Sorry, I know I said “next week” last month, but the day job got in the way. Anyway some of it may have taken a little digesting.
What I was talking about was “Self-Reporting,” – the good bits and the possibly bad bits.
Neither Willis, nor MacMillan initiated investigations by self reporting, although one of the telling factors in their favour in each case, was that once the balloon had gone up, rather than try to cover their tracks, they co-operated fully with the FSA and SFO respectively. This was subsequently to count very much in their favour as we have seen.
Drawing from those examples, we need to look at the questions to be asked if and when a corporate, having conducted a “risk analysis” and implemented “adequate procedures” to prevent bribery, discovers during the course of its “constant monitoring” of those procedures, (enough buzzwords yet?) that bribery has taken place, or may have.
You don’t need a lawyer to tell you that you need a lawyer. The reality is, as a corporate of any significant size, (but don’t forget that SME’s are not immune) you will have your own in-house legal department. “General Counsel” even, if you are really “cutting edge”.
Detailed considerations of what to do next are for another blog, or rather, series of blogs. This is not to be treated lightly nor will it be.
A crucial factor to bear in mind from the outset, is that of Legal Professional Privilege. Without an exhaustive (and exhausting) definition of LPP, the principal point to consider is this.
Any correspondence between the corporate and external legal advisers should attract LPP, whereas thelikelihood is that internal communications with in-house counsel will not.
** For a discussion on the question of LPP and In-house counsel, see comments section below.**
What kind words of comfort and reassurance do the SFO have for us at the initial stage, as the balloon slips gracefully from its moorings?
“A key question for the corporate and its advisers will be the timing of an approach to us. We appreciate that a corporate will not want to approach us unless it had decided, following advice and a degree of investigation by its professional advisers, that there is a real issue and that remedial action is necessary. There may also be earlier engagement between the advisers and us in order to obtain an early indication where appropriate (and subject to a detailed review of the facts) of our approach. We would find that helpful but we appreciate that this is for the corporate and its advisers to consider. We would also take the view that the timing of an approach to the US Department of Justice is also relevant. If the case is also within our jurisdiction we would expect to be notified at the same time as the Department of Justice.”
So there is an acknowledgment of the fact that a company needs to take advice first.
Specialist external counsel will be in a position to ask a lot of preliminary questions of the company officers to identify the issues which need to be addressed, one of which might just be that a director needs ring-fencing from the investigation if he/she is implicated.
Much will depend upon whether the act of bribery alleged has emerged as a result of your own investigations and systems monitoring, or because of some outside factor such as a whistleblower. This will drastically affect the timing of your response.
For present purposes let us assume that we are dealing with self-discovery and self-reporting.
The other pressing question that needs answering is that of whether or not there is a USA dimension to the problem. Again I am not going to delve into the minutia of the FCPA for present purposes. Suffice it to say that if there is such an element, then as the SFO point out, you will need to consider approaching the SEC and/or DoJ.
All I would say at this point is that the DoJ have infinitely greater resources to investigate Corruption worldwide, and levels of sentence imposed by US courts, particularly corporate fines and directorial prison sentences are eyewatering, even by comparison with the powers of the UK courts under the Bribery Act and Proceeds of Crime Act. (See 25th July Blog).
So going out on a limb for a minute, and subject to the usual disclaimer of personal liability for anything whatsoever at all, a first and timely approach to the SFO is likely to reap dividends in the future, particularly if there is any question of liability in both jurisdictions. No guarantees though! It is still perfectly possible for the DoJ to investigate under the FCPA, secure a Grand Jury indictment against a UK corporate and/or its officers, and apply for extradition from under the SFO’s noses. (See Jeffery Tesler 25th July Blog)
Assuming that you and your legal advisers have come to the certain conclusion that bribery has taken place for which you are liable, either because your company has been responsible for bribing, (section 1) or an “associate” (individual or corporate) did it and you failed to prevent it, (section 7), what next?
- Brush it under the carpet?
- Hands up Job?
For the three reasons I set out on the 25th July Blog, the chances of not being found out are getting slimmer by the day.
Covering up and getting found out will inevitably lead to prosecution, whereas owning up and co-operating carries with it at least the reasonable prospect of a Civil Settlement under part 5 of the Proceeds of Crime Act, thus avoiding all the dire consequences of a criminal prosecution.
So how will the SFO decide between the thumbscrews or the pink fluffy handcuffs?
Time to use “cut & paste” again for the Elm Street criteria:
You will probably gather that the words in Italics are not “official” – the others are.
- is the Board of the corporate genuinely committed to resolving the issue and moving to a better corporate culture?
- Bit cheesy but you get the idea
- is the corporate prepared to work with us on the scope and handling of any additional investigation we consider to be necessary?
- Will you give them the keys to your filing cabinet, network server, backups, inside leg measurement? (say “yes”)
- at the end of the investigation (and assuming acknowledgement of a problem) will the corporate be prepared to discuss resolution of the issue on the basis, for example, of restitution through civil recovery, a programme of training and culture change, appropriate action where necessary against individuals and at least in some cases external monitoring in a proportionate manner?
- Are you prepared to cough up to the full extent of what they calculate to have been your company’s “benefit” as well as retraining your relevant staff, and implementing those adequate procedures that you only read about on some blog or other? (say “yes”)
- does the corporate understand that any resolution must satisfy the public interest and must be transparent? This will almost invariably involve a public statement although the terms of this will be discussed and agreed by the corporate and us.
- We will draft a statement of apology to go on our website, and yours and be published in the press and your trade journals, which you will disagree with at your peril. (say “yes.” Plea Bargain agreements with the DoJ are much worse. You have to waive your right of appeal against whatever sentence you get!)
- will the corporate want us, where possible, to work with regulators and criminal enforcement authorities, both in theUKand abroad, in order to reach a global settlement?
- Would you like us to try to persuade the DoJ not to prosecute you in the US as well? (Pope, Red Dress, Bears, Woods etc etc.)
Anyone in their right mind would have the next question bursting from their lips by now. “If I do all this can you guarantee that I will not be prosecuted?”
As you would expect, the answer is “not necessarily.”
Bearing in mind the ear-bashing the SFO received from Thomas LJ in Innospec, (see 29th July), all options are left open;
but…. they have said that they want to settle self-referral cases that satisfy the above criteria “wherever possible.”
Flies in that ointment, (effectively following what Thomas LJ said) would include:
- Board member personally involved in corruption
- Board member benefiting personally from corruption.
- Public interest.
So, if we are talking thumbscrews rather than pink fluffy handcuffs, where to next?
“We would in those circumstances be looking for co-operation from the corporate and would be prepared to enter into plea negotiation discussions with the context of the AG’s Framework for plea negotiations.”
This is especially important in the event that the DoJ are sniffing around, in order to avoid any possibility of double jeopardy issues.
What specific factors are relevant to the decision as to whether or not to prosecute individuals within the company?
- how involved were the individuals in the corruption (whether actively or through failure of oversight)?
- what action has the company taken?
- did the individuals benefit financially and, if so, do they still enjoy the benefit?
- if they are professionals should we be working with the appropriate Disciplinary Bodies?
- should we be looking for Directors’ Disqualification Orders?
- should we think about a Serious Crime Prevention Order?
All these are self explanatory, except perhaps for the last one. An SCPO is an order that a court can make, preventing a convicted person from having the opportunity to do it again, by placing all sorts of restrictions on his/her future activities. Examples are set out in Section 5 of the Serious Crime Act 2007.
(Can’t find the Humorous Crime Act)
Also important to note is the confidentiality of such communication with the SFO. They will regard it as being equivalent to information received by them pursuant to their powers under Section 2 of the Criminal Justice Act 1987, and only to be used in accordance with that act. (Compulsory powers of questioning, the answers to which cannot be used in court on a prosecution for the offence enquired into)
Let us look on the bright side though, and examine what happens next should we find ourselves in pink fluffy handcuffs.
The SFO will look at what needs to be investigated further. Wherever possible it will be carried out by the company’s own professional advisers. The Company she pays though! (Albeit within limits the SFO assess to be reasonable.)
They also undertake to ensure that material, (and in particular electronic material, is preserved.
So once the investigation is concluded, what next? – Settlement Discussions.
What’s important here?
- restitution by way of civil recovery to include the amount of the unlawful property, interest and our costs
- Part 5 of The Proceeds of Crime Act
- in some cases monitoring by an independent, well qualified individual nominated by the corporate and accepted by us. The scope of the monitoring will be agreed with us. We undertake that if monitoring is going to be needed, it will be proportionate to the issues involved.
- a programme of culture change and training agreed with us.
- discussion, where necessary, and to the extent appropriate, about individuals.
- Who’s getting the sack.
All this, and a “Public Statement so as to provide Transparency to the er… public.” (See above.)
…. And the offer of assistance when negotiating with overseas (i.e. USA) authorities. (Potentially of vital importance)
And there are future promises, when they have been finalised, of offers of assistance in the fields of Mergers and Acquisitions and Private Equity.
This is a topic for another blog in the not too distant future, for which I am hoping to draw on the expertise of contacts in the field. (Contributions always welcome Ian).
In essence the problem lies in “ticking time bombs” – bribery issues lurking in the past of companies subject to acquisitions by other companies, which either did not emerge during the ordinary Due Diligence process, or did, and the acquiring company wants to know what to do next, without incurring a section 7 liability.
Confidentiality is offered again, particularly where price sensitivity is an issue, which it very likely will be.
Thus far I have tried to outline in some detail, the Carrot dangled by the SFO to encourage self-reporting. There is of course an accompanying stick. It is set out thus:
WHAT HAPPENS IF THERE IS NO SELF REFERRAL?
Self referral together with action by the corporate to remedy the problem of corruption will reduce the likelihood that we may discover the corruption ourselves through other means. If this happens we would regard the failure to self report as a negative factor. The prospects of a criminal investigation followed by prosecution and a confiscation order are much greater, particularly if the corporate was aware of the problem and had decided not to self report.
Corporates will need to be aware of the length and expense of an investigation by the SFO. There will inevitably be considerable publicity and disruption to the business of the corporate. We will be making use of all tools at our disposal such as those under the Regulation of Investigatory Powers Act. Professional advisers will need to advise their corporate clients about the impact of these investigations. There is also a serious prospect that we will learn about the corruption issue from another agency in the UK or elsewhere, a whistleblower or a statutory report such as a Suspicious Activity Report. We will assume in those circumstances that the corporate has chosen not to self report. The chances of a criminal investigation leading to prosecution are therefore high.
The underlining is mine, but the message is clear.
A little further reading:
Bribery Act 2010: Joint Prosecution Guidance of The Director of the Serious Fraud Office and The Director of Public Prosecutions
And lest the FSA was feeling left out, I have added links to their Consultation Paper (including explanatory newsletter) all of which will reward further reading by in house counsel.
The Consultation Paper (CP) on the proposed Financial crime: a
guide for firms (the Guide) is important to all financial-services
firms and their advisers as it explains steps that firms can take
to reduce the risk of being used to further financial crime and by
doing so help themselves to meet relevant legal obligations.
This CP is targeted at firms and will be of limited relevance to
consumers. Some consumers or consumer groups may be interested
in the guidance we propose to give to firms about their systems and
controls to prevent fraud on or by their customers.
How can I compete with such limpid prose?
Back soon…. well sooner than I was this time anyway.