Cure for Levity: Why Compliance Should be Hard
Every year, ever more companies and their employees across the world are prosecuted for bribery in international business transactions by the U.S. law enforcement authorities. These investigations are often used with the aim to not only counter corruption but also as a means of international competition. The ways to mitigate these risks have been discussed in a round table hosted by the Higher School of Economics Universit. The keynote speaker of the event was Mr. Frédérique Pierucci, a former top manager of the French company Alstom, who had been arrested and served a long-term imprisonment in the United States and, after his release, made considerable efforts to improve the French anti-corruption legislation.
Every year, ever more companies and their employees across the world are prosecuted for bribery in international business transactions by the U.S. law enforcement authorities. These investigations are often used with the aim to not only counter corruption but also as a means of international competition. The ways to mitigate these risks have been discussed in a round table hosted by the Higher School of Economics Universit. The keynote speaker of the event was Mr. Frédérique Pierucci, a former top manager of the French company Alstom, who had been arrested and served a long-term imprisonment in the United States and, after his release, made considerable efforts to improve the French anti-corruption legislation.
The round table entitled “The risks of enforcement of foreign extraterritorial anti-corruption legislation against Russian companies” was organised by the Anti-Corruption Centre (ACC) of the Higher School of Economics University. The event saw the participation of around 200 persons, including representatives of the Anti-Corruption Directorate of the Executive Office of the President of the Russian Federation, competent ministries, the Bank of Russia, State corporations, Russian and foreign companies, academic and educational entities, NGOs, and legal and consulting firms.
In recent years, large Russian companies and their employees and foreign companies doing business in Russia have been repeatedly held liable for violating the U.S. Foreign Corrupt Practices Act (FCPA). The Act has extraterritorial effect, which means that in certain circumstances it can be enforced against the individuals who are not U.S. citizens and the organisations that are not registered in the U.S. territory (see, for instance, the database of 2008-2022 FCPA cases published on the ACC Portal).
The most well known Russian case is the sanctions against MTS which is among the three companies that have paid the biggest fines to the U.S. budget for the violation of the FCPA so far. In late 2021, it was disclosed that MTS was cooperating again with the U.S. Department of Justice (DOJ) and the U.S. Securities and Exchange Commission in the framework of the investigation into alleged new episodes of foreign bribery.
Vitaly Belinsky, an officer of the Anti-Corruption Directorate of the Executive Office of the President of the Russian Federation, stressed in his opening remarks that “it is necessary for the Russian companies entering international markets to make additional efforts to feel quite confident. We see that anti-corruption instruments can be used to exercise political pressure and stage unfair competition, as well as to pressurise considerably Russian organisations, including State-owned enterprises”.
Alexey Konov, the ACC Director, agreed with the speaker: “The amount of sanctions against Russian companies and citizens in different areas is growing, and the extraterritorial anti-corruption legislation is being employed as one of the instruments. The developments of the recent years show that the threat is quite real, which means that we should react also at the State level. In this context, the experience of the countries whose companies have been subject to the enforcement of this legislation and who have promoted certain reforms to mitigate relevant risks can be useful for us”.
American Trap
Mr. Pierucci, the President of the consulting firm Ikarian and former top manager of the French company Alstom, told about an important and interesting example of such experience.
In mid-2000, Alstom was a large company of strategic importance to France active at the international level. In particular, it was constructing a nuclear power plant and transport infrastructure. In 2008, the U.S. DOJ initiated an investigation against Alstom suspected of bribery of foreign public officials. At an early stage, the company was reluctant to cooperate with the U.S. law enforcement authorities, referring also to the “blocking legislation” which prohibited disclosing certain information to foreign public authorities if it could damage France’s security and economic interests. Having failed to ensure the desired cooperation with the company, the U.S. prosecutors turned their attention to its employees. Mr. Pierucci was among the arrested managers.
In 2013, upon his arrival in New York for a business meeting, a flight attendant asked him to approach her after the landing. The FBI agents were already there to take him at the aircraft exit. Mr. Pierucci briefly told the participants of the round table the subsequent events, described in detail in his book The American Trap (published in Russian in late 2021). He was invited to cooperate with the FBI and become a “mole” gathering evidence against Alstom (rejected by Mr. Pierucci, but accepted by some of his colleagues), placed in pre-trial detention under the most severe conditions together with prisoners accused of violent crimes, repeatedly refused to be released on bail, dismissed from Alstom, deprived of financial support of the company because of the pressure exercised by the U.S. law enforcement, subject to the threat of a 125-year imprisonment, stroke a plea deal with the investigation and pleaded guilty, “suspended” for several years while waiting for the final judgment and, in the end, imprisoned.
“The American Trap is, perhaps, the only book that describes what an employee subject to an investigation under the FCPA has to get through, - said Mr. Konov after the intervention of the invitee. – It is a perfect cure for a thoughtless approach to relevant risks which, unfortunately, has characterised many top managers of Russian companies so far. Mr. Pierucci dispels consistently the most widespread illusions: from the general feeling of untouchability that comes over the executives of large strategic enterprises to more specific false beliefs that if there is an investigation against them, it will be conducted as “mildly” as possible with high chances of a positive outcome”.
The investigation of the American law enforcement authorities had dire consequences for Alstom too. The company concluded a plea agreement with the U.S. DOJ and paid the biggest criminal fine in the history of the FCPA enforcement at that time - $772 million, saw the departure of a number of key shareholders and had to finally sell its key assets in the energy business to its direct competitor from the U.S., i.e. to General Electric.
France’s reaction
Alstom was by no means the only French company thrown under the bus of the FCPA. Nonetheless, this is considered to be the case that made the national authorities realise the need to pay serious attention to the problems of extraterritorial enforcement of foreign legislation against the national companies and take action.
In quite a short period of time – from 2014 when the agreement between Alstom and the U.S. DOJ was concluded to 2016 – the legislation regulating the fight against corruption in organisations, i.e. the law known as Sapin II, was developed and adopted. Mr. Pierucci was actively engaged in its drafting, discussion and promotion.
What is more, France did not just adopted new additional provisions, but totally changed the basic principles of anti-corruption regulation of organisations. Instead of the references to sovereignty, “blocking legislation” and other similar measures that did not work in the Alstom case, it was decided to adopt a seemingly paradoxical approach whose essence can be resumed as “punish in order to protect”.
Sapin II imposes clearer and more detailed obligations to adopt anti-corruption measures on certain types of organisations and increases the capacities of the French law enforcement authorities, in particular, of the National Financial Prosecutor’s Office (PNF) and the Anti-Corruption Agency (AFA), which was established at that time, in this area. A bit later, some other countries such as Brazil chose a similar path.
It took a while to convince the French business that the tightening of legislation would serve its interests. The effectiveness of the new approach became evident a few years later, when the U.K. initiated an investigation into corrupt practices of Airbus, a leading French State-owned enterprise. In spite of the fact that the U.S. law enforcement authorities quickly joined the investigation, this time France managed to largely “seize” the investigation and conduct it on its own. As a result, a considerable part (roughly $2.3 billion) of the total amount of financial sanctions (around $3 billion) imposed on Airbus was paid to the French budget, whereas only $294 million went to the United States.
The amendments that would make the anti-corruption regulation of organisations even stricter are being discussed in France. According to Mr. Pierucci, that would mean a shift from “protective” to more “aggressive and attacking” provisions.
Prospects for Russia
The 2021 National Anti-Corruption Plan contains, for the first time ever, an item focused on mitigating the risks of enforcement of foreign anti-corruption legislation against Russian companies and their employees. Our country is yet to look for the optimal solutions in this area.
In the course of the discussion that took place after Mr. Pierucci’s intervention, the participants of the round table identified several possible lines of future action.
Firstly, it is important to overcome the unreasonably thoughtless approach of the executives of large Russian companies to possible corporate and individual sanctions. Moreover, it is necessary to prepare the employees engaged in international economic activities to a potential encounter with foreign law enforcement authorities in advance: discuss the tactics of their action, explain the recommended course of action to the employees, examine typical mistakes etc.
Secondly, it would be useful if companies, particularly those of strategic importance to the country, had in-house experts with in-depth knowledge of the content of the FCPA, the UKBA and the anti-corruption legislation of the countries where they operate, as well as of the current law enforcement practices.
Russian organisations should not rely exclusively on the legal firms from the United States or another country that accused the company of a violation of its laws. The engagement of a foreign legal firm does seem to be a necessary element of the strategy of interaction with foreign law enforcement authorities; however, its participation in the development of this strategy can turn out to be rather a reckless decision. For instance, it is well known that the American legal firms specialising in the FCPA are normally closely linked to the U.S. DOJ: the practice of moving from the DOJ to legal firms and the other way round is extremely widespread. This is why it is not always possible to say whose interest the foreign lawyers serve.
Many Russian companies already have anti-corruption divisions and compliance units. However, they are often incapable of taking effective actions if their organisation is under investigation in line with extraterritorial legislation. This is due to the fact that anti-corruption divisions are primarily centered on compliance with the Russian laws with compliance officers often, though not always, focusing on the creation of due ethical environment in the organisation, but having no special knowledge of the techniques used by law enforcement authorities, peculiarities of pre-trial and court proceedings etc.
Thirdly, it is important to thoroughly discuss possible ways of improvement of the anti-corruption regulatory framework with respect to organisations: in the first place, articles 13.3 of the Federal Law “On Countering Corruption” and 19.28 of the Code of Administrative Offences of the Russian Federation. Furthermore, there are internal reasons for changing these provisions; however, as France’s experience demonstrated, it is important also in terms of mitigating the risks of enforcement of foreign legislation against Russian companies. In order to build an effective line of defence, it is crucial to consider the appropriateness and feasibility of restructuring the Russian legislation based on the principle “punish in order to protect” and to consequently specify the requirements for the companies of certain types to adopt anti-corruption measures and expand the scope of corporate liability for corruption offences.