The UK Bribery Act: Adequate Procedures but Inadequate Guidance?

Since the U.K. Bribery Act (the “Act”) came into force on 1 July 2011, companies have grappled with a number of key questions arising under the Act.  These questions have included the extent of cooperation required from a corporation to benefit from any credit from the Serious Fraud Office (“SFO”) and also the basis on which a company’s compliance programme might be deemed adequate in order that the company can avail itself of the “adequate procedures” defence to any charge under section 7 of the Act.

Compliance officers and in-house counsel received further guidance in the first of these areas – i.e., what steps must be taken in order to receive credit from the SFO for doing so – in summer 2019 when the SFO published its Corporate Co-Operation guidance.  Illumination with regards the latter area, however, has mostly been found in the Ministry of Justice’s 2011 guidance (the “MOJ Guidance”) regarding such procedures as well as the limited information that can be gleaned from the handful of prosecutions and DPAs under the Act and occasional public comments from people including Lisa Osofsky (the current Director of the SFO) and Sara Lawson QC (the SFO’s General Counsel).

Some additional guidance in the area of what an “adequate” compliance programme may look like became available on 17 January 2020 in the form of a somewhat unheralded update to the SFO’s Operational Handbook (the “Handbook”) entitled Evaluating Compliance Programs (the “Guidance”).  The Handbook itself is, per its own disclaimers, published solely in the interests of transparency and intended for the SFO’s own internal guidance.  Nevertheless, does the Guidance shed further light on the longstanding principles set out in the MOJ Guidance and provide companies with a clearer steer as to assessing the adequacy of their own compliance programmes?

The Guidance notes that prosecutors will need to assess the efficacy of a compliance programme for different periods – depending on the decision being considered, the past, present or future state of the compliance programme may be relevant:

  • The state of the compliance programme at the time of offending will be key to a decision to prosecute – the Guidance on Corporate Prosecutions (“GCP”) notes that an ineffective compliance programme at the time of the offence is a public interest factor in favour of prosecution – as well as assessing the likelihood of an “adequate procedures” defence to a section 7 charge under the Act. Additionally, efforts made by a company to implement some form of compliance programme, even if ultimately insufficient to establish the “adequate procedures” defence, may be considered for sentencing purposes.
  • The current state of the compliance programme also must be considered as part of a decision whether to prosecute. The GCP states that remedial actions and a genuinely proactive and (now) effective compliance programme will be public interest factors against prosecution.  The state of the compliance programme is, additionally, an important factor when determining the suitability of a particular case for a deferred prosecution agreement (“DPA”) and also when any sentencing is undertaken.
  • Finally, the possible future state of a compliance programme also must be considered. A compliance programme not yet fully effective might, in the right circumstances, render a company a good candidate for a DPA containing specific terms regarding the development of that programme (e.g. training).

The Guidance certainly sheds light on the importance of the assessment of a compliance programme, the different decisions that such assessment impacts and how an assessment can be carried out – early on in an investigation and with information obtained from a variety of sources.  However, individuals tasked with creating and developing compliance programmes likely will not find in the Guidance much in the way of additional clarity or illumination as to how a programme ultimately will be assessed.

The Guidance reiterates the six principles set out in the MOJ Guidance, i.e. proportionate procedures, top level commitment, risk assessment, due diligence, communication and monitoring and review.  However, with respect to each, the various principles are merely restated with no additional clarification or examples provided.  Whilst the Guidance notes that compliance programmes must not merely be paper exercises, there is little in the way of detailed guidance or specificity that companies can act upon.  Of course, per the very text of the Guidance itself, its intended usage is internal, its publication purely for transparency reasons, and, accordingly, the function of the document was never to provide detailed clarification to companies or to form a UK counterpart to the US Department of Justice’s April 2019 Evaluation of Corporate Compliance Programs.

Irrespective of the intended function of the Guidance, the ultimate conclusion remains the same; those individuals tasked with the creation and ongoing development of compliance programmes that have pored over public pronouncements from the likes of Osofsky and Lawson in order to discern further clues as to the SFO’s views on the adequacy of compliance procedures should, pending any publication of any further guidance by the SFO, continue to do so for the foreseeable future.

OFAC Hits Companies in Hong Kong, China, and Dubai with Secondary Sanctions for Iran Oil Trading

On January 23, 2020, the US State Department and the Office of Foreign Assets Control (OFAC) named six companies based in Hong Kong, China, and Dubai as Specially Designated Nationals (SDNs) under Executive Order (EO) 13846 for engaging in transactions involving Iran’s petroleum sector and the National Iranian Oil Company (NIOC).

OFAC’s designations target two Hong Kong-based trading companies, Triliance Petrochemical Co. Ltd. (Triliance) and Sage Energy HK Limited; Shanghai-based Peakview Industry Co. Limited; and Dubai-based Beneathco DMCC. The four companies are accused of transferring millions of dollars to NIOC, which was previously designated as an SDN, for Iranian petroleum purchases.

Concurrently, the State Department announced the designation of Triliance and another Hong Kong company, Jiaxiang Industry Hong Kong Limited, and China-based Shandong Qiwangda Petrochemical Co. Ltd. (Shandong Qiwangda). for knowingly engaging in a significant transaction for the purchase, acquisition, sale, or transport of petrochemical products from Iran, following the expiration of China’s Significant Reduction Exception in May 2019. The designations also included two executive officers of Triliance and Shandong Qiwangda.

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Germany, France and the UK begin the JCPOA’s Dispute Resolution Mechanism Process – A Gateway for the Reimposition of UN and EU sanctions?

On January 14, Germany, France and the UK initiated the dispute resolution mechanism in the Joint Comprehensive Plan of Action (JCPOA) based on Iran’s decision to pull away from its obligations under the agreement. While the European participants see the dispute resolution mechanism as a way to keep the JCPOA alive, triggering the mechanism also serves as the first of several steps that must be taken before UN and EU sanctions could potentially be reimposed. Though the reimposition of sanctions is far from inevitable, it is important to understand the functioning of the dispute resolution mechanism in order to anticipate the timeline of any possible future developments.

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Year in Review: Developments in FCPA/Anti-Corruption in 2019

Click here to read Steptoe & Johnson LLP’s 2019 FCPA/Anti-Corruption Year in Review.

US Foreign Corrupt Practices Act (FCPA) enforcement authorities announced a steady stream of individual and corporate enforcement matters throughout 2019, some with eye-popping fines. Overall, the Department of Justice (DOJ) and Securities and Exchange Commission (SEC) reported 50 FCPA-related actions (including 31 by the DOJ and 19 by the SEC) over the course of the year. Total fines, penalties, and disgorgement imposed in corporate FCPA settlements in 2019 nearly matched the record-breaking $2.91 billion imposed in 2018 in such matters. The DOJ also announced a slew of new charges against individuals and racked up a number of trial victories in existing cases.

To read more about trends in FCPA and global anti-corruption enforcement, click here.


Client Advisory: China’s First Export Control Statute May Be Around the Corner

Click here to read the full Client Advisory by Steptoe & Johnson LLP.

On December 28, 2019, China’s Standing Committee of the National People’s Congress (“NPC”) published a new draft Export Control Law (“the draft law”) for public comment. As China’s first export control statute, this law is intended to unify and significantly enhance China’s existing export control framework, with reference to prevalent global practices. The 2019 draft consists of 6 six chapters and 48 provisions, a substantial reduction from the 2017 draft which contained 70 provisions. While retaining the basic structure and many measures in the 2017 draft, such as blacklisting, country-specific controls, etc., the 2019 draft leaves out certain control measures that were in the 2017 draft. It also makes comprehensive textual adjustments and rolls back some wording regarding defensive or retaliatory use of export control measures.

Once enacted, the new export control law, with its expanded coverage and strengthened control and enforcement measures, will undoubtedly have a direct impact on multinationals operating in China that engage in or provide services related to the export of items or technologies controlled under Chinese export control laws. Whether the law will be leveraged into a larger role in the midst of current policy and international relations dynamics remains to be seen, particularly given the markedly increased role of national security in the draft law, either stated or implicit, including with respect to controlled items identification, licensing policy, country-specific control measures, and blacklisting. It also remains to be seen how this new law will coordinate with existing export control rules and regulations.

The public comment period on the draft law ends on January 26, 2020 and the subsequent procedures and timeline for further review, deliberation, and final adoption remain unclear. However, given the importance of this law, many expect the final promulgation to take place in 2020.

For more information, see the full Client Advisory.


United States and China Sign Phase One Trade Agreement

On January 15, 2020, the United States and China signed the “Economic and Trade Agreement,” commonly referred to by the parties as the Phase One agreement. US President Donald Trump and Chinese Vice Premier Liu He signed the text in Washington, and the Vice Premier read aloud a congratulatory letter from Chinese President Xi Jinping. President Trump said at the signing ceremony that the United States and China would commence talks on a Phase Two agreement shortly, adding that the second phase would likely be the final phase.

The text of the Phase One agreement can be found here.

In addition, the US Trade Representative has released a number of fact sheets covering various aspects of the Phase One agreement. They can be found here.

Client Advisory: Department of Justice Encourages Self-Disclosures with Revised Sanctions and Export Controls Enforcement Policy

Click here to read the full Client Advisory by Steptoe & Johnson LLP.

In December 2019, the U.S. Department of Justice (“DOJ”) announced a revised policy regarding voluntary disclosure of export control and sanctions violations by business organizations (“VSD Policy”).  The VSD Policy encourages business organizations – which now include financial institutions – to self-disclose “all potentially willful violations of the statutes implementing the U.S. government’s primary export control and sanctions regime.”

For companies that identify such willful violations and (1) voluntarily self-disclose, (2) fully cooperate, and (3) timely and appropriately remediate, consistent with the requirements discussed in detail in the Client Advisory, there is a presumption that the company will receive a non-prosecution agreement and will not pay a fine, absent aggravating factors.

The VSD Policy was designed to more closely align the NSD guidance with recent guidance issued throughout DOJ, thereby providing increasing clarity of the factors that a company should consider in determining whether to voluntarily self-disclose.  The VSD Policy supersedes DOJ’s 2016 policy entitled “Guidance Regarding Voluntary Self-Disclosures, Cooperation, and Remediation in Export Control and Sanctions Investigations Involving Business Organizations.”

For a full summary of the VSD Policy and a discussion of the factors companies should consider, including in regard to self-disclosures to the Office of Foreign Assets Control (“OFAC”) and Bureau of Industry and Security (“BIS”), please read the Client Advisory.


CFIUS Publishes Final Rules, Implements Sweeping Changes to US Foreign Investment Reviews

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On January 13, 2020, the Committee on Foreign Investment in the United States (CFIUS) published final rules implementing changes to the committee’s jurisdiction and review process as required under the Foreign Investment Risk Review Modernization Act of 2018 (FIRRMA). The regulations become effective on February 13, 2020.

Under the new rules, CFIUS, which is the inter-agency body charged with reviewing certain inbound foreign investment in the United States for national security-related concerns, will be able to review a variety of new transaction types. Among other changes, the rules allow CFIUS to review so-called “non-controlling” investments in US businesses engaged specific activities related to critical technologies, critical infrastructure, and sensitive personal data of US citizens. The rules also extend CFIUS’s jurisdiction to certain transactions involving real estate located within or functioning as part of an air or maritime port and real estate in close proximity to sensitive US government facilities.

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UPDATED: OFAC Targets Chinese Firms for Iranian Metals Trade, Designates Iranian Officials, as White House Expands Secondary Sanctions with New Executive Order

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On January 10, 2020, the U.S. Treasury Department’s Office of Foreign Assets Control (“OFAC”) named Beijing-based Pamchel Trading Beijing Co. Ltd., its Seychelles-based affiliate, and a Chinese vessel and vessel operator as Specially Designated Nationals (“SDNs”) pursuant to Executive Order (“E.O.”) 13871 of May 8, 2019, for engaging in significant transactions involving Iran’s metals sectors. OFAC also designated 13 Iranian steel and iron manufacturers, an Oman-based supplier, and three Iranian aluminum and copper companies under E.O. 13871.  The announcement signaled an increasingly aggressive posture toward Iran’s metals industry and the foreign firms who engage with it.

Concurrently, the U.S. President issued a new E.O. (E.O. 13902) authorizing sanctions on, among others, persons operating in the construction, mining, manufacturing, or textiles sectors of the Iranian economy; persons who knowingly engage “in a significant transaction for the sale, supply, or transfer to or from Iran of significant goods or services used in connection with” those sectors; and persons who have “materially assisted, sponsored, or provided financial, material, or technological support for, or goods or services to or in support of” any person designated as an SDN under the E.O. or entities owned 50% or more by them. Notably, the E.O. also authorizes sanctions on correspondent and payable-through-accounts of foreign financial institutions that have “knowingly conducted or facilitated any significant financial transaction” involving activities targeted by the E.O.

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Client Advisory: The New Chinese Encryption Regime: Towards a Sustainable Approach

Click here to read the full Client Advisory by Steptoe & Johnson, LLP Beijing.

With the coming into effect of the new PRC Encryption Law on January 1, China is moving steadily to develop and implement an encryption regime that protects core state security interests, while allowing businesses that do not implicate state security to create, trade and use encryption relatively freely. Additionally, it appears that restrictions on foreign investment in the encryption sector and the deployment of foreign encryption technologies, products and services in Mainland China are to be relaxed. The expectation is that the new regime will be rolled out on a phased basis in 2020.

What does this mean for the import and export of commercial encryption to and from Mainland China?

The Encryption Law provides that commercial encryption contained in mass consumer products will not be subject to control upon import from or export to Mainland China. However, commercial encryption that possesses the function of encryption protection and affects national security or societal interests will be subject to import controls, and commercial encryption that affects national security or societal interests or is subject to international obligations to which China has committed, will be subject to export controls.

MOFCOM, the State Cryptography Administration (SCA) and the General Administration of Customs are due to formulate and publish a catalog listing commercial encryption products subject to import and export controls. Before publication of the catalog, entities that engage in commercial encryption research, production, sales, service, import and export still need to obtain licenses from the SCA before engaging in import or export of encryption products and equipment containing encryption technologies or export of encryption products.