Mea­sures against cor­rup­tion go global

Link­ing of com­mu­ni­ties makes life dif­fi­cult for trans­gres­sors

Business Day - Business Law and Tax Review - - BUSINESS LAW & TAX REVIEW - CAMERON DUN­STAN-SMITH & HAR­RIET BEAMISH

AS THE global busi­ness com­mu­nity has be­come more con­nected, so too has global an­ti­cor­rup­tion en­force­ment. Cor­po­ra­tions not head­quar­tered or op­er­at­ing in the US or the UK are real­is­ing in­creas­ingly that they are not im­mune from pros­e­cu­tion by US or UK au­thor­i­ties, not to men­tion other in­ter­na­tional au­thor­i­ties.

The two key pieces of for­eign leg­is­la­tion that deal with com­bat­ing bribery and cor­rup­tion, and which have the most ex­ten­sive ex­trater­ri­to­rial reach, are the For­eign Cor­rupt Prac­tices Act 1977 from the US and its UK equiv­a­lent, the UK Bribery Act 2011.

The cor­rupt prac­tices act has two broad cat­e­gories of of­fences. Firstly, that of mak­ing a cor­rupt pay­ment to any for­eign of­fi­cial for the pur­poses of gain­ing a busi­ness ad­van­tage, and se­condly, the fail­ure by for­eign or do­mes­tic is­suers of se­cu­ri­ties reg­is­tered on a US-stock ex­change to com­ply with spe­cific in­ter­nal con­trols. The bribery act cre­ates spe­cific bribery of­fences (the of­fences of pay­ing or re­ceiv­ing bribes by any per­son, and brib­ing for­eign of­fi­cials), as well as the ad­di­tional of­fence ap­pli­ca­ble to com­mer­cial or­gan­i­sa­tions of the fail­ure to im­ple­ment ad­e­quate pro­ce­dures to pre­vent bribery.

Both acts have sig­nif­i­cant ex­trater­ri­to­rial ju­ris­dic­tion and com­pa­nies and in­di­vid­u­als may be pros­e­cuted for of­fences. The cor­rupt prac­tices act and bribery act can es­tab­lish ju­ris­dic­tion by link­ing a US or UK com­pany to the orig­i­nal trans­gres­sion via that com­pany’s for­eign group en­ti­ties and their in­di­vid­ual agents, em­ploy­ees or of­fi­cers. For ex­am­ple, a Kenyan par­ent com­pany that ap­points an agent in Zimbabwe who bribes a Chi­nese of­fi­cial for the ben­e­fit of the Kenyan par­ent com­pany could be pros­e­cuted un­der the bribery act, on the ba­sis that a sub­sidiary of that Kenyan par­ent com­pany — which had no in­volve­ment in the of­fence — is lo­cated in Lon­don.

The cor­rupt prac­tices act in par­tic­u­lar has been ex­ten­sively utilised to im­pose penal­ties and fines on non-US com­pa­nies. In 2011 non-US com­pa­nies were re­spon­si­ble for nine of the ten big­gest penal­ties im­posed un­der the cor­rupt prac­tices act, while non-US in­di­vid­u­als con­sti­tuted twothirds of all in­di­vid­u­als charged un­der the cor­rupt prac­tices act. Trans­gres­sors of the bribery act and cor­rupt prac­tices act do not re­ceive any re­lief, hav­ing been in­ves­ti­gated and sanc­tioned in terms of one act — the same un­der­ly­ing con­duct may give rise to li­a­bil­ity in terms of the other.

In ad­di­tion to civil sanc­tions, crim­i­nal penal­ties of up to $25m (cor­po­ra­tions), and $5m and 20 year’s in­car­cer­a­tion (in­di­vid­u­als) are ap­pli­ca­ble per vi­o­la­tion un­der the cor­rupt prac­tices act. The sig­nif­i­cant penal­ties, dis­gorge­ments and set­tle­ments en­forced un­der the cor­rupt prac­tices act send a firm mes­sage to global cor­po­ra­tions and in­di­vid­u­als, with 12 com­pa­nies in 2012 set­tling cor­rupt prac­tices act en­force­ment ac­tions worth a com­bined to­tal of $259.4m (down from the 2010 high of $1.8bn paid by 23 com­pa­nies), and six­teen in­di­vid­u­als re­ceiv­ing cus­to­dial sen­tences rang­ing from sev­eral months to sev­eral years in prison. Ad­di­tional sanc­tions ap­pli­ca­ble to cor­po­ra­tions may in­clude be­ing dis­barred from con­duct­ing busi­ness with the US govern­ment and var­i­ous banks, loss of ex­port priv­i­leges and com­pul­sory im­po­si­tion of a com­pli­ance mon­i­tor or in­de­pen­dent con­sul­tant in the busi­ness.

The global glare of an­tib­ribery and an­ti­cor­rup­tion leg­is­la­tion has Africa and the multi­na­tion­als con­duct­ing busi­ness in Africa firmly within its sights, as ev­i­denced by an in­ves­ti­ga­tion ini­ti­ated by the US Se­cu­ri­ties Ex­change Com­mis­sion and the Fed­eral Bureau of In­ves­ti­ga­tion into a lo­cal trans­ac­tion be­tween two African en­ti­ties, one of which may fall within the scope of the cor­rupt prac­tices act due to its group hav­ing is­sued US-reg­is­tered se­cu­ri­ties. Fur­ther­more, more coun­tries have al­ready im­ple­mented, or are im­ple­ment­ing, an­tib­ribery and an­ti­cor­rup­tion leg­is­la­tion. Th­ese coun­tries in­clude China, Rus­sia and In­dia, three of the five BRICS na­tions of which SA is a mem­ber and with whom African coun­tries trans­act reg­u­larly.

De­spite the seem­ingly un­for­giv­ing stance taken by the en­force­ment au­thor­i­ties re­lat­ing to cor­rupt prac­tices act con­tra­ven­tions, there is en­cour­ag­ing news for or­gan­i­sa­tions that are dili­gent in im­ple­ment­ing an­ti­cor­rup­tion mea­sures.

Case law has shown there to be ways in which com­pa­nies may de­fend or mit­i­gate their li­a­bil­ity un­der the cor­rupt prac­tices act suc­cess­fully. Th­ese in­clude close and reg­u­lar mon­i­tor­ing of trans­ac­tions that pose a cor­rup­tion risk, clear in­ter­nal guide­lines pro­hibit­ing bribery and cor­rupt ac­tiv­i­ties and fre­quent train­ing of em­ploy­ees and agents on in­ter­nal poli­cies.

The ben­e­fits of strict com­pli­ance poli­cies and dili­gent re­port­ing are ev­i­dent in the case of US v Peter­son (Mor­gan Stan­ley), where Garth Peter­son, the for­mer man­ag­ing part­ner of Mor­gan Stan­ley’s Shang­hai real es­tate busi­ness pleaded guilty to con­spir­acy to cir­cum­vent in­ter­nal

The global glare of an­tib­ribery and an­ti­cor­rup­tion leg­is­la­tion has Africa and the multi­na­tion­als con­duct­ing busi­ness in Africa firmly within its sights

con­trols by trans­fer­ring a mul­ti­mil­lion­dol­lar real es­tate in­ter­est to him­self and a Chi­nese govern­ment of­fi­cial.

Mor­gan Stan­ley dis­cov­ered Peter­son’s in­dis­cre­tions through their in­ter­nal an­ti­cor­rup­tion con­trols, self–re­ported, and co­op­er­ated with the US Depart­ment of Jus­tice by in­sti­tut­ing their own in­ter­nal in­ves­ti­ga­tion. The re­sult was that Peter­son was sen­tenced to nine months in prison. The depart­ment re­solved not to in­sti­tute pro­ceed­ings against Mor­gan Stan­ley and ac­knowl­edged them for their sound busi­ness prac­tices — the rel­e­vant Mor­gan Stan­ley of­fice had pro­vided anti-cor­rup­tion pol­icy train­ing 54 times, trained Peter­son seven times and re­minded him of his cor­rupt prac­tices act obli­ga­tions at least 35 times.

It would be re­miss of com­pa­nies con­duct­ing busi­ness in Africa to ig­nore their po­ten­tial ex­po­sure to the For­eign Cor­rupt Prac­tices Act and the UK Bribery Act and other in­ter­na­tional and lo­cal an­ti­cor­rup­tion leg­is­la­tion.

It would be equally re­miss of African com­pa­nies to dis­miss the value of es­tab­lish­ing their own com­pli­ance poli­cies and struc­tures to com­ple­ment those re­quired by po­ten­tial for­eign in­vestors. The draft­ing of in­ter­nal an­ti­cor­rup­tion poli­cies, train­ing and due dili­gence plays an in­te­gral role in mit­i­gat­ing cor­po­rate and in­di­vid­ual risk. In ad­di­tion, the promi­nence of in­ter­na­tional an­ti­cor­rup­tion and antbribery leg­is­la­tion will un­doubt­edly have a no­tice­able ef­fect on the con­trac­tual land­scape, with ex­ten­sive cor­rupt prac­tices act and bribery act com­pli­ance pro­vi­sions be­com­ing prom­i­nent fea­tures in all types of con­tracts.

More pres­sure will in turn be ex­erted on coun­ter­par­ties to agree to th­ese pro­vi­sions, and with­out a clear un­der­stand­ing, com­pa­nies and in­di­vid­u­als place them­selves at risk of agree­ing to oner­ous obli­ga­tions with se­vere sanc­tions ap­pli­ca­ble for non­com­pli­ance.

While it re­mains to be seen how vig­or­ously leg­is­la­tion such as the cor­rupt prac­tices act and bribery act will be en­forced in Africa in fu­ture, the old adage that it is “bet­ter to be safe than sorry” rings true.

What we can be cer­tain of is that given the cur­rent global eco­nomic sit­u­a­tion, in­di­vid­u­als, gov­ern­ments and cor­po­ra­tions alike need to en­sure that they are an­ti­cor­rup­tion com­pli­ant.

Pic­ture: THINKSTOCK

LEG­IS­LA­TION KNOWS NO BOUND­ARIES It would be re­miss of com­pa­nies con­duct­ing busi­ness in Africa to ig­nore their po­ten­tial ex­po­sure to in­ter­na­tional and lo­cal an­ti­cor­rup­tion leg­is­la­tion

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