National and international legal developments in fighting corruption
January 2014 | EXPERT BRIEFING | FRAUD & CORRUPTION
There have been important legislative developments to combat corruption, particularly within the last 10 years. This has led to increased prosecution activity in this branch of criminal activity. Domestic and international law obliges national authorities to prosecute beyond their national limits. At the same time, corruption is still far from being eradicated in most parts of the world. While in the 1970s a company had little risk of being prosecuted for bribes committed by its business partners abroad, this has changed tremendously. Companies are increasingly held criminally liable for such acts. While multinational enterprises doing business in countries with low Corruption Perception Indexes (CPI) such as Somalia, Korea and Afghanistan will hardly ever be able to completely exclude the risk of corruption in their local business, there are many ways to reduce such risks. A first step is to be aware of the complexity and diversity of existing national and international legislation in this field.
There are a number of international and regional instruments adopted with the aim of fighting corruption. At the level of the United Nations, the United Nations Convention against Corruption that came into effect in December 2005 requires state parties to implement several anti-corruption measures which may affect their laws, institutions and practices. Furthermore, there are regional instruments such as the African Union Convention on Preventing and Combating Corruption, the Council of Europe’s Civil Law and Criminal Law Conventions on Corruption, as well as the Inter-American Convention Against Corruption. At the level of the European Union, the Convention of the European Union on the fight against corruption involving officials of the European Communities or officials of Member States is of relevance, as well as Council Framework Decision 2003/568/JHA of 22 July 2003 on combating corruption in the private sector. Further, although not legally binding, the Asian development Bank/OECD anti-corruption plan for Asia and the Pacific constitutes an Asian instrument that reviews anti-corruption measures in Asia and has promoted legislative amendments in certain countries.
The most important milestone in the international fight against corruption is the OECD Convention on Combating Bribery of Foreign Public Officials of 1999 (the OECD Convention). According to Article 1 of this Convention, “each Party shall take such measures as may be necessary to establish that it is a criminal offence under its law for any person intentionally to offer, promise or give any undue pecuniary or other advantage, whether directly or through intermediaries, to a foreign public official, for that official or for a third party, in order that the official act or refrain from acting in relation to the performance of official duties, in order to obtain or retain business or other improper advantage in the conduct of international business”. Complicity, attempt and conspiracy shall be equally criminalised. Legal persons shall also be held liable for corruption. In conclusion, countries that have ratified the OECD Convention are likely to have a similar standard in their domestic anti-corruption legislation. However, as of 20 November 2012, only 40 countries have ratified the OECD Convention. Further, not all of the countries that ratified the OECD Convention have adopted implementing legislation (e.g., Thailand still lacks implementing legislation). This fact shows that even when doing business in a state that ratified the OECD Convention, this is no more than an indication that bribing of foreign public officials may be criminal there. However, to be certain one must still look into actual domestic laws.
Domestic anti-corruption legislation
Naturally, overseas anti-corruption investigations involve multiple locations, countries and regulators. Whenever criminal acts are carried out in different places or by persons of different nationalities, domestic legislation of all the concerned countries may play a role, which can make the case difficult to handle (both for defence and prosecution). When we look at domestic criminal law, we should distinguish two legal fields. First, the national rules on the extra-territorial application of the criminal law may make national law applicable even to cases carried out abroad. Second, even if, initially, criminal investigations into facts that took place partially in country B were opened in country A, this may (for example, by means of judicial cooperation or as a result of press reports) lead to additional investigations in country B, so that at least a basic knowledge of country B’s anti-corruption laws may become necessary.
International application of national law. Like in private law, each jurisdiction has special provisions outlining in which cases domestic criminal law may apply. The principles of territoriality (crime committed in the territory of the national state), and of active and passive personality (crime committed by a national or against a victim who is a national of that state) are the most well known. However, increasingly, states adopt the principle of universality and the principle of state security for certain types of crimes (for example, under Section 5 of the German Criminal Code, treason is one of these state security crimes, and pursuant to Section 6, a number of offences protecting international interests such as explosive offences, distribution of pornographic materials and human trafficking are listed, to which German law applies even when committed abroad).
Foreign domestic laws. Moreover, foreign national legislation must be taken into account. It is impossible to master all anti-corruption laws around the world, but it is important to be aware of the significant legal differences even of neighbouring countries. Not only do the types of offences vary, but also the sanctions largely differ, not to speak of general principles of criminal law (e.g., restricted right to silence in Singapore) or procedural aspects (e.g., evidence law). For example, in China bribery of public officials may, in serious cases, be punished by the death penalty. Companies may be fined (e.g., in France up to €750,000 for corruption in the public sector), and in several countries temporarily closed or banned from public procurement, public officials may be removed from their office, civil damage claims may be raised during criminal procedures, etc. On the other hand, anti-corruption regulations may be milder in certain countries. For instance, in Thailand neither bribery of foreign officials nor commercial bribery are criminal offences (to date – but bear in mind that Thailand has signed the OECD Convention and will likely adopt stricter laws in the future). Moreover, in some countries legal entities may not be held liable at all (e.g., this seems not to be the case in Egypt and Colombia).
FCPA and UKBA. Besides these general differences and national particularities, there are two pieces of ‘domestic’ legislation that have effects far beyond their national laws and therefore should be borne in mind when doing business abroad: the United States’ Foreign Corrupt Practices Act (FCPA) and the United Kingdom’s Bribery Act (UKBA).
The FCPA of 1977 was enacted for the purpose of making it unlawful for certain classes of persons and entities to make payments to foreign government officials to assist in obtaining or retaining business. In 1998, the anti-bribery provisions of the FCPA were extended in such manner that they now also apply to foreign firms and persons who cause, directly or through agents, an act in furtherance of such a corrupt payment to take place within the territory of the United States. Moreover, the FCPA also requires companies whose securities are listed in the United States to obey its accounting provisions (see 15 U.S.C. § 78m).
The UKBA came into force on 1 July 2011. It applies to corrupt acts committed outside the UK whenever a ‘close connection’ to the UK exists. Section 7 of the Act provides a strict liability offence for failure of commercial organisations to prevent bribery on their behalf, i.e., no mental element is required here (not even negligence).
It is clear from the above that global business activities face multiple legal challenges at national and international level when fighting corruption. When doing business in ‘high-risk’ countries, one should be aware that even if legislation in the particular country is not in place or not effective in practice, this by no means excludes criminal investigations in another country related to the same business. To prevent such risks, it is advisable to set high standards in the company’s anti-corruption policy, measured against the OECD Convention, but also keeping in mind FCPA and UKBA requirements, if applicable, as well as domestic legal provisions.
Thomas C. Knierim is senior partner and founder, and Dr Anna Oehmichen is an associate, at Knierim | Huber Rechtsanwälte GbR. Mr Knierim can be contacted on +49 6131 906 5500 or by email: firstname.lastname@example.org. Ms Oehmichen can be contacted on +49 6131 906 5500 or by email: email@example.com.
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Thomas C. Knierim and Dr Anna Oehmichen
Knierim | Huber Rechtsanwälte GbR