Client Alerts

March 2016 Client Alert United States // Evolving FCPA Enforcement Strategy – U.S. Regulators Are Talking; Are You Listening?
by David W. Simon and John E. Turlais

Client Alert United States // Evolving FCPA Enforcement Strategy – U.S. Regulators Are Talking; Are You Listening?

by David W. Simon and John E. Turlais

Key takeaways:

  • The so-called Yates Memorandum directs that a) line prosecutors focus on individuals when investigating allegations of corporate misconduct; b) DOJ’s awarding of “cooperation credit” should be based on how companies respond to allegations of wrongdoing.
  • SEC will “pursue even the smallest infractions” in order to foster a culture of legal compliance.
  • Regulators will continue to push voluntary self-disclosure of FCPA violations.
  • DOJ will add 10 prosecutors to its FCPA unit (a 50 percent increase) and will establish three International Corruption Squads comprising 23 special agents based in New York, Washington D.C., and Los Angeles.
  • DOJ’s newly hired corporate compliance expert will advise on prosecution of corporate entities, evaluate compliance programs of accused companies, and help prosecutors develop benchmarks for compliance programs, remediation measures, working with stakeholders in setting those standards.

Introduction

In 2015, the U.S. Department of Justice (DOJ) and the Securities Exchange Commission (SEC) – the U.S. agencies charged with enforcing the Foreign Corrupt Practices Act (FCPA) – made a number of statements that, collectively, suggest an intention to send several messages to companies subject to the FCPA. We believe these messages are related and signal a shift in the U.S. government’s approach to FCPA enforcement.

DOJ:  The Yates Memorandum

The most formal – and potentially most important – pronouncement was in a memorandum issued by Deputy Attorney General (“DAG”) Sally Yates to DOJ prosecutors on September 9, 2015. While the so-called Yates Memo deals generally with DOJ’s policies regarding the prosecution of white collar crime, it has several significant implications for DOJ’s FCPA enforcement program.

  • Individuals in the FCPA Crosshairs

One of the most notable aspects of the Yates Memo is its direction that line prosecutors focus on individuals when investigating allegations of corporate misconduct. As DAG Yates summarizes:

“One of the most effective ways to combat corporate misconduct is by seeking accountability from the individuals who perpetrated the wrongdoing. Such accountability is important for several reasons: it deters future illegal activity, it incentivizes changes in corporate behavior, it ensures that the proper parties are held responsible for their actions, and it promotes the public’s confidence in our justice system.”

Accordingly, the Yates Memo emphasizes that both criminal and civil DOJ attorneys should focus on individuals “from the very beginning of any investigation of corporate misconduct.” It goes on to state that, “absent extraordinary circumstances or approved departmental policy … [DOJ] lawyers should not agree to a corporate resolution that includes an agreement to dismiss charges against, or provide immunity for, individual officers or employees” in either criminal or civil matters. Moreover, if a prosecutor decides not to pursue criminal or civil charges against an individual (in those “extraordinary circumstances”), the Yates Memo instructs that the prosecutor must now obtain written approval from a senior DOJ attorney in advance of any such declination.

The Yates Memo appears to signal a shift from DOJ’s practice of regularly agreeing to decline prosecution of individual employees when resolving corporate criminal investigations. Indeed, in February 2016, the DOJ announced that it will now require companies to certify that they have fully disclosed all information relating to individual wrongdoing before finalizing a corporate settlement agreement.

Consistent with the directives outlined in the Yates Memo, we anticipate that the DOJ will prioritize the review of individual accountability for corporate wrongdoing and, in turn, bring more individual FCPA prosecutions going forward.

  • Investigate for Cooperation Credit

Another key aspect of the Yates Memo involves the DOJ’s awarding of “cooperation credit” based on how companies respond to allegations of wrongdoing. Obtaining such cooperation credit can be extremely valuable for companies, as it can impact whether the company is charged criminally or, if the company is charged, result in a meaningful reduction of the fine range. The Yates Memorandum provides some insight to companies seeking to obtain cooperation credit from DOJ in instances where they are alleged to have engaged in misconduct:

“In order for a company to receive any consideration for cooperation under the Principles of Federal Prosecution of Business Organizations, the company must completely disclose to the Department all relevant facts about individual misconduct. Companies cannot pick and choose what facts to disclose.  That is, to be eligible for any credit for cooperation, the company must identify all individuals involved in or responsible for the misconduct at issue, regardless of their position, status or seniority, and provide to the Department all facts relating to that misconduct. (…)  This condition of cooperation applies equally to corporations seeking to cooperate in civil matters; a company under civil investigation must provide to the Department all relevant facts about individual misconduct in order to receive any consideration in the negotiation.”

It is worth noting that “any” is also underlined in the actual Yates Memo.
We view this statement as a clear mandate to companies: If you want to get cooperation credit from DOJ, you must provide a detailed report of the facts and circumstances surrounding the allegations, including identifying the persons responsible.

In sum, the decision for companies whether to conduct an internal investigation is now made easy.  If they hope to get any cooperation credit, an internal investigation is a requirement.  But while the decision to investigate might be easy, the DOJ’s renewed focus on individual accountability (and disclosure requirements for cooperation credit) may significantly complicate the investigative process. Companies will now need to be more mindful of potential conflicts in dealing with individual employees, audit committees, and Boards of Directors. Particularly when allegations of wrongdoing reach multiple or high-level employees, companies should consider involving experienced outside investigative counsel.SEC:  “Broken Windows” EnforcementWhile it appears as though the DOJ will focus more on prosecuting individuals, the SEC has continued to bring a majority of its enforcement actions against companies. It has done so under what SEC Chairwoman Mary Jo White has referred to as the “broken windows” theory of securities enforcement. That is, the SEC announced, that it will “pursue even the smallest infractions” in order to foster a culture of legal compliance.In 2015, the SEC put this theory in practice by resolving numerous cases for relatively small amounts. By way of recent example, on the FCPA front, Hyperdynamics Corporation, an oil and gas company with operations in the Republic of Guinea, consented to the entry of an administrative cease-and-desist order and agreed to pay a $75,000 penalty to the SEC.The relatively modest penalty (by FCPA standards) issued by the SEC in the Hyperdynamics matter, however, is only part of the story. Even the “smallest infractions” prosecuted by the SEC under its broken windows theory can involve significant investigation and professional costs for companies. In reaching agreement to pay a $75,000 penalty, for example, Hyperdynamics spent approximately $12.7 million in professional fees. Prosecution of even minor infractions by the SEC, thus, can still be a very expensive process for the companies involved.Regulators Continue to Push Voluntary Self-Disclosure of FCPA ViolationsFCPA regulators from both DOJ and the SEC have been emphasizing the importance of voluntary self-disclosure for some time. Perhaps most significant was the SEC’s recent announcement that self-reporting will be a pre-condition to a company receiving a deferred prosecution agreement or a non-prosecution agreement. Other enforcement authorities have made the same point. At the American Conference Institute’s 32nd Annual International Conference on the FCPA, Assistant Attorney General Leslie Caldwell remarked, “we want to encourage self-disclosure by making clear that, when combined with cooperation and remediation, voluntary disclosure does provide a tangible benefit when it comes to making a charging decision.” Similarly, at the American Banking Association and American Bar Association Money Laundering Enforcement Conference, DAG Yates noted that a significant aspect of the Yates Memorandum related to self-disclosure, and she emphasized the significance of self-disclosure to DOJ:

“[O]ne of the changes made to the USAM [US Attorney’s Manual] today separates what used to be a single factor that covered both a corporation’s voluntary disclosure and its willingness to cooperate into two separate factors[.] . . .  In recognition of the significant value early reporting holds for us, prompt voluntary disclosure by a company will be treated as an independent factor weighing in the company’s favor.”

The decision whether to self-disclose has historically been one of the most difficult decisions for companies dealing with FCPA violations. This decision was complicated in large part because of the uncertainty surrounding the amount of cooperation credit (if any) a company would receive for effectively turning itself in to the authorities. Through these public statements (and as evidenced by significant credit given in resolving recent FCPA enforcement actions), it appears that the DOJ and SEC are signaling real and tangible benefits to those companies that self-disclose violations.  

Strengthening the Bench:  Additional FCPA Resources

Another development worth noting is the increase in investigative and prosecutorial resources dedicated to FCPA enforcement. In November 2015, DOJ announced that it will add 10 prosecutors to its FCPA unit, which is, according to DAG Yates, a 50% increase in headcount.  This news follows on the heels of the March 2015 announcement that the FBI, acting in conjunction with DOJ’s Fraud Section, is establishing three International Corruption Squads comprised of 23 special agents based in New York, Washington D.C., and Los Angeles.  These agents will be dedicated to investigating foreign bribery and kleptocracy. This increase in investigators and prosecutors signals the relative importance of FCPA enforcement within the U.S. government, and it will almost certainly lead to more criminal FCPA cases.

Setting Compliance Expectations

In November 2015, the Fraud Section of the DOJ retained Hui Chen as a full-time corporate compliance expert. Chen’s role is to provide guidance to DOJ prosecutors concerning the prosecution of corporate entities, to evaluate the existence and effectiveness of compliance programs that companies had in place at the time of alleged misconduct, and to assess whether companies have taken meaningful remedial action, such as implementing new compliance measures, to detect and prevent future wrongdoing.  Just as importantly, Chen is also tasked with helping prosecutors develop appropriate benchmarks for evaluating corporate compliance and remediation measures and communicating with stakeholders in setting those benchmarks. 

So what are the factors that Ms. Chen will be considering when evaluating corporate compliance programs? The DOJ’s Assistant Attorney General Caldwell provided some insight in her November 2015 speech to the Securities Industry and Financial Markets Association.  The key questions are as follows:

  • Do company directors and senior managers provide strong, explicit and visible support for its corporate compliance policies?
  • Do the employees responsible for compliance have stature within the company?  Do compliance teams get adequate funding and access to necessary resources?
  • Are the company’s compliance policies in writing and easily understood by employees?  Are the policies translated into the native languages of the employees?
  • Does the company effectively communicate its compliance policies to all employees? Are written policies easy for employees to find? Do employees have regular training, including direction regarding what to do or with whom to consult when issues arise?
  • Does the company update its policies and practices to keep current with evolving risks and circumstances?
  • Are there appropriate mechanisms in place to enforce compliance policies, including incentivizing good compliance practices and disciplining violations. Is discipline applied in an even-handed manner (regardless of the employee’s position within the company)?
  • Does the company sensitize third parties – such as vendors, agents, and consultants – to the company’s expectation about good corporate compliance practices?


It is worth noting that many of these questions track the “Hallmarks of an Effective Compliance Program” in the DOJ’s and SEC’s FCPA Guidance. Companies should consider these questions when assessing the adequacy of their compliance programs. As highlighted by several questions, developing a strong compliance program requires continuous improvement. Companies should reevaluate their programs periodically, and particularly after significant events, such as a corporate merger, acquisition, or joint venture.

A New Enforcement Paradigm

It certainly appears that the DOJ and SEC have thought long and hard about their respective missions and visions for FCPA enforcement in the future. The pronouncements described above outline an enforcement program that emphasizes individual prosecutions and demands of companies proactive compliance, investigation and self-disclosure of FCPA violations, and full cooperation with the agencies.  

Contact:
David W. Simon
Email: DSimon@foley.com

John E. Turlais
Email: JTurlais@foley.com

Foley & Lardner LLP
777 East Wisconsin Avenue
Milwaukee, WI 53202-5306
P 414.297.5584

January 2016 Client Alert UK // Negotiated Settlements for Corruption Offences: Position in the UK
by Alan Bacerese

Client Alert UK // Negotiated Settlements for Corruption Offences: Position in the UK

by Alan Bacerese

Key Points:

  •  In the UK, so-called Deferred Prosecution Agreements (DPAs) replaced the self-reporting procedures for companies in 2014 which apply to economic crimes committed by companies;
  • Deferred Prosecution Agreements take the form of a statement of facts (which give particulars of offence and include details of financial gain or loss) and agreed terms (whilst fact dependent almost always expected to include fine);
  • The first DPA was agreed recently on 30 November 2015. The Agreement involved the UK arm of a financial institution who admitted failing to prevent bribery when its Tanzanian arm raised USD 600 Mio. for the government.

Introduction

In the United Kingdom, corruption in international business is criminalized by two pieces of legislation. The first is the Bribery Act 2010 which is based on ‘intention to induce’ improper conduct or performance and the second is the Proceeds of Crime Act 2002, which governs money and creates an offence of dealing with ‘criminal property’.

The United Kingdom additionally has obligations as a signatory to the Organisation for Economic Cooperation and Development’s Convention on Combating Bribery of Foreign Public Officials in International Business Transactions (the OECD Anti Bribery Convention).

Following international criticism of the United Kingdom’s record on prosecuting corporate corruption offences, particularly in the wake of the collapse of the criminal investigation into the British Aerospace Al Yamamah arms deal with Saudi Arabia, the UK government and enforcement agencies have been taking action to increase both the detection and prosecution level of this type of corporate wrongdoing.

In recent years, the investigation of corruption cases with a foreign element has seen marked progress primarily due to the instrumental role played by the International Corruption Group (ICG) in bringing together the experience of the Serious Fraud Office (SFO), the Nation and the increased commitment from the Department of International Development to resourcing specialized units in the City of London and in the Metropolitan Police Service. The purpose has been to strengthen the UK’s capacity to investigate and prosecute corruption that occurs between developing countries (including bribery in business) and to return stolen assets.

Previously, companies could self-report to the SFO and reduce the risk of criminal prosecution in exchange for the likelihood of entering into Civil Recovery Orders.

Position of Negotiated Settlements

This original Guidance on self reporting was withdrawn in late 2012. Deferred Prosecution Agreements (DPAs) replaced the self-reporting procedures in 2014 which apply to economic crimes committed by companies. The DPA regime encourages companies to co-operate with the prosecutor and the new Code for DPAs confirms that a genuine self-report is still important and may represent a public interest factor which will weigh against a decision to prosecute. However, there are now no guarantees that a company will always succeed in negotiating a non conviction from a self-report. The final outcome of the negotiations will depend entirely upon timing and the totality of the information that the company discloses to the prosecutor. This is particularly true about the level and quality of any internal investigation undertaken.

Deferred Prosecution Agreements take the form of a statement of facts (which give particulars of offence and include details of financial gain or loss) and agreed terms (whilst fact dependent almost always expected to include fine). Only the prosecutor can extend an invitation to negotiate. This invitation can be extended when there is sufficient evidence for a reasonable prospect of conviction, or there is at least a reasonable suspicion based upon some admissible evidence that a person has committed the offence. All DPAs must be approved in open court (so the judges retain an important check and balance power in the UK) and the rulings made public.

The first DPA was agreed recently on 30 November 2015. The Agreement involved the UK arm of the ICBC Standard Bank who admitted failing to prevent bribery when its Tanzanian arm, Stanbic Bank Tanzania, raised USD 600 million for the government. As part of the Agreement the Bank has agreed to penalties of USD 32.2 million, including a USD 16.8 million fine to be paid to the SFO. That includes a one-third reduction for self-disclosure and co-operation; a USD 6 million fine plus interest of more primarily due to the instrumental role played by the International Corruption Group (ICG) in bringing together the experience of the Serious Fraud Office (SFO), the Nation and the increased commitment from the Department of International Development to resourcing specialized units in the City of London and in the Metropolitan Police Service. The purpose has been to strengthen the UK’s capacity to investigate and prosecute corruption that occurs between developing countries (including bribery in business) and to return stolen assets. Previously, companies could self-report to the SFO and reduce the risk of criminal prosecution in exchange for the likelihood of entering into Civil Recovery Orders. Position of Negotiated Settlements This original Guidance on self reporting was withdrawn in late 2012. Deferred Prosecution Agreements (DPAs) replaced the self-reporting procedures in 2014 which apply to economic crimes committed by companies. The DPA regime encourages companies to co-operate with the prosecutor and the new Code for DPAs confirms that a genuine self-report is still important and may represent a public interest factor which will weigh against a decision to prosecute. However, there are now no guarantees that a company will always succeed in negotiating a non conviction from a self-report. The final outcome of the negotiations will depend entirely upon timing and the totality of the information that the company discloses to the prosecutor. This is particularly true about the level and quality of any internal investigation undertaken. Deferred Prosecution Agreements take the form of a statement of facts (which give particulars of offence and include details of financial gain or loss) and agreed terms (whilst fact dependent almost always expected to include fine). Only the prosecutor can extend an invitation to negotiate. This invitation can be extended when there is sufficient evidence for a reasonable prospect of conviction, or there is at least a reasonable suspicion based upon some admissible evidence that a person has committed the offence. All DPAs must be approved in open court (so the judges retain an important check and balance power in the UK) and the rulings made public. The first DPA was agreed recently on 30 November 2015. The Agreement involved the UK arm of the ICBC Standard Bank who admitted failing to prevent bribery when its Tanzanian arm, Stanbic Bank Tanzania, raised USD 600 million for the government. As part of the Agreement the Bank has agreed to penalties of USD 32.2 million, including a USD 16.8 million fine to be paid to the SFO. That includes a one-third reduction for self-disclosure and co-operation; a USD 6 million fine plus interest of more than USD 1 million to be paid to the government of Tanzania and USD 8.4 million in disgorgement of profits to avoid prosecution.

Other recent cases and settlements in the UK

  • Balfour Beatty plc, a UK listed engineering and construction business whose subsidiary was involved in securing contracts as part of USD 130m UNESCO project to rebuild the Alexandria Library in Egypt between 1998 and 2000.
  • Mabey & Johnson Ltd a long established UK registered engineering company manufacturing prefabricated bridges. The company was prosecuted in the UK for paying bribes to secure overseas contracts as well as breaching a United Nations embargo on trade with Iraq, popularly called the ‘oil for food’ scandal.
  • British Aerospace (BAE Systems), is one of the biggest military suppliers to the US government and Europe’s largest defence contractor. The 2004 investigation in the UK led by the SFO began following allegations that BAE had secretly paid USD 2b to Prince Bandar bin Sultan, Saudi Arabia’s former ambassador to Washington, in return for inside help selling Typhoon jet fighters to the Saudi government.
  • Innospec Limited, was the UK subsidiary of Innospec Inc., a NASDAQ listed company in the US. This case was hailed by the SFO as the first ‘global settlement’ reached with a cooperating Company resolved in cooperation with US Department of Justice (DOJ).
  • In September 2015 Scottish authorities announced a civil settlement with Brand-Rex Limited. The settlement is the first concluded settlement for a contravention of the Bribery Act 2010, s.7 – corporate failure to prevent bribery by a third party. It is the third concluded corporate self-report and civil settlement in Scotland. The Scottish system is akin to that operated by the SFO before deferred prosecutions agreements were introduced.

Conclusion

What is emerging in the UK is that some reasonable level of predictability in the forms of collaboration, for companies. Prosecutors, taking such a decision, will now follow a prescribed process set down in law. Furthermore, in the case of DPAs, there is a requirement that, subject to any necessary restrictions due to ongoing or future related proceedings, the Court’s rulings in all DPAs must be made public. In the recent ICBC Standard Bank case, the DPA was approved in a public hearing by Sir Brian Leveson, President of the High Court's Queen's Bench division.

It is hoped that this process brings transparency in negotiations between companies and prosecutors.

The Journal of Criminal Law recently compared the developing UK systems with the more developed US model where the emphasis has been on cooperation by the company in prosecution of its individuals and a reform of practices through improved governance in the company.

It will now have to be seen how the enforcement of DPAs changes the legal landscape in the UK. There is a feeling that the SFO will now use this model increasingly to hold companies to account but only if they meet the requirements of the DPA criteria and self report in good time. It will certainly provide certainty to a complex process and will avoid the costs of lengthy trials. But questions remain, foremost of which are, what will happen to the individuals - will there now be more emphasis on prosecuting the individuals rather than the company as appears to be the case in the US when companies self report, and what about more complex cases of trans-national corporate bribery cases where, in the absence of a conviction overseas, and where an investigation may have begun, there would be no clear position as to what the company would do in the UK; why would companies wish to defer prosecution in one jurisdiction only to open themselves to prosecution in others? Time will tell.

 

Contact:
Alan Bacarese
Phone: +44 797 215 0169
Email: alan.bacarese@streamhouse.org

Stream House AG
Austrasse 59
Basel Switzerland - 4051

October 2015 Client Alert South Korea // Major Anti-Bribery Legislation, the "Kim Young-ran Law", passed by the National Assembly
By Scott Sung-Kyu Lee

Client Alert South Korea // Major Anti-Bribery Legislation, the "Kim Young-ran Law", passed by the National Assembly

By Scott Sung-Kyu Lee

Key Takeaways

  •  New Anti-Bribery legislation passed by the Korean National Assembly to come into force in September 2016.
  • Scope of corporate criminal liability enhanced to include bribes paid by employees.
  • Definition of the public official expanded to include employees of private schools, members of the media who are registered under Korean law, and "civilians who perform public functions according to relevant laws."
  • The new legislation imposes a higher standard of anti-bribery compliance for corporations.
  • Guidance on courtesy payments expected by way of Presidential Decree.

Introduction

The National Assembly of the Republic of Korea passed a landmark anti-bribery legislation, titled the "Act on the Prohibition of Improper Solicitation and Provision/Receipt of Money and Valuables," on March 3rd, 2015. The act, commonly referred to as the "Kim Young-ran Law", having been named after the former head of the Anti-Corruption & Civil Rights Commission who led the preparation of the original bill, was passed by the National Assembly after having undergone numerous revisions over the past few years.

The bill, which was first introduced in August 2012, gained significant traction over the course of last year in the wake of the Sewol ferry incident.  After passing the National Policy Committee on January 12th, 2015, the bill was submitted for deliberation by the Legislation and Judiciary Committee in February 2015.

After an extensive debate members of the National Assembly from both the majority and opposition parties finally arrived at a consensus on key definitions.  Therefore, the resulting legislation is largely similar to the version that passed the National Policy Committee earlier in the year, with the exception of the following: (i) the law applies to payments and benefits provided to the spouse of a public official but not to other "family members" (as defined in the Civil Code); (ii) the law will come into force 18 months after public announcement, as compared to 12 months as was deliberated earlier; and (iii) administrative fines, where applicable, will be imposed by the courts rather than by the Anti-Corruption & Civil Rights Commission.

Noteworthy features

As a whole, the new legislation contains several features which represent significant departures from the existing anti-bribery regime in Korea.

Corporate criminal liability for a payment or benefit provided to a public official by employees: While the anti-bribery provisions under the Criminal Code do not impose liability on corporations for bribes paid by employees, under the new legislation corporate criminal liability may be imposed for the payment of bribes by an employee unless the corporation exercised due care and supervision to prevent such misconduct.

Criminal liability for payment or benefits provided to a public official exceeding KRW 1 Million in a single instance or exceeding an aggregate KRW 3 million per year regardless of whether such payments or benefits were linked to the recipient's official duties: Contrary to the anti-bribery provisions in the Criminal Code which require the crime of official bribery to establish that a payment or benefit was provided/received "in connection with the receiving official's duties", under the new law criminal liability would be imposed without having to establish such a link to the public official's duties as long as the value of benefits received by the public official exceeds KRW 1 million (approximately USD 1,000) in a single instance or the aggregate value of benefits in a one-year period exceeds KRW 3 million (approximately USD 3,000).  

If the value of a payment or benefit provided to and received by a public official is below KRW 1 million in one instance and the sum of benefits given to the same public official in a one-year period is less than KRW 3 million, and there is a link to the public official's duties, the courts will in all likeliness rather impose administrative fines than criminal sanctions.

Criminal liability for a public official who knew of but failed to report a payment or benefit provided to his/her spouse in connection with official duties: Another significant provision in the new legislation is that criminal sanctions shall be imposed on public officials if a payment or benefit is provided to the public official's spouse in connection with the public official's duties and the public official intentionally omits to report the incident to the authorities.

Expanded scope of application: While the public bribery prohibition under the Criminal Code is limited to bribing public officials and those who are considered public officials within the meaning of the Criminal Code (e.g. employees of state-owned enterprises and state-invested corporations), the new legislation applies not only to public officials but also to employees of private schools, members of the media who are registered under Korean law, and "civilians who perform public functions according to relevant laws."

Prohibition against improper solicitation with respect to public officials: The new law also prohibits "improper solicitation" (i.e. causing public officials to violate laws or to abuse their position or authority) irrespective of whether such solicitation involves any payment or provision of benefits.  The act which illustrates fifteen types of behaviour which examplifies improper solicitation expressly excludes another seven types of requests made to public officials from the scope of improper solicitation, including: (i) open requests to commit a certain act, (ii) requests made to elected officials, political parties or civil groups for public interest purposes, (iii) requests to protect rights that were/are being infringed by legal procedures and also (iv) other requests that remain within the bounds of social custom.

The road ahead

The Kim Young-ran Act has brought about significant change to the legal paradigm in matters governing public official misconduct.  Compared to other developed countries, the Korean anti-corruption regime, until now, was not known to impose particularly strict standards and adherence to "global anti-corruption standards" went a long way to avoid running afoul of Korean anti-corruption laws. However, this new legislation imposes much stricter requirements on interactions with public officials and from now on corporations will have to implement procedures and policies to ensure compliance.

It is expected that further clarification on the issue of “courtesy payments” is likely to come in the form of a Presidential Decree prior to the legislation taking effect and that they may continue to be legitimate in light of social custom.

While the new law will not take effect until September 2016, it is advisable that corporations undertake a detailed review of their existing corporate compliance policies and anti-corruption compliance framework to ensure conformity with future standards. In particular, it is imperative that corporate policies in regard to the reimbursement of payments made at weddings and funerals are reviewed.

 

Contact:

Scott Sung-Kyu Lee
Individual member
Email: sklee@kimchang.com

c/o Kim & Chang
233 Naeja-dong, Jongno-gu
Seoul 110-720
Korea
Email: sklee@kimchang.com

September 2015 Client Alert Brazil // The Brazilien Clean Companies Act
By Antenor Madruga, Ana Belotto and Mariana Tumbiolo

Client Alert Brazil // The Brazilien Clean Companies Act

By Antenor Madruga, Ana Belotto and Mariana Tumbiolo

Key Takeaways

  • Brazil’s ‘Clean Companies Act’ seeks to impose civil and administrative liability on legal entities engaging in acts of corruption.
  • Acts of employees, agents and representatives can make a legal entity liable (strict liability) even if such acts are not institutional or authorised.
  • Administrative penalties of up to 20% of gross revenues may be imposed for violations.
  • Civil penalties include forfeiture of property, suspension or prohibition of activities and the compulsory dissolution of the corporation.
  • Effective compliance measures should be considered to mitigate possible sanctions.

Background

Corruption has been an established crime under Brazilian criminal law since the 18th century. However, under Brazilian Law, with the exception to environmental crimes, legal entities are not subject to criminal liability, including for the acts of corruption.

On January 29th, 2014, the newly legislated “Clean Companies Act” (Federal Law 12,846/2013) came into force in Brazil which specifically aims at imposing civil and administrative liability on legal entities for engaging in corruption with respect to both national and foreign public administrations. Thus, the “Clean Companies Act” targets both domestic and foreign bribery through its provisions.

The Brazilian legal system has not per se changed with the promulgation of the new law. Legal entities continue to have no criminal liability for acts related to corruption or other acts against the public administration. However, through administrative or civil judicial proceedings under Federal Law 12,846/2013, legal entities will hereinafter be subject to strict civil and administrative liability, and may face sanctions that can be as harsh or as severe as the penalties under the Brazilian Criminal Code.

A year after the “Clean Companies Act” came into force, on March 18, 2015, the President signed Decree n. 8.420 regulating the terms of the new statute. The Decree provides for:

(i) procedures to be adopted to impose administrative sanctions; 

(ii) procedures and criterion to be followed while calculating the penalties for violations of the terms of the law; 

(iii) general provisions on leniency agreements; 

(iv) factors to be considered for an effective compliance program; among others.

As previously mentioned, Law 12,846/2013 provides for the imposition of both administrative and civil sanctions on legal entities.

Strict administrative liability

The most relevant change brought by Law 12,846/2013, is the imposition of strict liability on legal entities. In other words, there is no requirement for guilt to be established under the new law in order to impose sanctions on the legal entity. Acts of employees, agents and representatives can make a legal entity liable even if such acts were not institutional or authorised.

The administrative sanctions established under the law are:

I – A fine in the amount of 0.1% (one tenth percent) to 20% (twenty percent) of the gross revenue of the last year prior to the initiation of administrative proceedings, excluding taxes, which will never be less than the advantage obtained, when the estimation1 is possible, and

II – The extraordinary publication of the sentence.

Civil liability

In addition to the administrative liability, the law provides the following civil sanctions, which may also be applied individually or cumulatively:

I - Forfeiture of property, rights or securities representing an advantage or profit directly or indirectly obtained from the violation, except for the right of the victim or a third party in good faith;

II - Partial suspension or prohibition of activities; 

III - Compulsory dissolution of the corporation; 

IV - Prohibition to receive incentives, subsidies, grants, donations or loans from agencies or public entities and public financial institutions or institutions controlled by the government for a minimum period of one (1) and maximum of five (5) years.

Compliance requirements and the compliance defence

Further, the new law introduces the concept of compliance credit / defence to Brazilian anti-corruption enforcement. It specifically establishes reporting and compliance measures that must be taken into consideration in favour of the company when applying any sanctions against legal entities. Such compliance measures would include the existence of internal auditing and integrity mechanisms and the effective application of a code of ethics. From a law enforcement perspective, authorities would consider the level of cooperation of the legal entity with the authorities and self-disclosure of criminal misconduct to the authorities.

The recently promulgated Decree provides for the establishment of objective criteria to be considered when assessing the effectiveness of a compliance program. The criteria is to follow internationally adopted-standards, similar to those used by the US DOJ under the FCPA and by the UK Serious Fraud Office under the UK Bribery Act, such as, commitment of the senior management, the existence of a comprehensive code of ethics, integrity policies and procedures duly made applicable to all employees and relevant third parties; periodic training; maintaining accounting records; etc. The decree establishes a Risk Based Approach to compliance, according to the specific risks faced by each company on a case-to-case basis.

Finally, following the issuance of the Decree, the Office of the Comptroller General (CGU) has published an ordinance (Portaria CGU 909/2015) detailing specific criteria to analyse the effectiveness of a compliance program, which companies must peruse to incorporate relevant controls into their compliance program.


1If by any reason it is not possible to use the standard of the value of the gross revenue, the fine ranges from R$ 6,000.00 (six thousand reais) to R$ 60,000,000.00 (sixty million reais).

 

Contact:

Antenor Madruga
Email: antenor@feldensmadruga.com.br

Ana Belotto
Email: ana@feldensmadruga.com.br

Mariana Tumbiolo Tosi
Email: mtt@feldensmadruga.com.br

Brasília - Porto Alegre
Rio de Janeiro - Sáo Paulo
Av. Chedid Jafet, 222 – Torre D – 5º andar
São Paulo/SP, 04551-065
Phone: +55 (11) 3522-4850
www.feldensmadruga.com.br

 

August 2015 Client Alert Spain // Criminal liability exemption of legal persons under the amended Spanish penal code
By Olga Fraga

Client Alert Spain // Criminal liability exemption of legal persons under the amended Spanish penal code

By Olga Fraga

Key Takeaways

  • This amendment to the Spanish Penal Code introduces an exemption from the criminal liability for those companies which implement an organisation and management model for the prevention of criminal misconduct (compliance program).
  • The establishment of criminal compliance programs will henceforth be the only means of exculpation from criminal liability for companies.
  • Any criminal compliance program which has been adopted in the past, must meet the new minimum requirements established by the statue in order to obtain the exemption from corporate criminal liability.

Background

The Organic Law1 1/2015 entered into force on July 1st, 2015, marking substantial modifications to the Spanish Penal Code. Among the various amendments, the new criminal regulation of legal persons should be of immense interest to companies. For the first time it expressly provides a criminal liability exemption for companies which implement an organisation and management model for the prevention of crimes, i.e. a compliance program.

While Spain has recognised corporate criminal liability since the year 2010, significant debate has ensued on the “due control” provision found in Article 31 bis Spanish Penal Code. Thus, the present amendment to the Spanish Penal Code widens the scope of corporate criminal liability by defining the essential elements of a compliance program and regulating its impact for the first time. To this end, the reform is, to a considerable degree, based on the Italian Legislative Decree 231/2001 of June 8th, 2001.

Therefore, the most significant changes in the wake of the amendment in terms of criminal liability of companies can be summarised as follows:

1. The establishment of a control and supervision model will be the only way to obtain an exemption from criminal.
2. The criminal compliance programs must meet the minimum requirements established by statutory law so as to qualify for the exemption.

Conditions and legal requirements for the exemption from criminal liabilit

Under the amended Penal Code, when a crime is committed by directors (de facto or de jure) or legal representatives of a company, the amended Article 31 bis 2 demands that the following conditions are met by the company in order for it to be exempted from criminal liability:

  • The existence of a compliance program prior to the criminal act, including proportionate monitoring and control measures to prevent the committed crime or to significantly reduce the risk of such crimes;
  • The delegation of the supervision of the compliance program to an autonomous body within the company with its own powers of control (i.e. a “Compliance Officer”);
  •  The tainted individual / employees committed the crime fraudulently while acting in violation of the compliance programm
  • There have not been any omissions in matters of supervision, monitoring and the control function by the Compliance Officer.

Therefore, the operative part of the amendment is the creation of a compliance program (organisational and management model) which is to be duly adopted and executed before the criminal offence itself is committed. Hence, the determination of what would constitute an effective compliance program becomes imperative.

An Organic Law (Spanish: Ley Orgánica), under the present Spanish Constitution of 1978, must be passed by an absolute majority (not merely a majority of those voting) of the Congress of Deputies.

The amended Article 31 bis 5 sets out the requirements for an effective compliance program, named “organisational and management model”, as follows:

Conducting comprehensive “due diligence” in order to identify areas of the company in which criminal offenses are most likely to be committed. Thus the implementation of the compliance program would have to be preceded by a “risk assessment”;

  • The introduction and implementation of appropriate procedures for compliance related decision-making within the company;
  • The introduction and implementation of financial resource management systems suitable to prevent crimes;
  • The establishment of effective communication channels in terms of “ethical lines” or “whistleblowing” programs that would allow for a report of non-compliance or criminal misconduct within the company;
  • The establishment of an internal disciplinary system that penalises failure to comply with the compliance program on an individual level;
  • A Periodic review and audit of the compliance system whenever changes occur within the organisation of the company.

New offences

The amendment further introduces new criminal offences into the conclusive catalogue of crimes, which establishes criminal liability of a company, without prejudice to the liability of the perpetrator of the offence. In essence the new offences include the unlawful financing of political parties, frustration of enforcement actions and crimes against the public health.

However, it should be noted that the existing penalties applicable to a legal person under Article 33.7 remain unaltered by this amendment. Thus, companies may be subject to fines, dissolution, suspension of activities for up to five years, closure of premises, prohibition from contracting with the public sector or obtaining grants or subsidies, prohibition of certain business activities or even court regulated seizure assets.

Additionally it is to be noted, that the company is required to remain committed to undertaking mitigating steps in the aftermath of an offence. Examples of such mitigating activity would include voluntary disclosure of the criminal misconduct prior to discovery by law enforcement authorities, cooperation during the course of the investigation, restitution or minimisation of damages before the trial or the pre-trial implementation of measures that effectively prevent and detect any crimes that may be committed in the future.

External Link

Organic Law 1/2015 of 30th March, published on 31 March 2015 in the Boletín Oficial del Estado,(Official Statutory Spanish Journal).

 

Contact:

Barcelona
Provenza, 290, 1º 2ª A y B
08008, Barcelona

Phone: (+34) 93 487 24 77
Fax: (+34) 93 487 60 10
Email: barcelona@gonzalezfranco.com

Madrid
Paseo de la Castellana, 259C
Torre de Cristal, 28046 Madrid

Phone: (+34) 91 523 94 82
Fax: (+34) 91 523 94 87
Email: madrid@gonzalezfranco.com

www.gonzalezfranco.com

July 2015 Client Alert Colombia // Colombian Congress discussing draft law on transnational bribery
By Franco Contreras

Client Alert Colombia // Colombian Congress discussing draft law on transnational bribery

By Franco Contreras

Colombian Congress discussing draft law on transnational bribery

    Key Takeaways

    • New Colombian draft law proposes to impose severe administrative
      sanctions on companies that engage in transnational bribery.
    • The new legal framework applies both to Colombian subsidiaries and
      branches of multinational companies.
    • Administrative fines can be imposed up to USD 50 Million.
    • Companies may be liable to have imposed on them the “inability for
      performing commercial activities” sanction.
    • Effective compliance programs and active cooperation in investigations can substantially reduce the sanction‘s severity or prevent it entirely.
    • Multinational companies that use Colombia as a hub country for other
      national markets should take efforts to minimize compliance risks.

    Background

    Multinational companies that have subsidiaries in Colombia are likely to face a new compliance challenge with the draft law on transnational bribery (proyecto de ley 159 de 2014) that has recently been approved in the first debate by the Colombian Congress.

    This pertinent legislative development should be seen against the background of Colombia‘s plans to become a part of the OECD (Organization of Economic Co-operation and Development). Colombian President Juan Manuel Santos has reiterated his commitment to secure Colombia‘s membership to this “club of wealthy countries”. A pre-condition for the OECD membership is becoming a signatory to the OECD-Anti-Bribery Convention (OECD Convention on Combating Bribery of Foreign Public Officials in International Business
    Transactions), which Colombia did by signing and becoming the 40th party of the OECD convention on 19 January 2013.

    However, signing the OECD-Anti-Bribery Convention was only the first step, since the OECD subjects convention signatories to a strict standard, including annual review. In this regard, the OECD was of the opinion that Colombia’s legislation lacks in terms of prevention of transnational bribery. Therefore the Colombian government introduced the abovementioned draft law in late 2014 to comply with its commitments to the OECD Anti-Bribery Convention.

    The draft law has had its first debate in Colombian Congress, and would have to go through three more debates as required by Colombian constitutional law. While the law is required to be adopted by 20th June 2016, it is probable that this process may be expedited by the Colombian Congress in light of Colombia’s imminent membership to the OECD and the efforts of the Minister of Justice.

    Proposed Amendments

    The draft law proposes to introduce some major changes within the Colombian legal system of corporate liability. Article 1 of the draft law establishes administrative sanctions on a legal person who, through one of its employees or managers, bribes foreign public officials in an international business transaction. Such administrative sanctions would mark a unique development to Colombian law.

    As per the current law, sanctions against legal persons can only be imposed if the company’s legal representatives or administrators are directly involved or permitted acts of transnational bribery. The company however could face civil law liabilities by virtue of criminal proceedings having been initiated against its officers in connection to transnational bribery offences. For example, in criminal proceedings against a company‘s CEO for bribery in public procurement, the company itself could be included as a civilly liable third party in the proceedings. However, this civil liability mechanism has not been applied in judicial practice. As a result, there is no effective sanction regime in place against companies in cases where employees committed corruption-related offences, even when the company has obtained financial benefits from such offences.

    The proposed administrative sanctions as envisaged in the draft law would apply to both Colombia-based subsidiaries of foreign companies and to branches of such foreign companies as well, notwithstanding the fact that the latter (branches) have no legal personality per se under Colombian commercial law.

    A hypothetical example highlighting the impact of the draft law would be if an employee of a multinational company‘s Colombian branch bribes a foreign (i.e. not Colombian) public official, the Colombian branch itself might face administrative sanctions, as well as criminal proceedings against the natural person that committed the offence.

    Enforcement

    The enforcement of the draft law is likely to rest with the Colombian Superintendence of Companies (Superintendencia de Sociedades) which would also be in charge of imposing administrative sanctions for transnational bribery on companies. However, companies that are supervised by the Financial Superintendence (Superintendencia Financiera de Colombia), such as banks and other financial institutions, would be sanctioned by the Financial Superintendence.

    Administrative Sanctions

    The draft law provides for a broad range of administrative sanctions. Firstly, the Superintendences may impose fines of up to 128 billion Colombian Pesos (approximately USD 50 million). Secondly, the company may be excluded from Colombian public procurement for a period of up to 20 years. Thirdly, the company may be declared unable to perform commercial activities. Lastly, the imposed sanction may be published in newspapers and required to be published on the sanctioned company‘s website.

    If a company that has engaged in transnational bribery is acquired by another company, the concerned Superintendence can impose the administrative sanctions on the buyer company. This provision is likely to make future company acquisitions in Colombia more cumbersome, as now an exhaustive criminal law compliance will be necessary to avoid administrative sanctions.

    Mitigation

    The draft law includes a list of mitigating factors regarding the administrative sanction‘s severity. One of those factors is a preventive anti-corruption program, codes of conducts or other effective compliance measures that were in place at the time the corruption-related offence has been committed. Furthermore, the Superintendences can grant benefits to companies that actively cooperate in ongoing investigations. The company may even have its charges dropped if it actively and comprehensively discloses at an early stage such acts of transnational bribery that have been committed by its employees.

    Conclusion
    The draft law poses serious legal, financial and reputational risks for subsidiaries or branches of multinational companies that are domiciled in Colombia, especially if they are doing business in foreign countries with a
    Colombian presence. As Colombia is becoming more and more attractive as a hub for multinational companies that serve markets in other Andean countries (like Ecuador or Peru), Central America or the Caribbean, such risks must be considered significant. Companies are advised to ensure compliance with the Colombian legal framework. An earnest compliance effort can prevent or substantially reduce administrative sanctions.

     

    Contact:

    Franco Contreras
    Attorney-at-law
    Email: franco.contreras@prslaws.com

    Parra Rodríguez Abogados
    Carrera 9 No 74-08 Of.504
    Bogotá D.C.,110221,
    Colombia

    Phone: +5713764200
    Email: prs@prslaws.com

    June 2015 Client Alert Poland // Changes in the Polish criminal law – potential impact on prosecution of companies and white collar crime matters
    By Jan Jobs

    Client Alert Poland // Changes in the Polish criminal law – potential impact on prosecution of companies and white collar crime matters

    By Jan Jobs

    Changes in the Polish criminal law – potential impact on prosecution of companies and white collar crime matters

    • Changes to the national criminal law regulations (effective as of the 1st of July 2015) could result in an increased risk of direct prosecution of corporations in Poland, with harsher penalties.
    • Under the amended criminal law regulations, which greatly limit active role of the criminal court during the trial, indicted individuals and entities shall have a better chance of effective defense against “ frivolous” charges in white collar crime matters.
    • At the same time, press articles concerning activities of the Polish Central Anti-Corruption Bu-reau (CBA) and Warsaw Office of the US Federal Bureau of Investigation (FBI) suggest more enforcement actions against corporations and managers with regard to past and current corruption-related misconduct.

    Amendments to the criminal law regulations – increased risk of prosecution of corporations

    The Polish Parliament has enacted the Code of Criminal Procedure Amendment Act (Journal of Laws
    1247.2013, the “CCP Amendments”) significantly reshaping the national criminal justice system. Concur-rently,
    criminal law regulations governing the liability of corporations have been amended through the Criminal
    Code Amendment Act (Journal of Laws 396.2015; the “CC Amendments”). Both these legisla-tions shall come
    into force with effect from the 1st of July 2015, however amendments to the criminal procedure regulations
    shall apply to court cases wherein the investigation commenced prior to the aforementioned date.

    Under the amended Criminal Code the courts would no longer have jurisdiction to order the forfeiture of
    proceeds from a crime obtained by a company via criminal proceeding initiated against a natural person
    who acted in the company’s name or interest (e.g. manager or another employee who gave bribe so that the
    company could win a public tender). Although this amendment might at first glance suggest decreased risk of
    corporate criminal liability, it is likely to have an opposite effect. An official document from the Ministry of
    Justice accompanying a draft of the CC Amendments states that prosecutors would now be expected to initiate
    a separate criminal case against a corporation that benefitted from the crime of a natural person – on the basis
    of the Criminal Liability of Collective Undertakings Act (“CLCU”). So far, the CLCU has rarely been applied
    (only 31 new cases in 2014, mostly minor tax matters) as the authorities usually have deemed the case closed
    upon the conclusion of criminal proceedings against natural person and neither the Prosecutor General’s Office
    nor the Ministry of Justice has previously issued any directives or instructions to “line” prosecutors to indict
    corporations following final convictions of natural persons acting in their name or interest. The Ministry’s
    statements cited above and certain publicly accessible information (please see the next section hereof) suggest
    that such an approach by the prosecuting authorities is bound to change the legal landscape in the near future.

    It should be noted that the CLCU sets out potentially significant penalties that may be imposed on cor-porations,
    including a fee of up to approx. EUR 1.2 Million, forfeiture of proceeds from the crime (e.g. net profit
    from the contract obtained through a rigged public tender), prohibition from participating in public tenders,
    receiving any public subsidies or other public support (also from EU institutions) - for up to 5 years. This
    would of course be coupled with the negative publicity that results from the corporation being named a defendant by the public prosecutor’s office under CLCU. In accordance with the CLCU, a criminal case against the
    company may be initiated only following a conviction of a natural person from whose criminal misconduct
    such company has obtained or could have obtained a benefit.

    Amendments to the criminal law regulations – better protection from “frivolous” indictments

    The CCP Amendments introduce a new model for the criminal due process in Poland, and would apply to all indictments brought on or after 1st of July 2015 (also to the indictments against corporations brought on the basis of CLCU). This new model places a strong emphasis on an ‘active’ role of the parties, i.e. the public prosecutor and the defense counsel, requiring them to produce all evidence and limiting the role of the judge to that of a supervisor of the trial who neither asks questions to witnesses, nor shows any other initiative in determining the facts of the case prior to issuing the judgment.

    So far, the criminal cases in Poland, especially in complex white collar crime matters, dragged on for years since
    the judge had to thoroughly examine the case and look for additional evidence (also that which would incriminate the defendant) even if the prosecution had failed to provide sufficient proof of a crime. Under the “old” model, the prosecutors on many occasions indicted business decision makers e.g. for acting to the detriment of the company based on scant evidence as they knew that the burden of examining (proving) the charges would be borne by the criminal court. This is bound to change under the CCP Amendments as prosecutors may now expect “frivolous” indictments to be quickly dealt with by competent defense counsel during the trial.

    Moreover, the CCP Amendments address one of the “bottlenecks” of the criminal procedure affecting especially white collar crime matters – namely, the problem with expert opinions. According to the “old” model, the judge had to make all assessments requiring specialized knowledge (e.g. analysis of the defendant’s business decisions and/or loss caused to the company) on the opinion of an expert from the list maintained by the court and such an expert had to be unrelated to parties and was later paid from the court’s budget. This resulted in a very limited pool of available experts and, generally, low quality of their work products, thereby allowing for criminal convictions based on opinions prepared without any understanding of the modern business environment and particularly, the inevitability of risk in business decision making. The opinions also typically took a very long time to prepare as the “official” experts were overburdened with work. As per the CCP Amendments, the defendant shall be allowed to present “private” expert opinions and could apply for their authors to testify before the court in support of their conclusions. These changes in the criminal procedure would mitigate the risk of unjust criminal indictments and/or convictions particularly for business decisions that have caused losses to the company.

    Developments in the Polish anti-corruption agency and FBI Warsaw office

    Further to the Hewlett Packard corruption scandal in Poland (which resulted in a USD 108 Million set-tlements under the U.S. Foreign Corrupt Practices Act), Mr. Paweł Wojtunik, Head of the Polish Central Anti-Corruption Bureau (“CBA”), said in a press interview that the CBA was planning to be more active in going after corporations engaged in corruption and criminal misconduct committed by their managers. Mr. Wojtunik also said that the CBA would review the past conviction of managers of corporations for corruption and return to those cases, initiating prosecution against such companies (on the basis of CLCU). Corporations that are aware of past convictions of their managers or other employees for corruption-related crimes are advised to review such cases for possible corporate criminal liability risks in Poland. It would be imperative to note that any settlements that a corporation has entered into with foreign law enforcement authorities are not binding on the Polish authorities and would not impact the corporations’ criminal liability in Poland.

    More recently, one of the Polish business newspapers published an article (“FBI Invites Whistleblowers for a Coffee”, “Puls Biznesu” of 8th of April 2015) discussing activities of the FBI Warsaw office and citing the Head of the office Ms. Monika A. Wasiewicz. The article while relying majorly on the uncovered large-scale corruption scandals in Poland involving US corporations (Hewlett Packard, Stryker and Glax-oSmithKline), also stated that due to the FBI’s actions in cooperation with the Polish investigative au-thorities several comparable corruption matters could surface later this year in Poland.

     

    Contact:

    Jan Jobs, Attorney-at-law
    Co-Head of the Compliance & Internal
    Investigations Practice Group
    Roxin Alliance

    Jobs Skowrońska Samsel LLP
    17/15 Wiejska str.
    00-480 Warsaw, Poland
    Phone: +48 22 122 15 13
    Mobile: +48 604 444 790
    Email: jan.jobs@jsslaw.pl