With the rapid convergence of numerous national economies into one large global economy, U.S. based companies conducting business abroad are likely familiar with the Foreign Corrupt Practices Act (“FCPA”), enacted by Congress in 1977. Increased bribery and corruption prosecutions by the Department of Justice (“DOJ”) and Securities and Exchange Commission (“SEC”) in recent years have brought the FCPA to the forefront of many executive’s consciences. The stakes are being raised even further by the United Kingdom’s Bribery Act (the “Bribery Act”), which is expected to become effective in July 2011. The updated legislation is long overdue, as the United Kingdom (“U.K.”) was operating under legislation enacted in the early part of the 20th century. The Bribery Act would bring the U.K. in compliance with the Organization for Economic Co-operation and Development, a group from which the U.K. has received much criticism after the U.K. Serious Fraud Office (“SFO”) dropped its investigation into BAE Systems PLC’s alleged bribery of Saudi officials in 2006. Companies with a demonstrable business presence in the U.K. must now enhance anti-corruption compliance programs to meet not only FCPA standards, but the wider scope of the Bribery Act.
Key Differences
Although there are many commonalities between the FCPA and the Bribery Act, there are also fundamental differences that companies need to be aware of in developing anti-bribery and anti-corruption compliance programs. One key difference is who must comply with the Bribery Act. Public companies based in the U.S. or listed on a U.S. exchange must comply with the FCPA, whereas the Bribery Act includes any company, whether public or private, listed in the U.K. or not, who conducts any business in the U.K. Similar to the FCPA, the Bribery Act will have an extraterritorial application, whereby a bribe anywhere in the world is not required to be approved or paid through the U.K. branch of the company for the Bribery Act to have jurisdiction.
Another fundamental difference between the FCPA and the Bribery Act is the focus on non-government officials. The FCPA makes bribery of foreign government officials illegal, while the Bribery Act broadens the scope of coverage by making any bribe illegal, whether to a government official or a private citizen.
The Bribery Act also institutes a strict liability offense for businesses who fail to prevent bribery. The FCPA does not provide for strict liability on companies who potentially violate the FCPA, either within the language of the statute or as interpreted by judicial review. Under the FCPA, the government must prove that the corporation knowingly transmitted a payment to a foreign official in return for influencing that official. Under the Bribery Act, if any employee of a company offers or makes a bribe, and the individual responsible for preventing or controlling bribery within the company does not prevent it, the individual can be held liable unless the company proves “adequate procedures” were in place. In addition to scrutinizing the company’s corporate culture to determine how well the processes accurately reflect the “true” corporate environment, the SFO has provided guidance on what they are looking for as evidence of “adequate procedures”.
Six General Principles of Adequate Procedures (and related concepts):
1. Proportionate procedures in place
- Small v. Large corporations
- Companies operating in high-risk countries v. low-risk countries
2. Top level commitment
- A clear statement of commitment to counter bribery in all parts of the company’s operations
- Reflecting commitment against bribery in the company’s structure
3. Risk assessment
- Risk assessment procedures
- Key bribery risks
- Risk mitigation
- Ongoing risk review and monitoring
4. Due diligence
- Location
- Business opportunity
- Business partners
5. Communication and training
- Clear, practical and accessible policies and procedures
- Internal and external communication
- Implementation strategy
- General and specific training
6. Monitoring and review
- Internal monitoring and review mechanisms
- Transparency
- External verification
Similar to recent SFO enforcement actions, regulators in the U.S. have recently begun to hold individuals in positions of control responsible for improper business activities, regardless of whether they were aware of specific activities. For example, the CEO and CFO of Nature’s Sunshine Products, Inc. were charged under the FCPA due to improper cash payments made in 2000 and 2001 by a Brazilian subsidiary of the company. These improper payments were made in order to import unregistered products into Brazil, and the subsequent falsification of the company’s books and records to conceal the improper payments also violated the FCPA. Further, the SEC's civil complaint accused the executives of violating the books and records and internal controls provisions of the securities laws in their capacities as control persons, despite the fact that the payments occurred in the early part of the decade and neither of the executives were aware of the activities.
If the SFO’s recent enforcement actions are any indication, individual prosecutions will also be on the rise in the U.K. In late March 2010, three top executives of the British unit of French industrial giant Alstom were arrested on suspicion of paying bribes overseas to win contracts. In another matter, a former Vice President of DePuy International, a U.K. subsidiary of Johnson & Johnson, was prosecuted for conspiring with the corporation to pay bribes to Greek healthcare officials. The SFO also has ongoing investigations underway with individuals at Mabey & Johnson and AMEC, after the corporations settled civil actions. In fact, recent comments by Richard Alderman, Director of the SFO, reiterated the belief that prosecutions will focus on individuals involved rather than the corporation.
Another distinction between the FCPA and Bribery Act involves a company’s use of agents or third parties. Under the Bribery Act, corporations can be held liable for improper activities or bribery by an “associated person,” or one who performs services on behalf of a principal. The relationship can generally be described as any agent or consultant acting on behalf of the company with actual or implied authority. The FCPA takes into account the relationship between the principal and the agent/consultant, and the principal’s influence or control over the “associated person.” The Bribery Act takes no such influence or control into account. The company will be held liable in the event improper payments are made by its representatives, regardless of control.
An important feature of the Bribery Act involves improper performance, whereby the briber intends for the person being bribed to intentionally perform their duties improperly to carry out the bribe. To qualify as improper performance, the person being bribed must be in a position of trust that performs their duties impartially, in good faith, and is asked to deviate from the norm. Local customs or expectations are not taken into consideration when judged by the proposed U.K. standards.
In regards to a Foreign Public Official (“FPO”), the intent of improper performance is not required. Under U.S. law, the FCPA requires the payment to the FPO be “corrupt” in nature. There is no such requirement under the Bribery Act. One merely must demonstrate the intent to influence the FPO in his or her official capacity to gain or obtain business or to receive an unfair advantage in the normal course of business. In addition, the payment must not be allowed by local policy. It should be noted that a bribe or payment need not be carried out; merely the mention or offer of payment is enough to be considered a bribe.
In many countries, facilitation or “grease” payments are made to enable business. Companies making these payments often receive shorter processing times and the advantage of receiving business. The FCPA allows for certain types of payments in the instance where local customs allow for such transactions. The Bribery Act does not permit facilitation payments, no matter how small or routine. With less gray area, the Bribery Act provides a clear “zero tolerance” policy and minimizes any loop holes in the law that companies might exploit.
The Bribery Act may prohibit companies convicted of bribery (and of implementing inadequate control procedures to prevent bribery) from participating in public contracts in the future, thus inhibiting the company from possible channels of revenue and business.
One final distinction between the FCPA and Bribery Act involves the criminal penalties for bribery. The Bribery Act authorizes unlimited fines for companies and a maximum ten-year prison sentence for individuals, as opposed to a five-year term under the FCPA.
Conclusion
Companies that currently have robust FCPA compliance programs, and those that do not currently fall under the FCPA’s reach, may have to revisit and possibly revise their compliance programs based upon the expanded requirements of the Bribery Act. In addition, the SFO is expecting companies that are self-reporting to the DOJ and SEC to simultaneously self-report to the SFO. Richard Alderman (SFO Director) stated in a recent speech that there is almost daily contact between the SFO, the DOJ and the SEC. The three regulatory bodies are working hand-in-hand and sharing information, which will lead to more global settlements and resolutions. The SFO has also issued guidance on the self-reporting function and their expectations before companies meet with the SFO.
Companies conducting business in the U.K. have been put on notice with the recent SFO enforcement actions and the passage of the Bribery Act. Those companies must review their global compliance programs and how they communicate anti-corruption efforts to employees and third parties. Companies’ anti-corruption programs will likely be the difference between a hefty enforcement penalty and a pass by the regulators.
