Punishment for Bribery in Ukraine by Foreign Enforcement Authorities: a Fantasy or Reality?

According to DoJ Announcement of December 20, 2013,“Alfred C. Toepfer International Ukraine Ltd. (ACTI Ukraine), a subsidiary of ADM (Archer Daniels Midland Company), pleaded guilty and agreed to pay more than $17 million in criminal fines to resolve charges that it, in violation of FCPA, paid bribes during 2002-2008 through vendors to Ukrainian government officials to obtain value-added tax refunds. In a parallel action, ADM consented with the U.S. Securities and Exchange Commission (SEC) to a proposed final judgment that orders ADM to pay $36.5 million, bringing the total amount of U.S. criminal and regulatory penalties to be paid by ADM and its subsidiary to more than $54 million.”

Such a low (if compared, for example, with Alstom case) amount of fine may be explained by ADM’s self-reporting and active cooperation with the enforcement authorities. In particular, in this press release, ADM’s Chairman and CEO stated that “in 2008, soon after we became aware of some questionable transactions by a non-U.S. subsidiary, we engaged an outside law firm and an accounting firm to undertake a comprehensive internal investigation.  In early 2009, we voluntarily disclosed the matter to appropriate U.S. and foreign government agencies and undertook a comprehensive anti-corruption global risk analysis and compliance assessment. We have also implemented internal-control enhancements, and taken disciplinary action, including termination, with a number of employees.”

To save you the effort of reading the documents of the case, I have summarized a couple of interesting takeaways, as well as some important lessons from ACTI Ukraine case every compliance-conscious businesses should consider.

(i) First of all, this case proves that US enforcement authorities have the arm long enough to reach subsidiaries of US companies operating in Ukraine in case FCPA violation has been committed. The way has already been paved.

(ii) US enforcement authorities might come after corrupt company five, ten, and even more years after wrongdoing has been committed. Thus, the mere fact that the company was not caught while paying the bribe or soon thereafter should make it feel safe. Substantial and consistent increase of cooperation between enforcement authorities worldwide reduces the chances that violation remains unpunished.

(iii) In order to mitigate corruption-related risks, the company should initiate internal investigation and consider self-reporting as soon as it becomes aware of questionable transaction or attitude and cooperate with enforcement authorities. Such approach will help reducing the amount of the fine in case the violation has occurred.

(iv) And, finally, though unfortunately for Ukraine – the success of US authorities in investigating and punishing corruption by Ukrainian company does not necessarily lead to successful prosecution in Ukraine, as the names of government officials who took bribes in Ukraine remain unknown to the general public.

Although over two years passed after ADM case and about 5-10 years after the respective bribes have been actually paid, tax authorities and VAT refund are still among top corruption factors in Ukraine. In particular, according to Business Ombudsman Counsil (BOC) Report of 2015, “State Fiscal Service of Ukraine is a leader in the “anti-ranking” of complaints with 43% of complaints followed by 7% of complainants challenged of the Prosecutor’s Office and 7% of the Ministry of Justice of Ukraine”. Furthermore, according to BOC Report, during the last quarter of 2015, 10% of all filed complaints dealt with problems with the electronic VAT declaration and 7% of complaints - with dilatory VAT refund.

To sum up, do not think that if your company is not linked to the US, you should feel relieved. FCPA outreach might be extremely broad, covering use of US currency or US financial institutions to transfer bribery payments. Please refer to one of our previous posts for more details. So, if the company face a corruption threat in Ukraine today, it is my strongest belief that it will be not only ethical, but also more efficient in a long-term for the business to resolve the issue with involvement of anti-corruption authorities. Paying a bribe is not an option as, even if not prosecuted by the Ukrainian authorities, foreign enforcement might now easily reach any company.

In my next post, I will provide you with the overview of the recent VimpelCom case, and will share my thoughts on the effect it may have on Ukrainian anti-corruption enforcement. So, stay tuned and be compliant!