The OECD Foreign Bribery Report: ‘Too Big to Debar’

The OECD Foreign Bribery Report: ‘Too Big to Debar’

“Your criminal actions raise serious questions as to whether you have the requisite personal integrity and business ethics to be a responsible Government contractor.”

That’s me. I was debarred from being a government contractor, and based on my conduct and offense it was an appropriate and fair decision. The process by which I was suspended and ultimately debarred was also fair and appropriate. Furthermore, the protocol the government afforded me in terms of providing an opportunity to address the length of the debarment (it was reduced by one year) was also quite reasonable and objective. So what does that have to do with the OECD Foreign Bribery Report? (link here)  Well, according to the report, of the 427 cases used by the OECD for its data set, two resulted in debarment. The OECD defines debarment as relating “to the additional non-automatic sanction of provisional exclusion from participation in national public procurement processes for a set period.”

Thus, as representing fifty percent of the data set (I am assuming that I am one of the two counted, but I have not asked the OECD for verification), I would like to share a few observations. First, as the OECD has shared, these numbers are surprisingly low “despite the 2009 OECD Recommendation for Further Combating Bribery of Foreign Officials in International Business Transactions” where in fact the OECD recommended the suspension “from competition for public contracts, or other public advantages, enterprises determined to have bribed foreign public officials in contravention of national laws.’”

In my case, debarment, as an extension of my original suspension, will run for two years as a “probationary” period, where the US government will give me the opportunity to “demonstrate that (I) meet that standard of responsibility required of a Government contractor.” Fair? Yes. Appropriate? Yes. So, given that such sanctions are in the toolkit of government penalties and there is a fair process by which the Government will allow an entity to make a case for a reduced period of debarment, why isn’t it being used more often?

As University of Virginia (disclosure, my Masters in Foreign Policy is from UVA and I consider myself a dedicated Wahoo) Professor Brandon Garrett states in Too Big to Jail, (Amazon link here) suspension and debarment “may result in what is a effectively a death penalty for a company, and in many cases prosecutors and regulators are right to want to avoid such severe consequences for the entire company.” Agreed. For example, in my own case, would it have been responsible to have my former employer debarred, with potentially catastrophic economic consequences, for conduct attributable to me? Clearly not, and as Professor Garrett states, “prosecutors are absolutely right to try to avoid collateral consequences of a corporate conviction.”

So, if debarment represents one of the most “powerful tools” that the government has in its enforcement arsenal, is there a way to have it utilized in a way which is painfully incremental, but which can also present a clear and powerful deterrent? Given the current tide of FCPA Enforcement actions (FCPA was number two in Professor Garrett’s analysis of category of crime for which there were DPAs), which does not seem to be receding, perhaps debarment needs to be considered as a potential penalty, but structured in a way which while economically significant, limits the consequences upon both innocent employees as well as governmental entities which may need these services and products.

As Professor Garrett states “if one justification for prosecuting a company in the first place is egregiously bad compliance, then one wonders why so little is typically done to deter or correct it.” So, is debarment the next possible incremental step in increasing corporate and individual deterrence, especially in FCPA cases where “corporate complexity may not only enable crime on a vast scale but also make such crimes difficult to detect, prevent, and prosecute.” If those who participate, condone or intentionally  ignore foreign bribery do not see debarment in their calculus of consequences, then perhaps its use is now warranted as part of the continuum of sanctions and penalties that the government has at its disposal.

Corporate Supervised Release

Professor Garrett, in an interview (link here) with Joel Schectman, Wall Street Journal, Risk and Compliance Journal, Professor Says Corporate Penalties Aren’t Working, states “Parole and other conditions of release are stringent for individuals but the conditions for supervision for corporations are incredibly lax.” Thus, perhaps debarment can be considered as a “condition of supervision,” much like the Federal Government has for individuals, whereby once a corporation has demonstrated corrective measures and a track record of ‘sticking to it,’ that they can once again commence government contracting.

In the Risk and Compliance interview, Professor Garrett shares that when it comes to corporate enforcement “there is much more focus on rehabilitation compared with other areas of the criminal justice system.” So why not make debarment part of rehabilitation?  If debarment can be wielded as a penalty in a personal enforcement, why not apply it to corporations? I agree with Professor Garrett in that “people would be really troubled if the most serious individual offenders were let out and told just behave for a couple of years without supervision,” and as he adds, “that is what’s happening with companies.” 

Alternatives to a Corporate Death Sentence: The Federal Supply Schedule

For those who are familiar with Government contracting, you know that such a solution is administratively challenging. Debarment might be viewed as an all or nothing scenario, where the economic “death penalty” would be unavoidable for certain firms. However, digging into the details of government contracting, there are incremental options, short of all out termination of contracting. For example, many corporations hold “GSA contracts,” whereby all US Government entities can order from a pre-arranged pricing schedule that reflects “best and preferential pricing” (under the Federal Supply Schedule) to the US Government. It is essentially a commercial price list with a discount schedule.

Orders from a GSA contact are frequent, and the order volumes vary greatly from the very small to very large. Perhaps temporary suspension from the Federal Supply Schedule might be appropriate, as that would leave in effect large negotiated non-GSA contracts. The result here might be consequential but not catastrophic. In other words, it does not have to be “all or nothing” as such a suspension could be a part of a negotiated DPA, as a “condition of supervision,” so to speak.

Export Control Restrictions

Given that the FCPA applies to the bribery of foreign entities, what about being debarred from exporting to public or state controlled entities for a limited period? Many of the companies that were referenced in both the OECD and Professor Garrett’s work were subject to export licensing controls under the jurisdiction of the US State Department (DDTC), and the US Department of Commerce (BIS). Would anyone think it unusual for an entity that bribed foreign officials to be subject to debarment from obtaining export licenses, perhaps to the same countries where the bribe was paid, for a limited time period? Again, all of this as part of “corporate supervision.”

Debarment “in Country”

Given the increased level of international law enforcement and prosecutorial cooperation on foreign bribery cases, what are the ramifications of debarment  from the country “of origin?” Of course this would involve some local political willpower from leaders who want to show that corruption is not acceptable, and who look to punish those corporations that use their institutions of state as a vehicle for foreign bribery. It also allows the overseas government  to send a message to both state owned employees and corporate front-line teams that bribery will not be tolerated, and will in fact be prosecuted. We see this type of movement in China right now with the prosecution of both state employees and the pursuit of corporate violators.

As the OECD report states, “countries need to ensure that entities and individuals found to have bribed foreign public officials in international business can be and are disbarred from participation in national procurement contracting.” But, as Professor Garrett well states “suspension and disbarment are highly uncommon.” Why? Because there is, in my opinion, a misperception that disbarment equates to a corporate death sentence. I hope that by elevating some of the incremental enforcement and policy options which might be available in the context of disbarment, that perhaps the “all or nothing” perception might be reassessed.

In his concluding chapter, Professor Garrett argues, “for corporate prosecutions to have real teeth, debarment and suspension should be exercised more clearly and forcefully, particularly for recidivists, to ensure that they implement meaningful compliance” and he reminds us that prosecutors “can wield the most powerful tools.” Thus, if the current FCPA enforcement regime can be strengthened, in terms of deterring foreign bribery and punishing violators, perhaps the “debarment” tool needs to be taken out of the shed, and utilized in a way which while economically painful, is not catastrophic to the hard-working employees and end-users who play a legitimate and lawful role in the economic value chain.