THE BRIBERY ACT. RICHARD ALDERMAN GOES WEST.

After his March foray to the Russian Steppes, leading the SFO Light Cavalry into the Corruption Valley of Death that is the Russian Business Sector, The Man In The White Hat, Richard Alderman, has yet again saddled up and headed West this time for the Badlands of er… Washington DC.

The March trip was all about announcing “The British are Coming” to a Russian business community that were surprisingly receptive if the chatter on the Internet is to be believed. Russia and the CIS seem to be showing a far greater interest in the multi-jurisdictional reach of the UKBA than countries closer to home. I get a lot of correspondence on Social Media from that part of the world asking some very searching questions, which so far I have been answering for free!

Some might say that they have to be more interested, but at least the message is getting home to them.

Not so, much closer to home perhaps. One question I picked up, after the announcement of the Munir Patel prosecution, from a UK business journalist working in India was:

“The SFO and UK government has spent significant resources telling firms in Asia that they’ll be pursuing firms for bribes paid or received. This case (Patel) should not cause sleepless nights for execs at too many non-UK firms – the prosecution is neither commercial, nor extra-territorial. How do you convince firms to prioritise setting aside resources for policies, procedures and their implementation?”

A string of comments followed, effectively pointing out how Section 7 in particular could be used to prosecute foreign corporates with a business presence in UK who had used bribery to secure overseas contracts in competition with UK companies.

That elicited this response from the original source:

“The public interest test will be the one to watch here. Why would the prosecution of a firm across the globe for an act committed in another jurisdiction be in the interest of the UK tax payer?”

My heart sank.

ANSWER: Because the risk of prosecution in the UK courts, (involving confiscation under POCA, class actions by shareholders of losing companies etc etc) would be very likely to deter foreign corporates from using Bribery to secure business in competition with UK companies overseas. (Yes there IS an echo in here.)

———-

So what did our intrepid man with the lasso have to say to the huddled masses once he had cleared Ellis Island? (Am I flogging a dead horse here?)

Well first up was the Trace International Forum at the St Regis Hotel ($400 – $900 per night).

Having (rightly) complimented Trace International for its work in fighting Corruption, he then went on to deliver an update on the SFO’s current position.

80 Frontline staff dealing with a resource of $7.5m, although that “resource” is flexible and he can draft in staff from other areas if needed.

Current anti-corruption work (50 cases) dominated by pre-Bribery Act cases. (We will all please remember that it is NOT retrospective, and can’t be used to prosecute acts of Bribery committed before 1st July this year.)

SFO have to work harder than DoJ on investigations because all have to be fully trial prepared rather than just aiming for Deferred Prosecution Agreements. (But see below for exciting news.)

Good news is that self reporting is on the up, thereby involving less work, (and if MacMillan Publishing is anything to go by, the company pays for the investigation as well as the resulting civil penalty of which the SFO get up to 35%.)

He took the time to point out that our old laws, (still current for pre July 1st offences) have a highly restrictive test for prosecuting corporations. The company is only liable if the most senior members (the directing mind) were involved in criminal activity.

He didn’t go on to deal with jurisdictional issues partly dealt with by the Anti Terrorism Crime and Security Act 2001 Sec 109, so nor will I.

Nowadays, rather than having to prove the Directing Mind test, Section 7 only requires a failure to prevent and/or the turning of a blind eye by an individual.(and so does Section 14 where individual directors are in the frame)

There is a rueful remark about the ability of NGO’s or “interested parties” to play at being awkward squad, such as where impertinent  attempts were made to try to force the continuation of the Al Yamamah case, a problem not encountered by the DoJ’s posse in the USA. (and yes, the word “proportionate” makes yet another appearance in this context, for which Teresa May will be most grateful.)

———-

But there was some positive stuff too.

In all three talks, on the 4th (TRACE) and the 5th, (Covington & Burling LLP) & Risk Advisory Dinner (Hay Adams Hotel $465 to $2,695!) he was keen to talk about the Demand side as well as the Supply side approach, which I take to mean, Going After Those Asking For Bribes. (Section 2) – Blame Uncle Sam for the jargon not me, – and this is an SFO joke not a reference to anyone American. (Sorry Tom I’ve done it again, – but there will be a prize for the first person who posts an explanation in the comment section.)

Essentially the SFO are promoting the idea that corporates who experience problems, specifically in terms of requests for Facilitation Payments overseas, should share experiences and anecdotes so as to assist the SFO in a concerted approach to the foreign government concerned.

———-

On a rather different tack, he also homed in on Section 14, which has not had a great deal of air time since the Act came into force.

14

Offences under sections 1, 2 and 6 by bodies corporate etc.

(1)This section applies if an offence under section 1, 2 or 6 is committed by a body corporate or a Scottish partnership.

(2)

If the offence is proved to have been committed with the consent or connivance of—

(a)a senior officer of the body corporate or Scottish partnership, or

(b)a person purporting to act in such a capacity,

the senior officer or person (as well as the body corporate or partnership) is guilty of the offence and liable to be proceeded against and punished accordingly.

(3)But subsection (2) does not apply, in the case of an offence which is committed under section 1, 2 or 6 by virtue of section 12(2) to (4), to a senior officer or person purporting to act in such a capacity unless the senior officer or person has a close connection with the United Kingdom (within the meaning given by section 12(4)).

(4)In this section—

  • “director”, in relation to a body corporate whose affairs are managed by its members, means a member of the body corporate,
  • “senior officer” means—
  • (a) in relation to a body corporate, a director, manager, secretary or other similar officer of the body corporate,

What he had to say was this:

“Let me turn, to the question of personal liability. I know that this is exercising the minds of a number of people. The Bribery Act creates an offence of consenting to or conniving at bribery in respect of senior officers. It is an offence I am very interested in. I want to see suitable senior executives brought to a criminal trial where they know about bribery and have permitted it to continue. 

Some have asked me what this means for Directors more generally and indeed non-executive Directors. What does it mean, for  example, for US citizens based in the UK who are Directors or non-executive Directors of corporations based in some very difficult countries? Will the Act apply to them? What about UK based senior executives of US corporations? What is their exposure? The Act says that they are within the scope of the offence if they have a close connection with the UK (for example, if they are UK citizens or ordinarily resident in the UK)

These individuals need to consider their own personal liability in respect of what their corporations do. Ultimately, I believe that this is absolutely right. They are responsible individually and with their fellow Directors for the ethical conduct of the corporation. If they are unhappy then they need to consider their position. If they cannot change the corporation’s approach then they may have to resign. If they continue then they run the serious risk of committing a criminal offence under the Bribery Act.”

This will make uncomfortable reading for many and could be construed as growing confidence on the part of the SFO to tackle the bigger fish overseas.

————–

Mergers & Acquisitions, linked as they are to the Private Equity lobby came in for some interesting words of comfort though.

What happens if your Due Diligence unearths a “bribery nasty” lurking in the target company’s books?

“I believe that it is very strongly in the public interest if good ethical corporations take over those with corruption problems and  sort out those issues. We all benefit from this. What I want to hear about from the corporation is the work that has taken place to identify the issue and what they propose to do about it if the deal goes ahead. I want to be in a position to give assurance about the approach of the SFO if the corporation does carry out the programme of work that it tells me about. I have found that there has been a lot of recognition of the constructive nature of these discussions”

————-

Not such cheery news on the FACILITATION PAYMENTS front. Legal up to a point under FCPA, but certainly not in the UK.

 “Let me turn now to some examples of how the SFO is working with corporations. A lot of this at present concerns facilitation payments. This is something that has been developing in interesting ways and US corporations need to be aware of this. You cannot take comfort from the FCPA exemption and take the view that you do not have a problem if in fact you come under the UK Bribery Act. These payments are illegal under our law and have always been illegal.”

This is the interesting jurisdictional conundrum.

FP’s have always been illegal in UK law. They are Bribes pure and simple.

Under FCPA, payments to govt officials to speed up that official’s duties, “grease payments” are not illegal.

The crunch will come if the SFO seek to prosecute a US Corporate with a UK business presence, if it has paid FP’s to give it a business advantage over a UK company in the context of a foreign contractual negotiation.

It will be no answer in the UK courts for the USA corporate to say, “what I was doing was entirely legal in my own country, and I was not doing it in your country.”

————-

Thankfully he had nothing to say about Corporate Hospitality, (I should think not looking at the cost of rooms in the hotels he stayed in) –  so nor will I.

————-

On prosecution policy, we had this definitive statement, particularly in relation to Section 7.

“We are, therefore, looking for cases in which to apply the new law. I have said publicly that a high priority for us will be to find a foreign corporation with a UK business presence that has got involved in corruption in another country and has undermined a good ethical UK corporation. Those corporations have been within the SFO’s reach since July 1st as a result of the new Bribery Act. An English jury will take the view that there is a very clear UK public interest in bringing such corporations to a criminal court. It is a high priority for us.”

“The British are Coming!”

————

IN OTHER NEWS:

On the 6th October, the Solicitor General Edward Garnier QC suddenly popped up with this. The Government are considering introducing Deferred prosecution Agreements, which the SFO have been crying out for ever since Innospec, BAe Tanzania, and a host of other attempts at plea bargains that went belly up before some very unimpressed judges.

Here is an extract from what he had to say:

¨ The introduction of deferred prosecution agreements (DPAs), similar to those in the US, would provide a more effective approach to dealing with corporate crime in some cases. The attorney general and I are currently engaging with the Ministry of Justice, the Home Office and others in order thoroughly to explore the question.

¨ DPAs are an established part of the US response to corporate crime, encouraging companies to self-report to the Department of Justice. The DoJ typically agrees with a company to suspend or ‘defer’ any prosecution in return for payment of a substantial financial penalty, payment of compensation to victims and the imposition of a regime of corporate monitoring (at the company’s expense) for a period of two or three years.

¨ These are the usual terms of the agreement, but there may be others allowing the prosecutor to keep its flexibility about what is required. If the company complies, the prosecution is eventually dropped at the end of the period. The Treasury benefits, the company can start again and the deterrent effect is significant.

———————

That’s it for now, I shall be delivering a seminar with Dominic Connolly in Chambers at 5 St Andrews Hill on Thursday 20th. Me on the Act and Dom on POCA and FSA Civil Recovery.

I will look soon in more detail at GPT/EADS, The Final Settlement of BAe Tanzania and the Select Committee hearings for which certain people needed very thick cushions, and I will finally  get round to some detailed reviewing of Eoin O’Shea’s excellent book on the Act. (Sorry Eoin, I’ve actually been busy in court for once.)

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The Bribery Act: “Government Keen To Accept Bribes”

****STOP PRESS. OFFICIALLY ENDORSED BY BLACKADDER HIMSELF****

(See Comment below from theBriberyact.com)

There was I bemoaning the fact in the last bungblog that the Bribery Act was the preserve only of the rich and famous, and along comes news of a prosecution by the CPS involving an allegation of a bribe of £500
We will not go into any of the details, which might of themselves explain a little more behind this decision, but is it really possible that we might end up following the Indian lead on Bribery, (popular that is rather than political) and see this as the acorn of the cultural change the OECD have been advocating for years?

Small bribery can be just as insidious as Big Bribery, but it is much less likely to be prosecuted for one very good and compelling reason, which I will turn to in a minute.

The first important point to notice is that this prosecution was brought by the CPS and not the SFO.

Both are able to prosecute offences under the act, but neither can institute proceedings without the approval of their respective heads, the DPP Keir Starmer QC, or the Director of the SFO, Richard Alderman.

At the time the section 9 guidance on “Adequate Procedures for Preventing Bribery” was issued, those two bodies issued a joint document setting out the guidance that they themselves would follow in making the decision on whether or not to prosecute.

http://www.cps.gov.uk/legal/a_to_c/bribery_act_2010/

When you read it, you begin to realise that in fact we do have a two tier approach, in much the same way as we do with fraud. Big fraud to SFO, small fraud to CPS, or at least that’s how it looks on paper, together with a bifurcation (!) between domestic Bribery and International Bribery.

Let’s look at a short passage from the introduction:

“Scope of the Act

The Act takes a robust approach to tackling commercial bribery, which is one of its principal objectives. The offences are not, however, limited to commercial bribery. There may be many examples outside the commercial sphere where individuals attempt to influence the application of rules, regulations and normal procedures. Examples would include attempts to influence decisions by local authorities, regulatory bodies or elected representatives on matters such as planning consent, school admission procedures or driving tests.”

And then this:

Bribery is a serious offence. There is an inherent public interest in bribery being prosecuted in order to give practical effect to Parliament’s criminalisation of such behaviour.

It then launches into the jargon of “The Full Code Test” and the “Public Interest Test.”

So should we really be at all surprised that a CPS prosecution has been brought in relation to what is an apparently minor offence, (I mean in terms of the amount involved)?

Highly respected commentators of a Transatlantic persuasion have already been turning their noses up at such an apparently lacklustre opening act in the brand new theatre that is the Bribery Act.

BUT as the erudite and interesting thebriberyact.com has pointed out:

(this) misses a fundamental but important difference between the US FCPA (Foreign Corrupt Practices Act) and the Bribery Act.

The UK Bribery Act covers domestic bribery AND foreign bribery.  The US FCPA only covers foreign bribery.

Broadly speaking foreign bribery cases are likely to be more complicated from an evidential perspective.  They will, as a result, take longer to investigate and prove. (and cost a lot more, – that was me.)

This is the raison d’etre for the Serious Fraud Office in the UK.

http://thebriberyact.com/2011/09/01/a-golden-rule-in-litigation-never-underestimate-your-opponent-or-why-it-is-a-mistake-to-pooh-pooh/

(Although AA Milne was never an authority on the Act. That  should be poo-poo, Richard and Barry)
****CONTROVERSY NOW RAGES – SEE COMMENT BELOW FROM thebriberyact.com****

———–

So if the CPS will prosecute someone for bribing a member of a council planning committee, a headteacher for selecting a dunce who is the child of rich parents, or a driving instructor for passing Mr. Toad, (very English joke Tom, see Wind in the Willows), then maybe the act will achieve that which the bare words of the statute intend.

After all, we should not forget for a minute the Provisions of Schedule 2.

You have  forgotten the provisions of Schedule 2 haven’t you?

Schedule 2 contains a list of all the old Acts of parliament which are repealed on the passing of the Bribery Act, including:

Public Bodies Corrupt Practices Act 1889

Prevention of Corruption Act 1906

Prevention of Corruption Act 1916

Anti Terrorism Crime and Security Act Sec 108 – 110

(Section 109 dealt with Bribery and Corruption committed outside UK)

To save you looking them up, they effectively comprise all the previous anti corruption legislation, although we still retain Common Law offences such as Misconduct in a Public Office, which could apply to public officials accepting bribes, but not private individuals.

Which means in the absence of The Bribery Act, such small bribes are not an offence.

———–

Which brings me wobbling back to sort of where I started at the beginning of last week’s blog.

Small bribes involving excessive hospitality, facilitation payments, (Grease is the word, if you are in the USA), the fashion journalists tale, (last week) and what about the rampant corruption in the hotel and leisure industry? Tips for good service are fine, but £50 to turf someone off a better restaurant table, or £100 to grab someone else’s superior hotel room? (Concierges cringing the world over hopefully.) If they are given cash to persuade them to effect an improper performance of their function, i.e. bumping someone from a room that they had booked and paid for, that’s a bribe.

Yes of course there is the old argument that such people are traditionally poorly paid because they are expected to make extra dosh in that way. Well that is where the concept of culture change comes in. If India can think the unthinkable, with the inspiration of Anna Hazare, then so can we.

In a recent seminar given by a senior officer of the SFO, we heard this, particularly in relation to Facilitation Payments:

“The SFO look also at the effect of small payments. They can have a corrosive effect, and are often part of schemes orchestrated at higher level by people into whose pocket a proportion of payments go.

Once you have someone in your pocket by means of small payments, just like blackmail, there is nowhere for it to stop. It perpetuates a culture of corruption within an organisation.

In some parts of world, it is not possible to avoid them, so we consider the public interest in prosecuting

  • We consider amount of payment concerned
  • Was it systemic, one off or one of many?
  • What steps have company taken to reduce payment of this sum?
  • Were there any special sector considerations.
  • No prosecution if payment at the end of a gun or risk to life and limb.”

So the SFO, and the vast majority of comment and publicity about the Act has really been focused on International Corruption.

They will not prosecute the “Low hanging fruit.” But why should not the police and the CPS do exactly that, because if they don’t prosecute the bent planning officer or the driving examiner, who will?

———-

I said earlier that I would get to the reason in a minute why it is that I think there are likely to be very few prosecutions for Bribery by the SFO, initially. Well unless you are a very fast reader it has probably taken you a little longer than that. Sorry, maybe I got carried away.

BUT HERE IT IS.

The clue lies in two factors. Firstly the abysmal budget allocated to them for investigating and prosecuting Bribery Act offences. Second, the Proceeds of Crime Act 2002.

My own personal view, although you could call it an educated guess, is simply this.

A successful prosecution of a large corporation for Bribery, or a successful Civil Recovery action in the event of self-reporting (remember the pink fluffy handcuffs?) will result in potentially a huge amount of money confiscated from the offending company.

A proportion of those funds will be directed towards compensating those who have suffered loss as a result of the offender’s actions, but some of the money will be ploughed back into resources needed for further investigations.

To what degree I cannot say, (as I said I am guessing) but does there not exist the very real possibility that at least in the early stages, prosecution policy of Bribery Act offences will be influenced if not governed by the Cost-Benefit analysis?

If you prosecute a company for sending someone on an over-luxurious glee club trip to Tierra del Fuego, the investigative costs of an international investigation could be not inconsiderable. The proceeds of such a crime might be pathetically small. Am I barking up the right tree here? I think so.

On the other hand, if there is a concentration on Big Bribery at the start, then the coffers will be swelled that much sooner, and the whole process might well snowball into a situation where the Prosecuting Authorities  are sufficiently flush not to have to risk picking only the fruit at the very top of the tree.

They might even turn it into a flourishing industry.

Hence… “Government Keen To Accept Bribes!”

Got there in the end.

———-

The above is subject to the usual old tosh about all views being my own etc etc, but if anyone else wants to express a view (including Elm Street) then just hit the comment button below. But be warned, I have the power of moderation!

———–

IN OTHER NEWS:

If you are in the Construction industry and are near Bristol, I shall be spouting forth to members of the RICS Bristol on 13th September. You have to get the guff from them but I’d be delighted to meet followers there. It’s near the big RAC thingy on the M5.

IN EVEN OTHER NEWS

thebungblog now has its own Group on LinkedIn, for news, view, comments and a cup of tea, (iced if you are of the transatlantic persuasion)

Join now

UK BRIBERY ACT 2010 thebungblog SPEAKEASY

IN OTHER REALLY BIG NEWS:

If you are reading this blog, then you are bound to have heard of @charonqc http://charonqc.wordpress.com/

There’s a link to it in my blogroll as well.

ANYWAY…. every week the eponymous blogger produces a podcast of a discussion with some distinguished lawyer or other on a topic of the day.

In a surprise break with that tradition of distinguished lawyers, this coming week it will be …. me!

So watch his space.

————

AND FINALLY:

An esteemed and highly respected blogger from “overseas” who specialises on the FCPA in particular, has had the temerity to suggest that the brand of humour promulgated on this modest little blog, just might not translate into American.

Views please!

TheBungBlog

The Bribery Act 2010, Self Reporting part 3, Carrot and Stick, Thumbscrews or Pink Fluffy Handcuffs?

Welcome back!

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?

Two options:

  1. Brush it under the carpet?
  2. 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.

http://www.legislation.gov.uk/ukpga/2007/27/section/5

(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

http://www.cps.gov.uk/legal/a_to_c/bribery_act_2010/

—————

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.

http://www.fsa.gov.uk/pages/Library/Policy/CP/2011/11_12.shtml

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.

The bungblog.

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.

————–

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.

————–

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.

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.)

———–

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;)

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.

————-

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.

—————–

 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 1st 2010, when the Bribery Act came into force.

—————-

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?

————–

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.

——————-

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…..