Written by Mark Thurber is a partner in the Dubai and Beijing offices of Andrews Kurth Kenyon LLP, specializing in oil and gas, infrastructure and power
development and project finance.
Almost every international business person is aware of the United States Foreign Corrupt Practices Act (US FCPA) and the more recently enacted UK Anti-Bribery Act (UK Act). Less clear and more challenging, however, is determining what is required to comply with the myriad anti-bribery statutes to which that person and his or her company may find itself subject, particularly in attempting to reconcile differences among the anti-fraud laws, rules and regulations that exist in each jurisdiction which the company touches.
This challenge extends not only to understanding the content of such statutes, but the extent to which they might apply to a business enterprise that is remote from the U.S. or Europe. In recent years the jurisprudence around such statutes has begun to evolve more rapidly; more importantly, the reach of the statutes has expanded to the extent that few businesses operating in the international arena can safely ignore them, even if their connections to the United States or to Great Britain are attenuated.
While this article will criticize many of the current methods being developed and applied by enforcement agencies, it is important to note at the outset that such measures address critical public policy issues. Corruption, particularly bribery, leads to many social and economic ills, including political instability, reduced confidence in institutions, demoralized culture, arrested economic development and foreign capital flight. Systemic bribery existing in many countries throughout the world is perhaps the greatest impediment to economic progress, creating in each country where it exists a non-level playing field and fostering bureaucratic intransigence. Once embedded within a country, reversing course and cleaning up can prove daunting. Whether the statutes currently in place are both effective and fair in the objective of deterring and punishing corruption can be debated, but it is without argument that corruption has no proper place in the world’s economy or within any individual country aspiring to attract foreign capital.
A business operating in the international arena is positioned between two opposing forces — public officials within a particular country who might be soliciting unauthorized payments as the price of doing business, and the enforcement institutions in the international community, increasingly universal in scope, that prohibit any such payments, often at the expense of forfeiture not only of financial gains but personal freedom. It is thus paramount to understand what will and will not pass muster, what is and is not permissible, and to understand the importance of taking the most conservative steps possible to avoid confrontation with increasingly aggressive international enforcement agencies.
The most prominent anti-corruption statutes currently in effect are the US FCPA and the UK Act. Combined with various local statutes and backed by international enforcement action, these statutes in recent years have become daunting forces seeking to push the international community toward international compliance and away from acquiescence to local custom. In doing so, enforcement agencies, particularly the SEC and the DOJ in the US, have begun to take aggressive positions that may or may not be valid under the statute itself or under larger constitutional protections afforded to defendants, but which to date have been largely unchallenged. The reluctance of defendants to challenge the broadening jurisdictional territory being staked out by these agencies lies in the heavy downside, which is the threat of jail time for officers at “uncooperative” companies under siege. By placing a premium on cooperation and willingness to disclose everything to the enforcement agency, a culture of making large monetary payments to avoid criminal sanctions has begun to develop in the international community. The funds paid in by defendants have been used by enforcement agencies to increase their size and breadth, and ultimately their ability to uncover and investigate alleged fraud across a broad spectrum of jurisdictions and industries.
The US FCPA and the UK Act are similar in many respects, but there are key differences. For instance:
The UK Act prohibits payments to private individuals, whereas the FCPA is, on its face at least, limited to public officials.
The UK Act is based on strict liability, whereas the FCPA requires criminal intent. For instance, though complete defenses are available through implementing certain prescribed mitigatory measures, UK companies are strictly liable for the actions of their agents and subsidiaries.
The UK Act includes as a crime a person asking for or receiving a bribe, not merely offering or paying one. This provision does not have significant importance, however, because of the problems in obtaining jurisdiction over foreign individuals who may solicit bribes, and because of the problems in obtaining sufficient background and objective evidence to prove up the allegation of wrongdoing.
The UK Act includes no exemptions for facilitation payments, which are payments made to government officials to perform acts that are required by law. It has been questioned how vigorously this is currently being enforced. Further, the guidelines themselves, as published by the UK government, have stated that prosecutions will not be pursued in the cases of facilitation payments made under threat to life or limb.
Aside from the substantive differences in the statutes, there are key differences in the ways that they are administered by their respective governments. The DOJ and SEC of the United States in recent years have embarked on an expansion of enforcement policies in historic proportion. As a result, foreign companies who have no operations or management in the U.S. can no longer be comfortable that they are immune from attempts by the United States government to reach their assets, wherever they may be located. A few highlights include:
The United States has asserted FCPA jurisdiction over foreign individuals who (i) sent e-mails that touched a U.S. server en-route to a foreign recipient and (ii) wired monies from one foreign bank to another, if the funds were merely cleared through a U.S. bank.
Extending jurisdiction to bribery over private individuals, despite clear language in the FCPA to the contrary.
Expanding the reach of the FCPA to include so-called public organizations, such as multi-lateral lenders and NGOs.
Imputing parent/subsidiary liability on a strict liability basis, rather than proving up deleterious actions at the parent level.
Other countries are falling into line. In the past year France and South Korea, sometimes criticized for lax anti-bribery prosecution policies, have instituted new and enhanced statutory measures to combat corruption. Many other countries, including China and Brazil, have likewise added anti-corruption legislation and have stepped up enforcement efforts
Egypt likewise has anti-bribery statutes and constitutional prohibitions against corrupt public acts. Egypt has recently improved its anti-bribery rankings, reaching 88 out of 175 in Transparency International’s Corruption Perceptions Index. Though still not consistently enforced, giving and accepting bribes are both criminal acts in Egypt, under Articles 103 to 112 of the Panel Law. Egypt’s statutes include particular emphasis on the solicitation of bribes by public officers, a group which is broadly defined to include anybody associated with a company in which some or all shares are owned directly or indirectly by the government. In addition to its own legislation, Egypt has ratified the United Nations Convention Against Corruption, though to date it has not acceded to the OECD Convention on Combating Bribery or to any other regional anti-corruption convention. Egypt’s current government is vocal and active against corruption. Though much progress is needed, it is fair to anticipate that enforcement efforts will continue to be vigorous, and that continued pressure on various bureaucratic regimes is providing the opportunity to progressively reduce corruption levels in the country.
A review of the various anti-fraud statutes in place throughout the world and which affect companies participating in international business transactions will show many similarities and a few key differences. That said, a company should not structure its compliance policies around the provisions of a single statute, regardless of the reach of its business or the jurisdictions in which it has a presence. Aside from the difficulties of predicting exactly how and to what extent a particular government will assert jurisdiction over that company, a new complication is that governments are recently cooperating to a greater extent than before on prosecutions. As a result, a defendant whose assets are situate comfortably away from the reach of the United States, for instance, may find itself fully exposed as a result of correlative actions by several states, ultimately becoming subject to the harshest provisions of each statute.
The case of the Brazilian construction contractor Odebrecht is illustrative. Odebrecht is the giant Brazilian construction company which participated in a bribery scheme in a highly organized fashion. A report from December, 2016 indicates that the fine agreed by Odebrecht was $3.5 billion, an amount that has called into question the continued viability of the company. Most remarkable about the action, in addition to the size of the fine, was the degree of cooperation among prosecuting authorities in the U.S., Switzerland and Brazil. Odebrecht could not claim defenses under one statute, e.g., size of fines, jurisdictional limitations, lack of knowledge, unless the same defenses were available under all of the statutes. In other words, by combining forces and pre-agreeing as to the apportionment of the fine, the three sovereign governments were able to use the most stringent provisions of each statute against Odebrecht, at the same time avoiding various limitations in scope, liability and jurisdiction that might otherwise restrict enforcement strategies under the statutes of an individual country.
Although the Odebrecht case is the largest to date in terms of amounts of money involved, it is not an outlier. It represents a new frontier of government cooperation, a methodology which governments are adopting with increasing enthusiasm because of the large amounts of money involved. At the conclusion of the case, enforcement agencies proudly proclaimed in a press release, “This case illustrates the importance of our partnerships and the dedicated personnel who work to bring to justice those who are motivated by greed and act in their own best interest.” As we move past the record 2016 enforcement year, it seems probable that inter-governmental consortium approach will be increasingly employed — it creates an international super-authority which is more powerful than any of its component sovereigns, leaving defendants with few defenses which might otherwise be available against the individual reach of a distant government.
The best defense available to companies going forward is to implement conforming internal fraud monitoring and prevention procedures. Both the United States and UK governments have recommended the types of procedures that should be put in place. They emphasize such measures as regular employee education, vetting of agents, independent reporting channels, anonymous whistle-blower protections and promotion of proper corporate culture. These measures should be followed by responsible companies in any event, but they are also effective in most jurisdictions in preventing or limiting liability. In the UK, for instance, such measures constitute an affirmative defense against allegations that a company failed to prevent bribery. Even in the U.S., pro-active measures will significantly alleviate the consequences of certain FCPA violations.
Moving forward, companies will find it increasingly prudent to not only root out corruption within their organizations, but to affirmatively structure their procedures and culture, both within and at their outside partners and consultants, in order to minimize from the outset any occurrences of illegal behavior.