Archive for the ‘Guest Posts’ Category

Billy Jacobson’s Various Vantage Points

Wednesday, October 8th, 2014

Billy Jacobson has experience with the Foreign Corrupt Practices Act from a number of vantage points few can claim.  He has been an Assistant Chief for FCPA enforcement in the DOJ fraud section.  He has been a Senior Vice President, Co-General Counsel and Chief Compliance Officer for Weatherford International Ltd., a large oil and natural gas services company that does business around the world.  Currently, he is a lawyer in private practice at Orrick and was previously a lawyer in private practice at other firms.

This Q&A explores Jacobson’s unique FCPA insight and experience.

Q: What specific vantage point of a DOJ FCPA enforcement attorney do in-house FCPA counsel and outside FCPA counsel fail to understand or appreciate?

One issue that often gets misunderstood is the notion of “trends” within FCPA enforcement.  While certain actions can be grouped together by those looking to categorize, each case is handled by a Fraud Section prosecutor on its own merits as opposed to being thought of as part of a larger trend.  For sure, there have been, for example, “industry sweeps” in the pharma and medical device industries and there have been many prosecutions of oil and gas companies, but I don’t describe those enforcement actions as trends.

Rather, the prosecutors go where the evidence leads them: if that is to conduct in China, so be it; if it’s to several medical device companies because one has been caught and there is reason to believe others are going about their business in the same fashion, so be it.  And, of course, with oil and gas companies operating in the world’s most important industry and in the world’s most corrupt countries, one will unfortunately find corruption. The term “trend” to describe these enforcement actions is a misnomer, in my opinion.

Q:  What specific vantage point of an in-house FCPA counsel do DOJ FCPA enforcement attorneys and outside FCPA counsel fail to understand or appreciate?

One thing that attorneys other than in-house counsel fail to appreciate sometimes is the level of effort required to create and then maintain a truly robust anti-corruption compliance program.  When I was about to begin at Weatherford, someone told me that my entire perspective would change once I was in-house.  I thought was that was overstated as I tried to be empathetic to the demands on in-house counsel in my other roles over the years.  But, I distinctly recall looking up from my desk at the end of my first week in-house and thinking, “my entire perspective has changed.”  It was true.  Outside counsel gives recommendations about a company’s compliance program and the government (often) criticizes a program, but it’s the in-house counsel that actually has to make the program a reality and maintain the program.  This requires daily coordination with other functions within the company and political negotiations with senior management and the Board in a way that is not always appreciated by those outside.

Q:  What specific vantage point of an outside FCPA counsel do DOJ FCPA enforcement attorneys and in-house FCPA counsel fail to understand or appreciate?

In-house counsel have to work hard to maintain a “world view” and not become so enmeshed in just their company that they lose sight of what’s going on around them.  This can be extremely challenging given the various things going on within a company at any one time.  It is helpful for in-house counsel to attend events sponsored by associations of other in-house counsel, compliance conferences, government presentations, etc., so as to maintain this broader perspective.   FCPA enforcement attorneys, for their part, should appreciate that in-house counsel are dealing with many, varied legal and compliance issues in a given day and it’s not all about the FCPA 24/7.  Outside counsel may have a good perspective in this regard given their role in assisting companies with a variety of different legal and compliance challenges and the many different areas of expertise brought to bear by any one law firm.

Q: Which job category of the three is the most difficult and why?

Without question, in-house counsel has the hardest job of the three.  First, if it ever was true that lawyers went in-house to relax and work 9 to 5, it certainly is not true anymore.  Given the myriad risks faced by companies and the every-expanding reach of regulators, in-house counsel is constantly juggling many responsibilities.  And, increasingly, they are doing so with fewer and fewer resources at their disposal.  “Do less with more,” has become a cliché only because it is a mantra being constantly repeated in every C-suite in the country.

Q:  Which job category of the three can best advance the objectives of the FCPA?

I’m really showing a certain bias here, but I think it is in-house counsel that can best advance the objectives of the FCPA.  It’s with in-house counsel and corporations generally where the rubber meets the road.  DOJ can bring all the cases it wants and outside counsel will do their best to defend those cases, but unless corporations live and breathe their anti-corruption program, corruption will remain a problem.  Incidentally, I think we’ve seen tremendous strides in that direction in the past decade, at least in the US.

Q: In April 2012, while an in-house attorney, you wrote an article (previously highlighted in this post) in which you stated:  ”Current FCPA enforcement policy punishes rather than rewards companies that do all they can reasonably be expected to do to deter corruption and to cooperate with the government.”  More than two years has passed.  Comment on your previous comment – have things gotten better or worse?

I don’t think things have changed in that regard.  I still believe the sort of reform I described in my Bloomberg piece is the best approach to FCPA enforcement reform.  It wouldn’t require any legislation or formal rule making and would result in tangible benefits for the government.  DOJ’s main priority should be prosecuting individuals involved in corruption and my proposal furthers that end while also stressing the importance of a robust corporate compliance program.

When Worlds Collide: How International Arbitration Deals With Corruption

Tuesday, September 2nd, 2014

Today’s post is from Paul Cohen (Perkins Coie).

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Regular readers of FCPA Professor can be forgiven for wondering what role anti-corruption laws could possibly play in international arbitration.  The two fields seem, at first blush, to have as much in common as toxic torts law has with trusts and estates.

The reality, however, is that international arbitration practitioners constantly grapple with allegations of bribery and corruption.  If arbitrators resolving these issues get them wrong from time to time, that may be because the FCPA/anti-corruption bar and the great-and-good of the international arbitration world rarely mix.  Indeed, they prefer to treat each other, in Stephen Jay Gould’s phrase about science and religion, as non-overlapping magisteria.

As one of the small number of practitioners with one foot in each field, I’ve tried from time to time to expound on the state of anti-bribery law to my arbitration colleagues.  I’m grateful to Professor Koehler for the invitation to do the reverse here.

International arbitration is a form of dispute resolution between parties from different jurisdictions.  Arbitrators appointed by the parties, rather than courts, decide the issues. Thanks to a 1958 treaty on the recognition of arbitrators’ decisions (the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, aka the New York Convention) to which 150 nations subscribe, it is easier to enforce those decisions, known as “awards,” worldwide than it is to have a foreign court judgment recognized and domesticated.  That accounts in large part for international arbitration’s popularity.

Then there is the additional fact that other dispute resolution options prove unpalatable to one of the parties.  In contracts between an American entity and one from, say, one of the BRIC countries, the American entity is unlikely to accept the neutrality or efficacy of the counterparty’s home court for the purpose of dispute resolution.

By the same token, the counterparty will often reject a US court jurisdiction clause, coming as it does with the prospect of extensive discovery, expense, and potentially a jury trial.

These disputes between private parties pursuant to contracts with arbitration clauses come under the rubric of international commercial arbitration.  These arbitrations are often non-public, so information about them is often incomplete.

There is a second, and increasingly frequent, species of arbitration that occurs pursuant to trade and investment treaties between nations.  Under these treaties, a private party from one country that invests in the territory of another can arbitrate directly against the other country – no sovereign immunity – if it can allege that the other country violated pertinent terms of the treaty.

To take a (stereo)typical example: if an American oil company invests billions of dollars in oil exploration in Country X, and Country X’s government then nationalizes the oil industry, the American company may have a claim against Country X for expropriation of its assets.  This kind of arbitration is known, intuitively enough, as investment treaty arbitration.

Because these arbitrations involve sovereign nations (and often large, publicly-traded companies), their proceedings and conclusions are better-known and better-publicized.

What does all this have to do with corruption? Increasingly often, one party or another alleges that bribery of some kind played a part in the underlying transaction on which the arbitration turns.  Perhaps that should not come as a huge surprise: a plurality of arbitrations involve energy and mineral resources in places that would be considered the usual suspects in any corruption survey.

Moreover, with the number of arbitrations on a steady upswing and allegations of corruption showing no sign of abating, look for more opportunities for these two traditionally distinct fields to overlap and interact.

These issues first appeared in arbitration more than half a century ago.  At the time, “consulting” agreements with third parties – the kind we warn clients today are red flags in international business transactions – were commonplace for companies seeking to do business with sovereigns and state-owned entities.  Occasionally, parties to these agreements decided that they would renege on their arrangements with the “consultants.”  They then found themselves in arbitration for breach of contract.

In one such dispute, an engineer with close connections to Argentina’s Peron regime brought arbitration against a British electrical manufacturer looking to sell equipment to Argentine power plants.  It was self-evident that the agreement between the engineer and the electrical manufacturer was effectively a vehicle to funnel corrupt payments to Argentine decision-makers.

The arbitrator hearing the case rejected the claim.  He stated:

“[T]here exists a general principle of law recognised by civilised nations that contracts which seriously violate bonos mores [good morals] or international public policy are invalid or at least unenforceable and that they cannot be sanctioned by courts or arbitrators [...] [P]arties who ally themselves in an enterprise of the present nature must realise that they have forfeited any right to ask for assistance of the machinery of justice (national courts or arbitral tribunals) in settling their disputes.”

Note that this decision came in 1963, fully 14 years before the enactment of the FCPA.  Bribing foreign officials was not yet a crime in the US or elsewhere, but that did not make contracts for which the very purpose was corrupt enforceable.

Several arbitral decisions followed in similar vein.  All of them dealt with the issue of whether arbitrators could enforce contracts that effectively rewarded a party for funneling bribes to foreign officials.  All of them agreed that they could not.

This left open a separate question: what happened when parties arbitrated in a case where there may have been corruption in the original transaction?  For example, going back to our original hypothetical about an American oil company in Country X: if it transpired that the oil company had secured a concession to drill for oil through a bribe two decades earlier, how might this affect the arbitrators’ consideration of the oil company’s expropriation claim?

The answer seems to be that arbitrators will acknowledge that the contract itself is legitimate, despite having been procured by bribery, but that they will not award any damages to a party involved in the bribery.  But because of the reasons arbitrations arise in the first place, the practical effect of this distinction is that sometimes states and state entities get a free pass when they misbehave.

That is what happened in the case of Siemens and Argentina.  Siemens had won $200 million in an investment treaty arbitration after a tribunal adjudged that Argentina had expropriated Siemens’ assets in that country.  That was in early 2007.  As every FCPA practitioner knows, Siemens subsequently admitted to having engaged in large-scale bribery of foreign officials, including in Argentina.  Siemens discontinued efforts to enforce the arbitral award. Argentina effectively walked away $200 million better-off.

The other (in)famous example involves the Government of Kenya in an arbitration against the World Duty Free company.

World Duty Free had contracted to build a duty free outlet at the Nairobi Airport.  The company was implicated in a fraud involving the President’s re-election campaign.  The Kenyan Government froze World Duty Free’s assets and transferred its shares to a different owner.  World Duty Free later proved that the fraud allegations had been false, but by then the damage had been done.

The company brought an arbitration against Kenya pursuant to the contract Kenya had signed with it to build the duty free facility.  During the arbitration proceedings, it came to light that World Duty Free’s principal had made a “personal donation” to the President of Kenya, consisting of $2 million cash in a suitcase, at the time that the parties were negotiating the contract.

The tribunal concluded that it could not award any damages to World Duty Free under the circumstances.  As a legal matter, that was probably an easy call; as a moral question, it is much more nuanced.  The Kenyan government escaped liability for a wrongful taking; it did so by invoking a transaction in which its own President solicited and received a $2 million bribe (for which, naturally, he was never prosecuted).

The circumstances of the World Duty Free case were unusual: the principal admitted that he had made the “personal donation” to the President of Kenya (although, laughably, he said he did not consider the “donation” to be a bribe); the proverbial suitcase full of cash really was a suitcase full of cash.  This was the territory of truth being stranger than fiction.

In other cases, an allegation of bribery is much harder to prove.  Arbitrators, devoid of subpoena power and without the sanction of criminal prosecution, have been loath to investigate allegations, and likewise leery of concluding that bribes have occurred.  In one arbitration, EDF v. Romania, a Tribunal opined:

“[C]orruption must be proven and is notoriously difficult to prove, since, typically, there is little or no physical evidence. The seriousness of the accusation of corruption in the present case, considering that it involves officials at the highest level of the Romanian Government at the time, demands clear and convincing evidence. There is general consensus among international tribunals and commentators regarding the need for a high standard of proof of corruption.”

Some commentators and practitioners have countered that the “clear and convincing evidence” standard has no place in an arbitration, where criminal or punitive sanctions will not be applied.  Others have suggested that the burden shift to the party alleged to have been involved in corruption once the accusing party has made a prima facie case that something illegal occurred.  Since international arbitrations are not bound by precedent, it is unlikely that there will be consensus on how to approach these allegations.

We have yet to see large investigations arising out of corruption allegations first made in an arbitration.  As noted above, arbitrators are reluctant to read any duty or power to compel investigations in their mandate to decide a case.  Companies implicated in corruption allegations have likewise been slow to conduct independent investigations of any such allegations when they arise in arbitrations.  This may be due to the fact that such independent investigations are relatively recent phenomena outside the United States.

Nonetheless, as the tide of arbitrations shows no sign of waning, and as corruption investigations by non-US regulators gather strength, expect to receive calls from your arbitration colleagues in the future.

Checking In Down Under

Monday, August 25th, 2014

Today’s post is from Robert Wyld (Johnson Winter & Slattery), the Australia Expert for FCPA Professor.

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This post highlights a range of important developments in Australia and the Asia Pacific Region in the area of foreign bribery policy, investigations and regulation through August 2014.  Issues covered include:

  • Australia’s agenda for the G20 November meetings;
  • Whistleblower protections;
  • Australian courts and “super injunctions”;
  • Australian foreign bribery investigations and prosecutions – media updates;
  • New Zealand amendments to foreign bribery and other economic crime laws; and
  • Asia-Pacific Anti-Corruption Network

Australia’s G20 Anti-Corruption Agenda

The Australian Government has a significant opportunity to proactively shape the anti-corruption agenda at the forthcoming meeting of G20 countries in Brisbane in November 2014. Senior members of the Attorney General’s Department (AGD) are leading the way, seeking to develop initiatives for consideration by all G20 countries.

The Action Plan of 2012 is due to expire in 2014. The AGD is focusing on three key priorities:

  • developing rules for the disclosure of beneficial ownerships;
  • combating foreign bribery; and
  • promoting judicial integrity.

There is a broadly held view that corporate or other structures are regularly used to engage in economic crime, including corruption, and transparency is required to identity the beneficial ownership of a particular entity. Together with targeting foreign bribery and corruption, the G20 governments regard these topics as of high priority.  Each G20 country is to prepare a detailed self-assessment of their performance as against the OECD Convention criteria. Once principles are agreed upon, they will be made public by the G20 leaders.

In terms of any National Anti-Corruption Plan, promoted by the former Labor Government, the Plan appears to have died due to government inactivity and it is not clear whether it will be resuscitated. The public perception from the media is that the current government is not interested in any over-arching Commonwealth anti-corruption body. This is disappointing as history tells us that wherever governments make decisions worth significant money, the existence of corruption rears its head.

ASIC and Whistleblower Protections

The role of protections for whistleblowers is not going away despite the apparent lack of focus within ASIC (Australian Securities and Investments Commission) to manage whistleblower complaints.

On 26 June 2014, the Australian Senate Economics Reference Committee released its report into the ongoing review of ASIC. The Committee made a number of key recommendations:

  • that ASIC establish an “Office of the Whistleblower”;
  • that existing laws should be extended to cover anonymous disclosures;
  • the “good faith” requirement for protected disclosures under the Corporations Act 2001 (Cth) be repealed;
  • the Government explore options to incentivise whistleblowers through a rewards-based system (as currently existing in the US under the Exchange Act).

It will be interesting to see how this last point develops. In the past, the Chairman of ASIC has publicly started he does not favour a scheme that rewards whistleblowers, believing that a reward will in some way corrupt the value of the evidence and undermine a whistleblower’s credibility (although that has not been a problem in the US to date).

Australian Courts and Super Injunctions

Australia is a signatory to the OECD Anti-Bribery Convention.  Article 5 of the Convention reads as follows:

“Investigation and prosecution of the bribery of a foreign public official shall be subject to the applicable rules and principles of each Party. They shall not be influenced by considerations of national economic interest, the potential effect upon relations with another State or the identity of the natural or legal persons involved.”

This principle is reflected in the Prosecution Guidelines issued by the Commonwealth Director of Public Prosecutions (CDPP) where, in Annexure A to the Guidelines dealing with prosecutions for foreign bribery, it is made clear a prosecutor must not be influenced by the factors identified in Article 5 of the OECD Convention. It should be noted that the CDPP has issued Guidelines for Suppression Orders (as at May 2013). These Guidelines acknowledge that while the fundamental principle of open justice should prevail, circumstances involving “national security”, “ensuring a fair trial” and the “protection of vulnerable witnesses” may justify suppression orders.

In June 2014, unbeknown to anyone outside a select group of litigants, the Victorian Supreme Court issued what is known as a “super injunction” in Australia’s prominent foreign bribery case. This injunction prevents the media from reporting anything about the case, the terms of the order or the identity of various persons named in the order. These orders have now been published on the internet by WikiLeaks and have been republished across a range of Asian media. These types of orders, secured in secrecy and imposing draconian contempt penalties for any contravention, sit very uncomfortably with Australia’s international obligations and the principle of open justice. Indeed, when the internet is free to publish such orders and they are republished across the regional media, one can only conclude that such orders are ineffective and are driven by unknown and unstated political or economic or other reasons. The only party that can explain the need for such orders is the Commonwealth Government, yet it remains conveniently silent, no doubt relying on that well-worn phrase “you may think that but I could not possibly comment”.

New Zealand Amends Anti-Corruption Laws and Penalties

The New Zealand Government has published the Organised Crime and Anti-Corruption Bill in Parliament to update its economic crime laws, to allow for a greater degree of international agency collaboration and to reflect the country’s obligations under the OECD and United Nations Conventions.

The principal features of the Bill, in so far as anti-corruption laws are concerned, include the following:

  • authorising the NZ Police to share personal information with their international counterparts;
  • creating a criminal offence to accept a bribe from a foreign public official (attacking the demand side of corruption);
  • creating a criminal offence to accept a bribe for using one’s influence over an official (referred to as “trading in influence”);
  • clarifying the circumstances under which a body corporate commits the criminal offence of bribery and corruption;
  • making it clear that a foreign bribery offence can be prosecuted whether or not the conduct is an offence in  the country in which the conduct occurred;
  • increasing the maximum penalty for imprisonment for a bribery and corruption conviction from 2 years to 7 years;
  • including bribery and corruption offences as a “crime involving dishonesty”;
  • requiring companies to record facilitation payments (permitted under the NZ Crimes Act) in a consistent manner under the Companies Act; and
  • amending the Income Tax Act to ensure bribes are not tax-deductible.

These are important changes and while the maintenance of facilitation payments is still regrettable, the laws demonstrate the NZ Government’s commitment to bringing its domestic laws into harmony with those of other OECD member countries.

Asia-Pacific Anti-Corruption Network

The recent meeting of the APEC Network of Ant-Corruption Authorities and Law Enforcement Agencies, or ACT-NET in Beijing announced the commencement of a new channel or platform for regulatory agencies to exchange information targeting large scale corruption and bribery in the Asia Pacific region. The secretariat will by initially hosted by China, based in Beijing and the Chinese Ministry of Supervision will manage the information sharing in an institutional capacity.

As Fu Kui, Vice Minister of China’s National Bureau of Corruption Prevention said:

“As domestic anti-corruption efforts intensify, corrupt officials flee abroad and remain at large by taking advantage of legal differences between our jurisdictions…this is a serious challenge to each economy’s rule of law. By building a multilateral platform to strengthen work-level exchange and case cooperation, and expand channels for anti-corruption and law enforcement partnership, we could cut off the escape route of corrupt fugitives.”

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Regarding the above-referenced New Zealand bill, it – like the FCPA-like laws of many other OECD member countries that recognize corporate criminal liability – contains compliance-defense concepts.  Specifically, the bill states:  ”a body corporate or corporation sole does not commit an offence … if it has taken reasonable steps to prevent the offence.”

Mid-Year Review of Anti-Corruption Law North of the 49th Parallel

Wednesday, August 20th, 2014

A guest post  from Mark Morrison (Blake, Cassels & Graydon) the Canada expert for FCPA Professor, and Blake attorneys Michael Dixon and James Reid.

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Canadian authorities have not slowed down since 2013, which marked the most active year to date in Canada’s anti-corruption law enforcement history. This post discusses law enforcement proceedings in Canada so far this year under Canada’s equivalent to the FCPA, the Corruption of Foreign Public Officials Act (CFPOA).

Recent Enforcement Proceedings

Canadian authorities continue to demonstrate their willingness to enforce Canadian anti-corruption laws. While we do not expect enforcement activity to reach the level of our good neighbor to the south, Canadian enforcement continues at a moderate pace, which is a significant change from the historic total lack of enforcement.

This year has seen authorities focus on pursuing individuals under the CFPOA, which included the first jail sentence being handed out. The current trend of increased sanctions and enforcement against individuals is worth noting for corporate officers.

Notable enforcement proceedings are discussed below.

Chowdhury – Five individuals were jointly charged with one count of bribing a foreign public official. The alleged purpose of the bribes were to obtain a contract to provide consultancy services for the building of the World Bank funded Padma Bridge Project in Bangladesh. One of the individuals charged, Abdul Hasan Chowdhury, was a Bangladeshi citizen and resident. Chowdhury was formerly the Minister of State in Bangladesh and had never been to Canada. The allegations against Chowdhury were that he had exerted influence over the selection committee for the Padma Bridge Project.

All of the conduct in relation to the alleged bribery scheme was said to have occurred in Bangladesh.

Justice Nordheimer of the Ontario Superior Court conducted an analysis on the different bases on which states exercise jurisdiction over offences with transnational or international aspects. In doing so, Justice Nordheimer distinguished jurisdiction over an accused from jurisdiction over an offence and held that the CFPOA does not give the Court jurisdiction over foreign nationals who do not reside, or are not otherwise present (such as through extradition or otherwise), in Canada. The court held that the mere fact Chowdhury was a party to the offence was not sufficient to give Canada personal jurisdiction over him unless he either physically came to Canada or Bangladesh offers to surrender him to Canada.

Karigar – On May 23, 2014, Nazir Karigar was sentenced to three years in prison for offering to bribe foreign officials. This is the first time that a jail term has been handed out to an individual convicted under the CFPOA. This case will likely stand as a precedent for sentencing in future corruption cases.

Karigar was convicted on August 15, 2013 for his role in a plan to bribe Indian officials, including a government minister. The case concerned an agreement to pay approximately US $450,000 in cash as well as certain shares to Air India officials and the Indian Minister of Civil Aviation to secure a contract for the provision of facial recognition software and related equipment. At the time, Karigar was acting for Cryptometrics Canada. Karigar was convicted despite Cryptometrics not being successfully awarded the contract or there being any evidence the bribe was actually paid to Indian officials.

In sentencing, Justice Hackland of the Ontario Superior Court took Karigar’s age, his cooperation and the fact the scheme was unsuccessful into account as mitigating factors. However, since the bribery scheme was viewed as a serious crime, the principles of denunciation and deterrence were placed at the forefront in administering the sentence.

It is also important to note, that at the time Karigar was charged, the maximum prison sentence was only five years. Since then however, the CFPOA has raised the maximum penalty from five years to 14 years. This sentencing reflects the continuing trend of significant judicial denunciation when it comes to offences under the CFPOA.

Ongoing RCMP Investigations –Following the Karigar sentencing in May, on June 4, the Royal Canadian Mounted Police (RCMP) charged US nationals Robert Barra (former Cryptometrics CEO) and Dario Berini (former Cryptometrics COO) for bribery offences under CFPOA. UK national Shailesh Govindia, an agent for Cryptometrics, has also been charged with bribery under CFPOA and with one count of fraud contrary to the Criminal Code of Canada.  Canada-wide warrants have been issued for all three accused.

Conclusion

Canada has continued to focus on anti-corruption compliance and enforcement in the first half of 2014. A notable trend in enforcement from last year is the RCMP’s current focus on individuals involved in corruption schemes. Canadian courts have also made it clear that offences under the CFPOA are unlikely to receive leniency.

Hong Kong Court Rules on Extraterritorial Limits to the Territory’s Anti-Corruption Law

Wednesday, August 13th, 2014

Today’s post is from Philip Rohlik and Sebastian Ko (both attorneys in the Hong Kong office of Debevoise & Plimpton LLP).

Hong Kong Court Rules on Extraterritorial Limits to the Territory’s Anti-Corruption Law

By Philip Rohlik and Sebastian Ko

Hong Kong has a very strict and successful anti-corruption regime that has made it one of the cleanest jurisdictions in the world.  Hong Kong serves as a model for many other jurisdictions seeking to eradicate corruption and the Hong Kong Independent Commission Against Corruption has been copied in a number of jurisdictions and provides training to anti-corruption police from dozens of countries.  Despite being an international role-model, there has long been a question as to whether and to what extent the Prevention of Bribery Ordinance (POBO) extends beyond the borders of Hong Kong.  In the recent case of HKSAR v. Krieger & Anor. (06/08/2014, FAMC1/2014), the Court of Final Appeal (CFA) (the highest court in Hong Kong) confirmed that the extraterritorial reach of the law is limited.

Anti-Corruption Law in Hong Kong

The POBO dates from the 1970s, when the then-British colony was notoriously corrupt.  The ordinance defines a number of offenses including: giving bribes, receiving bribes, bribing a public servant, specific offenses relating to public tenders and the crime of “possession of unexplained property” by certain high-ranking public servants.  Section 4 prohibits bribing a “public servant.”  “Public servant” is defined to include only Hong Kong public servants.

Hong Kong is not a party to the OECD Convention and the POBO contains no explicit prohibition on bribing foreign officials.  However, bribing a foreign official could still meet the standards of Section 9(2), the offense most applicable to private bribery.  Under Section 9(2) it is an offense to offer an advantage to an “agent” with the intent of encouraging the agent to act against the interest of his or her principal’s affairs.  In the case of bribery of a foreign official, the official would be the agent and the foreign government or instrumentality would be the principal.

Section 4 contains explicit extraterritorial language, making it an offense to offer a bribe to a “public servant” “whether in Hong Kong or elsewhere.”  Section 9 contains no such explicit extraterritorial language.  The question before the court was whether a conspiracy to offer a bribe to a Macau official, in Macau, [1] violated Section 9(2) in a case in which most of the underlying acts of the conspiracy took place in Hong Kong.  The Court of Appeal held that the operative provision of a charge of conspiracy to bribe was Section 9(2) of the POBO through the “making of the offer.”  Since the offer was communicated outside of Hong Kong and the provision did not have extraterritorial application, there was no offense.  The CFA refused to grant leave to appeal against this ruling.

HKSAR v. Krieger

The defendants were two executives of a Macau waste management company that was a joint venture between Hong Kong and Macau companies.  They were also board members of the Hong Kong parent.  They were accused of conspiring with a Macau-based ex-director of the joint venture to offer a bribe to the then-Secretary of Transport and Public Works of Macau.  (The ex-Secretary and the Macau-based ex-director were convicted of bribery in Macau and are serving prison sentences.)  The evidence at trial was that the defendants and their co-conspirator came to agreement on offering the bribe while in Hong Kong.  The wife of the Macau-based co-conspirator had a Hong Kong company, into which the defendants (while in Hong Kong) transferred funds (by means of checks and wire transfers drawn on a Hong Kong bank) to be used to pay a bribe in Macau.  The District Court convicted both men and sentenced each to more than three years imprisonment.  In doing so, the District Court noted that the men could also be seen as “victims” as the ex-Secretary solicited bribes from them and “the jobs of some 500-odd employees” of their joint venture were threatened by the prospect of losing the contracts. [2]

The defendants appealed and the Court of Appeals quashed the convictions.  An important question on appeal was whether the operative act was the agreement between the conspirators to offer the bribe or the offer itself.  Defendants were charged under Section 159A of the Crimes Ordinance allowing multiple individuals to be charged where they have an agreement to commit a crime.  Section 159A does not, however, create a separate offense; Section 9(2) provided the underlying offense.  The court held that, under the POBO, an offer of advantage is not made until it is communicated to the “agent.” [3]  Although the proposal to bribe was hatched in Hong Kong and numerous steps were taken in Hong Kong after the offer was made, the offer was “made” when the then-Secretary received the proposal from the defendants’ Macau-based co-conspirator in Macau.

The court compared Section 9(2) with its public bribery equivalent provision, Section 4(1).  Section 4(1) specifically defines the bribery of a public official as offering an advantage “whether in Hong Kong or elsewhere.”  Section 9 contains no such language.  The Court of Appeal cited the English case of Cox v. Army Council [1963] AC 48, invoking the doctrine of statutory interpretation presuming that criminal offenses are not extraterritorial unless specifically provided in the offense-creating provisions (comparable with the U.S. doctrine of presumption against extraterritoriality). [4] Because it lacks the extraterritorial language, the court held, Section 9(2) is limited to offers made in Hong Kong, regardless of the fact that the defendants were Hong Kong residents and acted mostly in Hong Kong, through Hong Kong companies, ultimately for the benefit of their Hong Kong employer.

The Hong Kong Government applied to the CFA for leave to appeal the Court of Appeal’s decision.  Appeal of the decision in the CFA was not as of right, and the Government and the defendants submitted arguments in an application hearing to test whether an appellate hearing before the CFA’s full bench was merited.  The Government argued that the Court of Appeal took too narrow a view of “offer” as defined in the POBO.  Section 2(2) of which provides that “a person offers an advantage if he, or any other person acting on his behalf, directly or indirectly gives, affords or holds out, or agrees, undertakes or promises to give, afford or hold out, any advantage to or for the benefit of or in trust for any other person.”  The Government, while not disputing the lack of extraterritoriality, argued that Section 2(2)’s definition of “offer” was broad enough to encompass acts short of the communication.  The CFA held that under Section 9(2), the offer had to be made “to any agent,” which can only occur upon communication, regardless of the language of Section 2(2).  The CFA held that the Government’s case was not “reasonably arguable” (the standard for a grant of appeal) and denied a full appellate hearing.

Conclusion

HKSAR v. Krieger clarified the extraterritorial reach of the private bribery offense in the POBO, which had been used to prosecute bribery of foreign officials in Hong Kong.  As the POBO lacks an explicit offense of bribing a foreign official, the use of the private bribery provisions to create one would have been a stretch where the operative conduct occurred outside of Hong Kong.  It should be noted, Section 9(2) will continue to apply to offers made to foreign officials in Hong Kong and, as the Court of Appeal took pains to point out, the prosecution had limited its arguments by focusing on a narrow set of facts at trial.  Finally, prosecutors in Hong Kong, like prosecutors elsewhere, have a number of arrows in their quiver (for example, anti-money laundering laws) to potentially criminalize much of the activity underlying bribery.

The above summary was prepared for general information purposes and does not constitute legal advice and should not be acted on as such.


[1] Hong Kong and Macau are part of the People’s Republic of China (PRC), although they enjoy high autonomy as special administrative regions and are separate jurisdictions.  For most practical purposes, Macau and the PRC are treated as if they were “foreign” jurisdictions under Hong Kong law.

[2] HKSAR v. Krieger & Anor. (Feb. 29, 2012, DCCC316/2010) at ¶¶ 6-7.

[3] HKSAR v. Krieger & Anor. (Dec. 18, 2012, CACC99/2012) at ¶¶ 101-102.

[4] Ibid. at ¶¶ 79 and 96.