When Governments Undermine Antibribery Compliance Efforts
Compliance officers, in-house advisers, and outside white-collar counsel have long complained about the lack of U.S Foreign Corrupt Practices Act guidance on what does or does not constitute a bribe. Too often they are required to opine on some fairly esoteric topics: Can cash be appropriately given to a Korean government official at a funeral for a family member, as is customary in that country? How expensive is too expensive when ordering wine at a business meal? Can the child of a key customer benefit from the companys scholarship program if she is, in fact, the most qualified candidate?
In short, corporate compliance officers must promote thoughtful and consistent FCPA policies that collectively improve internal controls and sensitize those on the front lines to the challenges they face, all without knowing exactly where the boundary lines are drawn. Under the UK Bribery Act, the compliance community now has new grounds for complaint. This time the boundaries are clear, but when they matter is not.
Two of the greatest challenges for compliance officers working for multinational companies are facilitating paymentssmall bribes or grease payments paid to expedite a routine, non-discretionary governmental taskand gifts, travel, and hospitality. These are challenges precisely because they often seem trivial to the sales people, and it can be difficult to maintain internal discipline if employees dont believe there is any real risk associated with these kinds of potential bribes. In-house experts often work hard to explain that these gateway issues can lead to a slippery slope of corruption. They persuade, cajole, appeal to the integrity of their audience, and eventually speak to the risk of violations of law: no country permits grease payments within its borders and most countries have restrictions on gifts and hospitality that may be given to government employees.
When compliance officers reach for the legal arguments in their arsenal, the countries with the most compelling enforcement records hold the greatest sway. On the subject of facilitating payments, which are permitted under the FCPA, representatives of U.S. enforcement agencies have sent a strong cautionary message: the task had better be non-discretionary, the sum modest, and the payment must still be recorded accurately on the companys books. That is, the U.S. position has been to say these payments are permitted, but approach the line with caution. This has been successful both in bolstering the in-house compliance position and in deterring these corrosive payments.
Similarly, the FCPA permits reasonable hospitality that is appropriately related to the promotion of business. Companies spend a great deal of time and generate considerable frustration debating what constitutes reasonable in these circumstances, but the willingness of most to be sensitive to legitimate local norms means this is typically a useful internal debate. Again, compliance officers must bridge the gap between enthusiastic marketing teams and the risk of U.S. enforcement agencies reviewing their expenditures years after the fact.
In these situations, the specter of the U.S. enforcement agencies serves to deter inappropriate practices. Companies understand the law and are then able to assess their companys comfort with risk and decide how far they can stretch the definitions of facilitating payments and reasonable hospitality. Some companies, particularly government contractors, take very restrictive positions, while others are more expansive. In each case, the in-house compliance team must make the argument to management, and possibly the board, that they have found the right balance and are supportive of the business, but are also keeping the company inside legal bounds and safe from enforcement actions.
Now consider the strange approach of the UK Serious Fraud Office. Last July, the UK Bribery Act came into force with great fanfare. It was widely discussed as more draconian than the U.S. antibribery law. Unlike the FCPA, it provides no exception for facilitating payments and none for hospitality. But whereas the U.S. law permits these expenditures, within reason, and then enforces when companies overstep, the U.K. prohibits them, but assures the public that they wont be prosecuted. This position dangerously undermines the role of the compliance officer and the careful analysis that should be undertaken.
The 2012 London Olympic Games are a good example. Companies considered carefully, and at length, whether they could appropriately incorporate the Olympics into their business hospitality. Hosting the Olympics is rare and U.K. companies were presumably keen to showcase the best of London. On the other hand, the Olympics are big business themselves and hospitality packages quickly hit a value of thousands of pounds, when accompanied by local transportation, meals, and festive beverages. The SFO chiefs response to this sort of entertainment? David Green, the offices director, was quoted last week saying: We are not interested in that sort of case . . . The sort of bribery we would be investigating would not be tickets to Wimbledon or bottles of champagne. We are not the serious champagne office.
Tickets to the mens final at Wimbledon, it should be noted, sell for well over $100 (before the strawberries), and reach $20,000 quickly with travel and hospitality packages thrown in.
So where does Greens advice leave in-house compliance officers? It leaves them arguing for frugality in the face of a restrictive law that the SFO has announced it isnt too bothered about enforcing. There are few U.S. compliance departments that would deem a day at Wimbledon as reasonable hospitality. In the U.S., the argument is: this is permitted, as long as were reasonable. The argument for companies with operations in the U.K. must be: this is not permitted under the law, but the SFO, at least for now, will not investigate such matters
While it would be easy to chalk this position up to a new director at the SFO, its a replay of a similar position taken by the SFO seven years ago [PDF]. Then, as now, facilitating payments were not permitted in the UK. Then, as now, the SFO assured the public that they would not be prosecuted.
It is difficult enough to guide a company through the morass of antibribery compliance when the threat of enforcement is real and management is focused not only on the ethics of the situation, but also legal risk. It is indeed more difficult when the enforcement agency itself makes light of the chances of prosecution and trivializes the very decisions with which compliance departments struggle. The UK Bribery Act may offer the clarity compliance officers have long hoped for, but it raises a new question for companies with U.K. operations that may be more challenging than the last: When do boundaries really matter to the SFO and, in turn, to employees?
Alexandra Wrage is the president of TRACE, an antibribery compliance organization offering practical tools and services to multinational companies. TRACE offers several anti-bribery training resources to members and non-members including the training DVD, Toxic Transactions: Bribery, Extortion, and the High Price of Bad Business. TRACE recently launched TRAC, a publicly accessible platform that establishes a global standard for baselines due diligence and makes the information available to companies at no cost.