Although there might have been a delay during the pandemic, it is no secret that regulators across the globe are back to business and seeking to enforce anticorruption laws with vigor. The net has been cast wide and it is essential for businesses to understand their liability in relation to the acts of their subsidiaries and employees. Laws and regulators diverge in the way they handle this issue and in this alert, our lawyers explain the differing ways that the Foreign Corrupt Practices Act (FCPA), UK Bribery Act, French and German criminal codes understand the liability of a company for the actions of its subsidiaries and employees.
This is the third alert in the From the FCPA to the UK Bribery Act – Your key questions about global anticorruption laws answered series. Over the next few weeks, members of our global regulatory & investigations team will answer your most important questions about anticorruption laws in the U.S., UK, France, Germany and Greece. Next up, we will explore the differing definitions of a public official under the FCPA, UK Bribery Act and French, German and Greek criminal codes.
Don’t miss our previous alert which covered what the FCPA, UK Bribery Act, French and German criminal codes mean for dealings with third parties and our additional thought leadership on anticorruption.
Does the FCPA make our company liable for the acts of our subsidiaries and employees?
- Under the FCPA, a company may be held liable for the acts of its subsidiaries and employees.
- The anti-bribery provisions of the FCPA extend to company directors, officers, stockholders, employees, and agents. Under the legal doctrine of respondeat superior, a company may be held vicariously liable for crimes committed by employees within the scope of their employment if those actions are taken at least in part for the benefit of the company.
- Respondeat superior applies in situations where corporate employees may be acting primarily for their own benefit. For example, in 2018, the Second Circuit noted the continued vitality of respondeat superior while addressing a domestic commercial kickback scheme. The company at issue had entered into a Deferred Prosecution Agreement with the government after several of its employees pled guilty to accepting millions of dollars in kickbacks to steer a lucrative project to a particular subcontractor. Although the scheme was orchestrated by the individual employees primarily for their own financial benefit, the company was held vicariously liable for these acts because the employees were acting within the scope of their employment. The company paid approximately $500 million in restitution and penalties.
- Parent companies may also be held liable for the actions of their subsidiaries. Enforcement authorities will first consider whether the parent company directly contributed to or ordered the conduct at issue. However, even if the parent company does not have actual knowledge of the wrongful conduct, enforcement authorities may impute knowledge to the parent company if the parent was aware of the high probability of corrupt activity. Additionally, the parent company may be held indirectly liable if it exerted sufficient control over the subsidiary at the time of the conduct.
Does the UK Bribery Act make our company liable for the acts of my subsidiaries and employees?
- The acts or omissions of an employee can give rise to liability for a corporate under:
- Section 1 (bribing another person)
- Section 2 (accepting a bribe)
- Section 6 (bribery of foreign public officials)
- Section 7 (failure of commercial organizations to prevent bribery)
- Corporate liability will arise under sections 1, 2 and 6 if the “identification principle” is satisfied, that is to say that an employee who represents the corporate’s “directing mind and will” has the requisite state of mind. This is a high threshold.
- It is more likely that the acts or omissions of an employee or subsidiary might give rise to corporate liability under section 7.
- Under section 7, unless the corporate can prove that it had adequate bribery procedures in place, a corporate is liable if an “associated person” bribes intending to obtain or retain business for the corporate.
- Those who provide services for or on behalf of a corporate are considered associated persons for the purposes of section 7. It is presumed that an employee is an associated person. Determining whether a subsidiary is an associated person will, however, require a degree of analysis.