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.
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.”
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.
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 1st 2010 Bribery.
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:
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.)
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 21st July, (all 24 pages of which can be read at;)
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.
So where were we…? Oh yes.
- 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.