Multinational companies have spent millions of dollars beefing up their compliance programs amid a U.S. crackdown on foreign bribery. Now, they are facing a new British law they fear will force them to rethink their compliance strategies and upend their business practices.
The new law, called the Bribery Act, takes effect in April. It resembles the U.S. Foreign Corrupt Practices Act, which bars companies that trade on U.S. exchanges from bribing foreign government officials to gain a business advantage.
The British law, however, is more sweeping than its American counterpart, and corporate legal advisers are uncertain how extensive the fallout might be.
"There are a lot of people saying this is the FCPA on steroids," says Mark Mendelsohn, a Washington lawyer who oversaw FCPA prosecutions at the U.S. Justice Department from 2005 until earlier this year. Mr. Mendelsohn is now a partner at corporate-defense firm Paul, Weiss, Rifkind, Wharton & Garrison LLP.
Legal experts say it isn't clear how vigorously the law will be enforced or what resources Britain will commit to investigating or prosecuting suspected violations. But that point has done little to reduce the trepidation among corporate counsels.
The British law, however, is more sweeping than its American counterpart, and corporate legal advisers are uncertain how extensive the fallout might be.
"There are a lot of people saying this is the FCPA on steroids," says Mark Mendelsohn, a Washington lawyer who oversaw FCPA prosecutions at the U.S. Justice Department from 2005 until earlier this year. Mr. Mendelsohn is now a partner at corporate-defense firm Paul, Weiss, Rifkind, Wharton & Garrison LLP.
Legal experts say it isn't clear how vigorously the law will be enforced or what resources Britain will commit to investigating or prosecuting suspected violations. But that point has done little to reduce the trepidation among corporate counsels.
Richard Alderman, head of Britain's Serious Fraud Office, the law's enforcer, recently told the Sunday Telegraph newspaper that "sensible and proportionate expenditure on hospitality will remain perfectly lawful."
Mr. Alderman has called the new law "a model of clarity," and said that it was carefully reviewed during the legislative process.
An SFO spokesman said Mr. Alderman was overseas for the holidays and couldn't be reached for comment.
SFO officials have publicly mentioned the pharmaceutical industry as a potential target of the law, citing U.S. Justice Department investigations into bribery allegations against drug and medical-device makers, but other industries that operate in regions where corruption is rampant will also face scrutiny.
The Bribery Act comes as more nations are taking a tougher stance against corruption. China, which some antibribery groups rank high on the corruption scale, has prosecuted corporate-bribery cases recently, and many European nations have bolstered anticorruption laws.
The moves follow tighter enforcement of the FCPA in recent years by the U.S. Justice Department and Securities and Exchange Commission. So far this year, the Justice Department alone has prosecuted 22 FCPA cases and collected hundreds of millions of dollars in fines.
Most multinational companies have put elaborate programs in place to avoid running afoul of the FCPA. These programs typically establish a channel through which employees can report suspected bribery and companies can investigate the complaints internally. Some companies also are hiring compliance consultants or offering books and seminars to help prepare employees for the ethical minefields they might face in some countries.
In the past few months, however, companies have started to worry that their compliance programs could be undermined by a U.S. law that entitles whistle-blowers to share in money collected by the SEC in fraud and corruption cases. They fear the measure, part of the Dodd-Frank financial-reform bill, gives employees little incentive to report suspected bribery internally when they could ultimately reap a windfall by taking their complaints directly to the SEC.
The Bribery Act is expected to further complicate compliance.
The law allows companies under scrutiny to avoid trouble by having an adequate compliance program. But British authorities haven't defined what constitutes an adequate program.
"The people who run compliance at all the major U.S. public companies have a lot more on their plate," says George Terwilliger III, a partner at White & Case LLP in Washington who works on FCPA cases. "It is sort of a double whammy."
The Bribery Act, which replaces a jumble of British bribery laws and rulings, boosts the maximum penalty for bribery to 10 years in prison from seven, and sets no limits on fines.
The law's scope is murky, legal experts say, leaving some companies to fear they may fall under its jurisdiction if they merely sell products in Britain. It says that a company can be liable if anyone associated with it pays a bribe. But it isn't clear whether that applies to agents, consultants, vendors, joint ventures and the like, attorneys say.
The law prohibits facilitation payments, or "grease payments," small bribes common in some countries to get mail service, phone hook-ups or other services that otherwise would be significantly delayed.
Those types of payments are legal under the FCPA as long as they are recorded. The U.S. Chamber of Commerce has called the British law's criminalization of the payments "troubling."
"Lots of clients are very worried, confused, uncertain," said Tim Coleman, a Washington-based global investigations partner at Freshfields Bruckhaus Deringer LLP. "Some are in denial."
Source: The Wall Street Journal
http://online.wsj.com
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