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ARC: A WORLD OF RISK: MANAGING FOREIGN BRIBERY AND CORRUPTION EXPOSURES

International bribery probes could boost D&O buying

Though the vast majority of bribery and corruption enforcement actions for activities abroad have been brought by U.S. regulators, experts say it is a matter of time before other governments pursue bribery cases in their countries.

If and when that happens, U.S.-based companies may need to augment or supplement their existing directors and officers liability policies to protect themselves from lawsuits and criminal proceedings in foreign territories, experts say.

“My own view is that in the next five years, companies are really going to have to take account of their insurance policies' viability in foreign markets,” said Greg Husisian, a Washington-based attorney at Foley & Lardner L.L.P.

So far, governments with anti-bribery and anti-corruption statutes similar to the U.S. Foreign Corrupt Practices Act have been content to let U.S. regulatory agencies take the lead on enforcement actions against companies and executives accused of bribing foreign officials. Instead, foreign governments have played a valuable role in collecting information and evidence used to bolster cases brought in the United States, experts say.

“I have to think that at some point, some of these other governments are going to start getting in on the direct enforcement end of this,” Mr. Husisian said. “As a result, companies are going to need a much more global response.”

While D&O underwriters usually offer a worldwide extension of coverage for executives working abroad, middle-market policyholders should know the coverage may not be honored in every foreign territory or that it can carry substantial excise taxes and fees, experts said.

“The challenge is going to be in those jurisdictions where nonadmitted insurance programs aren't recognized,” said Kevin LaCroix, executive vp at OakBridge Insurance Services L.L.C. in Beachwood, Ohio.

This could affect organizations doing business in China, Russia and Germany, for example.

Most major brokers and insurers can provide access to locally written policies or independent certificates of insurance in countries with limitation on nonadmitted coverage. However, Mr. LaCroix said, buyers should note that those policies may have gaps in responding to a bribery enforcement action, despite the broader worldwide D&O coverage.

“At a minimum, I would expect that some of them would have the same issues and impediments you would find with a traditional D&O product,” Mr. LaCroix said.

Stand-alone products and endorsements have been developed in recent years to cover regulatory actions filed in foreign countries.

New York-based Marsh USA Inc.'s FCPA Corporate Response, which is underwritten by XL Group P.L.C., covers investigation and defense costs for an enforcement action brought by a foreign government, as long as the underlying charge would violate U.S. law were it not for geography.

Coupled with an endorsement for FCPA-related claims, New York-based Chartis Inc.'s Executive Edge and Investigation Edge cover foreign corruption litigation and derivative civil suits if the underlying charge would violate U.S. or equivalent securities regulations.

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