“Carbon Copy” Prosecutions: A Growing Anticorruption Phenomenon In A Shrinking World

Andrew Boutros and Markus Funk recently released (here) their article “Carbon Copy” Prosecutions: A Growing Anticorruption Phenomenon in a Shrinking World” published in The University of Chicago Legal Forum. Boutros is an Assistant U.S. Attorney in the N.D. of Illinois and Lecturer in Law at the University of Chicago Law School (who co-wrote the article in his personal capacity) and Funk is a partner at Perkins Coie. Boutros and Funk are Co-Chair’s of the ABA’s Global Anti-Corruption Task Force.

In summary, the authors, using recent enforcement actions, note as follows.
“[I]f a corporation reaches a negotiated resolution with US authorities on international bribery-related charges—whether through a non-prosecution agreement, a deferred prosecution agreement, or a guilty plea—there is a bona fide risk that other countries will initiate prosecutions based on the same facts as, and admissions arising out of, the US investigation and resolution. [I]f an individual corporate officer is even tangentially involved or implicated in a US-negotiated resolution, that corporate officer—even if not named at all in the resolution—faces potential criminal charges overseas. The officer, therefore, has a strong incentive to ensure that the resolution either does not name him or her or describes the officer’s conduct in the most positive light (or at least neutrally). [The] Article examines this growing—but still largely under-recognized—international phenomenon of “carbon copy” prosecutions.”
What is a carbon copy prosecution? The authors define the term to mean “successive, duplicative prosecutions by multiple sovereigns for conduct transgressing the laws of several nations, but arising out of the same common nucleus of operative facts.”
The article then “details the myriad cost-benefit considerations that companies might weigh when deciding whether to make voluntary front-end disclosures to foreign authorities concurrently with their disclosures of potential FCPA violations to U.S. officials.” Among the considerations the authors identify is 5th Amendment double jeopardy issues and the collateral estoppel effect of U.S. resolutions on international enforcement actions and vice versa.
In addition, the authors note as follows. “The net effect of [DOJ and SEC FCPA settlement policies] is that when a company enters into a negotiated resolution with the DOJ – particularly in those cases with parallel SEC enforcement actions – it is essentially powerless to defend against, much less deny, the factual basis on which the resolution is based. This all but ensures that a company that settles with the DOJ – or both the DOJ and SEC in parallel proceedings – will have little or no choice but to settle with foreign authorities, should such authorities choose to exercise jurisdiction and enforce their corollary anticorruption laws.”
Although the notion of carbon copy prosecutions have been known for some time, Boutros and Funk’s article is an important contribution to Foreign Corrupt Practices Act literature and provides an analytical scrutiny to this observable trend. For this reason, the article should find a place on your reading stack.

Story from http://www.fcpaprofessor.com/carbon-copy-prosecutions-a-growing-anticorruption-phenomenon-in-a-shrinking-world?goback=%2Egde_4243319_member_181192434

Assessing the extra-territorial reach of the UK Bribery Act

Contributed by Arnold & Porter LLP

Introduction
Main offences
Extra-territoriality of bribery offences
Key aspects of failure to prevent bribery
Comment

Introduction

When the UK Bribery Act came into force on July 1 2011, it was hailed as one of the toughest pieces of anti-corruption legislation in the world. It follows a recent trend in criminal legislation, such as the Fraud Act 2006 and the Consumer Protection from Unfair Trading Regulations 2008, which seeks to replace complex and unwieldy statutes with simple and broad offences in codified form. Much of the commentary on the act has related to its extra-territoriality, and concerns have been expressed that this could damage the ability of UK companies to do business in certain parts of the world where corruption is prevalent. This update assesses whether the jurisdictional reach of the act is really as broad as much of the commentary would imply.

Main offences

In order to understand the extra-territorial reach of the act, it is necessary to understand the offences that it creates.

The act creates three offences which seek to capture acts of bribery by natural persons or corporate bodies: bribing another person,(1) being bribed(2) and bribery of a foreign public official.(3) In contrast to the US Foreign and Corrupt Practices Act, the UK offences of bribing another person and being bribed apply to bribery in both the public and private sectors.

In addition to the bribery offences, the act creates a new offence in relation to commercial organisations which fail to prevent bribery.(4)

Extra-territoriality of bribery offences

The jurisdictional reach of the bribery offences extends to offences that are committed or partly committed in the United Kingdom and offences committed abroad by persons with a close connection to the United Kingdom. Unsurprisingly, the bribery offences are committed in England, Wales, Scotland or Northern Ireland if any "act or omission"(5) which forms part of the offence takes place in that part of the United Kingdom, regardless of the nationality of an individual suspect or the place of incorporation of a corporate suspect.

Thus, the bribery offences are committed where a payer makes a payment from the United Kingdom to an overseas recipient in order to induce the improper performance of a function or activity outside the United Kingdom, on the basis that part of the offence (ie, the payment) has taken place in the United Kingdom. This aspect of the act is not new or controversial, and accords with the general criminal law of the United Kingdom, which is usually concerned with conduct within the jurisdiction. It is also consistent with the pre-existing bribery legislation.

The jurisdictional reach of the bribery offences is broader in relation to persons with a 'close connection' with the United Kingdom for the purposes of the act.(6) British citizens, citizens of British overseas territories and bodies incorporated under the law of any part of the United Kingdom, among others, are deemed to have a close connection with the United Kingdom and may be prosecuted where the entire offence takes place abroad. For example, the bribery offences would be committed where a UK citizen makes a payment from outside the United Kingdom to an overseas recipient in order to induce the improper performance of a function or activity outside the United Kingdom. In these circumstances, no act or omission forming part of the offence would take place in the United Kingdom, but the UK citizen could still be prosecuted on the basis of his or her nationality and be deemed to have a close connection with the United Kingdom. Although this aspect of the act constitutes an extension of the general criminal law of the United Kingdom, it is not particularly controversial, as it largely accords with the pre-existing bribery legislation.(7) The only significant extension under the act is that the bribery offences now capture foreign nationals who are involved in bribery abroad while ordinarily resident in the United Kingdom.(8) This was perceived to be a loophole in the pre-existing bribery legislation, which has now been remedied so that such individuals are deemed to have a close connection with the United Kingdom.

Thus, the act does not significantly extend the jurisdictional reach of the UK courts in terms of acts of bribery committed by individuals.

Key aspects of failure to prevent bribery

Extra-territorial reach
Most of the concerns highlighted by commentators have focused on the offence of failing to prevent bribery, and with some justification.

There was nothing remotely similar to this offence under the pre-existing bribery legislation, and its essence -secondary criminal liability for another's actions - is unusual in the context of a white-collar criminal offence such as bribery. Moreover, it sidesteps the limitations on corporate criminal liability under the common law identification doctrine, whereby a company can normally be held criminally liable only on the basis of the acts and state of mind of those of its directors and managers who represent its "directing mind and will",(9) thereby precluding prosecutions if there is no evidence of board-level complicity.

Once it is established that a commercial organisation "carries on a business, or part of a business, in any part of the United Kingdom",(10) regardless of where in the world it is incorporated, it may be guilty of failing to prevent bribery if an "associated person",(11) such as an employee, agent or subsidiary, bribes another person or a foreign public official for the benefit of the commercial organisation. It is irrelevant whether the associated person is unconnected with the United Kingdom or the entire offence takes place outside the United Kingdom.

Although the courts will ultimately decide whether an overseas commercial organisation carries on a business or part of a business in the United Kingdom for the purposes of the offence, Paragraph 36 of the Ministry of Justice Guidance on the Bribery Act 2010 may provide assistance:

"As regards bodies incorporated, or partnerships formed, outside the United Kingdom, whether such bodies can properly be regarded as carrying on a business or part of a business 'in any part of the United Kingdom' will again be answered by applying a common sense approach... the Government anticipates that applying a common sense approach would mean that organisations that do not have a demonstrable business presence in the United Kingdom would not be caught. The Government would not expect, for example, the mere fact that a company's securities have been admitted to the UK Listing Authority's Official List and therefore admitted to trading on the London Stock Exchange, in itself, to qualify that company as carrying on a business or part of a business in the UK... Likewise, having a UK subsidiary will not, in itself, mean that a parent company is carrying on a business in the UK, since a subsidiary may act independently of its parent or other group companies."

As announced in a speech by the then-director Richard Alderman, the Serious Fraud Office (SFO) considers that "economic engagement with the economy of the UK" may determine whether an overseas commercial organisation carries on a business or part of a business in the United Kingdom for the purposes of the offence. The SFO has also informed the Organisation for Economic Cooperation and Development that carrying on a business in the United Kingdom should be understood to mean buying and selling in the United Kingdom.(12) For example, a parent company incorporated in Japan, whose agent based in China bribes a Chinese official for the parent company's benefit, could be prosecuted in the United Kingdom because one of its subsidiaries is located in the United Kingdom, regardless of the fact that the UK subsidiary was uninvolved in the act of bribery in China.

The offence of failure to prevent bribery represents a significant extension of jurisdictional reach under the act, well beyond both the general criminal law of the United Kingdom and the pre-existing bribery legislation.

Adequate procedures defence
The Ministry of Justice's guidance confirms that the act's objective is not to bring the full force of the criminal law to bear on well-run commercial organisations that experience an isolated instance of bribery on their behalf. It is acknowledged that no policies or procedures can detect and prevent all bribery. Accordingly, a full statutory defence is available if the commercial organisation can show that although a particular instance of bribery occurred, the organisation had adequate bribery prevention procedures in place. The question remains as to what constitutes 'adequacy' in this context, but underlying the ministry's guidance is the proposition that bribery prevention procedures should be proportionate to risk.

Enforcement
Since R v Innospec Ltd(13) the SFO has largely restricted its bribery-related enforcement activity against corporate bodies to civil recovery orders under the Proceeds of Crime Act 2002 (which permit the recovery of property obtained through unlawful conduct without the need for a criminal conviction), as opposed to prosecutions under the pre-existing bribery legislation.(14) It is likely that this prevalence of civil recovery orders has been partly due to the litigation risk involved in prosecuting corporate bodies under the identification doctrine. The offence of failure to prevent bribery may provide a user-friendly way for the SFO to prosecute corporate bodies where there is no evidence of board-level complicity in an act of bribery; this may, in turn, lessen the need for the SFO to use civil recovery orders in future.

Although the offence of failure to prevent bribery has extensive jurisdictional reach, it remains to be seen whether the SFO will enforce the offence aggressively against overseas companies. Indications from the SFO suggest that the extra-territoriality of the offence is central to one of its enforcement priorities - namely, protecting UK companies and the United Kingdom as a centre of business, and ensuring that UK business interests are not disproportionately prejudiced by the act. During its consultation, the Joint Committee on the Draft Bribery Bill asked the SFO whether, in practice, it would investigate and prosecute companies that have a limited connection to the United Kingdom. The SFO's response was unequivocal:

'We welcome the ability to investigate and prosecute companies carrying on part of a business here, irrespective of where they are registered. It is part of creating a world level playing field which would see those companies having to adhere to the same international standards of our own companies and the international community. The SFO will look at appropriate cases with a view to investigation and prosecution."

Alderman subsequently reiterated the SFO's approach in a speech in October 2011:

"I have said in public on a number of occasions that proceeding against foreign corporations under the Bribery act for corruption committed in other countries is a high priority for the SFO. What we are actively looking for is a case where a foreign corporation (with a UK business presence) has disadvantaged a good ethical UK company by using corruption in another country. This is likely to have had a detrimental impact on the UK company with a possible loss of jobs in the UK. There is therefore a very strong UK public interest in an investigation in those circumstances."

It is therefore likely that, for presentational reasons, the SFO will seek to ensure an appropriate balance between enforcement action against domestic and overseas commercial organisations in its portfolio of Bribery Act cases. Failure to do so would risk incurring criticism from influential business lobbying organisations, such as the Confederation of British Industry, which has already warned the SFO not to be over-zealous in policing British companies. Furthermore, such an approach fits with overall enforcement practices in the United Kingdom that not all criminal offences result in a prosecution.

Comment

Although the Bribery Act does not significantly extend the jurisdictional reach of the UK courts in respect of acts of bribery, the extra-territoriality of the offence of failure to prevent bribery is extensive. Overseas commercial organisations with what could be deemed a 'demonstrable business presence' in the United Kingdom should consider whether they have any exposure, especially given the expressed intentions of the SFO. Both domestic and overseas commercial organisations should be aware that the offence may provide the SFO with an easier path to demonstrate corporate liability.

However, the availability of the full statutory defence, coupled with potential representations in relation to the public interest, means that the legal risks associated with the offence are manageable, provided that companies act pre-emptively by ensuring there are adequate bribery prevention procedures in their corporate compliance programmes and that such procedures are periodically reviewed. Creating and managing a robust corporate compliance programme entails a cost, but this is minimal compared to the reputational damage, legal costs and distraction from the core business purpose that may result from a substantial criminal investigation.

For further information on this topic please contact Kathleen Harris at Arnold Porter LLP by telephone (+44 20 7786 6100), fax (+44 20 7786 6299) or email (kathleen_harris@aporter.com).

Endnotes

(1) Section 1 of the act.

(2) Id, Section 2.

(3) Id, Section 6.

(4) Id, Section 7.

(5) Id, Section 12(1).

(6) Id, Sections 12(2)(c) and 12(4).

(7) Section 109 of the Anti-terrorism, Crime and Security Act 2001.

(8) Section 12(4)(g) of the Bribery Act 2010.

(9) As per Viscount Haldane LC in Lennard's Carrying Co Ltd v Asiatic Petroleum Ltd [1915] AC 705.

(10) Section 7(5) of the Bribery Act.

(11) Id, Section 8.

(12) Phase 3 Report on Implementing the OECD Anti-Bribery Convention in the United Kingdom, March 2012, paragraphs 37- 41, page 15.

(13) 2010 WL 3580845.

(14) In particular, the Prevention of Corruption Act 1906.

An earlier version of this update was first published in MLex Magazine.

“Instrumentality”: Ways the Government’s Power-to-Appoint Creates Control Over SOEs

I read the article below by Matteson Ellis Law PLLFC, and noted the stark parallels in the governance gap created by the incorporation and operation of hybrid public/private entities in Haiti and other English Speaking Caribbean States.  

“Instrumentality”: Ways the Government’s Power-to-Appoint Creates Control Over SOEs 

This week, the DOJ filed its reply brief in the Esquenazi appeal before the 11th Circuit on the meaning of “foreign official.” This is the first time that an appeals court will consider the heated issue of “instrumentality” under the FCPA – what types of entities constitute “foreign officials” for purposes of foreign bribery. In its brief, the DOJ argues that one of the factors establishing that the company Teleco was an instrumentality of Haiti was that “Haiti’s president and high-level ministers controlled Teleco through their appointment of Teleco’s board of directors and general director.”

What does this type of “control” look like? In the last six months, I have had the opportunity to work directly with two state-owned enterprises (SOEs) to advise them on building anticorruption compliance mechanisms. Through these experiences, I have seen ways in which such “control” can manifest itself:

Board appointees selected for political reasons, not commercial ones. When this happens, board members do not always have the necessary qualifications for the job. In cases I have seen, a board’s audit committee members could not read financial statements. Governance committee members had never served on a board before. Many board members were not experienced in the specific industry and thus were unable to make informed decisions on strategy and technology. Some board members saw their positions as rewards for political good acts, not as fiduciary duties. Some thought they were supposed to be involved in the day-to-day decision-making of the company, not long-term strategy-setting.

Unqualified lower-level hires. The government can impact the company’s business by pressuring it to hire people at lower levels of the operation. In cases I have seen, these people were not qualified to do their jobs. They became burdens, not assets. This undermined the effectiveness of the particular business unit and wasted resources.

Unfavorable suppliers and third parties. The government can impact the company’s decisions on use of suppliers and third parties. A company might be pressured to hire a supplier with a relationship with a government official and whose equipment is more expensive and less reliable. It might be asked to hire a marketing agent who has no knowledge of that market.

Misguided investment decisions. The government can impact the company’s decision-making on investments. Decisions on the provision of services might be made to please certain constituent groups for short-term political gain rather than lay the groundwork for long-term commercial success.

Such political interference means that the company is not fully operating like a commercial entity. It is somewhat serving a political purpose, and somewhat performing a commercial role. This bipolar existence has the effect of damaging morale. Employees want their company to succeed. They want their own performances to be measured against transparent standards. They are frustrated when decisions are made, not to improve the bottom line, but for other reasons. Constant turnover of a country’s political leadership leads to turnover of state-owned company’s own leadership, which thwarts planning and growth.

The FCPAméricas blog is not intended to provide legal advice to its readers. The blog entries and posts include only the thoughts, ideas, and impressions of its authors and contributors, and should be considered general information only about the Americas, anti-corruption laws including the U.S. Foreign Corrupt Practices Act, issues related to anti-corruption compliance, and any other matters addressed. Nothing in this publication should be interpreted to constitute legal advice or services of any kind. Furthermore, information found on this blog should not be used as the basis for decisions or actions that may affect your business; instead, companies and businesspeople should seek legal counsel from qualified lawyers regarding anti-corruption laws or any other legal issue. The Editor and the contributors to this blog shall not be responsible for any losses incurred by a reader or a company as a result of information provided in this publication. For more information, please contact Info@MattesonEllisLaw.com.

The author gives his permission to link, post, distribute, or reference this article for any lawful purpose, provided attribution is made to the author.

@2012 Matteson Ellis Law, PLLC

Author: Matt Ellis

Categories: Enforcement, FCPA, Foreign Official/Instrumentality

Lessons from “The Mensalão”: Brazil’s Largest-Ever Corruption Trial

Right now, Brazil is in the middle of its largest corruption trial in its history. The proceeding is being called the “Mensalão,” meaning “the big monthly payment.” Thirty-eight individuals, including current and former government officials, have been accused of paying or accepting monthly bribes, money laundering, conspiracy, fraudulent management of finance institutions, and other related crimes to secure support in Congress for the legislative priorities of Brazil’s former President, Luiz Inácio Lula da Silva. Al Jazeera recently reported: “The case is of such great importance that Brazil’s powerful Public Defender (the Ministério Público) has established a website to explain the trial to children.” Learn more background here.

In legal terms, the mensalão deals with purely domestic bribery issues. There is no indication that foreign bribery played a role in the scheme. But the case is still relevant to FCPA compliance practitioners. Here are some reasons why:

Another Sign that Brazil is Confronting Corruption. The mensalão marks the first time that such a large number of high-level individuals, both from politics and business, are going to trial for corruption. Nearly all Brazilians are talking about the case. The news is covering it every night. There are heightened expectations. The atmosphere is so charged, there is even concern among legal circles that the hysteria will lead to a miscarriage of justice – the Supreme Court is under pressure to act.

These developments build on other signs of growing intolerance for corruption in Brazil, such as current President Dilma Rousseff’s decision to rid her administration of numerous corrupt Ministers, discussed here. In these ways, Brazil is starting to grapple with a problem that has been there for a long time. At the same time, there is still significant skepticism among the public. According to one recent poll, 73% of Brazilians think that the accused in the mensalão should go to jail but only 11% think that they will. It will be interesting to see how the trial turns out.

Political Contributions Riskier for Multinationals. Brazilian electoral rules permit some political contributions, so legal contributions by a company in Brazil would not be per se violations of the FCPA given the statute’s local law defense. But such contributions are always risky because they could form, or be perceived to form, part of aquid pro quo. Further, the mensalao case heightens the risk that such contributions will be misperceived by the public. Thus, even a legal donation to a politician might be ill advised in the current environment. As a result, many multinationals that are concerned about compliance issues are choosing to reduce or eliminate their political contributions. Whether such donations pick up in the upcoming election season will be an important measure of the impact of this case.

No Corporate Liability for Corruption. The mensalão reminds us that Brazilian law does not yet make corporate entities liable for corrupt acts, although the country has committed to establish such liability for purposes of compliance with the OECD Anti-Bribery Convention. Several companies, like the well-known Banco Rural, are allegedly involved in the scheme. But none will be charged. All defendants are individuals.

Anti-Corruption Legislation Under Consideration. As discussed in previous FCPAméricas posts, the Brazilian Congress is currently considering legislation to strengthen the country’s anti-corruption regime. But the provisions of the proposed law – including the establishment of corporate criminal liability – could be watered down in negotiations. The mensalão may influence these negotiations, as it highlights risks and methods for improperly influencing the legislative process. It gives observers real reason to question how the bill writing process might be playing out, how drafts might be changing, and what might be the influences at play.

Anti-Corruption and Anti-Money Laundering. The mensalão shows the clear connection between corruption and money laundering, and the need to tackle both in tandem. For example, it is alleged that President Lula’s Chief of Staff laundered funds first before disbursing them to legislators to secure votes. Through the United Nations Convention Against Corruption (Article 23), the international community took a significant step in elevating money laundering to a prohibited practice on par with that of bribery itself. The mensalão shows why.

The FCPAméricas blog is not intended to provide legal advice to its readers. The blog entries and posts include only the thoughts, ideas, and impressions of its authors and contributors, and should be considered general information only about the Americas, anti-corruption laws including the U.S. Foreign Corrupt Practices Act, issues related to anti-corruption compliance, and any other matters addressed. Nothing in this publication should be interpreted to constitute legal advice or services of any kind. Furthermore, information found on this blog should not be used as the basis for decisions or actions that may affect your business; instead, companies and businesspeople should seek legal counsel from qualified lawyers regarding anti-corruption laws or any other legal issue. The Editor and the contributors to this blog shall not be responsible for any losses incurred by a reader or a company as a result of information provided in this publication. For more information, please contact Info@MattesonEllisLaw.com.

The author gives his permission to link, post, distribute, or reference this article for any lawful purpose, provided attribution is made to the author.

@2012 Matteson Ellis Law, PLLC

Author: Matt Ellis

Document gathering and data transfer in investigations

Contributed by Homburger AG

July 02 2012

Introduction
Background
Forbidden services for foreign states
Economic espionage
Violation of an industrial or business secret
Data Protection Act
Processing of data on employees
Comment

Introduction

The recent past has witnessed an increasing need for Swiss companies to conduct internal investigations and to disclose or hand over some or all of the results of those investigations to regulatory or other law enforcement authorities abroad, notably the United States. This update examines the main statutory obstacles with which Swiss companies are faced when responding to a foreign authority's request for information or document production. Those statutory obstacles need to be overcome irrespective of whether a Swiss company is fully (or even voluntarily) cooperating with a foreign authority.

Background

Increasingly, Swiss companies have been the target of investigations by US regulatory authorities (Federal Trade Commission, Futures Trading Commission, Securities and Exchange Commission, Department of Justice). A Swiss company's involvement in these regulatory (or administrative) proceedings can broadly be described as falling within one of two categories. Sometimes the Swiss company will itself be responsible for starting those proceedings (eg, as a leniency applicant or whistleblower). In such cases the Swiss company has an interest in proactively cooperating with the competent US authorities. In other cases a Swiss company will find itself defending against allegations raised by US regulatory authorities in proceedings that started either because another company (or employee) blew the whistle or as a result of a complaint.

Swiss rules relating to banking secrecy are excluded from the ambit of this update.

For the purpose of this update, the notion of 'documents' or 'information' is broad, including hard-copy documents, electronic documents, email traffic, chats and tweets.

Forbidden services for foreign states

Article 271(1) of the Penal Code provides that:

"[w]hoever performs, without authorization, acts on Swiss territory for a foreign state which are reserved to a public authority or a public official, whoever performs such acts for a foreign party or any other foreign organization, whoever aids and abets such acts, shall be fined or punished with a term of imprisonment of up to three years, in serious cases with a term of imprisonment of not less than one year."

Article 271 protects Switzerland's territorial sovereignty and aims at preventing foreign states or parties from circumventing international conventions on judicial assistance.

The gathering or taking of evidence in Switzerland for use in foreign proceedings (including any preparatory act performed on Swiss territory) qualifies as an act within the scope of Article 271. This is particularly the case with regard to the interrogation of witnesses (depositions) or the collecting of written witness statements on Swiss territory. The same applies if a party is to produce or obtain documents for use in foreign proceedings which are not in its possession or under its control and must be gathered from a third party in Switzerland.

The assessment under Article 271 of a party submitting its documents is not entirely clear. In an obiter dictum, the Federal Supreme Court held that a party submitting its (own) documents in foreign proceedings does not constitute an official act but a private act, and thus is not subject to the restrictions set out in Article 271.(1) However, according to the federal attorney general, any submission must additionally be voluntary (ie, absent of any formal request or order). Whether this requirement will be upheld by the Federal Supreme Court cannot be predicted with any certainty. Until this matter is clarified, there is a real chance of criminal prosecution for any Swiss company submitting its own documents in foreign proceedings on a non-voluntary basis (ie, in response to a foreign order such as a subpoena).

Article 271 applies only to the performance of official acts without proper authorisation. 'Authorisation' in the sense of this provision means:

• a general waiver by way of judicial assistance proceedings according to a specific Swiss federal statute;
• a bilateral or multilateral international convention; or
• in exceptional cases, an authorisation granted on an individual basis – an individual authorisation (if sought) must be applied for by the competent governmental department.

Economic espionage

Article 273 of the Penal Code reads as follows:

"Whoever spies out an industrial or business secret in order to make it available to a foreign state agency or a foreign organization or private undertaking or its agents, whoever makes an industrial or business secret available to a foreign state agency or a foreign organization or private undertaking or its agents, shall be fined or punished with a term of imprisonment of up to three years, in serious cases with a term of imprisonment of not less than one year. The prison sentence may be combined with a fine."

Article 273 is designed to protect national public and economic interests at large. The provision penalises any conduct which provides a foreign addressee with the opportunity to gain insight into Swiss business secrets.

A 'secret' within the meaning of Article 273 is any fact which is not publicly known or accessible and which shall be kept secret pursuant to the intention of the master of the secret, provided that this interest in keeping it secret is worth protection. An objective interest in secrecy that is worthy of protection is presumed. The definition of a 'secret' in Article 273 is comparable to that under Article 162 of the code (see below). Moreover, the secret must have a connection to Switzerland, either because it affects Swiss national interests or because the private party whose secrets are protected resides in Switzerland.

In 1977 the federal attorney set out defined guidelines as to what constitutes economic espionage under Article 273. The crucial statements are:

"1. As far as the disclosure is restricted to information with regard to which solely the disclosing person has a secrecy protection interest, the decision on the disclosure of such information can be left to this person.

2. However, according to Article 273 [of the Penal Code], it is forbidden and punishable to inform a foreign entity about economic facts

a) with regard to which there is a (direct) secrecy protection interest of Switzerland as a whole, or

b) with regard to which a third party that has not given its prior formal consent to the disclosure has a secrecy interest worthy of protection."

Thus, a company is free to disclose its own secrets (unless the disclosure harms the direct interests of the Swiss national economy, such as national economic supply in times of war or crisis). By contrast, it is not allowed to disclose the secrets of any Swiss third party. However, to the extent that secrets of a Swiss third party are concerned, such party may consent to disclosure (provided that the disclosure does not harm any direct interests of the Swiss national economy).

While the 1977 guidelines called for prior formal consent, there is a tendency in legal writing today to adopt a more flexible approach and to accept tacit waivers. Thus, if in the circumstances the master of the secret has evidently accepted the risk of disclosure, such a tacit waiver will, most probably, also be accepted as permitting disclosure.

Article 273 does not protect the interests of foreign third parties, even if the disclosing person is domiciled in Switzerland. This applies, in particular, to relations between foreign affiliates of Swiss companies and their business partners, as well as to agreements between parties domiciled in Switzerland and their business partners abroad – provided, however, that such agreements do not contain secrets of other persons or companies domiciled in Switzerland.

Disclosure of secrets does not violate the law if a competent Swiss authority orders disclosure (eg, in the course of judicial assistance proceedings). Conversely, an order by a foreign authority does not justify disclosure. In particular, according to the view of the Swiss government, a person or entity disclosing secrets in compliance with a foreign subpoena (or any other order or threat) is in breach of Article 273. The Swiss government even believes that such foreign pressure – however strong it might be – does not create a state of distress justifying the breach of Article 273. Otherwise, foreign authorities might be tempted simply to increase the pressure until a suitable state of distress is reached.

Violation of an industrial or business secret

A person disclosing a protected secret may also be punished according to Article 162 of the Penal Code, which stipulates that:

"[w]hoever discloses an industrial or business secret which he is bound to keep by law or by contract, whoever takes profit of such disclosure for himself or for any other person, shall, on request, be fined or punished with a term of imprisonment of up to three years."

Article 162 is designed to protect not only private Swiss interests, but also (and unlike Article 273) foreign interests. It prohibits the disclosure of information which has been entrusted by one party to another with the obligation to keep it secret. Therefore, the offender shall be punished only at the request of the master of the secret.

A 'secret' in the sense of Article 162 is any fact, information or document which:

• is not obvious and generally accessible;
• shall not be disclosed because it is not intended to be brought before the public; and
• is worth being kept secret.

The definition of a 'secret' in Article 162 is comparable to that under Article 273.

Industrial secrets relate to the details of production proceedings. They comprise plans, receipts, procedures and similar. Business secrets relate to supply sources, organisation, prices and clients. To be worthy of protection under Article 162, both industrial and business secrets must somehow be able to affect business results. It does not matter whether the secret originates in Switzerland or elsewhere; nor does it matter whether the master or the receiver of the secret is domiciled in Switzerland.

Contrary to Article 273, the business and industrial secrets protected under Article 162 may be violated only by a person who is subject to a statutory or contractual confidentiality obligation (or by any person taking profit of such violation). Contractual secrecy obligations in the sense of Article 162 certainly exist where there is an explicit clause in an agreement.

Data Protection Act

In Switzerland, the processing of personal data by the private sector is governed by the Data Protection Act and its implementing ordinance. The act is aimed at protecting individuals and legal entities against the misuse of their personal data (ie, all information relating to an identified or identifiable person).(2)

The act provides certain basic principles of data processing. Thus, personal data may be processed only for the purpose:

• for which it was collected;
• which is evident from the circumstances; or
• which is provided for by law.(3)

Furthermore, according to the principle of proportionality, data processing must not be excessive and must be undertaken in good faith.(4)

In addition, the act provides that personal data must not be disclosed abroad if the privacy of the persons concerned is seriously jeopardised as a consequence.(5) Jeopardy is presumed by virtue of law if the country of destination lacks comparable data protection.

If comparable data protection is lacking, data may be disclosed abroad only if one of the requirements set out in Article 6(2) of the act is fulfilled:

• sufficient safeguards ensuring adequate protection, in particular by way of agreement (lit a);
• consent of the data subject in an individual case (lit b);
• direct connection of the processing of a contractual party's data with the conclusion or performance of a contract (lit c);
• disclosure being essential either in order to safeguard an overriding public interest or for the establishment, exercise or enforcement of legal claims before the courts (lit d);
• disclosure being required in order to protect the life or physical integrity of the data subject (lit e);
• the data subject having made the data generally accessible and not having expressly prohibited its processing (lit f); and
• disclosure within the same company or group of companies, if binding corporate rules on data protection are in place that safeguard adequate protection (lit g).

The federal data protection and information commissioner must be informed about the safeguards pursuant to lit a and the data protection rules pursuant to lit g.(6) The list of constellations in Article 6(2) is exhaustive. In particular, an overriding private interest is insufficient justification for the disclosure of data abroad.

The commissioner keeps a non-binding list of countries which are considered to have data protection equivalent to Swiss law.(7) The transfer of personal data to a country that does not have comparable data protection is deemed a breach of privacy rights,(8) unless one of the specific requirements of Article 6(2) is fulfilled.

The United States does not feature on the commissioner's list of countries with data protection equivalent to Swiss law. However, the commissioner agreed with the US Department of Commerce on a US-Swiss Safe Harbour Framework in December 2008.(9) This framework allows US companies and other organisations to self certify to the Department of Commerce their adherence to specific data protection principles. Data transfer to self-certified companies and organisations is possible without the need for an individual data protection agreement or one of the other requirements under Article 6(2) being fulfilled.

Whoever processes personal data without complying with the act may be sued for violation of privacy rights.(10) The petitioner may claim, among other things, the declaration of the unlawfulness of the data transfer and damages. In addition, the act stipulates penal sanctions (fines up to Sfr 10,000) for failure to comply with the obligation to inform the commissioner as required under Article 6(3) of the act.(11) The act does not provide for penal sanctions in case of a violation of its basic principles for processing personal data, except in the case of unauthorised disclosure of secret and sensitive personal data or personality profiles obtained by a person during his or her employment.(12)

Processing of data on employees

The act also applies to the personal data of employees. In addition, the employer may process the personal data of its employees only in accordance with Article 328(b) of the Code of Obligations, which reads:

"The employer may process data of the employee only to the extent that such data relates to the employee's suitability for the employment relationship or is necessary to perform the employment contract. Furthermore, the provisions of the Federal Data Protection Act of June 12, 1992, shall apply."

Generally speaking, Article 328(b) restricts the processing of data in an employee relationship to job-related data. Notably, this provision is mandatory in favour of the employee – namely, the employee cannot validly consent to the processing of his or her personal data beyond the scope defined by Article 328(b).

A violation of Article 328(b) is deemed a breach of the employment contract and exposes the employer to damages.

Comment

There are several statutory provisions to be observed by a Swiss company before documents or data can be transferred abroad in the context of a foreign investigation or proceedings abroad. The observance of those provisions can be a particular nuisance in circumstances where the Swiss company is seeking to cooperate (voluntarily) with a foreign authority's investigation. In that case, care must be taken to seek constructive dialogue with the foreign authority to explain the pertinent legal provisions and the restrictions they place on a Swiss company's ability to cooperate. In particular, it needs to be emphasised to the foreign authority that Swiss law does not prevent cooperation, but that it may delay timely cooperation (eg, because a formal authorisation needs to be obtained before data can be sent abroad). Foreign authorities (particularly in the United States) appear to be receptive to well-meaning explanations and they usually try to accommodate the domestic law restrictions to which a Swiss company may be subject.

For further information on this topic please contact Flavio Romerio or Katrin Ivell at Homburger AG by telephone (+41 43 222 1000), fax (+41 43 222 1500) or email (flavio.romerio@homburger.ch orkatrin.ivell@homburger.ch). The Homburger website can be accessed at www.homburger.ch.

Endnotes

(1) BGE 114 IV 128, 131 [1988].

(2) See Article 3(a) of the act.

(3) See Article 4(3) of the act.

(4) See Article 4(2) of the act.

(5) See Article 6(1) of the act.

(6) See Article 6(3) of the act.

(7) Available on the commisioner's website at www.edoeb.admin.ch.

(8) See Article 13(1) of the act.

(9) Also available on the commisioner's website at www.edoeb.admin.ch.

(10) See Articles 12 and following of the act.

(11) See Article 34(2)(a) of the act.

(12) Article 35 of the act.

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