How Should the District Court in Siriwan Interpret Thailand’s Response to the US Government’s Extradition Request?
Today’s post is from Mike Dearington, a third-year law student at Vanderbilt University Law School. The post concerns the DOJ’s FCPA-related enforcement action against the “foreign officials” in the Gerald and Patricia Green enforcement action. Dearington previously authored guests posts here and here on the action and provides an update below.
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How Should the District Court in Siriwan Interpret Thailand’s Response to the US Government’s Extradition Request?
Prosecutors in United States v. Siriwan filed a response last week (here) to address arguments raised by the Siriwans in mid-January. Arguing against dismissal, prosecutors advanced the government’s position that Thailand’s responses to the US extradition request indicate that “Thailand has not asserted sole jurisdiction” over the Siriwans.
To recap, the Siriwan case has garnered significant attention because of the government’s novel prosecution tactic: In 2009, prosecutors charged Juthamas Siriwan, ex-Governor of Tourism Authority of Thailand, as well as her daughter Jittisopa, with money laundering in connection with alleged bribe receipts remitted by Gerald and Patricia Green (see here for the prior FCPA Professor post). The FCPA cannot reach Juthamas Siriwan because she is a foreign official, a limitation pronounced in United States v. Castle. Thus, prosecutors charged Siriwan with money laundering in promotion of bribery in hopes of avoiding the FCPA’s shortcoming—a tactic the defense deemed a “novel and untested . . . theory.”
But prosecutors face a hurdle in what Judge Wu has called “a very important case in an area which is very, very difficult.” Indeed, in a January 2012 hearing on the defendants’ motion to dismiss, Judge Wu expressed reluctance with “the government’s position that [it] can somehow get around” the FCPA by charging defendants under the Money Laundering Control Act (MLCA). But an additional hurdle stands in the way of the court even reaching this money-laundering issue.
That hurdle is the United States’ treaty with Thailand. In the January 2012 hearing, Judge Wu stated:
“I would not feel comfortable reaching final conclusions until I figure out or unless I am informed how the government of Thailand is viewing the situation . . . . [I]f Thailand says it’s not going to extradite, I will find that Thailand has a dominant interest . . . because they will have expressed it to me in no uncertain terms. If they agree to the extradition, then all of the issues are open and that means I’ll have to decide them all.”
In sum, the court suggested it might not reach a decision on whether prosecutors can proceed under an MLCA theory until the court first decides whether Thailand has a dominant interest or not.
To complicate matters, Thailand has neither agreed to, nor rejected, the government’s extradition request. By July 2012, Thailand had made no response to US overtures. Finally, in November 2012, the Acting Thai Attorney General notified prosecutors that it was gathering evidence to charge the Siriwans and “must postpone the extradition process” pursuant to the treaty. And in December 2012, Thailand’s Ministry of Foreign Affairs informed the US Embassy that a “criminal case will be filed” against Siriwan and therefore extradition proceedings “must be postponed . . . .”
Thus, the determinative question at this stage is how the court will interpret Thailand’s response. On one hand, based on the court’s statements in January 2012, if the court views Thailand’s response and postponement of extradition proceedings as an expression of sole jurisdiction and a refusal to extradite, it will probably dismiss the indictment finding that Thailand has a dominant interest. In support of dismissal, the defense argued in January that Thailand has expressed “sovereign interest,” and that Thailand’s position and “official[]” postponement “suggest[] the Thai government feels that extradition and prosecution here ‘may affect the international relation.’”
On the other hand, if the court views Thailand’s response not as a refusal, but as a mere delay, the case will likely remain on the court’s docket at least until the Thai Attorney General’s Office concludes its investigation and prosecution. In the government’s filing last week, prosecutors argued that Thailand has “not made any . . . notification . . . nor has it otherwise signaled that international relations may be impaired . . . by the government’s prosecution.” Of Thailand’s position, prosecutors stated “Thailand asserts no definitive position on any aspect of the government’s extradition request. . . . Thailand’s only affirmative statement is that it is postponing review of the request for the time being.” Prosecutors accused the defense of “tr[ying] again and again to invent and interject into this case a conflict with Thailand that, in fact, does not exist,” and also of “inappropriately asserting self-serving and unfounded claims on behalf of Thailand.”
The court will need to first decide the jurisdiction question before even reaching, if at all, the legitimacy of prosecutors’ MLCA theory. Even if the court ultimately approves the theory, however, the Siriwan proceeding portends the delays and difficulties treaties might pose for the government in seeking to prosecute foreign officials in the future. A hearing on these issues is scheduled for February 21.
Canada Redoubles Efforts at Combating Foreign Corruption: Canadian Businesses Warned to “Play by the Rules”
Today’s post is from Riyaz Dattu (Partner at Osler, Hoskin & Harcourt LLP in Toronto) concerning yesterday’s development in Canada concerning proposed amendments (here) to Canada’s Corruption of Foreign Public Officials Act.
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Canada Redoubles Efforts at Combating Foreign Corruption: Canadian Businesses Warned to “Play by the Rules”
Within days of successfully imposing a fine in the amount of $10.3 million against Griffiths Energy (see here) pursuant to the Canadian Corruption of Foreign Public Officials Act (“CFPOA”), Minister of Foreign Affairs, John Baird, announced on February 5, 2012, that the Canadian government intends to “redouble its fight against corruption” and expects “Canadian businesses to play by the rules.”
This is to be accomplished by the government implementing some of the most significant changes to the CFPOA since it first came into force in 1999.
Proposed Amendments
The Minister’s announcement lists the following far-reaching amendments to the CFPOA:
Increasing the maximum term of imprisonment – The foreign bribery offence is currently punishable by a maximum of five years’ imprisonment, and unlimited monetary fines. The government is proposing to increase the maximum term of imprisonment to 14 years. As is the case now, it would appear that the amendments will not change the fact that as an indictable offence, no limitation period would apply.
Nationality jurisdiction – Currently, the Canadian government’s prosecutorial jurisdiction is restricted by the legal requirement that there exist “a real and substantial link between the offence and Canada” (e.g., that a significant portion of the activities constituting the offence of bribing a foreign public official take place in Canada). Canada has been criticized by the OECD for applying the “real and substantial link” test rather than a test based on nationality. In its announcement the government has indicated that this amendment will now permit prosecution under the CFPOA based on nationality, and therefore “will make it easier for Canada to prosecute Canadians or Canadian companies for bribery in other countries, insofar as it will allow the Government of Canada to exercise jurisdiction over all persons or companies that have Canadian nationality, regardless of where the alleged bribery has taken place.” The practical consequence of this amendment is that it will significantly expand the scope of Canadian prosecutorial jurisdiction to cover illegal activities by Canadian nationals (including officers and directors) and Canadian corporations in violation of the CFPOA, regardless of the level of connection of the illegal activity to Canada.
Books and records offence – This amendment adds an accounting books and records provision to the CFPOA. The offence will make it illegal to falsify the records or hide payments related to bribery of foreign public officials. Conviction under this offence can result in 14 years’ imprisonment, and monetary fines at the discretion of the Judge without regard to a prescribed maximum amount. Although this offence will be criminal in nature (and therefore will require proof of criminal intent) rather than an infraction subject to civil penalties, it nevertheless will substantially increase the exposure of Canadian corporations, officers and directors to prosecutions under the CFPOA.
Eventual elimination of facilitation payments – The CFPOA currently allows nominal payments made to expedite or secure the performance by a foreign public official of any act of a routine nature that is part of the foreign public official’s duties or functions. This amendment, which is to come into effect at a later date to be set by Cabinet, will be consistent with the recommendation from the OECD that such payments be made illegal, eliminate the exception for facilitation payments. The additional time for the coming into effect of this provision is intended to allow Canadian corporations to phase out any such prevailing practices in their foreign business activities.
Clarifying the definition of “business” – This amendment removes the words “for profit” in the definition of business to ensure that the CFPOA applies to all business, regardless of whether profit is made. It eliminates the potential defence that an unprofitable business cannot be charged under the CFPOA, and pays heed to the OECD’s recommendation that Canada undertake the necessary changes to its implementing legislation such that it is consistent with the OECD Convention.
Exclusive ability to lay charges – The Royal Canadian Mounted Police (RCMP) will now be given exclusive authority to lay charges under the CFPOA. Previously the provincial government law enforcement authorities were permitted to lay charges pursuant to the CFPOA. According to the government’s announcement, since 2008 the RCMP has established the International Anti-Corruption Unit dedicated to “raising awareness and enforcing the CFPOA.” The RCMP currently has 34 ongoing investigations under the CFPOA, and as such this amendment will ensure specialization and centralized decision-making by the RCMP and the federal Public Prosecution Services Canada concerning enforcement under the CFPOA.
Conclusion
There can be no doubt left that the Canadian government has taken seriously the criticisms levied against it by the OECD for not actively enforcing the CFPOA, and now intends to improve its international reputation by actively combating foreign corrupt activities of Canadian nationals and corporations. The government has also indicated that it “expects that other countries [will] do the same,” by stepping up their own enforcement of anti-corruption laws consistent with their international obligations.
Within the last five years, in addition to delegating to the RCMP the enforcement function for the CFPOA, the Canadian government has successfully levied fines against Niko Resources (in 2011 — $9.5 million fine plus three years probation) and Griffith Energy (in 2013 — $10.5 million fine). With the large number of ongoing investigations now being handled by the RCMP, one can expect more prosecutions pursuant to the CFPOA in the coming months.
It can be expected that the legislation containing the amendments, to be first tabled in the Senate on February 6, 2013, will pass through the Canadian Parliament without opposition.
The Problem – And Solution – Regarding Foreign Outside Counsel Fees
Today’s post is from Zachary Cregar, a 2007 graduate of Duquesne Law School.
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The Problem – And Solution – Regarding Foreign Outside Counsel Fees
As foreign corruption prosecutions increase globally, corruption schemes commensurately grow ever more sophisticated. Payments have evolved from proverbial cash-stuffed suitcases to complex schemes involving third-party intermediaries, cloaking bribes as payments for legitimate services. Among third-parties, lawyers offer the most effective method of hiding bribes, and their potential for such is overlooked. This has been brought to light in the recent allegations against Wal-Mart. Fortunately there is a solution to this inevitably proliferating problem. A foreign outside counsel expense management program should be utilized by all companies engaging foreign outside counsel. The benefit is two-fold: prevention and detection of foreign corrupt payments, and material reductions in outside counsel legal expenditures.
The Problem
There should be no mistaking the fact a payment made to a law firm that in turn bribes a foreign official can be a violation of the Foreign Corrupt Practices Act and its major counter-part, the UK Anti-Bribery Act. Bribes paid through foreign outside counsel present a unique risk to detection. By the very nature of the profession, bills for legal services are often cryptic to those without specific legal training, experience with specific practice specialties, or familiarity with local jurisdictional nuances.
There are several likely scenarios in which foreign legal professionals can be used as corruption subterfuge. Consider the following; an American company hires outside counsel in a foreign country, where an employee or stakeholder of that firm is a foreign official, and is directly paid bribes under the guise of “legal fees.” Corporate compliance “know your customer” programs, in a general sense, are designed to identify these individuals and flag them to avoid improper payments.
The second and more problematic scenario lies where foreign outside counsel is used as a third-party intermediary. Here, foreign outside counsel submits invoices with bogus fees or expenses, and payments on those fees or expenses are passed on as bribes to foreign officials. An even more concerning and probative subset of this scenario lies where foreign outside counsel excessively bills for legal services legitimately performed, and skims the extra off the top to pay bribes to foreign officials. Because of the difficulty in detection, corporate anti-corruption compliance programs are unprepared to detect such risks.
Wal-Mart’s Alleged Foreign Counsel Problem
In an April 2012 exposé of Wal-Mart’s alleged foreign corruption, New York Times author David Barstow detailed how several outside lawyers retained by Wal-Mart in Mexico were used to pay nearly $8.5 million in bribes to local officials in order to expedite store expansions. Four days after the Times story broke, Wal-Mart stock dropped five percent. To-date, Wal-Mart has spent approximately ninety-nine million dollars to conduct forensic investigations of the alleged bribery.
The Times article explained how a substantial portion of the alleged bribes were paid through two attorneys acting as “gestores,” a Mexican term for quasi-lobbyist middle-men paid to carry out bribes of government officials. Over the course of several years, an executive for Wal-Mart de Mexico, Sergio Cicero Zapata, utilized two Mexican lawyers to deliver cash-stuffed envelopes to local government officials. These attorney-gestores allegedly paid off all levels of local officials to expedite, inter alia, store zoning, code and environmental issues. In fact, nearly half of all alleged bribes paid in Wal-Mart’s Mexican corruption scheme were paid through the two outside lawyers, who were in turn paid tens of thousands per permit facilitated.
Wal-Mart’s compliance regime allegedly failed to detect these payments. After word spread internally of the alleged bribes, an in-house investigative team was sent to Mexico – with the specific directive to investigate these allegations – and failed to adequately reveal the outside lawyers’ roles in the corruption scheme. It was not until Mr. Cicero’s allegations were made public that an investigative team, composed of outside counsel and auditors, independently revealed the scope of what had taken place.
A forensic recreation revealed that the Mexican lawyers handed cash over to foreign officials, and then submitted invoices to Wal-Mart with “brief, vaguely worded descriptions of their services.” The Wal-Mart de Mexico officials involved in the scheme then completed the purification of lawyer’s bribes by paying the invoices and recording them as legal fees in the company books. Because the records for these two outside lawyers were coveted secretively by just a few individuals, the subsequent team encountered strong resistance to obtaining the legal billing records. When finally obtained, the records did not look anything like legitimate legal invoices.
If true, the recent corruption allegations against Wal-Mart should erase any doubts about the importance of having a systematic foreign legal bill oversight process. In a sense, Wal-Mart de Mexico’s outside counsel bribery scheme was rudimentary. Yet the scheme evaded not only the company’s anti-corruption compliance program, but also the initial in-house investigation specifically directed to reveal this suspected program.
Pursuit of compliance policies that check for red flags and financial irregularities will have extreme difficulty in detecting the scenario, discussed supra, where outside counsel bills excessively for legitimate legal services and directs the skimmed proceeds to foreign officials. Yet this is where one of the most critical anti-bribery problems lies. Necessary compliance systems currently in place fail to reach sufficiency in this respect.
Increased Foreign Outside Counsel Spending, Increased Risk
As if the confluence of increased enforcement of global anti-corruption statutes and increasingly sophisticated corruptions schemes do not pose a serious enough risk to corporate due diligence, there are indications that U.S.-based corporations’ spending on and engagement of foreign outside counsel is on the rise. Without increased supervision of the influx of payments to foreign outside counsel, the risk of those funds finding their way into the hands of corrupt foreign officials also increases.
The Solution – Foreign Outside Counsel Expense Management Program
Companies seeking to proactively detect and prevent foreign outside counsel corruption schemes must put into place checks and balances to limit the authority of insiders’ use of foreign outside counsel, and to continually monitor counsel. Five concrete steps are immediately available. In abbreviated fashion, the steps are as follows:
1) Gatekeepers – Companies should specifically designate outside counsel gatekeepers. These employees must be granted authority to vet foreign outside counsel, and approve use of each foreign firm. With a list of approved and vetted firms in hand, gatekeepers can deny requests for use of lawyers that deviate from approved law firm panels. Retention of outside counsel must fit within specified protocols, based on type of legal work to be performed, and necessity of utilization of a firm. This is a basic protection against employees who seek to misappropriate corporate funds for legal work as a cover for foreign bribery.
2) Guidelines & Protocols – Companies should adopt explicit billing and case-handling protocols by which all foreign outside counsel law firms must abide. Guidelines are an expectation of how the firms will handle legal matters, and requires them to adhere to widely accepted ethical billing practices. Guidelines should also specifically require electronic billing of invoices and indicate that bills will be audited pre-payment and/or post-payment. Foremost for FCPA purposes, guidelines send the message to company employees and foreign law firms that legal bills are monitored by legally trained individuals capable of detecting financial irregularities.[i]
3) Electronic Billing – Outside counsel, whether domestic or international, must be required to submit legal bills electronically. Electronic legal billing software is obtainable as a service without the need for software development, and can accommodate international legal billing submissions. Electronic legal billing provides for greater adherence to FCPA record-keeping requirements, and allows for greater auditing and metrics analysis.
4) Auditing – Legal professionals familiar with the legal systems and cultural nuances of foreign jurisdictions should be utilized to review legal bills to determine reasonableness, appropriateness, and legitimacy thereof. Among other things, auditors can determine whether excessive time was billed, whether those who billed for work actually performed the work, or whether the work billed was actually performed. Again, a great deal of web-based software and services exist as ready-made platforms for legal bill auditing. Auditors can be located anywhere in the world.
5) Metrics Analysis – Finally, companies should employ legal professionals to analyze metrics and analytics derived from the electronic billing data. While legal bill auditing can make determinations about whether each legal task was reasonable or legitimate, corrupt payments can also be detected on a meta-scale. Compilations of large sets of data make possible quantification of firms’ costs-per case, effective rates, and firm-by-firm or regional comparisons. Irregularities suggesting bribes may be detected by looking at overall statistics that otherwise would remain invisible.
For some companies, all of the above tasks may be handled by one individual. For larger companies with substantial international legal operations, an in-house team may be required. And still there are other options; many insurers and third-party claim administrators already have similar domestic systems in place. The technology required is widely available, easily accessible and customizable to every company’s needs.
Conclusion
Steep anti-bribery pitfalls call for extraordinary preventative measures. Without foreign outside counsel management and auditing programs, companies may pay later in FCPA penalties and excessive legal bills. The allegations against Wal-Mart likely signal that a shift to using law firms in more complicated and covert bribery schemes is already underway. Companies must have a check against individuals seeking to stay a step ahead of compliance programs. While companies do not have the financial capabilities to proactively confront every conceivable FCPA risk, the scale of a foreign legal expense management program need only be relative to the scale of the engagement of international outside counsel. The relatively small expenditures required to put these programs in place can reduce some of the largest liabilities faced by companies. In a time of rising foreign legal expenditures and corruption threats, a little reassurance can go a long way.
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The views expressed in the above post are my own and do not reflect those of any past or present employer or client. I may be contacted at zdcregar@gmail.com.
Australia and Foreign Bribery: 2012 A Year In Review
Today’s post is from Robert Wyld (Partner, Johnson Winter & Slattery – here). Wyld is the Australia Expert for FCPA Professor.
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Introduction
The last 12 months have seen an increased level of activity across the spectrum of bribery and corruption in Australia – some positive and some well, just sort of ordinary and run of the mill activity. International developments filter Down Under and are likely to be taken up by Australia, ever-ready as any government to supplement its limited Treasury reserves.
Over time, Australia’s regulatory agencies learn from the experiences of their international counterparts and many foreign governments accept that foreign bribery laws should be changed and processes refined to target economic crime. While some developments overseas can greatly assist Australian corporations doing business around the world, a more proactive approach from the Australian Government would be welcome to deliver some certainty for the business community.
International Spotlight on Australia
In late October 2012, the OECD delivered its Phase 3 Review Report (here) on Australia’s compliance record under the OECD Anti-Corruption Convention. It made for sober reading to recognise that despite all the positive words emanating from Canberra, real action on combating foreign corruption still remains a political challenge and one perhaps with less priority than it should otherwise deserve.
The features highlighted by the OECD included:
- the creation of a properly resourced and coordinated body to investigate foreign bribery including the appointment of an expert panel to assist the AFP;
- ensuring that a thorough investigation occurs before any allegations of foreign bribery are dismissed;
- a substantial increase in penalties for foreign corruption and financial misreporting;
- the prohibition (or active discouragement) of facilitation payments; and
- the active promotion of foreign bribery and corruption risks for Australian businesses operating offshore.
It is hoped that the Australian Government will address these proposals in the near future.
International Trends
The laws targeting foreign bribery have inexorably grown from the US to many OECD member countries and an increasing number of Asian countries. They are becoming a legal fact of life in countries where Australian business undertakes a significant amount of trade and these businesses cannot afford to ignore them.
US Jurisdiction Creating a “World Jurisdiction”
The last 12 months has seen significant activity in the US and the UK. This activity is likely to be reflected over time in Australia. It is of immediate concern to Australian corporations subject to US and/or UK law (as subsidiaries of US or UK parent corporations), to US and UK citizens working for Australian corporations or more generally for Australian corporations doing business offshore in a manner that is likely to trigger US or UK jurisdiction.
This is because the US regulators advance broad theories of extra-territorial reach for the US Foreign Corrupt Practices Act (FCPA) and over the last 12 to 18 months, have focused extensively on targeting foreign corporations and individuals. Indeed, when considering the fines collected by the US authorities in 2011, nearly 90% came from non-US corporations and individuals (see Prof Mike Koehler, The Foreign Corrupt Practices Act Under the Microscope (here), Univ. of Penn Journal of Business Law 2012, Vol 15 No 1 page 9).
If a corporation engages in transactions in US dollars through US-based accounts or uses emails passing through (or which were stored on US servers), the US will assert jurisdiction. Together with an expansive view of the “agency” principles, the US will assert jurisdiction over conduct that might at first blush, have only a passing business connection with the US in any territorial sense.
In the UK, we have seen the Serious Fraud Office (SFO) take a step back from a warmer, fuzzy style with business promoted by its former Director, to a more hard-nosed approach, we will prosecute if serious offences have been committed. The UK Bribery Act has an extra-territorial reach, but how far is presently unclear. While the SFO initially suggested a “demonstrable business presence” to the UK would be the threshold test, more recent announcements suggest a more aggressive stance might be pushed through the UK courts.
While Australia’s foreign bribery laws have limited extra-territorial reach, the extent to which the criminal law of conspiracy can apply to foreign entities outside Australia, engaged in a conspiracy to, for example, bribe foreign (non-Australian) public officials, is likely to be pushed by the Australian regulators.
The Identity of a “Foreign Public Official”
The FCPA prohibits payments to foreign officials and not to foreign governments. Under US law, developing slowly through contested trials defended by individuals, the scope of whom or what constitutes a “foreign official” is under the spotlight. This is important as Australia’s Criminal Code contains statutory definitions of “foreign public official” and “foreign public enterprise” which reflect the broad views adopted by US authorities.
Without losing sight of the requirement that a defendant knew or believed that a person was a foreign official, the US regulators look at a fact-specific analysis which focuses on an entity’s ownership, control, status and function (exercising a public government function) to determine if an entity is an instrumentality of a foreign government and if so, whether its employees are or are not foreign officials. This issue is currently on appeal in the US and the judgment will be awaited with interest as its consequences may have far-reaching application in many parts of the world where foreign governments operate through state-owned enterprises or other entities effectively controlled or directed by a foreign government.
A National Corruption Plan
In July 2012, the Australian Government held a final series of consultations about the introduction of a National Anti-Corruption Plan. It assured those interested that the Plan would be implemented by the end of 2012. At Christmas Eve, with Parliament in recess, politicians back in their electorates and the Government in holiday mode, it seems unlikely the Plan will appear in 2012.
Maybe 2013 will see the Plan emerge from the Parliament. While it provides no comfort to proponents of a truly independent anti-corruption commission to investigate all aspects of corruption touching upon or concerning the Commonwealth, it does provide a more coordinated framework for managing and overseeing corruption issues as between Commonwealth agencies.
Legislative Initiatives
Guidance on Foreign Bribery
At the end of November 2012, the US Department of Justice (DOJ) and the Securities and Exchange Commission (SEC) published their Resources Guide to the Foreign Corrupt Practices Act (here).
While the Resources Guide is a non-binding administrative restatement of how the DOJ and SEC interpret the FCPA (long called for by the US Congress and the OECD), its value lies in the clear (although in a pro-authority manner) exposition of the prevailing US enforcement theories and reinforces the critical importance for corporations doing business overseas and subject to US law, to:
- understand their operational risk profile;
- know and understand their third parties with appropriate due diligence;
- have a robust, effective, proactive and dynamic compliance plan; and
- ensure all internal controls are reviewed and updated to reflect prevailing operational risks.
It would not take a lot for Australia to produce a similar, comprehensive Guide for the benefit of Australian business. Such a guide would be of considerable benefit to local businesses operating offshore and assist them to develop their own internal systems in such a manner so as to ensure compliance with not only Australia’s laws, but international foreign bribery laws.
Self-Reporting Issues
The US regulators have for many years promoted a culture of self-reporting potential foreign bribery offences in return for which reporting corporations can secure a recognised form of settlement. The proliferation of Deferred Prosecution Agreements (DPA) and Non-Prosecution Agreements (NPA) have been criticised by some commentators as allowing corporations to avoid criminal prosecutions and convictions. However, the US DOJ stands by them, regarding the agreements as a valuable tool to promote transparency and to encourage business to come forward in return for a negotiated certainty of outcome rather than facing the unpredictability of criminal trial.
In the UK, the Ministry of Justice has not only issued consultation papers on the possible introduction of DPAs into the UK criminal law system, but in November 2012, accepted their introduction and recommended legislative reform to the UK criminal law. The UK system places considerable weight on the role of the UK courts to oversee, review and approve such agreements to ensure public transparency in the administration of the criminal law.
It is to be hoped that the Australian Government learns from this development and in 2013, actively considers the introduction of such agreements to allow corporations to engage in meaningful dialogue with the Australian regulators to report and potentially settle foreign bribery claims with a much higher degree of certainty than presently allowed under Australia’s criminal law.
Facilitation Payments
While facilitation payments, in a very limited form, are currently permissible under the Criminal Code 1995 (Cth), the Australian Government issued a Consultation Paper over 12 months ago asking whether facilitation payments as a statutory defence to foreign bribery, should be abolished. Despite over 12 months passing since the Paper was published, no decision has been made.
The trends overseas are to abolish facilitation payments or severely curtail their ambit. The US Resources Guide confirms the narrow view on the scope of what might constitute a legitimate facilitation payment and highlights the fact that the OECD’s Working Group on Bribery recommends that all countries encourage corporations to prohibit or discourage facilitating payments. There is a significant likelihood that the Australian Government will publish its response to the Consultation Paper during 2013 and in light of the OECD’s Report (referred to above), abolish facilitation payments. Corporations should prepare for this in their own internal compliance policies.
Increased Penalties
The penalties for foreign bribery are presently significant – up to a maximum of 10 years imprisonment and fines for individuals and for corporations, significant fines exceeding in a corporate context, up to $11m for each contravention of the foreign bribery laws, or 3 times the value of the benefit which if that cannot be ascertained, an amount equal to 12 months turnover.
Where the penalties are considered low, in the context of financial misreporting (as highlighted by the OECD Report referred to above), a review of the applicable penalties is likely to be on the legislative agenda for 2013.
Whistleblower Reforms
Despite all the endless talk and recommendations, the Australian Government appears strangely reluctant to actively promote real protections for whistleblowers. It seems to be easier to allow individual politicians to promote private members’ bills to enhance whistleblower protections than for the Australian Government to take the initiative. Research from Prof AJ Brown of Griffith University together with Melbourne University puts a lie to the old adage that Australians will not “dob in a mate” – in fact, quite to the contrary, over 80% of polled respondents valued the whistleblower reporting improper behaviour over the wrongdoer. It is to be hoped that in 2013, the Australian Government demonstrates real leadership in recognising the value of protecting whistleblowers to ensure illegal or improper conduct can be safely report without fear of any direct or indirect reprisal.
Enforcement Record
Enforcement for foreign bribery is a matter for the Australian Government agencies, most notably the Australian Federal Police (AFP) as investigator and the Commonwealth Director of Public Prosecutions (CDPP) as prosecutor. Prosecutions for corruption within Australia are governed by domestic State criminal statutes. Prosecutions are often triggered by the investigative activities of State-based independent anti-corruption commissions. These bodies focus on the conduct of public officials and the private business community where allegations are made of improper or corrupt conduct giving rise to direct or indirect benefits flowing to officials or private business interests.
There is no Australian or national independent anti-corruption commission. Politicians have long resisted the need for such a body, no doubt out of self-preservation. Absent such an independent body, the integrity of Australian Commonwealth agencies is policed in large part by the Australian Commission for Law Enforcement & Integrity, or ACLEI, which focuses on the integrity within national departments, agencies and other federal organisations under its statutory charter.
Commonwealth Foreign Bribery Investigations
The enforcement record of Australian authorities remains patchy notwithstanding the ongoing publicity surrounding the Reserve Bank of Australia and Securency note-printing bribery prosecutions in Victoria. What has been reported so far in the Australian media is this:
- the Reserve Bank subsidiaries have been ordered to forfeit up to $20m as proceeds of crime;
- a former Securency CFO has been criminally convicted for false accounting;
- Malaysian officials are being prosecuted in Malaysia;
- an Indonesian agent charged with conspiracy to bribe foreign officials is subject to extradition proceedings in Singapore brought by Australia and may plead guilty to unspecified offences in return for cooperating with the Australian authorities; and
- the committal hearings against the individual Securency and Note Printing Australia executives continue into 2013.
In light of the limited jurisdictional reach of Australia’s foreign bribery laws, it is likely that the AFP will use the domestic law of conspiracy (with its increasingly broad extra-territorial reach to combat transnational economic crime) to potentially capture and prosecute foreign individuals under Australia’s domestic criminal law.
In addition, the senior executives at the Reserve Bank of Australia, including the Governor, have been subjected to severe media criticism in relation to the Reserve Bank’s role in overseeing (or according to the media, not overseeing) Note Printing Australia (as a 100% owned subsidiary) and Securency (50% owned by the Reserve Bank and 50% owned by a European based media company).
From general media reports, there are various other investigations current with the AFP. Whether they will result in any prosecutions in 2013, in light of the criticisms raised by the OECD towards Australia’s investigative and prosecution history, remains to be seen.
It should not be forgotten from the saga of AWB’s wheat sales to Iraq during the United Nations Oil-For-Food Program that liability for what appears to be foreign kickbacks can sound in domestic liability for breaches of statutory and common law duties by directors and officers. Both the former AWB Managing Director and Chief Financial Officer were prosecuted for civil penalty orders and agreed to accept declarations of contravening conduct, penalties, fines and banning orders from managing a corporation.
Domestic State Corruption Investigations
There have been various domestic cases of alleged corruption investigated by State based anti-corruption commissions. The trend of these often public investigations and examinations of high-profile political and business figures contrasts sharply with the quieter, almost secretive world of foreign bribery investigations.
The most significant current investigation in NSW concerns the award of various coal seam exploration licences to corporations associated with former sitting politicians and whether a former Minister of a former State Government disclosed confidential information to persons associated with him in relation to the grant of the licences in return for commercial gain.
Independent State Anti-Corruption, Misconduct or Integrity Commissions have existed for several years in New South Wales, Queensland, West Australia and Tasmania. The Australian Government covers the Northern Territory and the Australian Capital Territory, but without any truly independent anti-corruption commission.
In Victoria, a State long resistant to the notion that corruption existed within its borders, has finally established an independent anti-corruption commission, to be headed by a leading Senior Counsel from the Victorian Bar. In South Australia, legislation has been passed by the State Parliament to establish an independent anti-corruption commission by mid-2013.
Reforms for 2013 – What Should Australian Corporations and Executives Expect on the Horizon?
Australian business should expect no let-up in the pace of international trends targeting foreign bribery. Indeed, the US approach is to focus on foreign corporations and individuals, using a very robust theory of jurisdictional reach of US law. For this reason, any Australian company which conducts trade offshore is potentially exposed to not only any local foreign law, but US (and UK) law if those jurisdictions apply.
Over the next 12 months, Australian business should take into account the following:
- the possible banning of facilitation payments under Australian law;
- the ongoing US (and UK) activity targeting foreign (non-US) corporations and individuals engaged in foreign bribery;
- the increasing enactment of foreign bribery laws throughout the Asia Pacific region;
- an increased willingness of the AFP to investigate and prosecute Australian (and foreign) entities involved in foreign bribery; and
- an increasing awareness of foreign bribery laws across Asia and the importance of responding to them.
As a result of the ever-increasing activity in this area, Australian business must understand their own operational risk profile, undertake appropriate due diligence with all third parties with who they engage and most fundamentally, have in place a robust, effect and dynamic compliance plan to manage and hopefully, avoid the reputational disaster that invariably flows from a criminal investigation and prosecution.
2013 is likely to prove an interesting year ahead!
A Q&A On Being A Midwestern FCPA Lawyer
The FCPA bar is mostly concentrated in Washington, D.C. and New York City. Yet outside the beltway and financial center of the country, there are also lawyers with successful practices devoted to the Foreign Corrupt Practices Act and related issues.
One such lawyer is Indianapolis based Trent Sandifur – a partner at Taft Stettinius & Hollister. In this Q&A, Sandifur discusses how he became interested in the FCPA and his Midwest FCPA practice.
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Describe your anti-corruption practice and experience?
I am a partner in the Indianapolis office of Taft Stettinius & Hollister LLP, a law firm of about 350 attorneys with seven offices in Ohio, Indiana, Northern Kentucky, and Arizona. I help lead Taft’s FCPA & International Anti-Corruption practice area and handle the full spectrum of anti-corruption matters – compliance programs, due diligence, training, internal reviews and investigations, and government investigations and enforcement defense. I have worked on anti-corruption matters involving countries throughout Asia, Africa, the Middle East, Latin America, and Europe for clients ranging from individuals to large multinational corporations.
Like most anti-corruption attorneys, my practice has grown substantially over the last few years in response to greater corporate awareness of FCPA and UK Bribery Act risks. Unlike most anti-corruption attorneys, I am an Army JAG Corps major and serve part-time in the Army National Guard. In my military capacity, I have conducted corruption-related investigations and worked on anti-corruption compliance matters in Afghanistan. While there are obvious cultural differences between the corporate world and the Army, my military experience has informed nearly every aspect of my anti-corruption practice at Taft – particularly when it comes to conducting internal investigations, providing training, and managing risk.
How did you become interested in the FCPA?
I first became interested in the FCPA in 1999, while studying in Notre Dame’s London Law Program and clerking in the London office of a US-based firm during my second year of law school. At the time, the FCPA was a seldom-enforced law of limited practical consequence, not the compliance headliner it is today. I was fortunate to be exposed to the FCPA as a law student because of the London Law Program’s internationally-focused coursework and the needs of the clients I was assisting.
After law school, I enrolled in the University of Chicago’s one-year international relations master’s degree program while preparing to start my active duty service obligation in the Army JAG Corps. The University of Chicago is where my interest in the FCPA really took off, which I credit to the influence of Bob Tarun, an adjunct professor at the University of Chicago Law School at the time. Bob is one of the top FCPA attorneys in the country and the author of The FCPA Handbook (if you are an anti-corruption attorney, a copy of this book should be on your desk). I was a student in a small seminar that Bob taught on white collar criminal law in which we discussed the FCPA. Bob’s FCPA insights fascinated me, and I became enthralled with the FCPA because it stood at the intersection of white collar criminal law, international law, international relations, and foreign cultures.
Indianapolis is not known as an FCPA hotbed. What was your path to establishing an FCPA practice?
In the Army JAG Corps I happened to be in the right place at the right time because, a few months after completing initial JAG training and Airborne School, I was assigned to the Department of Justice (“DOJ”). I served three years as one of a few full-time Special Assistant US Attorneys in the Army who investigate and prosecute civilian felonies with an Army connection. My experience with the DOJ put me on a fast track to having an anti-corruption practice because I learned how to investigate and try complex criminal cases. I also gained a deep understanding of the DOJ’s culture and compliance expectations, which is invaluable for any anti-corruption attorney.
Shortly after starting at an Indianapolis firm, I happened to be in the right place at the right time again because we merged into Taft. The merger more than tripled our size, added six offices, greatly increased the number of clients we had with FCPA needs, gave us international reach, and most importantly, provided attorneys with deep FCPA knowledge, skills, and experience. Those attorneys and I became the foundation for Taft’s FCPA & International Anti-Corruption practice area, the growth of which over the last four years has allowed me to focus my practice almost exclusively on anti-corruption law. I understand that Indianapolis and other Midwestern cities, aside from Chicago, are not the historical FCPA hotbeds that places like Washington DC and New York City are, but we have succeeded in building an anti-corruption practice not in spite of our location, but largely because of it.
What advantages and disadvantages do attorneys at regional law firms have compared to attorneys at large multinational law firms and what advice do you have for Midwestern attorneys who want to build an FCPA practice?
Anti-corruption attorneys at regional law firms have several advantages over attorneys at large multinational law firms. With hourly rates that typically are one-third to one-half the hourly rates of large multinational law firms, regional law firm attorneys in the Midwest and other areas of the country with similar law firm overhead costs have an inherent advantage in price. Broadly speaking, anti-corruption attorneys at regional law firms also have an advantage in client service over anti-corruption attorneys at large multinational law firms. The greater agility and flexibility of regional law firms typically allows attorneys to innovate more rapidly in response to constantly-evolving anti-corruption risks than attorneys with large multinational law firms and correspondingly large global bureaucracies.
Anti-corruption attorneys at regional law firms also must address several factors with the potential to become disadvantages. For example, anti-corruption attorneys at large multinational law firms often have broad, national anti-corruption reputations due in large part to the geographic reach of their firms. Therefore, anti-corruption attorneys at regional law firms must ensure that their reputations are equally broad and strong by providing superior services and devoting meaningful time to anti-corruption speaking engagements, writing, and related practice development activities at the national and international level. Large multinational law firms also, by definition, have overseas offices. Regional law firm anti-corruption attorneys must therefore develop strong relationships with foreign law firms (or friendly US-based law firms with overseas offices) to gain assistance with overseas investigations, language issues, local knowledge, etc.
These advantages and potential disadvantages are relevant only to the extent that the quality of anti-corruption services, by far the most important factor in winning anti-corruption work and building a successful anti-corruption practice, is equal between a given regional law firm attorney and large multinational law firm attorney. As recent financial penalties and prison sentences attest, the results of an ineffective anti-corruption compliance program or a shoddy internal anti-corruption investigation that lacks credibility with the government can be disastrous. If regional law firm attorneys fail to develop and provide the highest-quality anti-corruption services, nothing else matters – especially when it comes to “nuclear events” like government investigations. However, if regional law firm attorneys provide top-end anti-corruption services, they put themselves in an excellent position to compete for and win anti-corruption work.
This “large multinational law firm quality with regional law firm prices and service” strategy has helped build Taft’s anti-corruption practice and is a strategy that I am confident would lead to success for other regional law firms in the Midwest. You do not need a 212 or 202 area code to be an outstanding anti-corruption attorney, and I am hopeful that as more regional law firms in the Midwest develop robust anti-corruption practices, a strong Midwestern anti-corruption bar will emerge.