Copyright 2010, Blake, Cassels & Graydon LLP
Originally published in Blakes Bulletin on Business, October 2010
Sophisticated multinationals now recognize the importance of establishing, continually monitoring and updating a global anti-corruption compliance strategy. This represents good corporate governance and is also necessary to ensure compliance with the U.S. Foreign Corrupt Practices Act (FCPA) and Canada's Corruption of Foreign Public Officials Act (CFPOA). The CFPOA and FCPA, and the importance of compliance programs and anti-corruption due diligence was discussed in previous Blakes Bulletins on White Collar Crime entitled: Canada's Corruption of Foreign Public Officials Act: What You Need to Know and Why, The Long Reach of the Law: Practical Tips for Compliance with Anti-Corruption Legislation, and Importance of Anti-Corruption Due Diligence for International Transactions.
Enhanced regulatory enforcement under the FCPA has emphasized the need for rigorous compliance. Staggering fines and jail terms for executives are now common in the United States. Siemens paid $1.6-billion in fines, disgorgement and monetary penalties in the U.S. and Germany in 2008, Halliburton/KBR paid $600-million in 2009, and $400-million was paid by Technip in 2010. It is expected that U.S. authorities will receive over $1-billion in monetary penalties in 2010. Recent international criticism has prompted Canadian officials to establish CFPOA enforcement units in Ottawa and Calgary and several investigations are pending.
The British have also been active, penalizing BAE Systems and Innospec Ltd., and arresting several individuals. The recent enactment of the U.K. Bribery Act 2010 (Bribery Act), however, brings the threat of enforcement and the reach of these laws to a new level. This Act is sweeping in its scope and potentially far broader than either the FCPA or the CFPOA. It also has potential application to non-U.K. companies conducting business in the U.K., such that any company conducting business in the U.K. needs to ensure they have a robust compliance program in place in order to comply with this expansive U.K. legislation.
Like the FCPA, the Bribery Act is extraterritorial in its application, applying to U.K. individuals or organizations regardless of where the conduct occurs. However, unlike the U.S. and Canadian laws, the Act also applies to non-U.K. individuals or organizations that carries on "a business, or part of a business, in any part of the United Kingdom". What constitutes "part of a business" is not defined. This is potentially very broad and could apply to any company or individual that has even a small subsidiary, affiliate or other minor presence in the U.K. Further, no part of the offence need even take place in the U.K., as long as a person committing the offence has a "close connection" to the United Kingdom. While explanatory notes from U.K. regulators and judicial interpretation may ultimately clarify these issues, at this time, prudent organizations should take a conservative view and assume that they will be subject to the Bribery Act if they have any reasonable nexus to the U.K.
Bribery Act Offences
Another critical difference between the U.K. and the North American laws is the Bribery Act's new corporate offence of failing to prevent bribery. This is a strict liability offence. Knowledge or intent to bribe on the part of the organization is not required. Under this provision, commercial organizations are liable where they fail to stop a bribe by an "associated person" – defined broadly as a person who performs services on behalf of the organization. Thus, associated persons will likely include employees, agents, partners, intermediaries, introducers and subsidiaries, perhaps even consultants. Associated persons need not have any connection to the U.K. nor is there any explicit requirement under the Bribery Act that any formal contractual relationship exist between an associated person and an organization. The lack of a need to prove knowledge makes the scope of the offence, and the possibilities of prosecution, far broader than under the FCPA or CFPOA.
The main defence for commercial organizations is to demonstrate that they have "adequate procedures" in place, i.e., company policies and internal controls – aimed at thwarting bribery. Given that the corporate offence is a strict liability offence and "associated person" is broadly defined, the importance of having anti-corruption policies in place cannot, therefore, be overemphasized.
The concept of a bribe under the Bribery Act includes any "financial or other advantage" to secure or induce "improper performance". The Bribery Act codifies four categories of offences:
- Offence to give, promise or offer a bribe;
- Offence to agree to receive or accept a bribe;
- Offence to bribe a foreign public official; and
- A corporate offence of failing to prevent bribery.
Facilitation and Hospitality Payments Are Not Permitted
Another difference in the Bribery Act is its failure to permit "facilitation payments" (i.e., payments made to expedite or secure performance of routine, non-discretionary governmental action, such as the issuance of permits, visas or other services including, say, docking and the unloading of cargo). These types of payments are permitted under U.S. and Canadian law, but have not been exempted in the Bribery Act. Accordingly, companies with any presence in the U.K. should consider stopping all facilitation payments, given the threat of prosecution in the United Kingdom.
The Bribery Act also does not have an exception for reasonable expenditures related to the promotion or demonstration of products or services. However, the U.K. government has indicated that there will be a reasonableness standard to distinguish between legitimate expenditures relating to the promotion of one's business or products and improper benefits, though the absence of any current guidance provides little comfort today.
The Bribery Act Applies to the Private Sector
Unlike the FCPA and CFPOA, which apply only to the bribery of foreign public officials (though this is broadly defined in both Acts), the Bribery Act goes further, extending to include bribery in the private sector as well.
Penalties Under the Bribery Act
Penalties for both organizations and individuals are significant, with unlimited fines for both organizations and individuals as well as a maximum of 10 years imprisonment for individuals. This contrasts with only a five-year maximum under U.S. and Canadian law. The recent sentencing of individuals to jail terms under the FCPA means that this possibility should not be taken lightly.
Anti-Corruption Compliance Action Plan
The Bribery Act and stepped-up enforcement of anticorruption legislation makes it imperative for international organizations to have an anti-corruption strategy suitably tailored to cover their operations. The U.K.'s Ministry of Justice suggests six principles that should be included in anti-corruption action plans. These are:
- Risk Assessment – knowing what risks face your organization and industry:
- certain industries attract higher regulatory scrutiny like oil and gas, mining, high-tech and pharmaceuticals
- do the countries you do business in have a history of corruption?
- what is your international business model (direct sales or use of intermediaries like agents or sales representatives)?
- Top Level Commitment – leadership at every level in the organization placing emphasis on the importance of compliance. Does your organization have a culture of monitoring and compliance or just pay it lip service?
- Due Diligence – knowing who you are doing business with.
- Clear, Practical and Accessible Policies and Procedures - developing clear policies and guidelines to assist employees.
- Effective Implementation – going beyond paper compliance and embedding core anti-corruption values within your organization.
- Monitoring and Review – use of auditing and financial controls that are sensitive to bribery.
Further discussion of the key components of a compliance plan and anti-corruption due diligence are discussed in prior bulletins: The Long Reach of the Law: Practical Tips for Compliance with Anti-Corruption Legislation, and Importance of Anti-Corruption Due Diligence for International Transactions.
Just as health, safety and environmental policies have become a standard component of how most organizations conduct business, anti-corruption policies must also become an integral part of any international business operation.
As a leading law firm with seven international offices, Blakes is well positioned and experienced in assisting clients to:
- Draft and implement global anti-corruption compliance policies;
- Create bespoke anti-corruption provisions for contracts with agents, suppliers, joint venture partners and other "associated persons";
- Conduct transactional due diligence for anticorruption;
- Conduct internal investigations of potential violations; and
- Respond to government investigations and defend prosecutions.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.