The Bribery Act 2010, Self Reporting part 2, How sorry do you have to be?

We ended last time looking at some of the potentially dire consequences of Prosecution and Conviction under the Bribery Act, with more than a knowing glance in the direction of easing those consequences by Self-Reporting to the authorities.

I had mentioned, (very quietly) the case of Innospec.

Now it’s time to turn up the volume a little, – with a health warning. There’s quite a lot of law involved in this one, so intravenous caffeine should be readily available.

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Whilst trying to avoid spitting feathers in delivering his judgement in Innospec, Lord Justice Thomas was anxious to make the point that in some cases, any form of Civil Recovery Order under part 5 of the Proceeds of Crime Act, as a substitute for prosecution or fines, would be unacceptable.

Para 38 “Those who commit such serious crimes as corruption of senior foreign government officials must not be viewed or treated in any different way to other criminals. It will therefore rarely be appropriate for criminal conduct by a company to be dealt with by means of a civil recovery order; the criminal courts can take account of co­-operation and the provision of evidence against others by reducing the fine otherwise payable. It is of the greatest public interest that the serious criminality of any, including companies, who engage in the corruption of foreign governments, is made patent for all to see by the imposition of criminal and not civil sanctions. It would be inconsistent with basic principles of justice for the criminality of corporations to be glossed over by a civil as opposed to a criminal sanction. There may, of course, be a place for a civil order, for example, as a means of compensation in addition to a fine. It is therefore plainly desirable that the Lord Chief Justice should consider directions that ensure any civil penalties are heard in conjunction with criminal proceedings.”

http://www.bailii.org/cgi-bin/markup.cgi?doc=/ew/cases/Misc/2010/7.html&query=innospec&method=boolean

Innospec had been charged in relation to two areas of corruption in two different parts of the world, Iraq and Indonesia. This had involved prosecutions in both the USA and the UK.

Sorting it all out involved plea bargain agreements in both jurisdictions under two different sets of rules.

Sentencing issues involved the possibility of fines, compensation orders, confiscation orders, pillory, ducking stool, etc etc.

The SFO had presented the Court in the UK with a proposed agreed Civil Recovery order under POCA, made as part of a rolled up deal between them, Innospec, the DoJ, the SEC and OFAC, and approved in the USA by the Federal Court of the District of Columbia.

That’s enough detail.

Thomas LJ imposed a fine.

In doing so he drew a line in the sand. Some corruption is so serious that only a criminal prosecution is appropriate.

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SO WHERE DOES THAT LEAVE A CORPORATE THAT DISCOVERS AN HISTORICAL ACT OF BRIBERY ON ITS OWN BEHALF, OR BY AN AGENT?

We need to turn, as promised last time, to the recent examples of what happened to the insurance company Willis Limited, in their dealings with the FSA, and the publishing company Macmillan, and the settlement they reached with the SFO.

As I said before, it is important to note that neither investigation had anything to do with the Bribery Act, which is not retrospective, although the principles that emerge will have a considerable bearing on post July 1^st 2010 Bribery.

First Macmillan.

A long established and highly respected publishing house with impeccable family connections. (yes… Harold)

The SFO website contains a news release on the case to be found at:

http://www.sfo.gov.uk/press-room/latest-press-releases/press-releases-2011/action-on-macmillan-publishers-limited.aspx

But what happened was this.

The World Bank put out a contract to tender, for the provision of educational materials in Southern Sudan. An agent acting on behalf of Macmillan’s tried unsuccessfully to secure the contract by way of a bribe.

(Worth remembering here that the Section 1 offence only requires the offer or promise of a financial or other advantage.  The more so if it’s actually given, and it doesn’t have to succeed).

The World Bank reported it to the City of London Police, and thence to the SFO.

Macmillan agreed to fund an investigation aimed at uncovering corruption risks within the organisation. In other words they were paying for someone else to police them. The investigation covered the various countries in Africa in which they currently carried on business which presented a potential risk of corruption, or where it had actually taken place in the past.

As a result, the SFO calculated that Macmillan had benefited to the tune of £11.2 million. They therefore sought and were granted a Civil Recovery Order in the High Court in that sum, under Section 276 of POCA.

The telling factors listed by the SFO as to why they chose the Civil recovery route really boil down to the fact that Macmillans fell over themselves to make full disclosure and give total co-operation to the investigation. They paid for it themselves, weren’t hugely guilty, and had lost the opportunity to tender for a lot of valuable work in the future. Also they were very sorry.

(there is a full list of 8 mitigating factors given in the SFO press release.)

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And so to Willis Limited. Like Macmillan a very long established member of its industry. In this case insurance.

Willis Tower New York

You might be forgiven for thinking that neither educational publishing nor insurance would normally be considered “high risk” areas for corruption.

Construction, Oil, Mining, maybe, but school books? Just goes to show how potentially all pervasive the problem can be. (Remember this when planning “risk assessment.” This is “area specific” rather than “sector Specific.”)

Also don’t forget that this is not the first time that the FSA has flexed its muscles in this area. AON were fined £5.25 million in 2009 for failing to establish adequate systems and controls to prevent the corruption associated with making payments to overseas firms and individuals.

(Note to self: Section 7, “Failing to prevent Bribery” is not a new concept, nor is the necessity for implementing “adequate procedures.” So stop whining about not having had enough time to do so.)

Again this was not a procedure brought under the Bribery Act, nor even under POCA. This time the statutory sledgehammer used was  section 206 of the Financial Services and Markets Act. (Essential bed time reading for us all.)

The FSA made no specific allegations of corruption against Willis.

Financial Services Authority Headquarters

In their Final Notice, issued on 21^st July, (all 24 pages of which can be read at;)

http://www.fsa.gov.uk/pubs/final/willis_ltd.pdf

the FSA make it clear that this was essentially a “Books & Records” affair.

In doing business and securing deals abroad through “Overseas Third Parties,” – agents, Willis kept very sparse records. A few choice nuggets from that Final Notice will serve to illustrate the point:

• Willis Limited’s policies did not provide any written guidance on the amount of detail required when recording why it was necessary to use an Overseas Third Party.
• No formal training was provided to staff in this matter who only recorded a very brief description of the reasons for the commission payment and what services Willis Limited would receive in return
• Willis Limited’s reason for sharing commission was inadequately recorded.
• …due diligence would have, for example, enabled Willis Limited to assess whether the Overseas Third Party was connected with the insured, the insurer or public officials.

The phrase, “turning a blind eye,” springs to mind.

In assessing the seriousness of the case the FSA emphasised:

• The involvement of UK financial institutions in corrupt or potentially corrupt practices overseas undermines the integrity of the UK financial services sector.
• Willis Limited is one of the largest insurance and reinsurance brokerage and risk management firms in the UK.  As such, it has a leading competitive position in the market and the firm’s practices set an example which is seen by other market practitioners and customers.
• During our investigation, Willis Limited identified as suspicious a number of payments which it had made to two Overseas Third Parties in respect of business carried out in Egypt and Russia during the Relevant Period.  It reported these matters to the Serious Organised Crime Agency (SOCA).  These payments totalled approximately US $227,000.
• Over the course of the Relevant Period, the gross commission earned by Willis Limited from business introduced by Overseas Third Parties based in high risk jurisdictions amounted to approximately £59.7 million.
• The FSA did not find evidence to suggest that Willis Limited’s conduct was either deliberate or reckless.

They then went on to set out a number of mitigating factors, which had much to do with the decision not to prosecute. Basically they had got their act together, and taken necessary steps to get rid of those responsible and implement systems to prevent the same from happening in future. (Familiar?)

You’re more than welcome to study the whole document, but for present purposes that’s probably more than enough for theBungblog house style.

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So where were we…? Oh yes.

• Self–Reporting,
• co-operation,
• paying for the authorities to investigate you,
• being truly truly sorry,
• having “the humblest day of your life”

These are just a few, but important examples of how to mitigate the ordure that might otherwise be heaped upon you by the zealous pursuit of

• The Bribery Act
• Proceeds of Crime Act part 5
• Financial Services and Markets Act Section 206

And so to the final part. What are the lessons for corporates and their advisers to be drawn from all this?

Next week I shall be looking in detail at the policy statements put out by the investigating authorities, together with a round up of comments from various professionals, both legal and financial, and finished off with an extra spicy topping of my own personal thoughts.

As I have said before, credit will be given where it is due.

 

 

 

 

 

And don’t forget to read the “About” section. Full of stuff you never knew you needed to know.

 

The Bribery Act. BRING YOUR OWN HANDCUFFS.

This is the first in a series of Blog entries over the next few days dealing with the ramifications of

SELF – REPORTING ACTS OF BRIBERY

It starts with a bit of background, goes on to look at some very recent examples, then examines the SFO’s declared approach.

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 The idea that a company should self-report itself to the authorities if it discovered Bribery within its corporate structure, was initially met with spluttering disbelief in many circles.

Why “Grass” yourself up, if the authorities were not smart enough to find out themselves?

The concept first began to see the harsh light of day in the run up to the inception of the Bribery Act 2010, but as we shall see in a moment, it had in fact been bubbling under for some considerable time.

There have been quite a few posts about the FSA & Willis, and several about the SFO & MacMillan but strangely, I thought, none that attempt to compare and contrast both of them, especially in the context of self reporting.

So I’ll take a deep breath, a large cup of tea, and dive in. Metaphorically that is, the teacup is not THAT large.

 

The Bribery Act 2010 is not to be viewed in isolation as a means of combating corruption in the UK or worldwide. (I am not going to refer at all to the FCPA for the purposes of this particular blog entry, for fear of confusing the issue, – and myself.)

In the months running up to the implementation of the Act, fraught as they were with attempts from various quarters to water it down, or even derail it altogether, a recurring theme put out, particularly by the SFO, was that of self-reporting.

To those of us who tramped the seminar circuit, batting away the usual questions about “but I don’t bribe anyone, what’s it got to do with me?” and “Surely it does not apply to SME’s,” – reaching the Powerpoint slide headed “Self Reporting” was always a moment for hesitation, and a quick glance to see how far from the nearest exit you were.

Well, those of us in that unhappy situation have survived, (mostly) really by patiently explaining the formula that the SFO have plugged away at all along. (OK I little was sceptical too, – or even a lot,) but in the event it looks to be achieving credibility at long last.

Willis, and MacMillan will be major contributions to a quantum leap in that credibility, which may turn out to be pivotal in the future success of the Act.

All the more ironic as we shall see, when you think that neither investigation was conducted under the auspices (yes I know the “horse” joke) of the Bribery Act at all, but Part 5 of the Proceeds of Crime Act. The reprehensible conduct of both companies took place long before July 1^st 2010, when the Bribery Act came into force.

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The SFO were and are, particularly keen to point out that they see three sources of work:

1. Their own investigations.
2. Co-operation with other authorities, particularly the DoJ, and,
3. Whistleblowers.

1. Might not be the most promising, at least not in terms of an investigation entirely of their own initiative, in view of the relative lack of funding from government. (See what the Guardian has just had to say on funding, quoting views of two former directors. http://www.guardian.co.uk/law/2011/jul/24/financial-fraud-sfo-overseas-bribery). But not all is doom and gloom because…

2. is much more promising. Despite little local difficulties in plea agreements in multi jurisdictional cases, (mention Innospec very quietly), such co-operation is paying dividends now. As Jeffery Tesler Can confirm.

http://www.guardian.co.uk/law/2011/mar/11/us-extradition-bribery-tesler

 

3. is likely to be the biggest threat to any corporate that involves itself in bribing to secure contracts.

Consider the possibilities.

BungblogCo bribes a company agent to secure a contract in a part of the world with “relaxed” corruption laws. They win the contract.

SnowWhiteCo, who lost out, are a UK based company who are significantly miffed by this. They know two things:

• firstly that BunblogCo have a subsidiary in Britain, (there will be a separate blog on the meaning of “Carrying on Business in the UK by the way,)
• secondly they have a pretty good idea of how the bribing was done and where to look for the evidence.

SnowWhiteCo are going to be on the phone to the SFO, (yes or even Tweeting) within minutes.

BungblogCo (and a director or two) is investigated, prosecuted and convicted.

 

The Directors are disqualified, and made the subject of POCA confiscation orders for the full value of the contract secured, that being the benefit.

The company is automatically debarred from tendering for EU procurement contracts.

SnowWhiteCo, and its individual shareholders bring a class action against BungblogCo for damages for loss of the contract and loss of shareholder value. Likewise employees who lost their jobs because there was no work for SnowWhiteCo to give them.

BungblogCo is down the bunghole.

And that is just if the loser blows the whistle. Suppose the winner makes the fatal mistake of upsetting or sacking an employee who has knowledge of how it was all done, and can take the investigators directly to the emails and computer files that prove the bribe?

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Message from Elm Street, “are you reading this? You will get caught.”

Or even if not definitely, then very likely. And the moment an investigation is opened against your company, the shutters come down all over the world against you.

Why? For the very simple reason that Due Diligence carried out by any other company you are trying to do business with will tell them, “this company is a bribery risk.” Adequate Procedures under Section 7 mean that you cannot possibly do business with them.

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So, before you open the window early one morning to shout to the policeman banging on your door “go away or I’ll call the police,”, (sorry Pandora!) It may be time to give some thought to how self – reporting works in practice.

To be contd…..

WHY, NOT WHAT, THE DOCTOR ORDERED.

The phrase “Big Pharma” was not coined as a compliment.

That notwithstanding, the pharmaceutical industry has not been slow to appreciate the potential pitfalls to its members of the Bribery Act.

Nobody will be too bothered about notepads and pens on their GP’s desk advertising Glaxo/Zeneca snake oil. (They don’t call them “memo pads” for nothing,) but the industry soon woke up to the potential consequences of offering lavish junkets to the big time drugs buyers, – hospital administrators and the like. You didn’t exactly need to sample the latest version of a well known analgesic by flying all the way to Bermuda for a week, unless you got a very bad hangover.

Last August, The Independent reported that AstraZeneca and GSK were being investigated by the DoJ and the SEC in America for allegations of excessive hospitality.

http://www.cchrint.org/2010/08/16/gsk-astrazeneca-face-corruption-investigation%E2%80%94hospitality-lavished-on-those-who-prescribe-drugs-could-constitute-bribery/

Since then AZ have announced (FT 26th June) that they have stopped paying the travel expenses of doctors to attend international medical conferences in an effort to clamp down on an industry practice long viewed by critics as aggressive marketing.

They faced twin risks:

1. Prosecution for the Section 1 offence of Bribery, by offering excessive hospitality on what was alleged to have been a grand scale. The implication being that those responsible for buying their drugs might effect an improper performance of their relevant function, i.e. choosing the right drugs, by buying from the most lavish entertainer.
2. Prosecution for the Section 7 offence of failing to prevent Bribery, if they did not ensure that they had adequate procedures in place to prevent salesman on the ground from exerting financial or other influence on prospective customers.

NB I am NOT suggesting that they did any such thing ever, merely that these were the perceived risks!

But good news is on the horizon

.

According to a report from Sidley Austin LLP on July 19th (this is their article which I have reproduced below unedited) :

“The Association of the British Pharmaceutical Industry (ABPI), the UK Prescription Medicines Code of Practice Authority (PMCPA), and the UK Serious Fraud Office (SFO) have reached a memorandum of understanding (MoU) relating to aspects of the application of the UK Bribery Act 2010 (Act) to the pharmaceutical industry.

The MoU is intended to promote efficient complaint procedures and co-operation between the SFO and the PMCPA, which administers the ABPI Code of Practice (Code), in areas regulated by both the Act and the Code to avoid duplication of investigations. The M oU, therefore, offers important clarifications on the SFO’s enforcement actions in areas also covered by the Code, in particular Clause 18 of the Code (on items for patients, promotional aids, the provision of medical and educational goods and services, agreements to benefit patients such as joint working, outcome agreements and patient access schemes) and Clause 19 (on meetings, hospitality and sponsorship of healthcare professionals).

While the SFO will retain its discretion over which cases it chooses to pursue and when, it will generally adopt the following approach:

The SFO will not  routinely intervene in matters covered by the Code, but reserves the right to take action if the issue is deemed serious enough to merit SFO investigation. However, it will submit complaints to the PMCPA when appropriate;

The SFO will not seek to prosecute unless it considers this is in the public interest and in reaching such a decision the SFO will take into account relevant action taken by the PMCPA and the UK Medicines and Healthcare Products Regulatory Agency;

The SFO agrees that sensible proportionate promotional expenditure is entirely legitimate and not outlawed by the Act;

Companies need to have in place robustly defined and implemented anti-bribery procedures with clear ownership from the top of the organisation.

Accordingly, the SFO clarifies that it supports the self-regulatory approach that is enshrined in the Code, as administered by the PMCPA, and acknowledges that the Code can help companies conform with the requirements of the Act, particularly in the areas covered by Clauses 18 and 19.  That position requires that the PMCPA continues to deal with complaints received from whatever source relating to matters covered by the Code in a timely and fair manner.

To that end, the MoU foresees that SFO, PMCPA and ABPI will co-operate and promote a common understanding on issues arising.  In addition, the SFO will monitor current cases dealt with by the PMCPA.”

Back to me again….

So what we have is an example of Industry Regulators co-operating with the SFO, to achieve some level of understanding of each other’s positions. It’s not a silver bullet, but it is a start along a road that Richard Alderman, Director of the SFO, has been regularly espousing in speeches that he has given in the last couple of months to various industry sector bodies.

I shall be keeping my eyes peeled for more.

If anyone knows of any, drop me a Tweet @JamesPSvine or leave a comment below…. or even both.

Construction industry might be next.

Follow @JamesPSVine

MURDOCH, NEWS CORP Etc….

However much Schadenfreude we have all indulged ourselves in, in the last day or two, it is worth pointing out that the Bribery Act can have nothing to do with whatever may have been going on at the NoTW.

It only came into force on the 1st July this year, and so therefore can only be used to charge offences committed after that date.

But fret not! Assuming that there still are any senior officers left in the Met when the dust has settled, who can investigate this case for more than the full Yates nine hours, we still have our old Anti Corruption Acts to level against bribing journos, as well as “Misconduct in a Public Office” for erring police officers.

Actually there will be at least one: Sue Akers

One thing we do have to watch out for though, is the apparent interest being shown by the DoJ in the United States.

Doubtless spurred on by the revolting thought that the voicemails of 9/11 victims were being hacked into, the DoJ too have been showing an interest in what Fox News and/or WSJ (prop R. Murdoch esq) have described as “normal journalistic practices.” (I’m not kidding, they did!)

The point to watch here is whether or not they will seek to use the US Foreign Corrupt Practices Act to bring charges against those who ought properly to be tried in the UK.

With the current state of extradition law as between the USA and UK, (they ask, we roll over to have our tummies tickled) you can imagine the reaction if they try to lift any of the possible UK based defendants for trial in the UK before they have been tried drawn and quartered here. (Though they could always be allowed to have them, after they have finished serving their sentences in UK and start all over again in US.)

And wandering off at a tangent as I am often wont to do, you may be amused at this link to the BBC

http://www.bbc.co.uk/news/uk-politics-14221376

which shows a CNN interview with ChickLitMP trying to explain her way out of a very entertaining exchange with Piers Morgan. You almost begin to like him!

Lest you think I am wandering completely off the point, by this time tomorrow I should be posting a little bit about the law and also one or two choice links to more sector specific stuff.

And do please feel free to comment or add questions. The more interactive this site becomes, the better.

And just by way of a p.s. go to this link, http://www.bbc.co.uk/news/uk-14235330 and then consider Section 16 of the Act!!! 🙂

And a p.p.s. Today Programme this morning reported “Sighs of relief heard in embassies around the world..” Do they mean ours?

And still later, from our friends at CNN who brought you ChickLitSpat….

http://features.blogs.fortune.cnn.com/2011/07/22/should-news-corp-fear-bribery-charges-in-the-u-s/?section=magazines_fortune

Welcome to the bungblog.. A Corruption Miscellany by James Vine

As the name suggests, this is a blog about Bribery but with maybe a slightly relaxed angle creeping in from time to time.

Bribery and the Bribery Act 2010 are very serious topics for anyone involved in commerce, but an ability to see the “far side” never goes amiss in any legal debate.

What I am going to bring you is a regular review of the law of Bribery, and its developments, with comment where needed, links to other useful sites, (I don’t have a monopoly on the subject) and the occasional diversion into areas of highly marginal relevance.

There will also be frequent forays into foreign issues, like attempts by the DoJ to spoil the party by using the FCPA to hijack defedants from the UK… (so I need to sign up a few News Int Execs). Assistance has been promised on an entirely unattributable basis from lawyers in the USA, India, the Far East Russia and the CIS, and Solihull.

The content will be my own, or credit given where it is due, if not.

I will also make use of input from other linked professionals, be they forensic accountants, auditors, lawyers from specialist fields such as construction and planning and other really fun people!

I might be tempted to impart general advice if asked, subject to a disclaimer of any liability of any kind whatsoever however accruing for anything at all.

Questions and novel topics are always welcomed, and hopefully can be turned into online discussions once I have found out how to activate that feature in this blog.

So for now, watch this space, and me, on LinkedIn, and my tweets on @JamesPSVine. You’ll get a pretty good idea from them of where this is likely to be going…..

p.s. I lied about Solihull … sorry.

James Vine

5 St Andrews Hill

London EC4V 5BZ

0207 332 5400

//

james.vine@5sah.co.uk

http://www.5sah.co.uk/Barristers/James-Vine.shtml