Editor: Please discuss the differences between the UK Bribery Act and the FCPA in their comprehensiveness and reach.
Thompson: The two acts are similar in effectively making it illegal to offer, promise or give a bribe. One widely discussed difference is that the UK Bribery Act does not have an exception for facilitation payments as does the FCPA. While acknowledging in the guidance that such payments are demanded, the UK wanted to take a stronger stance than the U.S. officially on any exceptions and has made facilitation payments illegal. Of course, the ultimate question is to what extent the UK will enforce the prohibition on small facilitation payments, particularly when companies argue they have no choice.
Generally speaking, the FCPA prohibits a person from corruptly making an offer, payment or promise to pay anything of value directly or indirectly to a foreign official, political party, party official or candidate for the purpose of influencing official action or inaction in order to obtain or retain business or direct business to any person. Its target is the person who is making the bribe. Interestingly, the UK also includes the recipient of the bribe, although the UK would have to have some jurisdiction over such person. The U.S., however, has been going beyond the FCPA alone and has utilized various state anticorruption laws in order to go after non-governmental bribery as well. Typically, wherever the U.S. government finds bribery that prosecutors believe should be pursued, they will pursue the alleged violator vigorously.
Another difference with the FCPA is that the UK has what is called “an adequate procedures defense” with respect to the corporate offense of failing to prevent bribery. As it is a corporate offense in the UK to fail to prevent a bribe, the proper defense would be that all reasonable procedures were in place, and everything reasonable was done to prevent a bribe based on the facts and circumstances of the company’s business. In the U.S., such a defense would help mitigate the penalty, but it is not a complete defense.
A further difference between the two acts is the scope of their jurisdictions. They are both very comprehensive. Generally speaking, the UK act covers all persons or companies, partnerships or business entities that do business with or in the UK. The U.S. government has taken an even wider approach to jurisdictional coverage. For example, we advise clients that if they do business where U.S. dollars are wired, even if they have no other connection to the U.S., there is a risk that the U.S. government may seek them out. It is still early in the administration of the UK act, so it is impossible to tell if the UK will be as aggressive as the U.S. In any event, they will in many cases piggyback off what the U.S. is doing. The Serious Fraud Office (SFO) and the Ministry of Justice in the UK are already coordinating with the DOJ and the SEC in sharing information and working hand in hand on their investigations.
Editor: Are there many cases being brought under the UK Bribery Act since its enforcement in April 2011?
Thompson: There has been one reported conviction and a small handful of reported charges so far, including mostly bribery of public officials. While we don’t have the figures in terms of the number of ongoing investigations, we do know that several significant investigations are underway. We are advising clients about how to deal with investigations – and hopefully avoid them altogether – by working with them on their policies and procedures to ensure compliance. Our clients are not only in the UK and the U.S. but also in the Middle East, Russia and globally – wherever the FCPA and the Bribery Act may apply. Obviously companies in emerging markets are more nervous about the expanded interest in anticorruption, particularly where there has been a history of tolerating bribes.
Editor: Since your practice includes representation of many parties doing business in the Middle East and Russia, have you seen a change in behavior of your clients in terms of tightening of internal controls?
Thompson: Yes, we have. My personal practice often takes me to clients in the Middle East, Russia and other emerging markets. With the U.S. government agencies being so aggressive and the new UK regulations still untested as to overseas enforcement, companies in these areas are taking a closer look at their policies, their procedures and their training to make sure that they do not run afoul of these rules. For example, some U.S. companies that still allowed facilitation payments have amended their procedures to the extent they are going to get caught up in the UK rules. In addition, because facilitation payments are so difficult to define, many of our U.S. clients are preventing facilitation payments irrespective of the UK rules.
What we are also seeing is renewed interest in looking not only at one’s own company policies but at policies of agents, distributors and other contractual counterparties to be sure that they are in compliance, as these arrangements could otherwise trigger a liability for the company. We also are seeing Russian and Middle Eastern banks that thought they were below the radar of the U.S. government or English authorities now being a bit more careful in examining their own policies because many of them have business in the U.S. or UK, have U.S. and/or UK employees, or have investments and holdings in the U.S. and the UK.
Editor: What are the penalties for breaches of the Bribery Act?
Thompson: The Bribery Act penalties can be very severe. A conviction can carry unlimited fines for businesses and up to ten years imprisonment and fines for individuals. The maximum fine is unquantifiable. Of course, there are major reputational issues at stake as well. In addition, if a UK business is convicted of a violation, it can be excluded from bidding on public or utility contracts under a mandatory exclusion, which has a devastating business impact.
Editor: Has the interpretation of harsh penalties of the Bribery Act been mitigated somewhat under the more pro-business attitude of the Coalition Government?
Thompson: It’s hard to say where that’s going to come out, given the fact that it is still relatively new. It will be interesting to see where this will emerge with the News of the World investigations in the UK. It is true the current government did revise the guidance for the Bribery Act, but they have nonetheless reiterated the underlying principles and clarified the reasonable procedures defense. Just as in the U.S., a government can be more or less active in its enforcement policy. With this economy, I would expect it is unlikely that the government will allocate a great deal of money toward enforcement when it is having to cut in so many places. That said, it would be an overstatement to say that the Coalition Government is going to be backing away from enforcement, but we’ll see how it plays out over time. I think without question the advice to any company, particularly one working in emerging markets, has to be to take the law and guidance very seriously as the consequences can be severe, and it would be dangerous to adopt a policy that contemplates a lenient governmental attitude.
Editor: Has self-reporting been one way of mitigating the impact of any penalties?
Thompson: That is a big part of how enforcement works, both in the U.S. and the UK. When companies find potential problems, one of the first things we discuss with them is the option of self-reporting. In the U.S., self-reporting can help to mitigate a company’s fines. With the defense of adequate procedures in the UK, if a company self-reports and has adequate procedures in place, by UK standards risks can be mitigated. The risk though is that a court may not agree to enforce a fine negotiated between the SFO and a company, instead of prosecuting or levying a higher fine. Self-reporting also comes into play when a company is doing an acquisition or a joint venture. Where there has been a past problem with a counterparty but the company wants to go ahead with the deal, the company can report the problem and come up with a solution and a settlement. In this way, you may be able to crystallize the liability prior to closing the transaction.
Editor: Given its prohibition on facilitating payments, has the SFO put forth any guidelines for compliance in terms of permitting certain payment of fees to expedite transactions?
Thompson: The Bribery Act guidelines put out by the Ministry of Justice are helpful and are available online at www.justice.gov.uk/legislation/bribery. The guidelines outline the terms of the act as well as ways to approach specific problems. The guidance includes a set of six principles that are used to guide companies, primarily in the adequate procedures defense but also in how a company can prevent problems. The principles include: (1) proportionate procedures; (2) top-level commitment; (3) risk assessment; (4) due diligence; (5) communication and training; and (6) monitoring and review. The guidelines also provide a number of case studies that discuss how you deal with everyday issues. In fact, case study one is called “facilitation payments” and describes how to deal with this prickly issue.
Editor: What guidance are you providing your clients as to setting up such compliance programs? Does it include an ethics code as well as in-house training?
Thompson: Our guidance to clients starts with a general overview of the varying applicable laws, and then we work with clients to develop appropriate compliance programs. There is no one program that works for all companies. Before we can put together a program for a company that is effective and can withstand government scrutiny, we have to understand all the component parts. We look at how effective communication is conducted within the company, how management and business decisions are made, and how business is conducted, and then we develop a plan and an ethics code that fit that particular company and its region. We work with companies to come up with, for example, programs for day-to-day operations, programs for acquisitions and joint ventures, and programs for how to deal with their agents and distributors. Of course, the ethics and compliance code that a company only operating in the U.S. needs is very different from one that is operating in emerging markets. We work with clients in putting together codes of conduct, ethics codes, compliance programs and, equally if not more important, training for all relevant employees. It is important to figure out who the relevant employees are. For many companies operating in emerging markets, that might mean all of their employees in those emerging markets.
It is important to note that the UK Bribery Act and the FCPA are not the only two anticorruption statutes that are relevant. Many countries have antibribery or anticorruption laws on the books. As an example, while Russia has historically a bad reputation for corruption, Russia has comprehensive anticorruption legislation on its books that carries with it substantial fines and penalties. The issue with legislation in countries outside of the U.S. and the UK, and particularly when looking at emerging markets, is how that legislation is enforced. In many cases, in emerging markets the enforcement is politically motivated with varying degrees of enthusiasm. Regardless of how often or consistently they are enforced, however, it is critical for international companies doing business in countries that have these rules to be aware of them as well as the rules from the U.S. and the UK.
Companies must be very careful not to run afoul of anticorruption rules; otherwise, you are on a slippery slope where more and more bribes may be expected. Our advice to clients is to avoid slipping up at all costs! Draw a line when it comes to corruption of zero tolerance when you enter a foreign country and avoid any entanglements.