Measures against corruption go global
Linking of communities makes life difficult for transgressors
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.
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