How Do You Say “Book ’Em, Danno” in Flemish?
from
July/August 2005
by John R. Engen
The U.S. Department of Justice has long carried a big stick when it comes to enforcing antitrust laws, and it hasn’t limited itself to American companies. When foreign outfits are accused of price-fixing, bribery, or other illicit practices, government lawyers have been more than willing to issue arrest warrants for the foreign executives responsible, and even put them in prison. For example, in 1999 Kuno Sommer—a Swiss doctor and a now former director of worldwide marketing for a division of the Swiss pharmaceutical giant Roche Holding Ltd.—agreed to serve four months in a U.S. jail and his company said it would pay a $500 million criminal fine for their roles in a vitamin-industry price-fixing scheme.
But American corporate leaders have never had to worry much about reciprocal treatment, at least not until recently. In 2002 the European Union launched a new EU-wide arrest warrant that could make life more trying for U.S. executives and potentially board members. As Layne Kruse, a partner at Fulbright & Jaworski whose specialties include criminal antitrust matters, observes, “The shoe’s now going to be on the other foot.”
The warrant allows European prosecutors to have alleged wrongdoers taken into custody in any EU nation and shipped off for processing to the country where the charges were filed. The new agreements sharply reduce the necessity for the elaborate extradition gymnastics of the past.
The provision covers 32 categories of misdeeds, including money-laundering and counterfeiting, provided that the charges carry a prison term of at least a year. “If an American executive or director is wanted in France, he or she will have to stay out of the entire EU if they don’t want to be arrested,” says Robert Litt, a partner with Arnold & Porter in Washington, D.C.
Attorneys say that U.S. corporate criminal laws are generally tougher than those in the EU, so compliance with American regulations should leave a company in solid shape in Europe. That’s the good news. The bad news is that individual EU countries are getting stricter. For example, the U.K. recently passed more stringent criminal laws on price-fixing.
With 25 individual EU countries—each with its own political realities and pressures—capable of enacting criminal statutes, the shift “could raise the legal risks substantially for U.S. companies,” says Kruse.
He offers the example of an environmental disaster or major fraud occurring in an EU country. “You could see political pressure in that country to criminalize something that before might have been only a regulatory or civil matter, and maybe set standards for board behavior that rises to criminal levels,” he says.
While such law changes would not apply retroactively, they could create murky complexities. Under the new warrant system, if something is designated a crime in, say, Italy but isn’t a crime in the U.K., Italy can nevertheless issue a warrant for a person in the U.K., and the U.K. will be expected to honor it.
To head off potential trouble, smart boards will want to expand compliance programs to make sure the regulations in individual EU countries are covered.
They’ll also want to see that their attorneys and local representatives keep tabs on the legal environments in various markets to flag potential risks. “The bar is being raised, and boards have to be aware of these developments,” Kruse says. Not only to protect shareholders, but themselves as well.
