Although there might have been a delay during the pandemic, it is no secret that regulators across the globe are back to business and seeking to enforce anticorruption laws with vigor. The net has been cast wide and it is essential for businesses to understand their liability in relation to the acts of their subsidiaries and employees. Laws and regulators diverge in the way they handle this issue and in this alert, our lawyers explain the differing ways that the Foreign Corrupt Practices Act (FCPA), UK Bribery Act, French and German criminal codes understand the liability of a company for the actions of its subsidiaries and employees.
This is the third alert in the From the FCPA to the UK Bribery Act – Your key questions about global anticorruption laws answered series. Over the next few weeks, members of our global regulatory & investigations team will answer your most important questions about anticorruption laws in the U.S., UK, France, Germany and Greece. Next up, we will explore the differing definitions of a public official under the FCPA, UK Bribery Act and French, German and Greek criminal codes.
Don’t miss our previous alert which covered what the FCPA, UK Bribery Act, French and German criminal codes mean for dealings with third parties and our additional thought leadership on anticorruption.
Does the FCPA make our company liable for the acts of our subsidiaries and employees?
- Under the FCPA, a company may be held liable for the acts of its subsidiaries and employees.
- The anti-bribery provisions of the FCPA extend to company directors, officers, stockholders, employees, and agents. Under the legal doctrine of respondeat superior, a company may be held vicariously liable for crimes committed by employees within the scope of their employment if those actions are taken at least in part for the benefit of the company.
- Respondeat superior applies in situations where corporate employees may be acting primarily for their own benefit. For example, in 2018, the Second Circuit noted the continued vitality of respondeat superior while addressing a domestic commercial kickback scheme. The company at issue had entered into a Deferred Prosecution Agreement with the government after several of its employees pled guilty to accepting millions of dollars in kickbacks to steer a lucrative project to a particular subcontractor. Although the scheme was orchestrated by the individual employees primarily for their own financial benefit, the company was held vicariously liable for these acts because the employees were acting within the scope of their employment. The company paid approximately $500 million in restitution and penalties.
- Parent companies may also be held liable for the actions of their subsidiaries. Enforcement authorities will first consider whether the parent company directly contributed to or ordered the conduct at issue. However, even if the parent company does not have actual knowledge of the wrongful conduct, enforcement authorities may impute knowledge to the parent company if the parent was aware of the high probability of corrupt activity. Additionally, the parent company may be held indirectly liable if it exerted sufficient control over the subsidiary at the time of the conduct.
Does the UK Bribery Act make our company liable for the acts of my subsidiaries and employees?
- The acts or omissions of an employee can give rise to liability for a corporate under:
- Section 1 (bribing another person)
- Section 2 (accepting a bribe)
- Section 6 (bribery of foreign public officials)
- Section 7 (failure of commercial organizations to prevent bribery)
- Corporate liability will arise under sections 1, 2 and 6 if the “identification principle” is satisfied, that is to say that an employee who represents the corporate’s “directing mind and will” has the requisite state of mind. This is a high threshold.
- It is more likely that the acts or omissions of an employee or subsidiary might give rise to corporate liability under section 7.
- Under section 7, unless the corporate can prove that it had adequate bribery procedures in place, a corporate is liable if an “associated person” bribes intending to obtain or retain business for the corporate.
- Those who provide services for or on behalf of a corporate are considered associated persons for the purposes of section 7. It is presumed that an employee is an associated person. Determining whether a subsidiary is an associated person will, however, require a degree of analysis.
Does the French Criminal Code make our company liable for the acts of my subsidiaries and employees?
- Under the provisions of the French Criminal Code (Article 121-2 of the French criminal code) legal entities are criminally liable for acts committed, on their account, by their “organs” or “representatives.” The term “representative” should be interpreted as including any employee holding decision-making powers.
- Regarding subsidiaries, the French Supreme Court ruled recently (June 2021) that, under strict circumstances, a parent company might be held criminally liable for acts committed by a subsidiary.
Does the German Criminal Code make our company liable for the acts of my subsidiaries and employees?
- In short, no. A legal entity is not punishable pursuant to the German Criminal Code (Strafgesetzbuch – StGB) or German criminal law in general.
- However, a fine may be imposed on a legal entity pursuant to section 30 of the German Act on Regulatory Offences (Ordnungswidrigkeitengesetz – OWiG) if an organ or management-level employee commits a crime or regulatory offense.
- In addition, in certain cases, a management-level employee may be liable for the unlawful acts of a subordinate employee in the organization (so-called “acting through another person” – see section 25 paragraph 1 no. 2 StGB). This only applies under very specific conditions, i.e. where the acting individual had a severe lack of knowledge and, therefore, generally cannot be charged him-/herself, while the supervisor intentionally exploited a respective lack of knowledge to make the subordinate individual commit a criminal offense.
- Please further note that a violation of obligatory supervision in operations and enterprises pursuant to section 130 OWiG may lead to material fines of up to several million euros. Moreover, senior managers may be held personally liability pursuant to German tort law (sections 831 and 823 of the German Civil Code (Bürgerliches Gesetzbuch – BGB)) if damage is caused by an assistant employee who has not been diligently selected, instructed, provided with equipment and/or supervised.