November 08, 2018

The Increasing Risk of Multijurisdictional Bribery Prosecution: Why Having an FCPA Compliance Program Is No Longer Enough

Gwendolyn L. Hassan

We have all witnessed the sudden spike in enforcement of the Foreign Corrupt Practices Act (FCPA) by the U.S. Department of Justice (DOJ) and the Securities and Exchange Commission (SEC) from only five enforcement actions in 2004, to over 70 in 2010. In fact, in 2010, the number of resolved FCPA enforcement actions was higher than the combined total of all FCPA enforcement actions from its inception in 1977 through 2005. Given this rapid increase in enforcement, it is understandable that multinational companies have devoted increasingly large amounts of often scarce resources into the development, benchmarking, monitoring, and auditing of detailed and exhaustive FCPA compliance programs.

But is having an exhaustive FCPA compliance program enough any longer? Has our intense focus on U.S. regulatory compliance adequately mitigated the bribery and corruption risk our multinational clients face? Recent developments would indicate a U.S.-centric focus is a mistake. Over the last two years, U.S. enforcement of the FCPA has slowed; in 2011 there were fewer than 50 cases and thus far in 2012 there have been fewer than 20, which will likely make 2012 the slowest in terms of FCPA enforcement actions since 2009.

At the same time as FCPA enforcement appears to have slowed in the United States, anticorruption efforts in other countries have seen a marked increase. Specifically, there are four recent developments in global antibribery and anticorruption enforcement that point to the need for a broader, multijurisdictional compliance approach.

 

  1. An increasing number of countries are enacting their own antibribery and anticorruption laws, which are often more stringent than the FCPA.
  2. Countries with existing antibribery and anticorruption laws are revising, updating, and strengthening their regulations.
  3. Many countries previously thought to pose little enforcement risk are now enforcing their antibribery and anticorruption laws for the first time.
  4. Instances of multijurisdictional cooperation in both the investigation and the enforcement of bribery and corruption cases are on the rise.

Risk Factor #1: The Increasing Number of New Antibribery and Anticorruption Laws Across the Globe

Shortly after the FCPA came into force, concerns arose. U.S. businesses worried they were at a disadvantage when compared to their foreign competitors who were not subject to similar anticorruption laws.

In response to industry concerns, the United States began to advocate for global coordination of antibribery and anticorruption efforts with groups like the Organisation for Economic Co-operation and Development (OECD), which developed the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions (the OECD Convention), adopted in 1994 and signed by an initial group of 29 member countries in 1997. The United States also urged the United Nations to create the UN Convention Against Corruption (the UN Convention) adopted in 2003 and in force as of December 2005.

Since 2005, the UN Convention has welcomed 162 signatories, including Thailand this past summer and Swaziland this fall, and the OECD has gathered 39 signatories to its convention including, most recently, Russia, which became a signatory in February 2012. These global organizations both encourage signatory countries to enact their own legislation addressing bribery and corruption and, in fact, publish reports detailing each country’s efforts (or lack thereof) to enact appropriate legislation.

As a result of this OECD scrutiny, over the past few years, there has been a spate of new antibribery and anticorruption laws enacted.

Perhaps most notably, the United Kingdom adopted the 2010 Bribery Act, which became effective as of July 2011. Unlike the FCPA, this broad-ranging extraterritorial law criminalizes both commercial bribery and bribery of foreign public officials for all companies doing business in the United Kingdom and for all U.K. citizens and companies doing business abroad. Most recently, the U.K. Serious Fraud Office revised guidance it issued on the Bribery Act, altering key provisions related to self-disclosure to clarify that self-reporting is not a guarantee of nonprosecution.

In June 2012, Mexico passed the Federal Procurement Anticorruption Law, which criminalizes corruption in public procurement and creates a specific legal obligation for public officials to report corruption. The law also has extraterritorial application, providing for the imposition of sanctions against both foreign and Mexican persons for corrupt practices relating to public contracts with both the Mexican federal government and foreign governments as well, including bribery occurring through a third party. The law also provides that the offer of a bribe is, in itself, a violation without regard to whether the bribe was actually paid.

Although India has both the Prevention of Corruption Act, enacted in 1988, and the Prevention of Money-laundering Act of 2002, the bribery of foreign public officials has not been addressed. To address this issue, the government proposed the 2011 Prevention of Bribery of Foreign Public Officials and Officials of Public International Organizations Bill (known as the Lokpal Bill). Although currently stalled in parliament, it is believed this bill will ultimately be implemented. The proposed legislation would criminalize both active and passive bribery of foreign public officials and officials of public organizations.

Similarly, although Indonesia passed the law on Eradication of Corruption in 2001, this law does not address the bribery of foreign public officials. In 2011 the Indonesian government proposed a new anticorruption bill that would cover both commercial bribery as well as bribery of foreign public officials.

Ukraine adopted a new anticorruption law in 2011 that includes the criminalization of commercial bribery for the first time and addresses issues related to conflicts of interest and corruption. It also provides an interesting corruption remedy establishing that any action or decision of a state body (e.g., permits, licenses) taken or made as a result of bribery may be canceled by court order, and the cancellation may be initiated by any interested party. For the first time, Ukraine also imposed new restrictions on the receipt of gifts; state actors may only accept gifts with a value of less than 50 percent of the minimum wage on the date the gift was given and the single or combined value of gifts from a single source during any calendar year cannot exceed the minimum wage set on January 1, 2012.

Brazil has prepared a draft law entitled Responsibility of Legal Persons for Acts of Corruption (Bill 6,826/2010) that would establish the direct liability of legal entities for acts of corruption committed by their directors, officers, employees, and agents. The draft law would also provide for debarment from public contracting and fines of up to 30 percent of a company’s income. This is in addition to various existing provisions that criminalize the bribing of, and receipt of bribes by, public officials. In fact, the Brazilian Supreme Court is in the final stages of a massive corruption case involving the highest echelons of the Lula government, where the maximum jail sentences given to some individuals have reached 30 years.

In December 2011, Colombia was invited to join the OECD working group on bribery; this invitation marks the country’s first step towards joining the OECD Convention.

In addition to the countries listed above, Italy, Jordan, Morocco, Taiwan, Kenya, Bulgaria, Saudi Arabia, Qatar, Serbia, the United Arab Emirates, Austria, and Thailand have also recently created new anticorruption agencies and/or developed new antibribery and anticorruption legislation—further evidence of the ground-swell of new anticorruption regulations appearing across the globe.

Risk Factor #2: The Strengthening of Existing Antibribery and Anticorruption Laws in Other Jurisdictions

Many jurisdictions have had antibribery and anticorruption legislation for some time—in some cases, hundreds of years. It is not unusual, however, to find these long-standing regulations have not been updated, revised, or revisited to reflect the modern realities of bribery and corruption. The OECD has taken a very active role in assessing the effectiveness of regulations in countries that are signatories to the OECD Convention and has also become a significant source of pressure on countries to improve and strengthen their existing antibribery and anticorruption legislation.

The Irish government has put to public consultation the 2012 Criminal Justice (Corruption) Bill. If passed, the bill will replace seven overlapping corruption acts, including the Public Bodies Corrupt Practices Act that dates back to 1889, and that will broaden the scope of the Prevention of Corruption Act 1906, last amended in 2001. The bill seeks to ensure full compliance with the OECD Convention, broadens the definitions of “agent” and “state,” adds whistleblower protections, creates both individual and corporate liability for corruption offenses, and provides for extraterritorial jurisdiction over Irish citizens, residents, registered companies, and companies established under the laws of Ireland.

In May 2011, China adopted the Eighth Amendment to its Criminal Law Code, which criminalizes, for the first time, payments made to non-Chinese government officials and officials of international public organizations (see Article 164). Prior to this amendment, Chinese law addressed bribery of Chinese public officials and commercial bribery within China but did not include extraterritorial reach. The law now applies, not only to those living in China, but also to all Chinese citizens living abroad and all companies and institutions registered under Chinese law even if they are foreign-owned enterprises such as joint ventures and Chinese companies operating overseas. Unlike the FCPA, the Chinese law does not provide for exceptions of any kind and does not tolerate facilitation payments. In March 2012, China also amended its Criminal Procedure Law; the amendment will take effect January 1, 2013, and will explicitly allow certain technological means of investigation of bribery and corruption cases (for example, wiretapping and hidden cameras) and also permit the confiscation of illegal gains from suspects who have died or fled the country.

In May 2011, Russia also adopted amendments to its antibribery laws, expanding both their scope and extraterritorial application. The new law significantly increases fines and provides for up to 100 times the bribe amount as a potential penalty and jail terms of up to 15 years for both the recipient and the giver of a bribe. For the first time, companies can now be held liable for bribes paid on their behalf by third parties and the law extends to foreign companies doing business in Russia. Notably, Russia also amended its tax code to eliminate a tax deduction previously available for bribes paid abroad.

Australia is currently considering reforms to its anticorruption laws. At the end of 2011, the Australian Ministry of Home Affairs released a public consultation paper to gather feedback on the possible removal of the “facilitation payments” defense that now exists in the law. A working group has also been set up to undertake an evaluation of Australia’s antiforeign-bribery regime. Australia’s parliament additionally passed telecommunications interception legislation this past summer to help state anticorruption bodies investigate alleged corruption.

Spain amended its Penal Code in 2010 to expand its antibribery provisions to criminalize both active and passive commercial bribery, as well as establish criminal liability for companies that bribe public officials. The new law also extends the statute of limitations to 10 years and increases sanctions (including both fines and imprisonment) for bribery violations.

Israel amended article 291A of the Penal Law that was enacted in 1977. The new legislation explicitly states that bribery of foreign public officials, including international and political entities, is prohibited and establishes harsher punishment for bribery of both domestic and foreign public officials.

These examples point to what appears to be a global trend towards the strengthening of existing antibribery and anticorruption legislation.

Risk Factor #3: New Enforcement Efforts in Other Jurisdictions

One of the arguments often heard from those resistant to adopting a more global orientation towards antibribery and anticorruption prevention has been the lack of enforcement in many jurisdictions. This appears as if it might be changing.

Niko Resources, a publicly traded oil and gas company based in Canada, recently became the very first company to plead guilty to a violation of Canada’s antibribery law, the Corruption of Foreign Public Officials Act. The company was fined C$9.5 million after reportedly bribing a Bangladeshi minister with trips and a luxury car.

Korea recently issued its first enforcement action under its Act on Combating Bribery of Foreign Public Officials in International Business Transactions. Representatives of a Korean logistics company and a travel agency were indicted and charged with paying close to $7 million in bribes to an executive of a state-owned Chinese airline in return for exclusive rights to sell airline tickets to China.

In November 2011, Switzerland became the first European country to exercise extraterritorial jurisdiction against a foreign multinational. The Alstom Group of France was ordered to pay in excess of $39 million in fines and disgorgement as a result of its failure to have proper procedures in place to prevent the bribery of foreign officials. The fine was ultimately paid by its Swiss subsidiary.

An Algerian court convicted two Chinese companies and five individuals for international bribery violations involving state telecommunication contracts. Three Chinese nationals were sentenced in absentia to 10 years in prison and the Algerian government is now seeking extradition. The Chinese companies were also debarred from public contracts in Algeria for two years, which is believed to be the first time a company has been banned from public tenders in that country.

These are all examples of recent “firsts” in the area of global antibribery and anticorruption enforcement. Whether they point to a larger trend towards increased global enforcement, only time will tell—but the trend certainly appears likely to materialize.

Risk Factor #4: Increasing Prevalence of Cross-Border Antibribery and Anticorruption Investigations and Enforcement

Early in 2012, the DOJ issued a press release about its case against BizJet and Lufthansa Technik. In this release, the DOJ specifically emphasized having worked closely with law enforcement officials in both Mexico and Panama.

Following the DOJ’s announcement of a deferred prosecution agreement with Data Systems & Solutions LLC (DS&S) that included payment of $8.82 million in criminal penalties, Lithuania launched its own investigation into alleged corruption at the Ignalina Nuclear Power Plant (INPP), a state-owned utility. The former CEO of INPP denies allegations he accepted improper payments, travel reimbursement, and gifts from DS&S.

Not long after cooperation between U.S. and German prosecutors led to $800 million in fines and disgorgement paid to U.S. authorities and an additional $800 million in fines and disgorgement paid to German authorities, Siemens settled with Greece in the amount of €330 million in connection with bribery alleged to have occurred in Greece. This staggering $1.9 billion in fines and disgorgement does not include another $100 million paid to Russia in connection with a bribery investigation in that country or a similar amount allegedly paid to settle corruption allegations in Argentina.

With enforcement authorities increasingly working together to eliminate corruption, multinational companies increasingly face the risk of double, triple, or even quadruple jeopardy in multiple jurisdictions for the same control failures.

Practical Suggestions for Global Antibribery and Anticorruption Compliance

In the face of this rising tide of global antibribery and anticorruption enforcement actions, what practical steps should multinational companies consider taking?

1. Ensure your compliance risk assessment is global.

Does your risk assessment include a review of risks from the antibribery and anticorruption regulations of every jurisdiction in which you operate? Do you take into account changes in legislation? What about increasing enforcement risks? Consider whether your risk assessment might need to be broadened and updated to ensure it accounts for antibribery and corruption risks on a global basis.

2. Consider broadening an FCPA compliance policy into a bribery and corruption prevention policy (or policies).

Do your multinational clients have FCPA policies? As outlined above, FCPA compliance alone is not enough. Multinational companies and their antibribery and anticorruption counsel need to carefully assess the antibribery and anticorruption requirements in each of the jurisdictions in which the company does business. Does your client need separate jurisdiction-specific policies on antibribery and anticorruption in order to ensure compliance with differing requirements between countries? Carefully consider which policy structure will best help mitigate your client’s risk.

3. Make sure your gift and entertainment policies are similarly jurisdiction-specific.

Gift and entertainment limitations vary widely from jurisdiction to jurisdiction as well. What might well constitute a reasonable gift in China may very well violate the regulations in other countries that use a local minimum wage rate to define the reasonableness of a gift. As you consider jurisdiction-specific antibribery and anticorruption prevention policies, also consider whether your client would benefit from a localized gift and entertainment policy.

4. Consider “deputizing” a local antibribery and anticorruption expert.

It is next to impossible for a compliance office based in corporate headquarters to keep tabs on developments in every company location at all times. Are there high-performing personnel in each location you could train to be a local resource as to the specific antibribery and anticorruption law applicable in their locale? Having someone with knowledge of local regulatory requirements who can “issue spot” for you is invaluable.

5. Customize your antibribery and anticorruption training to fit the local culture and regulations.

When you provide training to global locations, customize your training to cover bribery and corruption risks specific to the local culture and local regulatory requirements. Nothing is more likely to cause an employee group to “tune you out” than a laser focus on U.S. regulations. Include specific information and guidance about how to comply with antibribery and anticorruption laws that in their jurisdiction.

6. Customize your bribery and corruption audit plans.

Be aware of specific regulatory requirements that vary depending on jurisdiction. A thorough and exhaustive antibribery and corruption audit plan for the United States might well be inadequate in other jurisdictions with more stringent legislation. For example, would a U.S. antibribery and anticorruption audit be likely to catch instances of commercial bribery prohibited by the U.K. Bribery Act? Make sure your audit programs take into account the differences in local regulations.

 

Making these changes to globalize your antibribery and anticorruption compliance efforts will ensure you are mitigating, not only risks posed by the FCPA, but the risks resulting from the ever-changing antibribery and anticorruption legislation of all the jurisdictions in which your multinational clients operate.

Gwendolyn L. Hassan

Gwendolyn L. Hassan (gwen.hassan@navistar.com) is manager of corporate compliance for the Office of the General Counsel of Navistar, Inc., in Lisle, Illinois.