Following a wait of almost five years and expedited due to the UK sanctions announced against Russia, on March 1, 2022, the Economic Crime (Transparency and Enforcement) Bill (the Economic Crime Bill) was laid before the UK Parliament.

The provisions of the Economic Crime Bill will need to be debated in Parliament but, if passed into law, will amongst other things:

  • enhance existing powers in relation to unexplained wealth orders (UWOs);
  • increase the transparency over ownership of companies and property in the UK by introducing a Register of Overseas Entities (ROE) to require foreign owners of UK property to reveal their full identities;
  • impose a strict civil liability test for monetary penalties, meaning the UK Office for Financial Sanctions Implementation (OFSI) would no longer be required to evidence that organizations had knowledge or a “reasonable cause to suspect” sanctions are being breached before being liable for fines; and
  • give new powers to OFSI to publicly identify organizations that breach financial sanctions irrespective of whether or not they are the subject of a penalty.

Continue Reading A New ‘Economic Crime Bill’ in the United Kingdom to Strengthen Existing Economic Crime Laws

On February 17, the Securities and Exchange Commission (SEC) announced a settlement with KT Corporation (KT Corp.), South Korea’s largest comprehensive telecommunications operator, for alleged violations (neither admitted nor denied by the company) of the books and records and internal accounting control provisions of the Foreign Corrupt Practices Act (FCPA).[1]

This matter, the first FCPA corporate settlement in 2022, is of interest for several reasons:

Continue Reading In First FCPA Corporate Matter for 2022, SEC Ties Important Aspects of the Resolution to the Company’s Cooperation – and Other Key Takeaways

As previously reported, on November 26, 2021, the Organisation for Economic Co-operation and Development (OECD) Council issued a Recommendation for Further Combating Bribery of Foreign Public Officials in International Business Transactions (the “2021 Recommendation”).[1]  Our blog post earlier this week reviewed key aspects of the 2021 Recommendation that are directed towards government action. This alert focuses on those aspects of the 2021 Recommendation relating to corporate compliance programs, in particular the updated Good Practice Guidance on Internal Controls, Ethics and Compliance found in Annex II to the 2021 Recommendation. Historically, the OECD’s guidance regarding corporate compliance has been highly influential with OECD member countries. Given that history, and the ever-increasing convergence of compliance standards around the globe, the 2021 Recommendation similarly could have a significant impact and influence, particularly on countries other than the US.

Important Compliance-Related Aspects of the 2021 Recommendation

The 2021 Recommendation contains several provisions that are of importance to corporate compliance efforts, as our earlier alert noted.

  • First, it calls for member countries to incentivize the development of compliance programs, both in the enforcement context, and when companies seek to participate in government procurement or receive other public advantages.
  • Second, it calls for leveling the playing field between state-owned enterprises and private firms, by making the former subject to the same compliance expectations and standards as the latter.
  • Third, it calls for countries to remove obstacles to effective due diligence and other compliance practices presented by data protection regimes.
  • Fourth, it emphasizes accounting standards and internal audit.
  • Fifth, it seeks to encourage whistleblower protection and reporting.
  • Sixth and finally, it enhances and updates the OECD’s guidance on internal controls, ethics and compliance, guidance that influences the standards imposed by the United States and other enforcement authorities in countries that participate in the OECD, and are party to the Anti-Bribery Convention.

Below we review Annex II, containing the updated guidance,[2] in detail, comparing it to the compliance requirements typically imposed by the US Department of Justice (DOJ) on companies in the context of negotiated resolutions. Annex II is not legally binding; rather, it is a guidance document. Nonetheless, the earlier guidance was highly influential and has contributed to the increasing global convergence of anti-corruption compliance standards.

Annex II: Good Practice Guidance on Internal Controls, Ethics, and Compliance

Annex II, Good Practice Guidance on Internal Controls, Ethics and Compliance, is directed both to companies (Section A) and their business organizations and professional associations (Section B), which the 2021 Recommendation notes “play an essential role” in compliance efforts.

Updates in Annex II include completely new elements as well as progressive developments. Elements of an anti-bribery compliance program set forth in Annex II, as updated, share more similarities than differences with the FCPA enforcement authorities’ requirements for an effective anti-corruption compliance program, e.g., those set forth in the DOJ’s standard compliance annex in DPAs. The chart, below, summarizes the notable developments in Annex II to the 2021 Recommendation, along with a comparison to the DOJ’s standard compliance annex in DPAs.

Elements Notable Developments in Annex II Comparison with DOJ’s Standard Compliance Annex
Commitment to Compliance A.1: clarifies that there should be support and commitment from the board of directors or equivalent governing body (in addition to senior management), with a view to implementing a culture of ethics and compliance.

 

A.16: creates a new expectation of “external communication” of the company’s commitment to compliance (separate from communication to business partners).

The DOJ’s standard compliance annex also requires commitment by middle management, to ensure that “middle management reinforce those [compliance] standards and encourage employees to abide by them.”

 

The DOJ’s standard compliance annex does not have the external communication requirement separate from communication to business partners.

Policies and Procedures A.2: clarifies that companies’ anti-bribery policies should be “easily accessible” to all employees, relevant third parties, foreign subsidiaries, and should be “translated” if necessary.

 

A.5: expands the list of areas that compliance policies and procedures need to address to also include: conflicts of interest; hiring processes; risks associated with the use of intermediaries; and, where relevant, processes for response to public calls for tender.

The DOJ’s standard compliance annex requires policies and procedures to be visible. The DOJ’s guidance on the Evaluation of Corporate Compliance Programs, updated in June 2020 (the “2020 Guidance), makes it clear that accessibility is one of the factors that prosecutors consider when evaluating policies and procedures.

 

The DOJ’s standard compliance annex contains a similar but shorter list of areas to address, without those added in A.5 of Annex II, but it requires policies and procedures to be risk-based to address the individual circumstances facing a company.

Proper Oversight and Autonomy A.4: clarifies that compliance officers responsible for the oversight of compliance programs need to have an adequate level of experience and qualification, as well as “access to relevant sources of data.” The DOJ’s standard compliance annex contains a similar requirement that compliance and control personnel have “sufficient direct or indirect access to relevant sources of data,” and the 2020 Guidance makes it clear that compliance personnel’s experience and qualifications are among the factors that prosecutors consider when evaluating compliance personnel’s autonomy and resources.
Third-Party Relationships A.6: (1) emphasizes “continued” oversight of business partners throughout the business relationship; (2) adds a new element regarding mechanisms to ensure that the contract terms, where appropriate, specifically describe the services to be performed, that the payment terms are appropriate, that the described contractual work is performed, and that compensation is commensurate with the services performed; (3) adds a new element regarding, where appropriate, ensuring the company’s audit rights and exercising those rights; and (4) adds a new element regarding providing for adequate mechanisms to address incidents of foreign bribery by business partners (e.g., contractual termination rights). None of these are new to the DOJ’s standard compliance annex. Regarding mechanisms to address incidents of foreign bribery by business partners, the DOJ’s standard compliance annex also specifies that agreements with third parties should include, where necessary and appropriate, anti-corruption representations and undertakings relating to compliance with anti-corruption laws.
Internal Reporting, Investigation, and Remediation A.13: clarifies that internal reporting mechanisms should be confidential, and where appropriate, anonymous, and provide “visible, accessible, and diversified channels” for reporting.

 

A.8: adds a new element regarding using internal controls to “identify patterns indicative of foreign bribery,” including, as appropriate, by “applying innovative technologies.”

 

A.11: clarifies that measures to address cases of suspected foreign bribery should also include: (1) processes for identifying, investigating, and reporting misconduct and “genuinely and proactively” engaging with law enforcement, and (2) remediation (root cause analysis and addressing identified weaknesses).

Similar points exist in the DOJ’s standard compliance annex and/or the 2020 Guidance.
Training and Guidance A.9: adds a new element regarding, where appropriate, measures to ensure effective periodic and documented training for business partners on the company’s anti-bribery compliance program.

 

A.12, 13: adds expectation of measures against retaliation.

Similar points exist in the DOJ’s standard compliance annex and/or the 2020 Guidance.
Incentives and Discipline A.10: encourages appropriate incentives for compliance, including by integrating ethics and compliance in human resources processes.

 

A.11: clarifies that disciplinary measures should be consistent as well as appropriate, and appropriately communicated to ensure awareness of those disciplinary measures and consistent application of disciplinary procedures across the company.

Similar points exist in the DOJ’s standard compliance annex and/or the 2020 Guidance.
Periodic Reviews, Monitoring, and Testing A.14: clarifies that periodic reviews and testing should be conducted “both on regular basis and upon specific developments,” which also include (in addition to relevant developments in the field, and evolving international and industry standards): operational and structural changes; results of monitoring and auditing; and “lessons learned” from the company’s own possible misconduct as well as from “other companies facing similar risks.” The DOJ’s standard compliance annex requires periodic review to be conducted “no less than annually” and policies and procedures updated “as appropriate.”  The 2020 Guidance directs prosecutors to consider a compliance program’s capacity to improve and evolve as a hallmark of an effective compliance program, and to ask questions such as what steps the company has taken to ensure its compliance program makes sense for particular business segments and subsidiaries, and whether the company reviews and updates its compliance program based on “lessons learned from its own misconduct and/or that of other companies facing similar risks.”
Mergers and Acquisitions A.15: adds a new element regarding mergers and acquisitions, expecting comprehensive risk-based due diligence of acquisition targets, “prompt” incorporation of the acquired business into its internal controls and compliance program, training of new employees, and post-acquisition audits. Similar points exist in the DOJ’s standard compliance annex.

 

Conclusion

All of the measures in this 2021 Recommendation will be part of the monitoring program conducted by the OECD Working Group on Bribery.

For companies, the 2021 Recommendation will have both direct and indirect effects. The indirect effects come from the continued evolution of the enforcement environment and international cooperation, including the reality of today’s multijurisdictional world. The direct effects come principally from the provisions focused on whistleblowing and compliance programs. While the updated OECD Guidance is unlikely to have a material impact on the compliance expectations of US enforcement authorities, they may well have an impact on foreign enforcers.

[1] OECD Council, Recommendation for Further Combating Bribery of Foreign Public Officials in International Business Transactions (Nov. 26, 2021), https://legalinstruments.oecd.org/en/instruments/OECD_LEGAL-0378.

[2] The previous guidance was adopted and included in the 2009 Recommendation on February 18, 2010.

The Organisation for Economic Co-operation and Development (OECD) Council issued a Recommendation for Further Combating Bribery of Foreign Public Officials in International Business Transactions (the “2021 Recommendation”) on November 26, 2021. As we reflect on 2021 in terms of US enforcement actions and policy, and the Biden Administration’s new anti-corruption strategy issued in December, some further assessment of this Recommendation seemed appropriate.

The Council’s last recommendation in this area was issued in 2009. Intervening developments and experience gave rise to the 2021 Recommendation, which was under consideration for some time prior to its issuance.[1]

The 2021 Recommendation cannot be characterized with a single headline. It is a multi-faceted document, comprised of 31 individual recommendations divided in to 16 sections. It is broad in scope, covering the waterfront of the OECD’s historical activity in the anti-corruption arena—not just through the Anti-Bribery Convention but through some of its “soft law” instruments—as well as some important issues not previously addressed by the OECD.

Continue Reading Key Takeaways from the OECD 2021 Recommendation on Foreign Bribery

On January 21, 2022, the DOJ issued a rare FCPA Opinion Procedure Release,[1] only the second since 2014.[2] While the facts presented were quite unusual – a ship, with its captain and crew, detained without explanation in the waters of a foreign country, and facing an ambiguous demand for payment in order to be released – it offers more broadly applicable lessons.

Facts Presented to DOJ

The facts at issue arose from detention by the naval forces of a foreign country (“Country A”) of a maritime vessel, including the captain and crew, owned by a US-based company (the “Requester”) and the accompanying demand for payment of $175,000 in cash from a third party purporting to act on behalf of the Country A Navy (the “Third-Party Intermediary”).[3] The Requester, concerned that the third party intended to pass on the payment being demanded to one or more Country A government officials,[4] decided to seek an opinion from the DOJ. Resolution of the matter was urgent, as the detained captain was suffering from serious medical conditions putting his health and safety at significant risk.[5]

Continue Reading DOJ Releases Rare FCPA Opinion, Finding No Corrupt Intent or Business Purpose Where Payment Made Under Duress

A federal district court in Colorado last week handed the Department of Justice (DOJ) its second victory in its fight to criminally prosecute allegedly unlawful labor agreements, holding that alleged non-solicitation (or “no poach”) agreements among the defendants and their competitors constituted per se violations of Section 1 of the Sherman Act.

The ruling is the DOJ’s second major win in this space in two months. We wrote in December about United States v. Jindal, in which the DOJ prevailed in the face of a motion to dismiss its first-ever Sherman Act wage-fixing prosecution. Now, in United States v. DaVita, the DOJ has again enhanced its ability to tamp down on anticompetitive behavior in labor markets, although based on a slightly different analysis.

Click here to read the full client alert.

The US Court of Appeals for the First Circuit has added its voice to the split among circuit courts regarding the appropriate standard for deciding government motions to dismiss qui tam False Claims Act (FCA) actions after it has declined to intervene. In affirming the district court’s grant of the government’s motion to dismiss in United States ex rel. Borzilleri v. Bayer HealthCare Pharms., Inc., No. CV 14-031 WES, 2019 WL 5310209 (D.R.I. Oct. 21, 2019), the unanimous three-judge panel, in a precedential decision, held that, district courts must grant government motions to dismiss qui tam FCA complaints, unless the relator “can show that the government’s decision to seek dismissal of the qui tam action transgresses constitutional limitations or that, in moving to dismiss, the government is perpetrating a fraud on the court.”1

In so holding, the First Circuit has set forth a slightly different legal standard for assessing government motions to dismiss qui tam actions, but affirms the generally accepted principle that the government has broad – though not completely unfettered – authority to end qui tam FCA actions.

Click here to read the full client alert.

One year after the first criminal indictment for wage-fixing, a Texas federal district court has ruled that an agreement to fix wages is a per se violation of Section 1 of the Sherman Act.

While over the last century the Supreme Court and lower federal courts have developed a robust body of case law interpreting the Sherman Act’s somewhat enigmatic prohibition on “[e]very contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States,” wage-fixing and so-called “no-poach” agreements have received little attention. The spotlight on wage-fixing has shifted slowly—beginning in 2016 with the joint Department of Justice (DOJ) and Federal Trade Commission (FTC) warning (and related HR guidance) that no-poach and wage-fixing agreements would be prosecuted criminally, a flurry of recent civil litigation, the first criminal indictments, and the Biden administration’s July 2021 executive order pledging to target antitrust enforcement efforts on labor markets.

The court’s opinion denying defendants’ motion to dismiss in United States v. Jindal—the Justice Department’s first-ever Sherman Act wage-fixing prosecution (discussed here)—opens up a new frontier for federal antitrust enforcement, which has traditionally focused more on sellers of goods and services than on buyers of labor.

Click here to read the full client advisory.

The World Bank Group (the Bank) issued its fourth joint Sanctions System Annual Report on October 18, covering the Bank’s fiscal year from July 1, 2020 through June 30, 2021. The report includes updates by the Integrity Vice Presidency (INT), the Office of Suspension and Debarment (OSD), and the Sanctions Board.

Notably, the number of complaints INT received in FY2021 increased significantly compared to FY2020, even though enforcement efforts slightly declined from prior years. INT submitted fewer cases to OSD, and OSD reviewed fewer cases and settlements; meanwhile, the number of cases before the Sanctions Board remained steady.

In addition to its investigative activities, INT focused on formalizing its procedures and enhancing its preventive strategies. In an effort to increase transparency, the Bank also revised its sanctions and debarment list to include a description of the sanctionable practice(s) engaged in by the sanctioned firms and individuals. Additionally, the Sanctions Board’s cases may lead to a new definition of successor liability, and further addressed the Bank’s jurisdictional reach over public officials.

Highlights

Over the last year, INT underwent some significant personnel and internal structural changes under the leadership of the new vice president, Mouhamadou Diagne. While some of its most senior staff departed or retired, INT also brought new senior staff onboard, such as the new director of investigations, strategy and operations, Alan Bacarese. Also, in May 2021, INT launched a Prevention, Risk & Knowledge function to build a more robust knowledge base and analytic support for integrity risk mitigation in Bank development operations. As a result, INT has increased its advisory support and integrity risk mitigation. The new vice president’s report also emphasized INT’s intention to engage in real time monitoring to identify potential risks of misconduct.

The annual report notes that in FY2021, INT finalized its guidance paper on integrity audits. For the first time, INT articulated the scope of cooperation that is expected during the integrity audit process from entities and individuals subject to the Bank’s inspection and audit rights. This has been, in our experience, an area that has generated significant disagreement between INT personnel and contractors and consultants over the years given the varying scope of contractual audit clauses. The guidance indicates that the rights should include “accessing, examining, evaluating and verifying—in hard copy or electronic format, and through inquiry and interview testimony—financial information, books and records, supporting documents, correspondence, bids, bid preparation documents and calculations, and any other information deemed relevant by INT.” INT notes that any failure to cooperate can result in obstruction allegations—though it did not provide any additional indications on what specific conduct they would view as constituting obstruction beyond what is currently specified in the Sanctions Procedures and Anti-Corruption Guidelines. It seems clear that INT intends to use this guidance to bolster its position in its auditing activities.

Turning back to the annual report, Jamieson Smith, chief suspension and debarment officer of the Bank, noted that in the past year, the World Bank Group has revised its posting practices related to the Sanctions and Debarment list. Since January 1, 2021, the list includes a description of the sanctionable practice for which the firm or individual has been sanctioned. This applies both to debarred and cross-debarred firms and individuals. Consistent with this practice, the OSD updated its Notices of Uncontested Sanctions Proceedings, providing additional information about the underlying sanctionable practice.

In relation to the Sanctions Board, the report notes that FY2021 saw some changes in the composition of the Sanctions Board: the terms of Alejandro Escobar and Olufunke Adekoya came to an end; and Adedoyin Rhodes-Vivour and Eduardo Zuleta were appointed as new members.

Sanctions Board Executive Secretary Guiliana Dunham Irving’s section of the report trumpeted recent legal clarifications emanating from the Sanctions Board’s decisions. One highlighted was an anticipated enhancement to the Bank’s rules on successor liability. The report noted that the Sanctions Board’s observation in Decision No. 101 of the Bank’s lack of definition of the term “successor” resulted in a response by management to fill this gap through an upcoming approval of a definition of the term and clarification of responsibilities within the Bank for successorship determination. Decision No. 101 found that INT had abused its discretion in finding that an entity that had acquired assets from a sanctioned firm was a successor. It will be interesting to see if the new rule, when adopted, moves the responsibility for such determinations either to a specific part of INT, such as the Integrity Compliance Officer (ICO) or to a different part of the Bank entirely.

The report also notes that the Sanctions Board further addressed the reach of the system to public officials in its recent decisions. Consistent with its prior decisions, the Sanctions Board emphasizes that it does sanction “public officials”—individuals taking or reviewing selection or procurement process decisions, but not “government officials,” who remain beyond its remit. In one of its decisions published in FY2021 (Sanctions Board Decision No. 133), the Sanctions Board found that an individual carrying out project management functions under a Bank funded project was a public official, and that the “to influence the action of a public official in the selection process or in contract execution” element of a corrupt practice would be satisfied if the individual solicited and received payments to influence his own behavior.

Statistics

In FY2021, INT received 4,311 complaints. Despite the significantly higher number of complaints received compared to FY2020 (2,598), INT opened fewer preliminary investigations (347 compared to 429 in FY2020), resulting in 40 new investigations. 1

Once INT completes an investigation and finds sanctionable practices, it refers any case that has not been settled by a negotiated resolution to OSD for a determination on whether formal sanctions proceedings should be opened. It also submits settlements to OSD for approval. In FY2021, INT submitted 17 cases and 18 settlements to OSD—a much lower number than in FY2020 (26 cases and 22 settlements in FY2020).

OSD reviewed 20 cases (including cases submitted in the previous fiscal year) and 18 settlements, resulting in the temporary suspension of 19 entities and four individuals, dropping from 36 cases and 16 settlements in FY2019 to 20 cases and 22 settlements in FY2020. Of those temporarily suspended respondents, eight respondents appealed and submitted an explanation to OSD. As a result, OSD reduced the recommended sanction for five respondents. The remaining 29 respondents did not appeal and were sanctioned by OSD via uncontested determinations.

Overall, OSD rejected two cases that INT submitted based on insufficient evidence on all claims. In seven of the 20 cases, OSD found insufficient evidence for at least one claim. For the remaining 11 cases submitted by INT, OSD found sufficient evidence for all claims. This rate seems to be roughly on par with previous years.

As we have seen in previous years, cases and settlements reviewed by OSD are mainly based on fraud allegations (87%); 24% included collusion allegations, 21% included corruption allegations, and only 8% included obstruction allegations. Consistent with the last four years, OSD did not review any cases of coercion.

The report highlights the fact that two-thirds of all cases referred for sanctions are resolved at the OSD level. Many of these are uncontested cases.

The Sanctions Board issued five decisions as well as one decision on a request for reconsideration of a previous Sanctions Board decision, and convened five times during FY2021. The number of firms and individuals sanctioned increased slightly from seven in FY2020 to eight in 2021. More than half—57%—of cases in FY2021 involved respondents represented by counsel.

As part of INT’s collaboration with national authorities, it made 13 referrals to 13 different recipients, which included information about the allegations, findings of an investigation, and actions taken by the Bank. This referral number is four fewer than in FY2020, and 29 fewer than in FY2019.

Compliance: In FY2021, the ICO provided 58 notices to newly sanctioned parties and engaged with 118 sanctioned parties overall. In addition, the ICO released 30 sanctioned parties from their debarment, compared to 18 in FY2020. Since 2010, the ICO has worked with sanctioned companies in implementing integrity compliance programs consistent with the principles of the Bank.

Timeline of the sanctions process: INT completed 50% of its investigations over a period of more than 18 months; 29% of the investigations lasted between 12-18 months, and the remaining 21% were completed within 12 months.

Conclusion

Overall, the enforcement statistics in FY2021 have decreased somewhat. However, the annual report shows that INT, OSD, and the Sanctions Board continue to maintain their anti-fraud and anti-corruption efforts. Various policy developments and clarification of legal definitions evidence the Bank’s intention to remain diligent about its investigations and sanctions system. With INT’s newly released Integrity Audit guidance and its adoption of more flexible and creative investigative techniques and tools demanded by the pandemic, we can expect INT to be even more rigid and expansive in its audits.

Companies involved in World Bank-funded projects are, more than ever, urged to implement and maintain a robust compliance system to prevent any misconduct throughout the bidding process or contract implementation. Inquiries from INT should not be viewed as ordinary-course audits, but as akin to a law enforcement investigation. As the system becomes more judicialized and prior decisions play an increasingly large role in outcomes, companies need to take steps to ensure they are properly advised and protected should any allegations of misconduct in connection with a World Bank-financed project surface.

 

Endnotes

1 The 40 new investigations include: nine in East Asia Pacific; eight in Eastern and Southern Africa; seven in Europe and Central Asia; seven in South Asia; four in Central and Western Africa; three in Latin America/Caribbean; one in Middle East/North Africa; and one related to the International Finance Cooperation.

On October 28, 2021, Deputy Attorney General (DAG) Lisa Monaco outlined sweeping changes to the Department of Justice’s (DOJ) prosecution of corporate crime, signaling a tougher stance on white collar crimes than the previous administration. In a speech at the ABA’s National Institute on White Collar Crime, DAG Monaco announced key policy changes at DOJ, including (i) heightened requirements to receive full cooperation credit and focus on individual accountability; (ii) consideration of a corporation’s criminal, civil, and regulatory conduct when evaluating a case; and (iii) potential implementation of corporate monitoring programs.

DAG Monaco announced these changes as part of a larger framework to “invigorate” DOJ’s corporate enforcement program. DOJ will also focus on whether pretrial diversion programs are effective in deterring repeat offenders of corporate wrongdoing, noting that there will be “serious consequences” for companies that violate the terms of any deferred prosecution agreement (DPA) or non-prosecution agreement (NPA). At the same time, DAG Monaco noted that DOJ would devote significant resources to assist with corporate enforcement, announcing the formation of the Corporate Crime Advisory Group to assist in investigations of corporate crime. These key policy changes offer a clear preview of the DOJ’s enhanced corporate enforcement program.

Click here to read the full client advisory.