As we turn the corner into the new year, corporate counsel need to identify important legal issues facing their companies in 2011. One of the most critical is the implementation of stringent corporate anti-corruption policies in order to keep pace with the shifting landscape of enforcement -- including a rising tide of criminal sanctions -- of both the U.S. Foreign Corrupt Practices Act of 1977 ("FCPA") and the UK Bribery Act of 2010 ("UK Bribery Act"), which goes into effect next year. This topic was front and center at last week's Consero Corporate Counsel Forum in Boca Raton, Florida.
Prepare For Criminal Sanctions Under the FCPA
The FCPA prohibits U.S. companies and citizens, foreign companies listed on a U.S. stock exchange, or any person acting while in the United States, from corruptly paying or offering to pay, directly or indirectly, money or anything of value to a foreign official to obtain or retain business. The FCPA is jointly enforced by the Department of Justice ("DOJ") and the Securities Exchange Commission ("SEC").
Since 2003, there has been a sharp rise in FCPA actions, with 146 current investigations. These cases have resulted in massive fines but only occasional jail sentences. Only last month, however, Senator Arlen Specter (D-Pa.), Chairman of the Senate Subcommittee on Drugs and Crime, opened hearings on the FCPA by asking why record corporate fines have never been accompanied by a concomitant increase in jail terms. Senator Specter raises a valid question, and with heightened DOJ and SEC scrutiny of an issue now squarely in the public eye, general counsel should brace themselves for an increase in criminal sanctions under the FCPA.
The UK Bribery Act, The New International Gold Standard in Anti-Corruption Legislation
As companies pay more attention to the FCPA, it should be noted that the UK Bribery Act is far more draconian than its American counterpart. When it goes into effect, it will instantly become the international gold standard of anti-corruption legislation. U.S. counsel should prepare wisely. The Act gives UK courts jurisdiction over bribery committed anywhere in the world provided only that the alleged defender has a "close connection" with the United Kingdom. The Act embraces a zero tolerance (strict liability) policy with respect to acts -- including facilitation payments and corporate gifts and entertainment -- often considered to have been outside the purview of anti-bribery regimes. Furthermore, a corporation may be held liable for illegal conduct on the part of "associated persons," and it will now be a crime for failing to prevent bribery, two extraordinary standards.
The Time is Now to Implement Stringent Corporate Anti-Corruption Policies
As counsel advise senior management on compliance with these two regimes, they would be wise to "race to the top" rather than take dangerous risks aimed at straddling the line between the FCPA and the UK Bribery Act. What is the path to safety? The UK Ministry of Justice (the "Ministry") only recently released its Consultation on Guidance About Commercial Organization Preventing Bribery in order to help businesses determine the bribery prevention measures that they can put in place.
Guidance from the UK Ministry of Justice: Strict, Prudent, and Necessary
The Ministry lists six principles that should guide a corporation's implementation of anti-corruption practices and procedures.
Risk Assessment of Locales and Associated Persons. Corporations must assess the risk of factors such as the locations in which it does business and whether its business model includes large-scale projects that require third-party contractors, subcontractors, and suppliers (i.e., "associated persons") whose malfeasance would render the corporation liable under the UK Bribery Act.
An Express Commitment from the Board of Directors. General counsel must procure a top-down and express commitment from the Board of Directors to establish a culture where bribery is unacceptable and a governance structure to support it. Indeed, this should be a point of pride for any company.
Educate "Associated Persons" as to the Standards Necessary to do Business with Your Company. In light of the UK Bribery Act's "associated person" standard, a company should both scrutinize and aid smaller "associated" companies in understanding the scope of the UK Bribery Act and the level of compliance required to continue to do business together.
Institute Active Anti-Corruption Education from the Date of Hire. Corporations should institute active training so that employees are taught from their date of hire that their career will not suffer because they forego business rather than bribe a third party.
Monitor and Review. General counsel must work to incorporate monitoring and review, including financial controls that are sensitive to bribery.
Create Robust Self-Reporting and Whistleblower Policies. Finally, companies should establish detailed provisions for self-reporting to UK officials, as well as internal mechanisms for whistleblowing that permit employees to flag violations confidentially, anonymously, and without fear of retribution.
Clear the Highest Bars of Conduct
Implementing anti-corruption policies is neither easy nor inexpensive. On the contrary, new and untested legislation such as the UK Bribery Act, as well as the specter of broader FCPA enforcement, require counsel to construct, implement, and monitor comprehensive anti-corruption policies. The cost of not doing so is prohibitive -- e.g., criminal sanctions and fines in the United States, as well as criminal liability for both the acts of associated persons and for failure to prevent bribery under the UK Bribery Act -- and requires counsel to act both quickly and deliberately. While the advice of the UK Ministry of Justice is no doubt strict and establishes high bars of conduct, corporate counsel for U.S. companies that fail to meet them do so at their own peril in an increasingly strict anti-corruption environment.
Ben Kerschberg is a Founder and the Chief Operating Officer of Consero Group LLC. Mr. Kerschberg has a Bachelor of Arts in Foreign Affairs and German, summa cum laude and Phi Beta Kappa, from the University of Virginia and a Juris Doctor from Yale Law School, where he was as a Coker Fellow. He clerked for the Honorable Gilbert S. Merritt, Chief Judge of the U.S. Court of Appeals for the Sixth Circuit.