Sullivan & Cromwell's Juan Rodriguez and Louise Delahunty warn the Bribery Act and competition law could prove a lethal combination for companies with poor compliance

After the lengthy gestation and July roll-out of the Bribery Act, UK and global companies are dealing responsibly with its challenges. Companies have spent considerable time and money on ensuring that they have good compliance systems and a compliance culture.

But no-one can rest on their laurels. Criminal behaviour, as well as behaviour that exposes companies to high fines and reputational damage, takes many forms and will not necessarily be extinguished because one risk box is ticked. Now is the time for responsible corporates to take a holistic view. Your Bribery Act – and Foreign Corrupt Practices Act (FCPA) – policy is in place, your senior management has endorsed your approach, your staff are trained and relevant contractual documents amended. But have you addressed all the risks?

Much has been made of the Proceeds of Crime Act (POCA) money laundering reporting consequences of bribery, but what about the interaction between bribery and cartel behaviour? As recent cases show, if you find one type of non-compliance, another may be lurking in its shadow.

For example, on 15 September 2011, Bridgestone agreed to pay a $28m (£18m) fine to the US Department of Justice (DoJ) for its role in conspiracies to rig bids (in breach of the Sherman Act) and to make corrupt payments to government officials in Latin America (in breach of the FCPA) related to the sale of marine hose. On top of its participation in the marine hose cartel, Bridgestone approved corrupt payments through 'commissions' to local sales agents, part of which were to be passed on to employees of the state-owned customer. This resulted in Bridgestone receiving FCPA charges in addition to Sherman Act charges.

The Bridgestone settlement followed the 2008 case of Misao Hioki (a former Bridgestone executive), who was given a two-year jail term for his role in the marine hose cartel and the related corruption. However, the link between liability for hardcore cartel activity and bribery is not purely a US phenomenon. The European Commission's (EC's) trucks investigation is reported in the press to have commenced because trucking company MAN blew the whistle after it uncovered evidence of certain contacts with other truck manufacturers. MAN is reported to have found the evidence through an internal tip-off as a result of enhancing its compliance programme in response to an earlier bribery investigation (and conviction) of MAN subsidiary Ferrostahl.

In fact, there are many similarities between anti-bribery and competition legislation: both aim to prevent conduct that distorts the competitive and commercial process. Infringement carries heavy financial penalties, spiralling legal costs and diversion of management from day-to-day business during the investigation. Add to that the risk of substantial prison sentences, hefty (and in the case of corporates and the Bribery Act, unlimited) fines, damages litigation and significant reputational damage. A further similarity is that settlements (which involve companies making an admission of liability) are becoming key in the enforcement of European competition legislation and are likely to be used in the enforcement of the Bribery Act.

Although to date the EC has used its powers to accept settlements in cartel cases only sparingly, a steady flow of such settlements is beginning to emerge. A similar trend is likely to develop in the enforcement of the Bribery Act with the planned introduction of US-style deferred prosecution agreements in the UK. Faced with allegations of possible breach, companies have little choice but to carry out an invasive internal investigations, including a global review of emails and other records and multijurisdictional interviewing of employees.

Cartellists have a strong incentive to apply to the competition authorities for leniency. For bribery, self-reporting to the Serious Fraud Office (SFO) is now a real and ongoing option, mirroring FCPA settlements with the DoJ in the US. The incentives for whistle-blowing in competition law are effective in prompting companies to confess their infringement, as is shown by the fact that most major cartel investigations result from whistle-blowing.

A parallel can be drawn with what might be described as the Bribery Act "leniency policy", effectively set out in the SFO's self-reporting and Bribery Act guidelines. This encourages companies to self-report in exchange for the possibility of a civil rather than criminal outcome, and sets out public interest criteria for prosecutions involving facilitation payments.

In order to deal with these risks, companies are well advised to include the investigation of foreign payments in any review of suspected cartel behaviour. Regulators now expect companies to have adequate compliance programmes to educate employees about the risks of breaching these laws, and uncompromising disciplinary procedures to give effect to a zero-tolerance culture.

Compliance with the Bribery Act, along with related government and other industry guidance, will mean that companies should now have effective risk-based procedures to cover the risk of bribery. Similarly, competition law compliance programmes that meet the standards advocated by competition authorities, such as the Office of Fair Trading, should ensure that employees are aware of the boundary between lawful and unlawful conduct and understand the high risks associated with cartel behaviour.

The dual infringement cases mentioned earlier also serve as a reminder that care is needed in due diligence of acquisition targets to identify potential exposure to competition law risk and bribery risk. Unsurprisingly, Bribery Act and competition law due diligence, warranties and representations are evolving and becoming increasingly sophisticated.

Co-operation among the authorities is now a well-established feature of manyinvestigations. Governments, competition authorities and financial regulators in the European Union and around the world are co-operating in exchanging information and co-ordinating investigations. Global awareness of risk is key for major corporates. Effective co-ordination between the bribery and competition investigation teams is critical to ensure that action taken in one of the investigations does not compromise the defence of the other investigation.

Juan Rodriguez is a partner and Louise Delahunty European counsel at Sullivan & Cromwell.

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