Member Article

Corruption is undoubtedly one of the biggest problems facing civil societies these days. It prevents natural
competition in a marketplace and makes goods or services more costly. It has a detrimental effect on the
moral, legality and transparency in a society and is an enemy to democratic decision-making. By undermining
predictability in business transactions, corruption makes investments more hazardous and reduces growth
and business opportunities. Corruption can take place in a business-to-government relationship, for example,
by bribing representatives of a public procurement contracting authority.

Companies are increasingly under pressure to comply with anti-corruption laws that have been introduced by
governments inspired by international conventions. These laws include the U.S. Foreign Corrupt Practices
Act and Britain’s new Bribery Act. The guidelines issued by multilateral development banks such as the World
Bank can make companies sensitive of being black-listed in public procurement award procedures by corruption cases. The issue has both a domestic and international dimension. Companies wishing to make their
way with exports of goods or services are in some countries under pressure or tempted to offer bribes to the
decision-makers of potential clients or other influential circles such as public authorities.

Irrespective of whether these actions are tried or penalised in the country where the bribery takes place,
the domestic criminal legislation of the company may extend to such activity on the basis of nationality or
domicile of the person committing the action. The new British law extends British criminal prosecution and
jurisdiction to companies that operate in the United Kingdom irrespective of the nationality or domicile of the
person committing the offence and the offence not having any other connection with the United Kingdom than
the presence of the company there. The company has strict liability for the acts of any person associated with
it (i.e. any employee, agent or subsidiary). However, a company can exonerate itself from liability by proving
that it has put in place adequate procedures designed to prevent persons associated with it from undertaking
this conduct.

The ICC approach

Based on increasing pressures by legislators and the public, companies are implementing policies to prevent
corruption. Anti-corruption policies have found their way to contracts, and the respect of such policies has become
a ground for termination. Stringent policies are imposed on contracting partners, especially agents and
subcontractors. Many multinational companies impose extensive audit procedures on their subcontractors.

In September 2012, the executive board of the International Chamber of Commerce (ICC) adopted the ICC
Anti-corruption Clause 2012, a document prepared as a joint effort by two ICC Commissions:
• The Commission on Corporate Responsibility and Anti-corruption; and
• The Commission on Business Law and Practice

The drafting of the clause was done in a joint task force made up by François Vincke, Belgium, Vice Chair of
the Commission on Corporate Responsibility and Anti-corruption; Jean-Pierre Méan, Switzerland, the Chairman of Amnesty International Switzerland and former Chief Compliance Officer of the European Bank for
Reconstruction and Development; Christian Steinberger, Germany, Vice-Chair of the Commission on Commercial Law and Practice and General Counsel of the German Metal Industry Federation; and Lauri Railas, Counsel at Krogerus Attorneys Ltd., Finland.

The ICC has published anti-corruption rules for 35 years already as a tool for corporate self-regulation. The
ICC rules in their latest form reflect the provisions of the OECD Convention on Combating Bribery of Foreign
Public Officials in International Business Transactions (1997) and the United Nations Convention against Corruption (2003).

How does the new ICC clause work?

The aim of the new clause is to help business people make essential reference to the newly revised ICC
Rules on Combating Corruption 2011, with the aim of creating trust and preventing their contractual relationship
from being affected by corruptive practices. Companies may include this clause in their agreements,
whereby they undertake to comply with the ICC Rules.
Two options are possible in this respect: either a short text with the technique of incorporation by reference
of Part I of the ICC Rules on Combating Corruption 2011 (Option I) or, the incorporation of the full text of the
same Part I of the ICC Rules on Combating Corruption 2011 in their contract (Option II). Options I and II are
essentially the same thing, but in some legal cultures incorporation by reference may not be adequate to create
legal effects.

In the final days of preparations, a new Option III was added after repeated requests made by ICC Sweden.
According to this third option, a company simply undertakes to maintain a corporate anti-corruption compliance
programme as described in Article 10 of the 2011 ICC Rules and not to abide by the full text of Part I of
the Rules.

Companies adhering to Part I by choosing either Option I or Option II undertake that, at the date of the entering
into force of the Contract, itself, its directors, officers or employees have not offered, promised, given,
authorized, solicited or accepted any undue pecuniary or other advantage of any kind (or implied or inferred
that they will or might do any such thing at any time in the future) in any way connected with the Contract and
that it has taken reasonable measures to prevent subcontractors, agents or any other third parties, subject to
its control or determining influence, from doing so.

“Corruption” or “corrupt practice(s)”, as used in the clause, include (1) bribery, (2) extortion or solicitation, (3) trading in influence and (4) laundering the proceeds of these practices. These breaches against the rules are
defined in detail in the clause. This is soft law that is independent of any national law but has counterparts in
the legislation of most countries.

The parties submitting themselves to the clause agree that, at all times in connection with and throughout the
course of the contract and thereafter, they will comply with and will take reasonable measures to ensure that
their subcontractors, agents or other third parties, subject to their control or determining influence, will prohibit
bribery, extortion or solicitation, trading in influence or laundering the proceeds of corrupt practices at all
times and in any form, in relation with a public official at the international, national or local level, a political
party, party official or candidate to political office, and a director, officer or employee of a party, whether these practices are engaged in directly or indirectly, including through third parties.

Interpretation of the clause provisions

Practically all forms of corruption are caught by the definition. Additionally, the undertaking concerns both
business-to-government and business-to-business relations. The undertakings of the parties relate to their activities by the time of the conclusion of the contract and during its entire life-span and performance. It should
be noted that the personnel of a party is subject to a definite undertaking whereas only reasonable measures
should be taken to ensure that third parties, such as subcontractors or agents, subject to the determining
influence of that company have not been involved in corruption or corrupt practices.

What this means in reality is that a company is not required to prevent by all means any of its subcontractors,
agents or other third parties from committing any corrupt practice. It shall , however, based on a periodical
assessment of the risks it faces, put into place an effective corporate compliance programme, adapted to its
particular circumstances.

It shall also exercise, on the basis of a structured risk management approach, appropriate due diligence in
the selection of subcontractors, agents or other third parties, subject to its control or determining influence;
and train its directors, officers and employees accordingly.

The clause contains both black-letter text and commentary. In the commentary, detailed recommendations
are made with a view to giving companies concrete advice on how to interpret the black-letter text.
For instance, the ICC recommends enterprises not to make ‘facilitation payments’ (these are unofficial,
improper, small payments made to a low-level official to secure or expedite the performance of a routine or
necessary action to which the payer is legally entitled), unless their employees are confronted with exigent
circumstances, such as duress or when the health, security or safety of their employees are at risk.

Consequences of non-compliance

The failure to comply with the ICC rules may lead to consequences. It is possible that the officers of a company
get caught by police and relevant criminal consequences follow. In the domestic laws of many countries,
including Finland, a corporation may be prosecuted and face criminal sanctions, in practice fines, sometimes
also confiscations. This obviously creates evidence for the consequences and sanctions in a contractual relationship but is not a precondition for that.

Paragraphs 3 of both Option I and Option II provide that if a party, as a result of the exercise of a contractually-
provided audit right, if any, of the other party’s accounting books and financial records, or otherwise, brings
evidence that the latter party has been engaging in material or several repeated breaches of the provisions of
Part I of the ICC Rules on Combating Corruption 2011, it will notify the latter party accordingly and require the
party to take the necessary remedial action in a reasonable time and to inform it about such action.

If the latter party fails to take the necessary remedial action, or if such remedial action is not possible, it
may invoke a defence by proving that by the time the evidence of breaches had arisen, it had put into place
adequate anti-corruption preventive measures, as described in Article 10 of the ICC Rules on Combating Corruption 2011, adapted to its particular circumstances and capable of detecting corruption and of promoting a culture of integrity in its organisation. If no remedial action is taken or, as the case may be, the defence is not
effectively invoked, the first party may, at its discretion, either suspend the contract or terminate it, it being understood that all amounts contractually due at the time of suspension or termination of the contract will remain payable, as far as permitted by applicable law.

As we can see from the above paragraph, the threshold of corruption having an impact on the sustainability of
the contract is quite high. The consequences of minor violations of the ICC Rules than envisaged above are
not actually covered by the clause. The effect of such violations may have to be judged by other parts of the
contract.

A question may arise as to what is meant by remedying a breach. How could one remedy a crime committed?
The answer is not a simple one, and not all breaches can be remedied as such. The commentary contains
some examples of how a breach of a non-corruption obligation could be remedied. I think offences that are
not attributable to the ‘directing mind’ of a company could be remedied by reorganisation of work, increasing
surveillance or, in worst cases, firing the people having committed the offence.

Parameters of Option III

Option III, which was added to the clause in the final metres of the preparation, has a sanction mechanism. It
essentially differs from Options I and II in that a company does not undertake no corruption has taken place
prior to the conclusion of the contract, during its validity or thereafter. There was a fear that random actions
of insignificant employees would jeopardise the existence of a long-term contractual relationship in a situation
where a contracting partner wants to get rid of a binding contract that has become disadvantageous due to
commercial developments.

The obligation imposed by Option III on a company consists of the parties putting into place a corporate anticorruption compliance programme adapted to its particular circumstances and capable of detecting corruption and of promoting a culture of integrity in the organisation. The programme must be maintained and implemented throughout the lifetime of a contract, and the contracting partner must be informed regularly about
the implementation of the programme through statements of a qualified and named corporate representative
(such as a compliance officer). Should the statements of the representative contain material deficiencies, the
other party may trigger the remedy mechanism, failing which the contract may be suspended or terminated.

It is thought that the application of Option III will, in practice, lead to the same type of considerations. If a
company gets caught of serious or repetitive corruption, its prevention systems are evidently not working very
well. It is arguable, however, that remedy mechanisms are easier if the undertaking of a company is significantly less onerous.

No audit rights presumed

It has to be stressed that the clause does neither envisage nor in any way promote the idea of audit rights visà-
vis the contracting partner. In fact, the clause is built on the idea that each party keeps its own yard clean,
but indications of non-compliance may trigger the mechanism mentioned in paragraphs 3 whereby a party
needs to address the concerns of the other party in a suitable way.

Application in dispute resolution

It is ultimately for an arbitral tribunal or other dispute resolution body, such as a national court (which would
also settle other disputes relating to the contract), to determine whether a party is guilty of material or several
repeated breaches of ICC Rules, whether it has remedied the breach(es) or whether it is able to put up a
defence of an effective corporate anti-corruptive mechanism.

The question of burden of proof will eventually arise. Unlike in the UK Bribery Act, it would have to be the party invoking breach of the ICC Rules to prove that this has happened. It is up to the dispute resolution body to
determine whether the requirement of “beyond reasonable doubt” or any other requirement would apply. The
body responsible for dispute resolution would have to consider whether a corruptive conduct is attributable to
a company as such or not. The UK Bribery Act imposes strict liability on the company for persons associated
with it, whereas the United States and Finnish laws limit corporate criminal liability to circumstances in which
a person who is the ‘directing mind’ of the company is guilty of the offence.

When it comes to remedying a breach or putting up a defence of an effective anti-corruptive mechanism, the
party invoking these should eventually carry the burden of proof of their effectiveness.

What happens, in effect, is that an arbitral or judiciary body applies criminal law in a contractual context. The
traditional approach of contract law requiring a fundamental breach for the termination of contract is largely
useless since the concept as known, for example, by Article 25 of the United Nations Convention on Contracts
for the International Sale of Goods (CISG) builds on commercial expectations relating to the contract.
Breaches of ethical values can obviously lead to sinister economic consequences in the way of sanctions,
black-listing or public condemnation, but can also operate independent of such considerations.

Incorporate the clause or not?

As already mentioned, anti-corruption clauses already exist in contracts, some of them even refer to the ICC
Rules. Such clauses play a more important role in long-term contracts and contracts with a larger magnitude,
such as large construction projects. It could also find use in acquisitions.

The ICC clause is meant to be a balanced alternative that is not particularly onerous to the parties or create
unexpected consequences by way of its exploitation for commercial purposes. Its use could, however, be
problematic in countries or circumstances where the public sector client requires the incorporation of the
clause, but does not respect its spirit by supervising its own officials. To draft provisions for such a situation is
a task of its own.

Further details, contact Lauri Railas, counsel, [email protected]. Please visit his Krogerus profile for further information.