International market participants’ behavior towards transparency and accountability has changed dramatically due to several recent developments: the globalization of business transactions, the tougher stances on bribery and corruption taken by governments, international organizations and financial institutions globally, and the overarching scope of world’s major economies’ anti-corruption laws. Global market participants are increasingly aware that any transgression of anti-bribery and corruption laws would entail huge financial, reputational, and operational exposure. Therefore, it is common for companies nowadays to develop internal anti-bribery policies and implement a compliance program to ensure that contracts with foreign companies and/or governments do not contravene relevant anti-bribery and corruption laws. Without such policies and programs in place, companies and their officers are virtually defenseless. Another increasingly common way of reducing company exposure is to have any cross-border contracts include clauses which require parties to comply with applicable anti-corruption laws.
Global Trends in Anti-Corruption Legislation
The two primary anti-corruption regimes, with adequate laws and enforcement mechanisms, are the United States of America (U.S.) and United Kingdom (UK). The U.S. has its Foreign Corrupt Practices Act of 1977, as amended, 15 U.S.C. §§ 78dd-1, et seq. ("FCPA"), which is a federal criminal statute prohibiting payments to foreign government officials to assist in obtaining or retaining business. The 1998 amendment makes the FCPA applicable not only to U.S. persons and certain foreign issuers of securities, but also to foreign firms and persons who cause, directly or through agents, an act in furtherance of such bribery taking place within the territory of the U.S. The FCPA gained prominence because of the consistent and strong enforcement by the U.S. Department of Justice and Securities of Exchange Commission (SEC). The SEC website shows a complete list of cases involving FCPA enforcement since 1978.
The UK has the Bribery Act of 2010 (“Bribery Act”), which covers an offense of failure by a commercial organization to prevent a bribe being paid to obtain or retain business or a business advantage. It notably introduced a new strict liability offense for companies and partnerships of failing to prevent bribery and places the burden of proof on companies to show that they have adequate procedures in place to prevent bribery. UK’s Bribery Act is broader in scope than the U.S. FCPA because it prohibits and strictly penalizes, not only active bribery (i.e., the giving of bribes), but also passive bribery (i.e., the receipt of bribes). In contrast, the FCPA does not cover passive bribery. In addition, the Bribery Act proscribes bribery of private persons, whereas the FCPA covers only bribery of public officials.
Several countries have enacted their own anti-corruption legislations: Germany has its Criminal Code (Strafgesetzbuch) and Administrative Offences Act (Ordnungswidrigkeitengesetz), Switzerland has its Criminal Code and Unfair Competition Act, Brazil enacted its Law N0 12.846/2013 (the Clean Companies Act) in 2012, China has its Anti-Unfair Competition Law of the People’s Republic of China, and, while ranked among the least corrupt countries in the world, Japan has anti-corruption legislations which include the Penal Code and the Unfair Competition Prevention Act.
Apart from municipal laws, international conventions also play a significant role in the aim of lessening, if not eradicating, bribery and corruption in cross-border transactions. Prominent conventions include the United Nations Convention Against Corruption, which is the only legally binding international anti-corruption treaty, and the Organization for Economic Cooperation and Development (OECD) Convention on Combating Bribery of Foreign Public Officials in International Business Transactions, which is the first and only international anti-corruption instrument focused on the supply side of the bribery transaction.
Violations of anti-corruption laws do not happen in a vacuum. An investigation by one foreign government may trigger joint or simultaneous investigations and follow-on actions by other relevant countries. However, despite the presence of these legislations and regulations, corruption continues to be a major problem in international business transactions not only due to absence of anti-corruption laws in some jurisdictions, but also the minimal or lack of enforcement and lack of exposure of the private sector to international anti-corruption norms.
Anti-Corruption Clause in Cross-Border Contracts
Putting in place a robust compliance program can be used as a shield against the risk of financial, reputational, and operational exposure attributable to violations of anti-corruption laws. It also gives a company and its senior management the strongest possible chance of avoiding liability or reducing penalties. In most cases, such a program is carried out through the incorporation of anti-corruption clauses in cross-border contracts. These clauses can involve compliance with a party’s code of business conduct and anti-bribery policies, which is often the case in supply and construction agreements, or compliance with prominent foreign statutory law and regulations, such as the U.S. FCPA and UK’s Bribery Act.
The language used by the parties in drafting the anti-corruption clauses may vary depending on the requirements of the law and regulations made applicable to the contract. For example, the U.S. FCPA has recommended contractual compliance standards applicable to contracts which a company, subject to the FCPA or UK Bribery Act, would include when contracting with a foreign business partner. Such standards require certain compliance obligations, representations, and terms and conditions pertaining to indemnification, cooperation, material breach of contract, and others. Likewise, in 2012 the International Chamber of Commerce (ICC) published a model ICC Anti-Corruption Clause that is intended to apply when parties commit to complying with ICC Rules on Combating Corruption or to put in place and maintain a corporate anti-corruption compliance program.
Parties, however, must be careful when drafting anti-corruption clauses to avoid the risk of invalidity arising from conflicting statutory rules between two relevant jurisdictions to which the parties belong. While anti-corruption clauses may vary depending on the nature of the transaction and the parties involved, they should be drafted in light of the generally accepted and practicable international anti-corruption rules and standards and the best norms and practices. Finally, the question of whether parties to cross-border transactions should contract out of corruption by incorporating anti-corruption clauses should always be answered in the affirmative.
Al-Shwaid de Leon Ismael is currently a candidate for an LLM in Corporation Law at NYU School of Law and an Advanced Professional Certificate in Law and Business at NYU Leonard N. Stern School of Business. He is expected to graduate in May 2017. He is a licensed lawyer from the Philippines and had worked in a Manila-based law firm for approximately two years before becoming a corporate in-house counsel for the past eight years. His most recent stint was as a regional legal manager for Europe, the Middle East, Africa, and South Asia with a multinational company that acquires, develops, operates and manages container ports and terminals in more than 20 countries.