Corporate Liability For Bribery In Financial Markets
Corporate Liability for Bribery in Financial Markets is a complex area of law that involves not only the individuals directly involved in bribery but also the corporation itself, especially when the organization benefits from or facilitates the illegal acts. In this context, corporations may face legal consequences for failing to prevent bribery or for engaging in corrupt practices, either directly or through agents. Below, I’ll explain five notable cases involving corporate liability for bribery in the financial markets, all without external links.
1. The LIBOR Scandal (London Interbank Offered Rate)
Facts:
The LIBOR scandal involved the manipulation of the London Interbank Offered Rate, which is used to set interest rates for financial products globally. Major banks, including Barclays, Deutsche Bank, UBS, and others, were implicated in manipulating LIBOR to benefit their positions in the financial market, with evidence of collusion among traders and corporate managers to submit false rates.
Bribery and Corporate Responsibility:
Bribery: Traders at these banks allegedly bribed colleagues to submit false LIBOR rates in exchange for kickbacks or to influence financial products' values.
Corporate Liability: The companies were held vicariously liable because the employees’ actions were carried out within the scope of their employment, and the banks had failed to prevent the bribery and market manipulation.
Legal Outcome:
Fines: In 2012, Barclays was fined $450 million by US and UK regulators. Other banks also faced hefty fines (e.g., $1.5 billion for UBS).
Jail Sentences: Several traders were sentenced to prison for their role in the scheme.
Significance:
This case shows that corporations can be held responsible for the actions of their employees, especially in financial markets where corporate officers and traders may directly or indirectly encourage bribery to manipulate financial products.
2. The Enron Scandal (Corporate Fraud and Bribery in Energy Markets)
Facts:
Enron was a major energy corporation that engaged in fraudulent financial reporting and corruption. The company’s executives, including CEO Kenneth Lay and CFO Andrew Fastow, engaged in a range of illegal activities, including bribery and market manipulation, to conceal the company’s financial troubles.
Bribery in Financial Markets:
Enron used bribery and illegal incentives to secure favorable energy contracts and market positions. In some cases, Enron executives bribed individuals at government entities to secure deregulated market access.
They also manipulated energy prices by bribing government officials to overlook market manipulation.
Corporate Liability:
Enron's leadership directly engaged in these corrupt activities, and the corporation was held responsible for the fraudulent actions of its employees.
Failure to Prevent: Enron's corporate governance failures contributed to the environment of widespread bribery and market manipulation.
Legal Outcome:
Bankruptcy: Enron filed for bankruptcy in 2001.
Legal Penalties: In 2006, Arthur Andersen, Enron's auditing firm, was convicted of obstructing justice by destroying documents related to the fraud, although the conviction was later overturned.
Significance:
Enron exemplifies corporate liability in the context of financial market manipulation and bribery, highlighting how a company can be held accountable for lack of controls and failure to prevent fraudulent practices within financial transactions.
3. The 1MDB Scandal (Malaysia)
Facts:
The 1MDB (1Malaysia Development Berhad) scandal involved the embezzlement of billions of dollars from a Malaysian government-owned investment fund. Key figures involved included former Prime Minister Najib Razak, who allegedly facilitated bribery in exchange for securing investments and favorable deals.
Bribery in Financial Markets:
Bribery was used to secure lucrative financial deals for 1MDB and to cover up the mismanagement of funds. Politicians and financial officials were allegedly bribed to overlook irregularities in transactions that involved Swiss banks, Goldman Sachs, and other financial institutions.
Corporate Liability:
Goldman Sachs was implicated for facilitating bribery payments and securing fraudulent bond issuances on behalf of 1MDB. Goldman Sachs was fined and settled a significant lawsuit with US regulators for its role in the scandal.
Najib Razak’s involvement in orchestrating the scandal led to his indictment for corruption and money laundering.
Legal Outcome:
Goldman Sachs: The company was fined $5 billion by the U.S. Department of Justice in 2020.
Najib Razak: In 2020, Najib was found guilty of corruption and money laundering related to 1MDB, receiving a 12-year prison sentence and a hefty fine.
Significance:
This case highlights corporate liability for bribery and misconduct in financial dealings and international markets, especially in the context of how large financial institutions like Goldman Sachs can be held accountable for facilitating corruption.
4. The Wells Fargo Fake Accounts Scandal (USA)
Facts:
In 2016, it was revealed that employees at Wells Fargo created millions of fake accounts for customers without their consent in order to meet sales targets and generate additional fees. In many cases, employees resorted to bribery or unethical incentives to encourage fraudulent account openings.
Bribery and Corporate Responsibility:
Employees were incentivized with bonuses for meeting targets, leading them to bribe colleagues or supervisors to turn a blind eye to unethical practices.
Bribery involved rewarding employees for creating fake accounts, with the aim of inflating bank profits and sales figures.
Corporate Liability:
Wells Fargo was held liable not just for the fraudulent actions of employees but also for its failure to implement proper compliance and auditing controls.
The company’s corporate culture, which placed excessive emphasis on sales targets, played a role in enabling bribery and unethical practices.
Legal Outcome:
Wells Fargo was fined a $185 million settlement with the Consumer Financial Protection Bureau (CFPB) and faced additional fines from regulators.
The scandal led to the resignation of CEO John Stumpf and the dismissal of thousands of employees.
Significance:
This case illustrates that corporate liability for bribery in financial markets can result from systemic failures in corporate governance, culture, and oversight, even when the illegal actions are carried out by lower-level employees.
5. The Danske Bank Money Laundering Scandal (Estonia)
Facts:
Danske Bank was involved in a massive money laundering scandal that involved the transfer of over $200 billion from Russia and other countries into its Estonian branch between 2007 and 2015. The bank allegedly engaged in bribery and corruption to cover up the illicit activity and facilitate these transactions.
Bribery in Financial Markets:
The bribes were paid to individuals within Danske Bank as well as external regulators to prevent scrutiny of suspicious transactions.
The transactions were routed through the bank’s Estonian branch, which had weak anti-money laundering controls.
Corporate Liability:
Danske Bank was found responsible for aiding and abetting money laundering through lax controls and bribery to shield the criminal activities.
The Danish Financial Supervisory Authority also criticized the bank for failing to act upon warnings about the irregularities.
Legal Outcome:
Fines and Investigations: In 2018, Danske Bank was under investigation by multiple regulators, including the U.S. Department of Justice (DOJ).
The bank faced substantial fines, and its CEO resigned due to the scandal.
Significance:
The case demonstrates that money laundering and bribery in financial markets can be interlinked, especially when corporations fail to enforce strong anti-money laundering measures. Corporate liability here was primarily related to failure of oversight and the role of the company in facilitating illicit activities.
Key Legal Themes in Corporate Liability for Bribery in Financial Markets
Vicarious Liability: Corporations can be held liable for the actions of employees or agents if those actions occur within the scope of their employment, particularly when the corporation benefits from the illicit actions.
Failure to Prevent: In cases where companies fail to implement proper compliance programs or controls, they can be held accountable for bribery and corruption that occurs within the organization.
Corporate Culture: When a corporation fosters a culture that emphasizes profits over ethics (such as in Wells Fargo or Enron), it may be seen as indirectly encouraging unethical or illegal conduct.
Regulatory Penalties: Corporations can face substantial financial penalties, fines, and reputational damage in cases of bribery and market manipulation.
International Accountability: Financial institutions with a global footprint (like Goldman Sachs or Danske Bank) can face cross-border legal action, including from regulatory bodies in the US, UK, and Europe, for their role in facilitating or failing to prevent corruption.
Conclusion
These cases clearly demonstrate the complexity of corporate liability for bribery in the financial markets. Corporations may face penalties for their direct involvement, the failure to prevent bribery, or both. They highlight the importance of corporate governance, internal controls, and ethical leadership in preventing illegal financial practices.
RELATED Blog
0 comments