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Oles Morrison

Failure to Debar? OECD Foreign Bribery Report Finds Only 2 Debarments Out of 427 Foreign Bribery Cases

By on January 15, 2015 | Posted in Suspension and Debarment

This month I wanted share an article I recently found on the OECD Foreign Bribery Report, written by Richard Bistrong.  Mr. Bistrong is a former international sales executive who himself was convicted of bribery and debarred, and Mr. Bistrong spent 14 ½  months in prison.  Prior to his conviction, Mr. Bistrong acted as a government witness and participated in covert cooperation to uncover Foreign Corrupt Practices Act and other export violations.

Of the 427 cases used by the OECD (Organisation for Economic Co-operation and Development) as a data set, only two cases resulted in debarment, one of which was Mr. Bistrong.  From Mr. Bistrong’s perspective, a debarred person, debarment is both a fair and appropriate measure.  As such he questions why it is not used more frequently.  Mr. Bistrong cites to Professor Brandon Garrett of the University of Virginia, who argues prosecutors and regulators want to avoid debarring companies as they are effectively death penalties for the company.  Mr. Bistrong argues more of these cases should end in debarment as it is a valuable tool for governments.  The OECD report itself encourages countries to debar entities and individuals that have bribed foreign public officials.

So why does it appear this tool has been used so infrequently?  There are several potential reasons.  First, prosecution for foreign bribery and debarment itself has experienced a resurgence of popularity in the last decade.  The OECD report demonstrates a spike in foreign bribery between 2007 and 2013 with a peak in 2011.  Debarment in the United States has existed in some form since the Civil War, but the current form was established in the late 1980s.  Other countries have recently developed models for a debarment regime or updated their existing models.  The timeframe the OECD used (1999-2014) captured the rise in debarment popularity.  Even given that change in conditions, two is still a low number.

Second, the OECD report notes in 70 of the cases the company was required to institute a compliance program.  Within the debarment context, an agreement to improve a compliance program is called an Administrative Agreement.  An Administrative Agreement allows the government to closely supervise a company and allow the company to demonstrate present responsibility while continuing to operate.  These agreements in many ways can be more useful to a government than a debarment.  It allows the government to interact with the company, find the problems within the company, and require the company to fix those problems rather than merely hoping the company finds a new way to operate ethically if it survives the exclusion period.

Third, awareness may be one of the problems to effective use of the debarment tool.  Particularly in large governments, the procurement and debarment officials may be unaware prosecutors are pursuing a company on bribery charges.  Effective exclusion programs establish relationships with prosecutors; however, in instances where exclusion programs are developing those relationships may not have solidified yet.  An exclusion program validates its existence to the legislature through the number of exclusions it has pursued.  It is unlikely a developed and established program would merely ignore a bribery case.  It would be very difficult for the debarment official to explain to the legislature why it did not pursue any type of action – exclusion or administrative agreement – against a company that prosecutors had established enough evidence to support a deferred prosecution agreement or a conviction.  Therefore, it is much more likely the appropriate officials are unaware of the prosecution rather than declining to pursue an exclusion action.

In conclusion, the OECD report is correct that there is more work to be done in protecting governments from bribery.  However, debarment is but one tool to protect the government and a blunt tool at that.  It leaves a company to flounder on its own to find a new ethical way to do business, and if it does survive the exclusion period, the government must hope the company found that ethical compass.  It is much more hopeful to see that 70 of the cases required companies to improve their compliance programs.  Furthermore, in the United States, debarment is not a forgotten tool. Fiscal year 2013 saw a record number of exclusion actions (suspensions, proposed debarments, and debarments) and the trend seems to be continuing.  Therefore, the myth of failure to debar at least in the United States can be put to rest.

Image Courtesy of Flickr (licensed) by x1klima