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Fight Against Corruption – New Criminal Law & Contractual Tools

By Dr. Lauri Railas
Posted: 8th November 2013 14:43
Corruption is undoubtedly one of the biggest problems facing civil societies and business life these days.  Corruption prevents natural competition in a marketplace and thereby makes goods and services more costly.  Corruption has a detrimental effect on the moral, legality and transparency in a society and is an enemy to democratic decision-making.  By undermining predictability in business transactions, corruption makes investments more hazardous and reduces growth and business opportunities.  Corruption can take place in a business-to-government relationship for example by the bribery of officials of a public procurement contracting authority.  Corruption can also exist in a purely private contractual setting.  A special glossary of terms would be needed to illustrate the various appearances of corruption in business life.  ´Trading in influence´ and ´facilitation payments´ constitute examples of the terminology. 
Corruption has certainly existed as long as the mankind, but some of the biggest headlines are nowadays seen in the context of international trade where the companies have been alleged to have bribed foreign government officials.  In the Nordic countries, which are reported to be the least corrupt countries in the world, there have been a few notable corruption cases over the last years.  The Swedish prosecution authority has launched a corruption probe into TeliaSonera's mobile phone license acquisition in Uzbekistan in September 2012.  The company faces potential prosecution, but the event has already led to changes in the top management of the company.  Several executives of the Finnish producer of military equipment Patria have recently faced charges for using bribery to obtain a deal for the sale of 130 armoured vehicles to the government of Slovenia in 2006 for 231 million Euros.  In June 2013, the former prime minister of Slovenia Janez Jansa obtained a conviction in his own country for accepting bribes.  The examination of the above cases continues at different levels, and we do not know the outcome yet, but the examples prove that the problem exists. 
Companies are getting under strains to comply with anti-corruption laws that have been introduced by governments inspired by international conventions, most notably the United Nations Convention against Corruption 2003 and the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions 1997.  Such laws include the U.S. Foreign Corrupt Practices Act and Britain’s 2009 Bribery Act.  In 2012, Sweden introduced changes to its Penal Code to modernise it.  A new offence is designed to hold corporations and their representatives liable for indirect financing or promotion of bribery by sheer negligence, for example by using agents.  This means that companies really have to know who they are dealing with and how.  Guidelines issued by multilateral development banks such as the World Bank can make companies sensitive of being black-listed in public procurement award procedures by corruption cases. 
Irrespective of whether such actions are tried or penalised in the country where the bribery takes place, the domestic criminal legislation of the company may extend to such activity on the basis of nationality or domicile of the person committing the action.  The new British law extends British criminal prosecution and jurisdiction to companies that operate in the United Kingdom irrespective of the nationality or domicile of the person committing the offence and the offence not having any other connection with the UK than the mere presence of the company within the jurisdiction.  The company has strict liability for the acts of any person associated with it (i.e. any employee, agent or subsidiary).  However, a company can exonerate itself from liability by proving that it has put in place adequate procedures designed to prevent persons associated with it from undertaking such conduct.  Any company that is somehow active in Britain is therefore subject to British anti-corruption legislation for actions in countries that have nothing to do with Britain. 
The above threats lead to a situation where the company needs to implement a compliance program to adapt to the more stringent laws and regulations.  On top of monitoring its practices, a company also needs to streamline its contractual documents.  The standard contract forms of many multinational companies include clauses that purport to make ethical values part of the contract.  One technique to accomplish this is to draft corporate ethical guidelines and make these guidelines part of the contractual documentation, usually by a simple reference to their existence, and obliging the contractual partner to observe them.  Frequently, the stronger contractual partner dictates itself rights to make audits in the premises and sites of its contracting partner.  This is a very common practice in long-term contractual relationships, where companies choose their cooperation partners such as agents or distributors. 
The International Chamber of Commerce (ICC), the world business organisation, which has members on most countries of the world, adopted a year ago the ICC Model Anti-Corruption Clause 2012.  The author of this article participated in the drafting of the Clause.  The aim of the new Clause is to help business people make essential reference to the newly revised ICC Rules on Combating Corruption 2011, with the aim of creating trust and preventing their contractual relationship from being affected by corruptive practices.  The breach of the obligations imposed by the Clause and underlying rules may eventually lead to termination of the contract.  However, given many of the prerequisites, the threshold of corruption having an impact on the sustainability of the contract is quite high.  The ICC Model Clause is intended to be balanced and it does not contain any mandatory audit provision.
It is ultimately for an arbitral tribunal or other dispute resolution body such as a national court, which would also settle other disputes relating to the contract, to determine whether a party is guilty of the trigger "material or several repeated breaches of ICC Rules", whether it has remedied any breaches or whether it is able to put up a defence of an effective corporate anti-corruptive mechanism.  Such a mechanism will turn out to vital especially for companies that deal with markets, where corruption is commonplace.
Dr. Lauri Railas is an attorney at Krogerus Attorneys Ltd. being one of the largest law firms in Finland.  His assignments mostly relate to international trade law, transport and insurance law, European law as well as information technology law.  Before joining the legal practice, Dr. Railas worked as an official of the European Union, for business organisations and the local arbitration institute.  He also worked for several years in marine insurance practice.  Dr. Railas has written many books and articles and has contributed to a number of private law legal instruments including Incoterms® 2010 and ICC Model Anti-Corruption Clause 2012.  

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