U. S. Enforcement Authorities are aggressively enforcing the Foreign Corrupt Practices Act. The U.K. is about to implement a strict new Anti-Bribery Law. Companies and their directors, officers and employees need to be prepared to avoid the trend of increasing fines and long prison terms.
U.S. FCPA Enforcement
Assistant Attorney General, Criminal Division, Lanny Breuer declared this is the “new era” of FCPA enforcement. To back up his claim Mr. Breuer recited key statistics: In 2004 DOJ collected about $11 million in criminal fines from corporations. In 2005 the amount increased to $16.5 million. Last year it was over $1billion. In 2005 five individuals faced criminal FCPA charges. Currently 35 are awaiting trial on criminal charges.
The question DOJ and SEC enforcers repeatedly ask is: “Do they get it?” To make sure that corporations “get it,” FCPA enforcers have imposed increasing large fines and penalties on corporations while employing an expansive view of the statutes. In 2007, for example, Chevron Corporation paid what was then a record $30 million to settle FCPA charges. In 2010 that amount is not large enough to rank in the top ten FCPA settlements. Now the list starts with Siemens at $1.6 billion and ends with number ten Pride at $56.1 million.
While the sums paid in settlement are huge, they only begin to suggest the total cost. Those sums have been reduced from the amounts which could have been charged because of the cooperation of the companies. The cost of cooperation however can be significant. Siemens, for example, won praise from DOJ enforcers for its cooperation and obtained significantly reduced penalties. The total cost of the effort has not been disclosed. The company did acknowledged that it paid for 1.5 million billable hours of professional time. In addition to the monetary cost, frequently there is a significant personnel loss since those involved are frequently terminated.
Employees are also a key target of FCPA enforcers. DOJ and the SEC have emphasized the prosecution of individuals as a way to halt violations. Those efforts now include the use of so-called “blue collar” tactics more typically reserved for organized crime cases coupled with demands for long prison sentences. Last year the FBI conducted the largest FCPA sting operation in history. It focused on the supply business and resulted in 19 indictments charging 22 individuals. In the future watch for this kind of tactic to mark the beginning of corporate investigations as ensnared individuals make deals to cooperate with law enforcement and against their former employer to avoid lengthy prison sentences. This trend will be fortified by the new Dodd-Frank Act whistleblower provisions which offer the prospect of huge bounties for information about wrong-doing.
Intensified enforcement efforts are being coupled with increasingly broad interpretations of the statutes. When the bribery provisions did not apply in one series of cases, for example, DOJ brought criminal charges using the FCPA books and records sections and the wire fraud statute. In other instances criminal prosecutors have used the money laundering statutes to charge foreign officials who are outside the reach of the FCPA. The SEC is reportedly in the early stages of investigating the relationships between financial institutions and sovereign wealth funds, scrutinizing payments made and perquisites given through the lens of the FCPA bribery provisions.
The New U.K. Bribery Act
The Bribery Act 2010 is due to come into force in April 2011. It is widely reported as the most comprehensive piece of anti-corruption legislation in the world.
The Act is aimed at prohibiting the giving and receiving of all bribes, including facilitation payments, in the public and private sectors whether in the UK or abroad. It has broad reach, giving the English courts jurisdiction to punish bribery even where all relevant acts take place abroad if a relevant person is a UK national or resident or incorporated in the UK.
Senior officers are subject to a new offence of consenting to or conniving in corruption. The Serious Fraud Office, the lead authority charged with prosecuting under the Bribery Act, has said that the mere fact that a corporate does business in a jurisdiction renowned for corruption and has failed to implement anti-bribery procedures could be enough to justify prosecution of a senior officer for conniving in corruption if a bribe is paid.
A commercial organisation carrying out part or more of its business in the UK commits an offence if a bribe is paid in connection with its business anywhere in the world. Its only defence under the Act is that it had in place adequate procedures to prevent bribery.
The Serious Fraud Office and the English courts have both been more active in England in the last year than ever before in relation to corruption by English companies overseas, signalling a sea-change for corporates and their boards dealing with the challenge of corruption.
The Serious Fraud Office has sought to encourage self-reporting by corporates, offering a civil alternative to criminal proceedings in appropriate circumstances as an incentive. The SFO has also made clear that it expects corporates self-reporting in the US to notify the SFO at the same time if the English courts also have jurisdiction.
Key Steps To Take Now
Companies seeking to avoid or at least minimize possible liability need to demonstrate that “they get it.” Six key steps should be considered:
- A check up: The company should examine its relationships and the bribery risks in the industry and markets in which it operates. While DOJ and the SEC emphasize “industry wide” investigations as a key source of cases, in many instances their prosecutions come from straight forward investigative efforts – following the bribery trail from one agent or company to another. This counsels a close examination of business partners and others in your industry, as well as those with whom you do business, to determine if they have been involved in violations or are under investigation.
- Agents and business partners: Many corruption cases involve the use of agents. The company should carefully scrutinize how it deals with and recruits agents and business partners and any money or perquisites made available to or through them.
- Tone at the top: Compliance must start at the top of the enterprise. This means reporting as well as implementation. Senior management must make it clear throughout the enterprise that compliance is a priority.
- Procedures: Rigorous, clear, practical and accessible compliance procedures covering all employees and agents must be implemented. Perhaps even more important, the procedures must be enforced. Having procedures which are not enforced may be worse than none at all. Those procedures should be implemented by a compliance officer who reports at the most senior level of the enterprise.
- Certification: The company should monitor compliance with its anti-corruption program and periodically review its procedures to ensure that they are effective and any necessary updates are undertaken. The certification should include a compliance review.
- Disclosure: The company should disclose its anti-corruption program and certification, highlighting and reinforcing its commitment and compliance.
Taking these steps will demonstrate that the company is serious about anti-corruption compliance. While no set of procedures or compliance program can preclude a government investigation or violation, if an enforcement inquiry begins, or a violation is discovered, the company will be in a very good position to tell U.S. authorities “We get it” and, if the UK has jurisdiction, have a defense to what is otherwise a strict liability offense of not having adequate procedures to prevent the payment of a bribe.