International Law Advisory - United States Poised to Ratify UN Convention against Corruption; Treaty Expected to Strengthen Anti-Corruption Enforcement in the United States, May Lead to Significant Changes in Developing Countries

On Friday, the U.S. Senate gave its unanimous consent to the U.S. ratification of the U.N. Convention against Corruption (“U.N. Convention”), the first global anti-corruption treaty.  The Convention, which has been in force since December 14, 2005, will bind the United States 30 days after it deposits its instrument of ratification with the United Nations.  In less than three years since it was opened for signature in December 2003, the U.N. Convention has gained the widest adherence of any anti-corruption treaty.  In addition to the United States, 63 countries have become party to the treaty and 76 other countries have signed the treaty, indicating they may ratify it as well.  Because of the widespread reach of the treaty, multinational businesses are evaluating how anti-corruption law and practice will be affected by the treaty.  Several provisions in the U.N. Convention may lead to changes in the way countries regulate private commercial activities and cooperate with one another in international corruption cases.  Changes to substantive law may be particularly extensive in the developing countries, potentially affecting company compliance programs.  At the same time, although U.S. law will not change as a result of the U.N. Convention, U.S. enforcement officials expect the international cooperation provisions of the treaty to enhance their ability to investigate and prosecute under the U.S. Foreign Corrupt Practices Act (“FCPA”).

The U.N. Convention

The U.N. Convention is broader in scope than other international anti-corruption treaties.  With the exception of its international cooperation provisions, most of the U.N. Convention’s provisions are not self-executing, but instead require or encourage states parties to take certain actions under their domestic laws and systems.  The most significant mandatory provisions require states to take the following actions:

1. Criminalize a series of corruption related offenses.   Subject to certain exceptions, states parties must criminalize (a) domestic and foreign bribery of public officials; (b) laundering of proceeds of corruption; (c) obstruction of justice; and (d) participation.  As they are implemented, the provisions on money laundering will further strengthen the role of money laundering allegations in corruption cases.
2. Provide avenues for private victims of corruption to recover their losses.  With regard to private rights of action, Article 35 of the U.N. Convention requires states parties to take such measures as may be necessary, in accordance with their domestic law principles, “to ensure that entities or persons who have suffered damage as a result of an act of corruption have the right to initiate legal proceedings against those responsible for that damage in order to obtain compensation.”  The mandatory language of this article appears to require countries to establish private rights of action in civil proceedings for damages.  As noted below, this is not intended to lead to a change in U.S. law.
3. Take measures to address consequences of corruption.  Article 34 obliges countries to take measures to address the consequences of corruption, including through the annulment or rescission of contracts, withdrawal of concessions, or other similar instruments that may have been tainted by corrupt practices.  Although written in mandatory terms, the provisions direct countries to give due regard to the rights of third parties acquired in good faith, as well as to fundamental principles of the host country’s domestic law.
4. Permit countries who are victims of corruption to recover assets lost due to corruption.  The asset recovery chapter of the treaty strengthens the ability of governments to cooperate in recovering public assets lost to corruption.  States are required to permit other states to bring a lawsuit in court to establish ownership of assets obtained through a corruption offense.  States also must permit courts to order those convicted of corruption offenses to pay compensation and damages.
   

In addition, Article 18, a voluntary provision, reflects the U.N. Convention’s push to expand the reach of anti-corruption laws beyond quid pro quo bribery of officials and into the realm of influence peddling or lobbying.  This provision highlights the need for companies review lobbying activities for compliance with anti-corruption laws.  Other voluntary provisions seek to encourage voluntary disclosures of corruption, accounting standards, codes of conduct, protection of whistleblowers, and compliance programs for private companies.

The U.N. Convention may cause a significant shift in anti-corruption law and practice in developing countries who are “first timers” to anti-corruption treaties

As noted, the U.N. Convention is the farthest-reaching of the anti-corruption treaties, gaining adherence in new parts of the developing world.   For example, 25 of the countries who have become party to the U.N. Convention had not been parties to the anti-corruption treaties sponsored by the Organisation for Economic Cooperation and Development, the Council of Europe, the Organization of American States, the African Union, or the Southern Africa Development Community.  Of those, 15, including the Russian Federation and some other countries in Africa and the Middle East, are in the bottom half of countries ranked for their perceived problems with corruption in the 2005 Transparency International Corruption Perceptions Index.

Another one of these first-timers to anti-corruption treaties, the People’s Republic of China, deposited its ratification instrument at the start of 2006, declaring that the treaty also applies to Hong Kong.  Activities in China have been a significant source of FCPA investigations and prosecutions of late.  On September 6, 2006, Lucent Technologies, Inc. announced that the SEC is recommending enforcement action against it in connection with its activities in China.  That announcement follows on the heels of FCPA enforcement actions in the last two years relating to the Chinese business operations of such U.S. companies as Diagnostic Products Corporation and InVision Technologies (since acquired by General Electric).  Other companies also have disclosed investigations relating to Chinese operations including Avery Dennison Corporation, BearingPoint, Inc., Faro Technologies, Inc., Fidelity National Financial, Inc., and the company it acquired, Alltel Corporation.

Although U.S. law will not be amended, the U.N. Convention is expected to strengthen U.S. enforcement of the FCPA

The Senate vote on advice and consent confirms that the United States does not intend to adopt new laws to implement the U.N. Convention.  The chief impact of the U.N. Convention on anti-corruption practice is expected to lie in the area of international cooperation.

U.S. anti-corruption statutes not expected to change; no new private right of action

According to the Senate Resolution of Advice and Consent to the U.N. Convention (“Resolution”), the United States does not intend to adopt new legislation to implement the U.N. Convention.  Accordingly, Article 35 of the Convention, which requires states to permit private recovery for victims of corruption, is not intended to give rise to a private right of action under U.S. law, leaving unchanged the dominant view that FCPA does not create a private right of action.  Article 35 also is not intended not provide the basis for suits under the U.S. Alien Tort Claims Act, which permits certain types of civil suits between private parties in violation of the law of nations.  In effect, U.S. obligations under Article 35 are satisfied by standard theories of civil liability (such as civil RICO) not specific to corruption.  Indeed, those existing theories of civil liability can be, and sometimes are, asserted in some corruption cases.

The Convention will strengthen U.S. FCPA investigation and enforcement activity

Implementation of the criminalization requirements of the U.N. Convention likely will lead to new foreign laws and investigations under those laws.   Those laws also may form the basis for extradition and sharing of evidence gathered by foreign authorities.  That is why, in recent testimony before the Senate Foreign Relations Committee, the Justice Department stated its belief that the U.N. Convention will enhance enforcement of the FCPA and other offenses.

Monitoring further developments and implementation

A luncheon program on the U.N. Convention sponsored by the D.C. Bar will be held on Monday, October 23rd, from 12 noon to 2 p.m., at the D.C. office of Steptoe & Johnson LLP, 1330 Connecticut Ave., N.W.   Attorneys and others who are interested in learning more about the treaty are invited to attend.  The program will feature a panel discussion among practitioners and experts from the private and public sector on the treaty's negotiation, ratification, and implementation.  More information on the program, which is sponsored by the Public International Law and Criminal Law Committee and the International Dispute Resolution Committee of the D.C. Bar, International Section, will be available from the web site of the D.C. Bar here.

As implementation of the U.N. Convention may trigger a shift in some foreign laws, companies are considering whether to evaluate the impact of implementation upon global compliance programs.  Unlike other anti-corruption treaties mentioned above, the U.N. Convention does not establish a clear mechanism for monitoring its implementation by states parties.  We will be closely watching the progress of the First Conference of States Parties to the Convention in early December in Jordan, where states parties will be called upon to adopt methods and procedures for evaluating implementation of the treaty and facilitating international cooperation under the treaty.

We will continue to keep you apprised of developments related to anti-corruption enforcement.  If you have any questions or for further information, please feel free to contact Lucinda Low at 202.429.8051, Ed Krauland at 202.429.8083, Erik Kitchen at 202.429.8132, Andrew Irwin at 202.429.8177, Owen Bonheimer at 202.429.6266, or Negar Katirai at 202.429.8028.   

Click here for more information about our FCPA/Anti-Corruption practice.