A public official takes a bribe to award a contract, steals public funds or otherwise abuses his or her duties for personal benefit. We have previously blogged on who can be sued for corruption (click here).
But who can bring civil proceedings for corruption? The defrauded Government is the obvious candidate, but there are other possible claimants. In some jurisdictions civil society entities even have been able to bring some form of proceedings in relation to corruption, and perhaps the scope for doing so may in future be extended.
Of course, corrupt assets can also be confiscated following a criminal conviction for corruption offences, or for money laundering. They can also be recovered in the absence of a conviction, on proof that that they represent the proceeds of crime, in civil forfeiture or recovery proceedings brought by law enforcement agencies. Our overview of available recovery mechanisms is here.
This blog piece focuses on civil claims and possible claimants to such actions.
Governments are the obvious entity to bring claims arising from corruption. The wrongdoers are usually ministers, politicians and civil servants or unfortunately, a depressingly common phenomenon, leaders of their countries, each abusing their positions. Governments are entitled to make claims for stolen assets, for bribes and for losses arising from corrupt activity.Claims against a corrupt official are usually brought by a state in the name of the Attorney General or Minister of Justice, or by a dedicated anti-corruption agency (examples include the English cases of the Federal Government of Nigeria v Santolina Investment Corporation or Attorney-General of Zambia v Meer & Desai). Alternatively, claims might be brought by another legal entity of a country that is the victim of the corruption such as a constituent state of a federal country, a public authority or a state-owned company.
There are a variety of ways claims can be put. Claims in England and other common law countries will usually be framed as the tort of bribery, or for breach of fiduciary duties owed by the public officials to the state, or on the basis that the wrongdoer has conspired with others to injure the claimant, or for knowing receipt of trust property. Claims may also be made against third parties for dishonestly assisting the public official with a breach of fiduciary duties, or for conspiracy. Third party targets may include associates, financial institutions, and lawyers and accountants.
Consideration should especially be given to the importance of what country’s laws apply to a claim in England which could be pivotal for the outcome of the case for the reasons explained in our note on Fiona Trust and Holding Company v Skarga and others
Rival bidders for contracts
Where a contract is won by a bribe, there may be innocent competitors that have lost the contract as a result of a bribe. Those rival bidders may have claims in conspiracy, or in contract or competition law, against the wrongdoer or indeed, against the state or state entity responsible for awarding the contract.
There is no precedent of a judgment in England based on a claim against a competitor, but such cases have successfully been brought elsewhere. For example, in South Africa, the Supreme Court ordered that a party that had won a contract by paying bribes to an official in a parastatal had to pay substantial damages to the losing tenderer.
Further, in the United States, Compass Group, the world's largest catering firm, was investigated for allegedly bribing United Nations officials to secure contracts from the provision of food to peacekeeping forces. Following a settlement with the Department of Justice, two rival companies brought private lawsuits against Compass and others in the US. The plaintiffs alleged that they had lost business because of the corruption as part of their claim and eventually settled the case for a reported US$74 million.
In the United Kingdom, an unsuccessful tenderer losing a contract to a bribing competitor may also have a possible claim for breach of a statutory duty for infringement of European or English competition law which prohibits practices that distort or restrict competition.
A more detailed consideration of claims by competitors is available here.
It is not only Governments that are the victims of corruption and fraud. Companies may have been the victim of a fraudulent employee or director who has taken a bribe to award a contract, or stolen money from the company, or diverted business opportunities away from the company to third parties. Directors engaged in wrongful conduct can be sued by the company for breach of their fiduciary duties to the company, and both directors and employees could be sued under their employment contract. Corporate claimants can also trace funds into the hands of dishonest third parties. There may also be claims for misuse of confidential information.
A creditor (or even a shareholder) that has been the subject of fraud committed by a company, for example, if it has invested money through that company and that money has been used for illegitimate purposes, may use insolvency remedies to investigate and make recoveries, where they have no direct claim available. A company unable to pay its debts can be put into liquidation. However, winding-up may also be available where it is just and equitable (not necessarily because the company cannot pay its debts), which may apply in corruption cases. Insolvency remedies offer the opportunity of putting in place an independent liquidator with wide powers to investigate what has happened and to obtain documents and evidence, and also to recover assets which may then be available for distribution to the victims of the wrongdoing. States may also be able to use insolvency remedies effectively to ensure an independent liquidator can take control of companies used for corrupt purposes and recover the proceeds of corruption.
It is worth noting that it may be easier to enforce the powers of a liquidator abroad than those of a creditor, which can be of great assistance where defendants or assets are located in a foreign jurisdiction.
A receiver could also be appointed to take control and manage the debtor's assets. The English case of JSC BTA Bank v Ablyazov concerns allegations of dishonest conduct by Mr Ablyazov in his capacity as the former chairman of the Kazakh Bank. The Bank successfully applied to the Court for a receiver to be appointed over Mr Ablyazov's assets, in addition to a freezing order securing his assets. The Judge was prepared to appoint a receiver because he believed that Mr Ablyazov would deal with his assets in breach of the freezing order.
In England, shareholders might be able to bring derivative actions (actions brought on behalf of the company) against directors or former directors pursuant to sections 260 to 264 of the Companies Act 2006 in respect of acts or omissions, negligence, default or breach of duty by a director or a third party. This could include, for example, a claim in respect of a company charged with corruption that has paid a significant penalty to the UK authorities as a result of the misconduct of a director and which been assessed to have inadequate procedures intended to prevent bribery. The shareholder does not bring the action in its own right and is claiming for loss suffered by the company. The court’s permission will be required to continue derivative claims.
Shareholder class actions against public companies engaged in bribery has been particularly common in the United States.
The greatest bar to recovering the proceeds of corruption is the lack of genuine political will to pursue the assets. Political will means the desire to bring proceedings, the resolve properly to resource asset recovery efforts and the courage to bring claims. All too often states are unwilling to bring proceedings because the wrongdoers are in Government or are protected by Government.
The true victims of grand corruption are the citizens of the country where the abuses have taken place. And yet, in most jurisdictions, citizens and NGOs rarely have the right to bring actions. Whether they should have more scope to do so is a controversial topic and will be the subject of separate articles. The reality is that too few corrupt assets are successfully recovered. That simple fact suggests other ways to recover assets need to be explored. On the other hand, widening the scope of potential claimants could itself be abused, may conflict with legal principles for establishing loss and gives rise to the question as to how recoveries should be dealt with.
But in the special case of corruption, and where there is inactivity by a Government, perhaps the law or its application needs to change, with adequate protections. We have seen in France, for example, the right to instigate criminal proceedings was extended to civil society. Transparency International and the anti-corruption NGO SHERPA called for an investigation into how Heads of State and their families of the Republic of Congo Equatorial Guinea and Gabon acquired substantial properties in France. The French Court of Appeal allowed such an investigation to proceed, and has most recently upheld an arrest warrant in respect of Teodorin Nguema Obiang Mangue (the President of Guinea’s son) - click here. We have also seen that in Kenya a draft bill has been submitted which if enacted into law would allow citizens to bring claims against corrupt politicians if the Government chooses not to act please click here.
Most victims of corruption have the ability to bring civil proceedings against wrongdoers one way or another; all except the most serious victims, those citizens of corrupt regimes. Perhaps this is an anomaly that will change one day. But in the meantime, for those entities and individuals that do have a right of action, the law of England and other jurisdictions offers a plethora of both legal mechanisms and legal bases, criminal and civil, to recover the proceeds of corruption. Much greater use of these mechanisms could, however, undoubtedly be made.