The Securities and Exchange Commission’s (SEC) senior investigations counsel, Jon Jordan, has advocated following the UK’s defences for companies accused of bribery.
The US’ bribery law, the Foreign Corrupt Practices Act (FCPA), doesn’t currently accept the existence of an adequate compliance program for a company to escape liability. This puts private equity firms in danger of accepting liability for the conduct of portfolio company employees.
However in the UK, by putting in place “adequate procedures” to prevent situations of bribery, companies can use this defence to avoid the significant sting of the Bribery Act.
Jordan argues that the US should have a defence that requires a company to have “adequate compliance procedures” that have been “adequately implemented” and that the alleged conduct was not known or should not have been know by the company.
Jordan published an article outlining what would make an adequate program providing his eleven commandments for an effective FCPA compliance program.
Despite the strength of a compliance program not being considered when guilt is assessed under the FCPA it does affect the sentencing of a company accused of bribery.
In April, despite the Department of Justice (DOJ) and SEC charging Morgan Stanley executive Garth Peterson with FCPA violations, Morgan Stanley was not prosecuted and even credited for having a strong compliance program.
This should be a welcome relief to private equity firms who have, or are putting in place, bribery busting compliance programs.
However the significance of this case ultimately remains to be seen without an express statement from the DOJ or the SEC that there is an adequate procedures defence.
“I think that the practical effect [of the Morgan Stanley case] is that if you have a robust program similar to something that Morgan Stanley has in place you would effectively insulate yourself from potential liability,” Mauro Wolfe, partner at law firm Duane Morris, told PE Manager.
But Wolfe added that he doesn’t “think it’s an all or nothing position with the government.” And that a ruling that punishes a company with a strong compliance regime could change the dynamic.
“I think they take many things into consideration including cooperation, sophistication of your compliance regime and the underlying conduct,” he said.