FCPA Compliance and Ethics Blog

April 14, 2010

Changes Coming: US Sentencing Guidelines, UK Bribery Bill & OECD on Facilitation Payments-Part I

At its April 7, 2010 meeting the United States Sentencing Commission approved amendments to its Sentencing Guidelines. The next day on April 8, 2010, the UK Bribery Bill received Royal Assent. These two events follow the December 9, 2009 release by the Organization for Economic Co-Operation and Development’s (OECD) Recommendation for Further Combating Bribery of Foreign Public Officials, when the OECD marked the tenth anniversary of the entry into force of the OECD Anti-Bribery Convention.

These three releases, which comprise of two changes in the legal schemes by two of the world’s largest economic players and the proposal of one of the largest Non-Governmental Organizations dedicated to ending corruption across the globe portend significant changes in how companies will be structured and transact business going forward in the new decade. This will be the first of three postings in which will discuss the changes that companies, with any US or UK presence, will be required to implement. The initial post will be on the changes to the US Sentencing Guidelines; in our second post, we will then consider the changes required by the UK Bribery Bill; and in our third and final post, we will end with the recommendation as found in the OECD’s Recommendation for Further Combating Bribery of Foreign Public Officials regarding the ending of facilitation payments.

The US Sentencing Guidelines are used in the sentencing of organizations and serve as the de facto blueprint for corporate ethics and compliance programs. The changes, which were approved at an April meeting, must be formally submitted to Congress by May 1, and will take effect November 1, 2010, unless Congress passes legislation to reject or modify them. These proposed changes follow public hearings and public comment period which ended in March. The most significant changes in the Sentencing Guidelines are as follows.

1. Direct Report. The amendment would change the reporting structure in corporations where the Chief Compliance Officer (CCO) reports to the General Counsel (GC) rather than a committee on the Board of Directors. The proposed change reads “the individual…with operational responsibility for the compliance and ethics program…have direct reporting obligations to the governing authority or any appropriate subgroup… (e.g. an audit committee or the board of directors)”. If a company has the CCO reporting to the GC, who then reports to the Board, such structure may not qualify as an effective compliance and ethics program under the Sentencing Guidelines. The better practice would now appear to be that the CCO should be a direct report to the Board or appropriate subcommittee of the Board such as compliance or audit.

2. Discovery of Problem Inside the Organization Rather Than Outside. This amendment encourages a company to have a hotline and other mechanisms to detect any compliance and ethics violations internally. While most companies have a Code of Conduct, with attendant implementation policies and procedures in place, training thereon and a hotline; many companies have yet to implement any type of self-audit program to measure Foreign Corrupt Practices Act (FCPA) compliance program performance. This encourages companies to not only monitor its internal self reporting to actively test the information available to it through a system such as continuous controls monitoring. For post on CCM, see here.

3. Promptly Report. This amendment inserts specific language regarding the “prompt” reporting of any violation of a compliance and ethics program. While no definition of the word “prompt” is provided, the revisions to the Commentary note that an organization will be “allowed a reasonable time to conduct and internal investigation” and that no reporting is required if “… the organization reasonably concluded…that no offense has been committed”. Nevertheless this language reiterates what many former Department of Justice employees tell industry representative at conferences and events regarding the FCPA. It is always preferable to report a violation to the US government rather than the US government finding out and coming to you.

4. No Person With Operational Responsibility Condoned or Was Willfully Ignorant. This proposed amendment is aimed at those personnel within a company’s compliance and ethics organization. While operational responsibility could be defined to mean only those who might report to the Board, this commentator would suggest the better approach is to include all company personnel with direct reporting responsibility in the compliance and ethics group. The definition of “willfully ignorant” has not changed from the current version of the Sentencing Guidelines, which is provided in Application Note 3 of Commentary to §8A1.2 (Application Instructions-Organizations). The definition reads in full “An individual was “willfully ignorant of the offense” if the individual did not investigate the possible occurrence of unlawful conduct despite knowledge of circumstances that would lead a reasonable person to investigate whether unlawful conduct had occurred”.

This publication contains general information only and is based on the experiences and research of the author. The author is not, by means of this publication, rendering business, legal advice, or other professional advice or services. This publication is not a substitute for such legal advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified legal advisor. The author, his affiliates, and related entities shall not be responsible for any loss sustained by any person or entity that relies on this publication. The author can be reached at tfox@tfoxlaw.com.

© Thomas R. Fox, 2010

April 7, 2010

UK Bribery Bill Update

Filed under: FCPA,UK Bribery Bill — tfoxlaw @ 2:06 pm
Tags: , ,

It appears that the UK Bribery Bill, introduced in March 2009, made it out of Parliament before the upcoming general election. The Bribery Bill is a significant departure for the UK in the area of foreign anti-corruption. It is significantly stronger than the FCPA. Many internationally focused US companies have offices in the UK or employ UK citizens in their world-wide operations. This legislation could open them to prosecution in the UK under a law similar to, but stronger than, the relevant US legislation.

Some proposed amendments were recently introduced by the Tory Party which would have allowed allow facilitation payments that were ‘reasonable in amount’, ‘customary in the situation’ or the ‘only reasonable alternative in the situation’. Writing in the blog doingggoodbiz.wordpress.com, Alan Holroyd reported that Clair Ward, the Parliamentary Under-Secretary of State for Justice, stated that such exceptions would have ‘driven a coach and horses through the policy objectives of the bill’.

This debated brings up one of several differences between the FPCA and the Bribery Bill. These include:

• The Bribery Bill has no exception for facilitation payments.
• The Bribery Bill creates strict liability of corporate offense for the failure of a corporate official to prevent bribery.
• The Bribery Bill specifically prohibits bribery of private citizens, not just governmental officials.
• The Bribery Bill has criminal penalties of up to 10 years per offense not 5 years as under the FCPA.

There is one affirmative defense listed in the Bribery Bill and it is listed as the ‘adequate procedures’ defense. The Explanatory Notes to the Bribery Bill indicate that this narrow defense would allow a corporation to put forward credible evidence that it had adequate procedures in place to prevent persons associated from committing bribery offences. The legislation requires Secretary of State for Justice to publish guidance on procedures that relevant commercial organizations can put in place to prevent bribery by persons associated with their entity.

Other than this commentary, the Bill provides no further information on what might constitute ‘adequate procedures’ as a defense but the Government has signaled that it will work with the UK business community to provide appropriate guidance to this critical component of the Bribery Bill. The UK law firm KattenMuchin has indicated that they expect the Government will apply a test regarding the ‘adequate procedures’ defense “with regard to the size of the company, its business sector and the degree to which it operates in high risk markets.” The law firm of Covington and Burling, in a client advisory dated March 31, 2010, has opined that the Bribery Bill will not come into force until late 2010 because it will take the UK government until then to issue guidance on what may constitute ‘adequate procedures’.

This publication contains general information only and is based on the experiences and research of the author. The author is not, by means of this publication, rendering business, legal advice, or other professional advice or services. This publication is not a substitute for such legal advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified legal advisor. The author, his affiliates, and related entities shall not be responsible for any loss sustained by any person or entity that relies on this publication. The Author gives his permission to link, post, distribute, or reference this article for any lawful purpose, provided attribution is made to the author. The author can be reached at tfox@tfoxlaw.com.

© Thomas R. Fox, 2010

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