October 23, 2006
On September 15, 2006, the United States Senate provided its advice and consent to the ratification of the United Nations Convention Against Corruption (“the Convention”). Although the Convention is expected to have little direct impact on the laws of the United States, it could impact enforcement and cooperation in foreign countries. Therefore, American companies doing business in foreign countries should be aware of the Convention’s provisions.
The Convention surpasses previous anti-corruption agreements such as the 1997 OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions, the 1996 Organization of American States Inter-American Convention Against Corruption, and the 1999 Council of Europe’s Criminal Law Convention on Corruption, by applying to a greater number of countries and offenses, including mandatory provisions, and requiring international enforcement cooperation.
The convention calls on State Parties to “develop and implement or maintain effective” preventative measures to deter corruption. Although most of the provisions are directed at the public sector, certain provisions also require each party to prevent corruption and enhance accounting and auditing standards in the private sector. Such measures include prohibiting off-the-book accounts, creating codes of conduct for business activities, and disallowing tax deductibility for bribes.
The Convention has mandatory provisions that require State Parties to criminalize certain acts and recommends the criminalization of other acts. The Convention requires the criminalization of both the offering of a bribe to a public official and the acceptance of a bribe by a public official. Other mandatory crimes include embezzlement, misappropriation, and other diversion of property by a public official; conversion, transfer, concealment or disguise of property with knowledge that it is the proceeds of a crime; and obstruction of justice. The Convention requires State Parties to hold legal persons (corporations) liable for illegal conduct. The State may decide whether the liability will be civil, criminal or administrative. State Parties are also urged to consider criminalizing attempts to commit the mandatory crimes and are required to criminalize participation in any form.
The Convention also requires State Parties to have methods of identifying, tracing, freezing, and confiscating both proceeds of crime and property used in or destined for use in crimes, even if it has been converted to other property or has mingled with other legitimate assets. This eliminates reliance on “bank secrecy” as a possible defense against law enforcement and may create enforcement incentives for some State Parties.
The Convention also requires that State Parties create private rights of action for persons who have suffered damage as a result of an act of corruption. Although reservations to be made to the Convention as a result of the Senate’s Advice will mean that no new private right of action will be created in the United States, corporations should be aware of the possibility that they or their subsidiaries may be sued in other countries. Such actions could be used to harass U.S. companies conducting business abroad.
The Convention also breaks new ground by requiring State Parties to address the consequences of corruption and allows State Parties to consider corruption in legal proceedings to annul or rescind contracts or withdraw concessions or other similar instruments. This provision is not limited to actions against perpetrators of corruption and could have serious consequences on innocent parties to a contract that has been tainted by corruption.
The Convention’s greatest impact on U.S. businesses may be provisions regarding international cooperation and asset recovery. Unlike other provisions of the Convention, the international cooperation provisions are mostly self-executing. The Convention may be used as a basis for extradition between States that are not currently parties to extradition treaties. The Convention may also be used as a basis for State Parties to request legal assistance from other State Parties. Although assistance can be denied under certain circumstances, State Parties are generally required to provide mutual legal assistance.
The asset recovery provisions require each State Party to have mechanisms by which other State Parties can lay claim to assets removed illegally from their countries. Multinational corporations should be aware that they must perform reasonable due diligence on assets. Failure to do so will make them ineligible for bona fide purchaser status and their claims of ignorance will not suffice as a defense to asset forfeiture.
The United States does not intend to impose new restrictions on businesses because it considers current laws and regulations sufficient to remain in compliance. However, U.S. companies should be aware that other countries may be broadening significantly their anti-corruption measures. Thus, conduct in foreign countries that may have escaped enforcement in the past, may in the near future result in host nation enforcement, which may then result in cooperation and referral to U.S. authorities.
© 2006 Gibson, Dunn & Crutcher LLP
The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.