Recently Robert Ridge of Thorp Reed and Armstrong, a former counsel in the Anti-Fraud Unit of the Department of Justice, and Dennis Boyle of Boyle, Autry and Murphy, a former Special Assistant United States Attorney and U.S. Navy Judge Advocate lead a discussion on Bribes in International Business. The effect of the new United Kingdom Bribery Act is disproportionately felt by smaller companies and is extraterritorial, potentially affecting any company that does any business in the U.K. The Act is setting the new international standard and may eclipse the U.S. Foreign Corrupt Practices Act (FCPA) as to any business done in the UK. Commercial bribery includes payment or receipt of bribes as well as failure to have proper compliance procedures. An international standard is evolving. Bribes were once a tax deduction in Germany. Russia and China have bribery statutes and arrests were made in the Rip Tanto case in China, where enforcement is more internal than international. Countries such as Nigeria and Ukraine can levy prison sentences for violations even though bribery is common. Bribery is illegal virtually everywhere. The slow trend is more enforcement and less corruption and bribery around the world. But it is still common and is fairly institutionalized in the Middle East and Latin America. For many government officials their salary is so low bribes are a part of their “pay.”
There are several ways companies can limit their exposure. They can use agents in different countries who are required to sign an acknowledgement that they have been warned of the FCPA and the U.K. Act and certifying they will not violate these laws. They should reserve the right to and check and audit expenses. Before hiring and agent, they should contact the U.S. Embassy in the country involved to find out as much as they can about the individual or his firm. Trace International can also be used for this purpose. An agent’s act may implicate a company. Be cautious working in countries such as the Ukraine and U.A.E. where local law may require a local equity partner. Look for red flags, such as where the agency contract requires payment proportionate to the size of the contract. The Department of Justice (“Justice’) website has a Layman’s Guide to the FCPA that indicates red flags to watch out for. Be careful of situations in which the agent is related to the Minister of Defense or some important government official and has no real duties.
Sometimes the foreign country is entitled to in gratia payments where the company is a beneficiary to fines in a FCTP settlement. They are viewed as restitution.
Sometimes it is not easy to distinguish a bribe from a proper payment. The Books and Records Provision of the FCPA states it is a violation if the bribe is hidden in records. Expenditures must be to advance the sale of a product. An examples of a bribes is side trips which are a gift. Payments authorized by statute or Facilitating Payments are not bribes under the FCPA, but the latter are bribes under the U.K. Act.. A de minimus payment for a nondiscretionary act is a facilitating payment. Counsel must look at the overall circumstances to determine what is a facilitating payment. $20 to release containers may be borderline and Justice may not agree that this is legal. Fees paid for routine government action such as permits, licenses, fees to load or unload cargo or make inspections or to get a copy of a document are usually not bribes but paying a fee above any standard published fee schedule to obtain these is likely illegal. Facilitation payments is a dangerous area. Governments may raise prices and turn bribes into legitimate payments.
Who is a foreign official under the FCPA is difficult to define. Employees of government-owned enterprises are included. Justice has promised guidelines on this later in 2012.
The Corruption Index lists countries by a factor of corruption. Transparency International and the O.E.C.D. has a report undated annually. The highest risk countries are China, Russia, Iran, Belarus, North Korea and Somalia. Be cautious in Kazahkstan which has no criminal code.
When a client comes to counsel and suspects bribes have been paid, an internal investigation with an independent law firm should be undertaken with a report made to a subset of the Board of Directors. A decision must be made whether to disclose. If disclosure is to be made, counsel should call Justice’s fraud section and negotiate. If disclosure is made early and in full this can benefit a company, however a recent study indicated this was not the case. The implicated employee should retain independent counsel usually paid for by the company which usually has a duty to indemnify up to the indictment stage. US law provides for a maximum prison sentence of 15 years for violations. Remedial measures may be required. An Amnesty Program is being considered to grant amnesty to the first person who discloses if they had no prior knowledge. 85% of the cases under the FCPA are voluntary disclosures. Often businesses initiate contact with Justice. Be very careful and do not give advice a bribe is too minimal to disclose.
J. Michael Considine, Jr. is Chairman of the International Business Initiative.