In Israel in recent years, a growing trend in the number of criminal investigations, indictments and convictions carried out or filed in relation to economic offences, coupled with a similar trend involving public corruption offences, has been witnessed. Many public figures, such as key Israeli business personalities, have been indicted for, and convicted of, offences that were committed in the fulfilment of their duties, with some of them even being handed down lengthy prison sentences.
At the same time, there has been an upward trend in expanding criminal prohibitions and sanctions, as part of the efforts of the State of Israel to adopt international norms in the war on economic crime, money laundering, cross-border bribery and the financing of both terror and criminal organisations. Within this context, the punishment that was customarily handed down for an array of offences was made more severe, procedures were established by the enforcement authorities aimed at increasing the enforcement activity against perpetrators accused of committing such offences, and new provisions were enacted, sourced from international legislation and treaties to which Israel is party.
In addition to the imposition of more stringent sanctions and the inclusion of broader criminal prohibitions in relation to corruption offences, there has been a trend of internalising the importance of preventing offences from occurring, both by corporations operating in Israel and by the Israeli enforcement authorities and the courts. Accordingly, in recent years, many organisations have placed special emphasis on having in place effective enforcement and compliance programmes on an array of corporate governance issues, including corruption offences, in order to prevent the commission of such offences within the corporation.
In this article, the core legislation aimed at combating corruption, the recent trends for enacting more stringent legislation in relation to corruption offences and the respective positions of the enforcement authorities and the courts will be summarised. Finally, the corresponding trend of the transition of corporations from managing crises to preventing them, through the adoption of effective enforcement programmes, and the first tell-tale signs for recognising the importance of such programmes among the enforcement bodies, will be presented.
Key Legislation for Combating Bribery and Corruption Offences
The key pieces of legislation currently prevailing in Israel that are aimed at combating bribery and corruption offences are the Penal Law, 5737-1977 (the Penal Law) and the Prohibition on Money Laundering Law, 5760-2000 (the Anti-Money Laundering Law).
The bribing of domestic public servants constitutes a criminal offence under Sections 290 and 291 of the Penal Law, with Section 290 regulating the act of taking a bribe by a public servant and Section 291 dealing with the offence of giving a bribe. The two offences are, therefore, completely independent.
Sections 290 and 291 of the Penal Law describe a bribe as any consideration having a benefit, in money or money’s worth, that is given to a public servant in connection with an act relating to his or her position. The definition ascribed to the term “gift” under Israeli law is extremely broad, so that any benefit can essentially be considered a bribe.
Sections 292-295 of the Penal Law describe various actions that would also be considered as bribery offences, such as, for example, offering a bribe in sporting or other competitions, offering or requesting a bribe that would be considered as giving or taking a bribe, respectively, brokering a bribe, and offering a bribe in exchange for senior appointments.
Section 284 of the Penal Law prohibits a public servant from committing fraud or a breach of trust that harms the public. The Israeli legislator did not expressly define the meaning and scope of the expression “breach of trust”, but the Israeli Supreme Court established the essence of the offence as a conflict between the duties owed by the public servant towards the public and any other interest, such as personal benefit.
The Anti-Money Laundering Law was promulgated in 2000, within the ambit of combating money laundering and preventing acts sourced from criminal activity.
The gist of the Anti-Money Laundering Law expressly prohibits doing anything with property that is sourced from the commission of a criminal offence referred to in the Anti-Money Laundering Law, inter alia, a bribery offence, aimed at hiding its source, and the identity of its owners. A person engaging in money laundering will be charged with having committed a criminal offence and will be punished according to sanctions as set out in the Anti-Money Laundering Law.
Following the promulgation of the Anti-Money Laundering Law, various orders and sub-regulations were enacted, imposing duties on service-providers, including banking corporations, lawyers and accountants, designed to combat money laundering attempts through the financial system. Such orders oblige the financial service-providers to receive and verify the identification details of all persons seeking to perform transactions through them.
In addition, the Anti-Money Laundering Law prescribes mechanisms facilitating the forfeiture of moneys and property, in addition to any penalty to be imposed by the court. Forfeiture proceedings may be initiated as part of the actual criminal proceedings, or within the framework of ancillary civil proceedings.
The Anti-Money Laundering Law was enacted as part of Israel joining the global effort in the war on money laundering and international crime, and in order to equip Israel with the necessary tools as prescribed by the Financial Action Task Force (FATF). In addition to the Anti-Money Laundering Law, other pieces of legislation were enacted to deal with these offences, such as the Combating Criminal Organisations Law, 5763-2003, and the Counter Terrorism Law, 5776-2016, both aimed at tackling the phenomenon of money laundering which, in and of itself, constitutes the underlying economic basis for criminal and terrorist organisations alike. Following the implementation into Israeli law of the severe standards set by the FATF, Israel is today considered one of the leading countries in the world in the war on money laundering.
Enforcement of Corruption Offences in Israel — the Tendency Towards Aggravation
In recent years, a continuing trend in broadening the criminal legislation in so far as corruption offences are concerned has been witnessed: widespread and strict enforcement activity against perpetrators accused of having committed such offences, as well as more aggravating sanctions being handed down by the courts. There has also been a growing trend in Israel in the number of investigations and indictments being carried out and filed for bribery and corruption offences.
One significant development over the last decade has been the incorporation into the Penal Law of the offence of bribing a foreign public official. The source for including such an offence stems from the US Foreign Corrupt Practices Act of 1977, that was enacted in the US in response to a myriad of cases involving the bribery of foreign public officials by US companies.
In 2008, Israel ratified the OECD Anti-Bribery Convention (officially known as the Convention on Combating Bribery of Foreign Public Officials in International Business Transactions) and, in that same year, amended the Penal Law to include therein the new Section 291A, which essentially provides that anyone bribing a foreign public official, in order to attain, ensure or promote any business activity or business advantage, will be viewed as having given a bribe according to Section 291: in other words, as having given a bribe for all intents and purposes. In so doing, Israel became part and parcel of the global struggle related to the giving of bribes to foreign public officials.
To date, only one indictment has been filed in Israel for an offence involving the bribing of a foreign public official, but many criminal investigations have been initiated against corporations and key Israeli business personalities suspected of having given bribes in various countries worldwide. It is therefore reasonable to assume that in the coming years an upward surge in the number of indictments being filed for bribery offences of this nature will be witnessed. As a consequence of the efforts of the Israeli enforcement authorities to eradicate the phenomenon of the bribery of foreign public officials, Israel also improved its standing on the international indices in the war on bribery and, in the Corruption Perception Index for 2018, was ranked by Transparency International with the highest score for confronting the phenomenon involving the bribery of foreign public officials.
Another change worth noting is the more severe line that has been taken with regard to the maximum punishment that can be imposed for bribery offences, which came into effect in 2010. Thus, for giving a bribe, a harsher sanction in the form of a seven-year prison sentence, as opposed to a five-year prison sentence, was imposed, and for taking a bribe, ten years’ imprisonment, instead of seven. In addition, the fines to be imposed on individuals and corporations accused of having committed a bribery offence were similarly made harsher, with the intention of exacerbating likewise the economic punishment for perpetrators. Moreover, in recent years, the penalties imposed by the courts on perpetrators for having committed bribery offences have also gradually and consistently become harsher, and to date, in the vast majority of bribery convictions, the accused were handed down active and prolonged prison sentences in addition to the exorbitant fines being imposed on them. This trend in the imposition of more stringent sanctions, on the part of both the legislator and the courts, points to the importance which the law enforcement authorities attribute to eradicating the phenomenon of corruption offences in Israel.
An additional example of more stringent measures being imposed by the law-enforcement authorities are the Guidelines published by the Attorney General that were updated on 16 December 2019 (Guideline No 9.15) and which concern the enforcement activity and punishment that may be imposed on perpetrators accused of having committed bribery offences. According to new policies introduced in Guideline No 9.15, in addition to prosecuting perpetrators for having committed bribery offences, the Prosecution must also strive to prosecute corporations in which the individuals served as functionaries, to the extent it is suspected that the offence was committed within the realm of the business activity of those corporations.
It should also be noted that, according to Guideline No 9.15, to the extent a defendant benefited substantially from the bribery-related offence, the Prosecution must ask the court to impose the maximum fine permissible under law.
Moreover, in recent years, there has been widespread use of the tool of forfeiture, for the purpose of seizing property and moneys used to commit an offence, or moneys equivalent in value to those obtained in connection with the offence. Use of this tool is intended to negate the economic incentive underlying the offence, and in so doing, create a deterrence in preventing its commission. Further, the use in recent years of the forfeiture tool is habitually being reinforced by the Israeli courts, as an additional reflection of the harsher policies taken by the courts and the law-enforcement authorities when dealing with economic offences.
From Managing to Preventing Crises — the Growing Importance of Effective Compliance Programmes and Risk-Management Mechanisms in Corporations
In recent years, alongside the harsher penalties and more stringent enforcement activity imposed upon individuals and corporations for bribery and corruption offences, it seems that, in view of these harsher measures, there has been a growing trend in the enforcement activity undertaken by corporations, aimed at preventing occurrences of the offence from the outset. At the same time, there has been an increase in the importance which the enforcement authorities and the courts attribute to the existence of an effective enforcement and compliance programme for preventing the commission of offences within corporations, as one of the considerations for punishing and even prosecuting corporations.
The implications of implementing a compliance programme have been discussed by the courts, but the implementation of such a programme has not yet been firmly established in Israeli case law as a defence for reducing or eliminating criminal liability that may be attributed to a corporation for a bribery offence committed by any of its organs.
Nevertheless, implementing a compliance programme before an organ of the company commits an offence may certainly be a consideration to bear in mind when deciding not to file charges against the corporation. Thus, for example, the Israeli Securities Authority has stated in guidelines that it has published that, where a corporation implemented an effective compliance programme prior to the occurrence of the offence, it will consider recommending that the Prosecution not file criminal charges against the corporation and instead initiate administrative proceedings against it.
On 2 October 2019, the State Attorney established standards in Guidelines for the prosecution and punishing of a corporation (Guideline No 1.14). One of the criteria for prosecuting a corporation is the degree of failure in the culture of compliance within the organisation, and the existence or absence of an effective compliance programme. In so far as the circumstances of the offence indicate widespread failure on the part of a corporation, the public interest in prosecuting the corporation will naturally be stronger.
According to Guideline No 1.14, when considering the extent and scope of the failure on the corporation’s part, the Prosecution must consider, inter alia, the number of employees and office-holders involved in the commission of the offence, whether the corporation has a record for having committed other offences or violations of law in the past, the extent to which the offences formed part of accepted practice within the corporation, and whether the failure is local, despite the existence of a culture of compliance within the organisation, or is widespread. According to Guideline No 1.14, a key manifestation of a culture of compliance within an organisation is the existence of a compliance programme.
The Guidelines further provide that the existence of a compliance programme does not exempt the corporation from criminal liability, nor is it deemed a consideration that would prevent a corporation from being prosecuted. However, the existence of an internal compliance programme would be considered a mitigating factor if it can be demonstrated that the programme is effective and, in practice, is accompanied by an organisational culture that encourages compliance.
Under the guidance of the State Attorney, no uniform definition has been ascribed to the content of the internal compliance programme, and it should be tailored to suit the individual and specific needs of each corporation, based on its inherent characteristics. However, Guideline No 1.14 specifies a number of components that should largely be included in an effective compliance programme, namely, that:
It is important to note that the burden for demonstrating that an organisation has in place an effective compliance programme vests on the corporation and, therefore, it is imperative to document all processes related to the establishment and implementation of an appropriate and effective compliance programme within the organisation.
To date, Guideline No 1.14 is the sole sweeping guidance, relied upon by Prosecution units, that recognises the importance of having in place an effective compliance programme for preventing the commission of offences within a corporation and which, in appropriate cases, can constitute a consideration for challenging the prosecution of the corporation. Similar guidelines have been published over the years by the other enforcement authorities in Israel, such as the Competition Authority and the Securities Authority, but there is no doubt that Guideline No 1.14 is a huge leap forward in terms of the Prosecution formally recognising the importance and consideration that must be given to having in place an effective compliance programme in a corporation, even where an offence is discovered to have been committed.
As part of that same process for understanding the importance of having in place an effective compliance programme and a risk-management mechanism aimed at preventing the commission of offences in corporations, the focus on corporations has similarly changed in recent years, and is now directed more at preventing crises, even before they occur.
If, in the past, the focus of corporations concentrated on managing crises after the offences were discovered, today a majority of them are investing substantial resources in preventing offences of this nature, by implementing risk-management, supervisory and enforcement procedures and mechanisms within their organisations.
In addition, in recent years many corporations have adopted enforcement and compliance programmes and have also implemented procedures designed to prevent bribery and corruption offences, with the aim of reducing the criminal exposure of the corporation and other onerous ramifications stemming from those offences.
It is evident that the increased enforcement activity against corporations has led to a change in the trend from this perspective. In fact, today, most of the largest companies in Israel have adopted some type of policy on the subject of enforcement in general, and bribery and corruption in particular, especially companies that operate internationally on a large scale or public companies.
In recent years, as aforesaid, there has been a widespread tendency to broaden the criminal liability in so far as corruption offences are concerned, regardless of whether they were committed by individuals or corporations. Similarly, the criminal legislation on the issue has become comprehensive and more stringent, inter alia, in light of global measures that have been introduced worldwide in combating corruption offences. Moreover, the investigation units and the Prosecution have heightened the enforcement measures, and even the courts are dealing more severely with perpetrators accused of committing offences of this nature.
Alongside these trends, it is evident that Israeli corporations have begun to internalise the importance of preventing the offence from the outset, by establishing internal enforcement and risk-management mechanisms within their organisations.
Such an approach is the most desirable and efficient route for preventing offences, even though it is still being implemented in Israel in only a partial manner. Accordingly, it is important that the Israeli enforcement authorities confer importance and appropriate weight on the measures taken by corporations to adopt internal mechanisms of this nature, including when considering the prosecution of corporations and their functionaries, as acted upon by the competent regulatory authorities worldwide, and in so doing will incentivise corporations to act and invest resources in preventing offences and applying a culture of compliance within their organisations.
This approach obliges both corporate managers to change the corporation’s perception and to implement policies for preventing crises, rather than managing them, and the enforcement authorities and the Prosecution to be required to give due weight to the existence of internal policies and effective compliance programmes when considering the prosecution of corporations. The prevailing view is that quality preventive action amongst corporations, and due and proper recognition by the enforcement authorities of such compliance measures, will create an optimal situation with respect to the enforcement of bribery and corruption offences, in terms of the public interest and in deterring potential perpetrators.