Anticorruption laws such as the U.S. Foreign Corrupt Practices Act and the UK Bribery Act have raised concerns for companies of every stripe recently—from firearms manufacturers to makers of beauty products. But the financial services industry continues to be a major target for global enforcement agencies. In a teleconference held on Thursday, Mayer Brown attorneys discussed what actions financial services companies should consider in order to deal with growing antibribery and anticorruption legislation, and to prepare for increased enforcement around the world.
The event, which is part of the firm’s Global Financial Markets Initiative Teleconference Series, was titled “International Enforcement of Anticorruption Laws: Emerging Issues.” And from the sound of it, there are plenty of issues to keep in mind for those tasked with managing compliance for financial services companies.
Not the least of these issues is the ongoing development of the FCPA. Larry Urgenson, who is a partner at Mayer Brown and leader of the firm’s anticorruption and FCPA practice, told the teleconference audience that an overall increased focus on enforcement from the U.S. government should put all industries on alert. “Right now, the FCPA has been said to be the No. 2 priority of the Department of Justice, behind terrorism,” Urgenson said.
And although data from TRACE International shows that financial services is not in the top five industries where the most actions have been brought under the FCPA since it began in 1977—those are extractive industries, manufacturer service providers, aerospace defense security, health care, and engineering and construction—Urgenson believes that the U.S. Securities and Exchange Commission has this sector on the brain.
“The financial services industry is on the SEC’s mind, perhaps to a disproportionate degree,” he said, “and it’s not hard to understand, because they are such brand names for the SEC, there’s a novelty factor with the financial services industry—and they have deep pockets.”
Urgenson pointed to the SEC’s recent action targeting financial firms’ dealings with sovereign wealth funds as an example, and the fact that the action was a “sweep” case that went looking for violators in a group of many, rather than targeting one specific entity for enforcement.
“The government only does that when they’re picking and choosing to go after something,” Urgenson said, adding that “the fact that the government picked the sovereign wealth funds shows their predisposition to want to look at things in the financial services industry—and that predisposition, frankly, is part of the risk profile.”
He believes that U.S enforcement agencies may be ready to put private equity firms in their crosshairs. If so, it’s important that these firms remain aware of what they are buying when they invest in a company—which could lead to FCPA problems. Even if the firm has done its proper due diligence and figured out how to clean up an FCPA issue in a new investment, Urgenson emphasized, they also need to check on why the company is valued the way it is. Without the illicit activity on the books anymore, “the business might not be worth what you think it’s worth,” he said.
There are also concerns from private equity and other financial services entities about individual liability under the FCPA. “Risk really isn’t driven by the percentage of ownership in the bribery area—people sometimes don’t understand that—it’s what you know and what you participate in,” Urgenson said. “If you’re going to get involved in a business, if you’re going to learn things and participate in decisions, you can obtain liability—whereas if you stand on the sidelines as a passive investor, you won’t.”
Although the FCPA often is acknowledged as one of the world’s most developed programs of its kind, there are antibribery and anticorruption laws in other countries worth noting for the financial services sector. Kelly Kramer, a partner at Mayer Brown and co-leader of the firm’s white-collar and compliance practice, told the audience that laws like the UK Bribery Act and Brazil’s Clean Companies Act demonstrate growing global attention to corruption and bribery. “We’re seeing this rising tide of enforcement,” he said. “Countries looked around, saw that the United States was being very successful in these prosecutions—caught huge amounts of money in foreign bribery—and realized that they too could have the same kinds of programs.”
Kramer pointed to Britain as an example of the growth that global enforcement outside the U.S. is experiencing. The UK Bribery Act went into effect in 2011 and has been evolving fast—most recently the U.K. introduced deferred prosecution as a tool for its Serious Fraud Office (SFO), the agency in charge of enforcing the Act.
Alistair Graham, a partner in Mayer Brown’s London commercial litigation practice, explained on the teleconference that despite more tools, it hasn’t been that easy to prosecute companies under the relatively new law. He cited efforts like the SFO’s recent questioning of Barclay’s Bank executives, which showed a drive to investigate and prosecute financial industry entities for bribery, but also suggested perhaps a limited ability to do so.
He explained that under U.K. law, to hold a company liable for criminal acts of its employees, like bribery, enforcers must use a “controlling mind test.”
“In other words a company and a bank couldn’t be liable unless the directors’ controlling mind, the management, were involved,” Graham said, “and often, as you know, in big organizations that’s simply not possible [to prove].”
However, noted Graham, financial services companies should be aware of an exception to this rule that occurs through the UK Bribery Act. He described the exception, called “Section 7,” as a strict liability offense for companies when they fail to prevent bribery by a party that performs services for that company. This can include “a wide range of employees or agents or subsidiaries or joint ventures.”
“So if a bribe is paid anywhere in the world by a company that carries on business in the U.K., then technically the SFO can go after that entity for failing to prevent bribery,” said Graham, though he added that despite some tough talk, there hasn’t been much successful use of this tool yet.
Reprinted with permission from the August 8, 2014 edition of Corporate Counsel © 2014 ALM Properties, Inc. All rights reserved. Further duplication without permission is prohibited.
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