The American media is focusing on alleged corruption, conflicts of interest, and self-dealing connected to President Trump and his family’s global business empire. But corruption in global business is a pervasive problem that goes beyond the behavior of any particular person or family. Here, the U.S. generally has played a constructive role under the Foreign Corrupt Practices Act (FCPA) that outlaws overseas bribery.
Payoffs hidden in the budgets of infrastructure projects inflate the cost of projects and limit competition. Collusion between corrupt officials and contractors leads to poorly conceived projects and shoddy workmanship. The corrupt actions of domestic and foreign firms harm honest American companies.
However, U.S prosecutors can play only a limited role in controlling infrastructural corruption. Host countries need to step up their own anti-corruption activities. We focus on Argentina’s weak response to allegations of “grand” corruption to illustrate the dilemma, focusing on allegations involving Odebrecht — Brazil’s infrastructure conglomerate and the largest public contractor in Latin America.
Brazil’s Lava Jato, also known as Operation Car Wash, targeted the state-owned company Petrobras and implicated Odebrecht in corrupt dealings. The company admitted paying $788 million in bribes between 2011 and 2016 to secure contracts worth $3.3 billion involving more than 100 projects in 12 countries. The waste of public funds in both covering the cost of bribes and otherwise padding the budgets appears to be enormous.
Complementing the Brazilian investigations, U.S. authorities entered the picture, and Odebrecht signed a guilty plea agreement with the U.S. based on violations of the FCPA. One might wonder how a U.S. law could cover deals between a Latin American firm and Latin American public officials, but the reach of the U.S. criminal law is broad. Jurisdiction arose from a meeting in Miami between Odebrecht employees and the use of American banks.
The plea included disclosure, compliance, cooperation, and external monitoring. The payment of $3.5 billion from Odebrecht and a subsidiary — $93 million went to the U.S., $2.4 billion to Brazil, and $116 million to Switzerland — is the largest transnational bribery case in history. Thus, Brazilian and the U.S. law enforcement complemented each other. However, Argentina, as well as other jurisdictions, is struggling with legal and institutional restrictions on access to the relevant information and on using it in a transparent and professional manner.
In Argentina, there are many hindrances to prosecution. First, almost no one has an incentive to change the corrupt status quo: politicians, the private sector, unions, and civil society all benefit from corruption in contracting. The Odebrecht contracts were carried out jointly with local businesses, one of which, IECSA, was owned by the family of current President Mauricio Macri. Moreover, the local press revealed that Odebrecht might have financed most candidates in the 2015 presidential election, hedging its bets. In 2017, a midterm election year, crossed accusations risk cancelling each other out.
Second, Argentina has poor rule-of-law institutions. The current administration accuses the national attorney of favoring allies of the past presidents, Néstor Kirchner and Cristina Kirchner, during criminal investigations. Control mechanisms within the executive are not politically independent, and the opposition accuses them of benefiting incumbents.
The Treasury prosecutor was fired amidst disagreement over conflicts of interest involving the president’s family company. Before leaving office, he launched a civil suit against Odebrecht and began to bring claims to revoke infrastructure contracts. Federal judges in charge of investigating corruption, who had seemed blind to corruption during the Kirchners’ 12-year rule, now seem to be picking up the pace, but they are very careful whom they target and when.
Third, Argentina’s criminal law is inadequate. There is no corporate criminal liability for corruption, so companies such as Odebrecht have no legal incentive either to prevent corruption or to disclose it and seek a plea bargain. The executive has proposed a law to introduce corporate criminal liability, but the opposition does not support it. The criminal system is inquisitorial, and prosecutors are not in charge of investigations and lack real plea bargaining powers.
Last year, Congress passed a plea act for corruption charges (for natural persons), but the process is much more limited than in the U.S. or Brazil. Short statutes of limitations, delays introduced by lawyers, and judicial neglect or complicity mean that corruption cases almost never come to trial. Cases take an average of 14 years, and there were only seven convictions for corruption over the past 20 years, according to a 2012 non-governmental organization report.
Brazil and the U.S. have the information that Argentina needs to prosecute Odebrecht’s corruption. In Brazil, the accused’s pleas cannot be used against them in the requesting country. Argentine law does not provide such immunity. Hence, individuals and firms resist Brazilian efforts to share material with Argentina, even though Article 37.5 of the U.N. Convention against Corruption recommends rewarding interstate cooperation with immunity.
In the U.S., Argentine judges’ requests for mutual legal assistance have so far not been answered. A 2009 study shows that 60 percent of all mutual legal assistance requests by Argentina concerning corruption investigations are either denied or unanswered, in many cases due to “mistakes” in their formulation. Furthermore, although the U.S. plea agreement requires the company to cooperate fully with foreign law enforcement agencies at the request of U.S. authorities, the legally competent authorities only recently met with the U.S. Department of Justice.
Even if Argentina could get proof of wrongdoing from the U.S. or Brazil, the authorities have no incentive to do so if the material could implicate them or their close associates. In the alternative, Odebrecht is offering Argentina information on past corruption in exchange for maintaining its existing contracts and preserving its ability to bid on new projects. Odebrecht’s proposal, however, infringes administrative law provisions on the nullification of ill-gotten contracts.
The Odebrecht case suggests that transnational bribery provisions and international cooperation are not sufficient for prosecutions in structurally corrupt countries. In Argentina, perhaps public opinion will spur prosecutors into action, and perhaps the judiciary will impartially adjudicate cases of grand corruption. However, doubts on both counts suggest that reformers need to go beyond law enforcement. Odebrecht has monopolized some construction projects, and some of its projects are of questionable public value, perform poorly, or are overpriced.
In such cases, the fault lies not only with the firm but also with those who create the contracting environment. Reformers need to direct their attention more intensively on the contracting framework, not only on prosecuting malfeasance. Potential routes for reform are efforts to assure competition from more domestic and foreign firms, improved methods of project selection, and stronger monitoring of contract execution with built-in incentives for good behavior.
Natalia Volosin (@NataliaVolosin) is an Argentine criminal law attorney and legal scholar. She holds a Master of Laws from Yale Law School, where she is a Doctor of the Science of Law candidate writing on Argentina’s structural corruption. She has published extensively on corruption and government procurement in Latin America.
Susan Rose-Ackerman is the Henry R. Luce Professor of Law and Political Science at Yale University. She has written widely on corruption and on administrative law and public policymaking. Her most recent book, authored with Bonnie J. Palifka, is the second edition of Corruption and Government: Causes, Consequences and Reform.
The views expressed by contributors are their own and are not the views of The Hill.