Recent Legal Developments May Encourage Companies to Commit More Fully to Ethical Business Conduct
By Stacey Sprenkel, Amanda Aikman, and Sarah Thomas
In stark contrast to bribery of government officials—which is almost universally criminalized—commercial or private sector bribery has been largely overlooked. Commercial bribery has not been criminalized in many jurisdictions and, even where it has been, is rarely prosecuted. Given this background, many companies have historically focused their limited compliance resources on addressing potential corruption risks in their interactions with government officials, rather than with their private commercial counterparts.
But the legal landscape is changing. Sparked by recent developments—including, most notably, the passage of the UK Bribery Act in 2010, which criminalizes commercial bribery—many companies are beginning to include potential commercial bribery risks as part of their compliance programs. This article briefly examines the legal landscape in Europe—focusing on the UK, Germany, and Italy—and considers the implications of the trend toward criminalization of commercial bribery for global companies.
Transnational Promotion of Criminalization of Commercial Bribery
In recent years, international and regional anti-corruption legal instruments have played an important role in promoting the criminalization of commercial bribery. The UN Convention Against Corruption encourages, but does not require, states to criminalize commercial bribery. The Criminal Law Convention on Corruption, which is overseen by the Council of Europe’s Group of States Against Corruption (GRECO), requires member states to adopt legislation criminalizing bribery in the private sector. The European Union Council has adopted a Framework Decision (2003/568/JHA) on Combating Corruption in the Private Sector, which provides that member states must criminalize both active and passive bribery in the private sector. Thus, there is a growing consensus in Europe that commercial bribery should be criminalized.
Both the Bribery Act 2010 (UKBA), which took effect in July 2011, and its predecessor legislation, the Prevention of Corruption Act 1906 (POCA), criminalize commercial bribery. Sections 1 and 2 of the UKBA provide for the general offense of bribery, which makes it illegal for a person to offer, give, or receive a financial or other advantage to/from another person where that person intends the advantage to bring about the improper performance by another of a relevant function or activity, or to reward such improper performance.
In December 2014, the SFO secured its first convictions under the UKBA, in a case involving commercial bribery. Three individuals involved in the sale of “bio-fuel” investment products for a UK company were convicted of various offenses in connection with a Ponzi scheme involving tree plantations in Cambodia. A sales agent for the company was convicted of two counts of giving bribes to another defendant, the Chief Operating Officer (COO) of the company, to induce him to pay dozens of false invoices. The COO was convicted of two counts of accepting the bribes in exchange for arranging payment of the invoices. The three defendants received sentences of 13, nine, and six years’ imprisonment, respectively. On the commercial bribery charges, the sales agent received concurrent sentences of six years and the COO concurrent sentences of four years. UK authorities have secured commercial bribery convictions under POCA in other cases as well.
German Criminal Code (GCC) Section 299 covers both active and passive commercial bribery in national and foreign trade, and prohibits both giving and accepting benefits in a business transaction. A “benefit” is any advantage to which the receiving party is not legally entitled and that is sufficient to influence the decision-making process, including, inter alia, gifts, profitable contracts, or discounts. At present, the GCC only defines commercial bribery as giving or taking bribes as consideration for an unfair preference to another in the competitive purchase of goods or commercial services. This may be changing.
In January 2015, the German Federal Council (Bundesrat) accepted the majority of the draft text of a bill containing new anti-corruption provisions. If fully approved by the German Parliament (Bundestag), the draft Anti-Corruption Criminal Law would expand the definition of commercial bribery to include the offer or acceptance by an employee or agent of a bribe as consideration for an act in which the employee or agent breaches his or her obligations to the company, regardless of whether the breach leads to a distortion of competition.
In Germany, authorities may only prosecute commercial bribery where there is a special public interest or a request by a victim, competitor, or trade association that charges be brought. The bar for establishing a “special public interest” is not set particularly high, and German prosecutors do prosecute commercial bribery. For example, in March 2014, two former employees of a multinational pharmaceutical company were convicted of commercial bribery under GCC Section 299. And in 2012, a former board member of a mechanical engineering company was sentenced to 10 months’ imprisonment for aiding and abetting bribery in the course of trade.
Commercial bribery was made a criminal offense in Italy in 2002, and extended in December 2012, to include bribery of: (1) managers of a company’s accounts, and (2) an employee directed or supervised by top managers. Article 2635 of the Italian Civil Code also makes it unlawful to offer or accept a bribe in relation to private corporate officers, i.e., directors, general managers, executives entrusted with the preparation of the company’s accounting documents, statutory auditors, and liquidators.
For the Italian public prosecutorial service to bring a charge of commercial bribery against an accused person, the victim must file a criminal complaint or the actions must have distorted competition in the acquisition of goods or services. While it appears that there has been no enforcement action in respect of Italy’s commercial bribery law, it remains to be seen if Italy will begin to pursue cases like its British and German counterparts.
Addressing the Evolving European Legal Landscape
Despite the evolving legal landscape in this area, addressing commercial bribery risks for the companies that have not already done so will likely not require a substantial overhaul of their existing compliance programs. Indeed, as a practical matter, enforcement agencies are likely to remain more focused on the bribery of government officials than of their private counterparts.
Nevertheless, companies with substantial operations in Europe should consider whether their current anti-corruption policies and procedures provide sufficient guidance with regard to corruption risk in the private sector. For example, should existing gift, travel, and entertainment guidelines be extended to cover private business partners? And do training programs adequately address commercial bribery?
While there may be justifiable differences in the permissible amounts and nature of gift and entertainment expenditures in the private sector as compared to the public sector, setting appropriate guidelines in both scenarios can help companies better manage risk and streamline approval processes. Moreover, sending a clear message that all bribery is prohibited, regardless of the setting, will make for a more effective compliance program overall. In this way, the recent developments in Europe present a welcome opportunity to underscore a company’s commitment to pursuing business with integrity.
Stacey Sprenkel is a Partner in the San Francisco office of Morrison & Foerster. She has extensive experience conducting corporate internal investigations, both domestically and internationally, and regularly assists clients with conducting global risk assessments.
Amanda Aikman is a Senior Associate in the New York office of Morrison & Foerster. Her practice focuses on white-collar criminal defense, internal investigations, and anti-corruption matters, and she regularly advises clients on global compliance programs. She recently joined the firm after previously serving as a Trial Attorney in the FCPA Unit of the Fraud Section in the Criminal Division of the DOJ.
Sarah Thomas is an Associate in the Hong Kong office of Morrison & Foerster. Her practice focuses on commercial litigation, international arbitration, and internal investigations throughout the Asia Pacific region, and she has particular experience in matters in China, Hong Kong, Japan, Malaysia, Singapore, and India. She is admitted to practice in New York, England & Wales, and Hong Kong.
This article was featured in the Q3 2015 issue of Ethisphere Magazine. To subscribe and learn more about Ethisphere Magazine click here.