LAW FIRM DIRECTORY

Business Protection

Fair sector

Businessmen often treat bribes as essential expenses for their activities. As a the result, the total value of bribes reaches 3% of global GDP. While earlier the fight against bribery and corruption was taken care of by states, now this fight may get a new incentive — the non-governmental International Organ-ization for Standardization engages in the process

IRYNA GONCHAR

One would think: what could be easier than running a legal business? But certain internal and external factors led to the establishment of a separate domain of legal services (compliance) aimed at establishing the system enabling the customer’s work to be really fulfilled in compliance with all the legal requirements: from technical regulations to anti-corruption rules.

But Ukrainian companies should not worry — the annual sum of bribes in the world reaches one trillion USD, hence, unfair business is a general problem for all countries. Flagships for countering such practices and compliance introduction leaders are, definitely, the USA and Great Britain, and the exterritoriality of their Foreign Corruption Practices Act 1977 (FCPA) and UK Bribery Act 2010 acts as a corresponding incentive for even the business of third countries to bring their activities into compliance with internal and international legal regulations.

Compliance practice in Ukraine was, first of all, topical for the banks which had to be careful not to become sponsors of illegal activities. Now large business has also became interested in compliance practice, for it is practically impossible to engage a high-quality foreign investment without complying with international standards. The risks the investor faces when investing in Ukrainian companies which are not completely transparent in their activities (considering the responsibility of top management to the full effect of British and American law) are disproportional with the potential gain, including private gain. But right now compliance globally is considered greatly by those Ukrainian companies entering international markets or which are the subsidiaries/branches of foreign or international companies.

Political events became an unexpected shock for the introduction of compliance strategy by Ukrainian companies. More specifically, it was a trend of law-enforcement, fiscal and other control authorities to announce suspicion in financing terrorism regarding all those persons with any relation to the territories temporarily not controlled by the Ukrainian authorities. It can be both legal registration of a company in the ATO zone or “gray zone”, with the business actually withdrawn from that area, and concluding agreements with the same counterparties which have not re-registered in Ukraine. The main risk group includes chain business, retailing for instance. Any economic contact from the territories of the Donetsk People’s Republic and Luhansk  People’s Republic within the last three years can actually become a reason for suspicion. If is not direct financing of terrorism, then it is payment of taxes in that tax jurisdiction. That is why the issue of protection strategy from similar accusations became topical for Ukrainian and, actually, foreign business. We can assume that the relation of the foreign investor with Ukrainian business guilty of committing a crime under Article 258-5 of the Criminal Code of Ukraine will lead to a serious investigation for compliance with FCPA or UK Bribery Act.

Curiously, the foreigners employed in Ukraine and subject to FCPA or UK Bribery Act do not always cooperate directly with Ukrainian partners. Subsidiaries are often represented by an office working with agents and distributors who are, obviously, taught the rules of law-abiding business. The relations of the agents with the state and consumer and the good faith of his counterparties are vested with the agent. It allows, if not to completely avoid responsibility under the legislation of the USA or Great Britain, transferring it to the counterparty in case of a corruption scandal (national players having contacts with members of the British or American market subject to FCPA and UK Bribery Act), then at least to minimize the sum of the fine due to taking all the necessary measures for fair activities.

It is true that for now Ukrainian companies introduce the compliance system only as required. The state prevents turning this practice into regulation by not being very helpful in facilitating fair work in all of its aspects. But if businessmen do not want to keep in step with modern requirements for anticorruption policy, they should not only orient themselves on compliance with national legislation, FCPA or the UK Bribery Act, but also with developed international standards.

Thus, the draft of the new International Organization for Standardization (ISO) — ISO/PC 278: Anti-Bribery Management System is already registered for further discussion and approval.

The standard developed on the basis of British law, with active participation of experts from the USA, Canada, France, Germany, China and India, is meant to define the measures for countering corruption, corporate management policies of the companies complying with the standard and their guidelines on implementation.

ISO/PC 278 will define both the technical requirements, for instance, mandatory support of the Anti-Bribery Standard implementation in the internal documents, appointment of a person in charge of its implementation, staff training organization and compliance control systems, and the requirements regarding the company’s compliance policy.

In particular, it shall include: a system of periodic bribe risk assessment and its prevention in working with business partners (including customers, contractors, subcontractors, suppliers, consultants, distributors and agents, partners for joint ventures, agents and up to compliance with the Anti-Bribery Standard by the partner) and in the work of the staff; control of gifts, hospitality, donations and similar expenses, in order to prevent their use for corrupt reasons; introduction of a system of double signing of important documents. For instance, for large payment transactions, approval of work documents and other instruments controlling financial expense transparency and procured goods and services, as well as non-financial operations. An important element of the standard is the confidential procedure of informing on anti-bribe policy violations or suspected violations, and the procedures for internal investigation of such cases.

Taking into account the business practice that is commonly known in Ukraine, the majority of domestic companies will have to take great efforts in order to qualify for such a standard. One of the most complicated elements for its introduction is likely to be reeducating staff in order for employees to inform on the facts or risks of violations. Businessmen and managers will also take great pains in order to form a correct motivation. On the other hand, the acquisition of a conformity mark for such a standard will open the doors wide for foreign investment and entry to the international arena.