September 11, 2018 / 3:55 PM / 15 days ago

INSIGHT: Regulators launch international crackdown on corruption

NEW YORK(Thomson Reuters Regulatory Intelligence) - A drive to crack down on corruption is taking the business world by storm, as more jurisdictions adopt new anti-bribery regimes or step up enforcement of existing ones. As countries with established regulatory regimes remain active in enforcement, other countries plagued with bribery problems are undertaking determined efforts to change their reputations.

The handcuffs of inmates are seen during a play at a public theatre in Lima, June 20, 2012.

Western multinationals increasingly need to consider and observe local laws in every jurisdictions they do business. This is in addition to anti-bribery regimes in their home jurisdiction such as the U.S. Foreign Corrupt Practices Act (FCPA), Canada’s Corruption of Foreign Public Officials Act (CFPOA) and the United Kingdom Anti-Bribery Act (UKBA).

ENFORCEMENT PICK UPS AROUND THE WORLD

Other countries have also intensified anti-corruption enforcement.

— Last year in Saudi Arabia, Crown Prince Mohammed bin Salman spearheaded an extensive anti-corruption campaign that resulted in the detention of a number of high-profile businessmen and political officials.

Even before that crackdown, a Saudi royal decree was issued in 2015 setting out rules relating to gifts for public officials, building on the country’s existing anti-bribery regime.

The country’s rating on the Transparency International Corruption Perceptions Index (CPI) has improved steadily in recent years, suggesting that the regulatory focus in this area is unlikely to shift in the near future.

— The People’s Republic of China has developed an extensive anti-graft regime. Like Saudi Arabia, China has been successful in raising its CPI rating over the past few years, again suggesting anti-graft will remain a priority for regulators in this jurisdiction.

While the Chinese government has focused on official bribery and weeding out corruption in public service, commercial bribery is very much on the radar.

Aggressive anti-bribery enforcement efforts have ensnared multinationals such as GlaxoSmithKline (GSK) in 2013 and Rio Tinto in 2009. Both organizations suffered substantial reputational and financial damage associated with legal proceedings brought against their employees in Chinese courts.

GSK was ultimately fined 3 billion yuan (US$479 million) over violations of Chinese anti-bribery law. In addition to fines and negative publicity, GSK has been pressured to restructure its operations in China and undertake efforts to improve anti-bribery practices worldwide.

DOMINO EFFECT - WHEN ONE ACTION FOLLOWS ANOTHER

Anti-bribery investigations and enforcement actions in foreign jurisdictions can also trigger scrutiny at home for multinationals in Canada, the United Kingdom and the United States.

Earlier this year, UK-based pharmaceutical giant GlaxoSmithKline disclosed that the U.S. Department of Justice (DOJ) and the Securities and Exchange Commission (SEC) has requested that the company provide additional information regarding past dealings with third-party advisors in China. This inquiry is in addition to an FCPA action in 2016 in which GSK agreed to pay the SEC US$20 million to settle allegations that its subsidiaries in China paid bribes to have the company’s drugs prescribed.

The Serious Fraud Office (SFO) in the UK has also made similar inquiries as a part of a criminal investigation into the company that was commenced in 2014.

Multinationals with a presence in the United States and Canada are particularly at risk for triggering a domino effect of enforcement actions linked to corruption allegations. The CFPOA and the FCPA are similar (PDF) in many respects; as such, violation of the CFPOA could trigger an FCPA enforcement action for businesses with a presence in both countries.

For example, Canada’s Griffiths Energy was fined C$10.35 million over violations of the CFPOA in 2013. The violations involved payments made by Griffiths to political officials in Chad. Some of these transactions allegedly occurred in Washington, D.C. The U.S. Justice Department subsequently initiated an FCPA enforcement action against Griffiths on the grounds that corrupt payments to a foreign government official that occur on U.S. soil are subject to the FCPA.

SENIOR MANAGER LIABILITY

A recent UK court case, R v Skansen Interiors Ltd. has shed some light on how aggressively regulators will prosecute violations of the UK Bribery Act.

The case against Skansen is the first contested prosecution for failure to prevent bribery under s.7 of the UK Bribery Act. The prosecution alleged that Skansen’s then managing director had paid two bribes to a third party to win tenders and had conspired to make a third payment. The company cooperated with authorities during the investigation, including producing documentation upon request. The Skansen executive, along with a senior executive at the third party, were imprisoned for bribery offenses.

While this case did not involve bribery offshore, it is particularly noteworthy.

Skansen asserted, in its defense, that it had implemented adequate policies and procedures to prevent bribery, meeting the requirements of the UK Bribery Act. The company asserted that as a small business dealing with localized entities, it had policies in place on the need for employees to act ethically. The company also had financial controls to approve and settle invoices, including a procedure designed to ensure that the payments to legitimate before they could be paid out or posted on the corporate ledger.

Although there was no judicial input on what constitutes adequate procedures, UK businesses should infer that self-reporting, cooperating, maintaining and producing documentation alone may not be sufficient to support the defense of adequate procedures.

Moreover, the decision to jail the two executives also demonstrates intent on the part of the judicial system, to treat bribery as a serious criminal offense whether the misconduct involves tens of thousands of dollars or millions.

COMPLIANCE CONSIDERATIONS

Multinationals face intensifying scrutiny over anti-bribery practices. These businesses also must contend with the risk that an investigation in one jurisdiction could trigger enforcement in multiple jurisdictions.

As demonstrated by the FCPA enforcement action against Griffiths, businesses do not need to have substantial operations in foreign jurisdictions to be ensnared by local anti-bribery laws, particularly the U.S. FCPA and the Canadian CFPOA. With the FCPA, allegations that an act of bribery took place on U.S. soil or had another U.S. connection could be sufficient to constitute a violation. Similarly, the CFPOA also has extra-territorial reach if it involves a Canadian entity or individual.

Anti-bribery investigations can prove time consuming and expensive, as seen with GSK. Matters that were previously concluded could be reopened again for further investigation, possibly resulting in additional sanctions.

Robust compliance systems remain the best preventative to mitigate the risk that firms will run afoul of anti-bribery laws.

At the foundation, a business needs to have policies and procedures that clearly define what constitutes bribery and explicitly embody a zero-tolerance policy towards corruption. These policies need to be well-detailed and consider cultural differences.

For example, in eastern regions where gift giving and entertainment are seen as part of doing business, organizations need to articulate, in unambiguous terms, what is and is not acceptable for employees to offer as gifts and entertainment in their business dealings. These policies should be repeatedly communicated to staff through routine training. Reminders should be sent out during main gift giving seasons whilst taking cultural differences into account.

For example, Christmas is usually the main gift giving season many western countries; however, dates for gift giving seasons in other countries may differ from dates in the Gregorian calendar. For example, in Islamic countries, including most of the Middle East, gift giving season is typically at the end of Ramadan. In certain East Asian countries, the main gift giving season is during the Lunar New Year.

Multinationals of all sizes, and even smaller businesses with more localized dealings need to prioritize anti-bribery measures at the top of their agenda for risk mitigation. As regulators all over the world become more active in either implementing or enforcing anti-corruption laws, businesses need to adopt a zero-tolerance policy to weed out misconduct.

(Helen Chan is a regulatory intelligence expert for Thomson Reuters Regulatory Intelligence, based in New York. Email Helen at helen.chan@thomsonreuters.com)

This article was produced by Thomson Reuters Regulatory Intelligence and initially posted on Aug 30. Regulatory Intelligence provides a single source for regulatory news, analysis, rules and developments, with global coverage of more than 400 regulators and exchanges. Follow Regulatory Intelligence compliance news on Twitter: @thomsonreuters

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