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Foreign Anti-Corruption Laws - Are You Compliant?

Yeong Hui explains the need to comply with foreign anti-corruption laws that have extraterritorial effect 

With the coming into effect of the UK Bribery Act 2010 (“UK Bribery Act”) in July 2011 and the broadening enforcements by the US authorities under the US Foreign Corrupt Practices Act 1977 (“FCPA”), companies, in particular multinationals, need to be concerned not only with the anti-corruption laws of the country in which they operate but also foreign laws which have extraterritorial effect and are applicable to them.

Indeed, recent prosecutions for breach of the FCPA see the US authorities exhibiting an increased interest in foreign corporations, particularly in the Asia Pacific region, and some high dollar-value enforcement actions have been taken against such corporations. In this regard, six of the twelve corporate FCPA settlements in 2012 involved business operations in the Asia Pacific region and this trend does not appear to be abating in 2013.

 

LEGAL REQUIREMENTS AND OBLIGATIONS

The FCPA prohibits, among other things, bribery of foreign government officials in order to obtain or retain business. The US Department of Justice (“DOJ”) in this regard targets not only domestic US concerns (which include all US incorporated companies and any company that has its principal place of business in the US or is listed on any US stock exchange as well as all US nationals, citizens and residents), but also any officers, directors, employees, agents (which may include foreign subsidiaries) and shareholders acting on behalf of the US companies. As a result, officers working in a Malaysian-based US enterprise can end up before the US courts for bribing a Malaysian public official in Malaysia.

In addition, foreign companies which do not meet the above description may also be prosecuted for foreign bribery that has a connection to the US. The threshold for this territorial jurisdiction is very low, requiring as little as wire transfers to bank accounts in the US, as evidenced by a recent prosecution involving a Japanese multinational.

The UK Bribery Act, which criminalizes bribery of any person (including not only local and foreign local officials but also private entities), gives the UK courts jurisdiction over individuals and companies in cases where, among other things:

  1.  the person committing the offence has a close connection to the UK (which includes, among others, UK citizens, ordinary residents and incorporated companies); and 
  2. the company, whether local or foreign, carries on business in the UK and pays or promises bribes through an associated person anywhere in the world (including, but not limited to, any consultant, agent, employee or subsidiary).

Therefore, a foreign company which conducts business in the UK may be convicted by the UK courts if its employees or employees of its subsidiary pay bribes to someone anywhere in the world.

 

ANTI-CORRUPTION ENFORCEMENT

The past few years have seen several enforcement actions by the US authorities involving corrupt practices in Malaysia.

A French-based telecommunications company was faced with FCPA charges in 2010 when a Malaysian joint venture, in which it was the majority shareholder, allegedly paid bribes to employees of a government-linked company. The objective was to obtain confidential information relating to a public tender which it ultimately won. For this and other offences in other countries, criminal fines amounting to US$92 million were imposed by the US Securities & Exchange Commission (“SEC”). In addition, the company was forced to disgorge US$45,372,000 which it had earned as profits and interest in those transactions. 

The Malaysian Anti-Corruption Commission (“MACC”) also investigated this matter which resulted in the conviction of a former account leader of the Malaysian subsidiary of the French company for offences under the Malaysian Anti-Corruption Act 1997 (“MACC Act”). The government-linked company concerned and another Malaysian telecommunications company suspended the French telecommunications giant from participating in tenders, contracts or joint ventures for one year.

The DOJ and SEC also announced late last year an FCPA enforcement action against a US conglomerate for its alleged engagement in corrupt practices in more than a dozen countries in Asia and the Middle East, including Malaysia. The fines and penalties in the enforcement action amounted to approximately US$26.8 million. One of the complaints was that the wholly owned Malaysian subsidiary of the US conglomerate had used intermediaries to pay the employees of its customers when bidding on contracts. Payments were made to approximately twenty-six employees of customers, one of whom was an employee of a government-controlled entity. The subsidiary inaccurately described these expenses as ‘commissions’ and failed to maintain policies sufficient to prohibit such payments. As a result, the US conglomerate’s books and records were misstated. 

As regards the UK Bribery Act which came into effect two years ago, several individuals have been prosecuted by the Crown Prosecution Service for bribery of public officials. The UK Serious Fraud Office (“SFO”), the government department primarily responsible for investigating and prosecuting serious and complex fraud and corruption, has recently in August 2013, filed its first case against 4 British nationals for alleged contravention of the UK Bribery Act in relation to investments in Cambodia. As it was reported recently that the SFO is currently investigating 8 cases, more prosecutions may be in the pipeline.

 

COMPLIANCE PROGRAMMES

Because of the devastating financial consequences and reputational damage to a business if there are UK Bribery Act or FCPA compliance issues, many companies, particularly those with presence or have businesses in the US and UK, have taken steps to mitigate their risks and exposure to breaches, investigations, prosecutions and derivative litigation.   

Both the FCPA and the UK Bribery Act encourage good compliance practice. The DOJ and the SEC have expressly identified the existence of a corporate compliance programme as a factor to be considered when deciding whether to bring charges.

Indeed, the UK Bribery Act goes one step further as it makes good compliance practice a complete defence to liability. What constitutes good compliance practice is not specifically defined in the UK Bribery Act but guidance for commercial organisations published by the UK Ministry of Justice enumerates the following six guiding principles:

  • Proportionate procedures
  • Top level commitment
  • Risk assessment
  • Due diligence
  • Communication
  • Monitoring and review.

These principles are however not prescriptive, and vary according to the particular circumstances of each case (for example, the size of the organisation concerned, its area of activity, and so on). 

A robust anti-corruption compliance programme must include well-written policies, procedures and codes of conduct which set out what employees must or must not do to ensure compliance with the FCPA, the UK Bribery Act as well as the MACC Act in order to avoid the company or its employees being subject to investigation, or even prosecution. These documents can also be extended to include policies on other relevant compliance related obligations, such as those relating to anti-money laundering and anti-competition, and if the company does not already have one, a whistle blowing policy and the reporting of such offences.

Another effective way to minimise risk of contravention is for all employees and even its third party service providers to be trained on what is now prohibited by the abovementioned laws. Among other things, they should be familiar with the types of corporate hospitality, entertainment and gifts which are permissible and be educated on due diligence that needs to be performed prior to engaging third party intermediaries and agents. Managers who run the organisation must also know and recognise red flags and act promptly to address concerns.

In this regard, a law firm which is well-versed in these matters can provide invaluable assistance in preparing a set of written policies, codes of conduct and procedures for internal investigations, as well as providing general advice on anti-corruption laws and establishing or reviewing compliance and training programmes.  


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