For many years, companies operating globally have considered the risk of investigation for corruption primarily from the perspective of US enforcement. From the early 2000s, Foreign Corrupt Practices Act (FCPA) enforcement actions steadily grew in frequency, peaking in 2010 with 22 cases. Since then numbers have fallen somewhat, though the total sum of financial penalties imposed has fallen far less, suggesting bigger cases are being brought in recent years, or at least that there has been significant penalty inflation.
From around 2008, companies could add to their concerns the growing possibility of enforcement action by authorities in the UK (see our UK Corruption Enforcement Tracker for more information). While the approach of the SFO was initially less fierce than that of the DOJ or SEC, with Civil Recovery Orders often offered in place of criminal prosecutions, this has changed significantly since the arrival in 2012 of David Green QC as Director of the SFO. The agency is currently involved in a significant number of major investigations, most arising from events outside the UK, and is taking a tough line with those being investigated. Although there have been recent setbacks for the SFO, see The SFO in 2015, it is undoubtedly being taken more seriously on the international stage than was once the case.
Rise of the local enforcer
It is clear that if a company finds itself mired in allegations of corruption or fraud arising from events in the developing world, it can expect the US and UK authorities to take an interest. However, increasingly it is necessary to consider what action might be taken by local enforcement agencies as well. As more countries toughen up their legislation against corporate corruption, there are signs of increasing enforcement activity across the globe.
Brazil introduced its Clean Companies Act in January 2014 and it took less than a year for the first prosecution under it to be announced. In December 2014, Brazil’s Federal Prosecution Service brought a case against three companies in the construction industry over alleged overcharging of the government in the performance of a contract to construct a railway line. One of the defendants is an engineering company, Ecoplan Engineering, which was employed by the government to oversee the contract. Under regulations approved by the government in March 2014 companies can be fined between 0.1% and 20% of annual gross revenue for breaches of the Clean Companies Act.
The Ecoplan case is not an isolated example of Brazilian enforcement action. The Brazilian Office of the Comptroller General, the lead anti-corruption agency, has been investigating allegations of corrupt payments involving the Dutch engineering firm SBM Offshore since February 2014, when a whistleblower published the company’s internal investigation report online. In September 2014, Brazilian authorities also filed a criminal complaint against eight employees of Embraer, one of the country’s largest and most prestigious companies, over bribes allegedly paid to officials in the Dominican Republic as part of a $92m contract for military aircraft. This action is being brought in parallel with a US investigation and the Brazilian prosecutors sought legal assistance from US agencies, who are thought to have shared evidence with their Brazilian counterparts.
Meanwhile in China, the number of enforcement actions by the Chinese authorities has risen hugely, catching some international organisations unaware of local laws that prohibit behaviour that might be permitted under the UK Bribery Act and US FCPA. For example, Chinese law imposes quite low maximum values for gifts that can be given to government officials, prohibiting gifts that would be unlikely to arouse the interests of UK and US prosecutors. It is now clear that the anti-corruption crackdown ushered in by President Xi Jinping is more than a passing phase or public relations exercise, as evidenced by many high level prosecutions of both companies and state officials. In this video podcast, high levels of enforcement are the new normal in China.
In Central and Eastern Europe, there are also signs that some governments are starting to take the issue of corruption seriously. On 15 March 2015 Darius Valcov, Romania’s finance minister, resigned in connection with an investigation into allegations of corruption. This followed a record year for anti-bribery and anti-tax evasion enforcement activity in the country, with more cases brought than ever before. Some of these are of significant scale and involve Western multi-nationals. Other countries in the region are also taking steps to crack down on corruption, such as in Poland, where the Anti-Corruption Bureau is currently investigating several multi-nationals.
The trend of increasing local enforcement is likely to continue. Corruption has become a political issue of increased importance in many nations, including Brazil and Romania, where popular discontent has been a major driver for increased enforcement. President Xi has spoken openly of corruption as an existential threat to the Communist Party of China. There is also external pressure for countries seeking investment: the financial assistance granted to Ukraine recently has been made subject to increased action to combat corruption, while development banks bring their own investigatory powers and sanctions (see our article for more on this).
What this means for multi-national corporations is the need to consider local laws and agencies in both their compliance planning and their response to any allegations of corruption. A set of policies and procedures that comply with the FCPA and UK Bribery Act will no longer suffice to manage risk in all jurisdictions.
For a comparison of anti-corruption laws in 11 jurisdictions across Europe, Asia and the Middle East, see our International Corruption Law Guide microsite.
This document (and any information accessed through links in this document) is provided for information purposes only and does not constitute legal advice. Professional legal advice should be obtained before taking or refraining from any action as a result of the contents of this document.