Russia Signs OECD Anti Bribery Convention

Russian President Dmitry Medvedev, left, on Wednesday signed the Anti-Bribery Convention of the Organization for Economic Co-operation and Development (OECD).

The convention requires signatories to criminalize overseas bribery by their citizens and impose punishment for violations. It also requires cooperation among members to prosecute graft.

Signing the 1997 convention is a prerequisite for joining the OECD. Russia has applied for membership. Non-OECD members can also sign the convention.

China hasn't yet joined the convention but is also seeking OECD membership.

According to a report from RIA Novosti, Transparency International Russia lobbied the Kremlin for twelve years to sign the convention. The report said blogger and whistleblower Alexei Navalny also pushed for the action.

OECD members are: Australia, Austria, Belgium, Canada, Chile, Czech Republic, Denmark, Estonia, Finland, France, Germany, Great Britain, Greece, Hungary, Iceland, Ireland, Israel, Italy, Japan, Luxembourg, Mexico, the Netherlands, New Zealand, Norway, Poland, Portugal, the Republic of Korea, Slovakia, Slovenia, Spain, Switzerland, Sweden, Turkey, and the United States.

Non-member signatories to the OECD anti bribery convention are Argentina, Brazil, Bulgaria, and South Africa.

The OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions can be downloaded here.

__________________

The Russian President's office issued this statement on February 1:

Dmitry Medvedev signed Federal Law On Russia’s Accession to the Convention on Combating Bribery of Foreign Public Officials in International Business Transactions.

The Organisation for Economic Cooperation and Development (OECD) adopted the convention on November 21, 1997.

The convention is an effective instrument of combat against corruption implemented by the signatory countries through the UN, G8, Council of Europe, APEC, IMF, World Bank, and other international organisations.

By joining the convention, Russia will facilitate efforts in international cooperation on combating bribery of foreign public officials, and also fulfil one of the conditions for joining the OECD.

Implementing the federal law on joining the convention will require up to 100,000 euros in additional federal budget funding, to finance Russia’s contribution for participation in the OECD Working Group. This money will be paid as part of the yearly budget funds allocated to the Russian Foreign Ministry.  

The bodies vested with powers regarding the convention will be defined by presidential executive order.

Reducing C-Level Risk In Compliance Land

By David Riker

The CEOs, CFOs, COOs and Chief Compliance Officers we meet with are well aware of the FCPA and are working to put in place compliance programs to keep their companies on the right side of the law, but they are not terribly concerned about their own personal exposures. Their logic: If I’m not physically handing over a bag of money to a corrupt government official, I’m clean.

This, of course, is not true. According to this great analysis from Chadbourne & Parke (in pdf here), 53 of the 61 individuals charged with violating the FCPA over the past six years were senior corporate officers, not bag men. Moreover, 8 of these individuals were charged despite committing no direct action in the corrupt act.

Based on our own analysis of hundreds of FCPA cases, meetings with C-level managers and FCPA screening programs implemented around the world, we’ve come up with a five question reality check for senior execs who don’t think they need to worry about their personal exposure to the FCPA:

Is your company doing business in Mexico, Nigeria, Brazil, China or India?

Operations in countries with less mature corporate governance laws/regulations are more likely to create a compliance breach for a multinational firm. It is critical to segment vendors, suppliers and marketing partners on a continuum of high-to-low risk based on their country of origin. China, for example, has seen a 50% increase in vendor, supplier and procurement fraud between 2010 and 2011 according to our annual Global Fraud Report.

Are you in the energy, manufacturing, pharmaceutical, defense or telecom sectors?

Based on total fines and recent enforcement trends, these are the highest risk industries. Since the FCPA was passed in 1977, companies in the Energy sector have been fined $2 billion; Defense and Aerospace contractors have been fined $443 million; Manufacturing firms have been fined $225 million;and Telecom companies have been fined $218 million. The DOJ has also been vocal about its plans to target more Pharmaceutical companies, which currently account for $84 million in total fines.

Do I know what I need to know about who I know?

The nature of emerging market expansion is such that multinationals typically assemble networks of vendors and agents to rapidly put boots on the ground in these regions. Perhaps not surprisingly, subsidiaries, agents and vendors are often a corporation’s weakest link in foreign corruption cases. These corporate outsiders, most of whom were probably not screened or background-checked like full-time employees, need to be vetted.

How can I standardize the process of compliance-checking everyone everywhere all at once?

As every 21st century CEO knows, good systems make good managers. Unfortunately, the process of vetting compliance measures in fast-moving emerging markets has historically been done in an ad-hoc, incomplete fashion with some regions collecting some data on vendors and partners, others collecting altogether different information and others collecting none. To avoid data overload, it is critical to build a systemic approach to fraud risk analysis.

What do I do when I find a violation?

We see this most commonly in the mergers and acquisition process: due diligence will reveal a series of inappropriate payments or other questionable accounting that raises serious red flags.  What managers do with this information can be the difference between a reputation for courageous leadership and potential personal liability. History has proven again and again that companies who spot a problem early and self-report it are far less likely to find themselves tangled in a long, painful investigation and, if they do, they are much more likely to avoid major sanctions.

________________

David Riker is Managing Director, Third Party Screening at Kroll. He blogs about corporate compliance risk at www.fcpalert.com. He can be contacted here.

Short Seller Hits China Valves With FCPA Concerns

A post Wednesday on Seeking Alpha asked, Does China Valves comply with the anti-corruption laws?

Contributor Richard X Roe looked deep into the latest quarterly SEC filing by Chinese manufacturer and U.S. issuer, China Valves Technology, Inc. The company, he said, made a merely routine mention of FCPA risks. But because the disclosure hadn't appeared before, and because China Valves bought another Chinese company already linked to FCPA violations, Roe thinks problems are likely. He also said he's a short seller of China Valves.

It's been a terrible year for Chinese companies listed on a U.S. stock exchange. According to Kevin LaCroix at the superblog D&O Diary, there have been 36 securities class action lawsuits in 2011 involving U.S. listed Chinese companies, and a total of 47 since January 1, 2010. Will China Valves be joining the list?

Roe said that in February 2010, China Valves acquired Watts Valve (Changsha) Co., Ltd., a wholly-owned subsidiary of Watts Water Technologies. Last month, Watts Water settled an FCPA-related administrative action with the SEC by paying $3.7 million. The Chinese subsidiary, Watts Valve, the SEC said, made corrupt payments 'to influence the design institutes to recommend' [Watts Valve's] products to state-owned customers.

'A review of disclosures,' Roe said in Seeking Alpha, 'including correspondence between [China Valves] and the SEC made public in late September, indicates that [China Valves] management may have reinstated [Watts Valve's] practice of paying bribes as soon as the acquisition was complete, while actively trying to conceal it from investors and regulators. The clues come from [China Valves'] flipflopping on the reasons for the acquisition, repeated denials that any violations have occurred, and [Watts Valve's] sales commissions since the acquisition.'

With the awful track record of U.S.-listed Chinese companies, who will bet that China Valves is clean and compliant?

China Valves Technology, Inc. trades on the Nasdaq Global Select Market under the symbol CVVT.

Breuer Defends The FCPA, As Is

Associate Attorney General Lanny Breuer, left, defended the FCPA today and argued that now is not the time to water it down.

In remarks to the National Conference on the Foreign Corrupt Practices Act in Washington, D.C., he said amending the statute now, as proposed by the Chamber of Commerce and others, would send exactly the wrong message to the rest of the world.

He said,

Particularly since it has become increasingly clear over the past year that the trend across the globe is toward criminalization of foreign bribery.  The U.K. Bribery Act took effect in July.  Russia recently passed an anti-bribery law; has ratified the U.N. Convention against Corruption; and is expected soon to accede to the OECD Anti-Bribery Convention. China, too, recently passed an anti-bribery law and is an observer at the OECD’s Working Group on Bribery.

Breuer admitted that other countries are still far behind in enforcement. 'A stark reminder that the road ahead is long is that, in a report released last week, China and Russia ranked 27th and 28th, respectively, out of 28 countries on Transparency International’s 2011 Bribe Payers Index.'

But, he said, it took decades for the FCPA to become a strong an enforcement tool. 'Having come this far on what I believe is a noble journey, we cannot, and should not, start going backwards. On the contrary, the United States must continue leading the charge against transnational bribery.'

The DOJ has considered suggestions about FCPA enforcement, he said, meeting business leaders at roundtables organized by the Department of Commerce, 'during which industry representatives expressed their views on a wide range of issues related to the FCPA.'

Next year, the DOJ expects to release detailed new guidance on FCPA enforcement. Breuer hopes it will be 'a useful and transparent aid.'

And in response to the OECD’s Phase 3 Review of FCPA enforcement, Breuer said the DOJ is reworking the lay person’s guide to the FCPA (here in pdf) and 'consolidating within it much of the information that is already available from the DOJ's FCPA site.

BRIC Companies Rank Low On New TI Index

Transparency International yesterday released its 2011 Bribe Payers Index. It’s the fifth version of the index and the first update since 2008.

It ranks 28 of the world’s largest economies, TI said, ‘according to the perceived likelihood of companies from these countries to pay bribes abroad.’

The report is based on a survey of business executives. The countries ranked, TI said, cover all regions of the world and represent almost 80 percent of the total world outflow of goods, services, and investments.

It includes perceptions of public bribery and for the first time private ('business to business') bribery.

The top-ranked countries are the Netherlands and Switzerland, tied in first place. Belgium, Germany, and Japan round out the top five.

Companies from the BRIC economies are led by Brazil at 14. Russia ranked last overall at 28, India at 19, and China at 27.

The UAE, Indonesia, and Mexico complete the bottom five spots.

TI’s 2011 bribe payers index is here.