Corruption Threats and the Legal Profession
Nicola Bonucci, Legal Director of the OECD and Chair of the International Bar Association Anti-Corruption Committee, Paris, France
What is the Anti-Corruption Strategy for the Legal Profession?
The Anti-Corruption Strategy for the Legal Profession is an initiative launched in April 2010 by the Organisation for Economic Cooperation and Development (OECD), the International Bar Association (IBA) and the UN Office on Drugs and Crime (UNODC). It began with a survey carried out by the IBA which was designed to assess the knowledge and understanding of the legal profession in terms of corruption. The purpose of the survey was not to determine what lawyers knew about international bribery but what they understood about their own role and their own risks. The results of the survey were fairly striking because a number of lawyers indicated that they knew of colleagues or competitors who had probably been involved in corruption schemes, and/or had experienced losing clients because they did not want to be involved in corruption. The survey indicated that corruption was not a hypothetical issue and at the same time that there was an amazing degree of ignorance among lawyers of their own role and risks.
In what way are lawyers exposed to corruption risks?
Let me first go back to a typology that the OECD published in 2009 on the role of intermediaries in international business transactions. The typology acknowledges that there is no legal definition of intermediary in the context of foreign bribery, but for the purposes of the report offers the following: “an intermediary is defined or described as a person who is put in contact with or in between two or more trading parties”. This definition clearly encompasses lawyers and law firms. The typology goes on by stating that intermediaries act as conduits in international business transactions, and includes lawyers and accountants in this category. Lawyers can and may therefore be considered intermediaries in international business transactions that can themselves be subject to investigations for transnational bribery.
What is an example of a typical corruption situation lawyers can face?
Naturally, some lawyers – though few – are totally aware of what they are doing and in fact have fully participated in bribery schemes. A typical example is the case known as “TSKJ” and the critical role that a UK solicitor , Jeffrey Tesler, played in the scheme set up in order to bribe Nigerian public officials Mr Tesler was found guilty of violations of the FCPA and sentenced to 21 months of imprisonment as well as 149 million USD forfeiture (http://www.justice.gov/criminal/fraud/fcpa/cases/teslerj.html). This represents an exceptional case, but clearly lawyers can be involved in corruption in a number of different ways without their knowledge or acquiescence. A client may request its lawyer to set up a legal structure presented as lawful but which may be in fact used for laundering slush funds (for example an offshore structure). Lawyers may be requested to act as intermediaries in hiring distributors, agents and vendors on behalf of their clients. They may also be involved in the context of an M&A when due diligence is in question. Lawyers must distinguish between their role as advisors and the more active role of setting up legal structures. They must exercise due diligence when requested to give legal advice and step up this due diligence when more active participation is required of them, whether it is to represent the client in a legal contract or help the client set up a corporate vehicle.
What can lawyers do to minimize their corruption risks?
The first thing that lawyers need to do is to understand that they can and may be used as intermediaries. They should consider the law firm as a legal person (irrespective of the legal status that the law firm has in its own country) and understand that whatever they do can also trigger their firm’s liability. Secondly, lawyers should exercise an appropriate level of due diligence in their activities. Therefore, like anyone else involved in international business transactions, law firms must take a risk-based approach to preventing corruption. They should have internal controls and compliance systems that are adapted to the size of the company, the type of operation the company carries out, the country in which the company operates or the countries with which the company is associated. The OECD’s Good Practice Guidance on Internal controls, Ethics, and Compliance annexed to the 2009 recommendations still provides a very basic but comprehensive set of advice and actions that any law firm should consider when dealing with international business transactions. Lawyers should consider their law firm to be a legal entity and act accordingly.
Aren’t lawyers in a way protected by attorney-client privilege? Do private practitioners and in-house counsel face the same risks?
The situation of attorney-client privilege is naturally different according to the country in which one operates so it is very difficult to make any sweeping assessments and statements about that. But, by and large, an external attorney has a higher degree of attorney-client privilege than an in-house lawyer, particularly in European countries where attorney-client privilege for in-house counsel is very little recognized. Having said that, the attorney-client privilege does not necessarily exclude or protect lawyers in all possible ways. First, because it naturally doesn’t cover a lawyer who willingly undertakes or knowingly enters into an illegal scheme (it cannot be used as a defense). Second, because there are other means to get at incriminating information. In the TSKJ example, information on the part that the lawyer played came through different channels and not through the direct request of the lawyer himself. Information on a corruption scheme could come through other means that the lawyer does not control, such as through an external investigation. Attorney-client privilege is a protection, but it’s certainly not an absolute protection. When you look at how investigations are carried out, private practitioners and in-house counsel essentially face the same risks.
What can lawyers do to reduce these risks? How best can in-house counsel respond to pressures from their management?
It’s not easy. In today’s difficult economic climate, certain companies may tend to cross legal lines to obtain business. Of course what they obtain are benefits in the very short term. If you look at all the corruption cases in the last 10-15 years – how they matured, how they exploded, how they were addressed – it is clear that the reasons pushing the companies to commit bribery were very short-term. One of the difficulties lawyers face when engaging in this kind of behavior is that once they’ve accepted a decision made by their management, they create a precedent. Once the precedent is set, it is very difficult for in-house counsel to avoid pressure from their management the second and third time around. In the best-case scenario, which is in the context of a well-run company, in-house counsel should be able to convince their hierarchy that crossing legal boundaries to obtain contracts is not worth the risk in the medium and long term and can negatively impact the company’s health. If such a situation is not possible, lawyers face having to take it upon themselves to leave the company or to try to address the situation in the best possible way as to minimize the risk. It is worth repeating that in all cases, the containment strategy of allowing a bad decision to be taken once (“and only this once”) does not work in practice.
What actions do the IBA and OECD undertake to raise awareness among lawyers? What tools/resources are made available to help them?
The main action taken to raise awareness is through the training of law partners. The IBA works with the bar association of a country to organize one or two seminars addressed to the legal profession within the country. To increase the effectiveness of our seminars, we purposely choose larger firms and higher-level partners as participants. Because we are unable to train all the lawyers in any given country, we count on a limited but influential group to “spread the gospel” on preventing corruption. We pick out the 30 to 40 top-notch law firms of the country and organize workshops designed not only to address the international legal framework but also how it impacts them on a practical basis. So far we’ve conducted a number of such trainings in 2010 in Argentina, Chile, Colombia, Mexico and Peru, in 2011 in Indonesia, Malaysia, South Korea, Japan, Brazil and Venezuela, and this year in South Africa, Turkey, Italy, Russia and most likely in certain Central/Eastern European countries. In addition to these seminars, the IBA maintains a website devoted to its anti-corruption strategy which includes the results of the original survey and its related report (Risks and threats of corruption and the legal profession) as well as other relevant information. We are also currently developing together with the UNODC and other partners an anti-corruption module that can be used in law schools. We hope this will be successful since the best way to raise awareness is to ensure that the people entering the profession are aware of their duties, responsibilities and risks. The Anti-Corruption Strategy for the Legal Profession is up and running, and is attracting quite some interest from a number of bar associations. The most rewarding part of this initiative is to hear professionals come up to you at the end of workshops and say, “I never realized this before”; this is what we can be most proud of. I also know of a number of law firms that did not have any real internal control and compliance programs before our workshop and that decided to set up such systems. There is a real belief that this is an area that has not been properly evaluated so far so I’m very optimistic about the positive impact that we’re having.
Tags : transnational bribery, slush funds, due diligence, in-house counsel
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