On Monday, Chevron Corporation issued a press release [1] entitled “Former Ecuadorian Judge Admits Role in Orchestrating Fraudulent Judgment Against Chevron.” The announcement provides a detailed account of how a judge received thousands of dollars from the lawyers and representatives of local indigenous residents in the Lago Agrio area of Ecuador who had sued the company. The suit alleged water pollution, soil contamination, and other violations related to the extraction activities there of Texaco, the company Chevron acquired in 2001.
This week’s report is sensational, to say the least. In return for the payments, the judge tells Chevron that he helped steer the case in the plaintiffs’ favor. For example, the plaintiffs were allowed to draft their own $18 billion judgment. Chevron claims that it has computer, bank, and shipping records to corroborate the judge’s claims.
If true, these reports demonstrate an important reality – large corporations are not only the sources of bribes. Sometimes they are the victims too. This suggests that international efforts to criminalize foreign bribery and encourage compliance do not only result in burdens on business. They are actually important to successful business. Stated another way, by paying bribes, companies contribute to weak systems that can ultimately harm them. By working against bribery, they help encourage more effective governments.
Specifically, Chevron’s report highlights two important corruption issues in Latin America.
Corruption in the Judiciary: Courts in Latin America can be the source of considerable levels of corruption. In the 2012 Latin America Corruption Survey [2], almost 80% of respondents ranked the judicial branch in the country where they work to have moderate or significant levels of corruption. Venezuelan respondents ranked judicial branch corruption the highest. More than 80% of Ecuadorian respondents consider the courts there to have significant corruption. Case in point – the judge who issued the final judgment in the Chevron case was dismissed from the bench one year later related to an organized crime commission investigation into the inappropriate release of narcotics traffickers from prison.
This reality demands that FCPA compliance teams pay special attention to their companies’ dealing with the courts. Interactions with local lawyers, courtroom clerks, and judges should be monitored carefully. Companies should take care when managing disputes in high corruption risk environments.
Weak Institutions: The case also illustrates the corrosive effect of corruption on national institutions. Bribery of all sorts, but particularly bribery of the judiciary, undermines the rule of law. This, in turn, reduces the prospects for economic development and prosperity as faith in public institutions erodes and corruption is perceived as an acceptable practice or a “normal” cost of doing business. When judges are easily bribed, how can anyone rely on courts’ ultimate decisions? This has greatly destabilizing effects on markets. In this context, the FCPA has a significant benefit for foreign countries insofar as it mitigates the corrosive effects of corruption by U.S. and other persons.
Chevron is now going so far as to appeal to the people of Ecuador as co-victims in the matter. In its press release, the company’s vice president and general counsel states, “Ecuador should not tolerate American lawyers using Ecuador’s institutions and citizens as puppets.” The reality is that, ultimately, when the company presents its new evidence to Ecuador’s Prosecutor General, it will be forced to once again deal with a public institution in a country known for high levels of public corruption.
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