Corporate Social Responsibility (IVOR nr. 77) 2010/5.3.3.4:5.3.3.4 Personal liability of directors and officers

Corporate Social Responsibility (IVOR nr. 77) 2010/5.3.3.4

5.3.3.4 Personal liability of directors and officers

Documentgegevens:

Mr. T.E. Lambooy, datum 17-11-2010

Datum: 17-11-2010
Auteur: Mr. T.E. Lambooy
JCDI: JCDI:ADS371836:1
Vakgebied(en): Ondernemingsrecht (V)

Directors' and officers' duties encompass the task of protecting the company from liability, amongst other things by preventing the engagement of corrupt acts by employees and agents of the company. Failures in the performance of this task not only affect the company, they may also lead to the personal liability of the directors or officers. The fact that a director would never pay a bribe is not enough to be free from personal liability under anti-corruption laws and regulations. Of particular concern for officers and directors may be the emerging focus by the SEC on holding individual officers personally liable for failing to implement proper internal controls designed to prevent FCPA violations. "The SEC may seek the extension of personal liability to situations in which inattention or lack of action could be seen as violation of the FCPA."1 Since 'tone at the top' is an important factor in preventing corrupt practices by employees (see supra section 5.5.2.1), and considering the overall responsibility of executives, this line of action by the SEC might be effective.

A clear example is the SEC's prosecution of Monty Fu, the founder and former CEO of Syncor International Corporation. The SEC alleged that Syncor's former Taiwanese subsidiary had bribed doctors in private and public hospitals in Taiwan. In addition to accusing Mr Fu of being aware of the improper payments, which he neither admitted nor denied, the SEC sought to establish the culpability of Mr Fu for his failure to implement proper internal controls that would have prevented FCPA violations. As described by the SEC "[Mr] Fu had the authority to maintain compliance with existing internal controls, and to implement additional internal controls designed to comply with the FCPA's books and records and internal controls provisions, yet failed to do so". Mr Fu agreed to settle the SEC's charges by consenting to the entry of a final judgment imposing a permanent injunction and ordering him to pay a

civil penalty of USD 75,000.2

As mentioned above, there are an increasing number of investigations into European companies initiated by the SEC for violations under the FCPA. This means that officers and directors of companies based in Europe can be exposed to personal FCPA liability. In addition to being concerned with prosecution by the government, directors and officers may also be concerned about personal liability that could result from suits brought by the company or about claims filed by other plaintiffs.3 For instance, Siemens AG has publicly announced that it will start civil proceedings to claim damages that it suffered from the corruption scandal against ten of its former executive board members.4

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Huskins 2008, supra note 51, p. 1452; Furthermore, 'Criminal Resource Manual: 1019 Sanctions against bribery' (note 79 supra) states that: 'a person or firm found in violation of the FCPA may be barred from doing business with the Federal government. Indictment alone can lead to suspension of the right to do business with the government. Further, a person or firm found guilty of violating the FCPA may be ruled ineligible to receive export licenses; the SEC may suspend or bar persons from the securities business and impose civil penalties on persons in the securities business for violations of the FCPA; the Commodity Futures Trading Commission and the Overseas Private Investment Corporation both provide for possible suspension or debarment from agency programs for violation of the FCPA; and an unlawful payment under the FCPA cannot be deducted under the tax laws as a business expense.'

SEC, 'SEC v. Monty Fu, CA. No. 1:07CV01735', SEC Litigation Release No. 20310/28 2007, p. 2; See complaint at: http://www.sec.gov/litigation/litreleases/2007/lr20310.htm, accessed on 14 November 2010; Previously, in December 2002, the Commission instituted settled civil and administrative proceedings against Syncor arising out of alleged payments made by certain of Syncor's foreign subsidiaries, including Syncor Taiwan, to doctors employed by hospitals controlled by foreign authorities. Without admitting or denying the allegations, Syncor consented to pay a 500,000 dollars civil penalty and to be subject to a cease-and-desist order. See SEC, 'SEC v. Syncor International Corp., C.A. No. 1:02CV02421 (EGS) (D.D.C.)', Litigation Release No. 17887 2002. At the same time, the US Department of Justice, Criminal Division, Fraud Section and the US Attorney for the Central District of California filed settled criminal FCPA charges against Syncor Taiwan, which consented to pay a 2 million dollars fine. See, US v. Syncor Taiwan, Inc., No. 02-CR-1244-ALL (C.D. Cal.), filed on 4 December 2002.

Huskins, supra note 51, p. 1451. For an extensive overview of shareholder actions against the company directors under Dutch law, please see M.J. Kroeze, 'Afgeleide schade en afgeleide actie' [Derivative claims and shareholder actions], (Kluwer: Deventer 2004).

D. Schäfer, 'Siemens to claim money from ex-chiefs',in The Financial Times, London 30 July 2008, at: http://www.ft.com/cms/s/0/b5ab89c4-5dcd-11dd-8129-000077b07658.html?nclick_check=1, accessed on 3 May 2010.