Bribery laws go beyond borders

A businesswoman working for a Dubai company is in New York for a trade show when she uses her hotel's business centre to send a fax to an aspiring Nigerian politician.
She says she will donate US$5,000 (Dh18,300) to his campaign if once elected, he will look favourably on her company when it comes to awarding government contracts in Nigeria.
But the candidate never responds, no money is sent and, in any event, he fails to be elected.
But as New York-based lawyer Anna Mandel explains, the businesswoman in that hypothetical scenario would have breached the United States' tough anti-bribery laws, even though neither party was based in the US or were US citizens.
The two-minute act of sending the fax while on US soil was enough.
And as Ms Mandel told a group of UAE business people, lawyers and academics in Abu Dhabi this month, one school of thought is that just sending an email using a service with US-based servers would qualify, even if none of those involved had ever set foot in the US.
British lawyer Chris McBeth says the UK's version of the law also has a reach far beyond the nation's borders and is no less troublesome for companies in the Arabian Gulf.
Because it has been in force for less than two years, there is a paucity of case law to set exactly what does or does not breach the rules.
For Paul Werne, Etisalat's group general counsel, the UAE is in a difficult situation because while it has a good transparency rating, it is often a corporate hub for companies dealing with Middle East and North Africa nations with reputations for corruption.
"If you're an international business, you'd probably like to take care and to have an anti-corruption policy before the [US] department of justice or the UK authorities does it for you," he told the seminar at the Paris-Sorbonne University in Abu Dhabi.
"The Emirates [is seen] as a virtuous country. It ranks pretty well in national transparency - far better than Italy," he says. "Still the UAE has, I believe, a pretty risky geography because of the great number of expats, including US and UK citizens who are liable under the US and UK acts, if only because they're nationals of those countries.
"On many occasions, UAE companies conduct business in countries that are much worse. Etisalat is operating in Pakistan and Afghanistan and Ivory Coast, countries which are not recommended."
An anti-corruption watchdog, Transparency International, rated the UAE as the least corrupt Arabian nation, tied with Qatar for the 26th most transparent of 176 countries assessed worldwide.
The US's anti-bribery law, the Foreign Corrupt Practices Act (FCPA), was enacted in the US in the 1970s as part of the reforms that followed the Watergate scandal.
Jonathan Kolodner, a former US department of justice prosecutor who investigated FCPA breaches and who now works for the law firm Cleary Gottlieb in New York, says that initially, the rate of prosecutions was relatively low.
"It's only the last 10 years that prosecutions have skyrocketed," he says.
The frequency of prosecutions has been matched by the fines involved, totalling billions of dollars.
The biggest, in 2008, involved German manufacturer Siemens AG admitting paying bribes to get more than $1bn of business in Venezuela, Israel, Mexico, Bangladesh, Argentina, Vietnam, China, Iraq and Russia. Siemens agreed to pay $450m (Dh1.65bn) in fines to the justice department.
That prosecution reflected the global reach of the US law, which applies to US citizens or companies whose shares are traded on US markets or if in some way the offence involves US territory or mail systems.
"Nine out of 10 of the largest penalties have been imposed on non-US companies and on companies whose stocks are traded in the US," Mr Kolodner says. "It's really changed the way compliance programmes have operated.
"In the past 10 years there has been a sea-change in the approach of companies, particularly those with ties to the US, in their approach to corruption issues. You've seen the development of compliance programmes and anti-corruption programmes."
The FCPA has two main sections, citing offences of actual bribery but also for failing to keep proper accounts and to maintain appropriate internal controls over financial transactions.
"US authorities often use accounting provisions to bring cases," Mr Kolodner says. "You can't have an ostrich approach and bury your head in the sand.
"Many people are now using third-party consultants to guide them and are requiring them to sign FCPA pledges that they won't pay bribes to get contracts."
Any investigation for alleged breaches of the FCPA has a significant effect on the company involved, to the point where companies will settle rather than fight the justice department.
Mr Kolodner calls it the "Arthur Andersen effect", for the worldwide accounting firm that was prosecuted in aftermath of the Enron scandal.
"They were convicted of obstruction of justice," he says. "Arthur Andersen basically dissolved following conviction. Criminal indictment was a death penalty."
The US Supreme Court later overturned the conviction but by then Arthur Andersen, previously one of the top five accounting firms worldwide, effectively no longer existed.
The difficulty for firms is that the definition between legal and illegal payments can become blurred.
"They have a narrow exemption for facilitation payments, known as grease payments," Mr Kolodner says. "A typical example is where you have a ship carrying perishable cargo and you're allowed to give a facilitation payment [to get it released]. This isn't allowed under UK law."
The message that some bribes are OK makes it difficult to monitor and train people, and also has the effect of undermining a company's culture of compliance, he says.
Mr Werne says the implications of laws such as the FCPA and its UK equivalent means Etisalat has to take it seriously, even though it is a UAE company.
"An anti-corruption policy is not another policy," he says. "It's more tricky because it pervades the whole company and it might force you to change behaviour that might have been followed for quite a long time.
"It also needs cooperation of many functions: HR, legal, internal audit, risk management, procurement and business development."
But the cost in fines and in damage to a company's reputation make that investment essential.
"The amount of money a company will have to pay in a deferred prosecution is extremely heavy because you'd need to pay back the profits that you've allegedly been making under corruption cases," Mr Werne says.
He believes one reason why there have been fewer FCPA prosecutions in the last few years is because companies are taking it more seriously than before and adopting robust anti-corruption policies.
"The 'that's just the way business is done over there' attitude fades away. Even if you do business with a country that has a very bad rating," he says.
"Building an anti-bribery programme is not only about making corruption impossible in a group but also about making the group and its top management safe against any possible escalation of possibly highly disruptive investigations or sanctions or negative publicity.
"It takes four or five - or sometimes 10 - years and in those years you have top management focusing more on compliance than on business."
Mr McBeth, a lawyer for Cleary Gottlieb based in Abu Dhabi, says the UK equivalent of the FCPA is the Bribery Act 2010, which was enacted in July 2011.
It mirrors many aspects of the US legislation but goes further, to include bribes to private individuals and not just officials.
One aspect it shares are the provisions for bribery and also for accurate accounting, with many prosecutions involving the latter.
The UK law was brought in after British Aerospace was prosecuted under the FCPA for bribes to secure long-term defence contracts in Saudi Arabia worth more than £80bn.
The company paid a $400m fine in the US and £30m (Dh166.4m) in the UK.
"It wasn't found guilty of bribery but for false accounting," Mr McBeth says.
The UK law involves a corporate offence of "failure to prevent bribery", which involves strict liability. The sole defence is if the company can show "adequate processes" to fight corruption.
As in the US, it is the rules to prevent bribes being hidden by accounting tricks that prove to be more effective than finding examples of improper payments being made.
"Al Capone was jailed for bad accounting rather than shooting people," Mr McBeth adds.

Bribery laws go beyond borders

Companies in the UAE are finding themselves facing a legal minefield caused by the global reach of tough and sometimes conflicting US and UK anti-corruption laws. John Henzell reports.