An introduction to anti-bribery and corruption

Anti-bribery and corruption concerns—often reduced to the ubiquitous acronym “ABAC”—refer to that set of international laws and regulations that concern themselves with improper attempts to gain commercial advantage by influencing the acts of others; often, though not always, the actions of officials associated with foreign governments. ABAC concerns lie at the very heart of contemporary compliance practice, and involve attempts by organizations to control their third party risks by vetting and scrupulously monitoring the activities of all agents, representatives, intermediaries, distributors, and others on whom the organization relies to conduct its business activities abroad.

An introduction to the U.S. Foreign Corrupt Practices Act (“FCPA”)

Historically, ABAC concerns were centered largely on compliance with the provisions of the U.S. Foreign Corrupt Practices Act (“FCPA”), 15 U.S.C. §§ 78dd-1 to 78qq, which penalizes the activity of certain individuals and entities subject to U.S. jurisdiction when those individuals and entities engage in quid pro quo activity implicating a foreign official. This includes “issuers” defined by the FCPA as any company—whether organized in the United States or abroad—that has securities registered in the United States or that is required to file reports with the U.S. Securities and Exchange Commission (“SEC”); “domestic concerns,” which include United States citizens, nationals, and residents, and any entity organized under the laws of a U.S. jurisdiction or with its principal place of business in the United States; and foreign nationals and entities that engage, either directly or indirectly, in any act in furtherance of a corrupt payment with a connection to the United States or any territory thereof.

The FCPA is divided into two constituent components—namely, its “anti-bribery” prohibitions and its “accounting” provisions. Under the so-called “anti-bribery” prohibitions of the FCPA, it is illegal for any issuer or domestic concern (and any representatives thereof) to make any corrupt payments to foreign government officials. This prohibition broadly includes offering, promising, or authorizing to give, directly or indirectly, anything of value to a foreign official in an effort to obtain, retain, and/or direct business. While most cases brought under the FCPA’s anti-bribery provisions involve the provision of a financial incentive—either directly, or more commonly, through intermediaries under the guise of sham agreements or shell companies—to a foreign official, the FCPA also criminalizes providing tangible goods and other perquisites of a non-pecuniary nature if the intent is to improperly induce the foreign official in his or her official capacity. Thus, organizations have been held liable for violations of the FCPA’s anti-bribery prohibitions, where for example, the organization is implicated in a scheme to provide luxury goods such as expensive sports tickets, vehicles, lavish travel and accommodations, and even subsidized tuition to foreign government officials and their families.

The FCPA’s “accounting” provisions penalize organizations for failing to maintain both reasonably accurate books and records and internal controls sufficient to prevent FCPA violations from occurring in the first instance. The obligation to maintain accurate books and records is reflected primarily in Section 13(b)(2)(A) of the Exchange Act (15 U.S.C. § 78m(b)(2)(A)), which explicitly requires issuers to “make and keep books, records, and accounts, which, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the issuer.” Conversely, the obligation to maintain internal accounting controls to ensure that the assets of the organization are properly safeguarded is embodied in Section 13(b)(2)(B) of the Exchange Act (15 U.S.C. § 78m(b)(2)(B)). Under the internal controls provisions, organizations are broadly required to “devise and maintain a system of accounting controls sufficient to provide reasonable assurances” that: (i) transactions are executed in accordance with management’s general or specific authorization; (ii) that those transactions are recorded to permit preparation of company financial statements in accordance with generally accepted accounting principles and to maintain accountability for asset management; (iii) that actual access to assets is permitted only in accordance with management’s general or specific authorization; and (iv) finally, that the recorded accountability for assets is compared with existing assets at reasonable intervals and appropriate action is taken with respect to any differences. Collectively, the FCPA’s accounting provisions are frequently employed to reach violators where certain elements of a bribery offense may be lacking. As the U.S. Department of Justice’s (“DOJ’s”) FCPA Resource Guide notes, the accounting provisions have been increasingly enforced by the SEC and DOJ to hold organizations accountable where, for instance, a bribery violation cannot be maintained because the activity in question did not implicate interstate commerce.

Since the original enactment of the FCPA by the Congress in 1977, the total number of enforcement actions brought against violators by the SEC and/or DOJ has increased precipitously—particularly from 2007 to the present. According to statistics compiled by Stanford University’s FCPA Clearinghouse, the total number of FCPA-related enforcement actions brought against both individuals and entities for violations of the anti-bribery and accounting provisions of the FCPA stands at 720 as of December 2022. The same statistics reveal that an overwhelming majority of FCPA violations occur as a result of an organization’s reliance on intermediaries, agents, and other third parties to knowingly or negligently undertake bribery in connection with securing an improper commercial advantage. As a result, companies that conduct business on an international basis must exercise appropriate due diligence when partnering with third parties in countries with a particular vulnerability to bribery and corruption-related concerns. Non-profit organizations like Transparency International and TRACE maintain their own comprehensive datasets, reports and rankings of countries on a comparative basis that permit organizations to objectively identify—and properly mitigate—the ABAC risks associated with business dealings in a particular jurisdiction. This information is a vital starting point for organizations confronted with the expansion of operations into foreign nations known to be bribery and corruption hotspots, including China, Brazil, India, Mexico, Russia, and Venezuela, among others.

Violations of the FCPA can carry both criminal and civil consequences. Individuals convicted of bribery-related offenses face the potential for up to five years imprisonment and up to $100,000 in criminal penalties. Organizations implicated in FCPA violations face a variety of criminal and civil repercussions, including the disgorgement of any proceeds derived from the illegal activity in question, and substantial pecuniary penalties. The largest penalty ever imposed on an entity in the context of a single FCPA-related enforcement action was nearly $2.9 billion against financial giant Goldman Sachs in 2020.

An introduction to The UK Bribery Act

While the FCPA remains the single most visible and far-reaching ABAC legal regimes in the world, the passage of the Bribery Act by the Parliament of the United Kingdom (“UK”) in 2010 marked a new era in the adoption of ABAC norms at global scale. Unlike its FCPA counterpart, the UK Bribery Act applies with equal force to both private and public acts of bribery by criminalizing four broad categories of conduct that can occur in the ordinary course of business dealings and/or interactions with government officials: (1) offering, promising or giving a bribe (in violation of section 1); (2) requesting, agreeing to receive, or accepting a bribe (in violation of section 2); (3) bribing a foreign public official to obtain or retain business (in violation of section 6); and (4) failure of commercial organizations to prevent bribery by persons acting on their behalf (in violation of section 7).

If a person is convicted of offering, requesting, or receiving a bribe on behalf of a commercial organization, then the organization itself can be held criminally liable for failing to have in place “adequate procedures designed to prevent persons associated with [the commercial organization] from undertaking such conduct.” Notably, however, even in the absence of an individual criminal conviction, criminal liability under section 7 may still arise where there is sufficient evidence to indicate that bribery actually took place. This is particularly true where the individual responsible for the bribery in question is beyond the reach of the UK Government because the individual resides outside of the UK, but evidence establishes that the individual was responsible for bribery on the commercial organization’s behalf.

Prosecution of even culpable organizations under the auspices of the Bribery Act are not, however, a foregone conclusion. In addition to considering the likelihood of whether the government will prevail in such cases, the UK’s Serious Fraud Office (“SFO”)—the principal arm of HM Government responsible for the administration of the Bribery Act—must also consider whether it is in the public interest to do so. Among other things, the SFO is obliged to consider a broad array of both aggravating and mitigating circumstances, including the seriousness of the offense; a pattern of similar misconduct by the same organization; whether the organization promptly reported te offense in question; whether the organization has taken a proactive approach with respect to its compliance obligations and adoption of remedial measures; and whether other civil or regulatory remedies are likely to be more effective in deterring future violations. As a result of these considerations, prosecutions pursuant to the Bribery Act are relatively few and far between. Since the Bribery Act entered into force on 1 July 2011, only a handful of cases have been brought against commercial organizations—often in relation to the most egregious infractions.

Nonetheless, conviction of an offense under the auspices of the Bribery Act can result in significant criminal penalties pursuant to guidelines issued by the Sentencing Council, and a period of discretionary or mandatory debarment from participating in public procurement activities in line with the UK’s Public Contract Regulations, depending on the nature of the offense.

The bottom line for compliance professionals

Because of the potential repercussions associated with conviction of a bribery or corruption-related offense—under U.S., UK, or other applicable laws—ABAC concerns should be at the forefront of the compliance professional’s considerations in relation to an organization’s risk profile and should be prioritized in line with other factors weighed during a comprehensive risk assessment process.

To assist compliance professionals in prioritizing and appropriately mitigating bribery and corruption risks, a number of detailed, practical guidance documents are available, including the aforementioned FCPA Resource Guide, the DOJ’s Guidance Concerning the Evaluation of Corporate Compliance Programs, and the UK Ministry of Justice’s Bribery Act 2010 Guidance. In addition to a working knowledge of the primary ABAC legal regimes currently in force, familiarity with these documents is a critical starting point for compliance practitioners new to the ABAC space. Significantly, while the subtleties of jurisdiction-specific ABAC legislation may vary, the basic risk assessment and mitigation framework set forth in the preceding guidance documents have near universal applicability.