Asia Pac, Facilitation payments, Real estate & property, US Foreign Corrupt Practices Act & Dodd Frank - Written by Barry & Richard on Monday, June 20, 2011 20:18 - 0 Comments
Bribery Act risk in commercial property & real estate services
The industry has had US Foreign Corrupt Practices Act (FCPA) investigations. The FCPA outlaws bribes to foreign public officials but, unlike the Bribery Act, has an exemption for facilitation payments (for more on and a solution to the UK position about facilitation payments click here).
In China Reuters reported that investigations into illegal land auctions increased over the last decade and that in Shanghai, a number of property officials had been terminated or convicted for corruption.
Two players in the industry have in recent years disclosed investigations in relation to real estate transactions under the FCPA in the Chinese market.
Morgan Stanley a large player in the Chinese real estate market kicked off two years ago announcing in its February 8K in 2009:
“Morgan Stanley announced today that it has recently uncovered actions initiated by an employee based in China in an overseas real estate subsidiary that appear to have violated the Foreign Corrupt Practices Act. Morgan Stanley terminated the employee, reported the activity to appropriate authorities and is continuing to investigate the matter.”
That investigation is ongoing according to Morgan Stanley’s lawyers who report that they continue to “represent Morgan Stanley in connection with a publicly disclosed internal investigation into potential FCPA violations in China.”
CB Richard Ellis
Meanwhile in October last year CB Richard Ellis reported in its 8K US filing:
“As a result of an internal investigation that began in the first quarter of 2010, the Company determined that some of its employees in certain of its offices in China made payments in violation of Company policy to local governmental officials, including payments for non-business entertainment and in the form of gifts. The payments the Company discovered are minor in amount and the Company believes relate to only a few discrete transactions involving immaterial revenues. Nonetheless, the Company believes that the payments may have been in violation of the U.S. Foreign Corrupt Practices Act or other applicable laws. Consequently, the Company voluntarily disclosed these events to the U.S. Department of Justice (the “DOJ”) and the Securities and Exchange Commission (the “SEC”) on February 27, 2010 and has continued to cooperate with both the DOJ and the SEC in connection with this investigation.
The Company engaged outside counsel to investigate these events and has implemented thorough remedial measures.
In addition, in the third quarter of 2010, the Company began another internal investigation, with the assistance of outside counsel, involving the use of a third party agent in connection with a purchase in 2008 of an investment property in China for one of the funds the Company manages through its Global Investment Management business. This investigation is ongoing and at this point the Company is unable to predict the duration, scope or results thereof. In light of the Company’s cooperation with the DOJ and the SEC as described above, the Company voluntarily notified both agencies of this separate internal investigation and will report back to them when the Company has more information.”
In its March 1 2011 10K US filing CB Richard Ellis reported that:
“We have concluded our previously disclosed internal investigation relating to activities by some of our employees in certain of our offices in China that raised issues with respect to the U.S. Foreign Corrupt Practices Act. The U.S. Department of Justice and the U.S. Securities and Exchange Commission have also closed their review of such matters without any action.”
As one door closes another opens?
The most recent carefully worded statement notifying the conclusion of the investigation into employee conduct does not mention the conclusion of the recently opened investigation concerning a third party agent.
These investigations highlight the international exposure of the property industry to corruption.
The Risk Factors section of the CB Richard Ellis 10k contains the statement, familiar to many in the US market:
“Although we maintain an anti-corruption compliance program throughout the company, violations of our compliance program may result in criminal or civil sanctions, including material monetary fines, penalties, equitable remedies (including disgorgement), and other costs against us or our employees, and may have a material adverse effect on our reputation and business.”
Commercial property and real estate businesses should take note. More strict than the FCPA the Bribery Act governs commercial as well as government bribery.
Is your real estate business prepared?