June 20, 2016

How Multijurisdictional Bribery Enforcement Enhances Risks for Global Enterprises

Lindsay B. Arrieta

Introduction

The emergence of multijurisdictional bribery enforcement presents complex challenges and increased operational risk for multinational corporations. Aggressive enforcement of the Foreign Corrupt Practices Act (FCPA) by the U.S. Department of Justice (DOJ) and the U.S. Securities and Exchange Commission (SEC) has encouraged non-U.S. authorities to pursue cross-border investigations and enforcement actions. As more foreign authorities begin to vigorously enforce their respective anti-bribery laws, companies and their in-house counsel should consider how these developments could impact their operations and their ability to resolve cases involving alleged bribery.

The FCPA Is Not the Only Extraterritorial Game in Town

The FCPA is no longer the only bribery law affecting international firms. Stronger anticorruption laws, some of which may be interpreted to apply extraterritorially, have enabled non-U.S. authorities to pursue multijurisdictional enforcement actions. For example, in 2014, the Republic of Brazil filed criminal charges against Embraer S.A. executives for making illicit payments in the Dominican Republic to obtain a government contract. Embraer S.A. subsequently entered into discussions with U.S. authorities in 2015 to conclude a settlement for FCPA violations, which remain ongoing. In another case in 2015, the U.K. Serious Fraud Office (SFO), the UK agency tasked with prosecuting complex fraud, charged Standard Bank PLC with violating the UK Bribery Act. The bank’s subsidiary in Tanzania engaged in misconduct that included paying bribes, and the SFO held Standard Bank accountable for its failure to implement sufficient internal controls. To resolve the matter, the SFO negotiated its first Deferred Prosecution Agreement (DPA) with Standard Bank, which required the bank to pay approximately $37 million in penalties to UK authorities and U.S. regulators for bribery and securities law violations, respectively.

What is the significance? These cases represent the “new normal” in anticorruption enforcement. Authorities are working together across jurisdictions to investigate and charge companies for violating anti-bribery laws, and they are using extraterritorial provisions to expand their reach as widely as possible. U.S. and non-U.S. authorities can and have relied upon the same misconduct to charge a company for violations of their respective anti-bribery and securities laws. The potential for regulatory overlap amongst these legal regimes increases the chance that a corporation facing bribery allegations will confront scrutiny from authorities in multiple countries.

There’s No Double Jeopardy for Bribery

Double jeopardy does not apply to bribery cases at the international level; thus, multiple countries could bring charges based on a single violation. During the course of an FCPA investigation, cooperation between the DOJ or SEC and foreign authorities serves to apprise the other country (or countries) of potential misconduct within their jurisdiction. Alternatively, if a company enters into a DPA with the DOJ, the DPA or a related press release may name the jurisdictions where the wrongdoing allegedly occurred, prompting foreign authorities to investigate.

The experience of GlaxoSmithKline (GSK) demonstrates how a bribery case in one jurisdiction can spark multiple enforcement actions. In 2013, Chinese authorities charged GSK with employing agents to bribe public health officials and doctors in China to promote the use of their products. A Chinese court found the company guilty in 2014 of having paid $482 million in bribes and fined GSK $490 million. The United States, among other countries, “does not recognize international double jeopardy, [so] China’s action poses no legal obstacle to an FCPA prosecution.” International law only requires the United States “to consult with China regarding the two nations’ overlapping investigations, and even then, only ‘as appropriate.’” The UK and United States subsequently initiated investigations into GSK’s sales and distribution practices, both of which remain ongoing. Recently, authorities in other jurisdictions where GSK operates, including Romania, Poland, and others, have begun to investigate the firm’s alleged use of illicit payments to promote product sales. While no additional charges have been brought to date, these developments suggest that GSK has yet to conclusively resolve these foreign bribery cases triggered, in part, by the firm’s prosecution in China.

The recurring and ongoing enforcement actions targeting Alstom S.A. highlight the impact of multijurisdictional enforcement actions on a company’s ability to conclude these cases. The French company pled guilty to FCPA violations in 2014 and agreed to pay over $772 million in penalties. The corporate bribery scheme crossed several continents and continued unabated for over a decade. Prior to that settlement, Swiss authorities fined Alstom S.A. approximately $40 million in 2011 for corporate negligence for its failure to prevent bribery within the company. The UK SFO later brought charges related to the firm’s alleged misconduct in Lithuania and has arrested seven executives on criminal bribery charges to date. The company has also been the subject of a corruption probe in Brazil.

These cases underscore three important points. First, bribery enforcement has become global, and is no longer dominated by the United States. Second, even if a bribery investigation has been resolved in one jurisdiction, international companies will likely have to “pay for their sins” across several jurisdictions. A settlement or conviction in one country does not preclude others from investigating the firm for the same, or similar misconduct. Finally, companies may be subject to investigation for a number of years and incur multiple penalties in cases where bribe payments comprised a substantial part of the firm’s business strategy.

Avoiding Trial? Corruption Cases in Court

A settlement for violations in one country may not be the end of these bribery cases, as a greater number of foreign authorities seek to punish corporate actors for their misconduct. FCPA cases are largely resolved outside of the courtroom through the use of Non-Prosecution Agreements (NPAs) or Deferred Prosecution Agreements (DPAs), and authorities in other jurisdictions have employed this same approach. This strategy has been criticized as overly lenient because it fails to provide the deterrence needed to discourage corporate malfeasance. From a corporate perspective, settlements are the preferred outcome because they are usually the most expedient solutions, and they can enable the firm to mitigate any reputational impact from the case.

The settlement of civil or criminal bribery charges in one country will not keep a company out of court in another jurisdiction. Total S.A., a French oil and gas company, violated the FCPA by using a third party to make illegal payments to an Iranian government official to obtain oil and gas concessions. The company entered into a DPA with the DOJ in 2013 and agreed to pay a $245 million penalty to settle the charges. French prosecutors then charged Total S.A. for the corruption of foreign public officials; however, a French criminal court cleared the company of all charges in 2013. But after new criminal charges were filed in 2014, a French court of appeals found Total S.A. guilty of corrupting foreign officials in February 2016. Notably, French authorities had cooperated with the U.S. authorities who had initially investigated Total S.A. for FCPA violations.

What does this mean for corporate entities? They should continue to expect unpredictable enforcement from non-U.S. authorities as they enhance their anticorruption efforts. The French reaction in the Total S.A. case could be attributed to pressure from the Organization for Economic Cooperation and Development (OECD), which has urged OECD member states to bolster foreign bribery enforcement. Also, French authorities may have felt additional pressure to prosecute the company because it is headquartered in France. The Total S.A. case highlights the risks that global anti-bribery enforcement generates for multinational companies.

Local Laws Can Inhibit Global Investigations

Multijurisdictional enforcement has contributed to another challenge inherent in cross-border investigations: the potential to prompt legal proceedings that may be wholly unrelated to the bribery allegations. If not carefully managed, an internal corporate investigation into alleged bribery could trigger legal action in a foreign jurisdiction. For example, the improper production of evidence or removal of evidence to another jurisdiction can potentially violate procedural rules or data privacy laws. Such violations can lead to civil and criminal proceedings, which can add undesired complexity to ongoing foreign bribery investigations.

Data privacy protections can complicate a foreign bribery investigation. Heightened privacy protections across the European Union (EU) present challenges to companies tasked with responding to requests from non-EU authorities. Employee communications are privileged in the EU and not subject to the more liberal discovery rules applicable in the United States. For example, employees in the EU must receive notice from the company prior to the disclosure of their workplace communications. Employee consent is also required. Databases containing employee information often must be maintained within the European country where those employees are under contract. In some cases, particularly if a blocking statute is involved, it may simply become impossible for a company to comply with a request for information from U.S. or other foreign authorities if the jurisdiction housing the data prohibits it. Thus, a company may be placed in a position where it must decide whether it is willing to face the consequences for refusing to comply with the request for information or risk contravening data privacy statutes.

Engaging in internal investigations in countries such as China are even more problematic, as a result of the Chinese government’s broad authority to determine the limits on data protection. Multinational companies that have conducted an internal corporate investigation in China have confronted the challenges of complying with China’s State Secrets Law. The law dictates that state secrets are “matters that have a vital bearing on state security and national interests.” The law outlines seven categories of state secrets, but also includes a catch-all provision that enables Chinese authorities to exercise total discretion over defining what information may be classified under this category. During the course of investigating corporate misconduct for their client GlaxoSmithKline, two investigators were arrested in 2013 and subsequently convicted in 2014 of having illegally obtained and sold Chinese client data. While these charges did not directly target GSK, these investigators were providing professional services to facilitate the company’s internal investigation into reports of fraud and corruption obtained from a whistleblower. Clearly, these vague and overly broad data privacy protections afford a great deal of discretion to the Chinese government, increasing the complexity of conducting an internal corporate investigation in China.

These data privacy issues are unique to these respective jurisdictions; however, they highlight a few of the issues that companies must confront when handling multijurisdictional investigations. As more countries consider adopting stricter privacy laws modeled after those in the EU (in contrast to U.S. laws that allow for greater disclosure), the ability for a company to uniformly manage international investigations will further diminish. To comply with such laws, firms typically must conduct such investigations within the host country where the data is located, but even so, they must employ local counsel or attorneys with expertise in local privacy laws. Increased international anticorruption enforcement combined with stricter data privacy regimes will require multinational firms to develop a unique response for each investigation, carefully designed to prevent parallel proceedings.

To Disclose or Not to Disclose in an Age of Global Enforcement?

Voluntary cooperation in a multijurisdictional enforcement context can be a valuable strategy for a firm facing foreign bribery charges. But, how and when a company should disclose depends on the circumstances. As the previously discussed cases illustrate, foreign authorities frequently collaborate during the course of these investigations. Accordingly, some authorities may take the approach that, “A firm may have settled there, but we will still investigate the company and impose penalties here.” With more scrutiny from authorities globally, does voluntary disclosure still make sense?

Although subject to careful timing, a company’s decision to self-report misconduct uncovered during an internal investigation can yield benefits in the United States. It can ensure that the option to negotiate a NPA or DPA will remain available, as demonstrated by the Goodyear case. Goodyear uncovered FCPA violations during an internal investigation, self-disclosed these findings to U.S. authorities, and obtained a favorable settlement in exchange for its substantial cooperation. But if the misconduct spans several jurisdictions, should a company disclose to one or all regulators?

A company’s decision to cooperate with authorities could protect the firm from collateral consequences. In the Siemens case, the firm faced bribery charges from European and U.S. authorities for allegedly paying $1.4 billion in bribes to foreign officials across multiple jurisdictions to facilitate business operations. Had the firm been charged with criminal bribery in the United States, Siemens would have been automatically debarred from engaging in European government contracts as per the EU Public Procurement Directive. In that case, U.S. authorities structured the charges to avoid that outcome; however, not all authorities may be willing to enter a “global settlement” of this type depending on their objectives. By cooperating and engaging with authorities during an enforcement action, a company’s legal counsel can identify and address these issues prior to the initiation of any enforcement proceedings.

Unfortunately, voluntary disclosure and cooperation does not insulate a firm from liability, particularly if foreign authorities are managing independent, but parallel, investigations. In addition, the option to enter a settlement agreement to avoid criminal or civil bribery charges may not be available depending on the enforcement framework within a particular country. In Brazil, the country’s penal code does not provide for corporate criminal liability, but Brazilian entities found to have paid bribes will be subject to strict liability under the Clean Company Act. Civil fines and penalties will automatically be imposed, ranging up to 30 percent of the firm’s annual profits. While a company may succeed in reducing those fines through cooperation with the Brazilian government, strict liability for a firm’s misconduct could invite additional scrutiny from other countries, which may result in another investigation or additional penalties. Companies must be aware of the fundamental differences in each country’s approach to bribery enforcement to successfully to resolve pending bribery allegations.

Careful analysis of the decision to disclose or cooperate is required to avoid incurring collateral consequences, including scrutiny from numerous foreign authorities. Evaluating how a settlement could resonate across jurisdictions, if and when available, will be important for global companies. Additionally, companies should not expect these matters to be resolved through collaborative or comprehensive agreements among foreign authorities because each country has different enforcement priorities and objectives. While U.S. and European authorities have collaborated to settle these cases, these occurrences have been rare. Joint settlements have not yet been adopted as the predominant approach to resolving multijurisdictional bribery cases.

Considerations for Companies Facing Multijurisdictional Bribery Enforcement

Companies that find themselves the targets of multijurisdictional enforcement actions must develop a comprehensive plan for managing their internal investigations and the options available to resolve the matter. Their strategies should address the potential consequences for the firm if it is sanctioned by two countries for the same conduct. In developing its approach, the firm should consider how resolving charges in one country could impact the outcome in another jurisdiction. Voluntary disclosure has been a favored strategy by some firms, but this approach may produce risky outcomes when dealing with multiple jurisdictions. Companies should consider the following issues when crafting their response:

  1. Expect to coordinate with multiple authorities and regulators and develop a strategy with built-in flexibility. After initiating an internal investigation, global companies should develop a plan for communicating with foreign authorities in the event that further misconduct is discovered.
  2. FCPA investigations and enforcement actions will likely have follow-on cases. Relationships being forged between foreign authorities through cross-border investigations are expanding the scope of such investigations. Anticipate that they will be in communication if your case transcends national boundaries. While a firm’s case may be settled or resolved in one country, that resolution could initiate an independent investigation by anti-corruption authorities in other countries.
  3. Firms are likely to experience inconsistent and unpredictable enforcement as non-U.S. authorities bring more bribery enforcement actions. How authorities and courts outside of the United States interpret the provisions of their respective anti-bribery statutes will determine the extent to which future cases overlap. However, in situations where authorities are enforcing a new or revised anti-bribery law, companies will face greater uncertainty.
  4. Understand the ramifications of entering into a settlement agreement with foreign authorities, and recognize that a settlement may not be available. Carefully evaluate all of the options available to settle or mitigate any charges brought by U.S. and non-U.S. authorities. It will be important to consider how a settlement in one jurisdiction could affect the company’s operations in other markets. Potential consequences should be analyzed prior to concluding such agreements.
  5. When designing an investigation plan, carefully evaluate it to ensure that it adheres to data privacy restrictions and complies with local laws to preserve privilege. Developing a local strategy for conducting a company’s internal investigation can be an important preventive measure to avoid violating local laws relating to data privacy, privilege, or evidence-gathering procedures. A company should consult local experts and local legal counsel to assist with the execution and management of the internal investigation. Coordinating a strategic response with oversight from in-house counsel can help the company avoid entanglement in additional legal proceedings.

Conclusion

The prospect of authorities bringing more bribery enforcement actions globally introduces greater uncertainty into the regulatory environment for multinational companies. When responding to a multijurisdictional enforcement action, companies must consider how their geographic scope of operations may shape the inquiry. Companies must be aware of these developments in global enforcement because they will inevitably impact a firm’s ability to settle or resolve bribery investigations with any degree of certainty.

Lindsay B. Arrieta

Lindsay B. Arrieta is a compliance associate at Citibank, N.A.