Tuesday, April 19, 2011

New Anti-Corruption Era in Egypt

Transparency International (TI), the global anti-corruption organisation, hosted a two-day workshop in Cairo to debate the reforms necessary to make Egyptian institutions more resilient to corruption and more accountable to the public.

Entitled “Towards a new integrity system in Egypt”, the workshop brought together more than 75 members of government, media, academics, judiciary and civil society to agree on the first steps to making Egyptian institutions strong and independent so that they can enforce anti-corruption laws and uphold freedom of expression.

These discussions can act as a starting point for a new anti-corruption framework, with measures that ensure all actors in the Egyptian state – including leaders, public officials and security forces - act with integrity.
“In this meeting people inside and outside worked together driven by a common determination to create a truly effective and comprehensive anti-corruption system. There is a very clear mood that we cannot allow rules and institutions to be side-stepped by those in power,” said Omnia Hussein, In-Country Programme Coordinator for Transparency International in Egypt. “Egypt must have a state-of-the-art system of checks and balances so that there are no longer exceptions to anti-corruption rules.”

Among the measures called for to improve accountability and transparency are:
  • New laws that guarantee that all public officials are accountable, with no exceptions.
  • Ensure the total independence of anti-corruption bodies, and expand their remit to include relations between the public and private sectors such as public procurement. Their reports must be made publicly available.
  • Strong laws on freedom of information and whistle-blower protection. Accountability rules must apply to all areas of government, without exemptions for areas like defence or justice
  • Financial institutions must exercise constant scrutiny of any clients who are public officials
  • Creation of a national body responsible for a comprehensive national strategy for combating corruption
  • The creation of the role of ombudsman to investigate citizens’ complaints.
Learning from the past

“Egypt is still suffering from corruption. The fall of one leader will not cure the weakness of institutions that until now have not been able to consistently enforce anti-corruption rules,” said Omnia Hussein. “This is where civil society can make a difference if given space to operate freely, in a way that was not allowed in the past. The fact that members of government and judiciary are openly discussing the future transparency of state institutions is a good start for the new Egypt.”

Last year, Transparency International published an analysis of Egyptian state institutions and their contribution to accountability and integrity. It found that even where mechanisms for transparency and accountability did exist, they were undermined by lack of independence and political will to fight corruption. It also highlighted lack of space for civil society and protection for whistleblowers.

Egypt scores 3.1 on Transparency International’s Corruption Perceptions Index, a scale which goes from 0 (highly corrupt) to 10 (very clean).

Transparency International is the global civil society organisation leading the fight against corruptionwith chapters in 94 countries around the world, including Morocco, Lebanon and Palestine.

Media Contact
Deborah Wise Unger
Tel: +49 30 34 38 20 666
Email: press@transparency.org

US courts interpret "Foreign Official" to include employees of State-Owned Enterprises

Below there is a case note prepared by the US law firm of Fulbright & Jaworski on the landmark Lindsey Manufacturing decision in interpreting bribery of foreign officials legislation in the US (the Foreign Corrupt Practices Act -FCPA 1977).  However, it's importance will be instructive in other jurisdictions which have also passed counterpart legislation eg the Canadian Corruption of Foreign Public Officials Act 1999 and the UK Bribery Act 2010.  These legislative frameworks emanate principally from the obligations of member states under the OECD Anti Bribery Convention 1997. The OECD Anti Bribery Convention is the first global anti-corruption convention attempting to deal with supply side (cross border) bribery.  Signed by 30 OECD countries in December 1997 this convention entered into force in February 1999 and there are now 38 signatories.  The Convention permits countries to move in a co-ordinated manner to adopt national legislation making it a crime to bribe foreign public officials.  It provides a broad definition of bribery, requiring countries to impose dissuasive sanctions and committing them to providing mutual legal assistance.  Though the US FCPA pre dates the Convention, the provisions were incorporated under the Act in 1998.  In the US the FCPA complements other legislation in this area such as the USA Sarbanes Oxley Act which also requires firms to operate effective systems of control and come clean about instances of fraud. For the Risk Management and Compliance functions of financial firms there is no getting away from these pieces of legislation indeed compliance with one assists the other. 

California court retains government's broad interpretation of 'foreign official'

Contributed by Fulbright & Jaworski LLP
April 18 2011

On April 1 2011 US District Judge Howard Matz issued an opinion from the bench in one of three pending cases challenging the US Department of Justice's broad interpretation of the term 'foreign official' under the US Foreign Corrupt Practices Act. The court in US v Enrique(1) (the case has informally been referred to as Lindsey Manufacturing in reference to one of the three defendants) is the first of the three to rule on this seminal issue. The court denied the defendants' motion to dismiss, concluding that employees of state-owned enterprises are foreign officials for purposes of the act. The precise issue before the court was whether officials of Mexico's state-owned utility company, Mexican ComisiĆ³n Federal de Electricidad (CFE), were foreign officials under the act.

The Foreign Corrupt Practices Act defines a 'foreign official' as:
"any officer or employee of a foreign government or any department, agency, or instrumentality thereof, or of a public international organization, or any person acting in an official capacity for or on behalf of any such government or department, agency, or instrumentality, or for or on behalf of any such public international organization."(2)
However, the act does not define 'department', 'agency' or 'instrumentality'. The Department of Justice and other US enforcement authorities have utilised this apparent lack of clarity to construe liberally the statutory definition and apply it to interactions with employees of commercial state-owned or controlled enterprises. The Department of Justice's interpretation has previously been challenged by defendants in two other recent cases.(3) However, in both cases the court dismissed the defences' challenges with either no substantive analysis of the issue or very little useful analysis. Lindsey Manufacturing marks the first time that the issue appears to have been squarely addressed by the court.

The defendants in Lindsey Manufacturing, as well as the defendants in two other pending cases - one in another California federal district court and the other in the Southern District of Texas(4) - challenged the Department of Justice's broad interpretation of 'foreign official' in pre-trial motions to dismiss. The motions were extensively briefed in all three cases, but Lindsey Manufacturing is the first to be decided. The most elaborately briefed motion is still before the court in the Carson case pending in the Southern District of California. All three motions were filed within the last three months.

The Lindsey Manufacturing defendants argued that:
  • the plain meaning of the term 'instrumentality' excludes state-owned enterprises;
  • the legislative history of the Foreign Corrupt Practices Act indicates that Congress did not intend to include employees of state-owned enterprises as foreign officials; and
  • if employees of state-owned enterprises are foreign officials, then the statute is unconstitutionally vague.
The defendants in Carson and O'Shea have made similar arguments.
Reliable media sources reported that Matz stated in his oral ruling from the bench that the defendants' attempt to argue for a more limited definition of the term was "improper, unfounded and incorrect".(5) The judge is expected to issue a written order confirming his oral ruling.

Following the hearing, Lindsey Manufacturing's defence counsel conveyed that the judge's decision was based on the nature of CFE and the "essential governmental function" that CFE performs.(6) Defence counsel further stated that the essential governmental function "appeared to be more important to his ruling than the legislative history" of the Foreign Corrupt Practices Act, and that "it was clear [the judge] felt [CFE] functioned as an agency or department of the Mexican government", and "relied heavily" on the Mexican Constitution and Mexican law.(7)

The Lindsey Manufacturing ruling is significant as it represents a victory for the Department of Justice that - at least for the time being - will likely strengthen and embolden the government's efforts to bring enforcement actions against companies and individuals based on its expansive interpretation of the term 'foreign official'. Additionally, while the extent to which the ruling will affect the Carson and O'Shea courts' decisions is uncertain, the decision will likely be weighed as both courts consider whether to narrow the current government view of who is a 'foreign official' for purposes of Foreign Corrupt Practices Act enforcement under the respective facts of each of those cases.
The next two decisions will be highly anticipated. Certainty regarding who will be considered a foreign official under the Foreign Corrupt Practices Act, and thus who should be considered a potential recipient of an improper payment under the act, is critical as companies determine how best to formulate an effective compliance programme in the current enforcement environment. Definitive rulings from the three courts in the pending cases will impact on enforcement and corporate compliance initiatives alike.
For further information on this topic please contact Richard Craig SmithMarsha Z GerberMary Beth Balhoff or Kimberly Sullivan Walker at Fulbright & Jaworski LLP by telephone (+1 202 662 0200), fax (+1 202 662 4643) or email (rcsmith@fulbright.commgerber@fulbright.commbalhoff@fulbright.com orkwalker@fulbright.com).
(1) No 2:10-cr-01031-AHM (CD Ca).

(2) 15 USC §§ 78dd-1(f)(1)(A), 78dd-2(h)(2)(A), 78dd-3(f)(2)(A).
(3) See US v Nguyen, No 2:08-CR-522 (ED Pa); US v Esquenazi, 1:09-cr-21010 (SD Fla).
(4) See US v Carson, No 08:09-00077-JVS (SD Ca); US v O'Shea, No 4:09-cr-00629 (SD Tex).
(5) See Steven Mikulan and Aruna Viswanatha, "Judge Upholds DOJ Definition of 'Foreign Official'", Main Justice: Just Anti-Corruption (April 1 2011).
(6) Id.
(7) Id.

Friday, April 1, 2011

Long Awaited Guidance on UK Bribery Act 2010 Issued Amidst Heavy Criticism

Amid much criticism the Government of UK has issued the long awaited Guidance Procedures to support the implementation of the UK Bribery Act which was passed on 9th April 2010.   The Government says the Act aims to ensure the UK can clampdown on corruption without being burdensome to business. For example, ensuring anti-bribery procedures are proportionateto the bribery risks firms face and to the nature, scale and complexity of its activities. The Guidance issued on 30th March 2011 underscores six (6) principles which corporations seeking to avoid liability should follow.

The six key principles are:

  • Proportionate procedures
A commercial organisation’s procedures to prevent bribery by persons associated with it are proportionate to the bribery risks it faces and to the nature, scale and complexity of the commercial organisation’s activities. They are also clear, practical, accessible, effectively implemented and enforced.

  • Top-level commitment
The top-level management of a commercial organisation (be it a board of directors, the owners or any other equivalent body or person) are committed to preventing bribery by persons associated with it. They foster a culture within the organisation in which bribery is never acceptable.

  • Risk assessment
The commercial organisation assesses the nature and extent of its exposure to potential external and internal risks of bribery on its behalf by persons associated with it. The assessment is periodic, informed and documented.

  • Due diligence
The commercial organisation applies due diligence procedures, taking a proportionate and risk based approach, in respect of persons who perform or will perform services for or on behalf of the organisation, in order to mitigate identified bribery risks.

  • Communication (including training)
The commercial organisation seeks to ensure that its bribery prevention policies and procedures are embedded and understood throughout the organisation through internal and external communication, including training, that is proportionate to the risks it faces.

  • Monitoring and review
The commercial organisation monitors and reviews procedures designed to prevent bribery by persons associated with it and makes improvements where necessary.
Justice secretary Kenneth Clarke says: “I have listened carefully to business representatives to ensure the Bribery Act is implemented fully and in a workable, common sense way – this is particularly important for small firms that have limited resources. I hope this guidance shows that combating the risks of bribery is largely about common sense, not burdensome procedures.”

The above notwithstanding, the Guidance has already come under some severe criticism.  Transparency International UK calls the Guidance "deplorable" and insists it will weaken enforcement efforts under the Act.  Chandrashekhar Krishnan, Executive Director of Transparency International UK explains:

"The Bribery Act, as passed by the last Parliament, is one of the best anti-bribery laws in the world. But the Guidance will achieve exactly the opposite of what is claimed for it. Parts of it read more like a guide on how to evade the Act, than how to develop company procedures that will uphold it.
‘It is deplorable that changes made to the draft Guidance since late last year, and now enshrined in the published version, depart from international good practice in several areas. The Ministry of Justice has exceeded its brief with this final Guidance which undermines the Act and will limit its effectiveness. There is now a significant risk that bribery will go unpunished."

Some of the identified loopholes include:

  • A non-UK company listed on the London Stock Exchange (LSE) is not automatically caught by the Bribery Act. This means that a) it could use capital raised in the UK to pay bribes overseas, and b) a UK-based company that loses a contract to a non-UK company listed on the LSE which paid a bribe to win the contract, may have no recourse in the UK courts. [Guidance para 36]
  • A non-UK parent company A with a large UK subsidiary B could pay bribes through subsidiary C based in a third country. If UK subsidiary B did not directly benefit from the bribes, the non-UK parent company A would not be caught by the Bribery Act – even if its other subsidiary C was competing unfairly with honest UK companies. [Guidance paras 36 & 42]
  • A UK company would be able to outsource bribery by building a chain of subcontractors sufficiently long to distance itself from bribe paying [Guidance para 39]

The Bribery Act 2010 was passed with all-party support. It introduces an offence of corporate failure to prevent bribery unless a company can prove that it had ‘adequate procedures’ in place to prevent bribery. The Secretary of State for Justice is required, by section 9 of the Bribery Act, to provide official Guidance on ‘adequate procedures’. The corporate offence of failing to prevent bribery can only come into force after the Guidance has been issued. Transparency International UK has been campaigning for early publication of the official Guidance that would not dilute the Act. Publication of the Guidance was delayed by further consultations in late 2010 and a last-minute burst of lobbying in early 2011 by some business groups.

It is expected that the Act will come into effect from July 2011. 

Download a copy of the UK Bribery Act 2010 and the Guidance