Why did the JASTA Congress pass

Investigators in the service of the empire

In the name of fighting corruption, the US is imposing its legal system on the world

by Jean-Michel Quatrepoint

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Pierre Lellouche did not mince his words: "We are facing a wall of extremely rigid US legislation," said the member of the Republican Party on October 5, 2016 in front of the Foreign Affairs and Finance Committees of the French National Assembly. The USA is clearly out to "use the law for its imperial economic and political interests in order to achieve economic and strategic advantages". With the report, Lellouche informed Parliament about "the extraterritorial effects of American law".1 While listening, "a cold shiver ran down his spine," commented Socialist MP Christophe Premat.

Only after two gigantic fines in 2014 against BNP Paribas ($ 8.9 billion) and Alstom ($ 772 million)2 Politicians and the media in France have understood what is up there: The USA is in the process of imposing its legal model and its laws on other states step by step - and does not stop at its closest allies.

It started in 1977 with the Foreign Corrupt Practices Act (FCPA) to fight corruption. The law, which initially only affected US companies, was extended to foreign companies in 1998. The second prank was a whole series of laws with which Washington made trade with states that are subject to a US embargo (such as Iran, Cuba, Libya, Sudan) under threat of punishment. After the attacks of September 11, 2001, new money laundering laws followed to counter terrorism and drug trafficking. The USA Patriot Act, passed on October 26, 2001, gave the US authorities enhanced powers to access digital data, which in particular strengthened the National Security Agency (NSA).

Since the Foreign Account Tax Compliance Act (Fatca) came into force in March 2010, the US tax authorities also have extraterritorial powers. Because foreign banks are now obliged to act as tax investigators and to surrender all information about accounts and assets that affect US citizens, people with dual citizenship and Americans with tax residence abroad.

In July 2010, the Dodd-Frank Act followed, which regulated the financial markets and required US-listed companies to forego raw materials from conflict regions. In the event of violations, the Securities and Exchange Commission (SEC) can impose sanctions. This also applies to financial transactions that are carried out outside the USA and only by foreign actors.

Finally, on September 29, 2016, against Barack Obama's veto, Congress passed the Justice Against Sponsors for Terrorism Act (Jasta), according to which victims of terrorist acts on US territory can prosecute other states that are directly or indirectly connected to such acts. This law primarily targets Saudi Arabia, which the 9/11 attackers - Saudi nationals - did not control. But it also allows measures to be taken against any country that can be held responsible - even if only indirectly - for the actions of its citizens. In doing so, it disregards national sovereignty because it does not distinguish between personal and collective responsibility.

A striving for hegemony can be seen behind this gradually established legal framework. Many Americans see themselves as members of a people chosen to do good and preach the right message. In the name of a universal vision they believe they are responsible for the salvation of the whole world. Therefore, the tools of this ideology - the currency (dollar), the language (English), the law (the common law, which differs from the legal system of the European continent)3 - made for all people.

Job creation for expensive lawyers

Technological progress and the financialization of the economy give Washington the means to carry out this offensive successfully. Former President of the French Bar Association Paul Albert Iweins says: "It is enough for a transaction in dollars to be challenged or for emails to go through a US server - and the American judiciary can declare itself responsible."4

This “legal foreign policy” requires considerable effort. It starts with the acquisition of the information: The relevant institutions - from the secret services CIA and NSA and their agents operating as diplomats to the FBI - procure the material, if necessary also through paid informants or even NGOs.

Other institutions process the information further: the Department of Justice, the Securities and Exchange Commission, the Federal Reserve (Fed), the Treasury and its Office of Foreign Asset Control (Ofac), which ensures that the US sanctions are also followed internationally. In some cases, the local prosecutor is also involved, that is, the prosecutors of individual states such as New York State, which is often involved in proceedings against foreign corporations.

The Ministry of Justice and the other judicial organs act like public prosecutors towards a precise goal: the confession of guilt of the sinner. The longer he hesitates to admit his offense and accept the punishment, the more severe the punishment will be. This partly explains the differences in how US and foreign companies deal with corruption proceedings: the former know the processes and are therefore quick to agree to a deal, while the latter take longer to assess the extent of the risk - like Siemens and Alstom.

Strategic considerations also come into play. In a corruption case in Indonesia there were links between Alstom and the Japanese trading company Marubeni, which had been negotiating with the US Department of Justice since 2012 and was fined only 88 million dollars. Alstom had to pay almost nine times as much in 2014. Marubeni was of no interest to the large US energy companies, while Alstom was a competitor of General Electric that the US company had been targeting for a long time.

Another example is Alcatel. The French telecom company was not welcomed across the Atlantic. Alcatel had set up the Iraqi telecommunications network for Saddam Hussein and was also technically superior to its US competitors, especially Lucent. In 2005, the US Department of Justice opened a file on corruption allegations against Alcatel in Costa Rica and Honduras.

Five years later, the company was fined $ 137 million. At the time, Alcatel and Lucent - which had to pay just $ 2.5 million for similar violations in China - had already merged. After the merger in late 2006, Lucent gradually took control of Alcatel (before the joint venture was swallowed by Nokia in January 2016). It was similar in the energy sector, where General Electric bought three quarters of Alstom's shares in 2015. In both cases, the French companies had been weakened considerably by fines - probably not just with the intention of enforcing the law.

Thanks to the deregulation of the financial sector, the entire industry - and its strongholds like Wall Street - has grown exponentially over the past 25 years. Similarly, the dominance of Anglo-Saxon common law has made the legal professions on the other side of the Atlantic flourish. It takes a lot of money to feed more than a million lawyers - that's one for every three hundred inhabitants. By imposing its laws on other countries, the United States is essentially doing what could be called protection racket.

Within just a few years, European companies have paid the various US authorities almost 25 billion dollars: over 8 billion dollars because of the FCPA law and 16 billion dollars for disregarding economic sanctions. Of this, France accounts for over $ 12 billion, which of course is reflected in the French current account.

If you add the fines for other procedures, especially for the banks, the total burden for Europeans is well over 40 billion dollars. And this does not take into account the outstanding fines for Volkswagen for the manipulated exhaust gas values ​​of diesel engines - which will amount to tens of billions of dollars - nor the payments by Deutsche Bank, which for its unclean business with subprime loans initially 7.2 billion dollars had to pay fines and customer compensation.

The sums raised flow directly into the coffers of those who carried out the investigations, initiated the proceedings and concluded the contracts. The loot is shared between the US Department of Justice, SEC, Ofac, Fed, the New York State Treasury and the New York State Attorney's Office.

In the Fatca proceedings, the money goes directly to the tax authorities, which collect this money from the Americans living abroad. This type of assessment explains the motivation of those involved: They are directly interested in the fact that there are many procedures and the highest possible stakes. Because with it, the authorities and ministries involved can improve their budgets, i.e. pay good salaries and hire new people.

The flows of money generated in this way fatten the legal industry, i.e. the law firms. They don't just collect their fees for the entire period of legal investigations. Because once the fine has been paid, the case is by no means over for the company concerned. Rather, this usually has to employ a supervisor who checks for three to five years whether the conditions agreed in the context of dispute resolution are being met.

In addition to this person, the company often has to employ a few dozen additional employees, which means additional costs. The “sinners”, as Paul-Albert Iweins already quoted, explains, “are referred to four or five highly specialized law firms in Washington, who closely monitor their business activities during the years of surveillance” - and above all ensure that they adhere to them comply with US laws. This means that the total costs for the company often double or even triple the original fine.

With the admission of guilt and the payment, the risk of individual criminal prosecution is not officially off the table. Rather, this is only suspended - on condition that the agreed provisions are strictly adhered to. This applies in particular to the confidentiality clauses. How significant this is can again be seen in the Alstom case. How is Alstom boss Patrick Kron supposed to dispel suspicions that the US Department of Justice investigation had any influence on his decision to sell Alstom Power to General Electric? He is simply not allowed to say anything about it. That is also the reason why the two corporations have always tried to settle the problem discreetly and among themselves, without involving their respective government or even the public.

European companies in a stranglehold

After all, the two corporations actually had a mess, and European legislation, especially French legislation, is not geared towards corruption offenses such as the Alstom case. The offensive approach of the US judiciary is only so successful because the investigators can say: “You are not doing anything? Then we'll do something. "

Meanwhile the Europeans have woken up. France has finally understood that one must take effective action against corruption and not hesitate to prosecute guilty companies. There are at least two reasons for this: On the one hand, criminal prosecution by the French judiciary ensures that the company cannot be convicted a second time for the same offense. On the other hand, the fines flow to the French tax authorities. The latest draft law "On Transparency, Fighting Corruption and Modernizing Economic Life" (known as Sapin 2) aims in this direction.

The aggressiveness of US law enforcement officers is increasingly paralyzing European companies and banks. That is why they are in the process of reorganizing their trade relations and adapting them to Anglo-Saxon norms. For example, they prefer to work with the major US accounting firms. However, they are required to forward any information to the US authorities that they receive about any business activity that may conflict with the interests of the US.

A second example: European firms and banks are reluctant to work with countries on Washington's boycott list. This is especially true for Iran. Even after the nuclear deal that was reached under President Obama in July 2015, French banks shy away from the risk of granting loans for business with Iran.5

As a result, businesses must find non-dollar funding options, which is almost impossible for small and medium-sized businesses. Or they have to bury their project, with which the US would have achieved its goal of claiming the Iranian market for itself. On September 30, 2016, the Xerox Group sent its French business partners a request not to enter into business relationships with Iran if they were interested in maintaining good relationships with Xerox.

The counter-offensive has so far been rather weak. On the one hand, this is due to the fact that some of the corporations concerned prefer not to mess with the USA. On the other hand, even among the French and even more so among the EU technocrats there are quite a few people in good faith who are convinced of the superiority of common law and believe that European law must develop further in this direction.

In any case, France alone cannot take effective countermeasures. Rather, the EU as a whole should react. There are three starting points for a common strategy. The first is to show the role of the big US commercial banks in problematic cases. For example, Goldman Sachs is often held responsible for concealing the real state of Greek public finances prior to Greece joining the EU on January 1, 2001. The allegation is not correct, as the relevant figures covered the years 1998 and 1999, while Goldman Sachs' cross currency swaps did not start until the end of 2001.6 But in a comparable case, if it had happened in the USA, the authorities would certainly have taken legal action against the foreign bank.

Second, the multinationals' tax optimization methods should be targeted: from Google, Amazon and Facebook to Starbucks in the UK and Apple in Ireland. Brussels has launched a series of proceedings involving tens of billions of euros in taxpayers' money that has been withheld from EU countries.

A third starting point would be antitrust proceedings against the Internet giants, which have a quasi monopoly position. In order for a new balance of power to emerge, however, it would have to be prevented that the countless lobbyists in the service of the USA thwart these initiatives. Because the United States is also true masters in lobbying.

1 “Report d'information déposé par la commission des affaires étrangères et la commission des finances en conclusion des travaux d'une mission d'information constituée le 3 février 2016 sur l'extraterritorialité de la législation américaine”, French National Assembly, Paris, 5 October 2016.

2 The large French bank BNP Paribas had apparently not adhered to the US sanctions against Iran, Cuba and Sudan, and the French transport company Alstom was accused of bribing foreign officials.

3 See Cyril Laucci, “Quand le droit anglo-saxon s’impose”, Le Monde diplomatique, April 2014.

4 Le Monde, November 6, 2015.

5 The banks are also reluctant to finance investments in Russia. For example - after inconsistencies due to the alleged use of middlemen - Germany, Great Britain and France have suspended export financing for Airbus until further notice, which is why the aircraft manufacturer has already turned to Chinese banks.

6 See Niels Kadritzke, “The legend of Greek cheating”, sheets for German and international politics, May 2014.

Translated from the French by Birgit Bayerlein

Jean-Michel Quatrepoint is a journalist and author, most recently “Alstom, scandale d’État”, Paris (Fayard) 2015.

Le Monde diplomatique of January 12th, 2017, by Jean-Michel Quatrepoint