Importance of Effective Anti-corruption Programmes - International Law Office

International Law Office

White Collar Crime - USA

Importance of Effective Anti-corruption Programmes

November 09 2009

Introduction
Importance of Compliance Programmes
What Makes a Compliance Programme Effective?
Comment


Introduction

With the ever-increasing number of bribery and corruption probes and prosecutions, business around the world is no longer 'business as usual'. Now, more than ever, companies must develop and implement effective anti-corruption compliance programmes. This year the Foreign Corrupt Practices Act has been prominent in the news with a number of high-profile cases and record-setting settlements.(1) The Department of Justice and the Securities and Exchange Commission (SEC) have shown no signs of slowing the enforcement momentum. In August 2009 the Department of Justice announced that it is looking for an additional 10 Fraud Section trial attorneys.(2) In addition, the SEC has revealed its plans to create a specialized Foreign Corrupt Practices Act unit. Director of the SEC Enforcement Division Robert Khuzami explained: "While we have been active in this area, more needs to be done, including being more proactive in investigations, working more closely with our foreign counterparts, and taking a more global approach to these violations."(3)

Importance of Compliance Programmes

The wave of enforcement actions and investigations emphasizes the importance of effective compliance programmes. While the goal of any anti-corruption compliance programme is to prevent and detect misconduct, there are more immediate benefits in the event that a potential violation arises. In the United States, companies in the throes of a government investigation or enforcement action can use the existence of effective compliance programmes in their negotiations with the government. Effective compliance programmes can also have an impact on the scope of potential penalties that companies may face. The Department of Justice US Attorneys' Manual instructs prosecutors to consider "the existence and effectiveness of a corporation's pre-existing compliance program", among other factors, when "conducting an investigation, determining whether to bring charges, and negotiating plea or other agreements".(4) Ultimately, an effective compliance programme can positively impact on a company's bottom line by reducing the amount of a government or court-imposed penalty. Further, under the Sentencing Commission's Guidelines Manual, an effective compliance ethics programme can reduce a company's culpability score.(5)

What Makes a Compliance Programme Effective?

The growing importance of compliance programmes begs the question: what makes a compliance programme 'effective'?

US enforcement authorities and regulators have been relatively quiet about the requisite elements of an 'effective' compliance programme. Despite all its generalities, the Sentencing Guidelines Manual provides the most definitive official statement on what makes a compliance and ethics programme effective.(6) Companies are instructed to:

  • establish compliance standards and procedures;
  • grant oversight responsibility to specific individuals; and
  • ensure that their boards of directors understand and have some oversight over their compliance programmes.(7)

Companies must communicate periodically with employees and management about their standards and procedures.(8) They should conduct audits to detect criminal conduct and evaluate periodically the programme's effectiveness. Companies should have and publicize a means for making confidential reports about potential misconduct.(9) Finally, the Sentencing Guidelines Manual states that once a company has detected criminal conduct, it must take steps to respond to it, including disciplinary measures and modifications to the compliance programme.(10)

Unfortunately, the Sentencing Guidelines Manual offers little practical guidance to companies seeking to build an effective compliance programme and the Department of Justice has declined to approve best practices officially. The US Attorneys' Manual unequivocally states that the Department of Justice has no "formulaic requirements", instead instructing prosecutors to ask:

"Is the corporation's compliance program well designed? Is the program being applied earnestly and in good faith? Does the corporation's compliance program work?"(11)

To date, the most instructional guidance from the Department of Justice can be found in Opinion Procedure Release 04-02.(12) In that document the requestors asked whether the Department of Justice planned to take enforcement action based on the requestors' acquisition of a company for pre-acquisition Foreign Corrupt Practices Act violations. After indicating their commitment to cooperate with the government, the requestors outlined the elements of their planned compliance programme. The Department of Justice went so far as to state that it "view[ed] the Requestors' representations concerning a compliance program to be significant precautions against future violations" of the Foreign Corrupt Practices Act, but it refused to endorse any particular element of the compliance programme.(13) Nonetheless, the opinion procedure release provides some insight into how a company may meet the objectives of the effective compliance programme contemplated by the Sentencing Guidelines Manual. The compliance programme described in the release included the following elements:

  • a corporate policy against violations of the Foreign Corrupt Practices Act and foreign anti-bribery laws and compliance procedures to be followed by directors, officers, employees and business partners (ie, agents, consultants, representatives and joint venture partners);
  • one or more independent corporate officials with responsibility for implementation and oversight of the compliance programme who would report to the audit committee of the board of directors;
  • a helpline for reporting suspected violations of the compliance programme or law;
  • disciplinary action to address suspected and actual violations of the compliance programme, Foreign Corrupt Practices Act and/or foreign anti-corruption laws;
  • due diligence procedures for business partners and agents and a committee of senior corporate officials to review and record actions relating to the retention of, contracts with and payments to all agents;
  • agreements with agents and business partners that include:
    • anti-corruption representations and undertakings;
    • provisions regarding compliance with applicable law, including foreign anti-corruption laws;
    • audit provisions; and
    • termination rights;
  • financial and accounting procedures designed to ensure compliance with the internal controls and books and records provisions of the Foreign Corrupt Practices Act; and
  • independent audits by outside counsel and auditors at regular intervals.(14)

Comment

Now, more than ever, companies must implement rigorous anti-corruption compliance programmes as their first line of defence in an effort to prevent and detect criminal conduct. There is no doubt that government-approved best practices will continue to emerge, evolve and become more specific. However, at a minimum, the programmes should include the best practices identified above to be considered effective. Companies cannot afford to do any less. The recent enforcement trends in the United States and abroad make it clear that the global compliance landscape is changing and anti-corruption compliance programmes are not optional.

For further information on this topic please contact Richard Craig Smith, John Kelly or Anne Elkins Murray at Fulbright & Jaworski LLP's Washington DC office by telephone (+1 202 662 0200), fax (+1 202 662 4643) or email (rcsmith@fulbright.com, jkelly@fulbright.com or amurray@fulbright.com). Alternatively, contact Alexandre Rene at Fulbright & Jaworski LLP's London office by telephone (+44 20 7832 3600), fax (+44 20 7832 3699) or email (arene@fulbright.com).

Endnotes

(1) The Foreign Corrupt Practices Act, 15 USC §§ 78dd-1 et seq, contains two sets of provisions: (i) anti-bribery provisions that prohibit companies from offering, promising, making or authorizing payments or anything of value to foreign officials, political parties and certain other individuals in order to obtain or retain business; and (ii) accounting provisions that require companies traded on a US stock exchange to maintain accurate books and records and implement and maintain internal accounting controls based upon sound accounting principles.

(2) See Mike Scarcella, "DOJ readying fraud attack", Nat'l Law J, August 10 2009, at 1, 20.

(3) See Robert Khuzami, director, Division of Enforcement, "Remarks before the New York City Bar: My First 100 Days as Director of Enforcement" (August 5 2009), available at www.sec.gov/news/speech/2009/spch080509rk.htm.

(4) US Attorneys' Manual § 9-28.300 (2008), available at www.usdoj.gov/usao/eousa/foia_reading_room/usam/title9/28mcrm.htm.

(5) US Sentencing Commission Guidelines Manual, § 8C2.5(f) (November 2008), available at www.ussc.gov/2008guid/GL2008.pdf.

(6) US Sentencing Commission Guidelines Manual, § 8B2.1 (November 2008), available at www.ussc.gov/2008guid/GL2008.pdf.

(7) Id at § 8B2.1(b)(1), (2).

(8) Id at § 8B2.1(b)(4).

(9) Id at § 8B2.1(b)(5).

(10) Id at § 8B2.1(b)(6), (7).

(11) US Attorneys' Manual § 9-28.800(B) (2008), available at www.usdoj.gov/usao/eousa/foia_reading_room/usam/title9/28mcrm.htm.

(12) US Department of Justice, Opinion Procedure Release 04-02 (July 12, 2004), available at www.usdoj.gov/criminal/fraud/fcpa/opinion/2004/0402.html.

(13) Id. The Department of Justice stated that it did not intend to take an enforcement action against the requestors.

(14) See id.


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