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The Significant Differences Among OECD Convention Countries On Legal Person Criminal Liability

Fact # 8 in “Ten Seldom Discussed FCPA Facts That You Need to Know [1]” concerns how it is an apples to oranges comparison to compare Foreign Corrupt Practices Act enforcement to enforcement of similar foreign laws in the 41 other countries that are party to the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions (“OECD Convention).

There are a couple reasons for this.

First, the U.S. is rare among OECD Convention countries in resolving alleged FCPA violations via non-prosecution agreements, deferred prosecution agreements, or administrative actions. The common thread in all three resolution vehicles is the absence or practical absence of any judicial scrutiny of FCPA enforcement theories. In contrast, in nearly every other OECD Convention country, law enforcement agencies must do something that may be considered old-fashioned by current U.S. standards and that is prove actual legal violations to someone other than itself. In doing so, these foreign law enforcement agencies have two choices (charge or do not charge) vs. the three choices in the U.S. (charge, do not charge, or use an alternative resolution vehicle).

Another reason, and the topic of this post, is the wide differences among OECD Convention countries when it comes to legal person liability for alleged bribery offenses. As demonstrated in this post, the U.S. appears to be unique among all other 41 OECD Convention countries when it comes to legal person criminal liability for alleged bribery offenses.

This topic was highlighted in my 2012 article “Revisiting an FCPA Compliance Defense [2]” and was also the focus of this recent meaty publication [3] by the OECD Working Group on Bribery titled “Liability of Legal Persons for Foreign Bribery: A Stocktaking.”

As correctly noted in the report, there is “wide variability among the 41 Parties [legal person] liability systems.” The report then presents numerous tables mapping the wide variations in legal person liability.

This post provides a more concise summary of how legal person liability should best be analyzed in OECD Convention countries and highlights how the U.S. system for legal person liability for alleged bribery offenses is very unique among peer countries.

In reading the remainder of this post, be mindful of the following caveats.

I am not an expert on the legal systems of all 41 OECD Convention countries nor do I have the foreign language skills to review relevant original source documents for all of the countries. Rather, in drafting this post, I have relied on the recent OECD Report, OECD monitoring reports [4], Clifford Chance’s useful “Corporate Criminal Liability [5]” compendium (a survey of corporate criminal liability standards on a jurisdiction-by-jurisdiction basis), and various Lex Mundi material (see here [6] for instance).

Also keep in mind, as even the OECD acknowledges, that legal person liability is less than crystal clear in certain OECD Convention countries.

First Step

For starters, there is 1 country among the 41 countries (Argentina) that does not even recognize any legal person liability (criminal, civil or administrative).

Second Step

There are 12 countries (Brazil, Bulgaria, Colombia, Germany, Greece, Italy, Latvia, Mexico, Poland, Russia, Sweden and Turkey) that provide for non-criminal legal person liability only.

Third Step

This leaves 29 OECD Convention countries that recognize some sort of legal person criminal liability. The issue then becomes what type of legal person criminal liability or under what circumstances can a legal person be criminally liable for bribery offenses?

23 of these remaining 29 OECD Convention countries allow for legal person criminal liability for alleged bribery offenses only to the extent a so-called “controlling mind,” a high-level executive, or another natural person that is the “embodiment” or “legal representative” of the legal person engages in the underlying conduct or the same type of high-level person explicitly fails to exercise due supervision of the individual involved in the improper conduct.

These 23 countries are: Australia, Austria, Canada, Chile, Czech Republic, Estonia, Finland, France, Hungary, Iceland, Ireland, Israel, Japan, Luxembourg, the Netherlands, New Zealand, Norway, Portugal, Slovak Republic, Slovenia, Spain, and Switzerland.

Fourth Step

This leaves 6 OECD Convention countries.

3 of these countries (Belgium, Korea, and the U.K.) have a compliance-like defense relevant to alleged bribery offenses. (Note: many other countries in the preceding steps – such as Australia, Chile, Germany, Hungary, Italy, Japan, Poland, Portugal, Sweden, and Switzerland – also have compliance-like defenses or concepts relevant to alleged bribery offenses regardless of whether the country has legal person criminal liability and regardless of how legal person criminal liability arises).

Fifth Step

This leaves 3 OECD Convention countries (Denmark, South Africa, and the U.S.).

As best I can tell, legal person criminal liability is purely discretionary in Denmark. (See here [7] for the OECD Monitoring report: “Liability of legal persons under the Criminal Code is discretionary .”)

In South Africa, legal person criminal liability for alleged bribery defenses is not clear – something acknowledged by even the OECD. As stated in this OECD Monitoring Report [8]:  “to prosecute the corporate body under South African law, it must be proved that a director or servant has committed an offence.” The report then states under the heading “Level of seniority of person whose action triggers the liability of the legal person”:

“[Under the relevant law] a director is defined as any person who controls or governs that corporate body or is a member of a body or group of persons that controls or governs that corporate body, or, where there is no such body or group, who is a member of that corporate body. […] The term servant [in the relevant law] is undefined, but South Africa contends that it would cover any person if he or she is regularly employed whether by contract or otherwise. […]

In its responses to the Phase 2 general questionnaire, South Africa seems to narrow the above interpretation by specifying that servant or director include all levels of management which appears to cover still relatively senior persons but does not go as far as requiring that this individual be a directing mind and will of the company, as in some common law countries. However, prosecutors met during the on-site visit indicated that any act of an employee can trigger the liability of a legal person. […]  While this seems to be in the right direction and would appear to cover situations where a person in authority knowingly does not prevent an employee from committing the offence (wilful blindness), because of the lack of enforcement in practice, the lead examiners are of the view that this should be followed up upon as case law develops.”

Final Step

This leaves the U.S.

As readers no doubt know: (i) U.S. law does recognize legal person liability; (ii) further recognizes legal person criminal liability; and (iii) does not require the act or conduct of a so-called “controlling mind,” or high-level executive to trigger legal person criminal liability. Rather, the U.S. standard, applicable to FCPA offenses and others, is respondeat superior in which a legal person can face criminal liability: (i) to the extent the conduct was engaged in by an employee or agent in the scope of their employment or agency; and (ii) the conduct was intended to benefit, at least in part, the legal person. Moreover, the FCPA does not have a compliance defense.

In short, what this post has demonstrated is that the U.S. appears to be the only country of the 41 OECD Convention countries with the above dynamics relevant to alleged bribery offenses.

In “Revisiting an FCPA Compliance Defense [2]” it was noted that if a foreign country does not even provide for legal person criminal liability, there is no need for a compliance defense. Moreover, it was noted that the rationale for a compliance defense is less compelling if legal person criminal liability can only result from the conduct of “controlling minds” or other high-level executives.