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Corruption and controlling shareholders
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Kevin E. Davis
Published/Copyright:
July 10, 2024
Abstract
Controlling shareholders have been directly involved in some of the largest and most consequential bribery scandals in the world over the course of the last decade. Nevertheless, the academic literature and the dominant international model of anticorruption law have neglected the dynamics and implications of controlling shareholder involvement in the payment of bribes. We argue that controlling shareholders, especially in family-controlled firms, may be uniquely positioned to lead corrupt schemes. We then analyze the incidence of this phenomenon in recent U.S. enforcement actions under the FCPA and in Brazilian enforcement actions under the Car Wash (Lava Jato) anticorruption operation. Controlled companies account for a minority of the FCPA cases, but for a large majority of the Brazilian cases. Controlling shareholders were implicated in a significant portion of actions against controlled companies in both contexts. We argue that the dominant international model, which is premised on organizational liability and incentives for compliance programs, is ill-suited to addressing cases of bribery led by controlling shareholders, and call for a distinct array of legal responses.
Appendix
Table A1
US FCPA Enforcement Actions
| Case | CS | Structure | CS-led? |
|---|---|---|---|
| In the Matter of Fresenius Medical Care AG & Co. KGa | CS | Foundation | |
| In the Matter of Mobile Telesystems PJSC | CS | Institutional | |
| United States of America v. Cyrus Allen Ahsani and Saman Ahsani | CS | Individual/Family | Y |
| United States of America v. Frank James Lyon | CS | Individual/Family | Y |
| In the Matter of Polycom, Inc. | NCS | ||
| In the Matter of Panasonic Corporation | NCS | ||
| In the Matter of Petroleo Brasileiro S.A. – Petrobras | CS | State | |
| United States of America v. Sociedad Quimica y Minera de Chile | CS | Institutional | |
| In the Matter of Joohyun Bahn, a/k/a Dennis Bahn | NCS | ||
| In Re Legg Mason, Inc. | NCS | ||
| In Re: Insurance Corporation of Barbados Limited | NCS | ||
| United States of America v. Raul Gorrin Belisario, et al. | NCS | ||
| In the Matter of Credit Suisse Group AG | NCS | ||
| United States of America v. Egbert Yvan Ferdinand Koolman | NCS | ||
| United States of America v. Transport Logistics International, Inc. | NCS | ||
| United States of America v. Embraer S.A. | NCS | ||
| United States of America v. SBM Offshore N.V. | CS | Institutional | |
| United States of America v. Rolls-Royce PLC | NCS | ||
| In the Matter of Och-Ziff Capital Management Group LLC, OZ Management LP, Daniel S. Och, and Joel M. Frank | CS | Individual/Family | |
| In the Matter of Telia Company AB | CS | State | |
| In Re Las Vegas Sands Corp. | CS | Individual/Family | |
| In the Matter of Biomet, Inc. | NCS | ||
| United States of America v. Charles Hunter Hobson | NCS | ||
| United States of America v. Glencore International A.G. | NCS | ||
| United States of America v. Alvaro Pulido Vargas, et al. | NCS | ||
| United States of America v. Naman Wakil | CS | Individual/Family | Y |
| United States of America v. Ivan Alexis Guedez | NCS | ||
| United States of America v. Jose Manuel Gonzalez-Testino | NCS | ||
| United States of America v. Matthias Krull | NCS | ||
| United States of America v. Francisco Convit Guruceaga, et al. | NCS | ||
| United States of America v. Juan Carlos Castillo Rincon | NCS | ||
| United States of America v. Fernando Ardila-Rueda | NCS | ||
| United States of America v. Luis Carlos de Leon-Perez, et al. | NCS | ||
| United States of America v. Jose Orlando Camacho | NCS | ||
| United States of America v. Juan Jose Hernandez-Comerma | NCS | ||
| United States of America v. Charles Quintard Beech III | CS | Individual/Family | Y |
| United States of America v. Natalino D’Amato | NCS | ||
| United States of America v. Jose Luis de Jongh-Atensio | NCS | ||
| United States of America v. Leonardo Santilli | NCS | ||
| United States of America v. Carlos Enrique Urbano Fermin | NCS | ||
| United States of America v. Tulio Anibal Farias-Perez | NCS | ||
| United States of America v. Lennys Rangel | NCS | ||
| United States of America v. Edoardo Orsoni | NCS | ||
| United States of America v. Rafael E. Pinto-Franceschi, et al. | NCS | ||
| In the Matter of Amec Foster Wheeler Limited | NCS | ||
| United States of America v. Arturo Carlos Murillo Prijic | NCS | ||
| United States of America v. Luis Alvarez Villamar | CS | Individual/Family | Y |
| In the Matter of Deutsche Bank AG | NCS | ||
| United States of America v. Sargeant Marine Inc. | CS | Individual/Family | Y |
| United States of America v. Vitol Inc. | CS | ||
| In re the Matter of The Goldman Sachs Group, Inc. | NCS | ||
| United States of America v. Beam Suntory Inc. | NCS | ||
| In the Matter of J&F Investimentos, S.A., et al. | CS | Individual/Family | Y |
| United States of America v. Jose Carlos Grubisch | CS | Individual/Family | Y |
| In the Matter of Herbalife Nutrition Ltd. | NCS | ||
| United States of America v. Raymond Kohut | NCS | ||
| United States of America v. Margaret Cole, et al. | NCS | ||
| United States of America v. Vitol Inc. | NCS | ||
| In the Matter of Novartis AG | NCS | ||
| Securities and Exchange Commission v. Telefonaktiebolaget LM Ericsson | NCS | ||
| In the Matter of WPP plc | NCS | ||
| United States of America v. Samsung Heavy Industries Co. Ltd. | NCS | ||
| In the Matter of Barclays PLC | NCS | ||
| In the Matter of Westport Fuel Systems, Inc. and Nancy Gougarty | NCS | ||
| In the Matter of Quad/Graphics, Inc. | CS | Institutional | |
| In the Matter of Juniper Networks, Inc. | NCS | ||
| In the Matter of Deutsche Bank AG | NCS | ||
| In the Matter of Telefonica Brasil S.A. | NCS | ||
| United States of America v. Naeem Riaz Tyab, et al. | NCS | ||
| In the Matter of Centrais Eletricas Brasileiras S.A. | CS | State | |
| United States of America v. Deck Won Kang | CS | Individual/Family | Y |
| In the Matter of Vantage Drilling International | CS | Individual/Family | Y |
| In the Matter of Stryker Corporation | NCS | ||
| In the Matter of United Technologies Corporation | NCS | ||
| In the Matter of Sanofi | NCS | ||
| In the Matter of The Dun & Bradstreet Corporation | NCS | ||
| In the Matter of Kinross Gold Corporation | NCS | ||
| In the Matter of Elbit Imaging Ltd. | CS | Individual/Family | Y |
| United States of America v. Chi Ping Patrick Ho, et al. | CS | State | |
| In the Matter of Alere Inc. | NCS | ||
| United States of America v. Joseph Baptiste and Roger Richard Boncy | NCS | ||
| United States of America v. Cary Yan and Gina Zhou | NCS | ||
| In the Matter of Halliburton Company and Jeannot Lorenz | NCS | ||
| In Re: CDM Smith, Inc. | NCS | ||
| In Re: Linde North America Inc. and Linde Gas North America LLC | NCS | ||
| In the Matter of Orthofix International N.V. | NCS | ||
| In the Matter of Cadbury Limited and Mondelez International, Inc. | NCS | ||
| In the Matter of World Acceptance Corporation | CS | Institutional | |
| In the Matter of Alexion Pharmaceuticals, Inc. | NCS | ||
| In the Matter of Eni S.p.A. | NCS | ||
| Securities and Exchange Commission v. Asante K. Berko | NCS | ||
| In the Matter of Cardinal Health, Inc. | NCS | ||
| United States of America v. Airbus SE | NCS | ||
| In the Matter of Credit Suisse Group AG | NCS | ||
| United States of America v. Roberto Heinert | NCS | ||
| In the Matter of TechnipFMC plc. | CS | Institutional | |
| In the Matter of Cognizant Technology Solutions Corporation | NCS | ||
| In the Matter of Microsoft Corporation | NCS | ||
| United States of America v. Alstom S.A. | NCS | ||
| United States of America v. Luis Alfredo Motta Dominguez and Eustiqiuo Jose Lugo Gomez | NCS | ||
| In Re Walmart Inc. | CS | Individual/Family | |
Table A2
US FCPA enforcement actions involving CS-led bribery
| Case | Target of enforcement action | |||||
|---|---|---|---|---|---|---|
| Controlling shareholder | Company | Other individuals | ||||
| Criminal | Civil | Criminal | Civil | Criminal | Civil | |
| Cyrus Allen Ahsani et al | ✓ | ✓ | ||||
| Charles Quintard Beech III | ✓ | ✓ | ||||
| Elbit Imaging Ltd. | ✓ | |||||
| Jose Carlos Grubisich | ✓ | ✓ | ✓ | |||
| J&F Investimentos, S.A | ✓ | ✓ | ✓ | |||
| Frank James Lyon | ✓ | ✓ | ||||
| Deck Won Kang | ✓ | |||||
| Jorge Cherrez Miño et al | ✓ | ✓ | ||||
| Sargeant Marine Inc. | ✓ | ✓ | ✓ | |||
| Vantage Drilling International | ✓ | |||||
| Naman Wakil | ✓ | ✓ | ||||
Table A3
Ownership structure and type of corruption of companies involved in Car Wash operation
| Companies | Source | CS or NCS | Structure | CS-led? |
|---|---|---|---|---|
| A.Hak Industrial Services B.V | Criminal Prosecution | CS | CS – Family | No |
| Aegean Shipping Management | Criminal Prosecution | CS | CS – Family | No |
| Alumini Engenharia S.A./ Alusa Engenharia S.A. | Criminal Prosecution | CS | CS – Family | Yes |
| Andrade Gutierrez Engenharia S.A. | Leniency Agreement and Criminal Prosecution | CS | CS – Family | No |
| Athenian Sea Carriers | Criminal Prosecution | CS | CS – Individual | Yes |
| Braskem S.A | Leniency Agreement and Criminal Prosecution | CS | CS – Family | Yes |
| Carioca Christiani Nielsen Engenharia S.A. | Leniency Agreement and Criminal Prosecution | CS | CS – Family | Yes |
| Companie Beninoise des Hydrocarbures Sarl (CBH) | Criminal Prosecution | CS | CS – Individual | Yes |
| Construcap | Criminal Prosecution | CS | CS – Family | Yes |
| Decal do Brasil (Decal Group) | Criminal Prosecution | CS | CS – Individual | Yes |
| Dorian (Hellas) | Criminal Prosecution | CS | CS – Individual | No |
| EISA – Estaleiro Ilha S.A. (Dislub Equador Group) | Criminal Prosecution | CS | CS – Family | Yes |
| Empresa Industrial Técnica S/A | Criminal Prosecution | CS | CS – Individual | Yes |
| Equador Log S.A. (Grupo Dislub Equador) | Criminal Prosecution | CS | CS – Family | Yes |
| Galvão Engenharia S.A | Criminal Prosecution | CS | CS – Family | Yes |
| GDK S.A. | Criminal Prosecution | CS | CS – Individual | Yes |
| Grupo SOG – Toyo Setal Empreendimentos Ltda. | Leniency Agreement and Criminal Prosecution | CS | CS – Individual | Yes |
| Grupo Trafigura | Criminal Prosecution | NCS | NCS | No |
| Jaraguá Equipamentos Industriais Ltda | Criminal Prosecution | CS | CS – Family | Yes |
| Keppel Fels Brasil S/A | Leniency Agreement | CS | CS – State | No |
| LBR Engenharia | Criminal Prosecution | CS | CS – Individual | Yes |
| Mendes Júnior Trading e Engenharia S.A. | Criminal Prosecution | CS | CS – Family | Yes |
| Meta Manutenção e Instalações Industriais | Criminal Prosecution | CS | CS – Individual | Yes |
| Mover Participações S.A./ Camargo Corrêa S.A | Leniency Agreement and Criminal Prosecution | CS | CS – Family | Yes |
| MPE Montagens e Projetos Especiais S.A. | Criminal Prosecution | CS | CS – Family | Yes |
| Multitek Engenharia Ltda | Criminal Prosecution | CS | CS – Individual | Yes |
| NM Engenharia e Construções Ltda. | Criminal Prosecution | CS | CS – Family | Yes |
| Noroil Empresa de Navegação | Criminal Prosecution | Unknown | Unknown | Unknown |
| Nova Engevix S.A/.Engevix S.A. | Leniency Agreement and Criminal Prosecution | CS | CS – Individual | Yes |
| Novonor/ Odebrecht S.A | Leniency Agreement and Criminal Prosecution | CS | CS – Family | Yes |
| OAS S.A | Leniency Agreement and Criminal Prosecution | CS | CS – Family | No |
| Pollydutos, Estre Ambiental, Estaleiro Rio Tietê (Estre Group) | Criminal Prosecution | CS | CS – Family | Yes |
| Rolls-Royce Brasil Ltda. | Leniency Agreement | CS | CS – Family | No |
| Samsung Heavy Industries | Leniency Agreement | CS | CS – Family | No |
| Sanko Sider Comércio, Importação e Exportação de Produtos Siderúrgicos Ltda | Criminal Prosecution | CS | CS – Individual | Yes |
| Sargeant Marine | Criminal Prosecution | Unknown | Unknown | Unknown |
| Techint/Confab Industrial S.A | Criminal Prosecution | CS | CS – Family | No |
| Technip Brasil – Engenharia, Instalações e Apoio Marítimo Ltda e Flexibrás Tubos Flexíveis Ltda | Leniency Agreement | NCS | NCS | No |
| The Interpublic Group of Companies Inc (Mullen Lowe Brasil Publicidade Ltda e FCB Brasil Publicidade e Comunicação Ltda) | Leniency Agreement | NCS | NCS | No |
| Tsakos Energy Navigation | Criminal Prosecution | NCS | NCS | No |
| UTC Engenharia S.A. | Leniency Agreement and Criminal Prosecution | CS | CS – Individual | Yes |
| Viken Hull | Criminal Prosecution | CS | CS – Family | No |
Published Online: 2024-07-10
Published in Print: 2024-06-25
© 2024 by Theoretical Inquiries in Law
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Articles in the same Issue
- Frontmatter
- Controlling Shareholders and Control Enhancing Mechanisms
- Introduction
- Loyalty voting structures: A better dual class?
- Extending dual-class stock: A proposal
- Controlling shareholders and sustainable corporate governance: The role of dual-class shares
- The UK and dual-class stock-lite – Is it really even better than the real thing?
- Corruption and controlling shareholders
- Justifications for minority co-owned groups and their corporate law implications
- The (geo)politics of controlling shareholders
- Controlling non-controlling shareholders: The case of effective control
- Ousted
Articles in the same Issue
- Frontmatter
- Controlling Shareholders and Control Enhancing Mechanisms
- Introduction
- Loyalty voting structures: A better dual class?
- Extending dual-class stock: A proposal
- Controlling shareholders and sustainable corporate governance: The role of dual-class shares
- The UK and dual-class stock-lite – Is it really even better than the real thing?
- Corruption and controlling shareholders
- Justifications for minority co-owned groups and their corporate law implications
- The (geo)politics of controlling shareholders
- Controlling non-controlling shareholders: The case of effective control
- Ousted
