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Suing against Corruption: The Role of Civil Law

By Bryane Michael | July 23, 2007

CREDIT: Sal Falko (CC).

For more than 15 years, donor organizations such as the World Bank, the United Nations, and USAID have poured at least $15 billion into anticorruption programs for developing countries. Recent data by the World Bank as well as the European Bank for Reconstruction and Development show that, despite these sums, corruption isn't decreasing in much of the developing world (Africa being the exception).

The criminalization of corruption offenses—as espoused by most of the international anticorruption conventions such as the United Nations Convention Against Corruption and the OECD Convention on the Bribery of Foreign Officials in International Business Transactions—could actually worsen corruption in the developing world. Criminalization could decrease the incentives for government managers, businesses, and even witnesses to report corruption for fear that they will spend years in a crumbling, dirty prison cell. When a large segment of a country's population engages in corruption, the criminalization of corruption is tantamount to creating a nation of outlaws.

Instead of pushing for criminalization, donors should support civil law remedies against corruption. These remedies, namely the ability to sue corrupt officials (and the government departments they represent), provide a powerful weapon against corruption. These provisions are, in the language of economics, "incentive compatible." At present, businesses have no incentive to denounce corruption because they gain little by blowing the whistle—and they lose a lot from the loss of favorable relations with government officials. But when businesses can win money from suing for damages from the solicitation of bribery, these businesses have an incentive to denounce corruption.

When a large segment of a country's population engages in corruption, the criminalization of corruption is tantamount to creating a nation of outlaws.
Corrupt civil servants are easier to prosecute under a civil law burden of proof than a criminal one. Under the criminal law standard of proof required by the OECD and UN Conventions referred to above, the accuser must show beyond reasonable doubt that corruption occurred, a notoriously difficult thing to do when corruption is involved. Under a civil law standard of proof, the dirty politician or civil servant only needs to be shown "on the balance of probabilities" that he or she took a bribe or used influence for personal gain. Such a scheme should encourage the civil servant, not only to resist engaging in corruption, but also to engage in defensive actions to convince a court that it is unlikely that he or she took a bribe.

If court-mandated penalties are correctly assigned, civil law punishments are Pareto optimal. In other words, the offender compensates victims for the damage they actually experience and society in general for the distortion in trade bribe seeking causes. Fines should be tied to such social costs of corruption as well as cover the transactions costs involved in law enforcement agencies finding and prosecuting these corrupt officials.

If particular government departments can directly sue corrupt businessmen (or more likely claim a share of fines collected by the Treasury), then such fines make anticorruption self-financing. Namely, corruption fighters collect in fines the money needed to continue fighting corruption. As corruption rises in a society, the money collected to fight corruption would increase—and vice versa. Throwing people in jail for corruption compensates no one, wastes tax money, and deprives corruption fighters of money.

Strengthening civil law remedies against corruption also allows criminal investigators and prosecutors to concentrate on systemic corruption and frying the big fish. At present, most governments are legally bound to treat all cases of suspected corruption equally, leaving little time for investigating complex and particularly harmful cases. By encouraging individuals and citizens to sue in cases involving low-valued, vexing, or one-off corruption offenses, talented investigators and prosecutors can spend their day collecting the sometimes thousands of pieces of evidence required for a successful criminal prosecution.

As corruption rises in a society, the money collected to fight corruption would increase.
From a development economist's point of view, reliance on civil law remedies or administrative remedies with similar punishments and burden of proof reduces the need for over-regulating civil servants. Developing country governments, under the carrot of the billions of dollars from Millennium Challenge Corporation money, are installing a staggering array of administrative and financial controls on their staffs. These controls choke the economy because of the higher taxes needed to pay for these controls and the decreased efficiency and motivation of civil servants. In many cases, the cost of these controls exceeds the value of possible bribes civil servants could ever collect even if the controls were not present. More controls are the last thing these over-regulated economies need.

Such a vision of anticorruption may seem Panglossian. Yet, a number of international treaties and conventions in place already establish the legal basis for civil action against corruption. The Council of Europe's Civil Law Convention Against Corruption ensures that businesses in Council of Europe member states can do exactly what is described above—sue for anticorruption. The OECD Convention mentioned above allows developing country government to go after the worst solicitors of corruption. Under the OECD Convention, in theory a French citizen who bribes a Latvian official, a Zimbabwean official, or a Bolivian one (or any foreign official), automatically commits a crime in France. At Charles de Gaulle Airport, he or she will be handcuffed and sent to the instructing judge. UN and EU regulations for free trade allow companies to sue governments whose overzealous civil servants rent seek on the grounds of distorting free trade. Most governments cannot be sued in private civil courts, but most governments have administrative tribunals where civil court-like damages may be awarded.

Reliance on the civil prosecution of corruption offenses is more appropriate for developing countries than for developed countries. Rich countries like America, France, and Germany have functioning police departments and courts that can investigate and prosecute corruption. Developing countries tend to have underfunded police departments and judiciaries, making the self-financing and self-enforcing aspects of civil law approaches to fighting corruption particularly attractive. Large numbers of suits for damages from corruption would encourage judicial development as more people participate in the judicial process and encourage private sector development as business relies on itself instead of less competent governments.

The strengthening of civil remedies against corruption requires attention to several details. First, history shows that giving law enforcement agencies a share of the loot or stool pigeons a large reward can lead to overzealous law enforcement. But as can be shown using economic theory, an optimal fine can be applied that balances the need to pay for the social costs of corruption while simultaneously dampening the incentives of overzealous investigators.

Second, reliance on civil remedies can lead to an over-litigious business sector, distorting business decisions away from serving the consumer and toward milking the government for awards. Few developing countries want to follow America down the path of encouraging vexatious litigation. Third, many developing countries have Continental (rather than Anglo-Saxon) legal traditions—a tradition that places the burden of enforcing justice on the State instead of on the conflict between private individuals.

Nevertheless, the World Bank estimates that at least $1 trillion is paid in bribes every year. Instead of handwringing, maybe it's time to sue for a share of the lucre.

Bryane Michael is currently at Linacre College, Oxford, and formerly an official at the OECD and World Bank. He has served as a senior level advisor on anticorruption and government reform issues to the governments of Russia, Turkey, Nicaragua, Bolivia, Ukraine, and Moldova. The ideas in this paper can be found in more depth in a working paper.

Read More: Business, Development, Ethics, Governance, United Kingdom

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