Comments to OECD bribery group split on benefits of compliance
29 November 2016. By Mark Bocchetti.
The OECD Working Group on Bribery is collecting a wide range of views from the public on how much companies should be shielded from penalties for any violations that occur despite having a compliance policy that is deemed “effective.”
In advance of a Dec. 9 public consultation, some business groups have come out in support of allowing companies to avoid sanctions for bribery if they can show they had in place an effective compliance system to guard against such misconduct.
But academics and civil society groups reject such an approach, arguing that it could undermine real-world anticorruption efforts by corporations by permitting them to adopt measures that, rather than being effective, are easily demonstrable to authorities.
“If a ‘failure to prevent’ liability standard promotes a ‘technical’ approach to compliance, which is motivated by the wish to establish a legal defence rather than by the wish to promote integrity and achieve a genuine culture impact within LPs, it may be counterproductive to the objective of LP liability systems,” Sharon Oded, a professor at Erasmus University in Rotterdam, wrote in a submission to the working group.
The significance of the upcoming OECD consultation is unclear. The Working Group on Bribery itself already has a general standard requiring members to adopt some form of legal liability — criminal, civil or administrative — for companies, and its practice of requiring unanimity of its 41 members on policy would complicate any attempt to push members toward a new standard.
However, the G20 Anti-Corruption Working Group recently pledged in its implementation plan for 2017-2018 to develop “high-level principles” for the liability of corporations for corruption offenses, and the consultation could provide input, especially since the OECD often supports G20 policy development.
The support of the business community for a compliance defense is nothing new. The US Chamber of Commerce has pushed for establishing an “affirmative defense” to charges of violating the Foreign Corrupt Practices Act, and EU business groups have promoted their own version.
With the right incentives, corporations can play a key role not just in preventing corruption in far-flung operations, but also in disclosing such misconduct to authorities, the Business Industry Advisory Committee to the OECD argued in its submission.
“In return, the compliance measures should be taken into consideration when setting the amount of the financial penalty in the event of a violation of the law, even to the extent of waiving a sanction on the company,” BIAC said.
The Federation of German Industries (BDI) also came out in favor of a compliance defense.
“The BDI is in favour of a regulation that exempts a corporation from sanctions if it provides evidence that it has taken appropriate and adequate measures, in terms of organisation and manpower, to provide a general safeguard against such misconduct,” the BDI wrote.
Individual cases of misconduct or failure to supervise can never be fully precluded, the BDI said, and the corporation should not be held accountable when it has an adequate compliance system.
The only US business group that commented, the Association of Corporate Counsel, also backed some sort of legal recognition for company compliance efforts, although it stopped short of calling for a full waiver of sanctions. (The US Department of Justice and the US Securities and Exchange Commission count the quality of a company’s compliance program as a mitigating factor in assessing penalties for FCPA violations.)
“ACC strongly feels that all jurisdictions should have a mechanism within their anti-bribery regimes that gives corporations with effective compliance systems some measure of leniency with respect to foreign bribery offenses,” the group wrote, adding that multinationals find official backing for compliance programs helpful in selling overseas subsidiaries on their importance.
While academics did not discount the value of some official recognition of compliance programs, several shared Oded’s skepticism on the business community’s push for a full compliance defense.
Jennifer Arlen, who researches issues of law and economics at New York University School of Law, echoed Oded’s view that too much deference to a compliance defense could prove counterproductive, although she agreed that granting some credit for compliance made sense.
“Regimes that insulate firms from liability if they have an effective compliance program do not provide corporations with needed incentives to self-report, fully cooperate, or to take other actions to deter crime (such as compensation and promotion policy reform),” Arlen wrote.
Arlen — whose views are largely parallel to those of the current leadership at DOJ — argued for the central role of individual liability in deterring corporate crime, and thus the need for company cooperation in providing full evidence of misconduct by employees. And deferred prosecutions or civil sanctions can be used to force companies to impose financial penalties on corporate executives, she added.
Michael Kubiciel, a law professor at the University of Cologne, discounts the need to provide special incentives for companies via a compliance defense, noting that companies facing heavy fines already have an incentive to adopt such measures.
And companies hoping to use world-class compliance programs to justify leniency face a practical hurdle, Kubiciel noted: German law enforcement generally views an outbreak of serious corruption at a company as de facto proof that the compliance program was not effective.
Transparency International made the same point, questioning how any compliance system could be considered “state of the art” if it failed to prevent misconduct. And, like Oded, the civil society group warned that a compliance defense could open the door to corporations hoping to game the system.
“They would show their compliance system and pretend that the employee was a ‘loose cannon’; however, in practice it is often the ‘invisible’ culture from the top that facilitates bribery offences despite a compliance system being in place,” the TI authors wrote.