Russia’s aggressive enactment (if not yet enforcement) of anticorruption laws, which largely began with its accession to the Criminal Law Convention on Corruption in 2006 and the enactment of the Federal Law on Anti-Corruption Practices in 2008 (“Anti-Corruption Law”), shows no signs of slowing down. On December 3, 2012, President Vladimir Putin signed a series of amendments to the Anti-Corruption Law, which entered into force on January 1, 2013.1 While the new requirements for disclosure of expenses of government officials and their family members have garnered wide publicity both in Russia and abroad,2 the new Article 13.3, which requires companies to take anti-corruption measures, has received relatively little attention. That provision, however, may have profound effects on companies operating in Russia, whether those companies are subject to the FCPA and/ or the UKBA or not. This article analyzes Article 13.3 and provides practical advice for companies seeking to comply with it.
Until the recent amendments, Russian law left the development of anticorruption compliance programs to the discretion of the individual companies and provided no guidance as to the content or form of such programs. On January 1, 2013, that discretionary regime came to an end with the introduction of Article 13.3 to the Anti- Corruption Law. Article 13.3 obligates and requires all “organizations,” a definition that would include all companies operating in Russia, to develop and adopt measures aimed at preventing corruption. The Article lists six specific measures that companies may develop and adopt:
- Definition of the divisions or officials responsible for prevention of corruption and other violations;
- Cooperation of organizations with law enforcement authorities;
- Development and introduction of standards and procedures aimed at ensuring compliance;
- Adoption of a code of ethics and business conduct applicable to the employees of the organization;
- Prevention and settlement of conflicts of interest; and
- Prevention of unofficial reporting and the use of forged documents.
The law does not characterize the above list as either mandatory or exclusive. That is, Article 13.3 requires companies to take measures to prevent corruption, but it does not obligate them to implement any specific measure. Although that leaves companies some room to tailor and customize their anticorruption policies, it also means that taking all the above-listed steps would not necessarily shield a company from liability. Under the relevant provisions of Russian law, a company is guilty of an administrative offense, such as an anticorruption violation, if it had an opportunity to comply with the legal requirements but did not undertake “all possible measures to ensure compliance.”3
As some commentators have noted, Article 13.3, in conjunction with the “all possible measures” provision, can be interpreted to extend the requirements of the Anti-Corruption Law beyond the requirements of the FCPA or the UKBA.4 To date, no publicly available Russian court case has defined or considered the measures that companies would be obligated to take to ensure anticorruption compliance.5 This may mean that companies accused of such violations will be deemed not to have anticorruption compliance measures that were sufficiently developed to constitute “all possible measures” in court. Judicial practice regarding other administrative offenses, however, shows that Russian courts can be receptive to this defense. For example, when one company was accused of violating cash register rules due to breach by an employee, it successfully proved that it took all possible measures to comply with the rules. Among other things, the company adopted all necessary internal documents on the cash register rules and informed the employees of their requirements and the need for compliance.6
This case and others suggest that, as companies develop robust anticorruption policies, they may be able to use them to defend themselves when employees violate the law.
So what would an “all possible measures” defense look like in light of the newly enacted Article 13.3? Given that the Article lists specific measures that companies can take, and the requirement that a company take “all possible measures,” one interpretation is that no company, faced with an anticorruption law violation by its employee, could shield itself from liability if it has not implemented all six measures.
To protect itself from liability, a company operating in Russia should audit its existing anticorruption compliance policies to ensure that they contain the measures listed in Article 13.3, and supplement or enact new or additional policies if they do not. Because Article 13.3 does not claim that the measures listed are a complete or exhaustive list, it is prudent to view them as setting a minimum requirement for companies that want to have the option of availing themselves of the “all possible measures” defense.
In deciding how to implement the Article 13.3 measures or whether and how to supplement them with additional anticorruption policies, companies need not reinvent the wheel. Rather, the guidelines for effective, state-of-the-art anticorruption policies established by companies to comply with the FCPA and UKBA should serve as a guide for developing such policies under the Russian law. The remainder of this article provides some examples of how the FCPA and UKBA compliance program experience can inform the measures companies in Russia can adopt in connection with each of the Article 13.3 provisions, while taking into account specifics of the Russian legal regime.
1. Definition of the divisions or officials responsible for prevention of corruption and other violations. To comply with this provision, companies should consider issuing an internal written order defining a division or positions (preferably at a senior level or reporting to senior management) responsible for prevention of corruption and other violations, and appoint employees in this division or position who would take responsibility for the company’s anticorruption efforts. Such employee(s) would be responsible, among other things, for disseminating the company’s anticorruption policies, training, and investigation and remediation of any reported violations. Employee(s) responsible for compliance should also be given adequate resources, appropriate authority, and training to perform these responsibilities.
Given the sometimes formulaic approach taken by Russian courts in deciding whether a company has taken measures to prevent an administrative offense, companies should ensure that all steps taken are properly documented. That should include provisions in the relevant employment agreements, job descriptions, internal regulations, and acknowledgements of employees’ receipt thereof.
2. Cooperation of organizations with law enforcement authorities. The Guidance issued by both the U.S. and U.K. authorities in connection with the FCPA and the UKBA has emphasized self-reporting to the authorities, cooperation, and remedial efforts as being of paramount importance to the authorities’ enforcement decisions.7 Although it is difficult to predict whether a similar self reporting regime might develop in Russia, companies should consider conducting thorough internal investigations and, if needed, subsequent remediation, when faced with reports or evidence of Anti- Corruption Law violations.
All steps taken by the companies to gather facts and take appropriate remedial steps, as well as the companies’ policies on cooperation with law enforcement authorities, should be carefully documented in case the need arises to report those facts and policies to Russian authorities or the courts. It is also important to ensure that the policies on cooperation with law enforcement authorities are themselves anticorruption compliant and establish a clear and transparent procedure for cooperation.
3. and 4. Development and introduction of standards and procedures aimed at ensuring compliance and Adoption of a code of ethics and business conduct applicable to employees of the organization. As the FCPA and UKBA experience has shown, these provisions are fundamental to establishing a robust anticorruption compliance program. While the Russian authorities have not provided any guidance on interpreting these provisions, the recently-issued FCPA Guide is illustrative of the types of steps companies may consider taking to satisfy these requirements.8 They include:
- commitment from senior management and a clear anti-corruption policy;
- a concise, accessible code of conduct as well as specific policies and procedures outlining proper internal controls, auditing practices, documentation policies, and disciplinary procedures;
- risk assessment and internal audit procedures;
- periodic training and advice on anticorruption compliance;
- risk-based due diligence on third parties; and
- mechanisms for confidential reporting of potential violations.
To be enforceable under the Russian law, all anticorruption measures and policies must be documented in Russian and formally adopted as a company’s internal regulations, and employees must acknowledge, in writing, their receipt. Failure to properly document anticorruption policies may allow employees or third parties to claim that they were either not formally adopted or never properly communicated, undermining a company’s defense that it took all possible measures to comply with Article 13.3 requirements.
5. Prevention and settlement of conflicts of interest. The conflict of interest provision of Article 13.3 is best viewed in light of the other amendments to the Anti-Corruption Law, which expand the requirement that government officials prevent or settle any conflicts of interest that may affect the discharge of their official responsibilities. As such, companies should consider requiring all employees to disclose in writing any affiliation (including affiliation of family members) with government entities at all levels or with clients, vendors, and other counterparties.
Whenever such an affiliation may affect the company’s business or the relevant employee’s responsibilities, companies should consider requiring the employee to disclose the potential conflict to the relevant government agency or counterparty and to take all measures needed to settle the conflict. Companies should document their employees’ conflict of interest obligations in the employment agreements and provide for sanctions in case of noncompliance.
6. Prevention of creation of unofficial reporting and use of forged documents. While this provision applies to all reporting and documents, in light of the experience under the FCPA and the UKBA, companies should take special care to ensure compliance of all financial reporting with this provision. Guidance should be provided to ensure that accounting professionals are on the lookout for red flags indicating potential bribery and that all transactions are accurately recorded in the company’s books, records, and accounts. Companies should also consider devising and maintaining internal accounting controls that would provide reasonable assurances that all transactions are accurately and fully recorded. The corresponding obligations of the accounting professionals should be reflected in their employment agreements and job descriptions.
The above guidance on the steps companies should consider taking to comply with Article 13.3 and avail themselves of the “all possible measures” defense is by no means exhaustive. Given that Article 13.3 is only three months old, it is difficult to foresee how Russian courts will interpret its provisions. Further, measures that companies practicably can take to prevent violations of the Anti-Corruption Law depend crucially on a company’s size, industry, and the level of corruption risk present in its business. Nonetheless, given that the development of Anti-Corruption Law has itself been precipitated by the Russian Government’s desire to conform to international anti-bribery standards,9 it is reasonable to assume that the FCPA and the UKBA experience would factor prominently in the Russian authorities’ interpretation of the relevant Russian law provisions.