The specter of employees engaging in bribery and/or corrupt behaviour remains a prominent risk for any company conducting business across borders. Determined investigation and enforcement of established, stringent anti-corruption legal regimes, such as the U.S. Foreign Corrupt Practices Act (FCPA) and the UK Bribery Act, continue to hold to account those that participate in corrupt behavior, with international fines and penalties against companies and individuals running into billions of dollars each year.
Thus far, 2017 looks to be no different. A number of high-profile enforcement actions and fresh investigations have already been announced—including those involving Rolls Royce, Panasonic, and Cadbury. As such, combating bribery and corruption should remain top of mind for corporations around the world.
In that context, K2 Intelligence’s multidisciplinary team of anti-corruption experts sets out below some of the key developments likely to continue or come to the fore in the rest of the year.
DPAs and Focus on Self-Disclosure
In the United States, a number of significant enforcement actions were resolved in the last year through Deferred Prosecution Agreements (DPAs), spurred by the U.S. Department of Justice’s (DOJ’s) FCPA Pilot Program.
The Pilot Program was designed to encourage corporations to self-disclose FCPA-related violations, cooperate with the DOJ, and remediate flaws in their controls and compliance programs by offering them the prospect of reduced penalties for doing so. The Pilot Program is due to expire in April 2017 and there are no guarantees that it will continue in its current form. Nevertheless, U.S. government efforts to encourage companies to self-disclose and fully cooperate—whether by using DPAs or other incentives (and penalties)—are here to stay.
The DPA is a newer phenomena in the United Kingdom. To date the Serious Fraud Office (SFO) has found only three occasions, including the record-breaking recent Rolls Royce settlement, in which it has deemed it appropriate to apply to the Court to discharge an investigation in this manner.
However, SFO Director David Green CB QC and his team have implied in recent speeches that there are several potential DPAs in the pipeline. To put this into context, the SFO is currently running around 60 active investigations, some of which have been long-standing investigations into misconduct, bribery, and corruption.
Accordingly, providing that those under investigation offer absolute and unconditional cooperation, similar to that required under the DOJ’s Pilot Program, expect to see the SFO make an increased number of applications to the Court for DPAs in 2017.
Increase in International Cooperation and Coordinated Enforcement Actions
The latter part of 2016 and early 2017 saw a number of prominent multilateral, global settlements resolving multiple countries’ claims against a company at one time, such as those entered into by Odebrecht (with Brazil, Switzerland, and the United States) and Rolls Royce (with the United Kingdom, Brazil, and United States).
Cooperation between investigative bodies (both nationally and internationally) has been on the rise in recent years, with a shift of focus from competition to collaboration. Accordingly, bribery and corruption investigations can no longer be confined to one country of convenient jurisdiction.
Corporations will need to be aware that information is shared between authorities on an ongoing basis, and that prosecutors’ working relationships are continually improving.
Petrobras Scandal Widens Yet Again
The continued fallout from Brazil’s Petrobras scandal—dubbed Operation Car Wash—shows no signs of abating during 2017, as entire industries, including construction, energy, and infrastructure, are added to its roll call of investigations.
Recent reports suggest that the long-awaited Odebrecht plea agreement, which is said to involve 78 executives of the construction conglomerate providing evidence to investigators, will implicate around 250 politicians, including current Brazilian President Michel Temer, former presidents Lula da Silva and Dilma Rousseff, and ministers, governors, federal congressmen, and senators.
Outside Brazil, expect to see large international companies nervously monitor their exposure to new allegations and disclosures. For instance, the repercussion of Odebrecht’s plea agreement continues to be felt by the company, as various countries seek to cancel contracts and recover amounts paid to the firm.
The arrest of an executive of commodities conglomerate Trafigura late last year, and increased scrutiny on the financial systems that allowed payments to be made sets the tone for the next layer of investigation.
As 1MDB Comes to the Foreground
The 1MDB investigation, described by various media outlets as “the world’s biggest financial scandal,” has rumbled on in the shadows of the wide-ranging Petrobras scandal for the last two years, but is expected to come to the foreground in 2017.
Malaysian Prime Minister Razak, who also holds the post of finance minister, delivered a budget to the Malaysian parliament which apparently ignored the effect of RM50 billion (US$11.3 billion) of 1MDB debt that is guaranteed by the country—which already holds substantial debt as a proportion of GDP.
United States authorities, including the DOJ—which is already seeking more than US$1 billion from individuals and companies connected to the scandal—are expected to step up related enforcement activities during 2017. Other international enforcement agencies, including the Swiss regulator FINMA, appear poised to do likewise, extending their focus to financial institutions that have facilitated the transfer of substantial value around the world.
Historical Ownership of Natural Resources Assets Fall Under the Microscope
Industries involved in the extraction of natural resources have long been tarnished with allegations of bribery and corruption, particularly in jurisdictions with low average income, weak oversight, opaque permit allocation procedures, and a concentration of power in few individuals.
The trend of increased international transparency and awareness of anti-corruption efforts—as well as international coordination and information sharing between enforcement agencies—will lead to further investigation into how companies came to hold valuable rights in extractive assets. For instance, Rio Tinto is currently facing scrutiny over its Guinean mining operations.
We expect during the next 12 months to see a number of large companies having to defend allegations of misconduct stemming from their actions—and relationships with local intermediaries—when acquiring assets.
Each and every company faces bribery and corruption risk in its operations, and it is therefore vital that appropriate and proportionate steps are taken to mitigate the risk. K2 Intelligence assists companies both in the prevention of bribery and corruption through design, implementation, and testing of compliance policies and procedures, as well as in the investigation and, if necessary, remediation of illicit conduct involving bribery and corruption.