmust makeand keep books, records, and accounts, which, in reasonable detail, accurately and fairly reflect the transac-tions and dispositions of assets of the registrant and must maintain internal accounting controls that aresufficient to provide reasonable assurances that, among other things, transactions are recorded as necessary topermit the preparation of financial statements in conformity with GAAP. In this context, determinations ofwhat constitutes ‘reasonable assurance’ and ‘reasonable detail’ and degree of assurance that would satisfyprudent officials in the conduct of their own affairs.^ SEC Staff Accounting Bulletin No. 99— Materiality(Release No. SAB 99), 2, available at: https://www.sec.gov/interps/account/sab99.htm (last visited: 12May 2014). Also see Riesenberg [158].162 SEC Staff Accounting Bulletin No. 99— Materiality (Release No. SAB 99), available at: https://www.sec.gov/interps/account/sab99.htm (last visited: 12 May 2014).163 See SEC Staff Accounting Bulletin No. 99— Materiality (Release No. SAB 99), 1, available at:https://www.sec.gov/interps/account/sab99.htm (last visited: 12 May 2014). This is significant for theuncovering of instances of transnational bribery because one method of public companies to hide foreignpayments was to falsify the record into small transactions. See e.g., Koehler [146].164 BSection 10A^ requires auditors to detect Billegal act^ of public companies, and defines the term Billegalact^ as Ban act or omission that violates any law, or any rule or regulation having the force of law .̂ Thisdefinition is broader than the definition of an Billegal act^ given by existing accounting standards inappearance. See SEC Staff Accounting Bulletin No. 99— Materiality (Release No. SAB 99), note 41, availableat: https://www.sec.gov/interps/account/sab99.htm (last visited: 12 May 2014)165 As Riesenberg suggests, BSection 10A^ only authorized the SEC to impose civil penalties against anauditor that violated the BLet the SEC Know^ prong, which, in Riesenberg’s point of view, was a provision tolimit the SEC’s power to impose civil penalties. Under Section 10A, an auditor would not be subject to civilpenalty by the SEC unless all following conditions were met: the auditor has reported an illegal act to thebroad of the issuer; the issuer does not make appropriate remedial measures; and then the accountant fails toreport this issue to the SEC. In addition, the reporting responsibility of auditors is also limited to where theillegal act would have a material effect. Literally, the accountant should not be imposed civil penalty when theauditor failed to report the suspected illegal act to the Board. However, in practice, the SEC did perform itspower of imposing civil penalty against accountants who failed to report suspected illegal acts to the Board ofissuers. See Riesenberg [158].

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BSection 10A^, together with BSAB 99^, assigned new obligations to independentauditors as well as new power to the SEC. This approach materially changed the interre-lations between public companies, auditors, and the SEC. This detecting and reportingresponsibility of auditors would urge them to do due diligence more faithfully.166 As aresult, this policy would increase the exposure rate of issuers’ violation of the accountingprovision of the FCPA as well as the revelation of issuers’ violations of the briberyprohibition of the FCPA. With the expansion of the SEC’s power to oversee auditors andissuers, the chance to reveal misconducts of issuers or auditors increased. In 2001, severalcorporate scandals led to the demise of major companies such as Enron Corp. andWorldCom Inc., which enjoyed favorable reputation in the market until their collapse.167

Once again, these corporate scandals caused a crisis of public confidence in capitalmarkets and led to more radical regulation of the Government. In April 2002, theCongress passed the Sarbanes-Oxley Act of 2002,168 which brought auditing as a self-regulated industry to an end. It introduced strict rules to enhance the independence ofauditors and created the BPublic Company Accounting Oversight Board^ to replaceself-regulatory bodies in overseeing the performance of accounting firms in their auditof public companies.169 Another key part of the Sarbanes-Oxley Act important for thedevelopment of FCPA enforcement were provisions on whistleblower protection.170 InJuly 2010, the Dodd-Frank Act substantially reinforced whistleblower protectionthrough the introduction of provisions on whistleblower incentives.171 Awhistleblowerthat voluntarily provide original information leading to successful enforcement actionsin which over $1,000,000 in sanctions is ordered would receive a reward equal to 10%–30% in total of the monetary sanction.172 In August 2011, the SEC adopted final rulesto implement whistleblower provisions of the Dodd-Frank Act.173 The enhancement ofwhistleblower incentives and whistleblower protection is significant for the enforce-ment of the accounting prong, as well as the anti-bribery prong of the FCPA.174

An evolving institutional context which incorporated the SEC’s duty of enforcingthe anti-bribery prong of the FCPA into its central mission

Atkins & Bondi describes the history of legislative actions mentioned above as a resultof the Congress’s response to public sentiments against corporate scandals on eitherinsider trading, or corruption.175 This is probable true because regulators of capital

166 In the early years after the enactment of Section 10A, the SEC reported that the accounting professionbrought few reports filed with the SEC, and attributed this phenomenon to the accounting profession’somission. For information on this argument and justifications given by the accounting profession seeRiesenberg [158].167 See Atkins & Bondi (103: 394–395).168 Sarbanes-Oxley Act of 2002, Public Law 107–204, 116 STAT. 745, 30 July 2002, available at:https://www.sec.gov/about/laws/soa2002.pdf (last visited: 4 May 2014).169 Title I, Sarbanes-Oxley Act of 2002, Public Law 107–204, 116 STAT. 745, 30 July 2002, available at:https://www.sec.gov/about/laws/soa2002.pdf (last visited: 4 May 2014).170 § 806 & § 1107 of the Sarbanes-Oxley Act of 2002.171 Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010.172 § 748 (b) of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010.173 Exchange Act Rules 17 C.F.R. §240 (12 August 2011).174 The DOJ and the SEC consider the whistleblower program as one of the most effective tool in FCPAenforcement. See [138]: 82).175 See Atkins & Bondi (103: 384–385).



markets are very sensitive to public sentiments. As adequate information disclosure is anonintrusive way to reduce the risk of misbehavior and thus maintain public confidencein capital markets, Congress and the SEC have tended to steadily increase the level oftransparency of corporate management. The number of listed companies — foreignlisted companies in particular — increased dramatically during the 1980s and the1990s. With it, the international dimension of the SEC’s activity of market protectionalso increased. The 1990s and the 2000s witnessed that the markets’ demand foradequate information disclosure increased, and the SEC’s demand for more effectivetools to ensure adequate information disclosure increased accordingly.

All these factors have fed into the SEC’s increased enforcement of both prongs ofthe FPCA. The expansion of enforcement interest of the SEC was coupled with anincrease in the power and variety of enforcement tools.176 Newly-created enforcementtools, the increasing official control over of auditors to guarantee their objectivity, andthe increasingly active role of private sector through civil litigation and whistleblowers,had significantly improved the information flows about corporate misconduct, in whichviolations of the anti-bribery prong of the FCPAwere included. It is very unlikely thatthe SEC specifically sought out to increase its power over violations of the anti-briberyprong of the FCPA. However, with the large increase in activity and information,including the level of enforcement of the FCPA’s accounting prong, an increase in theuncovering of violations of the anti-bribery prong was a natural consequence.

What Atkins and Bondi did not notice is that this historical background alsoreformed the relations of the SEC to other players in its working context. Thisbureaucratic reality has put the work of the SEC under more stringent external scrutiny.Its discretionary power to focus on certain kinds of violations but overlook other kindshas become smaller and smaller. For example, BSection 10A^ mandated auditors todetect and report illegal acts of public companies. The SEC was not only entitled toenjoy the Bright-to-know ,̂ but also had to file reports properly. It received a statutoryduty that it had no power to neglect. On the other hand, if violations of federal securitieslaws were revealed by the media, the private sector, or the DOJ, instead of the internalcontrol systems in public companies established under the FCPA, the auditors, or theSEC, this might well damage the reputation of the SEC if the offence discovered wasone that the SEC should have detected earlier.177 For the SEC, enforcing the anti-bribery prong of the FCPA has become a natural result of its enforcement of theaccounting prong, for the public and Congress expects information arising under thoseprovisions to be acted. In this way the gap between the statutory duty of the SEC toenforce the anti-bribery prong of the FCPA and its central mission to improve infor-mation disclosure has been bridged.

The trajectory of the SEC’s Bunconscious enforcement^ of the FCPA has at least twoinspirations for our understanding of the dynamic of the collective enforcement againsttransnational bribery by signatories to the Convention. On an individual scale, theofficial duties of domestic enforcing agencies do not coincide the Boverall interest^ ofthe country, and its independent performance of official duties does not follow theprediction of the rational-choice account. The logic of Convention enforcement by

176 See Atkins & Bondi (103: 384–385).177 In fact, one reason for the Congress to establish the whistleblower program was that some senators lostfaith in the ability of the SEC and the accounting profession to detect misconduct. See Scammell [137]

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domestic enforcing agencies is rooted in its adherence to its own mission in an evolvinginstitutional context which it interacts with and delimits its choice set. This reciprocalcausation that has (at least in part) led to the SEC’s achievement in transnational briberyregulation cannot be well understood by an analysis uprooted from historical specific-ities, and the dynamic of signatories’ enforcement of the Convention cannot be wellunderstood by an analysis isolated from the institutional contexts in which domesticenforcing agencies perform their official duties.

On an overall scale, the argument about the Bunconscious enforcement^ of incor-porated anti-bribery obligations by domestic enforcing agencies, provides us withanother perspective to create instruments to improve the collective enforcement ofthe Convention. When national anti-bribery laws can be enforced independently of thepolitical will of policymakers, is it possible to improve the level of Conventionenforcement by improving the articulation of treaty obligations into national institu-tional frameworks. Given the diversity and complexity of national conditions, this jobcannot be any easier than an attempt to develop control-oriented institutions. However,signatories are more likely to accept this kind of policy recommendations because itdoes not impose direct pressure on them.178

Conclusion

The aim of analyzing the dynamic of signatories’ enforcement of the OECD Anti-Bribery Convention is to lay bare driving forces and then foster positive changes. Mostof current literature argues about the decisive influence of the self-seeking nature ofsignatories on Convention enforcement, labels the current level of Convention enforce-ment as Bunder-enforcement^, and attributes it to disincentives at multiple levels in theanti-bribery collaboration which lead to unsatisfactory calculations of national interests.Current literature following this approach well explains the gap between the reality andpeople’s general expectation by borrowing wisdom from conventional collective actiontheories. However, its excessive commitment to orthodoxies prevents scholars fromgrasping the uniqueness of the anti-bribery collaboration and prescribing innovativepolicy recommendations. While it attributes the Bunder-enforcement^ of the Conven-tion to the Bineffectiveness^ of the monitoring mechanism in the OECD anti-briberysystem, it fails to discuss further why the OECD monitoring system fails. For this

178 In fact, some current efforts of the OECD WGB can be recognized as examples of this approach. ManyOECD agencies have been engaged in this scheme in the past years. One example is the OECD’s efforts toutilize official export credits systems to deter transnational bribery are worth mentioning. The Working Partyon Export Credits and Credit Guarantees (ECG), an OECD body focusing on the formulation of export creditpolicies, was involved. In 2000, ECG published the Action Statement on Bribery and Officially SupportedExport Credits, to instruct its member countries to take measures to deter transnational bribery benefiting fromofficial export credit support. See OECD Press Release, BThe Export Credit Group^, available at: http://www.oecd.org/document/15/0,3746,en_2649_34169_1844760_1_1_1_1,00.html (last visited July 14, 2012), andOECD, BAction Statement on Bribery and Officially Supported Export Credits^, OECD Paris, 2000, availableat: http://www.oecd.org/officialdocuments/displaydocument/?cote=td/ecg(2000)15&doclanguage=en, (lastvisited: August 17, 2012). Besides, many of the OECD WGB’s policy programmes which focus attentionon fields such as compliance and government policies aimed at preventing and tackling corporate crimes andimproving corporate governance, are also efforts of this kind. See OECD Foreign Bribery Report ([21]: 35–36), available at: http://www.keepeek.com/Digital-Asset-Management/oecd/governance/oecd-foreign-bribery-report_9789264226616-en#.WDFeouF97BI#page38 (last visited: 18 November 2016)



reason, this article has attempted to fill this gap by laying bare the incompatibility of theanti-bribery collaboration with a centralized monitoring system and outlining adecentralized monitoring system involving the competition and cooperation amongmultileveled stakeholders.

This article also argues that experience drawn from the developmental reality inleading jurisdictions such as the US regarding the enforcement against transnationalbribery should be valued. 179 An institutional approach which highlights how theadherence of domestic enforcing agencies to their official duties in an evolvinginstitutional context accounts for the level of Convention enforcement by a signatorylike the US. Following this logic line, policy recommendations should be formulatedtowards a benign institutional environment for Convention enforcement in individualjurisdictions instead of formulating control-oriented rules at a global level to imposepolitical pressure on signatories.

Meanwhile, what is implied but not put explicitly in this study is, while the indepen-dent performance of official duties by domestic enforcing agencies in a preexisting andever-evolving institutional context may cause an effect of Bunconscious enforcement^of treaty obligations at the national level, the extraterritorial application of national lawsagainst transnational bribery probably exerts positive influence on lagging signatoriesduring the process of cooperation in specific cases and facilitates institutional reforms inlagging signatories, which would cause another effect of Bunconscious enforcement^ inlagging signatories. This is another direction under the rubric of an institutional ap-proach toward which the anti-bribery collaboration would probably succeed.180

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