Global compliance law: recent developments, and what to watch for

Even if they aren’t lawyers, C&E practitioners generally need to have an understanding of compliance-related laws.  And for practitioners in global companies, the scope of that need can be pretty broad – particularly given how compliance programs are becoming a world-wide phenomenon. With this post I initiate what I hope will be an ongoing (but definitely occasional) series on noteworthy developments in this area,  including a look at what may lie ahead.

Of course, the notion of “global compliance law” is obviously broad – and somewhat difficult to define. Among other things, it should include the employment and privacy related laws of some countries that arguably inhibit meeting compliance program standards of other countries. But for many companies the most significant aspect of global law concerns enhanced enforcement activities throughout the world.

A prominent example of this is in the competition law realm – as described in this article last month from The Economist identifying significant enforcement initiatives not only in the U.S. and E.U. (traditional bastions of prosecutorial activity in this area) but also Brazil, India and Japan.   Noteworthy, too, in this regard is a recent  (and perhaps unprecedented) E.U. case fining the private equity owner of a company for the latter’s competition law violations, even absent any indication that the former had knowledge of the wrongdoing in question.  I don’t believe there is anything quite like this in U.S. law, and the decision has implications for global companies beyond private equity firms.

While competition law enforcement obviously serves important purposes in protecting consumers and other participants in market economies from unfair and deleterious conduct, a cynic might suggest that this extraordinary emphasis on enforcement is shaped- at least in part – by the ability of governments to use this particular area of law to secure large payments from companies, in the form of fines.   (For a list of massive competition law fines see the charts in The Economist article linked to above.)  In an earlier posting on the CCI site, I referred to this as the “demand side” of enforcement. .

Where else might the demand side of enforcement lead to enhanced risk for global companies?  In my view, an under-appreciated compliance risk among companies concerns taxes, for which enforcement also has the potential to generate large recoveries for governments. Indeed, just earlier this month, two executives of Hewlett Packard were detained by Pakistani authorities on suspicion of corporate tax evasion.  And Nokia’s tax troubles in India have been the subject of much recent press focus.

On the other side of the coin, as global punishment of wrongdoing by businesses and business people become more harsh, one expects that – at least to some degree – legal systems will go to greater length in protecting accused parties in business cases.  A noteworthy example of this can be found in this post last week on the Harvard Corporate Governance Blog  discussing a recent ruling of the European Court of Human Rights arising from a securities law enforcement proceeding in Italy.  As described in the posting, this “groundbreaking” decision, held that the sanctions imposed by Italy, although “formally defined as ‘administrative’ in nature under Italian law, are substantially ‘criminal’ sanctions in the light of their harshness and of the possibility to apply measures that affect the ability of the accused to work and their honorability. If the sanctions are criminal in nature, the application of the European Convention of Human Rights follows.” It will be interesting to see how this holding affects enforcement in other areas of business law as well.

Finally, another way in which the law might change in response to harsher enforcement measures directed against businesses is through the advent of a “compliance defense.”  The best known example of this is the “adequate procedures” defense under the UK Bribery Act.  Less well known is a proposed somewhat similar provision in the Spanish criminal code which I gather is expected to become law soon,    and I imagine that we’ll see at least some other nations pursuing a similar path (and note that in some instances – e.g., the case in Norway – the compliance defense may exist more as a matter of prosecutorial discretion than written law).

So, is that everything you need to know about global compliance law?  Not even close!  But hopefully it is an intriguing enough start to encourage you to revisit this blog for future compliance-law related postings from around the world.