Corporate Anti-Corruption Legislation

Ignorance of the Foreign Corrupt Practices Act (the FCPA), Sarbanes-Oxley or any anti-corruption legislation is not a valid defence for any company that is an issuer in the United States. Neither is it a valid defence for any company in any country where anti-corruption legislation is being passed by national governments in order to incorporate the mandates of the different international conventions with those of local legislations. It is vital that teams responsible for anti-fraud procedures and monitoring be up to date with anti-corruption legislation worldwide and know how it affects their businesses.

OECD Convention Combating Bribery of Foreign Public Officials
Signed in 1997, the OECD Convention states that "each Party shall take such measures as may be necessary to establish that it is a criminal offence under its law for any person intentionally to offer, promise or give any undue pecuniary or other advantage, whether directly or through intermediaries, to a foreign public official (...) in order to obtain or retain business or other improper advantage in the conduct of international business."

Even though an exception for small payments ("facilitation payments") is not explicitly stated in the convention, Commentary 9 seems to make provisions for them. This is provided that such payments are not illegal in the countries concerned, and are not made to induce a public official to perform a "routine governmental action".

The OECD Convention also contains an accounting provision that deals with the maintenance of books and records, financial statement disclosures, and accounting and auditing standards, among other stipulations.

Currently, 36 nations are implementing legislation and rules against bribery under the convention mandate. They include OECD members plus Argentina, Brazil, Bulgaria, Chile and the Slovak Republic.

The Foreign Corrupt Practices Act
The FCPA was first enacted in 1977 in order to outlaw the bribery of foreign officials in commercial transactions by US nationals and corporations organised under its laws (including "issuers"). It was amended in 1998 and extended to also cover all persons (natural or juridical) who engage in bribery (totally or partially) within the territory of the United States.

The FCPA's anti-bribery provisions make it illegal to pay, promise, offer or authorise the payment or giving of money or anything of value to any foreign government official or political party in order to obtain or retain business or secure any improper advantage. It includes payments made through intermediaries. These provisions apply to any person or corporation that violates the FCPA while in the territory of the United States and any US entities or individuals, regardless of where in the world they are located.

The FCPA’s accounting provisions reflect the OECD Convention but are somewhat stricter in its requirements.

Needless to say, any activity, such as e-mail, telephone conversations, fax transmissions, etc. that touch the territory of the United States in any way will suffice to create a nexus. This then gives the Department of Justice (DoJ) jurisdiction to investigate the potential violation.

Worldwide Anti-Corruption Legislation
Since the mid-1990s, there has been a proliferation of international anti-bribery conventions, all of which follow the lines of the OECD Convention. Some go farther by covering private corruption and instructing that the State Parties shall take legislative and any other necessary measures to criminalise the prohibited acts.

• OAS – Inter-American Convention Against Corruption (1996)
  Ratified by 29 nations in South and Central America, it covers public corruption (criminalisation of the bribery of domestic and international government officials) as well as provisions for financial books and records.
• Council of Europe – Criminal Law Convention on Corruption (1999)
  Signed by 47 countries (44 member states and 3 non-member states), it encompasses public and private sector corruption and bribery in addition to money laundering and accounting offences.
• UN Convention Against Corruption (2003)
  Signed by 140 nations and ratified by 80, it requires domestic implementation of a wide and detailed range of anti-corruption measures, encompassing both public and private sectors. It is also aimed at promoting international cooperation in investigating and prosecuting these issues.
• African Union Convention of Preventing and Combating Corruption (2003)
  Of the 53 African countries, 21 have, to date, signed this convention. Its scope covers the public and private sectors and includes money laundering and illicit enrichment provisions.

Following the implementation of the treaties to which they are parties, an increasing number of countries are passing legislation containing clauses similar to those of the FCPA. Some are more stringent, making it more difficult for companies to escape prosecution outside the United States for corruption related issues.

To date, the DoJ and the US Securities and Exchange Commission (SEC) are the only authorities actively investigating and prosecuting FCPA violations. However, more and more countries are seeking to enforce their domestic anti-bribery laws, as seen in the Statoil, Siemens and BAE cases below.

Enforcement Actions

2006 was one of the busiest years in FCPA enforcement, with warnings from the DoJ and the Federal Bureau of Investigation (FBI) of “increased vigilance” in pursuing FCPA cases outside the United States and the aim, as Attorney General Fisher states, “to enforce the FCPA against all international business whose conduct falls within its scope.” Currently, more than 24 major corporations are under investigation for FCPA violations.

Some of the most noteworthy enforcement actions of the last year are:

Statoil ASA (October 2006):
This was the first criminal enforcement action by the DoJ against a foreign issuer for violating the FCPA anti-bribery and books and records provisions. Charged with paying bribes to obtain a contract to develop an Iranian oil and gas field and to gain access to other such projects, Statoil entered a deferred prosecution agreement with the DoJ and agreed to pay a criminal penalty of US$10.5 million, against which a credit of US$3 million was given for a payment previously made to Norwegian authorities to resolve criminal charges in that country. Additionally, Statoil agreed to a disgorgement of US$10.5 million in profits and the retention of an independent compliance monitor.

Vetco Gray (February 2007):
Vetco Gray made a voluntary disclosure to the DoJ, stating that approximately US$2.1 million was paid over two years to officials of the Nigerian Customs Service to receive preferential customs treatment. Three wholly owned subsidiaries pleaded guilty to violating / conspiracy to violate the FCPA anti-bribery provisions, and a fourth subsidiary entered into a deferred prosecution agreement. Vetco agreed to pay a criminal fine of US$26 million—the single-largest penalty ever imposed by the DoJ—and to appoint an independent compliance monitor.

Baker Hughes (April 2007):
Baker Hughes entered a guilty plea to accusations of violating the FCPA by bribing foreign officials to win oil field contracts in Kazakhstan, Angola, Indonesia, Nigeria, Russia and Uzbekistan, with some of the payments made through an agent. After being found to be in violation of a cease-and-desist order imposed in September 2001 (imposed after complaints of bribing an official in Indonesia) the amount to be paid in penalties and forfeitures now totals US$44.1 million—the largest penalty ever for violations of the FCPA. The company must also appoint an independent compliance monitor.

Siemens AG announced in December 2006 that it had uncovered €426 million in “suspicious transactions” stretching back more than seven years. The DoJ and the SEC were already covertly investigating the company as a result of concerns regarding internal weaknesses in its control systems. Authorities in Germany, the United States, Italy, Liechtenstein and Switzerland are also investigating this matter and how high up the corporate ladder it went. According to the Financial Times, Comment & Analysis, 14 March 2007, “One big danger to Siemens is the German criminal offence of untreue. Unlike in most Anglo-Saxon jurisdictions, where the equivalent action, breach of fiduciary duty, can only lead to civil suits, in Germany it can lead to prosecutions and is a common way of trapping corporate leaders in the absence of evidence regarding any more specific wrongdoing.”

BAE Systems encountered allegations of bribery of members of the Saudi Royal family (amounting to approximately GB£60 million), leading to an enquiry by the UK’s Serious Fraud Office. This was ended in December 2006 by the British Government on the grounds of “national interest” (as reported in the AFN February 2007 newsletter). Nevertheless, due to the fact that some of the gifts and hospitality in question were allegedly provided via the US offices of BAE, the DoJ is reported to be considering stepping in even though BAE is not an issuer in the United States, which would complicate BAE plans of purchasing Armor Holdings in the United States. In addition, the OECD’s anti-bribery group is deciding whether the UK government broke the OECD’s anti-bribery convention by dropping the investigation on BAE. There are further reports that prosecutors from the United Kingdom, the Czech Republic, Sweden and Austria are to meet to coordinate their corruption investigations into BAE on allegations that the company promised secret commissions to two agents in Austria to promote the Czech sale of the Gripen Fighter. BAE is also reported to be under investigation in South Africa, Chile, Romania, Qatar and Tanzania and, at the beginning of May, the Swiss authorities stated that they, too, had opened a criminal investigation into possible money laundering at BAE Systems.

Any company that believes it can “get away” with an improper payment because it is not an issuer in the United States and the act was perpetrated outside the territory of the United States should think again. Such an act will undoubtedly be covered by one or more of the conventions outlined above and/or by domestic legislations. In the worst case scenario, the company could end up being prosecuted for the same offence in different jurisdictions as no apparent consensus exists on how this web of laws and treaties will work to comply with the basic principle of double jeopardy.

Cecilia Garcia Podoley is a Lawyer and Certified Fraud Examiner. She graduated in 1995 from the University of Buenos Aires, Argentina. Since then she has worked as legal advisor at different public offices in Argentina, including the National Audit Office, and as in-house counsel for different corporations in Argentina and The Netherlands. Since 2005, she’s held the office of Counsel Integrity within TNT Group Integrity, in charge of fraud and anti-corruption issues. She’s a member of the Buenos Aires Bar Association, the Fraud Advisory Panel and other lawyer’s associations. Contact Details: T: +31 (0)20 500 6492 E: cecilia.garcia.podoley@tnt.com The views expressed by the author of this article are not necessarily those of TNT, TNT Group Integrity or the Anti-Fraud Network.