New EU Disclosure Rules May Expose Companies' FCPA Issues (with Clark Comment)

On April 15, the European Parliament adopted a Directive that will require large companies to include in their annual statements a non-financial disclosure concerning their approach to certain social matters, including anti-bribery issues. Assuming the Directive becomes law, which appears likely, companies will be required to describe their policies, risks and results with respect to anti-bribery, human rights, the environment and diversity on boards of directors, among other issues. The law does not require companies to make a "fully-fledged and detailed report," but rather necessitates the disclosure of "concise, useful information necessary for understanding [companies'] development, performance, position, and [the] impact of their activities."

The law will apply to certain companies incorporated in EU member states or listed on EU regulated markets. Specifically, the law will cover those companies with more than 500 employees and other smaller-sized businesses of significant public relevance. The EC estimates that the law will impose new obligations on approximately 6,000 businesses.

Now that the European Parliament has passed the Directive, the EU Member States in the Council will vote on it. According to the EU's press release, it is expected that the Council will formally adopt the proposal in the coming weeks. Following the Council's approval, EU member states will have two years in which to adopt implementing measures. National implementing laws may contain certain exemptions from the disclosure requirements; therefore, the exact bounds of the disclosure requirements remain to be determined.

Clark Comment: The requirement to disclose information related to anti-bribery policies and outcomes presents a potential minefield for businesses subject to the U.S. Foreign Corrupt Practices Act ("FCPA"). It is likely that the U.S. Department of Justice ("DOJ") and the U.S. Securities and Exchange Commission ("SEC") will review these disclosures for descriptions of anti-bribery policies and procedures, and could make direct inquiries with the reporting companies to follow up on any perceived inadequacies. Additionally, if the requirement to report anti-bribery "results" is interpreted to necessitate disclosure of potential FCPA violations, companies subject to the FCPA should assess the need to self-report these "results" to the DOJ and SEC prior to, or at the same time as, the issuance of their EU disclosures.