International Bribery Risks: FCPA And OECD Do Bite - Have Teeth!

Tuesday, January 1, 2008 - 01:00
Morgan, Lewis & Bockius LLP
Robert Goldspink
Emma O'Kane

Editor: Why is it important for corporate counsel to manage legal risks flowing from bribery of foreign officials?

Goldspink: Corporate counsel must be ever vigilant to see that his or her company and its executives are not caught in allegations of corruption, including bribery. What may once have been regarded an accepted practice is now a criminal act in many countries. The consequences for the executives involved and their companies can be enormous. An allegation alone of such involvement for an executive can be damaging for his or her career and financial wellbeing. Being on the wrong end of criminal proceedings is very serious indeed. Extradition is possible with the executive facing the possibility of a trial, a horrendous process, and with a potentially catastrophic effect on the executive's career.

From the corporation's point of view allegations of bribery of foreign public officials can have a number of effects, not the least of which is having a bevy of lawyers crawling over it - its own lawyers, Department of Justice lawyers and possibly also enforcement and tax officials from other countries with jurisdiction. It can face the massive cost of internal investigation and defenses. It may find itself subject to prosecution in multiple jurisdictions.

For example, Norway fined its state oil company, Statoil, NOK 20 million (about $3.4m) in 2004 for paying bribes to an Iranian government official to obtain a contract to develop the South Pars gas field in Iran. After that, the SEC began its own investigation and fined Statoil U.S. $10.5 million (to include the NOK 20 m fine above) and forced it to disgorge a further US $10.5m of profits, in addition to requiring it to undergo a compliance review.

Another example is Siemens. Siemens' report on 8 November 2007 makes salutary reading, and deals with corruption-related investigations or prosecutions in 12 different jurisdictions: "The Company remains subject to corruption-related investigations in the US and other jurisdictions around the world. As a result, additional criminal or civil sanctions could be brought against the Company itself or against certain of its employeesIn addition the scope of pending investigations may be expanded and new investigations commenced... The Company's operating activities and reputation may also be negatively affected particularly due to imposed penalties, disgorgement, compensatory damages, the formal or informal exclusion from public procurement contracts or the loss of business licenses or permit... Fiscal 2007 included a total of347 million in expenses for outside advisers engaged by Siemens in connection with the investigations...". In Germany, there are several investigations progressing. As a result of one of them, Siemens was fined201m in October 2007. Several senior executives have lost their jobs. We wait to see what steps will be taken by the DOJ in the U.S, and whether, if found liable, the U.S. will require Siemens to appoint a monitor to oversee its compliance program (as it has with other miscreants). These matters clearly present a major risk of diverting the attention of Siemens' management from running the business.

The danger with finding fraud or corruption in one area is that it might also be indicative of malpractice elsewhere in the company. Siemens' report into corruption, for example, also referred to eight different investigations across the world into anti-trust violations, most of which are ongoing.

Editor: What can companies do to minimize the risk?

O'Kane: Every company should make a worldwide risk assessment, prioritizing areas where they believe they are most exposed to the risk of corruption. A good starting point is those countries that score poorly on Transparency International's Global Corruption Barometer - published on 6 December 2007. Companies, under the leadership of top management, should put in place policies, training, structures and procedures to combat foreign corruption. Policies should include such topics as: entertainment, expenses, political and local donations, relationships with agents and consultants, and conflicts of interest. Structures should include committees with independence and authority to deal with matters.

Processes and the implementation of them should be reviewed regularly. Employees should know the company's standards of conduct, understand the consequences of non-compliance and who is responsible for overseeing compliance. Companies should establish a "hot line" for reporting suspicious behavior and should consider requiring regular declarations by members of the staff, affirming their compliance. Training, proper accounting practices, anti-money laundering procedures and clear, written guidelines for bidding for contracts are all part of an effective plan.

Editor: Please describe international efforts to combat bribery.

Goldspink: There are many. In 1997 the OECD adopted its Convention on Combating Bribery of Foreign Public Officials in International Business Transactions (OECD Convention), which came into force in 1999. Thirty-seven countries have now signed up, agreeing to its terms. The signatories, including most of the EU countries, the U.S., Australia, Canada and Japan, agreed to make efforts toward prevention, detection, investigation and prosecution of bribery of foreign officials. The OECD Working Group on Bribery systematically monitors compliance by signatories by a rigorous system of "peer reviews," with representatives from signatory countries reviewing the progress of each other in implementing new laws and enforcing them against those who are involved in corruption.

The United Nations Convention against Corruption was adopted in 2003, and includes measures to prevent corruption, criminalize it, provide for international cooperation, and for asset recovery.

O'Kane: The laws and regulations are fine, but they need to be enforced and there remains little activity in this area outside the United States.

Goldspink: The OECD and its Working Group on Bribery are increasingly effective. When they publish information about the laws and enforcement of deficient countries (or more often lack of enforcement) this can sting countries into action. For example, in March 2007, it went public on its "serious concerns" about the UK's discontinuance of an investigation into BAE in relation to Al Yamamah/Saudi Arabia. It prompted Parliamentary debate in the UK and other progress on the laws. Two private parties have now applied to the UK court's for judicial review of the Serious Fraud Office's (SFO's) discontinuance of the investigation. That case will be heard in the court in the New Year and, no doubt, the reasons for the SFO's decision will be explained in some detail. The previous Attorney General justified the SFO's decision, saying he believed a prosecution "could not be brought".

The U.S. Department of Justice is now on the case, too, since payments were allegedly made in the U.S.

Additional international efforts include: the G-8's communiqu in Heilgendamm following a summit meeting which strongly promoted "the fight against corruption, both at the national and international levels;" and the World Bank statements, identifying corruption "among the greatest obstacles to economic and social development."

Editor: Describe some steps that the UK has taken to combat bribery.

Goldspink: A lot of attention has been spent on this in 2007 in the UK. The City of London Police have set up a dedicated squad to look into corruption and so has the SFO. The UK's Law Commission has just published a Consultation Paper on the reform of UK bribery laws. That Paper looks at the defects in our law, and proposes amendments to it. Its overall aim is to get a new, and better, definition of the offense of bribery consistent with our international obligations. It proposes that the current distinction between bribery in the public and private section should be scrapped. It also addresses technical problems in dealing with foreign corruption. The Paper would cast the net of criminality for foreign bribery wider than currently is done in England.

I think there is a real concern to make progress against foreign corruption, and a real awareness of the criticism of its position on the BAE case.

Editor: How would you rank other major EU countries in terms of deterring bribery?

O'Kane: It is a bit difficult to give them a ranking. France has demonstrated a commitment to building awareness among businesses, encouraging people to report violations and has simplified the process for complaining. The OECD identifies a particular shortcoming in relation to statute of limitation periods. Germany has a number of impressive and commendable investigations that are going on. However, overall the level of enforcement is not high; Transparency International has reported that there has been little or no enforcement in 20 of the signatory countries (see for a report that gives numbers on prosecutions, investigations and convictions year on year).

On a humanitarian basis there is a lot of social injustice which arises out of bribery. As the Transparency International Report says, it is the world's poorest nations which are involved in corruption. Money the economy cannot afford is being used to overpay for goods. Countries that need water purification equipment, food, or medicine may be going without because some officials there are receiving bribes to take the bids least advantageous for the region but most remunerative for the officials.

Editor: What about anti-corruption efforts in the United States?

Goldspink: The U.S. prosecutes more offenders than most other countries. It vigorously attacks corruption at the payment stage and also at the accounting stage. The Foreign Corrupt Practices Act (FCPA) takes a wide jurisdiction - not just over foreign companies whose securities are listed on the SEC, and the officers, directors, employees or agents of the issuers of their securities, but also companies that are foreign subsidiaries and their directors and officers, who may have had little or nothing individually to do with the U.S. The U.S. will also prosecute foreigners who have used the U.S. banking or mail/wire system as a conduit for illegal payments.

Editor: How can countries work together to combat corruption?

Goldspink: We at Morgan Lewis are part of a large international firm with expertise in FCPA matters and in fraud matters generally. For world wide compliance, you need a broad mix of skills. We can bring both U.S., English and Continental European skills because of our presence in Europe. These legal systems differ markedly from each other and we can bring them together for a multi-jurisdictional due diligence review. The UK system is also close in many respects to that of fifty-three countries in the Commonwealth, which includes countries from the Caribbean, through Africa to India and the Far East: many of these are classified badly for corruption by Transparency International.

A multi-jurisdictional approach is needed. Let me give an example. If you undertake an investigation under the guidelines of American attorney-client privilege, you would find that privilege simply does not work in some jurisdictions. English-style privilege has a very different basis and is broadly similar throughout the Commonwealth. As international lawyers, we know that there are areas of the world where there is no concept of privilege and you work off a series of different bases. In some areas, privilege belongs to the lawyer and not to the client. The anomalies in international laws make working together a necessity.

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