Zero Tolerance: The Race To The Top of Anti-Corruption and Stringent Government Enforcement of the Foreign Corrupt Practices Act (“FCPA”)
I argued recently that corporations must not only implement stringent anti-corruption policies, but also “race to the top” in light of predicted stricter enforcement of the U.S. Foreign Corrupt Practices Act of 1977 (“FCPA”) and this May’s taking effect of the UK Bribery Act, the new international gold standard of anti-corruption legislation. I submitted then that doing so requires corporate counsel to construct, implement, and monitor comprehensive anti-corruption policies by, among other steps, (i) obtaining the express buy-in of the Board of Directors in order to create a corporate ethos of anti-corruption; (ii) instituting robust self-reporting and whistleblower policies; (iii) educating employees beginning at the date of hire; and (iv) monitoring and reviewing financial controls sensitive to bribery.
This may not be enough. According to Richard Dean and Brian Whisler, Partners in the Washington office of the international law firm Baker & McKenzie, the Department of Justice (“DOJ”) and the Securities Exchange Commission (“SEC”) have taken a sharp tack toward far more stringent enforcement of the FCPA, including litigation strategies based on strict liability as a standard by which corporate officers should be judged for overseeing bribery schemes about which they may not know. Writes Dean:
Executives must acknowledge the seriousness of the U.S. authorities’ stated objective to punish senior corporate officers. The DOJ and SEC believe that the most efficient and effective means to send the message that anti-corruption compliance measures are important is to impose serious penalties on corporate executives who preside over bribery schemes.
Richard Dean, Executive Management of Expanding Corruption Risk: Ten Key Inquiries for Evaluating Risk and Allocating Resources (Baker & McKenzie June 2010).
In November 2009, Senator Arlen Specter (D-Pa.), Chairman of the Senate Subcommittee on Drugs and Crime, opened hearings on the FCPA by admonishing enforcement officials and asking why record corporate fines had theretofore never been accompanied by concomitant jail terms. Those officials apparently got the message. Twenty individuals were criminally indicted on corruption-related charges in 2009. By contrast, more than that were convicted in January 2010 alone, a trend that has since held true. This is hardly coincidental. According to Whisler, the past year reveals a number of trends in FCPA-related government enforcement. See Brian Whisler, Approaching Zero Tolerance: Expansion of FCPA Exposure for Corporate Executives, Inside The FCPA: The Corruption & Compliance Quarterly (Winter 2010).
- Record fines, including over $1 billion in files levied against one corporation in one single settlement with U.S. and German authorities, see id.;
- DOJ victories in its three high-profile FCPA cases against individuals, including the indictment of one corporate officer for his “mere” knowledge of the actions of others and the imposition upon him of $8 million in fines, see id.; and
- The SEC’s renewed commitment to criminal enforcement and “what appears to be . . . a move toward strict liability for executives,” id. at 4.
Unlike the UK Ministry of Justice, which has published detailed principles that should guide a corporation’s implementation of anti-corruption practices and procedures, U.S. agencies have provided little such guidance, leaving an ever-shifting landscape all the more uncertain. Richard Dean provides valuable assistance to corporate counsel in this respect, posing a host of questions for general counsel to answer as they set about to tailor their corporate policies.
First, does your company do business in countries known for a high risk of corruption? In many cases, the answer will be obvious. In other instances, Dean recommends referring to Transparency International’s published indices of corruption. This inquiry also requires general counsel to perform a certain “risk calculus” in order to weigh the risk of doing business in Country (X), where corruption and its attendant risks may be very high, but where the corporation does little business. The opposite scenario may also hold true, resulting in different and necessary calculations.
Second, to what extent are agents, subagents, and joint ventures part of your business model in different countries oversees? If strict liability emerges as an FCPA enforcement standard, the actions of such parties may lead to liability similar to those for the actions of “associated persons” under the UK Bribery Act.
Third, to what extent does your company’s business abroad involve government customers? Such customers may have expectations far afield from your legal obligations. Do government officials in certain countries expect to receive gifts and/or bribes? Even gifts are problematic, as should be in your corporate policy all traditional facilitation payments (e.g., to clear customs more quickly or obtain a permit).
Fourth, how does your company actually monitor, identify, and address corruption risk abroad? For example, how is the use of cash regulated? What global accounting and internal controls processes do you have in place? What oversight is there from regional offices and global headquarters?
Fifth, to what extent can you realistically expect internal hot lines and whistleblower procedures to work in certain foreign markets? What cultural differences may make it difficult (if not practically impossible) to “snitch” irrespective of—or precisely because of—the severity of known individual or corporate wrongdoing?
Sixth, how are your foreign offices staffed? Dean asserts that generally, “corruption risk is higher where a local employee runs an isolated office in a high-risk market with little expatriate involvement and low turnover.” Such offices must be closely integrated into your anti-corruption policies, and closely monitored.
Finally, how effective is your leadership communicating to all employees that “zero tolerance” is your only corporate standard when it comes to bribery? Do you have buy-in from your Board of Directors and senior management? If so, is that known throughout the company? Has it been made clear that whistleblowing may be done safely and without prejudice to one’s career? These are crucial questions that must be answered in the affirmative.
The past year has seen the DOJ and SEC aggressively enforce the FCPA, including obtaining criminal indictments at a record pace. When viewed along with the imminent arrival of the even stricter UK Bribery Act, it is clear that corporate counsel must act. Most corporate anti-bribery policies are either inadequate or perilously ignored. General counsel must institute zero tolerance policies across their enterprises and enforce them vigilantly.