THE MAGAZINE

How to Develop an Ethical Culture

By Stephanie Berrong

 

 
In addition to a steep rise in the number of active investigations, another trend shows that individuals, rather than organizations, are increasingly being targeted. A tally by international law firm Steptoe & Johnson LLP shows that the number of individuals who were prosecuted in 2009 outpaced the number of corporate prosecutions: 28 compared to 18. In 2008, there were nine prosecutions of individuals and 14 of corporations.
 
“What’s happened in the last couple of years is that the enforcement authorities—both the DOJ and the SEC— have consciously adopted a policy, for deterrence reasons, of targeting individuals, particularly high-level individuals in companies,” says Lucinda Low, a partner at the law firm, who heads the FCPA practice. “They realize, or they believe, that if executives think they might go to jail, they’ll act differently,” she adds.
 
Early this year, the SEC announced a new cooperation policy that provides incentives for individuals and companies to cooperate with investigations and enforcement actions. The goal, Low says, is to get cooperation from lower-level employees who can assist the SEC in pursuing higher-level executives.
 
The SEC is also applying some “broader tools that prosecutors have in their toolbox” to focus on the prosecution of individuals, Low notes. For example, the SEC charged two executives last year with control-person liability for a corporation’s FCPA books and records violations even though the authorities did not allege that the executives had personal knowledge of the nefarious payments.
 
Another new development in corruption investigations is the use of undercover sting operations. In January, 22 business executives and employees were arrested during one such operation for attempting to win a portion of a $15-million contract for military and law enforcement equipment by allegedly bribing overseas officials. During the operation, an FBI investigator posed as a sales agent representing the defense minister of an African country, which was unnamed in the indictment.
 
The reach of the FCPA has also been extended, Low says. One example of this is that authorities are no longer targeting large multinationals to the exclusion of small and medium-sized companies. “It’s not just large-scale corruption,” Low says. “You’re seeing cases that involve payments sometimes as low as $40, and so it’s smaller scale corruption as well that’s subject to enforcement.”
 
In addition, the FCPA was strengthened in 1998 as part of the United States becoming a party to the OECDs Convention on Combating Bribery of Foreign Public Officials in International Business Transactions. Now U.S. citizens can be subject to the FCPA wherever they are acting in the world, and the conduct does not have to have a connection to the United States. For foreign nationals, U.S. authorities only need to have personal jurisdiction over an offender. For example, a former Alcatel executive wanted on charges that he violated the FCPA was taken into custody by authorities while transiting through the United States on a business trip.
 
The international anti-corruption regulations in other countries are also being strengthened, notes Kvamme, who points out that companies can be prosecuted under more than one of these statutes for the same offenses. For example, a company operating in Norway could be investigated and fined by Norwegian authorities for violating Norway’s corruption laws while also being prosecuted by U.S. authorities for FCPA violations. In fact, news reports after the recent FCPA case involving Daimler said that the German government might investigate whether it should bring related charges against the company, which is based there.
 
The United Kingdom passed a new bribery law in April; it will hold organizations accountable for failing to prevent a bribe being paid by those who perform services on its behalf. If the organization has adequate procedures in place to prevent bribery, however, it will not be held liable. The law is to go into effect in October; guidance for implementation is expected in July from the U.K.’s Serious Fraud Office.
 
Developing a Program
 
The ideal situation, Kvamme says, is to have a strong anti-corruption program in place so that employees know the company does not endorse such activities, and if an incident occurs, the organization can prove to authorities that it was trying to prevent corruption by employees. “You can never prevent…somebody in your organization, even on the management level, being involved in fraud or corruption,” Kvamme says. “But if you have put resources [in place], and you can prove to the government or to the authorities that you have done as much as possible…you will be much better off and you will be treated much differently than if you have an incident and the authorities come in, and you can’t [provide] any evidence of a proper anti-corruption program.”
 
While there is not one standard for developing an international corporate anti-corruption program, several organizations publish helpful guides that address the issue, among them are PricewaterhouseCoopers’ Confronting Corruption: The Business Case for an Effective Anti-Corruption Programme and Transparency International’s Business Principles for Countering Bribery. Transparency International (TI), a nonprofit group that tracks corruption, publishes the latter in two editions: one for large companies and one for small and medium-sized enterprises.
 

 

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