Yoon & Yang LLC has been publishing a series of newsletters on the provisions and application of the anticorruption regulations including the Foreign Corrupt Practices Act of the U.S. ("FCPA") and the Act on Combating Bribery of Foreign Public Officials in International Business Transactions of Korea (the “ACB”).
The present issue, being the last of such series, discusses how the Korean companies may prepare themselves in response to the increasing frequency and severity of various countries’ enforcement of anti-corruption regulations.
Adopting a Compliance Program
The most effective and efficient way to protect a company from potential violations of the anti-corruption regulations would be to adopt a compliance program. According to A Resource Guide to the U.S. Foreign Corrupt Practices Act (the “FCPA Resource Guide”) published by the U.S. Department of Justice (DOJ) and the U.S. Securities and Exchange Commission (SEC), a company may prevent potential FCPA violation by implementing a compliance program. The FCPA Resource Guide also states that the adoption and systematic implementation of compliance program by a company may substantially reduce the sanctions that may be imposed to such company due to an FCPA violation.
Under the ACB, a company would be subject to a criminal sanction of a fine in addition to an employee or officer who committed bribery (the first sentence of Article 4, ACB). However, the ACB also provides an exception that such joint penalty would not be applicable to a company if such company exercised reasonable care and supervision to prevent such offense (The last sentence of Article 4). Implementing an effective compliance program on a regular basis would be a typical example where such exception would likely be applied.
The regulatory authorities consider whether the compliance program in practice would effectively work to prevent possible violations. Therefore, it is crucial for a company to implement a compliance program tailored to the situation of the particular company, taking into consideration, among other factors, size, operation of international business, major contracting parties, method of operation with such major contracting parties, and existence of local agent of the company.
Compliance programs would normally consist of the following.
- Establishing an anti-corruption policy and providing guidelines for various scenarios. The most basic part of a compliance program would be establishing an internal anti-corruption policy for the company. An anti-corruption policy should contain an overview of the anti-corruption regulations, including the FCPA, in an easily understandable manner, to enhance employees’ and officers’ comprehension of the anti-corruption regulations. It is also advisable to include case scenarios, so that employees and officers may resort to it when they encounter similar situations in their practice. For example, it could be helpful in preventing potential violation of anti-corruption regulations if the anticorruption guidelines specify in detail what an employee or officer should particularly be cautious of in situations where an employee or officer has to deal with public officials to obtain an approval or a permit, participate in a government bid or a public entity’s bid, sponsor an event organized by the government or a public entity, select a local agent for international business, and invite or visit customers for a sales promotion event.
- Conducting internal training on the anti-corruption guidelines Ensuring that the employees and officers are fully aware of the anti-corruption policy and guidelines and are able to apply it in practice would be as important as establishing such policy and guidelines. In this regard, a hard-copy version of the anti-corruption policy and guidelines should be distributed and be readily accessible to employees and officers, and internal training sessions should be held to effectively educate them on the anti-corruption policy and guidelines. Since each department, such as the domestic sales department, international sales department, and finance and accounting department, may encounter different types of situations, it is preferable to conduct training for each department separately, customized to the behavioral patterns and situations encountered by each such department in practice.
Conducting internal audit and third party due diligence
A company also needs to regularly conduct internal audits on officers and employees to check the effective application of the anti-corruption policy and guidelines. Through an internal audit, the company would be able to (i) obtain feedbacks that would be useful for regularly updating the anti-corruption guidelines and (ii) timely respond to red flagged activities that are suspicious of anti-corruption violation by discovering them at an early stage. In particular, DOJ and SEC emphasize that the sanctions imposed on a company may be lowered if the company makes self-disclosure on the FCPA violation of the company’s employee or officer. In this regard, when a company actually becomes aware of a red flagged situation suspicious of an potential FCPA violation during an internal audit, the company should promptly seek advice from legal professionals regarding the need, timing, and method of self-disclosure and other relevant matters.
In addition to the internal audit conducted on employees and officers within a company, prior to entering a business relationship with a third party with whom the company would like to enter into a continuing business relationship, the company may need to conduct due diligence on such third party company based on the checklist for compliance with anti-corruption regulations. DOJ and SEC noted that the acts of offering bribery frequently take place or are concealed in the course of the companies’ use of local agents, consultants, or distributors. Therefore, it would be especially important for a company to conduct due diligence prior to the selection of a local agent, a consultant, or a distributor.