Tuesday, September 12, 2006

Soft Extra Territorialism and American Anti-Corruption Campaigns

One of the great issues of transnational law in the late 20th and early 21st century is extraterritorial application of national law. In the usual case a powerful state seeks to regulate the behavior of people or entities with a national connection by reaching its conduct in foreign jurisdictions. American courts tend to presume that American law can apply only to actions or persons within the borders of the United States, Pfeiffer v. Wm. Wrigley Jr. Co., 755 F.2d 554, 557 (7th Cir. 1985) (noting that a “fear of outright collisions between domestic and foreign law – collisions both hard on the people caught in the cross-fire and a potential source of friction between the United States and foreign countries – lies behind the presumption against the extraterritorial application of federal statutes"). However, where statutes clearly indicate that they are meant to be applied beyond the territorial limits of the United States, the courts will give them extraterritorial effect. Sale v. Haitian Centers Council, Inc., 509 U.S. 155 (1993).

When this regulation is attempted pursuant to positive law, one can characterize this regulation as “hard extraterritoriality.” Good examples include certain provisions of the Sarbanes Oxley Act. “Most European accountants, financial executives, regulators, and corporate lawyers—haunted by the far-reaching extraterritoriality of the new law—would say “yes.” Anger over the new post-Enron U.S. capital market laws is vented in the sarcastic reply given by the spokesman of a leading European industry association to the question: ‘What does Sarbanes-Oxley mean? That’s when two members of U.S. Congress fiddle and half a million accountants in Europe start dancing.’” Klaus C. Engelen, Preventing European Enronitis. The International Economy (Summer 2004). But see Carnero v. Boston Scientific Corp., U.S. Court of Appeals for the 1st Circuit, Nos. 04-1801 and 2291 (Jan. 5, 2006) (holding that the SOX whistleblower provisions do not extend to protect an employee of a foreign subsidiary because the employment agreement specified application of foreign law, SOX is silent on issue of extraterritorial application, there is no legislative history supporting an intent to apply SOX outside the United States and because policy considerations militated against application of US labor laws in other states). On the other hand, some courts have been more willing to permit actions in the U.S. relating to tort and contract claims that may have taken place in Argentina. See Duha v. Agrium, Inc., 448 F.3d 867 (6th Cir. 2006) (vacating dismissal on forum non conveniens grounds of claims by U.S. citizen relating to employment in Argentina).

The traditional American response to concerns of hard extraterritoriality has been to negotiate treaties with target states to make the projection of American law outward more palatable. This usually requires the partner state to harmonize its laws in conformity to US law. This, for example, has been the pattern of American action in the antitrust area. One Federal prosecutor described how the Americans would run into

"opposition based on concerns over what our foreign colleagues refer to as U.S. extraterritoriality -- that is, foreign countries said they were concerned that, if they entered such agreements with us, we would use the evidence to bring market access cases against them, cases where the principal harm to consumers was in their own country's market and the harm to the U.S. was largely to its exports. So, we responded to this concern by proposing that we would enter so-called positive comity agreements with those competition authorities that we believed had demonstrated a real commitment to unbiased antitrust enforcement, such as we have in the U.S. Along these lines, the Division has spent the past 15 months negotiating a detailed agreement with the competition agency of the European Union. It is a comprehensive, market access enforcement agreement, with referrals by one country to another and a report back and consultation mechanism. I expect that we will formally execute this agreement in the next few months and I hope that, ultimately, it will become a template for agreements throughout the world. (Joel I Klein, Criminal Enforcement In A Globalized Economy, paper presented at presented at Advanced Criminal Antitrust Workshop A Practical Approach to Criminal Investigations, Feb. 20, 1997.

But extraterritoriality can be soft as well. Soft extraterritoriality involves an indirect application of a nation’s administrative or informal standards to the behavior of individuals in other states. In some instances the standards are based on administrative interpretation of policy. It is not based on a legislatively mandated positive obligation enacted as law. It may have no direct effect outside the enforcing nation. It may not impose any obligation or burden on people outside the territory of the United States. But it can be a potent projection of power abroad.

States have begun turning to soft extraterritoriality as a means of projecting power efficiently. Soft extraterritoriality is efficient precisely because it avoids the problems of hard extraterritoriality noted above: the need to negotiate agreements with foreign states or invest in the production of legislation, or deal with judicial oversight of enacted provisions. And it is precisely this efficiency that raises a number of issues and produces a number of consequences that may substantially change the dynamics of global harmonization of behavior standards. Recent action by the United States government providers a good example of the shape of the new form of soft extraterritoriality. It also highlights nicely the potential and pitfalls of soft extraterritoriality.

On August 10, 2006, the Bush Administration announced a new anti-corruption campaign. Unlike earlier campaigns, this one is to be targeted to government officials. In a prepared statement, President Bush declared:

For too long, the culture of corruption has undercut development and good governance and bred criminality and mistrust around the world. High-level corruption by senior government officials, or kleptocracy, is a grave and corrosive abuse of power and represents the most invidious type of public corruption. It threatens our national interest and violates our values. It impedes our efforts to promote freedom and democracy, end poverty, and combat international crime and terrorism. Kleptocracy is an obstacle to democratic progress, undermines faith in government institutions, and steals prosperity from the people. Promoting transparent, accountable governance is a critical component of our freedom agenda. George W. Bush, Press Release: President’s Statement on Kleptocracy, August 10, 2006.

The American Administration’s program is aimed at what has been called “kleptocracies,” that is governments run by and ultimately for the benefit of thieves. More specifically, a kleptocracy suggests a political administration the members of which owe a primary duty of loyalty to themselves (and to the maximization of their welfare) rather than to the citizens of the political community (the national sovereigns) to whom they ought to owe a primary allegiance, and a welfare maximization duty. In the political language of the material released by the White House, “Corruption by senior officials in executive, judicial, legislative, or other official positions in government can destabilize whole societies and destroy the aspirations of their people for a better way of life.” White House, Fact Sheet: National Strategy to Internationalize Efforts Against Kleptocracy, August 10, 2006.

To aid in the global effort to suppress national klepocratic leadership the United States proposed a variety of measures including the right to deny visas for entry in the United States to corrupt officials from other states, to seek the repartition of funds held by corrupt officials in financial institutions outside the home country, to target U.S. aid to those countries and force U.S. development funds away from corrupt officials, and to seek the removal and punishment of those such officials. In the words of the White House, the United States is now committed to do several things:

* Launch A Coalition Of International Financial Centers Committed To Denying Access And Financial Safe Haven To Kleptocrats. The United States Government will enhance its work with international financial partners, in the public and private sectors, to pinpoint best practices for identifying, tracing, freezing, and recovering assets illicitly acquired through kleptocracy. The U.S. will also work bilaterally and multilaterally to immobilize kleptocratic foreign public officials using financial and economic sanctions against them and their network of cronies.

* Vigorously Prosecute Foreign Corruption Offenses and Seize Illicitly Acquired Assets. In its continuing efforts against bribery of foreign officials, the United States Government will expand its capacity to investigate and prosecute criminal violations associated with high-level foreign official corruption and related money laundering, as well as to seize the proceeds of such crimes.

* Deny Physical Safe Haven. We will work closely with international partners to identify kleptocrats and those who corrupt them, and deny such persons entry and safe haven.

* Strengthen Multilateral Action Against Bribery. The United States will work with international partners to more vigorously investigate and prosecute those who pay or promise to pay bribes to public officials; to strengthen multilateral and national disciplines to stop bribery of foreign public officials; and to halt bribery of foreign political parties, party officials, and candidates for office.

* Facilitate And Reinforce Responsible Repatriation And Use. We will also work with our partners to develop and promote mechanisms that capture and dispose of recovered assets for the benefit of the citizens of countries victimized by high-level public corruption.

* Target And Internationalize Enhanced Capacity. The United States will target technical assistance and focus international attention on building capacity to detect, prosecute, and recover the proceeds of high-level public corruption, while helping build strong systems to promote responsible, accountable, and honest governance. White House, Fact Sheet: National Strategy to Internationalize Efforts Against Kleptocracy, August 10, 2006.

The American program raises some very interesting issues of law and legal policy. At the outset, though, it should be clear that as a matter of international relations, there is nothing particularly odd about this anti-corruption campaign as an expression of foreign policy. A state may choose to orders its relations with other states on whatever basis it chooses. Those bases may be laudable or reprehensible as a matter of morals, ethics or other normative or policy conservatives. But those judgments are political choices for which a state will answer to its electorate and which can produce consequences in its relations with other states. Especially when these policy judgments are translated into action with domestic or internal effect, then the consequences do not raise particularly troublesome issues. Even where national foreign policy has graver effect, there is little in the way of novelty or the response. Certain actions are not subject to sanctions under international criminal law [Rome Statute] at least among the parties to that agreement. Violations of economic behavior norms are similar subject to process under international (e.g. WTO) or regional (i.e. NAFTA, MERCOSAR, etc.) arrangements.

What, then, is so interesting about the American anti-correction campaign? I will focus on the program’s lawless legalism, its coercive harmonization, and its inherent irony (that its use of the techniques of corruption – payoffs and strong arm tactics – to combat corruption).

1. Lawless Legalism: The American program targets corrupt officials. A determination that a state harbors a corrupt official within the meaning of that program triggers a variety of actions against the official, the state, or both. The object is clear – to force the state to remove and try the targeted official. Perhaps even greater punishment awaits a state that fails to bring these people “to justice”. For example, by failing to bring them to trial or failing to produce a conviction on appropriate charges, the overtones of the program are entirely legal – from the designation of corruption (a specific crime in the American lexicon and understood as such), to the desired objective of the program (the removal, trial and conviction of the officials).

But these legal overtones are substantially “lawless.” That is, the actions are effected from the American side almost entirely outside of law. No charges are brought in the United States. The United States does not commence legal proceedings in the home country of the accused. Yet the program is meant to give the impression of political determinatives based on legal considerations or the application of legal standards (even if this application is vested in political bodies). Thus, the materials released by the White House state that “The President's Announcement Builds On Established U.S. Leadership In The International Fight Against Corruption. The U.S. actively supports development and implementation of effective anticorruption measures in various international bodies and conventions.” White House, Fact Sheet: National Strategy to Internationalize Efforts Against Kleptocracy, August 10, 2006.

Indeed, the program is meant to have the effect of a legal indictment (even if in the political form). Designation as a corrupt official is to trigger investigation, impeachment, removal, trial and conviction. That is, disqualification as a corrupt official (a political and non-judicial act) is to trigger the commencement of legal and judicial proceedings in the home country. Thus the lawlessness of the legalism within which the program is embedded.

It is in this form that soft extra territorialism acquires its peculiar character. No particular law is being enforced against a person abroad. Instead, American law is deployed within the United States that affects a person abroad indirectly. It rests of a determination about a person (designation as a kleptocrat) on the basis of what can at best be described as administrative determinations in the United States at which the designated individual is not entitled to representation,. It is not dependent on action abroad (indictment or conviction of crimes constituting “kleptocracy” in the home country. Upon designation, the United States will work with other states to bring the “kleptocrat” to justice, either abroad or in the United States—ultimately hardening the application of law.

2. Coercive Harmonization. Lawless legalism may well be a useful tool of foreign policy. At a minimum, it supplies a rational internal logic to the projection of political power abroad. And in societies, like that of the United States, societies accustomed to discourse flavored with legalisms, legalisms without law may supply a compelling method of analysis. Indeed, the most compelling reason for using lawless legalism is its power to effect legal systems by coercing a harmonization of behavior norms that may eventually be transposed into law.

The American anti-corruption campaign might well have been designed to produce that effect.

“* The Strategy Has As Its Foundation In The President's Proclamation, Made In January 2004, To Generally Deny Entry Into The United States Of Persons Engaged In Or Benefiting From Corruption.

* The Strategy Advances Many Of The Objectives In The National Security Strategy By Mobilizing The International Community To Confront Large-Scale Corruption By High-Level Foreign Public Officials And Target The Fruits Of Their Ill-Gotten Gains.

* The Strategy Reaffirms The President's Commitment To Ensure That Integrity And Transparency Triumph Over Corruption And Lawlessness Around The World, Expand The Circle Of Prosperity, And Extend America's Transformational Democratic Values To All Free And Open Societies.” White House, Fact Sheet: National Strategy to Internationalize Efforts Against Kleptocracy, August 10, 2006.

To these ends, the program effectively aims to impose the American standard of corruption on a global basis. It effectively projects it definition of the crime, and the behaviors to be suppressed, to all states. To the extent other states, and especially states with different standards of corruption, are now forced to conform their rules to the American standard, the American anti-corruption policy will have achieves an important end. And it will have done this unilaterally. This is formal or “hard” harmonization.

Moreover, formal harmonization through law reform is not a necessary predicate to harmonization. Where political culture is changed, when informal norm structures are modified, where politicians and other officials either conform their conduct to standard, or even when they worry about deviation from the that standard, a certain amount of “soft” harmonization has been effected. At its limit, even customary international law norms might arise from a dispensing of practice in this area. A soft international standard or corruption could then lead to immortalization in a more form instrument.

Indeed American efforts cannot be understood in a vacuum. They occur even as President Hu Jintao deepens the Chinese Communist Party’s anti-corruption campaigns in China, and Paul Wolfowitz, the President of the Word Bank, announced a campaign to seek “international support for a new push to help poor countries recover assets stolen by correct leaders and held in banks overseas.” Krishna Guka, World Bank Bid to Help Poor Nations Recover Stolen Assets, FINANCIAL TIMES, Sept. 8, 2006, at A-6. This effort is part of a new broad anti-corruption campaign designed in part to expose the location and ownership of large amounts money in banks, detain those funds and return them to their country of origin, presumably after the corrupt official has been removed. The measures are opposed by “institutions and states with bank secrecy laws.” Id. It is also criticized by other leaders who fear that the new anti-corruption plan “would overshadow the bank’s development objectives, slow down disbursement of aid and lead to arbitrary decisions on which countries get help.” Id.

The World Bank’s entry into the area of anti-corruption at a time closely following the American initiative is more than curious. It suggests a well-timed coordination of efforts between the United States and the World Bank. The close personal and associational bonds between the current United States Administration and Mr. Wolfowitz are well known. The similarity of approaches – repatriation of the gains from corruption – also suggests coordination. This is by no means a bad thing. To a great extent the World Bank might stand as proxy, or at least gateway, between the U.S. and those nations most likely to feel the bite of the campaign. The World Bank’s involvement signals both a means of communication and the strength of the drive to harmonize corruption norms at the international level. The step between United States policy and first informal and then formal international law making way in this way grow shorter. The coercive effects of American soft extra territorialism can appear to be veiled (in the worse case) or ameliorated (in the best case). It is far too early to tell.

3. Irony: The Perversity of Doing Good. The American invoke law in a means of structuring its international relations. That lawless innovation of law may well produce law, and certainly it will produce legal effects in targeted states. Those legal effects may, in the aggregate, force a harmonization of the standards to be applied both as formal law and as informal behavior norms. Both results would vindicate this American policy, if any, by producing the desired effects on the ground.

But the path to these successes is laced with irony, perhaps a bit of perversity, and a substantial amount of risk. These ironies, perversities and risks are inherent in the methods of the program itself. What are those methods? They are the methods of corruption itself – payoffs and strong arm tactics to induce a particular set of outcomes. The payoffs are easy enough to identify – the system of foreign aid rewards to be made to compliance states and the efforts to recover, for the benefit of compliant states, the offshore fruits of corruption. The strong arm tactics are also easy to identify – visa denials for targeted officials, confiscation of funds held by those officials outside their home countries.

This characterization of the American programs may strike on one as odd (at best) or wrong (at worst). After all, the tactics I describe have been used, in one form or another, practically since the start of diplomacy. Each individual has proven, in a variety of contexts to be highly effective weapons of international relations and foreign policy.

But that is precisely my point, these tactics of international relations have been highly effective, and much used, for the same reasons they have been so effective in fostering global cultures of corruption. Bribery works, whether as an instrument of state policy or as a means of maintaining a network of corruption. The act of bribery is indifferent both motivations of those who make use of its mechanics. There is no inherent morality or ethics to induce someone else to do as another likes. There is no inherent ethics or morality to using wealth to maximize one’s welfare by inducing someone else to act in a particular way irrespective to its consequences for other obligations or duties owed by this “someone else.” What separates bribery from foreign policy (and not always) are morals and ethics. What makes a person corrupt are his actions, but only when undertaken in violation of a duty owed, either to herself or others. Corrupt officials do wrong by acting for their own best interests and not those who they serve. Thus what separates a bribe from a salary from a financial inducement is motive – that of the giver and that of the taker.

And these tactics have severe consequences that highlight the relationship between corruption and those who seek to ferret it out. One gets a sense of the nature of these consequences by looking at the reaction to the World Bank’s recent global anti-corruption campaign, one that is very similar to that announced by the Americans. A recent New York Times story (Steven Weisman, Drive on Corruption Angers Some at World Bank, THE NEW YORK TIMES, Sept. 14, 2006, at C-1) exposed a rift within the World Bank centering on “a widespread fear that countries will be categorized in the future as corrupt and not corrupt, and that lending will be shut off in a selective way.” Id. It seems that, as a consequence of the World Bank’s anti-corruption campaign, “hundreds of millions of dollars in loans and contracts to nations including India, Chad, Kenya, Congo, Ethiopia, and Bangladesh” have been suspended. Id. The reaction has been the rise of a campaign to suggest that the suspensions now amount to a threat of “arbitrary punishment in a way that jeopardizes the bank’s longtime mission to reduce poverty.” Id. On the other hand, the sanctions are based on programs instituted at the World Bank "for companies to disclose bribes they paid in order to avoid sanctions." Id., at C-4. Indeed, sanctions appeared to be an invitation to chat, as The World Bank also restored funds in every case "after safeguards were set up" (Id.) to the satisfaction of the Bank.

Thus, several things have resulted from the anti-corruption campaign. First, certain states have felt the direct effect of the campaign in the form of reductions in aid and loans. Second, these states have felt an indirect effect in the form of a loss of reputation that likely makes it harder for them to make up for the loss of aid in the private market (or at least will make the costs of finding alternative sources of aid more costly). Third, the World Bank is now in a position to control the market for reputation among states. States fearing the effects of bad labeling will have to conform to the World Bank’s guidance or face the financial consequences. Fourth, those consequences fall ultimately on the citizens of the affected states. But should be of less concern to the World Bank than to the states themselves? This sort of argument, if effective, creates great incentives for states to hold international institutions hostage by ordering their affairs in a way that anything done by outside bodies will always have a “detrimental effect on the suffering masses” or something like that. Fifth, the World Bank has now acquired an extraordinary power to reach deep into the ordering of states and require states to modify their internal structure or replace leaders, on pain of being labeled corrupt and losing funds. That power can easily be exercised arbitrarily, or in a manner that does not serve the democratic aspirations and desires of the people of the affected state. “The criticism has been especially sharp among Europeans at the Bank where many officials say that judgments about what constitutes ‘good governance’ could rupture the bank’s delicate relationships with aid recipients, especially if the judgments are based on information gathered from dissidents and other critics in those countries.¨ Id.

How does all of this play out in real life. Well, the anti-corruption drive veers from the lofty to the ridiculously petty (considering the circumstances anyway) and suggests more the importance of the tastes and values of the World Bank’s leadership (to some extent) than it does any effort to work within the framework of host state national laws. Thus, in one instance, aid talks with the Congo were suspended because of unease with the quality of the audits of the state oil company and because the World Bank leadership was incensed that the Congo’s leader spent far too much on his hotel room while in New York. Id. Aaargh! Yet most of the other suspensions resulted from assertions of kickbacks and bribes, though it is not clear that the suspensions followed indictment and conviction or were triggered by the assertion. It is also not clear what amount of accusatory information was sufficient to trigger action. It is clear that the World Bank determines both the standard and the sufficiency of the allegations, as well as the consequences. In a system in which there are no checks, no accountability, no protections, even the most laudable of purposes—and the fight against global cultures of corruption are about as laudable as causes can get—can themselves run the risk of corrupting.

The same applies, of course, to the American efforts. Short cuts, even for the attainment of this great goal, increase the risk that the champion of anti corruption will become the servant of corruption. American anti-corruption policy is motivated by a desire to do what is best for people in affected states – at least as the United States sees it. But this motive is essentially anti-democratic. This is paradoxical given the good faith (and I do not doubt the good faith) motives behind the anti-corruption campaign. It interposes U.S. will directly or as proxy, for that of the people governed by targeted officials. It is also, in a sense, corrupt – it further U.S. interests without any concern for the long term best interests of the states targeted. Yet these arguments sound counter intuitive. And they should – but only if you embrace certain big assumptions: (1) the corruption is a universal wrong, (2) that corruption is capable of universally accepted definition, (3) that corruption is capable of uniform application, and (4) that corruption is itself incapable, in definition or application, or corruption. This is a tall order. I am not convinced any or all assumptions can withstand analysis. I have a sense that harmonization of definition and application across borders will be difficult at best. The emphasis on bilateralism or multilaterism in actually prosecuting those accused of crimes of corruption, that of reliance on traditional methods of hard extraterritoriality, also suggests that ultimately the American Administration recognizes the dangers of a policy of soft extraterritoriality founded on indirect harmonization one step removed from law.

And here lies the great risk to the soft of foreign policy attempted by the U.S. The policy has great potential to aid states in their efforts to apply their own laws in their own ways to control and punish criminal actions in derogation or officials’ duty to their offices and the state. It may also provide the necessary space for a necessary discussion of coordination of effort and the building of a harmonized standard for corruption. It may even aid in recovery efforts or the fruits of correction across borders. But it can as easily serve the opposite ends. It can serve to corrupt further governance in the world order and enhance disrespect for law and legal systems. Lawless legalism and coerced harmonization can interfere in the political development of fragile states for the worse as well as for the better. They can have substantial anti-democratic effect. They can create a false harmonization, in which formal harmonization masks resistance through interpretive deviation and difficult implementation. Ultimately, it can as easily corrupt law as further its development. The manner in which the U.S. implements its anti-corruption campaigns will make all the difference in the world.

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