Editor: Tell our readers about your background.
Pacheco : I have practiced law for almost 25 years and have been a white collar criminal defense attorney most of that time. I am a former Assistant United States Attorney in the Criminal Division, Central District of California, and the former President of the Los Angeles Board of Police Commissioners (highest ranking member of LAPD). For the last ten years, I have been extremely active in representing large companies and individuals regarding anti-corruption policies and procedures, investigations, civil claims and prosecutions. I have also published numerous articles in this area, including articles regarding the Dodd-Frank whistleblower provisions, other developments in anti-corruption laws, and in the China Business Law Journal on conducting internal investigations in China.
Editor: Tell us about the UK Bribery Act and some of the differences between it and the Foreign Corrupt Practices Act.
Pacheco: The Bribery Act takes effect on July 1, dramatically transforming the landscape in the UK regarding the investigation and criminal prosecution of commercial bribery and kickbacks. The Act is exclusively a criminal statute. In contrast, the FCPA provides civil and criminal remedies.
The Bribery Act extends to companies beyond the geographic limits of the UK, whether or not the acts or omissions take place in the UK - if an organization is formed or incorporated in the UK or if the organization carries on business in the UK. As for individuals, jurisdiction may arise from acts outside of the UK if the individual has a close connection with the UK, such as being a resident.
The Act prohibits bribes to any person influencing that person to act improperly. The focus, therefore, is on its improper action. There is the offense of bribing another person and a separate offense for receipt of a bribe. The Act applies to commercial bribery, including bribery of foreign officials. Unlike the Bribery Act, the FCPA focuses on the giving of anything of value to a foreign government official to influence the foreign official. The FCPA does not apply to private commercial bribery generally and does not, unlike the Bribery Act, specifically apply to the receipt of a bribe or kickback.
Under the Act, there are provisions for strict liability for corporations that have failed to implement adequate procedures to prevent bribery. Under the FCPA, there is only strict liability under the accounting provisions relating to public companies.
Penalties under the FCPA and the Bribery Act are quite serious. Violations of either statute can lead to imprisonment. Fines likewise under either statute can be severe. The Act can impose unlimited amounts in fines; the FCPA has statutory limits, although in practice settlement amounts have been extraordinary.
Editor: I understood that the initial reaction to the UK Bribery Act on the part of business was very negative and that the Guidance considerably watered down some of the provisions. Is that your impression?
Pacheco: The Bribery Act was strongly criticized by businesses in and outside of the UK because of the Act's broad reach, strict liability, unlimited fines and the enormous costs of compliance that companies would have to incur. The Ministry of Justice issued guidance to assist businesses in advance of the July 1 effective date.
The Guidance is far more detailed than anything issued by the U.S. Government regarding what constitutes an adequate compliance program under the FCPA. Section 7 of the Bribery Act is quite clear about what constitutes such a program and what is specifically required in order to avoid prosecution. The principal elements are: (1) procedures proportionate to the bribery risks, (2) top-level commitment, (3) periodic, informed and documented risk assessments, (4) due diligence to identify bribery risks, (5) internal and external communication, including training, and (6) monitoring and review procedures.
The Guidance has given businesses some comfort that reasonable corporate hospitality will not be outlawed, small companies can communicate their policies orally (at a more modest cost than more detailed written policies that will be required of larger companies), and prosecutors will be entrusted with discretion in charging decisions. It remains to be seen, however, how the Act will be applied in practice and how prosecutors will exercise judgment in light of the strong language in the Bribery Act.
Editor: What about hospitality?
Pacheco: Some forms of hospitality may fall within the scope of the Act.
The Guidance makes clear that hospitality that falls within the norms of the particular business sector may not constitute a bribe unless those norms are extravagant. And, the Minister of Justice, Kenneth Clarke, has stated that reasonable hospitality is a normal part of business. So, I agree that the treatment of hospitality payments in the Guidance is helpful, but again it remains to be seen how the UK Bribery Act will be applied in practice.
Before any prosecution can be commenced under the Act, the UK's top two prosecutors have to approve it. This provides some assurance that there will be uniformity in the application of the Act to hospitality and hopefully other aspects of the Act.
Editor: There are complaints in the U.S. that enforcement of the FCPA has gotten out of hand. Do you agree?
Pacheco: I don't think that the "enforcement" of the FCPA has necessarily gotten out of hand. Look, if there are companies or individuals that are engaged in bribery and kickbacks, then it's only fair that those companies and individuals are investigated and that civil penalties or criminal prosecution be considered.
However, what has gotten out of hand are the extraordinary penalties that are involved. For example, in the Siemens matter, Siemens and its affiliates suffered civil and criminal FCPA settlements that were in the range of $800 million. In November of 2010, there was a Swiss freight forwarder that suffered criminal fines and disgorgement totaling $236 million. Under the UK Bribery Act, criminal fines can be unlimited.
Compounding this problem, we now have under the Dodd-Frank Act whistleblower provisions that are going to create a cottage industry for whistleblowers. The bounty provisions will incentivize whistleblowers by awarding them ten percent of total recoveries of a million dollars or more. This encourages employees to ignore internal corporate reporting, including hot lines and other early warning systems. So what has gotten out of hand, and what I think will increasingly get out of hand, will be the extraordinary penalties and extreme costs imposed on companies under the FCPA fueled by whistleblowers. The Act does not contain whistleblower provisions, but the Act may nonetheless also result in extreme costs to companies and potentially excessive fines.
Editor: Will paying bribes result in prosecution for other crimes and in multiple jurisdictions?
Pacheco: Absolutely. When prosecutors are investigating potential violations of the FCPA or the Act, they will not turn a blind eye to other crimes. For example, if UK prosecutors are looking at bribery and determine that there is also money laundering, tax crimes or any other offenses, they may then turn their attention to those other crimes as well. The same can be said with regard to FCPA violations and investigation by regulators and prosecutors in America. It is a practice by regulators and prosecutors in both countries to exchange information with their counterparts in other countries. Once the proverbial genie is out of the bottle, you can't necessarily put the genie back in. Once these investigations get going, prosecutors and regulators will be empowered whether to pursue civil and criminal claims with regard to other crimes in multiple jurisdictions that may be uncovered.
Editor: Why do so few proceedings reach the indictment stage in FCPA proceedings? Is the same result likely under the UK Bribery Act?
Pacheco: Companies will desperately attempt to resolve FCPA and, I believe, UK Bribery Act allegations because the mere indictment of a company or individual could have disastrous effects. Companies, for example, could lose the ability to get government contracts. They could lose licenses, like import/export licenses, to engage in business. They would be exposed to tremendous reputational risk. They could lose customers and clients.
Private lawsuits by shareholders and others might be brought against the company and its officers and directors. The cost of defending themselves could be severe.
All this means that there are huge incentives to settle these matters quickly and to resolve bribery and kickback claims. So, that is why you don't see companies reach the indictment stage.
Editor: Where does your firm fit into that picture in terms of providing advice that might result in a company adopting an effective compliance program?
Pacheco: Proskauer, with its many offices abroad (including the UK, China and South America) counsels companies about the need for strong compliance programs relative to anti-corruption laws like the FCPA and the UK Bribery Act. We also conduct internal investigations into such matters and represent companies and individuals in connection with active investigations, law suits, or claims by regulators and prosecutors and others.
Editor: Where do companies come up short?
Pacheco: One of the biggest areas where companies come up short is when they do not exercise appropriate amounts of due diligence to assure themselves that their joint venture partners, business partners, agents, and providers of services are acting appropriately and not violating the various anti-corruption laws. Companies can't turn a blind eye to the acts of their agents. Companies should exercise due diligence to assure that their agents and partners have an appropriate level of education and understanding about the importance of complying with the FCPA and the UK Bribery Act. Where companies also come up short is in compliance with the books and records requirements of the FCPA. It is essentially low-hanging fruit; the burden of proof is less and there's no need to show criminal intent.
Companies often ignore things that are relatively easy to do, like having a compliance hotline that their employees can use to report possible violations. Companies may shy away from incurring the considerable expense of compliance. Frequently, the policies and procedures they put into place are watered down, and there is no follow-up and self-auditing. Pursuing the process of making the compliance program robust is absolutely critical.
Editor: Does having a compliance program that is blessed by a law firm like yours or a respected accounting firm help?
Pacheco: It can go a long way in moving prosecutors and regulators away from civil and criminal penalties. Having the help of a law or accounting firm with substantial experience in setting up policies and procedures and appropriate internal auditing programs can be critically important. Most importantly, however, is having the buy-in of a company's management. The tone from the top to comply with anti-corruption policies and procedures is critical. Absent the appropriate guidance and participation of management, policies and procedures alone will not be particularly effective in response to FCPA and UK Bribery Act investigations and prosecutions.
Published May 2, 2011.
