Cayman Islands gets in on the act

The New Year has already proven to be an aggressive one as it relates to fighting corruption.  Here in the Cayman Islands, the Anti-Corruption Law, 2008 went into effect on 1 January, 2010.  The law establishes an anti-corruption body and also criminalises acts of corruption and bribery of public officers as well as a range of other offences such as frauds on the government. Chris Rowland, Senior Manager and Andrew Rutherford, Manager, both with Deloitte’s Financial Advisory Services delve into the issue in more depth.

The Cayman Islands legislation is part of a worldwide effort to aggressively step up enforcement and seeks to give effect to the United Nations Convention against Corruption and the Organization for Economic Cooperation and Development Convention on Combating Bribery of Foreign Public Officials in International Business Transactions.  In addition to the prevention and criminalisation of corrupt acts, international cooperation and asset recovery are important components of the Convention which includes measures to prevent and detect transfers of illegally acquired assets, the recovery of property and return of assets.  The Convention is global in scope with participating countries spread over five continents accounting for 70 percent of world exports and more than 90 percent of foreign direct investment. It is also somewhat unusual in that it attempts to set a minimum standard across disparate legal systems as it relates to an important form of white collar crime.
The Cayman Islands Anti Corruption Law, 2008 calls for the establishment of an Anti-Corruption Commission to consist of the Commissioner of Police, the Complaints Commissioner, the Auditor General, and two other appointed members from pre-defined categories of persons.  The Law covers a broad range of local offences from bribery of public officers and members of the Legislative Assembly, to the abuse of authority by a public officer or a member of the Legislative Assembly, the giving of secret commissions to agents, and the bribery of foreign public officials.  The Anti Corruption Law, 2008 also provides important extraterritorial provisions including those relating to corruption offences committed on board a Cayman Islands registered ship or aircraft, and offences occurring outside the Cayman Islands  by persons holding Caymanian status, residents, or by a company incorporated under Cayman Islands law.
As the anti-corruption movement continues to gather momentum, enforcement has increased significantly in the United States. In January 2010, the US Department of Justice announced the indictment of twenty-two executives and employees of companies in the military and law enforcement products industry for engaging in schemes to bribe foreign government officials to obtain and retain business. The arrests mark the largest single investigation and prosecution against individuals in the history of DOJ’s enforcement of the Foreign Corrupt Practices Act (FCPA), a law that prohibits U.S. persons and companies, and foreign persons and companies acting in the United States, from bribing foreign government officials to retain or obtain business or otherwise gain a business advantage.  The FCPA also requires companies to maintain books, records, and accounts that accurately reflect their transactions.
“The fight to erase foreign bribery from the corporate playbook will not be won overnight, but these actions are a turning point. From now on, would be FCPA violators should stop and ponder whether the person they are trying to bribe might really be a federal agent,” said Assistant US Attorney General Lanny A. Breuer.
Also in January, two former executives of Willbros International Inc., a subsidiary of Texas-based Willbros Group Inc., were sentenced to more than a year in prison for their roles in a conspiracy to pay more than $6 million in bribes to government and political party officials in Nigeria. While more recently, in February 2010, BAE Systems, the world’s second-largest defence contractor, announced that it had reached settlements in connection with investigations by the US Department of Justice and the UK Serious Fraud Office. 
The company agreed to pay $400 million to the Department of Justice and will plead guilty to one charge of conspiring to make false statements to the US Government in connection with certain regulatory filings and undertakings.  Under the agreement with the Serious Fraud Office, the company will also plead guilty to one charge of breach of duty to keep accounting records in relation to payments made to a former marketing adviser in Tanzania.  In 2008, German electronics and industrial engineering giant Siemens AG agreed to pay combined penalties of $1.6 billion to U.S. and German authorities for FCPA and bribery related violations. The $800 million paid to the US authorities was by the far the largest-ever monetary penalty under the FCPA and is a prime example of the significant increase in cross-border cooperation in enforcement. Over the past three years, US prosecutors have more than doubled the number of criminal cases focused on FCPA violations, according to U.S. Justice Department statistics. The department is said to have more than 140 open investigations centering on foreign bribes.
The US is largely credited with taking the lead in fighting foreign corruption having signed the FCPA into law in the late 1970s. However, since its introduction, two important trends have thrust the FCPA into the international spotlight: globalization of commerce and an increased international focus on fighting corruption.  Today, not only are more US companies subject to the FCPA, many non US companies are subject to US jurisdiction either through their participation in U.S. capital markets or by conducting business within the United States.
“In light of the recent step up in the enforcement of the FCPA by regulatory agencies in the United States, including coordinated efforts by the FBI, SEC, and the DOJ, companies doing business internationally need to be aware of the risks and potential consequences of violating the FCPA or other laws relating to the prevention of bribery and corruption of public officials.
The same level of awareness should apply to companies based in the Cayman Islands especially given the international nature of business conducted in the jurisdiction as well as the recent introduction of the Cayman Islands Anti Corruption Law, 2008 and the Anti Corruption Commission,” said Chris Rowland, a Director in the Forensic and Dispute Services department at Deloitte Cayman Islands.  
Despite rising FCPA enforcement, a Deloitte Financial Advisory Services poll of close to eleven hundred executives found one-third of companies report having no FCPA compliance programme. Nearly a quarter of respondents believe compliance is lagging because some companies are unaware of the severe penalties that can follow FCPA violations.  The survey also highlighted the risks associated with third party sales agents and paying commissions to such parties. Twenty-eight percent of poll respondents anticipate global corruption violations are most likely to arise from the agent / consultant relationship. This emphasises the need to have a robust vetting process for agents or consultants who will represent the corporation in foreign contract negotiations and ensuring such parties are aware of the corporation’s FCPA compliance policy. As part of this due diligence, management must carefully assess what services are being received in exchange for commission payments as well as the risk that a portion of that payment could end up in the hands of a public official.
For its part, Deloitte Cayman Islands Financial Advisory Services through its Forensic & Dispute Services practice helps organisations navigate FCPA risk and respond to potential violations.  Rowland adds, “At Deloitte our forensic and dispute resolution specialists have significant experience on FCPA related investigations.  We also have access to a worldwide network of professionals with related expertise in the area of FCPA  including the drafting of and ensuring compliance with anti-corruption policies and procedures, due diligence on third party consultants and acquisition target entities, and investigating possible FCPA violations.”
With a record number of investigations underway, it is as important as ever to ensure that organisations are doing all they can to comply with the FCPA and other relevant anti-corruption legislation, including the Cayman Islands Anti Corruption Law, 2008. By adopting a comprehensive anti-corruption compliance policy which requires that proper due diligence be performed on third party consultants and potential acquisition target entities, organisations can lower the risks of exposure to corruption related offences.  An effective anti-corruption compliance programme should include the following key elements: a risk assessment in order to understand potential operational and / or geographical risks and reliance on third-party representatives during sales negotiations; a set of clearly defined policies and procedures in order that employees understand what is allowed and what isn’t; regular training for employees; and the testing of anti-corruption controls and checks on high risk transactions.  In addition adequate documentation should be kept which provides proper evidence of the design, implementation, and execution of an organisation’s compliance programme.  
If a proper compliance programme is not in place, and offences occur, the consequences can include severe penalties and reputational damage.  Clearly the time to act is now.


Chris Rowland Andrew Rutherford