Costa Rica's New Anti-Corruption Law

On June 6, 2019 the Costa Rican Legislative Assembly approved a new anti-corruption law(1). The law is the result of efforts(2) by Costa Rica to join the Organization for Economic Cooperation and Development (OECD)(3). To further their efforts, Costa Rica approved the adoption of the OECD “Convention on Combating Bribery of Foreign Public Officials in International Business Transactions” on May 10, 2017(4,5).

Highlights of the new law:

  • Allows for holding domestic (private or state owned) or foreign corporations (conducting business in Costa Rica), trusts, associations, and foundations criminally responsible for domestic or transnational bribery

  • Allows for sanctioning a parent company for the actions of their subsidiaries and affiliates

  • Establishes large potential financial penalties for corporations found guilty of corruption

  • Allows for the potential reduction of penalties (up to 40%) if certain “mitigating circumstances” are met by the corporation

Mitigating Circumstances include:

  • Having in place an effective anti-corruption program

  • Having in place an independent compliance officer

  • Reporting potential non-compliance

  • Cooperation with authorities investigating the potential non-compliance

Costa Rica Corruption Rankings

  • 2018 TRACE Bribery Risk Matrix Rank(6): 48 out of 200 countries (1 Best)

  • 2018 Corruption Perceptions Index Rank(7): 48 out of 180 countries (1 Best)

  • 2019 GCSG Country Compliance “Corruption” Risk Rating(8): Moderate

Contact us to learn more about this development in Costa Rica.

References

  1. Legislative Assembly of the Republic of Costa Rica - “Liability of Legal Persons in Domestic Bribery, Transnational Bribery and Other Crimes” - Legislative Decree No. 9699, Record No. 21,248 | Approved 06/06/2019

  2. OECD - “OECD establishes roadmap for membership with Costa Rica” - 15/07/2015

  3. OECD Home page - “Organization for Economic Cooperation and Development

  4. FCPAmericas Blog - “Costa Rica Adopts the OECD Anti-Bribery Convention” - 06/06/2017

  5. OECD - “Costa Rica to join the OECD Anti-Bribery Convention” - 31/05/2017

  6. Trace International, Inc. - “2018 TRACE Bribery Risk Matrix

  7. Transparency International - “2018 Corruption Perceptions Index

  8. Global Compliance Solutions Group LLC (GCSG) - “Country Risk Ranking - Sources & Methodology

India passes amendments to 1988 Prevention of Corruption Act

On July 24, 2018 the Indian Parliament passed the Prevention of Corruption (Amendment) Bill 2018 (POCA).(1)  The POCA amends the 1988 Prevention of Corruption Act (PCA).  The POCA was necessary to align the existing law with the United Nations Convention against Corruption (UNCAC).(7)  A previous attempt to amend the PCA in 2013 failed.(2)  For the first time, the law now includes a bribery provision for commercial organizations.  

Background

The Criminal Law (Amendment) Ordinance, 1944(3) was the first law in India that dealt with corruption.  The Prevention of Corruption Act, 1947(4) was enacted to supplement the provisions of the Indian Penal Code of 1860.(5)  Eventually it was determined that the scope of the 1947 law was too narrow and as a result the PCA was enacted in 1988.(6)  The PCA replaced the 1947 Act, widened the scope of the definition of public servant and increased the potential penalty assessments.  An unsuccessful attempt was made in 2013 to amend the PCA in order to align it with the UNCAC(7), as a result of India's ratification of the UNCAC in May of 2011. 

Key Changes within the 2018 POCA   

The 2018 POCA amends various provisions of the 1988 PCA:

  • The giving of a bribe is now a direct offence - however, if you are compelled to give a bribe you will not be charged with the crime if you report it to the authorities within seven (7) days;
  • Includes provisions for both bribing a public servant and the offering of a bribe by a commercial organization (including commercial organizations is NEW);
  • Allows for the prosecution of former public officials - previously only currently serving public officials could be prosecuted;
  • Removes the provision that protected a person offering a bribe from prosecution based on statements they make during a corruption trial;
  • Provides more stringent punishments for bribery - for both the giver and taker (including up to seven years of imprisonment or a fine or both for the person offering a bribe); and
  • Redefines criminal misconduct to only cover misappropriation of property and possession of disproportionate assets.

Key New Text from the 2018 POCA

  • "8. (1) Any person who gives or promises to give an undue advantage to another person or persons, with intention - (i) to induce a public servant to perform improperly a public duty; or (ii) to reward such public servant for the improper performance of public duty; shall be punishable with imprisonment for a term which may extend to seven years or with a fine or with both..."
  • "9. (1) Where an offence under this Act has been committed by a commercial organisation, such organisation shall be punishable with fine, if any person associated with such commercial organisation gives or promises to give any undue advantage to a public servant intending - (a) to obtain or retain business for such commercial organisation; or (b) to obtain or retain an advantage in the conduct of business for such commercial organisation: Provided that it shall be a defence for the commercial organisation to prove that it had in place adequate procedures in compliance of such guidelines as may be prescribed to prevent persons associated with it from undertaking such conduct."
  • "Commercial organisation - means (i) a body which is incorporated in India and which carries on a business, whether in India or outside India; (ii) any other body which is incorporated outside India and which carries on a business, or part of a business, in any part of India; (iii) a partnership firm or any association of persons formed in India and which carries on a business whether in India or outside India; or (iv) any other partnership or association of persons which is formed outside India and which carries on a business, or part of a business, in any part of India..."
  • "(c) a person is said to be associated with the commercial organisation, if such person performs services for or on behalf of the commercial organisation irrespective of any promise to give or giving of any undue advantage which constitutes an offence..."

For more information Contact GCSG's anti-bribery and corruption professionals.

References:

Italy Expands Whistleblower Protections

Italy's Anti-corruption law, known as the Severino law (1), was promulgated in 2012.  The Severino law included public sector whistleblower protection provisions but it did not include protections for many private sector whistleblowers.  On November 30, 2017 a new law ("Law 179") was passed that included enhanced protections for public sector employees as well as more general protections for private sector whistleblowers. (2

Some of the important elements of Law 179 as it relates to public sector employees include:

  • A public employee that reports illegal conduct is not to be retaliated against
  • The anti-retaliation provisions for public employees now include employees of public economic entities, private law employees subject to public scrutiny, and to employees of contractors of companies supplying goods or services to the public administration
  • Allows for the reporting of violations to an internal officer, to the National Anti-Corruption Authority (3), an accounting authority, or to the judiciary
  • Reinforces the protection of the anonymity of a whistleblower

Some of the important elements of Law 179 as it relates to private sector employees:

  • Extends private sector employee protections beyond just the finance sector, insurance companies, and specific activities such as worker health and safety (4,5,6)
  • Requires companies that already have compliance programs to develop a whistleblower reporting program that includes at least one reporting mechanism allowing employees to report illegal conduct or potential violations and at least one confidential reporting mechanism that protects the whistleblower's identity
  • Requires companies should have a department responsible for managing the whistleblower program, procedures that provide guidance on what is covered and the protections provided, and allow for the discipline of employees that violate the procedures
  • Includes a prohibition against whistleblower retaliation  
  • The Company bears the burden of proof when a whistleblower makes a retaliation claim

Law 179 entered into force on December 29, 2017.

References:

Monday Compliance News - Around the World

GCSG's Monday Compliance News is a compilation of some of the previous weeks interesting trade compliance, anti-bribery/corruption, fraud, and due diligence news bites, from around the world.

With GDPR looming, key compliance questions still remain | DIGIDAY

"For better or worse, preparing for the General Data Protection Regulation is a do-it-yourself exercise for advertisers in the absence of stronger direction from regulators." (Click here for the article) - European Union

Turkish banker guilty of helping Iran dodge US sanctions  | Reuters TV

WATCH: US jury finds Turkish banker guilty of helping Iran dodge US sanctions (Click here for the video) - Iran, Turkey, United States

Firms can choose not to enter corruption-ridden markets | The Straits Times

"Many well-established multinationals have decent corporate cultures.  Their top managements have been known to decide that if a country operates by practices in keeping with the company ethos, they would not do business in that country." (Click here for the article) - Singapore

Drug Company Allegedly Bribed Doctors to Sell its Powerful Opioid Spray | Gizmodo

"The State of North Carolina is suing a pharmaceutical manufacturer for allegedly bribing doctors and defrauding insurers in order to sell more of its powerful fentanyl spray, fanning the flames of the opioid crisis that has millions addicted and is shortening lifespans." (Click here for the article) - United States

PWC faces negligence claim over $2bn fraud at Colonial Bank | The Times

"Auditors at PWC were negligent and missed a 'Red Flag' over a huge fraud that contributed to the collapse of a bank during the financial crisis, an American court has found." (Click here for the article) - Global

UK establishes money laundering watchdog

On December 21, 2017 HM Treasury announced the creation of a new watchdog organization, the Office for Professional Body AML Supervision (OPBAS), to strengthen anti-money laundering (AML) standards and to facilitate cooperation across law enforcement agencies.

The OPBAS office will provide direct supervision to "22 accountancy and legal professional body AML supervisors in the UK" (1) and will work to "ensure the 22 bodies meet the high standards set out in the Money Laundering Regulations 2017, and have powers to investigate and penalise those that do not." (1)

The OPBAS regulations will take effect on January 18, 2018.

Key Link(s)

UK court ruling allows for breach of attorney-client litigation privilege

The High Court of Justice in London ruled on May 8, 2017 that the Serious Fraud Office (SFO) in certain instances could pierce the attorney-client privilege during their investigation of Eurasian Natural Resources Corporation Ltd (ENRC).  The ruling allows the SFO to obtain evidence that was gathered by the Defendant, ENRC during an internal corruption investigation.

Background

The SFO began a criminal investigation into ENRC in 2013.  The investigation was begun after the SFO terminated discussions with ENRC, which they had begun in 2011.  ENRC stated they were innocent of the charges and originally claimed they would cooperate with the SFO.  However, after the SFO sought access to the disputed documents, ENRC refused and the SFO filed a civil action to obtain access.  The SFO ended discussions with ENRC after ENRC's Chairman, who had been leading the investigation, resigned and they ended their relationship with the Dechert LLP law firm.  

The court ruled that "for the purposes of this claim, it is unnecessary to decide whether the SFO's characterization of the dialogue between itself and the ENRC is correct..."

The investigation focused on allegations of corruption in Kazakhstan and Africa.  While ENRC denied they committed any criminal offences, the court ruling said whether or not they committed an offence wasn't material to the ruling. 

ENRC claimed the documents in dispute were subject to litigation privilege or legal advice privilege.  The SFO position was they accepted the redaction of specific legal advice (as the term was defined in Three Rivers DC v. Bank of England) from the documents in question, but they rejected any generic claim to litigation privilege covering all the information in the documents.

The disputed documents fell into four categories:

  • Category 1 - notes taken by the firm Dechert LLP of employees and former employees, suppliers and third parties when they were asked about the events being investigated.  ENRC claimed all these documents were subject to litigation privilege and alternatively legal advice privilege under attorney work product.
  • Category 2 - materials that were created by Forensic Risk Alliance as part of a books and records review.  ENRC claimed litigation privilege with these documents. 
  • Category 3 - documents that contained factual evidence presented by a partner at Dechert LLP to the ENRC Board.  ERNC cited legal advice privilege for these documents and alternatively litigation privilege.
  • Category 4 - among other documents, this category included 2010 email communications between an ENRC executive and Mr. Ehrensberger, the Head of their Mergers and Acquisitions department.  Mr. Ehrensberger had previously been ENRC's General Counsel and resumed this role in 2011.      

Privilege

Litigation privilege is defined as:

"Communications between parties or their solicitors and third parties for the purpose of obtaining information or advice in connection with existing or contemplated litigation attract litigation privilege when, at the time of the communication in question, the following conditions are satisfied: (1) Litigation is in process or reasonably in contemplation; (2) The communications are made with the sole or dominant purpose of conducting that anticipated litigation; (3) The litigation must be adversarial, not investigative or inquisitorial."

The ruling rejecting ENRCs claims of litigation privilege says the following:

"I reject ENRC's submission that by parity of reasoning, litigation privilege extends to third party documents created in order to obtain legal advice as to how best to avoid contemplated litigation (even if that entails seeking to settle the dispute before proceedings are issued). There is no authority cited in support of that proposition, and it self-evidently contradicts the underlying rationale for the privilege. Equipping yourself with evidence to enable you to conduct your defence free from the risk that your opponent will discover how you are preparing yourself, and to decide what evidence you are planning to call if the case goes to court, and what tactics to employ, is something entirely different from equipping yourself with evidence that you hope may enable you (or your legal advisers) to persuade him not to commence proceedings against you in the first place."

The ruling says the following about legal advice privilege:

"Legal advice privilege attaches to all communications passing between the client and its lawyers, acting in their professional capacity, in connection with the provision of legal advice, which "relates to the rights, liabilities, obligations or remedies of the client either under private law or under public law"

"If the communication is between client (or the client's agent) and lawyer for the purpose of obtaining legal advice in connection with anticipated litigation, it is covered by legal advice privilege rather than litigation privilege. If the communication is between the lawyer and someone other than the client, it will only be subject to LPP if it satisfies the test for litigation privilege. That is so whether the client is an individual, a partnership, an unincorporated association or a corporate entity. Communications between clients and third parties, such as professional advisers who are not lawyers, are not subject to legal advice privilege. Interposing a lawyer in the chain of communication will not improve the client's chances of claiming legal advice privilege."

"The question of who was the "client" in this context did not directly arise for consideration. However, the judgment of the Court of Appeal supports the proposition that where the party asserting privilege is a corporate entity, legal advice privilege attaches only to communications between the lawyer and those individuals who are authorised to obtain legal advice on that entity's behalf. Communications between the solicitors and employees or officers of the client, however senior in the corporate hierarchy, who do not fall within that description will not be subject to legal advice privilege."

"I accept that the question "who is the client to whom the lawyer owes a duty?" and the question "who has the client authorised to act on his behalf in communicating with the lawyers?" are different; but in this specific context it is important to bear in mind that the privilege attaches only to those communications between lawyer and client (or the client's authorised representative) whose purpose is obtaining legal advice."

"The judgments of the Court of Appeal in Wheeler v Le Marchant (1881), which played a large part in the Court of Appeal's reasoning in Three Rivers (No 5), support the proposition that privilege will not attach to the employee's (or anyone else's) communication with the lawyer unless that person is acting as the client's agent for the purpose of obtaining the legal advice (in the sense that he has been tasked with obtaining it)."

Ultimately, the court granted relief to the SFO on all disputed categories of documents, except for Category 3. 

In GCSG's experience, we have often seen General Counsels believe privilege is much easier to claim and defend than this ruling would imply.  The ruling brings into doubt the ability of companies to claim litigation privilege in similar situations.  While ENRC will likely appeal this ruling, we recommend General Counsels, with registered businesses in the UK, track the ultimate outcome of this case and carefully review this ruling to determine how it may impact their current approach to claiming privilege during investigations of potential violations of the law.

Contact us at info@globalcompliancesg.com with any questions or for more information.      

Key Links:

China announces launch of new anti-corruption system

In November 2016 the general office of the Communist Party of China Central Committee announced that a new anti-corruption system would be created to improve oversight efficiency.  A pilot program was launched in Beijing, Shanxi and Zhejiang provinces.

"Zhuang Deshui, deputy director of the clean government research center at Peking University, said, 'the pilots were chosen as a foundation for anti-corruption.  It is unusual to pilot reforms in Beijing, and this move reflects China's determination to press ahead with reform.'"(1)

The goal of the reform is to establish a national anti-corruption work agency, similar to the Corrupt Practices Investigation Bureau in Singapore.  The plan is to expand the scope of inspections and cover more types of public officials.

"Li Yongzhong, former deputy head of the Chinese Discipline Inspection Institute said, 'The current supervision system only covers the country's administrative organs...The new plan will make everyone on the government payroll subjects of the supervision committee, even those in public hospitals and schools.'"(1)

Key Link(s):

OECD issues guidance designed to reduce corruption in the aid sector

On December 9, 2016 the Organisation for Economic Co-operation and Development (OECD) issued guidance intended to improve control systems for avoiding and responding to corruption in the management and delivery of aid. 

The guidance is designed to implement more checks and balances in work processes of international development agencies and private firms.  The recommendations apply to the 41 countries party to the OECD Anti-Bribery Convention and the 30 members of the OECD Development Assistance Committee (DAC). 

The report recommendations include implementing the system of controls (as appropriate) noted below:

  • Code of Conduct
  • Ethics or anti-corruption assistance/advisory services
  • Training and awareness on anti-corruption
  • High level of auditing and internal investigation
  • Active and systematic assessment and management of corruption risks
  • Measures to prevent and detect corruption enshrined in contracts
  • Sanctioning regime
  • Joint responses to corruption
  • Taking into consideration the risks posed by the environment of operations

You can access the full report here: 

Recommendation of the Council for Development Co-operation Actors on Managing the Risk of Corruption 2016

Singapore probing complex transactions involving 'many shell companies'

"SINGAPORE authorities are probing "complex and layered transactions" with "cross border elements" involving many shell companies...it is widely accepted that the case involves the probe into the money trail of Malaysia's troubled state-backed firm."

Article Link: "Singapore probing complex transactions involving 'many shell companies' in 1MDB case"

Source Credit: The Business Times