M&A FCPA Compliance Risks

The risk of liability under the Foreign Corrupt Practices Act (FCPA) cannot be understated when undertaking corporate merger and acquisition activity.

In recent years, pressure to avoid corruptive practices within mergers and acquisitions has heightened, with due diligence becoming imperative for companies undertaking acquisitions outside the U.S. The DOJ’s Criminal Division Presidential Budget Request stated:

‘FCPA enforcement is consistent with Obama’s administration goals of promoting transparency, democracy, sustainable development and good governance’.

Through several administrative cease-and-desist proceedings, the U.S. Securities and Exchange Commission (SEC) has reasserted the importance of the Act. In particular, they have highlighted the importance of completing proper due diligence, so as to ensure both the determination of the deal’s true value and the extent to which compliance related steps must be implemented after closing.

Key Corruption Risks: Mergers and Acquisitions

There is a risk of corruption when undertaking any Merger or Acquisition. Crucially, if an acquired company was tainted by corruption prior to its acquisition, its new parent company will assume both civil and criminal liability for that corruption. Recent SEC findings have confirmed this. The cases of the Ball Corporation, Diageo and Watts Water Technologies, where companies were fined for failing to operate comprehensive compliance programs, all involved successor liability.

There is also a risk that a company enters into a merger or acquisition on the basis of financial statements which include revenue that has been corruptly obtained and is therefore not sustainable. When a party to a merger or acquisition has entered into corrupt behavior, the reputation of the law abiding party may come into jeopardy. This may impact upon sales figures. It may also impact upon overhead costs in the form of significant penalty charges.

Factors Leading to Increased Risk of Corruption: Mergers and Acquisitions

Increased global support for US investigations into foreign corrupt practices and global anti-corruption efforts should not be overlooked. However, where an international element is present, the risk of corruption is enhanced. For example, when joint venture deals are entered into in developing/emerging countries, investors are often required to incur additional risks by forming associations with local partners. In addition, undertaking financial transactions also carries increased risk in developing/emerging countries which may not have as robust financial regulatory framework as other jurisdictions. Thus, due diligence must be exercised when transferring money abroad as part of an international acquisition.

The way in which an acquisition is structured will also directly impact upon the risk of corruption. When acquiring a company, it is critical to ascertain whether a complete acquisition is required as opposed to an asset only purchase. Significantly, asset only purchases pose less corruption risks for the acquiring companies than whole company acquisitions. This is because when a company (as opposed to just its assets) is acquired, all historical liabilities remain.

Completing A Merger or Acquisition: Understanding the FCPA

As we have shared in greater depth in previous posts on this blog the FCPA applies to those with formal ties to the U.S. and also to those who violate the Act within the U.S. In broad terms, the act prohibits any payments to foreign officials where the motive is corrupt. Any payment must be intended to influence the recipient’s acts or decisions in order to assist with obtaining or retaining businesses with any party.

Crucial to FCPA compliance is the completion of pre-closing due diligence. This involves undertaking an investigation of the business that is being acquired prior to the signing of contacts. In such an investigation a company may refer to many documents including procurement reports, financial statements and compliance procedures.

Post-acquisition due diligence should also be undertaken. This involves an in-depth examination of the operational dynamics of the newly acquired company. It should build upon the pre-closure due diligence and may identify significant impact factors and potential areas for compliance enhancement.

Understanding Recent Developments

On 21st February 2012, the U.S. Chamber of Commerce Institute for Legal Reform and 36 other business organizations wrote to the DOJ seeking guidance relating to:

‘several issues and questions of significant concern to businesses seeking in good faith to comply with the FCPA’.

Queries related to compliance programs, instrumentalities of foreign government, parent company and successor company liability, the extent to which intent is necessary and issues surrounding gifts between parties.

Several informal meetings have since been facilitated with members of both private and public sector organisations in order to discuss topics relevant to the guidance. On 24th April 2012, the DOJ and the SEC attended a discussion with representatives from both the American Bar Association of International Law and the International Corruption Committee.

As a result of this consultation, it has been predicted that guidance will be produced as a joint issue between the SEC and the DOJ. As yet, however, it appears that no commitment has been made relating to the exact content of the guidance. Equally, no timescale for release of the guidance has been issued, nor is it clear whether the guidance will be developed using the notice and commitment process included within the Administrative Procedure Act.

US courts interpret "Foreign Official" to include employees of State-Owned Enterprises

Below there is a case note prepared by the US law firm of Fulbright & Jaworski on the landmark Lindsey Manufacturing decision in interpreting bribery of foreign officials legislation in the US (the Foreign Corrupt Practices Act -FCPA 1977).  However, it's importance will be instructive in other jurisdictions which have also passed counterpart legislation eg the Canadian Corruption of Foreign Public Officials Act 1999 and the UK Bribery Act 2010.  These legislative frameworks emanate principally from the obligations of member states under the OECD Anti Bribery Convention 1997. The OECD Anti Bribery Convention is the first global anti-corruption convention attempting to deal with supply side (cross border) bribery.  Signed by 30 OECD countries in December 1997 this convention entered into force in February 1999 and there are now 38 signatories.  The Convention permits countries to move in a co-ordinated manner to adopt national legislation making it a crime to bribe foreign public officials.  It provides a broad definition of bribery, requiring countries to impose dissuasive sanctions and committing them to providing mutual legal assistance.  Though the US FCPA pre dates the Convention, the provisions were incorporated under the Act in 1998.  In the US the FCPA complements other legislation in this area such as the USA Sarbanes Oxley Act which also requires firms to operate effective systems of control and come clean about instances of fraud. For the Risk Management and Compliance functions of financial firms there is no getting away from these pieces of legislation indeed compliance with one assists the other. 

California court retains government's broad interpretation of 'foreign official'

Contributed by Fulbright & Jaworski LLP

April 18 2011

On April 1 2011 US District Judge Howard Matz issued an opinion from the bench in one of three pending cases challenging the US Department of Justice's broad interpretation of the term 'foreign official' under the US Foreign Corrupt Practices Act. The court in US v Enrique(1) (the case has informally been referred to as Lindsey Manufacturing in reference to one of the three defendants) is the first of the three to rule on this seminal issue. The court denied the defendants' motion to dismiss, concluding that employees of state-owned enterprises are foreign officials for purposes of the act. The precise issue before the court was whether officials of Mexico's state-owned utility company, Mexican Comisión Federal de Electricidad (CFE), were foreign officials under the act.

The Foreign Corrupt Practices Act defines a 'foreign official' as:

"any officer or employee of a foreign government or any department, agency, or instrumentality thereof, or of a public international organization, or any person acting in an official capacity for or on behalf of any such government or department, agency, or instrumentality, or for or on behalf of any such public international organization."(2)

However, the act does not define 'department', 'agency' or 'instrumentality'. The Department of Justice and other US enforcement authorities have utilised this apparent lack of clarity to construe liberally the statutory definition and apply it to interactions with employees of commercial state-owned or controlled enterprises. The Department of Justice's interpretation has previously been challenged by defendants in two other recent cases.(3) However, in both cases the court dismissed the defences' challenges with either no substantive analysis of the issue or very little useful analysis. Lindsey Manufacturing marks the first time that the issue appears to have been squarely addressed by the court.

The defendants in Lindsey Manufacturing, as well as the defendants in two other pending cases - one in another California federal district court and the other in the Southern District of Texas(4) - challenged the Department of Justice's broad interpretation of 'foreign official' in pre-trial motions to dismiss. The motions were extensively briefed in all three cases, but Lindsey Manufacturing is the first to be decided. The most elaborately briefed motion is still before the court in the Carson case pending in the Southern District of California. All three motions were filed within the last three months.

The Lindsey Manufacturing defendants argued that:

• the plain meaning of the term 'instrumentality' excludes state-owned enterprises;
• the legislative history of the Foreign Corrupt Practices Act indicates that Congress did not intend to include employees of state-owned enterprises as foreign officials; and
• if employees of state-owned enterprises are foreign officials, then the statute is unconstitutionally vague.

The defendants in Carson and O'Shea have made similar arguments.

Reliable media sources reported that Matz stated in his oral ruling from the bench that the defendants' attempt to argue for a more limited definition of the term was "improper, unfounded and incorrect".(5) The judge is expected to issue a written order confirming his oral ruling.

Following the hearing, Lindsey Manufacturing's defence counsel conveyed that the judge's decision was based on the nature of CFE and the "essential governmental function" that CFE performs.(6) Defence counsel further stated that the essential governmental function "appeared to be more important to his ruling than the legislative history" of the Foreign Corrupt Practices Act, and that "it was clear [the judge] felt [CFE] functioned as an agency or department of the Mexican government", and "relied heavily" on the Mexican Constitution and Mexican law.(7)

The Lindsey Manufacturing ruling is significant as it represents a victory for the Department of Justice that - at least for the time being - will likely strengthen and embolden the government's efforts to bring enforcement actions against companies and individuals based on its expansive interpretation of the term 'foreign official'. Additionally, while the extent to which the ruling will affect the Carson and O'Shea courts' decisions is uncertain, the decision will likely be weighed as both courts consider whether to narrow the current government view of who is a 'foreign official' for purposes of Foreign Corrupt Practices Act enforcement under the respective facts of each of those cases.

The next two decisions will be highly anticipated. Certainty regarding who will be considered a foreign official under the Foreign Corrupt Practices Act, and thus who should be considered a potential recipient of an improper payment under the act, is critical as companies determine how best to formulate an effective compliance programme in the current enforcement environment. Definitive rulings from the three courts in the pending cases will impact on enforcement and corporate compliance initiatives alike.

For further information on this topic please contact Richard Craig Smith, Marsha Z Gerber, Mary Beth Balhoff or Kimberly Sullivan Walker at Fulbright & Jaworski LLP by telephone (+1 202 662 0200), fax (+1 202 662 4643) or email (rcsmith@fulbright.com, mgerber@fulbright.com, mbalhoff@fulbright.com orkwalker@fulbright.com).

Endnotes

(1) No 2:10-cr-01031-AHM (CD Ca).

(2) 15 USC §§ 78dd-1(f)(1)(A), 78dd-2(h)(2)(A), 78dd-3(f)(2)(A).

(3) See US v Nguyen, No 2:08-CR-522 (ED Pa); US v Esquenazi, 1:09-cr-21010 (SD Fla).

(4) See US v Carson, No 08:09-00077-JVS (SD Ca); US v O'Shea, No 4:09-cr-00629 (SD Tex).

(5) See Steven Mikulan and Aruna Viswanatha, "Judge Upholds DOJ Definition of 'Foreign Official'", Main Justice: Just Anti-Corruption (April 1 2011).

(6) Id.

(7) Id.

Long Awaited Guidance on UK Bribery Act 2010 Issued Amidst Heavy Criticism

Amid much criticism the Government of UK has issued the long awaited Guidance Procedures to support the implementation of the UK Bribery Act which was passed on 9th April 2010.   The Government says the Act aims to ensure the UK can clampdown on corruption without being burdensome to business. For example, ensuring anti-bribery procedures are proportionateto the bribery risks firms face and to the nature, scale and complexity of its activities. The Guidance issued on 30th March 2011 underscores six (6) principles which corporations seeking to avoid liability should follow.

The six key principles are:

• Proportionate procedures

A commercial organisation’s procedures to prevent bribery by persons associated with it are proportionate to the bribery risks it faces and to the nature, scale and complexity of the commercial organisation’s activities. They are also clear, practical, accessible, effectively implemented and enforced.

• Top-level commitment

The top-level management of a commercial organisation (be it a board of directors, the owners or any other equivalent body or person) are committed to preventing bribery by persons associated with it. They foster a culture within the organisation in which bribery is never acceptable.

• Risk assessment

The commercial organisation assesses the nature and extent of its exposure to potential external and internal risks of bribery on its behalf by persons associated with it. The assessment is periodic, informed and documented.

• Due diligence

The commercial organisation applies due diligence procedures, taking a proportionate and risk based approach, in respect of persons who perform or will perform services for or on behalf of the organisation, in order to mitigate identified bribery risks.

• Communication (including training)

The commercial organisation seeks to ensure that its bribery prevention policies and procedures are embedded and understood throughout the organisation through internal and external communication, including training, that is proportionate to the risks it faces.

• Monitoring and review

The commercial organisation monitors and reviews procedures designed to prevent bribery by persons associated with it and makes improvements where necessary.

Justice secretary Kenneth Clarke says: “I have listened carefully to business representatives to ensure the Bribery Act is implemented fully and in a workable, common sense way – this is particularly important for small firms that have limited resources. I hope this guidance shows that combating the risks of bribery is largely about common sense, not burdensome procedures.”

The above notwithstanding, the Guidance has already come under some severe criticism.  Transparency International UK calls the Guidance "deplorable" and insists it will weaken enforcement efforts under the Act.  Chandrashekhar Krishnan, Executive Director of Transparency International UK explains:

"The Bribery Act, as passed by the last Parliament, is one of the best anti-bribery laws in the world. But the Guidance will achieve exactly the opposite of what is claimed for it. Parts of it read more like a guide on how to evade the Act, than how to develop company procedures that will uphold it.

‘It is deplorable that changes made to the draft Guidance since late last year, and now enshrined in the published version, depart from international good practice in several areas. The Ministry of Justice has exceeded its brief with this final Guidance which undermines the Act and will limit its effectiveness. There is now a significant risk that bribery will go unpunished."

Some of the identified loopholes include:

• A non-UK company listed on the London Stock Exchange (LSE) is not automatically caught by the Bribery Act. This means that a) it could use capital raised in the UK to pay bribes overseas, and b) a UK-based company that loses a contract to a non-UK company listed on the LSE which paid a bribe to win the contract, may have no recourse in the UK courts. [Guidance para 36]
• A non-UK parent company A with a large UK subsidiary B could pay bribes through subsidiary C based in a third country. If UK subsidiary B did not directly benefit from the bribes, the non-UK parent company A would not be caught by the Bribery Act – even if its other subsidiary C was competing unfairly with honest UK companies. [Guidance paras 36 & 42]
• A UK company would be able to outsource bribery by building a chain of subcontractors sufficiently long to distance itself from bribe paying [Guidance para 39]

The Bribery Act 2010 was passed with all-party support. It introduces an offence of corporate failure to prevent bribery unless a company can prove that it had ‘adequate procedures’ in place to prevent bribery. The Secretary of State for Justice is required, by section 9 of the Bribery Act, to provide official Guidance on ‘adequate procedures’. The corporate offence of failing to prevent bribery can only come into force after the Guidance has been issued. Transparency International UK has been campaigning for early publication of the official Guidance that would not dilute the Act. Publication of the Guidance was delayed by further consultations in late 2010 and a last-minute burst of lobbying in early 2011 by some business groups.

It is expected that the Act will come into effect from July 2011. 

Download a copy of the UK Bribery Act 2010 and the Guidance. 

MW Kellogg Ltd to pay £7 million in SFO High Court action

The Serious Fraud Office (SFO) has taken action in the High Court today which has resulted in an Order for the company, M.W. Kellogg Limited (MWKL), to pay just over £7 million in recognition of sums it is due to receive which were generated through the criminal activity of third parties. The High Court made the Order under Part 5 of the Proceeds of Crime Act 2002. 

The SFO recognised that MWKL took no part in the criminal activity which generated the funds. The funds due to MWKL are share dividends payable from profits and revenues generated by contracts obtained by bribery and corruption undertaken by MWKL's parent company and others.  The agreement will lead to the payment of £7,028,077 within fourteen days in full and final settlement of the case.  This sum represents the share dividends due and the interest which has accrued on these sums.

The contracts were awarded to a company partly owned by MWKL on behalf of its US parent company.  MWKL reported concerns to the SFO under the "self referral" scheme and fully co-operated with the subsequent investigation. The SFO, working in partnership with the US Department of Justice, reviewed the conduct of MWKL and decided that the most appropriate approach was to remove the funds which will become due to the company through the unlawful conduct. This reflects the finding that MWKL was used by the parent company and was not a willing participant in the corruption.

The US parent company was one of four corporate entities which formed a joint venture to bid for contracts on a liquefied natural gas project in Nigeria. The joint venture created three special purpose vehicles to bid for, and subsequently run, the contracts. Three of the four contracts won by the joint venture were obtained through promises to pay or payments of bribes.  The US parent company, Kellogg Brown and Root LLC and its predecessors (KBR) has been subject to a criminal and civil investigation in the US.  The criminal investigation, which was conducted by the Department of Justice (DOJ), into the Bonny Island Project related to KBR and a number of other corporate and individual parties being involved in bribery and corruption.  KBR has acknowledged, in its plea agreement with the DoJ, that it owned the special purpose vehicle created for the Nigerian project, through MWKL in order to distance itself from the corruption and avoid the consequences of the Foreign Corrupt Practices Act 1977.  KBR had resolved all matters with the US authorities, including a civil settlement with the Securities and Exchange Commission, by February 2009.   

The agreement also ensured that MWKL overhauled its internal audit and control measures to enable it to satisfy the SFO that its compliance systems are in accordance with UK law.  MWKL has also agreed to pay the costs of the investigation.

The Director of the Serious Fraud Office, Richard Alderman said: "The SFO will continue to encourage companies to engage with us over issues of bribery and corruption in the expectation of being treated fairly. In cases such as this a prosecution is not appropriate. Our goal is to prevent bribery and corruption or remove any of the benefits generated by such activities.  This case demonstrates the range of tools we are prepared to use."

Notes for editors:

1. The Serious Fraud Office is a government department responsible for investigating and prosecuting serious and complex fraud.  The SFO is headed by the Director (Richard Alderman) who exercises powers under the superintendence of the Attorney General. These powers are derived from the Criminal Justice Act (1987).

Serious Fraud Office, Elm House, 10-16 Elm Street, London, WC1X 0BJ

Press Office tel: 020 7239 7001/7045/7004 or mobile: 0781 807 6688 or 0755 700 9842

Main switchboard tel: 020 7239 7272                 

press.office@sfo.gsi.gov.uk - or via - www.sfo.gov.uk      

GTI Applauds World Bank on Improved Disclosure Policy, Though Significant Weaknesses Remain

For immediate release – 3 November 2009

The Global Transparency Initiative (GTI) today released its analysis of the World Bank’s new draft disclosure policy, Toward Greater Transparency Through Access to Information: The World Bank’s Disclosure Policy. The analysis concludes that while the revised policy will bring greater transparency to the Bank, it still falls well short of the standards set out in the GTI’s Transparency Charter for International Financial Institutions, as well as its Model World Bank Policy on Disclosure of Information.

The GTI analysis, provided in advance of an anticipated 17 November 2009 meeting of the Bank’s Executive Board to consider the draft policy, recognises a number of important advances in the Bank’s proposals. The Bank is poised to take a major conceptual step by accepting the principle that all Bank information should be available to the public unless it falls within the scope of the regime of exceptions. Other positive commitments include:

§  disseminating more materials in advance of Board meetings;

§  releasing the summaries of Board meetings;

§  launching a proper system for processing requests for information; and

§  establishing an independent appeals body.

Unfortunately, the proposed exceptions to the presumption of disclosure threaten to severely undermine these positive developments. Governments and third parties, such as Bank contractors, would be able to veto the release of almost any information they provide to the Bank. The draft policy also provides nearly absolute protection to internal information through a “deliberative process” exception, viewed as so central that it is posited as an independent principle in the policy, instead of being included as an ordinary exception.

The GTI recognises that certain interests need to be protected through exceptions, for example to protect personal information, health and safety. However, it recommends more nuanced and precise harm-based tests to protect legitimate interests such as relations with other States, the commercial interests of third parties, and the free and frank provision of internal advice.

Also troubling is the proposal’s assertion that the Bank’s disclosure policy trumps national right to information laws. Among other things, this would restrict access to the statements made by country representatives such as the Executive Directors in official World Bank meetings.

"The GTI congratulates the Bank for making some very important strides forward in the new proposed policy," said Toby Mendel, Senior Legal Advisor, ARTICLE 19. "However, the very wide exceptions being proposed could really undermine the policy. The Bank should make a strong commitment to openness, as many of its members have in their national right to information laws."

Bruce Jenkins, a consultant with the Bank Information Center, noted that while the revised policy is an improvement from previous iterations, it is not without significant weaknesses.  He stated that"the Bank has taken major steps forward, including expanded routine disclosure and a first-of-its kind independent appeals body. However, it then partially claws back these gains through heavy-handed limitations, such as the withholding of draft information that would undermine more participatory decision-making processes."

The GTI calls on the World Bank to revise the draft Policy so that it is better aligned with the standards set out in the GTI Transparency Charter. It is ready to offer any assistance to the Bank to achieve this goal.

NOTES TO EDITORS:

• The GTI Analysis is available at:  www.ifitransparency.org
• For more information please contact: Toby Mendel, Senior Legal Counsel, a19law@hfx.eastlink.ca, +1 902-431-3688, Toby McIntosh, FreedomInfo.org,  tmcintosh@bna.com, +1 703-887-5197 or Bruce Jenkins, consultant, Bank Information Center, +1 202-329-6875.
• The GTI is an independent network of organisations that works around the world to promote access to information held by international financial institutions.

Zambia disbands graft team that prosecuted Chiluba!

Since we previously did the Chiluba story on this blog - thought this latest release from the Associated Foreign Press of interest.

LUSAKA — Zambia will disband the anti-graft team that prosecuted ex-president Fredrick Chiluba, drawing accusations Friday that the government was seeking to bury the case two months after his acquittal.
Vice President George Kunda told parliament late Thursday that the special task force created to investigate corruption allegations against Chiluba would now become part of the Anti-Corruption Commission (ACC).
The previous government of the late president Levy Mwanawasa had created the task force in 2002, saying the commission did not have the capacity to investigate complex cases.
But Kunda said all cases handled by the task force will be handed over to the ACC.
"Under this policy, the anti-corruption commission shall be the lead institution in the fight against corruption," he said.
Anti-graft watchdogs denounced the move as a politically motivated, saying it cast doubt on current President Rupiah Banda's commitment to rooting out graft.
"This whole decision was politically motivated and meant to stop people from talking about the acquittal of Chiluba," Transparency International Zambia president Reuben Lifuka told AFP.
"This is a clear testimony that the government is not serious in fighting corruption," Lifuka added.
In August, Chiluba was acquitted on charges of misappropriating 500,000 dollars in public resources as he developed a taste for tailor-made shoes and suits.
The executive chairman of the task force, Max Nkole was sacked a week after the acquittal and his effort to appeal the ruling was quashed.
Given Lubinda, head of the African Parliamentarian Network Against Corruption, said the move showed government was not serious about the fight against corruption and would tarnish the country's image.
"The government is to blame for the bad image created to the outside world. Since the death of Levy Mwanawasa," he said.
"Zambia's image as far as corruption fight is concerned has been dented. They have decided to disband the task force because they want to protect their friend Chiluba," Lubinda said.
The former president still faces legal action in a separate matter stemming from a graft conviction in Britain, where a court in 2007 found him and former aides guilty of stealing nearly 50 million dollars of state funds.
In the London case, Chiluba and others were found guilty of defrauding the Zambian government, and the court ruled that he should be denied access to his pension at Barclays Bank.
Zambia's government last year began efforts to register the judgement locally, which would allow authorities to seize his assets to recover the money. Chiluba has argued that the British court ruling should not apply here.

Copyright © 2009 AFP. All rights reserved.

Oh Khaleda! Women and Corruption...

Earlier this month, Khaleda Zia, the former Prime Minister of Bangladesh was committed to stand trial with her son and other top ranking officials for embezzling approximately 300 000 dollars which was originally intended to build a state orphanage. Zia, who became the first female Prime Minister of Bangladesh in 1991 and who was ranked number 33 in the Forbes list of the world's 100 most powerful women has certainly dropped from glory.

The Charges

The circumstances giving rise to the charges were that the plaintiff alleged that the accused in collaboration with each other misappropriated Tk 2,1071,643 belonging to Zia Orphanage Trust. The accused withdrew the money through cheques from November 11 to March 28 in 2007 from Prime Bank, New Eskaton Branch in Ramna, where Tk 2 crore was deposited in the account of Zia Orphanage Trust. Tk 1071,643 comes as interest against Tk 2 crore.        

A foreign firm in 1991 donated $ 12,55,000 (then equivalent to Tk 4,44,81,216) for the welfare of orphans. The then BNP government deposited the money with a bank and kept it till 1994, according to the case details. The amount increased to Tk 5.3 crore with interest in four years.
The prime minister's office later distributed the money in two separate projects in Bogra and Khulna districts under the name of Zia Orphanage Trust, the case statement said. Of the Tk 5.3 crore, the accused embezzled around Tk 2.11 crore from the trust, according to the statement. 

The plaintiff in the case statement alleged that though there were hundreds of orphanages in Bangladesh, the then BNP government did not distribute the money among them. With a view to misappropriating the money, the then prime minister Khaleda Zia formed Zia Orphanage Trust, which was registered at the sub-registry office in Gulshan in the city on September 5 in 1993, according to the case details. The address of the trust was mentioned as House No-6, Shaheed Mainul Road at Dhaka Cantonment, which is the residence Khaleda Zia and her family members.      

About Khaleda

Born in 1945 to Iskandar Majumder, a businessman, and Taiyaba Majumder at Dinajpur district in north-western Bangladesh, Zia's eventual rise to political power could hardly have been predicted.

According to records she got married in 1960 to Ziaur Rahman, a prominent war hero who himself later became the President of the Republic and formed the Bangladesh Nationalist Party (BNP)in 1978. However, unlike Hilary Clinton, until the assassination of her husband in an abortive military coup in Chittagong on 30 May 1981, Zia had taken little to no interest in either politics or public life.

From all reports, even when her husband was propelled to power after the political changes in 1975, "she remained a shy and withdrawn housewife who devoted most of her time grooming up her two sons".

After the assassination of her husband, Vice President Sattar took over the reigns of the BNP party and acted as President. This however was short-lived after a successful military coup of sorts headed by Chief of Army Staff General H.M. Ershad who proclaimed martial law on 24th October 1982. In 1983 Sattar appointed Zia as Vice Chairman of the BNP party and when he retired in February 1984 Zia took over the leadership. So that it would appear that her ascendancy to the leadership of the BNP party came less through the dint of hard work but more by a quirk of fate!

However, how this woman handled this new power initially was impressive, even if one shuns her as a role model given these allegations. Zia was seen to work hard as leader of the opposition to regain political power for the BNP party. Records of the early days of her rise demonstrate effective leadership and resolve on Zia's part.

"She stood resolutely, took the reins of BNP and with like minded pro-democratic parties and elements, formed the 7-party Alliance and started uncompromising resistance against the usurper of people's rights.

In the Parliament elections that followed on 27 February 1991 under a Non-Party Caretaker Government, Begum Khaleda Zia led her party to a thumping victory, herself emerging as the most popular political leader of the country. On 20 March 1991 she was sworn in as the country's first woman Prime Minister in a Presidential form of Government. Respecting the wishes of the people, Begum Khaleda Zia and her party took the lead in switching over from the Presidential to the Parliamentary system of Government in order to give the hard-won democracy a permanent institutional shape. She formally took over as the Head of Government on 19 September 1991 under the Parliamentary system.

Begum Zia's Dall-Bhaat (lentil and rice) approach received both regional and international acceptance as a tangible programme for poverty alleviation in SAARC countries as well as in other developing nations.

She became Prime Minister for the second consecutive term after the February 1996 general election.

Her party BNP restored the parliamentary system through the 12th amendment to the Constitution in 1991 and introduced the Caretaker Government for holding neutral and free election through 13th amendment to the Constitution in 1996.

The government of Khaleda Zia made tangible progress in empowering huge rural womenfolk in the countryside. Her government brought about major reforms in the education sector that included introduction of compulsory free primary education, free education for girl students, stipends for the girl students and food for education programme. Side by side, she initiated bold reforms to revitalize national economy, accelerate production in all sectors and to alleviate poverty. Agriculture, the mainstay of Bangladesh's economy, was given the main thrust to achieve autarky in food production in the shortest possible time.

Promoting good neighbourly relations, strengthening regional cooperation within the ambit of SAARC, strict adherence to the UN Charter and furthering world peace and amity were the cornerstones of her government's foreign policy.

In the 1996 polls, the BNP emerged as the largest opposition party in the country's parliamentary history with 116 seats. The party under the leadership of Begum Zia formed a four-party opposition alliance on 6 January 1999".[Life Sketch BEGUM KHALEDA ZIA Hon'ble PRIME MINISTER PEOPLE'S REPUBLIC OF BANGLADESH]


So there we have a stellar record of a woman exercising political power as commendably as any other of her male counterparts. Studies, though challenged by many, have suggested that women are lest prone to corrupt acts than men. According to the World Bank in 2001 in an important policy statement on gender equality,
‘Engendering Development’, there is a strong relationship between relatively high levels of female involvement in public life and low levels of government corruption. The report concludes that this finding lends ‘additional support for having more women in politics and in the labor force – since they could be an effective force for good government and business trust’ (World Bank, Engendering Development, 2001:96).

Women & Leadership

In the Western world, with the evolution of the feminist movement and the growing empowerment of women, there has been increasing involvement of women in politics. If one were to look at the Scandinavian countries we see 40% representation by women on the legislature and in fact this is the highest political representation of women in the world. Followed by, interestingly enough, leaders in the Asian continent. So I wonder, is it that women in Asia are further along in terms of equality and non-discrimination in the political sphere or is it as Stanley Wolpert describes it an “accident of gender” or as Shakespeare would say having "leadership thrust upon them"? One study singled out a commonality in these Asian women leaders as being the manner in which they came into office in the first place. In most cases, like Zia, these women are victims of the violent death of a close male relative – a husband or father. And it has been said that even in the case of exceptions where they were groomed for the highest office it was not by their ability alone but more by reason of their proximity to male rule.

Indira Gandhi, for example, was the daughter of the illustrious Jawaharlal Nehru who died a natural death. Benazir Bhutto assumed the mantle of the Pakistan People’s Party after the hanging of her father Zulfikar Ali Bhutto by the military leadership. While Indira and Benazir had some amount of political experience the others like Chandrika Kumaratunga of Sri Lanka, and Zia lost their husbands, both politically significant members, to assassination.

Accident or not, it would seem that Zia, if the allegations are proved to be true, despite her commendable strength, vision and determination exhibited throughout her leadership, may put the lie to this myth that women are less corrupt than men.

[ LMG World TV digression. Interestingly, although, as we have seen above, it is unremarkable that the former housewife of a political war hero becomes a leading political figure, it would seem far less likely that such a person develops an innovative economic aid programme, especially in a country like Bangladesh.  Bangladesh in this regard is a particularly interesting study of how one country has responded to the challenges of poverty. We should not forget that Bangladesh is also the home country of Mohammed Yunus, Noble Prize Winner and Founder of the Grameen Network which spearheaded the creation of the, now so-popular, micro-finance model]

Former Israeli PM Charged for Corruption - a Test of Democracy

Mr. Ehud Olmert made history this week as the first former Prime Minister of Israel to face criminal charges. This came after a series of corruption allegations, probes and police investigations since as early as 2006. The ongoing corruption scandals had forced Olmert to resign earlier this year. Olmert however, has staunchly asserted his innocence despite growing evidence surfacing of impropriety while he was in office.

The indictment against Olmert was served at the Jerusalem District Court on August 30, 2009 and it reportedly includes counts of obtaining by fraud, fraud, breach of trust, falsifying corporate documents and tax evasion. It refers to three out of the four corruption-related cases standing against him:
(i) 'Rishon Tours' where he is accused of using his Travel Agency Rishon Tours to manage a special account for him and double charge for some of his travel and speaking engagements ,
(ii) 'Talansky' (Also known as 'Money envelopes' affair) where he is accused of receiving over 150 000 USD in cash envelopes from a Jewish-American Businessman Morris Talansky for political favours and
(iii) the 'Investment Center' where he is accused of acting in conflict of interest by arranging investment opportunities for a friend, Uri Messner, while he was industry minister.

Once again, I find the timing of this incident somewhat coincidental since in my last blog entry, when dealing with corruption in the construction industry in Trinidad and Tobago, I sought to draw a positive though cursory comparison between Israel's plan for economic development and the Vision 2020 Plan of Trinidad and Tobago.




Israeli Democracy?

Israel, a developing country as well, has been said to be "the only democracy in the Middle East" enjoying a special relationship with the United States, some considerable economic success, and engaging in sporadic requests for EU membership.

However, I would certainly not be the first one to suggest that numerous factors make this self styled democracy somewhat strained. Israel has had very fervent critics from inception, who have asserted that Israel's formal democratic status is a sham given that Israel is constitutionally termed a "Jewish Democratic State" with no separation of synagogue and state despite the fact that approximately 20% of its citizens are not Jewish. Even more controversial is that several laws are explicitly discriminatory. These can be traced back to Israel's foundation in 1948 which, driven primarily by the racist genocide suffered by Jews in Europe during the Second World War, was based on the notion of a Jewish state for Jewish people. Some of Israel's laws reflect this principle and as a result discriminate against non-Jews, particularly Palestinians who had lived on the lands for generations. The Law of Return for instance provides automatic Israeli citizenship for Jewish immigrants, whereas Palestinian refugees who were born and raised in what is now Israel are denied even the right to return home. Other statutes explicitly grant preferential treatment to Jewish citizens in areas such as education, public housing, health, and employment.

Leaders in post colonial democratic states like those in the English Speaking Caribbean may readily turn up their noses at this style of democracy where there is no separation of church and state and overt state sanctioned discriminatory action against citizens. Certainly here in the Caribbean, we may very well feel that if we were all to sit the Democracy test our States would achieve higher grades than Israel.

But, is this really true? Of interest, no doubt spurred on by the controversy surrounding its democratic status, Israel has established its own Israel Democracy Institute. Established in 1991, the Israel Democracy Institute (IDI) is an independent, nonpartisan, nonprofit think tank located on the seam between academia and government. Comprising a select cadre of Israel's leading thinkers, the Institute is the premier nongovernmental agent of change in the Israeli body politic and has been driving the process of Israel's transition from formal to substantive democracy.

In 2009 IDI produced a Democratic Index which ranks and compares Israel with several established democracies using several institutional, rights based and stability indicators. The Democratic Index reveals that despite some demonstrable improvement in some indicators, Israel still received low scores when compared with the developed democratic countries that participated in the study. The general trend change compared to the 2008 Index was mixed. Out of the 18 indicators updated this year, while seven registered improvement, six registered deterioration, and five showed no change. When comparing internationally, Israel’s ranking went up in three indicators, remained unchanged in ten indicators, and declined in four indicators.




Interestingly, the main improvement was recorded in the institutional indicators, following a slight rise in the political participation and representativeness measures. Olmert's resignation in February 2009 amidst corruption allegations which had been escalating since the last quater of 2008 caused a negative impact on the scores of Israel on the indicators of corruption and stability in the political system. Tzipi Livni, who replaced Olmert as head of the Kadima party, failed to form a coalition and, therefore, not for the first time, elections were called before the official end of the government’s term. According to the Index since both the process by which the government was dissolved and the bringing forward of the date of elections were set in motion by suspicions of corruption against the Prime Minister, there is room for drawing a connection between the growing levels of corruption and the increasing instability of the political system

It may be that the relative scores on the IDI Democratic Index that the very serious corruption allegations which forced Olmert to resign are negative indicators from the point of view of democratic governance and corruption levels. I take a different view and will develop that a little more below.

Juxtaposing Trinidad and Tobago and Israel for the purposes of useful comparison may not be as far-fetched as some may think on its face. The Heritage Foundation in Washington and the Wall Street Journal have developed Economic Freedom Index which they define as "the fundamental right of every human to control his or her own labor and property. In an economically free society, individuals are free to work, produce, consume, and invest in any way they please, with that freedom both protected by the state and unconstrained by the state. In economically free societies, governments allow labor, capital and goods to move freely, and refrain from coercion or constraint of liberty beyond the extent necessary to protect and maintain liberty itself".

In developing the Index ten indicators were measured and the methodology is transparent, available for download here.

With the one qualification that I make absolutely no assessment of the merit or demerit of the methodology [since I must confess that being of legal background statistical measurement and analysis is not my area], I think the results are pretty instructive in the context of comparing these two nations. The results for both Israel and Trinidad and Tobago on each of the indicators are set out below:

Indicator Israel Trinidad & Tobago

1. Business Freedom 67.8 60.1
2. Trade Freedom 86.0 79.8
3. Fiscal Freedom 57.1 79.7
4. Government Size 35.1 75.6
5. Monetary Freedom 83.7 72.2
6. Investment Freedom 80.0 70.0
7. Financial Freedom 70.0 70.0
8. Property rights 70.0 60.0
9. Freedom from Corruption 61.0 34.0
10.Labor Freedom 64.9 78.3

Despite significantly outscoring Trinidad and Tobago on several indicators, the end result was that Trinidad and Tobago received the score of 68.0 and Israel received an overall score of 67.6 with the countries ending up back to back on the list of 179 countries, 41st and 42nd respectively!

I was struck by this, having whimsically embarked upon this blog item on Olmert's corruption charges, not expecting in my comparison of Israel and Trinidad and Tobago that I would find so many similarities.

What this index reveals, however, is that behind more or less similar average overall scores, we are actually dealing with two totally different small developing countries. One is small and seen as "the enemy of its region" surrounded by nations with which it has an almost war-like relationship, the other a small, oil state surrounded by semi-dependent, touristic tropical islands. That Israel scores poorly on government size is the direct consequence of it being in a state of war, something which translates immediately into a far above average government size. The rating is constructed in such a way that large government size is in normal circumstances positively correlated with an increased probability of corruption and reduced freedom. The other way around, the situation of Trinidad and Tobago with its oil wealth translated into a relatively free/capitalist structure with a small government - a situation normally assumed to lead to a reduced probability of corruption - reveals something quite remarkable: it is actually in the corruption indicator that the island state is posting its worst grade by far!

In other words, careful analysis of the component indicators unravels what was hidden when looking solely at the overall ranking. Although scoring similarly overall with Trinidad and Tobago slightly ahead, taking this on face value would be dangerous given the drastically different and remarkable scores on corruption levels. Israel with its large government (usually thought to result in higher corruption scores) is in actuality far less corrupt than Trinidad and Tobago with it's small government size.

No surprise really which is why I formed the view above. A system of governance
(i)which allows a state prosecuting office to operate independently and without interference in the investigation of a Prime Minister in office, (ii) has a strong media to aggressively expose alleged corrupt activity, (iii) which facilitates the voluntary resignation of a Prime Minister and (iv) which produces an institute like the Israel Democracy Institute is doing far better in terms of democratic governance and curbing corrupt activity, than let us say for arguments purposes Trinidad and Tobago.

This may not be off the mark given the following circumstances currently existing in Trinidad and Tobago:

1. Widespread allegations of corruption in the public construction sector - Commission of Enquiry appointed. Although the work is not complete, already damaging evidence adduced including the startling evidence of the Chairman of a State Company Board inviting a company to tender which shared his fax number and on which his wife's brother and brother in law were the directors. Awarding the contract to this company which was not the lowest or the second lowest tenderer.
2. Government officials steadfastly refusing to step down from office despite calls from throughout the country for them to do so.
3. Court ruling that the Integrity Commission established to protect integrity in public life acted unconstitutionally, unlawfully and maliciously in pursuing an investigation which was rumoured to be politically motivated.
4. Several important Government posts not filled for considerable periods of time, Director of Public Prosecutions, Solicitor General, Integrity Commission, Commissioner of Police,
5. Firing of a Government Minister for speaking out and calling for greater oversight over a state agency.
6. Allegations of the interference of the politically appointed Attorney General in public enquiries and prosecutions.
7. Threatened media - with a situation occurring where the Prime Minister caused two broadcasters to be suspended for criticising him on air.

These and many other incidents in Trinidad and Tobago may have contributed to the poor corruption score on the Transparency International Corruption Perception Index and the Index of Economic Freedom.

For me, I did not have to analyse the corruption indices and the Index of Economic Freedom to know that Israel was doing better than Trinidad and Tobago on the issue of confronting and enforcing the law against corrupt offenders. Whilst some may view the Olmert scandal as an indicator of high corrupt levels, I say it is arguably one of the strongest indicators of a robust democracy serious about addressing the issue of corruption.