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After the Bell: The triumphs and shortcomings of the Foreign Corrupt Practices Act

After the Bell: The triumphs and shortcomings of the Foreign Corrupt Practices Act
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The Foreign Corrupt Practices Act is a money-raiser for the American taxpayer, not for the victims of overseas crimes. It does impose an obligation on the company to change its ways, but it doesn’t require the company to clean up its poop in the place it was unceremoniously deposited.

There was a seemingly trivial moment during the testimony of Michael Lithgow, a managing vice-president of international IT consultancy Gartner, at the Nugent Commission five years ago. Judge Nugent asked Lithgow, a British resident, whether he would “deem it above suspicion for a third party to profess himself a ‘conduit’ for Her Majesty’s Revenue and Customs in the United Kingdom”. Seems like a convoluted question, but stay with me.

Lithgow was the senior manager responsible for, broadly speaking, the emerging market business of Gartner. What happened, we now know, is what might be called the bog-standard, BEE-theft-and-extortion gig. The same story, now so often repeated, has become a meme.

A civil servant gets a mate to commission a project from a notionally reputable consultancy; the mate insists on being the BEE partner, but, of course, does no actual, you know, work. The government department commissions a huge but meaningless contract, the BEE company ladles off the cream, presumably shares it with the civil servant and he, the BEE partner, and the consultancy go home with pockets bulging. And so it goes.

This is not exactly what happened in the South African Reserve Bank/Gartner case, but, by all accounts, including the Nugent Commission, it’s pretty close. 

The reason we can’t be sure – and this will shock you (not) – is that nobody associated with Gartner’s SA Revenue Service contract has been arrested or even questioned, as far as we are aware of, by any SA law enforcement authority nine years after the alleged crime took place.

What Nugent was pointing to all those years ago was the double standards that foreigners tend to apply when dealing with people from the colonies. 

What we do know in this case is that Gartner didn’t see an advertisement in the newspaper where the SA Revenue Service requested help. It wasn’t approached by the SA Revenue Service directly either. There wasn’t a tender process. Gartner’s local representative was approached by an IT specialist, Patrick Monyeki, who happened to be a personal friend of then SA Revenue Service commissioner Tom Moyane.

It was at this point in the testimony that Lithgow was asked if some arb dude who didn’t actually work for Her Majesty’s Revenue Service strolled into your office and purported to represent said Revenue Service, would you say a) sit down and let’s have a cup of tea, or b) do you know the way out? I mean, wouldn’t you be immediately suspicious in those circumstances?

Eventually, after lots of humming and hawing, Lithgow conceded that this conduct would not be tolerated back in the glorious and unsullied United Kingdom. But clearly, it was considered acceptable in the R.S. of A because Gartner went on to sign not one but two contracts with the SA Revenue Service, which paid them and the intermediary $10-million – or around R200-million – of which Monyeki got, it seems, 40%. The report they produced was ultimately tossed into the bin.

All this is known to us now, thanks largely to the Nugent Commission. But in this case, there was a twist. 

The case was taken up by the US Securities and Exchange Commission (SEC), which this week found, totally unsurprisingly, that Gartner had contravened aspects of the Foreign Corrupt Practices Act, and the SEC issued a cease and desist order. 

What they are supposed to be ceasing and desisting is basically bribery, but, fortunately, Gartner wasn’t actually required to admit that it did in fact bribe anyone because it was a settlement offer, and that’s what you get if you fess up and throw yourself at the mercy of the SEC. You pay and go away. 

Gartner’s annual profit was around $1-billion in 2022, so $2.5-million is less than a flea bite.

But back home here in SA, we are entitled to our views, which are probably shared by everyone champing at the bit for one teeny-weeny modicum of justice around here. 

One thing we want to know is why it’s taking so long to ask Moyane or his mate Monyeki any pointed questions. 

American justice has not been superquick, but at least it finally got there after five years. Gartner’s R48-million fine, which was theoretically the profit it made on the R120-million contract, tells you something about the level of profit made by consultancies.

So, justice is more or less done, right? Not so much. First, the money doesn’t go back to the SA taxpayer, who coughed it up in the first place. In a sense, the Foreign Corrupt Practices Act is a money-raiser for the American taxpayer, not for the victims of overseas crimes. It does impose an obligation on the company to change its ways, but it doesn’t require the company to clean up its poop in the place it was unceremoniously deposited.

Second, it’s merely a fraction of what the SA Revenue Service paid the consultancy. The limit imposed by Foreign Corrupt Practices Act is the profit the company made on the dodgy contract. Whether that is a sufficient deterrent is questionable. Actually, it’s not questionable. It’s absolutely not a deterrent; it’s a cost of doing business in these colonies.

The Foreign Corrupt Practices Act is in many ways a marvel because it has expanded the jurisdiction of American law to companies that operate in America, wherever they might be transacting at the time. 

Hence, companies have to apply the same standards they apply back home in their foreign dealings. It in effect leverages companies’ desire to operate in the US market, which is, of course, the world’s largest. Once they are operating there, the price they pay is that they have to be as corrupt in foreign countries as they think they can get away with in the US, but no more.

For developing countries around the world, with their weak police forces and poor investigative capacity, this is a major plus. But as the world economy shifts East, one of the obvious shortcomings is that it only applies to a fraction of the companies that exist around the world.

In this regard, I have a suggestion: at this big BRICS meeting supposedly happening in August, wouldn’t it be a great idea if, say, China were to impose the same kind of international jurisdiction on companies that operate in China? Wouldn’t that be great?

Just kidding. Obvs. DM

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