Kickback

1

Introduction

During Watergate, the appointment of a special prosecutor to investigate President Nixon's alleged tampering with elections was intended to mark the close of a sordid chapter of American history. Instead, that effort, culminating in Nixon's resignation, would prove to be only the beginning of a deeper political morass that America would face for decades to come. Congressional investigations would uncover for the first time that multinational corporations, through slush funds and bribes, were not only secretly funding political organizations at home, such as Nixon's reelection campaign, but corrupting foreign officials abroad. This new perspective on the corporate abuse of power and its impact overseas would result in the Foreign Corrupt Practices Act (FCPA)-groundbreaking legislation that, by prohibiting commercial bribery for the first time in history, sought to change how capitalism and political affairs were conducted around the world.

Now, more than forty years later, we are experiencing a kind of deja vu, as a special counsel investigates whether the president allegedly abused his power, again by obstructing an inquiry into a possible manipulation of the country's elections. Just as was the case in Watergate, whatever Special Counsel Robert Mueller uncovers will likely mark the beginning, rather than the end, of a reassessment of how power actually operates in this country. And just as in Watergate, there is the possibility that Mueller's far-reaching probe may reveal how tightly political corruption and corporate corruption are linked through bribery, just under the surface of American political life.

Nixon was the recipient of secret corporate donations, which were considered illegal because they should have been disclosed. But the payments, while unlawful, did not compromise the presidential election itself. Mueller's Russian inquiry is directed at a potentially far more serious crime: whether Donald Trump, the head of a sprawling business empire, colluded with a foreign power to deliberately sway the American electorate, committing the very crime that the FCPA has been trying to eradicate since Watergate-the offer of a foreign bribe, a kickback.

That law specifically states that a corporate bribe need not involve an actual exchange of money; an offer of anything of value, such as a promise, to a foreign government official is sufficient to violate its terms. This is precisely what Mueller is trying to ascertain: whether Trump, his company, his associates, or his family-or some combination of them-offered a promise to Russian government officials, a quid pro quo, that if they helped Trump by manipulating the elections, Trump, if victorious, would ease U.S. sanctions against Russia. Doing so would allow greater U.S. investment in Russia and would benefit Russian officials and oligarchs, the Trump business organization, the corporate interests of Trump's family, and former members of his senior staff, including Paul Manafort, his onetime campaign chairman, and Michael Flynn, his disgraced national security adviser. If the Trump Organization or anyone connected with it did make such a promise, and depending on how that promise was conveyed to Russian officials, the Justice Department (DOJ) would have strong grounds for pursuing an FCPA charge (among others). An FCPA violation is within Mueller's mandate to investigate "any matters that arose or may arise directly from the investigation." As has been widely observed, Mueller has hired two former federal law enforcement officials with extensive experience in investigating fraud, money laundering, and overseas bribery-Andrew Weissmann, who ran the Justice Department's Fraud Section, which enforces the FCPA, and Greg Andres, who helped oversee FCPA policy in the Criminal Division.

The drama playing out in Washington starkly highlights the fact that "foreign corporate bribery" can be a deeply misleading term. We have come to regard it, when we think of it at all, as something that unscrupulous companies do in distant countries, so that any impact it has must be contained overseas. If a corporation pays kickbacks to a greedy government official abroad, why should we be concerned? But in a highly interconnected world, bound together by a global market, a global financial system, and the constant migration of people, goods, and capital, corruption rarely stays "out there." Bribes eventually harm Americans, American society, American values, and American interests, both domestically and around the world, in ways that are difficult to gauge.

Why do firms resort to bribery? The obvious reason is to gain an advantage over their competitors. But illicit payments also buy the illusion of growth in the short term, of increased market share and inflated firm value. It does not take into account the harm that this practice causes to companies themselves: sinking employee morale, diminished profit margins, and the possibility of hundreds of millions of dollars in fines and penalties-not to mention a reputation that will be associated with corruption and deceit. The firms also effectively steal the public's money because the majority of bribery cases involve capital-intensive development and infrastructure projects-such as roads, dams, defense systems, oil extraction, or mining-that are publicly funded. To recoup the bribes involved in winning such contracts, companies conspire with foreign officials to inflate the costs, sometimes by tens or even hundreds of millions of dollars. While the companies and the officials win out, taxpayers are left shouldering the burden.

Corporate bribes involve a remarkable amount of money: The World Bank has estimated $1 trillion a year, though this may represent the high end; others have placed the amount at 10 percent of the $4 trillion spent annually on global public procurement. Bribery is never just a matter of money, however; it almost always involves power as well. The actual payments are the manifestation of a secretly collusive system that, for most of modern history, corporations have been forging with foreign government officials around the globe. "These bribes are not just a way of doing business. They tell a much deeper tale: the officials receiving bribes are selling the natural resources of their own country. They're essentially destroying that country. Companies are complicit in that," says Michael Won, who retired from the FBI's FCPA squad in 2016.

Corporate bribery is not a rogue act. IBM, Hewlett-Packard, Alcoa, Halliburton, Chevron, Pfizer, and Johnson & Johnson are only a few of the most prestigious corporations in America that have paid extraordinary fines to avoid prosecution on bribery charges. Many more are under criminal investigation, including, notably, Walmart. The companies that pay kickbacks are not being exploited or extorted; for many businesses in America and Europe, bribery is an active core strategy, a highly organized and sophisticated process, and one that is often approved by the CEO. In a 2011 survey of eleven thousand global businesses, one of the largest studies ever conducted, corporate managers reported that 32 percent of firms similar to theirs paid bribes for contracts.

The officials whom corporations bribe are often heads of state, not merely low-level tax collectors or customs guards, though bribery at this level also appears to be widespread. Recently settled cases involve American and European corporations allegedly bribing several successive presidents of Nigeria and the former presidents of Panama, Costa Rica, Argentina, and Kazakhstan, to name just a few. Dozens of high-level government officials-ministers of oil or defense, parliamentarians, and vice presidents-detailed in these cases also received kickbacks. Large multinationals have also made payments to political parties in Greece, Nigeria, and Benin, among others, thereby effectively manipulating elections in those countries.

"Bribery" itself can be a misleading term, as we generally think of it as meaning a simple exchange of money, cash placed in the hand of a corrupt official. Millions of dollars in kickbacks are certainly made in that fashion. But because bribery is perpetrated by very sophisticated operators who seek to cover their tracks, the transactions are rarely that straightforward. These schemes can just as often involve the currency of power, with bribes paid out in favors, or some combination of favors and cash. These arrangements are almost always intricately layered affairs, engineered to be confusing in order to stymie law enforcement. ("If you're confused by this, that is exactly the idea," a British prosecutor once remarked to a jury, as she laid out the convoluted structure of a bribe.) The people perpetrating the schemes often achieve opacity by hiding them behind an innocuous facade, whether a meeting at Trump Tower to discuss child adoptions in Russia or an innocent-looking contract to hire houseboats in the swamps of Nigeria.

Because foreign kickbacks are widely perceived to be strictly a business issue, the public has also come to view them as causing no real harm beyond the "market." American prosecutors, likewise, treat foreign bribery as little more than a market transgression. As one example, Siemens Corporation, the German engineering giant, was criminally fined by the Justice Department and German authorities for running one of the largest bribery operations in history-in less than a decade, the company paid more than $1 billion in kickbacks in dozens of countries, including some of the poorest, most unstable places on earth. It eventually paid $1.6 billion in fines to avoid being prosecuted, the largest such penalty in history. But Siemens was fined for failing only to keep accurate financial records and for cheating its competitors, not for any impact its corruption may have had in foreign countries. In fact, Siemens paid most of its fines to the U.S. and German governments, and nothing to many of the foreign governments and citizens actually affected by the kickbacks. Since then, the company has avoided acknowledging that its bribes may have caused harm in those countries. Meanwhile, more than three thousand news reports have been published about the Siemens matter, making it one of the most visible and well-documented corruption cases. Yet not a single article in the English language press has attempted to follow the Siemens money trail and its consequences in the countries where the bribes were paid.

Part of the reason for this misconception is that bribery, unlike other crimes, often plays out slowly, with secret payments flowing between a company and a government over the course of years, if not decades, so its impact is not obvious until long after money or power has changed hands. The result is a slow-motion disaster, leaving economic, political, and social damage that cannot be detected unless someone begins to look for it.

Once we do become aware of it, though, we begin to recognize that bribery is widespread, and is implicated in major political events and news stories, as well as histories we thought we knew-such as the origins of the United States, Watergate, or the war in Iraq. Perhaps the Trump presidency may yet compel Americans, in particular, to understand the ramifications of bribes. The unnerving sense of violation we now feel is a way of life in many nations of the world. In Greece, Nigeria, Costa Rica, and Panama, to name just a few, citizens have become outraged that foreign corporations have succeeded in interfering with and manipulating their political systems. In this regard, the United States can no longer lay claim to exceptionalism.

Under the FCPA, the Justice Department cannot bring charges against foreign officials who receive bribes, and therefore cannot openly name them. In court documents, these individuals are designated by references like "High-level Official 1," with their period in office usually detailed as well. Through investigation and reporting, however, it is possible to identify the perpetrators and the regimes they have served. A critical part of understanding the danger of overseas bribery is uncovering just whom corporations are bribing and following the money on the ground, in the foreign country where it was paid. Unpacking the story of the afterlife of a bribe is the subject of this book.

As I will detail in the coming pages, kickbacks have directly supported some of the most dangerous individuals on earth-men who are directly working against democracy, freedom, and equality. Through bribes, corporations become participants in their repression and violence.

Assessing the extent of this damage will help explain why the fight to eradicate corporate bribery is so vital. Many important steps have already been taken in this regard. For the first thirty years of its existence, the FCPA was virtually never enforced, enabling the culture of corporate kickbacks to flourish. But in the early 2000s, a host of factors-greater international legal cooperation, the terrorist attacks of September 11, the passage of the Sarbanes-Oxley Act, and the war in Iraq-galvanized the Justice Department to launch the first-ever global crackdown against corporate graft. Although it does not often come to the public's attention, the antibribery effort is second only to fighting terrorism as a priority for U.S. law enforcement.

This campaign, which has led to more than two hundred bribery-related investigations in the United States alone, has produced thousands of pages of court documents, including internal company emails, memos, and banking information, as well as testimony from dozens of witnesses, corporate-executive defendants, and law enforcement agencies. Thanks to this treasure trove of information, we now know more than ever how the system operates, particularly which companies are involved; how much they are paying in bribes and for what contracts; how these companies use middlemen and criminals to gain access; and how companies route and hide the payments through a complex system of fake contracts, altered receipts, hidden shell companies, and offshore bank accounts. In the last ten years alone, two dozen prosecutors at the Justice Department's Fraud Section in Washington, D.C., have brought a record number of FCPA prosecutions, ramped up the stakes for offenses, and placed long-overdue pressure on companies to reform from within.

Even as President Trump refuses to discuss his own questionable relationship with Russia, he has been an outspoken critic of efforts to stop bribery. In a 2012 interview with CNBC he said: "Now every other country goes into these places and they do what they have to do. It's a horrible law and it should be changed," adding, "I mean, we are like the policemen for the world. It's ridiculous." Trump's views do not seem to have changed since entering the White House. According to a 2017 article in the New Yorker, he complained to then secretary of state Rex Tillerson that the FCPA unfairly penalized American companies for paying bribes.

The Trump administration is already endeavoring to turn this position into policy, appointing an outspoken critic of the FCPA, Jay Clayton, to chair the Securities and Exchange Commission, the regulatory body that is responsible for enforcing the FCPA in conjunction with the Justice Department. The administration has also revised FCPA enforcement policy to be more "business friendly," making it much easier for companies to cut deals to avoid prosecution, in the eyes of many critics. This comes in conjunction with a rollback of the Cardin-Lugar provision of the Dodd-Frank Act, which required energy companies listed on U.S. stock exchanges to disclose when they make payments to foreign government officials-legislation that was considered a key point of progress in U.S. efforts to combat corporate kickbacks overseas. The Republican-led Congress voted to repeal Cardin-Lugar shortly after Trump entered the White House, and the president signed it into law in February 2017. (It should be noted that, should Special Counsel Mueller recommend an FCPA-related charge against the Trump Organization, it might well benefit from the lessening of FCPA enforcement that Trump himself is promoting.)

With their numerous questionable deals and even more questionable links to Russian oligarchs and a hostile Putin regime, Trump and Manafort are emblematic figures of the global culture of corporate kickbacks. The men who profit from bribery in business often move from business into politics. But when they rise to the level of the White House and begin bending the will of the American government to minimize their liability for corruption, and make it possible for their family and associates to further profitfrom conflicts of interest, a line has been crossed from which there may be no turning back. If the United States, a nation whose very existence was in part a principled stand against corruption, becomes an enabler of corruption, it would constitute a betrayal of its own history.

Western civilization has, throughout its history, confronted a number of corporate bribery scandals. Exposing them has not only revealed their wide scope, but given rise to a powerful discourse about democracy and the limits of corporate power. We can examine this by tracing the thread of bribery back to the emergence of modern corporations, and an eighteenth-century scandal involving India and Great Britain that would reverberate for centuries and figure into the origins of the United States.