The U.K. Bribery Act is set to go live on July 1st.
But will anyone be left at the SFO to enforce the new law?
Of course there will be. As has been witnessed in the U.S., carrying the "enforcement stick" makes one a valuable target for law firm recruiters in this era of increased enforcement - as the firms are eager to provide clients with insight and advice from those who carried or shaped the "enforcement stick."
Coming on the heels of other recent high-level SFO departures (see here and here for the prior posts), yesterday it was reported (see here for the coverage from Legal Week) that Vivian Robinson (SFO - General Counsel) will soon leave the agency and join the London office of U.S. based law firm McGuireWoods LLP.
Over the past year, Robinson has been a very active speaker on behalf of the SFO on the Bribery Act. See here and here for prior posts as to certain of Robinson's speeches or commentary.
Commenting on his move, Robinson told Legal Week - "It has also been a privilege to take part in bringing to the attention of a wide national and international audience the importance of the new Bribery Act, its implications, and the essential role to be played by the SFO as principal enforcer of its provisions."
As has been previously reported, Richard Alderman (Director of the SFO) is also looking to soon retire from the SFO.
Showing posts with label Serious Fraud Office. Show all posts
Showing posts with label Serious Fraud Office. Show all posts
Thursday, April 28, 2011
Thursday, March 31, 2011
Robert Amaee on U.K. Bribery Act Guidance
Yesterday, in a much anticipated development, the United Kingdom Ministry of Justice released (here) its long awaited guidance (here) as to the U.K. Bribery Act - a delayed law now set to go live on July 1, 2011.
The U.K. Serious Fraud Office, the U.K. law enforcement agency tasked with enforcing the Bribery Act, also issued a release (here) and prosecuting guidance (here).
In this guest post, Robert Amaee (the former Head of Anti-Corruption and Proceeds of Crime Unit at the U.K. Serious Fraud Office and current counsel with Covington & Burling LLP in London - see here) provides insight and analysis of the U.K. developments.
*****
The Bribery Act: Countdown to Implementation
The UK Ministry of Justice yesterday published its long awaited Bribery Act 2010 (the “Bribery Act”) guidance entitled “Guidance about procedures which relevant commercial organisations can put in place to prevent persons associated with them from bribing (section 9 of the Bribery Act 2010).” This publication marks the official start of a ninety day countdown to the implementation of the Bribery Act which will now be brought into force on 1 July 2011.
Companies that already have reviewed and updated their anti-bribery and corruption procedures will be ahead of the game but will still need to study the new guidance to see what, if any, further amendments may be required. Those who have yet to complete the process of updating their procedures to ensure compliance no doubt will draw a modicum of comfort from the fact that they have a further ninety days in which to digest and absorb the guidance and implement the necessary policies and procedures.
The comments made by the Minister of Justice, Ken Clarke QC MP, and the guidance itself aim to reassure companies that the Bribery Act will be enforced with common sense and pragmatism.
The Minister of Justice ushered in the guidance by saying that "[t]he ultimate aim of [the Bribery Act] is to make life difficult for the minority of organizations responsible for corruption, not to burden the vast majority of decent and law-abiding businesses."
That is a message that prosecutors at the UK Serious Fraud Office (“SFO”) -- the organisation tasked with leading enforcement efforts under the Bribery Act -- have espoused for some time. What is less clear is whether the guidance provides any tangible assistance on some of the Bribery Act's thorniest issues such as the UK’s jurisdiction over non-UK registered companies, the extent of liability for the actions of third parties and the boundary between acceptable corporate hospitality and a prosecutable bribe, particularly when foreign officials are concerned.
Government Policy and the Section 7 Corporate Offence
The guidance, as expected, focuses on six high level principles which companies will need to familiarise themselves with and which are supported by 11 case studies. It also sets out the Government policy in relation to the section 7 corporate offence stating that “[t]he objective of the [Bribery] Act is not to bring the full force of the criminal law to bear upon well run commercial organisations that experience an isolated incident of bribery on their behalf” and recognises that “no bribery prevention regime will be capable of preventing bribery at all times.” This part of the guidance already has attracted criticism from some respected quarters. (See here).
The guidance deals with the section 1 offences of bribing another person but the most noteworthy commentary relates to the section 6 offence (Bribery of foreign public officials). This section highlights the fact that bribery of a foreign public official could be prosecuted under the section 1 offence but that evidential difficulties in proving that a bribe was paid to a foreign public official with the intention to induce him or her to perform his or her role “improperly”, something the guidance calls “a mischief”, means that prosecutors would seek to rely on the section 6 offence which needs no such proof. The guidance goes on to make a number of assertions in relation to the interpretation of section 6 which bear closer scrutiny. The guidance says “…it is not the Government’s intention to criminalise behaviour where no such mischief occurs…” In other words it appears that the guidance may be advocating that the concept of “improper performance” be read into section 6. What is clear is that Parliament did not include any such wording in section 6 in clear contrast to section 1.
Corporate Hospitality and other Business Expenditure
In addressing the topic of corporate hospitality and other business expenditures, the guidance adopts what can only be described as a permissive tone. It codifies the comments that the Minister of Justice has made over the last few weeks and states that “[b]ona fide hospitality and promotional, or other business expenditure which seeks to improve the image of a commercial organisation, better to present products and services, or establish cordial relations, is recognised as an established and important part of doing business and it is not the intention of the Act to criminalise such behaviour” and goes on to endorse “reasonable” and “proportionate” hospitality and business expenditure.
In determining what is reasonable and proportionate, the guidance proposes taking into account “all of the surrounding circumstances” which include matters such as “the type and level of advantage offered, the manner and form in which the advantage is provide, and the level of influence the particular foreign public official has over awarding business”. It states that “the more lavish the hospitality or the higher the expenditure in relation to travel, accommodation or other similar business expenditure provided to a foreign public official, then, generally, the greater the inference that it is intended to influence the official to grant business or a business advantage in return.”
Much of this is elementary and already part of the mantra of compliance departments but the guidance goes further and appears to give the green light to certain interactions with foreign public officials which would, today, be closely and critically scrutinised by those responsible for compliance. As an example, the guidance envisages that the provision of flights, airport to hotel transfers, hotel accommodation, “fine dining” and tickets to an event for a foreign public official and his or her spouse are “unlikely to raise the necessary inference” to engage section 6 and therefore unlikely to violate the Act so long as there is a business rational for the trip.
A Question of Jurisdiction
The guidance makes it clear that “the courts will be the final arbiter as to whether an organisation ‘carries on a business’ in the UK taking into account of the particular facts in individual cases” and sets out the “Government’s intention” in relation to the phrase “carries on a business, or part of a business in the United Kingdom.” The thrust of the approach appears to be a reliance on a “common sense approach.”
In cases where there may be dispute, the guidance again defers to the courts as the final arbiter but says that “… the Government anticipates that applying a common sense approach would mean that organisations that do not have a demonstrable business presence in the United Kingdom would not be caught.” That much is uncontroversial but what follows has elicited a great deal of comment. The guidance states that “[t]he Government would not expect, for example, the mere fact that a company’s securities have been admitted to the UK Listing Authority’s Official list and therefore admitted to trading on the London Stock Exchange, in itself, to qualify that company as carrying on a business or part of a business in the UK and therefore falling within the definition of a ‘relevant commercial organisation’ for the purposes of section 7.” This commentary has been welcomed in some quarters but has been criticised by some as undermining the concept of a level playing field. (See here).
In the vast majority of cases, it will be clear whether a company is or is not carrying on a business or part of a business in the UK. There will, however, be cases where there is room for debate. If, for example, a non-UK registered company sets up a joint venture with a UK company and the joint venture is not registered in the UK, is the non-UK registered company carrying on a business or part of a business in the UK? What if the non-UK registered company then seconds an employee to work at the UK partner’s offices in London looking after the joint venture - is the non-UK registered company carrying on a business or part of a business in the UK? What if it sends 5 employees? Those are the type of intricacies that need to be worked through by company advisors and in the worst case prosecutors and the courts.
Associated Persons
When considering the potential liability imposed on a company by virtue of its supply chains or its involvement in a joint venture, the guidance introduces the concept of “the level of control”-- a concept that does not appear in the Bribery Act -- as one of the “relevant circumstances” that would be taken into account when seeking to determine if the person creating liability can be deemed to be an “associated person” i.e. someone who is performing services for or on behalf of a company that falls within the UK’s jurisdiction. The guidance states that “[t]he question of adequacy of bribery prevention procedures will depend in the final analysis on the facts of each case, including matters such as the level of control over the activities of the associated person and the degree of risk that requires mitigation.”
Facilitation Payments
In the run up to the publication of the guidance, there had been some suggestion that there may an attempt to ‘soften’ the approach to facilitation payments. This is not at all the case. While the Government has recognised the problems faced by commercial organisations in some parts of the world and in certain sectors, the guidance reiterates that there are no exemptions in the Act and sets out the OECD position that facilitation payments are corrosive and that exemptions create artificial distinctions that are “difficult to enforce, undermine corporate anti-bribery procedures, confuse anti-bribery communication with employees and other associated person, perpetuate an existing ‘culture’ of bribery and have the potential to be abused.” In circumstances where an individual has no alternative but to make a facilitation payment in order to “protect against loss of life, limb or liberty”, the guidance states that “the common law defence of duress is very likely to be available”. It stresses that it is a matter for prosecutorial discretion whether to prosecute an offence and defers to the Joint Prosecution Guidance when it comes to the “prosecution of facilitation payments.”
Conclusion
Companies will of course be pleased to have more guidance and will look to draw as much comfort as they can from the more 'permissive' tone of the MoJ guidance but global companies will not be looking at their UK exposure in isolation and will certainly not be rushing to relax their anti-bribery and corruption policies and procedures. It is not much comfort for a company to avoid prosecution in the UK for interactions with foreign government officials for example but to be in violation of their industry codes of conduct or be called to account in a US court for that same conduct. Global companies will continue to be mindful of their global exposure.
The U.K. Serious Fraud Office, the U.K. law enforcement agency tasked with enforcing the Bribery Act, also issued a release (here) and prosecuting guidance (here).
In this guest post, Robert Amaee (the former Head of Anti-Corruption and Proceeds of Crime Unit at the U.K. Serious Fraud Office and current counsel with Covington & Burling LLP in London - see here) provides insight and analysis of the U.K. developments.
*****
The Bribery Act: Countdown to Implementation
The UK Ministry of Justice yesterday published its long awaited Bribery Act 2010 (the “Bribery Act”) guidance entitled “Guidance about procedures which relevant commercial organisations can put in place to prevent persons associated with them from bribing (section 9 of the Bribery Act 2010).” This publication marks the official start of a ninety day countdown to the implementation of the Bribery Act which will now be brought into force on 1 July 2011.
Companies that already have reviewed and updated their anti-bribery and corruption procedures will be ahead of the game but will still need to study the new guidance to see what, if any, further amendments may be required. Those who have yet to complete the process of updating their procedures to ensure compliance no doubt will draw a modicum of comfort from the fact that they have a further ninety days in which to digest and absorb the guidance and implement the necessary policies and procedures.
The comments made by the Minister of Justice, Ken Clarke QC MP, and the guidance itself aim to reassure companies that the Bribery Act will be enforced with common sense and pragmatism.
The Minister of Justice ushered in the guidance by saying that "[t]he ultimate aim of [the Bribery Act] is to make life difficult for the minority of organizations responsible for corruption, not to burden the vast majority of decent and law-abiding businesses."
That is a message that prosecutors at the UK Serious Fraud Office (“SFO”) -- the organisation tasked with leading enforcement efforts under the Bribery Act -- have espoused for some time. What is less clear is whether the guidance provides any tangible assistance on some of the Bribery Act's thorniest issues such as the UK’s jurisdiction over non-UK registered companies, the extent of liability for the actions of third parties and the boundary between acceptable corporate hospitality and a prosecutable bribe, particularly when foreign officials are concerned.
Government Policy and the Section 7 Corporate Offence
The guidance, as expected, focuses on six high level principles which companies will need to familiarise themselves with and which are supported by 11 case studies. It also sets out the Government policy in relation to the section 7 corporate offence stating that “[t]he objective of the [Bribery] Act is not to bring the full force of the criminal law to bear upon well run commercial organisations that experience an isolated incident of bribery on their behalf” and recognises that “no bribery prevention regime will be capable of preventing bribery at all times.” This part of the guidance already has attracted criticism from some respected quarters. (See here).
The guidance deals with the section 1 offences of bribing another person but the most noteworthy commentary relates to the section 6 offence (Bribery of foreign public officials). This section highlights the fact that bribery of a foreign public official could be prosecuted under the section 1 offence but that evidential difficulties in proving that a bribe was paid to a foreign public official with the intention to induce him or her to perform his or her role “improperly”, something the guidance calls “a mischief”, means that prosecutors would seek to rely on the section 6 offence which needs no such proof. The guidance goes on to make a number of assertions in relation to the interpretation of section 6 which bear closer scrutiny. The guidance says “…it is not the Government’s intention to criminalise behaviour where no such mischief occurs…” In other words it appears that the guidance may be advocating that the concept of “improper performance” be read into section 6. What is clear is that Parliament did not include any such wording in section 6 in clear contrast to section 1.
Corporate Hospitality and other Business Expenditure
In addressing the topic of corporate hospitality and other business expenditures, the guidance adopts what can only be described as a permissive tone. It codifies the comments that the Minister of Justice has made over the last few weeks and states that “[b]ona fide hospitality and promotional, or other business expenditure which seeks to improve the image of a commercial organisation, better to present products and services, or establish cordial relations, is recognised as an established and important part of doing business and it is not the intention of the Act to criminalise such behaviour” and goes on to endorse “reasonable” and “proportionate” hospitality and business expenditure.
In determining what is reasonable and proportionate, the guidance proposes taking into account “all of the surrounding circumstances” which include matters such as “the type and level of advantage offered, the manner and form in which the advantage is provide, and the level of influence the particular foreign public official has over awarding business”. It states that “the more lavish the hospitality or the higher the expenditure in relation to travel, accommodation or other similar business expenditure provided to a foreign public official, then, generally, the greater the inference that it is intended to influence the official to grant business or a business advantage in return.”
Much of this is elementary and already part of the mantra of compliance departments but the guidance goes further and appears to give the green light to certain interactions with foreign public officials which would, today, be closely and critically scrutinised by those responsible for compliance. As an example, the guidance envisages that the provision of flights, airport to hotel transfers, hotel accommodation, “fine dining” and tickets to an event for a foreign public official and his or her spouse are “unlikely to raise the necessary inference” to engage section 6 and therefore unlikely to violate the Act so long as there is a business rational for the trip.
A Question of Jurisdiction
The guidance makes it clear that “the courts will be the final arbiter as to whether an organisation ‘carries on a business’ in the UK taking into account of the particular facts in individual cases” and sets out the “Government’s intention” in relation to the phrase “carries on a business, or part of a business in the United Kingdom.” The thrust of the approach appears to be a reliance on a “common sense approach.”
In cases where there may be dispute, the guidance again defers to the courts as the final arbiter but says that “… the Government anticipates that applying a common sense approach would mean that organisations that do not have a demonstrable business presence in the United Kingdom would not be caught.” That much is uncontroversial but what follows has elicited a great deal of comment. The guidance states that “[t]he Government would not expect, for example, the mere fact that a company’s securities have been admitted to the UK Listing Authority’s Official list and therefore admitted to trading on the London Stock Exchange, in itself, to qualify that company as carrying on a business or part of a business in the UK and therefore falling within the definition of a ‘relevant commercial organisation’ for the purposes of section 7.” This commentary has been welcomed in some quarters but has been criticised by some as undermining the concept of a level playing field. (See here).
In the vast majority of cases, it will be clear whether a company is or is not carrying on a business or part of a business in the UK. There will, however, be cases where there is room for debate. If, for example, a non-UK registered company sets up a joint venture with a UK company and the joint venture is not registered in the UK, is the non-UK registered company carrying on a business or part of a business in the UK? What if the non-UK registered company then seconds an employee to work at the UK partner’s offices in London looking after the joint venture - is the non-UK registered company carrying on a business or part of a business in the UK? What if it sends 5 employees? Those are the type of intricacies that need to be worked through by company advisors and in the worst case prosecutors and the courts.
Associated Persons
When considering the potential liability imposed on a company by virtue of its supply chains or its involvement in a joint venture, the guidance introduces the concept of “the level of control”-- a concept that does not appear in the Bribery Act -- as one of the “relevant circumstances” that would be taken into account when seeking to determine if the person creating liability can be deemed to be an “associated person” i.e. someone who is performing services for or on behalf of a company that falls within the UK’s jurisdiction. The guidance states that “[t]he question of adequacy of bribery prevention procedures will depend in the final analysis on the facts of each case, including matters such as the level of control over the activities of the associated person and the degree of risk that requires mitigation.”
Facilitation Payments
In the run up to the publication of the guidance, there had been some suggestion that there may an attempt to ‘soften’ the approach to facilitation payments. This is not at all the case. While the Government has recognised the problems faced by commercial organisations in some parts of the world and in certain sectors, the guidance reiterates that there are no exemptions in the Act and sets out the OECD position that facilitation payments are corrosive and that exemptions create artificial distinctions that are “difficult to enforce, undermine corporate anti-bribery procedures, confuse anti-bribery communication with employees and other associated person, perpetuate an existing ‘culture’ of bribery and have the potential to be abused.” In circumstances where an individual has no alternative but to make a facilitation payment in order to “protect against loss of life, limb or liberty”, the guidance states that “the common law defence of duress is very likely to be available”. It stresses that it is a matter for prosecutorial discretion whether to prosecute an offence and defers to the Joint Prosecution Guidance when it comes to the “prosecution of facilitation payments.”
Conclusion
Companies will of course be pleased to have more guidance and will look to draw as much comfort as they can from the more 'permissive' tone of the MoJ guidance but global companies will not be looking at their UK exposure in isolation and will certainly not be rushing to relax their anti-bribery and corruption policies and procedures. It is not much comfort for a company to avoid prosecution in the UK for interactions with foreign government officials for example but to be in violation of their industry codes of conduct or be called to account in a US court for that same conduct. Global companies will continue to be mindful of their global exposure.
Tuesday, March 15, 2011
A Conversation with Richard Alderman Regarding BAE
In October 2010, I published (here) a detailed Q&A with Richard Alderman (Director of the U.K. Serious Fraud Office).
Given that the BAE matter was still pending in the U.K. courts, Mr. Alderman declined to answer BAE related questions.
In February, I re-submitted my BAE questions (along with a few additional questions relating to the December 2010 U.K. resolution of the BAE matter - see here for the prior post) to Mr. Alderman.
Our Q&A can be found here.
Publication of Mr. Alderman's BAE-specific responses are timely given recent developments regarding BAE.
WikiLeaks recently published (here) a cable detailing certain information regarding termination of the U.K. inquiry regarding BAE and its relationship with certain Saudi officials, including in connection with the al-Yamamah contract.
Even though the cable adds little to what is already in the public domain regarding this matter (see here for the April 2009 PBS Frontline documentary Black Money - including interviews with several of the individuals referenced in the cable), the WikiLeaks cable has generated significant interest and has prompted a senior MP, Sir Menzies Campbell, to call for a Commons investigation.
The U.K. Telegraph (here) quotes Campbell as follows:
“This leak tells us how strong a case was available. If the information in this document had been before Parliament and the British public, there is no way that the Labour government could have influenced the termination of the investigation. The particular issue which will cause a great deal of annoyance is the fact there was prima facie evidence that a government department had been subjected to fraud. If prosecution is no longer possible, it is open to the Commons’ business innovation and skills committee to conduct a full investigation.”
For additional coverage, see here from Sue Reisinger (Corporate Counsel) and here from Samuel Rubenfeld (Wall Street Journal Corruption Currents).
Returning to my Q&A with Mr. Alderman, the following topics, among others, are explored:
(i) how the U.K. law on double jeopardy significantly affected the SFO's investigation of BAE and how the "current system [in the U.K.] for dealing with parallel criminal investigations conducted in a number of different countries does not work effectively and needs change;"
(ii) whether the U.K. government was faithful to its OECD obligations in its handling of the BAE matter;
(iii) criticism of the SFO-BAE plea agreement by the U.K. sentencing judge; and
(iv) "shortcomings" in the U.K. system and how Mr. Alderman would like a system that "is far more transparent [...] that commands public confidence, together with a much stronger role for the judiciary."
Given that the BAE matter was still pending in the U.K. courts, Mr. Alderman declined to answer BAE related questions.
In February, I re-submitted my BAE questions (along with a few additional questions relating to the December 2010 U.K. resolution of the BAE matter - see here for the prior post) to Mr. Alderman.
Our Q&A can be found here.
Publication of Mr. Alderman's BAE-specific responses are timely given recent developments regarding BAE.
WikiLeaks recently published (here) a cable detailing certain information regarding termination of the U.K. inquiry regarding BAE and its relationship with certain Saudi officials, including in connection with the al-Yamamah contract.
Even though the cable adds little to what is already in the public domain regarding this matter (see here for the April 2009 PBS Frontline documentary Black Money - including interviews with several of the individuals referenced in the cable), the WikiLeaks cable has generated significant interest and has prompted a senior MP, Sir Menzies Campbell, to call for a Commons investigation.
The U.K. Telegraph (here) quotes Campbell as follows:
“This leak tells us how strong a case was available. If the information in this document had been before Parliament and the British public, there is no way that the Labour government could have influenced the termination of the investigation. The particular issue which will cause a great deal of annoyance is the fact there was prima facie evidence that a government department had been subjected to fraud. If prosecution is no longer possible, it is open to the Commons’ business innovation and skills committee to conduct a full investigation.”
For additional coverage, see here from Sue Reisinger (Corporate Counsel) and here from Samuel Rubenfeld (Wall Street Journal Corruption Currents).
Returning to my Q&A with Mr. Alderman, the following topics, among others, are explored:
(i) how the U.K. law on double jeopardy significantly affected the SFO's investigation of BAE and how the "current system [in the U.K.] for dealing with parallel criminal investigations conducted in a number of different countries does not work effectively and needs change;"
(ii) whether the U.K. government was faithful to its OECD obligations in its handling of the BAE matter;
(iii) criticism of the SFO-BAE plea agreement by the U.K. sentencing judge; and
(iv) "shortcomings" in the U.K. system and how Mr. Alderman would like a system that "is far more transparent [...] that commands public confidence, together with a much stronger role for the judiciary."
Friday, March 4, 2011
U.K. Roundup
Is the U.K. Serious Fraud Office's ("SFO") active engagement policy a bit too active (and too private as well), is anyone left at the SFO to activley engage, the recent Mabey & Johnson individual sentences, and the U.K. anti-corruption champion calls out Bribery Act plc ... its all here in a special U.K. Roundup.
Corporate Crime Reporter Questions SFO's Active Engagement Policy
The SFO has a clear policy of active engagement when it comes to the Bribery Act and I have previously stated (here) that this policy ought to be modeled by other enforcement agencies."
Corporate Crime Reporter ("CCR"), in a recent piece (here) titled "Behind Closed Doors, UK Anti-Corruption Chief Alderman Advises Corporations, Law Firms" questions whether this engagement approach has become too active and questions whether the engagement needs to take place behind closed doors.
Writes CCR - "You would never see a US federal prosecutor visit a private law firm to give private advice – behind closed doors – to the firm’s corporate defense lawyers and their clients. But the chief law anti-corruption law enforcement official of the UK says – no problem. Over the past couple of years, Alderman has been visiting American law firms regularly. Briefing the lawyers. Answering questions from corporate clients. All behind closed doors. All in secret. To the very same corporations that Alderman will prosecute if they engage in corruption overseas."
Alderman is quoted as saying he is "an equal opportunity debriefer" and that he has met with, among others, U.K. anti-corruption public interest groups - like Corner House.
As I highlighted in this prior post, in September 2010, I was pleased to accept the invitation of the SFO to visit its offices and meet top-level personnel to discuss Bribery Act and other anti-corruption issues and topics.
Another SFO Departure
With all the recent SFO departures one might wonder whether there is anyone left at Elm House to actively engage.
Recent SFO departures have included Robert Amaee (former SFO Head of Anti-Corruption) who jointed Covington & Burling's London office and Charlie Monteith (former SFO Head of Assurance) who jointed White & Case's London office. (See here for the prior post).
Add Kathleen Harris (former head of the Fraud Business Group at the SFO) to the list. Arnold & Porter recently announced (here) that Harris will join the firm's London office as a partner in June. Arnold & Porter Chair Thomas Milch said Harris "is especially well-positioned to help navigate the UK's new Bribery Act and address the difficult investigatory, compliance, and defense challenges that companies face in a heightened global enforcement environment."
As has been reported, Alderman is also looking to retire from the SFO in the next year.
Mabey & Johnson Individual Sentences
This prior post discussed the February 10th guilty verdicts of Charles Forsyth and David Mabey (two former directors of Mabey & Johnson Ltd.) for inflating the contract price for the supply of steel bridges in order to provide kickbacks to the Iraqi government of Saddam Hussein. Richard Gledhill, a Sales Manager for contracts in Iraq, previously pleaded guilty.
Recently, the SFO announced (here) the following sentences:
Forsyth - 21 months imprisonment, disqualified from acting as a company director for five years and ordered to pay prosecution costs of £75,000;
Mabey - eight months imprisonment, disqualified from acting as a company director for two years and ordered to pay prosecution costs of £125,000;
Gledhill - eight months imprisonment, suspended for two years.
As noted in the release:
"In passing sentence HHJ Rivlin QC said 'The bare truth of this case is that Mr Forsyth bears the most culpability'. In relation to David Mabey, HHJ Rivlin QC said 'When a director of a major company plays even a small part, he can expect to receive a custodial sentence. SFO Director Richard Alderman said 'This shows that the SFO is determined to go after senior corporate executives who break the law. I am pleased with the result. It sends out a very strong message from the courts on this type of offending.'"
For additional analysis of the Mabey & Johnson individual sentences see this recent alert from Amaee and John Rupp of Covington & Burling. The authors note as follows. "It is clear that once the UK enacts its new Bribery Act, UK prosecutors will take a close look at the provisions contained in section 14 of the Bribery Act to deal with any Senior Officers of companies who can be said to have consented to or connived in the commission of bribery offences and that the courts will not shy away from imposing appropriate custodial sentences on those found guilty."
As I noted in the prior post, in just its single Mabey & Johnson prosecution, the SFO would appear to have prosecuted (and now sentenced) more individuals than the U.S. has in its approximately 15 Iraqi Oil for Food corporate enforcement actions combined.
Kenneth Clarke's Comments
It is not every day that a high-ranking government official lends credence to fear mongering (see here) and mass hysteria (see here) comments regarding a soon-to-be implemented law. But that is what Kenneth Clark, a U.K. Justice Secretary and the U.K's international anti-corruption champion (see here), did in a recent appearance in the House of Commons. During a Q&A session (see here for the video - approximately the 1 minute 45 second mark) Clark stated as follows: "I hope to put out very clear guidance to save [businesses] from the fears that are sometimes aroused by the compliance industry, the consultants and lawyers who will, of course, try to persuade companies that millions of pounds must be spent on new systems that, in my opinion, no honest firm will require to comply with the Act."
*****
A good weekend to all.
Corporate Crime Reporter Questions SFO's Active Engagement Policy
The SFO has a clear policy of active engagement when it comes to the Bribery Act and I have previously stated (here) that this policy ought to be modeled by other enforcement agencies."
Corporate Crime Reporter ("CCR"), in a recent piece (here) titled "Behind Closed Doors, UK Anti-Corruption Chief Alderman Advises Corporations, Law Firms" questions whether this engagement approach has become too active and questions whether the engagement needs to take place behind closed doors.
Writes CCR - "You would never see a US federal prosecutor visit a private law firm to give private advice – behind closed doors – to the firm’s corporate defense lawyers and their clients. But the chief law anti-corruption law enforcement official of the UK says – no problem. Over the past couple of years, Alderman has been visiting American law firms regularly. Briefing the lawyers. Answering questions from corporate clients. All behind closed doors. All in secret. To the very same corporations that Alderman will prosecute if they engage in corruption overseas."
Alderman is quoted as saying he is "an equal opportunity debriefer" and that he has met with, among others, U.K. anti-corruption public interest groups - like Corner House.
As I highlighted in this prior post, in September 2010, I was pleased to accept the invitation of the SFO to visit its offices and meet top-level personnel to discuss Bribery Act and other anti-corruption issues and topics.
Another SFO Departure
With all the recent SFO departures one might wonder whether there is anyone left at Elm House to actively engage.
Recent SFO departures have included Robert Amaee (former SFO Head of Anti-Corruption) who jointed Covington & Burling's London office and Charlie Monteith (former SFO Head of Assurance) who jointed White & Case's London office. (See here for the prior post).
Add Kathleen Harris (former head of the Fraud Business Group at the SFO) to the list. Arnold & Porter recently announced (here) that Harris will join the firm's London office as a partner in June. Arnold & Porter Chair Thomas Milch said Harris "is especially well-positioned to help navigate the UK's new Bribery Act and address the difficult investigatory, compliance, and defense challenges that companies face in a heightened global enforcement environment."
As has been reported, Alderman is also looking to retire from the SFO in the next year.
Mabey & Johnson Individual Sentences
This prior post discussed the February 10th guilty verdicts of Charles Forsyth and David Mabey (two former directors of Mabey & Johnson Ltd.) for inflating the contract price for the supply of steel bridges in order to provide kickbacks to the Iraqi government of Saddam Hussein. Richard Gledhill, a Sales Manager for contracts in Iraq, previously pleaded guilty.
Recently, the SFO announced (here) the following sentences:
Forsyth - 21 months imprisonment, disqualified from acting as a company director for five years and ordered to pay prosecution costs of £75,000;
Mabey - eight months imprisonment, disqualified from acting as a company director for two years and ordered to pay prosecution costs of £125,000;
Gledhill - eight months imprisonment, suspended for two years.
As noted in the release:
"In passing sentence HHJ Rivlin QC said 'The bare truth of this case is that Mr Forsyth bears the most culpability'. In relation to David Mabey, HHJ Rivlin QC said 'When a director of a major company plays even a small part, he can expect to receive a custodial sentence. SFO Director Richard Alderman said 'This shows that the SFO is determined to go after senior corporate executives who break the law. I am pleased with the result. It sends out a very strong message from the courts on this type of offending.'"
For additional analysis of the Mabey & Johnson individual sentences see this recent alert from Amaee and John Rupp of Covington & Burling. The authors note as follows. "It is clear that once the UK enacts its new Bribery Act, UK prosecutors will take a close look at the provisions contained in section 14 of the Bribery Act to deal with any Senior Officers of companies who can be said to have consented to or connived in the commission of bribery offences and that the courts will not shy away from imposing appropriate custodial sentences on those found guilty."
As I noted in the prior post, in just its single Mabey & Johnson prosecution, the SFO would appear to have prosecuted (and now sentenced) more individuals than the U.S. has in its approximately 15 Iraqi Oil for Food corporate enforcement actions combined.
Kenneth Clarke's Comments
It is not every day that a high-ranking government official lends credence to fear mongering (see here) and mass hysteria (see here) comments regarding a soon-to-be implemented law. But that is what Kenneth Clark, a U.K. Justice Secretary and the U.K's international anti-corruption champion (see here), did in a recent appearance in the House of Commons. During a Q&A session (see here for the video - approximately the 1 minute 45 second mark) Clark stated as follows: "I hope to put out very clear guidance to save [businesses] from the fears that are sometimes aroused by the compliance industry, the consultants and lawyers who will, of course, try to persuade companies that millions of pounds must be spent on new systems that, in my opinion, no honest firm will require to comply with the Act."
*****
A good weekend to all.
Thursday, February 17, 2011
SFO Flexing It Muscle Even Without the Bribery Act
In previous statements (see here for instance) U.K. officials have said that it would be wrong to assume that the U.K. was ignoring bribery issues prior to passage of the Bribery Act.
Case(s) in point - the recent enforcement actions announced by the Serious Fraud Office against MK Kellogg Ltd. and Mabey & Johnson directors.
MK Kellogg Ltd.
Yesterday, the SFO announced (here) that M.W. Kellogg Limited ("MKWL") has been ordered to pay "just over £7 million [approximately $11.2 million] in recognition of sums it is due to receive which were generated through the criminal activity of third parties."
This SFO enforcement action has been expected for some time, as noted in this previous post from October 2009.
MKWL was the entity that originally formed the TSKJ consortium the focus of the Bonny Island bribery scandal. See this post for current enforcement statistics as to KBR/Halliburton, Technip, and Snamprogetti / ENI.
MKWL is currently a wholly-owned subsidiary of KBR and as noted in this previous post as well as KBR's release (here) Halliburton has indemnification obligations to KBR in connection with the SFO enforcement action of "55% of such penalties, which is KBR’s beneficial ownership interest in MWKL."
According to the SFO release, "the SFO recognized that MKWL took no part in the criminal activity that generated the funds" but that the "funds due to MKWL are share dividends payable from profits and revenues generated by contracts obtained through bribery and corruption undertaken by MWKL's parent company and others." The SFO release notes that "MWKL was used by the parent company and was not a willing participant in the corruption."
As noted in the SFO release, the court order against MKWL was pursuant to the Proceeds of Crime Act 2002. What is the Proceeds of Crime Act? See this piece from John Rupp (Covington & Burling).
Richard Alderman, the Director of the SFO, stated in the release: "our goal is to prevent bribery and corruption or remove any of the benefits generated by such activities - this case demonstrates the range of tools we are prepared to use."
Mabey & Johnson Directors
In July 2009, the SFO brought an enforcement action against Mabey & Johnson Ltd. (a U.K. company that designs and manufacturers steel bridges). The conduct at issue involved allegations (that the company voluntarily disclosed) that it sought to influence decision-makers in public contracts in Jamaica and Ghana between 1993 and 2001. The prosecution also involved breaches of United Nations sanctions in connection with the Iraq Oil for Food program.
It was the first ever prosecution against a U.K. company for overseas corruption. See here and here for the prior post.
On February 10th, the SFO announced (here) that "two former directors ... of Mabey & Johnson Ltd. [Charles Forsyth and David Mabey] have been found guilty of inflating the contract price for the supply of steel bridges in order to provide kickbacks to the Iraqi government of Saddam Hussein."
According to the release, at the time of the offense, Forsyth was the Managing Director of Mabey & Johnson and Mabey was the Sales Director. The release notes that Richard Gledhill, a Sales Manager for contracts in Iraq, previously pleaded guilty. According to the release, all individuals are to be sentenced on February 23rd.
The U.S. has prosecuted numerous companies in connection with Iraqi Oil-For-Food fraud. See here for such allegations in the ABB matter, here for such allegations in the Innospec matter, here for such allegations in the General Electric matter.
However, these prosecutions have generally been corporate only prosecutions with few related enforcement actions against individuals.
In just its single Mabey & Johnson prosecution, the SFO would appear to have prosecuted more individuals than the U.S. has in its approximately 15 Iraqi Oil for Food corporate enforcement actions combined.
Case(s) in point - the recent enforcement actions announced by the Serious Fraud Office against MK Kellogg Ltd. and Mabey & Johnson directors.
MK Kellogg Ltd.
Yesterday, the SFO announced (here) that M.W. Kellogg Limited ("MKWL") has been ordered to pay "just over £7 million [approximately $11.2 million] in recognition of sums it is due to receive which were generated through the criminal activity of third parties."
This SFO enforcement action has been expected for some time, as noted in this previous post from October 2009.
MKWL was the entity that originally formed the TSKJ consortium the focus of the Bonny Island bribery scandal. See this post for current enforcement statistics as to KBR/Halliburton, Technip, and Snamprogetti / ENI.
MKWL is currently a wholly-owned subsidiary of KBR and as noted in this previous post as well as KBR's release (here) Halliburton has indemnification obligations to KBR in connection with the SFO enforcement action of "55% of such penalties, which is KBR’s beneficial ownership interest in MWKL."
According to the SFO release, "the SFO recognized that MKWL took no part in the criminal activity that generated the funds" but that the "funds due to MKWL are share dividends payable from profits and revenues generated by contracts obtained through bribery and corruption undertaken by MWKL's parent company and others." The SFO release notes that "MWKL was used by the parent company and was not a willing participant in the corruption."
As noted in the SFO release, the court order against MKWL was pursuant to the Proceeds of Crime Act 2002. What is the Proceeds of Crime Act? See this piece from John Rupp (Covington & Burling).
Richard Alderman, the Director of the SFO, stated in the release: "our goal is to prevent bribery and corruption or remove any of the benefits generated by such activities - this case demonstrates the range of tools we are prepared to use."
Mabey & Johnson Directors
In July 2009, the SFO brought an enforcement action against Mabey & Johnson Ltd. (a U.K. company that designs and manufacturers steel bridges). The conduct at issue involved allegations (that the company voluntarily disclosed) that it sought to influence decision-makers in public contracts in Jamaica and Ghana between 1993 and 2001. The prosecution also involved breaches of United Nations sanctions in connection with the Iraq Oil for Food program.
It was the first ever prosecution against a U.K. company for overseas corruption. See here and here for the prior post.
On February 10th, the SFO announced (here) that "two former directors ... of Mabey & Johnson Ltd. [Charles Forsyth and David Mabey] have been found guilty of inflating the contract price for the supply of steel bridges in order to provide kickbacks to the Iraqi government of Saddam Hussein."
According to the release, at the time of the offense, Forsyth was the Managing Director of Mabey & Johnson and Mabey was the Sales Director. The release notes that Richard Gledhill, a Sales Manager for contracts in Iraq, previously pleaded guilty. According to the release, all individuals are to be sentenced on February 23rd.
The U.S. has prosecuted numerous companies in connection with Iraqi Oil-For-Food fraud. See here for such allegations in the ABB matter, here for such allegations in the Innospec matter, here for such allegations in the General Electric matter.
However, these prosecutions have generally been corporate only prosecutions with few related enforcement actions against individuals.
In just its single Mabey & Johnson prosecution, the SFO would appear to have prosecuted more individuals than the U.S. has in its approximately 15 Iraqi Oil for Food corporate enforcement actions combined.
Tuesday, February 8, 2011
Robert Amaee on the "The Elusive UK Bribery Act"
In this guest post, Robert Amaee (the former Head of Anti-Corruption and Proceeds of Crime Unit at the U.K. Serious Fraud Office and current counsel with Covington & Burling LLP in London - see here) addresses several issues regarding the U.K. Bribery Act, including its recently announced delay.
*****
The Elusive UK Bribery Act
The UK Ministry of Justice (the “MoJ”) announced within the past few days that implementation of the UK Bribery Act 2010 (the “Bribery Act”) is to be postponed for a second time; leading to a barrage of criticism from respected sources such as the OECD and Transparency International. The Bribery Act will now not enter into force until three months after the MoJ publishes its guidance on certain provisions of the Bribery Act. The MoJ has not announced a date for the issuance of this guidance.
So, what’s going on?
Some business leaders and their representatives reportedly have complained about the impact the Bribery Act could have on the competitiveness of British business overseas; with the incoming head of the Confederation of British Industry claiming that the Bribery Act is “not fit for purpose”. The Bribery Act also stands accused of leaving too much discretion in the hands of officials at the UK Serious Fraud Office (the “SFO”) to resolve questions that have been posed concerning the Bribery Act’s jurisdictional reach as well as several of its substantive provisions. Others -- even within the UK Government -- are reported to have complained that the Bribery Act was rushed through Parliament without sufficient scrutiny of the impact on British business. So, what’s going on?
The Bribery Act has had an exceedingly long gestation period by any standard and, like many welcome but overdue arrivals, it is now causing a few birthing issues. You may not like this analogy much but the fact of the matter is that ever since the UK made a commitment in 1998 to fulfill its obligations under the OECD Anti-Bribery Convention and became a signatory to the UN Convention against Corruption, there has been an unremitting flow of effort aimed at transforming the UK’s complex Victorian laws on bribery and corruption into something more readily understandable and enforceable.
Since 1998, there has been, inter alia, in the UK a Law Commission Report, Draft Corruption Bill 2003, Draft Corruption Bill 2006, Law Commission Consultation 2007, a further Law Commission Report, a Draft Bribery Bill published in March 2009, the Joint Committee Report on the Draft Bribery Bill and the UK Government’s positive response to that report, which described the Joint Committee’s scrutiny of the Bill as “thorough.”
It is a fact that the Bribery Act did move through Parliament at breakneck speed in the final hours of the last UK Government in April 2010, receiving Royal Assent with little time to spare. What is also true, though, is that the Bribery Act was extensively debated in Parliament between November 2009 and April 2010 and made its way onto the statute books with resounding cross party support.
Will the Bribery Act ever enter into force?
There remains very strong support, across the UK Government and within the wider business community, for an effective and enforceable statute to combat bribery and other forms of corruption. The UK Attorney General Dominic Grieve QC has expressed publicly his support for the Bribery Act as has the Justice Minister and UK Anti-Corruption Champion, Ken Clarke. I believe that there is practically no prospect of the UK Government reneging on the commitments the UK has made to modernise the laws prohibiting bribery and other forms of corruption or indeed significantly disarming the Bribery Act, as enacted last April.
No one in the UK or elsewhere can assert a legitimate interest in permitting corrupt officials around the globe to continue to amass personal wealth at the expense of their fellow citizens, who often are left to endure abject poverty. Quite apart from the moral repugnance that one feels, it is important to ensure that corrupt officials do not act as an impediment to economic growth and job creation within their often resource rich countries by holding companies to ransom and pocketing their nation’s wealth.
The Bribery Act aims to tackle business involvement in corruption by making the boardroom responsible for keeping a tight reign on the company’s employees as well as the actions of “associated parties,” thereby aspiring to stem the flow of corporate funds into corrupt hands. No one will argue against that laudable aim but at the same time it is important to ensure that the law is not so widely drafted that it leaves well meaning and ethical companies in the invidious position of sanctioning technical breaches of the Act in the hope of salvation through prosecutorial pragmatism.
What’s all the fuss about?
The Bribery Act runs to a mere 17 pages and contains only four substantive offences. But it is the scope of two offences in particular that has caused business leaders to reach for the nearest packet of aspirin.
The major criticism has focused on the offences in sections 6 and 7 of the Bribery Act, both of which stand accused of being too widely drawn and introducing novel concepts that the Bribery Act fails to define. In relation to both of those sections, implementing policies to deal with corporate hospitality, facilitation payments and the extent of a company’s exposure to third party folly are regularly cited as problematic by company representatives.
In essence, the section 6 offence of “bribery of a foreign public official” makes a person liable if he or she offers, promises or gives a financial or other advantage to a foreign public official with the dual intention of influencing the official and obtaining or retaining business or a business advantage. The concern that has been raised is that for an offence to be made out under this section there is no requirement to show that the person trying to win the business had a corrupt intent or an intent to induce “improper performance” on the part of the official (as is required for the section 1 offence) and that many routine innocent interactions with foreign public officials could, as a consequence, amount to technical breaches of the Bribery Act.
Section 7 of the Bribery Act creates a wholly unprecedented UK offence of “Failure of a commercial organisation to prevent bribery.” A UK registered company or a non-UK registered company that “carries on a business or part of a business” in the UK, with no “knowledge” of or involvement in bribery could find itself in the uncomfortable position of having to explain to a UK prosecutor how a rogue employee or “associated person” in a remote part of the world could have paid a particular bribe. If facing such a charge, the company would have to convince the prosecutor and, if it came to it, a court that the policy and procedures that it had developed and implemented amounted to the only defence available under section 7, namely the much talked about “adequate procedures”.
The Bribery Act stipulates that a person is associated with a company if that person “performs services” for or on the company’s behalf. The Bribery Act states that an employee, agent or subsidiary “may (for example)” be deemed to be an associated person but goes on to say that in determining the question of who performs a service on for you or on behalf of a company one would have to look at "all the relevant circumstances" and not just the ”nature of the relationship.”
The manner in which an “associated” person is treated in the Bribery Act certainly does give prosecutors wide discretion in deciding whether a company should be held to account for the conduct of those who are representing the company. In addition, whether a company is “carrying on a business or part of a business in the UK” is not defined or circumscribed in the Bribery Act itself. Rather, it has been left -- according to the Bribery Act’s legislative history -- to the judgment of prosecutors and the UK courts, grappling with the pertinent facts on a case by case basis and applying “common sense.”
In relation to the “adequate procedure” defence under section 7, the Bribery Act obliges the UK Government, through the Secretary of State, to publish guidance on procedures that companies “can put in place to prevent persons associated with them” from engaging in bribery. This will, in due course, be supplemented by prosecutorial guidance setting out the elements of each of the Bribery Act offences and the public interest considerations that prosecutors will take into account in deciding whether to prosecute.
The MoJ’s draft guidance on “adequate procedures” was published in September 2010 and was followed by a short consultation period, which ended in November 2010. The MoJ had been expected to publish in January 2011 its final guidance on “adequate procedures,” leaving thereafter a three month window for companies to digest the guidance and refine their anti-bribery procedures.
What’s next?
In postponing release of the final guidance and implementation of the Bribery Act, the UK Government appears to have taken note of the cumulative effect of the concerns outlined above, albeit rather late in the day, and put off implementation of the Act until the guidance can be shaped to address those concerns. The MoJ is reported to have explained the delay in issuing the statutory guidance by stating that it is assiduously working on the guidance to make it “practical and comprehensive for business.”
Practical and comprehensive guidance certainly would be a step in the right direction and would be welcome by all British businesses as well as by those non-UK registered companies carrying on a business, or part of a business, in the UK who are working hard to compete globally whilst staying on the right side of the law.
*****
The Elusive UK Bribery Act
The UK Ministry of Justice (the “MoJ”) announced within the past few days that implementation of the UK Bribery Act 2010 (the “Bribery Act”) is to be postponed for a second time; leading to a barrage of criticism from respected sources such as the OECD and Transparency International. The Bribery Act will now not enter into force until three months after the MoJ publishes its guidance on certain provisions of the Bribery Act. The MoJ has not announced a date for the issuance of this guidance.
So, what’s going on?
Some business leaders and their representatives reportedly have complained about the impact the Bribery Act could have on the competitiveness of British business overseas; with the incoming head of the Confederation of British Industry claiming that the Bribery Act is “not fit for purpose”. The Bribery Act also stands accused of leaving too much discretion in the hands of officials at the UK Serious Fraud Office (the “SFO”) to resolve questions that have been posed concerning the Bribery Act’s jurisdictional reach as well as several of its substantive provisions. Others -- even within the UK Government -- are reported to have complained that the Bribery Act was rushed through Parliament without sufficient scrutiny of the impact on British business. So, what’s going on?
The Bribery Act has had an exceedingly long gestation period by any standard and, like many welcome but overdue arrivals, it is now causing a few birthing issues. You may not like this analogy much but the fact of the matter is that ever since the UK made a commitment in 1998 to fulfill its obligations under the OECD Anti-Bribery Convention and became a signatory to the UN Convention against Corruption, there has been an unremitting flow of effort aimed at transforming the UK’s complex Victorian laws on bribery and corruption into something more readily understandable and enforceable.
Since 1998, there has been, inter alia, in the UK a Law Commission Report, Draft Corruption Bill 2003, Draft Corruption Bill 2006, Law Commission Consultation 2007, a further Law Commission Report, a Draft Bribery Bill published in March 2009, the Joint Committee Report on the Draft Bribery Bill and the UK Government’s positive response to that report, which described the Joint Committee’s scrutiny of the Bill as “thorough.”
It is a fact that the Bribery Act did move through Parliament at breakneck speed in the final hours of the last UK Government in April 2010, receiving Royal Assent with little time to spare. What is also true, though, is that the Bribery Act was extensively debated in Parliament between November 2009 and April 2010 and made its way onto the statute books with resounding cross party support.
Will the Bribery Act ever enter into force?
There remains very strong support, across the UK Government and within the wider business community, for an effective and enforceable statute to combat bribery and other forms of corruption. The UK Attorney General Dominic Grieve QC has expressed publicly his support for the Bribery Act as has the Justice Minister and UK Anti-Corruption Champion, Ken Clarke. I believe that there is practically no prospect of the UK Government reneging on the commitments the UK has made to modernise the laws prohibiting bribery and other forms of corruption or indeed significantly disarming the Bribery Act, as enacted last April.
No one in the UK or elsewhere can assert a legitimate interest in permitting corrupt officials around the globe to continue to amass personal wealth at the expense of their fellow citizens, who often are left to endure abject poverty. Quite apart from the moral repugnance that one feels, it is important to ensure that corrupt officials do not act as an impediment to economic growth and job creation within their often resource rich countries by holding companies to ransom and pocketing their nation’s wealth.
The Bribery Act aims to tackle business involvement in corruption by making the boardroom responsible for keeping a tight reign on the company’s employees as well as the actions of “associated parties,” thereby aspiring to stem the flow of corporate funds into corrupt hands. No one will argue against that laudable aim but at the same time it is important to ensure that the law is not so widely drafted that it leaves well meaning and ethical companies in the invidious position of sanctioning technical breaches of the Act in the hope of salvation through prosecutorial pragmatism.
What’s all the fuss about?
The Bribery Act runs to a mere 17 pages and contains only four substantive offences. But it is the scope of two offences in particular that has caused business leaders to reach for the nearest packet of aspirin.
The major criticism has focused on the offences in sections 6 and 7 of the Bribery Act, both of which stand accused of being too widely drawn and introducing novel concepts that the Bribery Act fails to define. In relation to both of those sections, implementing policies to deal with corporate hospitality, facilitation payments and the extent of a company’s exposure to third party folly are regularly cited as problematic by company representatives.
In essence, the section 6 offence of “bribery of a foreign public official” makes a person liable if he or she offers, promises or gives a financial or other advantage to a foreign public official with the dual intention of influencing the official and obtaining or retaining business or a business advantage. The concern that has been raised is that for an offence to be made out under this section there is no requirement to show that the person trying to win the business had a corrupt intent or an intent to induce “improper performance” on the part of the official (as is required for the section 1 offence) and that many routine innocent interactions with foreign public officials could, as a consequence, amount to technical breaches of the Bribery Act.
Section 7 of the Bribery Act creates a wholly unprecedented UK offence of “Failure of a commercial organisation to prevent bribery.” A UK registered company or a non-UK registered company that “carries on a business or part of a business” in the UK, with no “knowledge” of or involvement in bribery could find itself in the uncomfortable position of having to explain to a UK prosecutor how a rogue employee or “associated person” in a remote part of the world could have paid a particular bribe. If facing such a charge, the company would have to convince the prosecutor and, if it came to it, a court that the policy and procedures that it had developed and implemented amounted to the only defence available under section 7, namely the much talked about “adequate procedures”.
The Bribery Act stipulates that a person is associated with a company if that person “performs services” for or on the company’s behalf. The Bribery Act states that an employee, agent or subsidiary “may (for example)” be deemed to be an associated person but goes on to say that in determining the question of who performs a service on for you or on behalf of a company one would have to look at "all the relevant circumstances" and not just the ”nature of the relationship.”
The manner in which an “associated” person is treated in the Bribery Act certainly does give prosecutors wide discretion in deciding whether a company should be held to account for the conduct of those who are representing the company. In addition, whether a company is “carrying on a business or part of a business in the UK” is not defined or circumscribed in the Bribery Act itself. Rather, it has been left -- according to the Bribery Act’s legislative history -- to the judgment of prosecutors and the UK courts, grappling with the pertinent facts on a case by case basis and applying “common sense.”
In relation to the “adequate procedure” defence under section 7, the Bribery Act obliges the UK Government, through the Secretary of State, to publish guidance on procedures that companies “can put in place to prevent persons associated with them” from engaging in bribery. This will, in due course, be supplemented by prosecutorial guidance setting out the elements of each of the Bribery Act offences and the public interest considerations that prosecutors will take into account in deciding whether to prosecute.
The MoJ’s draft guidance on “adequate procedures” was published in September 2010 and was followed by a short consultation period, which ended in November 2010. The MoJ had been expected to publish in January 2011 its final guidance on “adequate procedures,” leaving thereafter a three month window for companies to digest the guidance and refine their anti-bribery procedures.
What’s next?
In postponing release of the final guidance and implementation of the Bribery Act, the UK Government appears to have taken note of the cumulative effect of the concerns outlined above, albeit rather late in the day, and put off implementation of the Act until the guidance can be shaped to address those concerns. The MoJ is reported to have explained the delay in issuing the statutory guidance by stating that it is assiduously working on the guidance to make it “practical and comprehensive for business.”
Practical and comprehensive guidance certainly would be a step in the right direction and would be welcome by all British businesses as well as by those non-UK registered companies carrying on a business, or part of a business, in the UK who are working hard to compete globally whilst staying on the right side of the law.
Monday, February 7, 2011
Charlie Monteith on U.K. Bribery Act Issues
In case you were sleeping last week ...
The U.K. Bribery Act, originally scheduled to "go live" in Fall 2010 and then pushed back to April 2011, has been further delayed so that guidance on the Act can be developed. A week ago, the U.K. Ministry of Justice confirmed the delay and a spokesperson said: "We are working on the guidance to make it practical and comprehensive for business. We will come forward with further details in due course. When the guidance is published it will be followed by a three month notice period before implementation of the Act."
What does Charlie Monteith, the former Head of Assurance at the SFO and currently counsel at White & Case in London, think about the delay.
He writes as follows:
"As the former Head of Legal Assurance at the SFO, and the lead drafter of the AG's guidance on what constitutes the legal elements of the offences under the Bribery Act plus public interest factors for and against prosecution, as well as contributing to the drafting of the Ministry of Justice's guidance on adequate procedures, I find it perplexing why neither were published at the end of January.
There has already been a great deal of confusing, misleading, and unhelpful information being given out (some by top UK legal firms) about its interpretation, a great deal of which would dissipate if the guidance was to be published. Instead of which, everyone (save for myself, I might add) is still in some confusion over whether hospitality or promotions will trigger an offence, plus a steer on the treatment small facilitation payments would be helpful.
The UK government has said it wants to do a proper assessment of the impact of the Bribery Act on business as part of its committment made last autumn to assess all pending legislation and regulation. Yet the Act has already had two business impact assessments: in 2009 and then again from July to December 2010. It has not changed in any meaningful way since first being presented to Parliament in the spring of 2009, despite the full rigour of parliamentary analysis by all parties in both Houses that lasted nearly a year and ended with a vote of support.
It is frankly difficult to see how there can be any changes now to an Act of Parliament that Parliament (albeit the last one) has approved. That would entail amending the Act and debating and approving the amendments through this Parliament for which there does not appear to be time in this current session due to end in the summer."
Monteith recently published this piece in the Criminal Law Review.
In it, he notes, among other things as follows.
That the Bribery Act's failure to prevent bribery offense "is a big stick, but with it comes an enormous carrot of a defence of having 'adequate procedures' designed to prevent bribery. (Unlike the FCPA). It may seem an odd thing for a prosecutor to say, but the defence is actually the most important aspect of the whole Act because it gives business the incentive to do something about preventing bribery."
Other topics covered in Monteith's article include: the SFO's approach to enforcement, debarment, disgorgement, and sentencing issues under the Bribery Act.
The U.K. Bribery Act, originally scheduled to "go live" in Fall 2010 and then pushed back to April 2011, has been further delayed so that guidance on the Act can be developed. A week ago, the U.K. Ministry of Justice confirmed the delay and a spokesperson said: "We are working on the guidance to make it practical and comprehensive for business. We will come forward with further details in due course. When the guidance is published it will be followed by a three month notice period before implementation of the Act."
What does Charlie Monteith, the former Head of Assurance at the SFO and currently counsel at White & Case in London, think about the delay.
He writes as follows:
"As the former Head of Legal Assurance at the SFO, and the lead drafter of the AG's guidance on what constitutes the legal elements of the offences under the Bribery Act plus public interest factors for and against prosecution, as well as contributing to the drafting of the Ministry of Justice's guidance on adequate procedures, I find it perplexing why neither were published at the end of January.
There has already been a great deal of confusing, misleading, and unhelpful information being given out (some by top UK legal firms) about its interpretation, a great deal of which would dissipate if the guidance was to be published. Instead of which, everyone (save for myself, I might add) is still in some confusion over whether hospitality or promotions will trigger an offence, plus a steer on the treatment small facilitation payments would be helpful.
The UK government has said it wants to do a proper assessment of the impact of the Bribery Act on business as part of its committment made last autumn to assess all pending legislation and regulation. Yet the Act has already had two business impact assessments: in 2009 and then again from July to December 2010. It has not changed in any meaningful way since first being presented to Parliament in the spring of 2009, despite the full rigour of parliamentary analysis by all parties in both Houses that lasted nearly a year and ended with a vote of support.
It is frankly difficult to see how there can be any changes now to an Act of Parliament that Parliament (albeit the last one) has approved. That would entail amending the Act and debating and approving the amendments through this Parliament for which there does not appear to be time in this current session due to end in the summer."
Monteith recently published this piece in the Criminal Law Review.
In it, he notes, among other things as follows.
That the Bribery Act's failure to prevent bribery offense "is a big stick, but with it comes an enormous carrot of a defence of having 'adequate procedures' designed to prevent bribery. (Unlike the FCPA). It may seem an odd thing for a prosecutor to say, but the defence is actually the most important aspect of the whole Act because it gives business the incentive to do something about preventing bribery."
Other topics covered in Monteith's article include: the SFO's approach to enforcement, debarment, disgorgement, and sentencing issues under the Bribery Act.
Thursday, February 3, 2011
Bonny Island Bribery Developments
As reported elsewhere earlier this week (see here among other places), JGC Corporation of Japan (here) is close to resolving an FCPA enforcement action. JGC is the fourth joint venture partner along with KBR, Technip and Snamprogetti in the TSKJ consortium (a consortium originally formed by M.W. Kellogg) involved in the Bonny Island, Nigeria project.
In a disclosure earlier this week (here) the company stated:
"JGC and DOJ have been engaged in discussions about a potential resolution of the investigation relating to JGC. It was confirmed at the meeting of JGC's board of directors held on January 31, 2011 that the Board has approved a potential resolution of the investigation. Based on this approval, JGC recognized a provision for the cost estimated for such a resolution, which will be appropriated as a financial loss in the 3rd Quarter Financial Result. The amount of such loss is 17.8 billion Japanese yen [approximately $218 million]".
The expected JGC settlement would thus fall in the Top Ten FCPA enforcement actions of all time (see here for the FCPA Blog's current list) and would bump the total amount of corporate fines and penalties U.S. authorities have collected in Bonny Island bribery cases to approximately $1.52 billion.
See here for my current Bonny Island bribery statistics.
How will JGC's expected settlement affect KBR (a company, along with its current or former affiliated entities, that has already paid $579 million in U.S. fines and penalties in connection with Bonny Island)?
In early January, KBR announced (here) that it "completed the acquisition of the 44.94 percent share interest in M.W. Kellogg Limited (MWKL) previously held by JGC Corporation. With the completion of the transaction, MWKL, which was previously an affiliate of both companies since 1992, is again a wholly-owned KBR subsidiary."
During a January 13th earnings call, Sue Carter (KBR - Senior VP and CFO) stated as follows:
"Also in regards to MWKL, included in the transaction is an estimate of JGC’s share of the ongoing [Serious Fraud Office] investigation. Any potential liabilities at this point are only estimated. Therefore any financial impact pending an actual outcome in the investigation will be trued up positive or negative."
During the Q&A, William Utt (KBR - Chairman, President and CEO) was asked "can you tell us what kind of risks are structured in the MWKL deal? I mean, you have indemnification clauses for FCPA from Halliburton on your original stake. Do you have a similar clause with JGC?" He responded as follows: "Well I think the indemnification from Halliburton goes towards any financial penalties associated with the SFO investigation and as Sue commented, we've already factored that into the purchase price with JGC subject to a true-up."
As Halliburton disclosed in its Oct. 22, 2010 10-Q filing, its indemnification obligations to KBR in connection with the SFO investigation "is limited to 55% of such penalties, which is KBR’s beneficial ownership interest in MWKL."
In a disclosure earlier this week (here) the company stated:
"JGC and DOJ have been engaged in discussions about a potential resolution of the investigation relating to JGC. It was confirmed at the meeting of JGC's board of directors held on January 31, 2011 that the Board has approved a potential resolution of the investigation. Based on this approval, JGC recognized a provision for the cost estimated for such a resolution, which will be appropriated as a financial loss in the 3rd Quarter Financial Result. The amount of such loss is 17.8 billion Japanese yen [approximately $218 million]".
The expected JGC settlement would thus fall in the Top Ten FCPA enforcement actions of all time (see here for the FCPA Blog's current list) and would bump the total amount of corporate fines and penalties U.S. authorities have collected in Bonny Island bribery cases to approximately $1.52 billion.
See here for my current Bonny Island bribery statistics.
How will JGC's expected settlement affect KBR (a company, along with its current or former affiliated entities, that has already paid $579 million in U.S. fines and penalties in connection with Bonny Island)?
In early January, KBR announced (here) that it "completed the acquisition of the 44.94 percent share interest in M.W. Kellogg Limited (MWKL) previously held by JGC Corporation. With the completion of the transaction, MWKL, which was previously an affiliate of both companies since 1992, is again a wholly-owned KBR subsidiary."
During a January 13th earnings call, Sue Carter (KBR - Senior VP and CFO) stated as follows:
"Also in regards to MWKL, included in the transaction is an estimate of JGC’s share of the ongoing [Serious Fraud Office] investigation. Any potential liabilities at this point are only estimated. Therefore any financial impact pending an actual outcome in the investigation will be trued up positive or negative."
During the Q&A, William Utt (KBR - Chairman, President and CEO) was asked "can you tell us what kind of risks are structured in the MWKL deal? I mean, you have indemnification clauses for FCPA from Halliburton on your original stake. Do you have a similar clause with JGC?" He responded as follows: "Well I think the indemnification from Halliburton goes towards any financial penalties associated with the SFO investigation and as Sue commented, we've already factored that into the purchase price with JGC subject to a true-up."
As Halliburton disclosed in its Oct. 22, 2010 10-Q filing, its indemnification obligations to KBR in connection with the SFO investigation "is limited to 55% of such penalties, which is KBR’s beneficial ownership interest in MWKL."
Wednesday, January 26, 2011
An Ocean Apart
Under the FCPA "foreign official" is defined, as relevant to this point, as "any officer or employee of a foreign government or any department, agency, or instrumentality thereof, or of a public international organization ...".
Under the U.K. Bribery Act the operative term is "foreign public official" defined, as relevant to this post, as "an individual who - exercises a public function - (i) for or on behalf of a country or territory outside the United Kingdom, or (ii) for any public agency or public enterprise of that country or territory ...".
During a recent Securities Docket's webcast "The Impact of the UK Bribery Act on U.S. Companies," Vivian Robinson QC (General Counsel of the UK's Serious Fraud Office) was asked a question (submitted by me) about officials of so-called state-owned or controlled enterprises ("SOE"). To listen to the Q&A (see here around the 1 hour mark), better yet Bruce Carton (moderator of the event) summarized the Q&A's (here) including the SOE Q&A.
Q: Recognizing that the Bribery Act does not just apply to payments made to "foreign public officials," under the Bribery Act will employees of General Motors or American International Group be deemed "foreign public officials" because the U.S. government owns, either a majority stake or significant stake, in the companies? What standards will the SFO use as to the general issue of alleged so-called state-owned or state-controlled companies?
A: We don't think the Act is directed to people of that sort. We are not regarding employees of a state-owned company as falling in the ambit of Section 6. People can rest assured that is not what we are looking at at all.... Also, such people would not likely have a sufficient connection with the UK.
As I noted in a recent post (here) 60% of corporate FCPA enforcement actions in 2010 and 66% in 2009 involved (in whole or in part) SOE employees.
The DOJ and the SFO are literally separated by an ocean.
The agencies' views on whether SOE employees are "foreign officials" or "foreign public officials" also appears to be an ocean apart.
Under the U.K. Bribery Act the operative term is "foreign public official" defined, as relevant to this post, as "an individual who - exercises a public function - (i) for or on behalf of a country or territory outside the United Kingdom, or (ii) for any public agency or public enterprise of that country or territory ...".
During a recent Securities Docket's webcast "The Impact of the UK Bribery Act on U.S. Companies," Vivian Robinson QC (General Counsel of the UK's Serious Fraud Office) was asked a question (submitted by me) about officials of so-called state-owned or controlled enterprises ("SOE"). To listen to the Q&A (see here around the 1 hour mark), better yet Bruce Carton (moderator of the event) summarized the Q&A's (here) including the SOE Q&A.
Q: Recognizing that the Bribery Act does not just apply to payments made to "foreign public officials," under the Bribery Act will employees of General Motors or American International Group be deemed "foreign public officials" because the U.S. government owns, either a majority stake or significant stake, in the companies? What standards will the SFO use as to the general issue of alleged so-called state-owned or state-controlled companies?
A: We don't think the Act is directed to people of that sort. We are not regarding employees of a state-owned company as falling in the ambit of Section 6. People can rest assured that is not what we are looking at at all.... Also, such people would not likely have a sufficient connection with the UK.
As I noted in a recent post (here) 60% of corporate FCPA enforcement actions in 2010 and 66% in 2009 involved (in whole or in part) SOE employees.
The DOJ and the SFO are literally separated by an ocean.
The agencies' views on whether SOE employees are "foreign officials" or "foreign public officials" also appears to be an ocean apart.
Tuesday, January 18, 2011
U.K. Developments
A Bribery Act review, high profile departures from the Serious Fraud Office - the agency gearing up to enforce the Bribery Act - but wait, will the Serious Fraud Office even be the agency to enforce the Bribery Act?
Bribery Act
As widely reported last week (see here and here), the U.K. Bribery Act, set for implementation in April 2011, is to undergo a review ordered by Prime Minister David Cameron's office.
Richard Alderman, Director of the U.K. Serious Fraud Office, stated as follows in an e-mail.
"It is for the UK Government and Parliament to consider implementation of the Bribery Act. The SFO is well placed to provide assistance to any review because of our experience in this area particularly following the many discussions we have had with business and professional advisers in the UK and the US."
Barry Vitou and Richard Kovalevsky have a good overview of recent events here at briberyact.com.
SFO Departures
The U.K. Serious Fraud Office is gearing up to enforce the Bribery Act, but it has recently lost two senior officials instrumental in Bribery Act preparation and guidance development.
Robert Amaee (SFO Head of Anti-Corruption) is joining Covington & Burling's London office. See here for Covington's release which states as follows: "[Amaee's] leading government role in anti-bribery and anti-money laundering issues will add an important new dimension to our global practice in this critical area of law. We see our clients focusing increasingly on these matters, and Robert will be a tremendous asset to our clients not only in the UK but across all of our offices.”
Charlie Monteith (SFO Head of Assurance) is joining White & Case's London office. See here for the firm's release which states as follows: "When it comes into force in April 2011, the UK's new Bribery Act will change the risk landscape for any company which carries out business in the UK, wherever it's located ... having [Monteith] onboard is going to be an enormous asset to clients in helping them understand and comply with this seismic piece of legislation."
See here for the Bloomberg article regarding the SFO departures.
Which Agency Will Enforce the Bribery Act?
While the SFO is gearing up to enforce the Bribery Act, efforts are afoot to reorganize how white collar crime is investigated and enforced in the U.K. See here for more.
Bribery Act
As widely reported last week (see here and here), the U.K. Bribery Act, set for implementation in April 2011, is to undergo a review ordered by Prime Minister David Cameron's office.
Richard Alderman, Director of the U.K. Serious Fraud Office, stated as follows in an e-mail.
"It is for the UK Government and Parliament to consider implementation of the Bribery Act. The SFO is well placed to provide assistance to any review because of our experience in this area particularly following the many discussions we have had with business and professional advisers in the UK and the US."
Barry Vitou and Richard Kovalevsky have a good overview of recent events here at briberyact.com.
SFO Departures
The U.K. Serious Fraud Office is gearing up to enforce the Bribery Act, but it has recently lost two senior officials instrumental in Bribery Act preparation and guidance development.
Robert Amaee (SFO Head of Anti-Corruption) is joining Covington & Burling's London office. See here for Covington's release which states as follows: "[Amaee's] leading government role in anti-bribery and anti-money laundering issues will add an important new dimension to our global practice in this critical area of law. We see our clients focusing increasingly on these matters, and Robert will be a tremendous asset to our clients not only in the UK but across all of our offices.”
Charlie Monteith (SFO Head of Assurance) is joining White & Case's London office. See here for the firm's release which states as follows: "When it comes into force in April 2011, the UK's new Bribery Act will change the risk landscape for any company which carries out business in the UK, wherever it's located ... having [Monteith] onboard is going to be an enormous asset to clients in helping them understand and comply with this seismic piece of legislation."
See here for the Bloomberg article regarding the SFO departures.
Which Agency Will Enforce the Bribery Act?
While the SFO is gearing up to enforce the Bribery Act, efforts are afoot to reorganize how white collar crime is investigated and enforced in the U.K. See here for more.
Wednesday, January 12, 2011
This and That
Year in Review Perspectives
In this prior post, I shared some "Year in Review" perspectives of others.
I also recommend the following reads as well.
See here for Gibson Dunn's "2010 Year-End FCPA Update."
See here for Markus Funk's (Perkins Coie) Bloomberg piece, "Another Landmark Year: 2010 FCPA Year-In-Review and Enforcement Trends for 2011."
See here for the FCPA Blog's "2010 FCPA Enforcement Index."
Bribery Act News
Vivian Robinson QC (General Counsel to the UK’s Serious Fraud Office) will be one of the participant's in Securities Docket's January 13th webcast - "100 Days and Counting: The Impact of the U.K. Bribery Act on U.S. Companies." See here to register.
Speaking of the Bribery Act, the U.K. Telegraph recently ran two articles (see here and here) featuring Lord Goldsmith, the former U.K. Attorney General now at Debevoise & Plimpton (here).
Although one of the articles is titled, "Bribery Act: Lord Goldsmith Says Look to the U.S.", his comments in the article demonstrate why the U.K. should not look to the U.S. when it comes to enforcing and implementing its new law. Lord Goldsmith says, "You can't have a system where you can avoid the court at least sanctioning what has been done." Elsewhere, Lord Goldsmith says "over a period of time it [the Bribery Act's provisions] will become clearer, but that is the problem; it becomes clearer as a result of cases taking place - that means someone has been rung through the mangle first."
No trend in FCPA enforcement has been more troubling during this era of the FCPA's resurgence than the use of non-prosecution and deferred prosecution agreements - resolution vehicles that completely, or for all practical purposes, bypass judicial scrutiny. See here for the December 2009 GAO report on NPAs and DPAs and the lack of judicial scrutiny. One of the many troubling results of the frequent use of NPAs and DPAs in the FCPA context is that issues do not become more clear over time. If anything the issues have become more cloudy.
Nearly, thirty-five years since enactment of the FCPA, we are still left to wonder as to many basic FCPA elements - we know what the enforcement agencies' interpretations are - but that is about it.
The other Telegraph articles states as follows. "The Serious Fraud Office is believed to have several potential cases lined up to test out the new legislation from April, although the Ministry of Justice anticipates it bringing just one major case a year."
One of my "bold" predictions for 2011 (see here) is that enforcement of the U.K. Bribery Act will be disciplined and measured.
Finally, yesterday Gibson Dunn released (here) an informative summary of its recent meeting with Richard Alderman (Director of the U.K. Serious Fraud Office). Among the U.K. Bribery Act topics covered are gifts and hospitality, facilitating payments, jurisdiction, the unique judicial review of SFO decisions (query whether such mechanisms should be implemented in the U.S. - at least as to FCPA cases) and reporting issues.
Director Alderman and others at the SFO deserve "two thumbs up" for their policy of active engagement as the U.K. nears implementation of the Bribery Act. I spent a useful and informative afternoon at the SFO's London offices and my Q&A exchange with Director Alderman can be found here.
The SFO's active engagement policy is one that ought to be modeled by other enforcement agencies.
In this prior post, I shared some "Year in Review" perspectives of others.
I also recommend the following reads as well.
See here for Gibson Dunn's "2010 Year-End FCPA Update."
See here for Markus Funk's (Perkins Coie) Bloomberg piece, "Another Landmark Year: 2010 FCPA Year-In-Review and Enforcement Trends for 2011."
See here for the FCPA Blog's "2010 FCPA Enforcement Index."
Bribery Act News
Vivian Robinson QC (General Counsel to the UK’s Serious Fraud Office) will be one of the participant's in Securities Docket's January 13th webcast - "100 Days and Counting: The Impact of the U.K. Bribery Act on U.S. Companies." See here to register.
Speaking of the Bribery Act, the U.K. Telegraph recently ran two articles (see here and here) featuring Lord Goldsmith, the former U.K. Attorney General now at Debevoise & Plimpton (here).
Although one of the articles is titled, "Bribery Act: Lord Goldsmith Says Look to the U.S.", his comments in the article demonstrate why the U.K. should not look to the U.S. when it comes to enforcing and implementing its new law. Lord Goldsmith says, "You can't have a system where you can avoid the court at least sanctioning what has been done." Elsewhere, Lord Goldsmith says "over a period of time it [the Bribery Act's provisions] will become clearer, but that is the problem; it becomes clearer as a result of cases taking place - that means someone has been rung through the mangle first."
No trend in FCPA enforcement has been more troubling during this era of the FCPA's resurgence than the use of non-prosecution and deferred prosecution agreements - resolution vehicles that completely, or for all practical purposes, bypass judicial scrutiny. See here for the December 2009 GAO report on NPAs and DPAs and the lack of judicial scrutiny. One of the many troubling results of the frequent use of NPAs and DPAs in the FCPA context is that issues do not become more clear over time. If anything the issues have become more cloudy.
Nearly, thirty-five years since enactment of the FCPA, we are still left to wonder as to many basic FCPA elements - we know what the enforcement agencies' interpretations are - but that is about it.
The other Telegraph articles states as follows. "The Serious Fraud Office is believed to have several potential cases lined up to test out the new legislation from April, although the Ministry of Justice anticipates it bringing just one major case a year."
One of my "bold" predictions for 2011 (see here) is that enforcement of the U.K. Bribery Act will be disciplined and measured.
Finally, yesterday Gibson Dunn released (here) an informative summary of its recent meeting with Richard Alderman (Director of the U.K. Serious Fraud Office). Among the U.K. Bribery Act topics covered are gifts and hospitality, facilitating payments, jurisdiction, the unique judicial review of SFO decisions (query whether such mechanisms should be implemented in the U.S. - at least as to FCPA cases) and reporting issues.
Director Alderman and others at the SFO deserve "two thumbs up" for their policy of active engagement as the U.K. nears implementation of the Bribery Act. I spent a useful and informative afternoon at the SFO's London offices and my Q&A exchange with Director Alderman can be found here.
The SFO's active engagement policy is one that ought to be modeled by other enforcement agencies.
Wednesday, December 22, 2010
U.K. Judge Reluctantly Accepts The "Loosely and Hastily Drafted" SFO - BAE Plea Agreement
In February 2010, the U.K. Serious Fraud Office ("SFO") and the U.S. DOJ announced resolution of a joint enforcement action against BAE Systems. (See here for the prior post).
Despite years of widespread bribery allegations and despite the DOJ's bribery, yet no bribery allegations (see here), BAE escaped bribery and corruption charges. The U.S. enforcement action came to a formal conclusion in March (see here). As noted in the DOJ release (here) BAE pleaded guilty to "conspiring to defraud the United States by impairing and impeding its lawful functions, to make false statements about its FCPA compliance program, and to violate the Arms Export Control Act and International Traffic in Arms Regulations" and was sentenced to "pay a $400 million criminal fine, one of the largest criminal fines in the history of DOJ's ongoing effort to combat overseas corruption in international business and enforce U.S. export control laws."
The SFO's plea agreement with BAE was even more limited. As noted in this SFO release, the SFO "reached an agreement with BAE Systems that the company will plead guilty" to the offense of "failing to keep reasonably accurate accounting records in relation to its activities in Tanzania." As noted in the SFO release BAE agreed to pay a £30 million penalty "comprising a fine to be determined by the Court with the balance paid as a charitable payment for the benefit of Tanzania."
Days before the SFO-BAE plea agreement, the SFO charged BAE's former agent with "conspiracy to corrupt" and for "conspiring with others to give or agree to give corrupt payments [...] to unknown officials and other agents of certain Eastern and Central European governments, including the Czech Republic, Hungary and Austria as inducements to secure, or as rewards for having secured, contracts from those governments for the supply of goods to them, namely SAAB/Gripen fighter jets, by BAE Systems Plc." However, these charges were quickly withdrawn and the SFO release states that "[t]his decision brings to an end the SFO's investigations into BAE's defence contracts." As discussed in this prior post, the SFO agreed to drop the criminal charges against BAE's former agent because BAE would not agree to the proposed SFO plea (as watered down as it was) without the SFO agreeing to drop the charges against the former agent.
Under no circumstances, it appeared, could BAE (or anyone associated with it) be accused of bribery or corruption. This would have complicated things too greatly for BAE, the world's second largest defense contractor. (See page 15 of the DOJ's sentencing memo - here).
With BAE's U.S. legal exposure in the rear-view mirror, the final act in this circus was approval of the SFO - BAE plea agreement by a U.K. court.
Fast forward to December 20th, the day BAE was supposed to be fined and sentenced.
Enter Mr. Justice David Michael Bean.
As widely reported, Justice Bean, notwithstanding the accounting only charges, wanted to know "whether some of the payments had been channelled corruptly to decision makers in Tanzania." (See here). Justice Bean said "he couldn’t approve the settlement until he knew the intended use of $12.4 million in payments to a local businessman, because Bean said it looked to him as though the money was so he could pay “whatever was necessary to whomever it was necessary” to win the $40 million contract." (See here). Justice Bean suggested the "obvious inference" was that part of the secret payments was used as a "bribe" to win a lucrative contract. (See here).
Prosecutor Victor Temple QC for the SFO said it was not part of his case that any part of the payments at issue was improperly used. David Perry, QC, representing BAE, said the SFO was not alleging bribery or offering evidence of it. He said this was “fundamental to the plea agreement” between the company and the prosecutor to end the corruption probe.
Remember, under no circumstance could BAE be accused of bribery or corruption.
Justice Bean wanted to hear more arguments and postponed BAE's fine and sentence.
The delay was termed (see here) a blow to the SFO and its use of U.S. style plea agreements.
Yesterday, Justice Bean announced his decision.
Justice Bean fined BAE £500,000 for failing to keep proper records of payments it made to an adviser in Tanzania. He also ordered BAE to pay £225,000 in costs.
Because the SFO-BAE plea agreement allowed BAE to deduct the court-ordered fine from the £30m it had offered to the people of Tanzania to settle the case, Justice Bean said he felt pressure to keep the court fine to a minimum. As noted here, Justice Bean stated "the structure of this settlement agreement places moral pressure on the court to keep the fine to a minimum so that the reparation is kept at a maximum."
Justice Bean called the SFO-BAE plea agreement “loosely and hastily drafted” and said the fine he levied reflected that he couldn’t “sentence for an offense which the prosecution failed to charge,” such as conspiracy to corrupt or false accounting. (See here).
See here for Justice Bean's sentencing remarks.
See here for the SFO release.
As noted here, the only money BAE is legally obliged to pay is a £500,000 fine and costs of £250,000 as ordered by Mr Justice Bean. After the sentencing, Richard Alderman, the SFO Director said: “I expect BAE to honour the agreement. I expect the company to pay it [the reparation payment to Tanzania] as quickly as possible.” As noted in the article, such a payment could be problematic.
In a statement (here) BAE stated:
"Today's judgment concludes and draws a line under this historical matter. The company accepts the decision of the Court and will abide by it. In the decade since the conduct referred to in this settlement occurred, the Company has systematically enhanced its compliance policies and processes with a view to ensuring that it is as widely recognised for responsible conduct as it is for high quality services and advanced technologies."
In a statement (see here) Transparency International UK noted that despite Justice Bean's "damning comments, [BAE] has not admitted bribery and no individuals have been punished." Chandrashekhar Krishnan, Executive Director of Transparency International UK stated as follows: "This hearing also highlights the need for a thorough review of sentencing law and procedures, to ensure that judges presented with agreed settlements are able to sentence on a fully informed and transparent basis. It is clear that BAE Systems has got off lightly. The best that can now happen is that the company demonstrates it has turned a new leaf and is irrevocably committed to clean business."
In an editorial, the Financial Times stated as follows.
"The plea-bargain deal BAE Systems struck earlier this year with the UK’s anti-corruption authority was designed to draw a line under the company’s murky past. This may indeed be the judicial outcome of the deal, which was sanctioned by a court on December 21. But the manner of its achievement leaves a sour taste. Justice has probably not been done; it has certainly not been seen to be done. The Serious Fraud Office has long been accused, with justice, of being toothless. So this newspaper welcomed its decision last year to prosecute BAE for allegedly paying bribes to foreign governments to win contracts in several African and eastern European countries. Although the SFO later switched to pursuing a more limited plea bargain, it was still hoped that this might raise the agency’s profile as a crusader against corporate corruption. This week’s court proceedings, which saw a judge reluctantly accept the SFO’s deal, have undermined that hope. British courts bridle at plea bargains because of the way they fetter judicial discretion. But even allowing for this aversion, the BAE deal rightly stuck in the judge’s craw. The company did not admit to any corruption, pleading guilty only to a trivial charge of keeping inadequate accounting records. In return, BAE and its officers were extraordinarily given blanket immunity from any offences before 2004 – whether admitted to or not. A cap was placed on the total amount BAE would pay to settle the litigation – whether as a fine or in compensation. There is nothing wrong with using plea bargains to settle complex cases, but these must satisfy the requirements of justice. This means that defendants in such cases must own up to what they have done wrong. Immunity should be offered sparingly, with prosecutors reserving the right to single out officers for prosecution even if a settlement is reached with the company. The best way to change corporate conduct is to put individuals in the firing line. Fines must fit the crime and not be arbitrarily capped. The UK is trying to get its act together. But it is still some way from – to quote a minister in the last government – “giving the Americans a run for their money”. There are grounds for hope. Britain has passed a bribery bill that would make it easier to prosecute cases such as the BAE one. The government is planning to replace the SFO with a new economic crime agency – hopefully with real teeth. On the evidence of the BAE case, these initiatives are needed."
*****
Hope is a fitting word to end the BAE circus.
Hope that a case of this magnitude is never again resolved the way it was resolved both in the U.S. and the U.K.
Despite years of widespread bribery allegations and despite the DOJ's bribery, yet no bribery allegations (see here), BAE escaped bribery and corruption charges. The U.S. enforcement action came to a formal conclusion in March (see here). As noted in the DOJ release (here) BAE pleaded guilty to "conspiring to defraud the United States by impairing and impeding its lawful functions, to make false statements about its FCPA compliance program, and to violate the Arms Export Control Act and International Traffic in Arms Regulations" and was sentenced to "pay a $400 million criminal fine, one of the largest criminal fines in the history of DOJ's ongoing effort to combat overseas corruption in international business and enforce U.S. export control laws."
The SFO's plea agreement with BAE was even more limited. As noted in this SFO release, the SFO "reached an agreement with BAE Systems that the company will plead guilty" to the offense of "failing to keep reasonably accurate accounting records in relation to its activities in Tanzania." As noted in the SFO release BAE agreed to pay a £30 million penalty "comprising a fine to be determined by the Court with the balance paid as a charitable payment for the benefit of Tanzania."
Days before the SFO-BAE plea agreement, the SFO charged BAE's former agent with "conspiracy to corrupt" and for "conspiring with others to give or agree to give corrupt payments [...] to unknown officials and other agents of certain Eastern and Central European governments, including the Czech Republic, Hungary and Austria as inducements to secure, or as rewards for having secured, contracts from those governments for the supply of goods to them, namely SAAB/Gripen fighter jets, by BAE Systems Plc." However, these charges were quickly withdrawn and the SFO release states that "[t]his decision brings to an end the SFO's investigations into BAE's defence contracts." As discussed in this prior post, the SFO agreed to drop the criminal charges against BAE's former agent because BAE would not agree to the proposed SFO plea (as watered down as it was) without the SFO agreeing to drop the charges against the former agent.
Under no circumstances, it appeared, could BAE (or anyone associated with it) be accused of bribery or corruption. This would have complicated things too greatly for BAE, the world's second largest defense contractor. (See page 15 of the DOJ's sentencing memo - here).
With BAE's U.S. legal exposure in the rear-view mirror, the final act in this circus was approval of the SFO - BAE plea agreement by a U.K. court.
Fast forward to December 20th, the day BAE was supposed to be fined and sentenced.
Enter Mr. Justice David Michael Bean.
As widely reported, Justice Bean, notwithstanding the accounting only charges, wanted to know "whether some of the payments had been channelled corruptly to decision makers in Tanzania." (See here). Justice Bean said "he couldn’t approve the settlement until he knew the intended use of $12.4 million in payments to a local businessman, because Bean said it looked to him as though the money was so he could pay “whatever was necessary to whomever it was necessary” to win the $40 million contract." (See here). Justice Bean suggested the "obvious inference" was that part of the secret payments was used as a "bribe" to win a lucrative contract. (See here).
Prosecutor Victor Temple QC for the SFO said it was not part of his case that any part of the payments at issue was improperly used. David Perry, QC, representing BAE, said the SFO was not alleging bribery or offering evidence of it. He said this was “fundamental to the plea agreement” between the company and the prosecutor to end the corruption probe.
Remember, under no circumstance could BAE be accused of bribery or corruption.
Justice Bean wanted to hear more arguments and postponed BAE's fine and sentence.
The delay was termed (see here) a blow to the SFO and its use of U.S. style plea agreements.
Yesterday, Justice Bean announced his decision.
Justice Bean fined BAE £500,000 for failing to keep proper records of payments it made to an adviser in Tanzania. He also ordered BAE to pay £225,000 in costs.
Because the SFO-BAE plea agreement allowed BAE to deduct the court-ordered fine from the £30m it had offered to the people of Tanzania to settle the case, Justice Bean said he felt pressure to keep the court fine to a minimum. As noted here, Justice Bean stated "the structure of this settlement agreement places moral pressure on the court to keep the fine to a minimum so that the reparation is kept at a maximum."
Justice Bean called the SFO-BAE plea agreement “loosely and hastily drafted” and said the fine he levied reflected that he couldn’t “sentence for an offense which the prosecution failed to charge,” such as conspiracy to corrupt or false accounting. (See here).
See here for Justice Bean's sentencing remarks.
See here for the SFO release.
As noted here, the only money BAE is legally obliged to pay is a £500,000 fine and costs of £250,000 as ordered by Mr Justice Bean. After the sentencing, Richard Alderman, the SFO Director said: “I expect BAE to honour the agreement. I expect the company to pay it [the reparation payment to Tanzania] as quickly as possible.” As noted in the article, such a payment could be problematic.
In a statement (here) BAE stated:
"Today's judgment concludes and draws a line under this historical matter. The company accepts the decision of the Court and will abide by it. In the decade since the conduct referred to in this settlement occurred, the Company has systematically enhanced its compliance policies and processes with a view to ensuring that it is as widely recognised for responsible conduct as it is for high quality services and advanced technologies."
In a statement (see here) Transparency International UK noted that despite Justice Bean's "damning comments, [BAE] has not admitted bribery and no individuals have been punished." Chandrashekhar Krishnan, Executive Director of Transparency International UK stated as follows: "This hearing also highlights the need for a thorough review of sentencing law and procedures, to ensure that judges presented with agreed settlements are able to sentence on a fully informed and transparent basis. It is clear that BAE Systems has got off lightly. The best that can now happen is that the company demonstrates it has turned a new leaf and is irrevocably committed to clean business."
In an editorial, the Financial Times stated as follows.
"The plea-bargain deal BAE Systems struck earlier this year with the UK’s anti-corruption authority was designed to draw a line under the company’s murky past. This may indeed be the judicial outcome of the deal, which was sanctioned by a court on December 21. But the manner of its achievement leaves a sour taste. Justice has probably not been done; it has certainly not been seen to be done. The Serious Fraud Office has long been accused, with justice, of being toothless. So this newspaper welcomed its decision last year to prosecute BAE for allegedly paying bribes to foreign governments to win contracts in several African and eastern European countries. Although the SFO later switched to pursuing a more limited plea bargain, it was still hoped that this might raise the agency’s profile as a crusader against corporate corruption. This week’s court proceedings, which saw a judge reluctantly accept the SFO’s deal, have undermined that hope. British courts bridle at plea bargains because of the way they fetter judicial discretion. But even allowing for this aversion, the BAE deal rightly stuck in the judge’s craw. The company did not admit to any corruption, pleading guilty only to a trivial charge of keeping inadequate accounting records. In return, BAE and its officers were extraordinarily given blanket immunity from any offences before 2004 – whether admitted to or not. A cap was placed on the total amount BAE would pay to settle the litigation – whether as a fine or in compensation. There is nothing wrong with using plea bargains to settle complex cases, but these must satisfy the requirements of justice. This means that defendants in such cases must own up to what they have done wrong. Immunity should be offered sparingly, with prosecutors reserving the right to single out officers for prosecution even if a settlement is reached with the company. The best way to change corporate conduct is to put individuals in the firing line. Fines must fit the crime and not be arbitrarily capped. The UK is trying to get its act together. But it is still some way from – to quote a minister in the last government – “giving the Americans a run for their money”. There are grounds for hope. Britain has passed a bribery bill that would make it easier to prosecute cases such as the BAE one. The government is planning to replace the SFO with a new economic crime agency – hopefully with real teeth. On the evidence of the BAE case, these initiatives are needed."
*****
Hope is a fitting word to end the BAE circus.
Hope that a case of this magnitude is never again resolved the way it was resolved both in the U.S. and the U.K.
Friday, October 29, 2010
Friday Roundup
It has been a few weeks since my last Friday Roundup.
As a result this is a souped-up edition.
Is paying an FCPA fine merely a cost of business, are FCPA internal investigations getting just a bit out-of-hand, have you heard that a new cottage industry of FCPA experts has emerged, quit picking on Canada, will Julian Messent (or others) be prosecuted for FCPA violations, Assistant Attorney General Breuer on the Kleptocracy Asset Recovery Initiative, Proclamation 7750 news, and a son who wants to keep the New York condo ... it's all here in the Friday roundup.
Is Paying an FCPA Fine Merely a Cost of Business?
One may wonder, and legitimately so, whether getting caught for violating the FCPA is simply a cost of doing business whereby the company pays a fine and then continues to do business, including with, in many cases, the U.S. government. See here for my post on Siemens - The Year After, here for my post on BAE's recent $40 million contract with the FBI (note because of the facade of FCPA enforcement, BAE was not charged with violating the FCPA - see here).
Denis McInerney, Chief of the DOJ's Fraud Section, rejected such an assertion during an October 21st speech before the American Bar Association.
According to Inside U.S. Trade, McInerney "sought to rebut charges that FCPA enforcement relies too heavily on settlement agreements and that it is therefore like a licensing regime under which 'companies are allowed to bribe, but if caught they have to pay a fee.'" According to Inside U.S. Trade, McInerney said that in the past two years, DOJ has imposed fines of $59 million, $19 million, $365 million, $338 million, $400 million, $376 million, $579 million and $800 million and he "emphasized that the companies paying these penalties are subject to monitoring which can lead to criminal prosecution if new offenses occur." According to Inside U.S. Trade, McInerney said "I guarantee you that these firms do not view these are mere licensing fees."
Is This Getting a Bit Out of Hand?
Avon previously disclosed the existence of an internal investigation focused on potential FCPA issues (see here for the prior post).
Here is what the company said in its 10-Q filing (here) yesterday:
"As previously reported, we have engaged outside counsel to conduct an internal investigation and compliance reviews focused on compliance with the Foreign Corrupt Practices Act (“FCPA”) and related U.S. and foreign laws in China and additional countries. The internal investigation, which is being conducted under the oversight of our Audit Committee, began in June 2008. As we reported in October 2008, we voluntarily contacted the United States Securities and Exchange Commission and the United States Department of Justice to advise both agencies of our internal investigation. We are continuing to cooperate with both agencies and inquiries by them, including but not limited to, signing tolling agreements, translating and producing documents and assisting with interviews.
As previously reported in July 2009, in connection with the internal investigation, we commenced compliance reviews regarding the FCPA and related U.S. and foreign laws in additional countries in order to evaluate our compliance efforts. We are conducting these compliance reviews in a number of other countries selected to represent each of the Company’s four other international geographic segments. The internal investigation and compliance reviews are focused on reviewing certain expenses and books and records processes, including, but not limited to, travel, entertainment, gifts, and payments to third−party agents and others, in connection with our business dealings, directly or indirectly, with foreign governments and their employees. The internal investigation and compliance reviews of these matters are ongoing, and we continue to cooperate with both agencies with respect to these matters. At this point we are unable to predict the duration, scope, developments in, results of, or consequences of the internal investigation and compliance reviews."
Here is what Avon had to say in the fling about its net global expenses:
"The increase in Net Global expenses for both the three and nine months ended September 30, 2010, was primarily attributable to significant professional and related fees associated with the FCPA investigation and compliance reviews described in Note 5 to the consolidated financial statements included herein of approximately $24 (up approximately $17 from the three months ended September 30, 2009) and approximately $72 (up approximately $49 from the nine months ended September 30, 2009), respectively. The increase in Net Global expenses for the nine months ended September 30, 2010 was also due to higher costs associated with global initiatives and costs associated with business acquisitions. Professional and related fees associated with the FCPA investigation and compliance reviews, while difficult to predict, are expected to continue during the course of this investigation."
Those figures are not mere dollars, but millions of dollars. And, as noted in the disclosure, the expenses are expected to increase.
On a much smaller (yet still meaningful) scale, on August 31st, Orthofix disclosed (here) the existence of an internal investigation relating to FCPA issues focused on its Mexican subsidiaries, an entity that accounts "for approximately one percent of the Company’s consolidated net sales and consolidated total assets."
Recently, Orthofix provided this update in an 8-K filing (here):
"Operating income in the third quarter of 2010 included the impact of $3.7 million in legal expenses associated with the DOJ investigation of the bone growth stimulation industry and the Company’s internal investigation into its compliance with the Foreign Corrupt Practices Act in its subsidiary in Mexico."
Newsweek Notices FCPA Inc.
Newsweek recently carried a short blurb (here) titled "Going After Graft." Among other things, the piece states:
"With prosecutions likely to continue—the FBI has doubled the number of agents tasked to FCPA cases—business is responding in kind. Law firms are competing for top FCPA talent, banks financing international deals are insisting on anti-bribery stipulations in contracts, and a new cottage industry of experts has emerged, offering country-by-country advice on gifts and local laws. In the words of an FBI spokesperson, FCPA are 'four letters you need to be aware of if you’re doing business in the international marketplace.'"
Quit Picking On Canada
What if, in the U.S., there was no fallback FCPA books and records and internal control charges, there was no voluntary disclosure culture, there were no "overzealous prosecutions," and there were no prosecutions undertaken as "publicity stunts."
According to Cyndee Todgham Cherniak (here), FCPA enforcement would likely resemble the sparse enforcement of Canada's Corruption of Foreign Public Officials Act.
At least that is my take-away from her recent post (here) on the Trade Lawyers Blog.
For more on Canada's Corruption of Foreign Public Officials Act (see here and here).
Will Julian Messent (Or Others) Be Prosecuted For FCPA Violations?
Earlier this week, the U.K. Serious Fraud Office (SFO) announced (here) that Julian Messent was sentenced to 21 months in prison "after admitting making or authorizing corrupt payments of almost US $2 million to Costan Rican officials in the state insurance company, Instituto Nacional de Seguros (INS) and the national electricity provider Instituto Costarricense de Electricidad."
Messent, a former director of London-based insurance business PWS International Ltd. (PWS), was the head of the Property (Americas) Divison at PWS in which role "he was responsible for securing and maintaining contracts for reinsurance in the Central and South America regions."
According to the SFO release, "Messent authorized 41 corrupt payments" "to be paid to Costa Rican officials, their wives and associated companies, as inducements or rewards for assisting in the appointment or retention of PWS as broker of the lucrative reinsurance policy for INS."
The SFO release also indicates that Messent was ordered to pay £100,000 in compensation to the Republic of Costa Rica. (In the U.S., FCPA fines flow solely into the U.S. Treasury).
Messent was charged under the U.K.'s Prevention of Corruption Act 1906 (see here).
According to this report in the Guardian, "the SFO decided not to prosecute PWS because the firm, which has been sold, had a substantial deficit in its pension fund."
According to the Guardian, "the covert payments were routed through bank accounts in the names of the wives of the Costa Rican officials and through accounts in Panama and the US, and a travel agency in Florida."
Under the 78dd-3 prong of the Foreign Corrupt Practices Act, persons other than an issuer or domestic concern (i.e. in this case foreign nationals) can be subject to the FCPA if the improper payments have a U.S. nexus.
Will FCPA prosecutions of Messent (and perhaps others) follow?
Breuer on the Kleptocracy Asset Recovery Initiative
As highlighted in this prior post, in November 2009, Attorney General Eric Holder called asset recovery from corrupt officials a "global imperative" and he announced a "redoubled commitment on behalf of the United States Department of Justice to recover" funds obtained by foreign officials through bribery.
In July 2010, Holder announced (here) the Kleptocracy Asset Recovery Initiative "aimed at combating large-scale foreign official corruption and recovering public funds for their intended – and proper – use: for the people of our nations." Holder announced that the DOJ is "assembling a team of prosecutors who will focus exclusively on this work and build upon efforts already underway to deter corruption, hold offenders accountable, and protect public resources."
In a recent keynote address at the Money Laundering Enforcement Conference (here), Assistant Attoney General Lanny Breuer had this to say about the initaitive:
"This Initiative represents a concrete step toward fulfilling that commitment. The Kleptocracy Initiative will involve three key sections in the Criminal Division: the Asset Forfeiture and Money Laundering Section, which will lead it, and the Office of International Affairs and the Fraud Section, which will provide critical support. Once fully implemented, this Initiative will allow the Department to recover assets on behalf of countries victimized by high-level corruption, building on the Justice Department’s already robust enforcement of the Foreign Corrupt Practices Act. Through the Kleptocracy Initiative, the Department will ensure that corrupt leaders cannot seek safe haven in the United States for their stolen wealth. And, if we uncover such wealth, the Justice Department will forfeit and return this stolen money to its rightful owners – the people and governments from whom it was taken."
In his speech, Breuer also discussed (in a non-FCPA context) how the DOJ wants "companies that uncover illegal conduct to come forward voluntarily."
Proclamation 7750 News
In 2004, President Bush signed Proclamation 7750 "To Suspend Entry As Immigrants or Nonimmigrants of Persons Engaged In or Benefiting From Corruption" (see here).
Proclamation 7750 basically says the U.S. can suspend entry into the country "of certain persons who have committed, participated in, or are beneficiaries of corruption in the performance of public functions where that corruption has serious adverse effects on international activity" subject to an exception where denying such entry would be "contrary to the interests" of the U.S.
Last year, the New York Times (here) ran an article quoting a former State Department official as saying the State Department(which is responsible for enforcing the proclamation) "seem[s] to lack the backbone to use this prohibition."
Earlier this month, David Johnson (Assistant Secretary, Bureau International Narcotics and Law Enforcement Affairs, U.S. Department of State) stated at the Third Committee of the 65th Session of the UN General Assembly (see here) as follows:
"The United States continues to broaden its efforts to deny entry into our own country of public officials who receive bribes as well as those who supply them. Corrupt officials are not welcome in the United States."
Joe Palazzolo (Wall Street Journal - Corruption Currents) followed up with Johnson and noted in a recent article that the "State Department is stepping up its game" in seeking to enforce Proclamation 7750. As Palazzolo reports, it is not hard to "step up the game" when "for a long time, one part-official [...] handled 7750 matters."
Palazzolo reports that the State Department recently hired two new employees and is "processing paperwork for two additional hires, who will focus the majority of their time on 7750 issues." The article quotes a State Department official as saying, "it is our hope and intention that the new hires will result in greater capacity."
Son Fights to Keep New York Condo
This prior post discussed the DOJ's civil forfeiture complaint filed in July against certain U.S. properties "that represent a portion of illegal bribes paid to the former president of Taiwan and his wife."
Joe Palazzolo (Wall Street Journal - Corruption Currents) recently reported that "the son of former Taiwanese President Chen Shui-bian has quietly hired legal counsel to prevent a Manhattan condominium, which prosecutors say was purchased with bribes, from falling into the hands of the government."
According to Palazzolo, the son, Chen Chih-chung, has retained Jonathan Harris (see here) to defend against the forfeiture action and Harris is quoted as saying he will be filing a motion to dismiss "shortly."
*****
A good weekend to all.
As a result this is a souped-up edition.
Is paying an FCPA fine merely a cost of business, are FCPA internal investigations getting just a bit out-of-hand, have you heard that a new cottage industry of FCPA experts has emerged, quit picking on Canada, will Julian Messent (or others) be prosecuted for FCPA violations, Assistant Attorney General Breuer on the Kleptocracy Asset Recovery Initiative, Proclamation 7750 news, and a son who wants to keep the New York condo ... it's all here in the Friday roundup.
Is Paying an FCPA Fine Merely a Cost of Business?
One may wonder, and legitimately so, whether getting caught for violating the FCPA is simply a cost of doing business whereby the company pays a fine and then continues to do business, including with, in many cases, the U.S. government. See here for my post on Siemens - The Year After, here for my post on BAE's recent $40 million contract with the FBI (note because of the facade of FCPA enforcement, BAE was not charged with violating the FCPA - see here).
Denis McInerney, Chief of the DOJ's Fraud Section, rejected such an assertion during an October 21st speech before the American Bar Association.
According to Inside U.S. Trade, McInerney "sought to rebut charges that FCPA enforcement relies too heavily on settlement agreements and that it is therefore like a licensing regime under which 'companies are allowed to bribe, but if caught they have to pay a fee.'" According to Inside U.S. Trade, McInerney said that in the past two years, DOJ has imposed fines of $59 million, $19 million, $365 million, $338 million, $400 million, $376 million, $579 million and $800 million and he "emphasized that the companies paying these penalties are subject to monitoring which can lead to criminal prosecution if new offenses occur." According to Inside U.S. Trade, McInerney said "I guarantee you that these firms do not view these are mere licensing fees."
Is This Getting a Bit Out of Hand?
Avon previously disclosed the existence of an internal investigation focused on potential FCPA issues (see here for the prior post).
Here is what the company said in its 10-Q filing (here) yesterday:
"As previously reported, we have engaged outside counsel to conduct an internal investigation and compliance reviews focused on compliance with the Foreign Corrupt Practices Act (“FCPA”) and related U.S. and foreign laws in China and additional countries. The internal investigation, which is being conducted under the oversight of our Audit Committee, began in June 2008. As we reported in October 2008, we voluntarily contacted the United States Securities and Exchange Commission and the United States Department of Justice to advise both agencies of our internal investigation. We are continuing to cooperate with both agencies and inquiries by them, including but not limited to, signing tolling agreements, translating and producing documents and assisting with interviews.
As previously reported in July 2009, in connection with the internal investigation, we commenced compliance reviews regarding the FCPA and related U.S. and foreign laws in additional countries in order to evaluate our compliance efforts. We are conducting these compliance reviews in a number of other countries selected to represent each of the Company’s four other international geographic segments. The internal investigation and compliance reviews are focused on reviewing certain expenses and books and records processes, including, but not limited to, travel, entertainment, gifts, and payments to third−party agents and others, in connection with our business dealings, directly or indirectly, with foreign governments and their employees. The internal investigation and compliance reviews of these matters are ongoing, and we continue to cooperate with both agencies with respect to these matters. At this point we are unable to predict the duration, scope, developments in, results of, or consequences of the internal investigation and compliance reviews."
Here is what Avon had to say in the fling about its net global expenses:
"The increase in Net Global expenses for both the three and nine months ended September 30, 2010, was primarily attributable to significant professional and related fees associated with the FCPA investigation and compliance reviews described in Note 5 to the consolidated financial statements included herein of approximately $24 (up approximately $17 from the three months ended September 30, 2009) and approximately $72 (up approximately $49 from the nine months ended September 30, 2009), respectively. The increase in Net Global expenses for the nine months ended September 30, 2010 was also due to higher costs associated with global initiatives and costs associated with business acquisitions. Professional and related fees associated with the FCPA investigation and compliance reviews, while difficult to predict, are expected to continue during the course of this investigation."
Those figures are not mere dollars, but millions of dollars. And, as noted in the disclosure, the expenses are expected to increase.
On a much smaller (yet still meaningful) scale, on August 31st, Orthofix disclosed (here) the existence of an internal investigation relating to FCPA issues focused on its Mexican subsidiaries, an entity that accounts "for approximately one percent of the Company’s consolidated net sales and consolidated total assets."
Recently, Orthofix provided this update in an 8-K filing (here):
"Operating income in the third quarter of 2010 included the impact of $3.7 million in legal expenses associated with the DOJ investigation of the bone growth stimulation industry and the Company’s internal investigation into its compliance with the Foreign Corrupt Practices Act in its subsidiary in Mexico."
Newsweek Notices FCPA Inc.
Newsweek recently carried a short blurb (here) titled "Going After Graft." Among other things, the piece states:
"With prosecutions likely to continue—the FBI has doubled the number of agents tasked to FCPA cases—business is responding in kind. Law firms are competing for top FCPA talent, banks financing international deals are insisting on anti-bribery stipulations in contracts, and a new cottage industry of experts has emerged, offering country-by-country advice on gifts and local laws. In the words of an FBI spokesperson, FCPA are 'four letters you need to be aware of if you’re doing business in the international marketplace.'"
Quit Picking On Canada
What if, in the U.S., there was no fallback FCPA books and records and internal control charges, there was no voluntary disclosure culture, there were no "overzealous prosecutions," and there were no prosecutions undertaken as "publicity stunts."
According to Cyndee Todgham Cherniak (here), FCPA enforcement would likely resemble the sparse enforcement of Canada's Corruption of Foreign Public Officials Act.
At least that is my take-away from her recent post (here) on the Trade Lawyers Blog.
For more on Canada's Corruption of Foreign Public Officials Act (see here and here).
Will Julian Messent (Or Others) Be Prosecuted For FCPA Violations?
Earlier this week, the U.K. Serious Fraud Office (SFO) announced (here) that Julian Messent was sentenced to 21 months in prison "after admitting making or authorizing corrupt payments of almost US $2 million to Costan Rican officials in the state insurance company, Instituto Nacional de Seguros (INS) and the national electricity provider Instituto Costarricense de Electricidad."
Messent, a former director of London-based insurance business PWS International Ltd. (PWS), was the head of the Property (Americas) Divison at PWS in which role "he was responsible for securing and maintaining contracts for reinsurance in the Central and South America regions."
According to the SFO release, "Messent authorized 41 corrupt payments" "to be paid to Costa Rican officials, their wives and associated companies, as inducements or rewards for assisting in the appointment or retention of PWS as broker of the lucrative reinsurance policy for INS."
The SFO release also indicates that Messent was ordered to pay £100,000 in compensation to the Republic of Costa Rica. (In the U.S., FCPA fines flow solely into the U.S. Treasury).
Messent was charged under the U.K.'s Prevention of Corruption Act 1906 (see here).
According to this report in the Guardian, "the SFO decided not to prosecute PWS because the firm, which has been sold, had a substantial deficit in its pension fund."
According to the Guardian, "the covert payments were routed through bank accounts in the names of the wives of the Costa Rican officials and through accounts in Panama and the US, and a travel agency in Florida."
Under the 78dd-3 prong of the Foreign Corrupt Practices Act, persons other than an issuer or domestic concern (i.e. in this case foreign nationals) can be subject to the FCPA if the improper payments have a U.S. nexus.
Will FCPA prosecutions of Messent (and perhaps others) follow?
Breuer on the Kleptocracy Asset Recovery Initiative
As highlighted in this prior post, in November 2009, Attorney General Eric Holder called asset recovery from corrupt officials a "global imperative" and he announced a "redoubled commitment on behalf of the United States Department of Justice to recover" funds obtained by foreign officials through bribery.
In July 2010, Holder announced (here) the Kleptocracy Asset Recovery Initiative "aimed at combating large-scale foreign official corruption and recovering public funds for their intended – and proper – use: for the people of our nations." Holder announced that the DOJ is "assembling a team of prosecutors who will focus exclusively on this work and build upon efforts already underway to deter corruption, hold offenders accountable, and protect public resources."
In a recent keynote address at the Money Laundering Enforcement Conference (here), Assistant Attoney General Lanny Breuer had this to say about the initaitive:
"This Initiative represents a concrete step toward fulfilling that commitment. The Kleptocracy Initiative will involve three key sections in the Criminal Division: the Asset Forfeiture and Money Laundering Section, which will lead it, and the Office of International Affairs and the Fraud Section, which will provide critical support. Once fully implemented, this Initiative will allow the Department to recover assets on behalf of countries victimized by high-level corruption, building on the Justice Department’s already robust enforcement of the Foreign Corrupt Practices Act. Through the Kleptocracy Initiative, the Department will ensure that corrupt leaders cannot seek safe haven in the United States for their stolen wealth. And, if we uncover such wealth, the Justice Department will forfeit and return this stolen money to its rightful owners – the people and governments from whom it was taken."
In his speech, Breuer also discussed (in a non-FCPA context) how the DOJ wants "companies that uncover illegal conduct to come forward voluntarily."
Proclamation 7750 News
In 2004, President Bush signed Proclamation 7750 "To Suspend Entry As Immigrants or Nonimmigrants of Persons Engaged In or Benefiting From Corruption" (see here).
Proclamation 7750 basically says the U.S. can suspend entry into the country "of certain persons who have committed, participated in, or are beneficiaries of corruption in the performance of public functions where that corruption has serious adverse effects on international activity" subject to an exception where denying such entry would be "contrary to the interests" of the U.S.
Last year, the New York Times (here) ran an article quoting a former State Department official as saying the State Department(which is responsible for enforcing the proclamation) "seem[s] to lack the backbone to use this prohibition."
Earlier this month, David Johnson (Assistant Secretary, Bureau International Narcotics and Law Enforcement Affairs, U.S. Department of State) stated at the Third Committee of the 65th Session of the UN General Assembly (see here) as follows:
"The United States continues to broaden its efforts to deny entry into our own country of public officials who receive bribes as well as those who supply them. Corrupt officials are not welcome in the United States."
Joe Palazzolo (Wall Street Journal - Corruption Currents) followed up with Johnson and noted in a recent article that the "State Department is stepping up its game" in seeking to enforce Proclamation 7750. As Palazzolo reports, it is not hard to "step up the game" when "for a long time, one part-official [...] handled 7750 matters."
Palazzolo reports that the State Department recently hired two new employees and is "processing paperwork for two additional hires, who will focus the majority of their time on 7750 issues." The article quotes a State Department official as saying, "it is our hope and intention that the new hires will result in greater capacity."
Son Fights to Keep New York Condo
This prior post discussed the DOJ's civil forfeiture complaint filed in July against certain U.S. properties "that represent a portion of illegal bribes paid to the former president of Taiwan and his wife."
Joe Palazzolo (Wall Street Journal - Corruption Currents) recently reported that "the son of former Taiwanese President Chen Shui-bian has quietly hired legal counsel to prevent a Manhattan condominium, which prosecutors say was purchased with bribes, from falling into the hands of the government."
According to Palazzolo, the son, Chen Chih-chung, has retained Jonathan Harris (see here) to defend against the forfeiture action and Harris is quoted as saying he will be filing a motion to dismiss "shortly."
*****
A good weekend to all.
Friday, October 15, 2010
The SFO Speaks
Today's post is devoted to the U.K. Serious Fraud Office (SFO), specificaly a recent speech by Richard Alderman (Director of the SFO) on the Bribery Act and a recent webcast delivered by Vivian Robinson QC (General Counsel for the SFO) on the Bribery Act.
Bribery Act 2010 - A New Beginning
Earlier this week, Alderman gave a speech "Bribery Act 2010 - A New Beginning" (see here).
[See here for my recent Q&A with Mr. Alderman on the Bribery Act and other topics].
Below are some excerpted highlights.
"Those corporates and individuals that ignore recent developments in this jurisdiction concerning bribery legislation and the enforcement of the law do so very much at their peril. The UK will soon have the toughest bribery legislation in the world and it will be vigorously enforced by the Serious Fraud Office. In the meanwhile, the work of the SFO in enforcing the current law has been widely praised. Indeed as a result of what we have been doing the OECD, Transparency International and TRACE International have put the UK very much in the lead after the US in enforcing anti-corruption legislation. I have been very pleased to see this. The UK is regarded as an active enforcer of bribery legislation. This is exactly where we need to be."
"We want to encourage corporates that identify a problem to come and talk to us at an early stage. The incentive for them is that a self report could potentially lead to a civil resolution through a Civil Recovery Order. We have done this in two cases that are in the public domain and we currently have some other cases that are being dealt with in this way." [Those two cases are Balfour Beatty Plc (here) and AMEC Plc (here)]
"The sentencing remarks by Lord Justice Thomas in the Innospec case [see here for a prior post] have been regarded as casting some doubt on this. In that case, Lord Justice Thomas stressed the importance of dealing with corruption and the need for very significant sentences when individuals and corporates are brought before the Criminal Courts. He also discussed civil recovery and said that the public would expect suitable cases of corruption to go to the Criminal Courts. I entirely accept this guidance. There will be cases where we shall decide, in accordance with the Code for Crown Prosecutors and the Guidance for Corporate Prosecutions, which because of the nature and seriousness of what is alleged we must prosecute. For example, it is likely that cases involving systemic failings at Board level would be prosecuted. However, there maybe cases where we are unable to prosecute and we consider that a civil recovery order is appropriate. This is a civil remedy. We have given detailed guidance on these issues in the context of corporate prosecutions. There is also Attorney General's guidance on the Use of Civil Recovery."
"While I am talking about guidance from the courts, let me also refer briefly to the comments in the Innospec and Dougall cases concerning documents agreed by the SFO and the corporate when a case comes to a criminal court. The Judge took the view that the SFO had gone too far in these cases in recommending or commenting on the sentence that the Judge should impose. I accept these criticisms. Plea negotiations of this nature are new and there is a lot for us all to learn. We have had other cases where the Judge has been satisfied with the agreed documentation as a basis for sentence. This is what we shall need to aspire to in all of these cases."
"Let me now turn to the subject of the Bribery Act because there are a number of issues here that I would like to talk you through. First of all, I very much welcome the Bribery Act. The SFO has been working with colleagues in Government on proposals for changes in the legislation for a number of years and I am delighted to see the Bribery Act. It is a very tough piece of legislation. It is tougher than the FCPA because it also deals with private sector bribery as well as bribery of public officials and it gives no exemption for small facilitation payments. So it is a tough piece of legislation."
"The offence at the corporate level that you will need to know all about is the provision that makes it an offence for a corporate if it fails to prevent bribery. There is a defence to this if the corporate had adequate procedures to prevent bribery."
"I have heard some people say that this offence is one of strict liability. I do not agree. No offence will have been committed if there were adequate procedures. I have also heard people say that the fact of bribery might mean that there were inadequate procedures by definition and so the defence can never be made out. Again, I do not agree. In the real world there may be occasional lapses despite adequate procedures rigorously enforced. The issue ultimately for the Judge and jury (and for the SFO in deciding on a prosecution) will be - were those procedures adequate?"
"I have mentioned the corporate offence but, of course, the Act goes wider that. There are offences of giving and receiving bribes and there is an offence of bribing a foreign public official. There is also an offence targeted at senior officers of a corporate who consent to, or connive at, bribery."
"The Act also looks at issues of jurisdiction. For the first time non UK corporates will be brought within the jurisdiction of the SFO if they have some business presence in the UK. What this will mean is that a foreign corporate that is involved in corruption anywhere in the world will be within the SFO's jurisdiction if it has a business presence here even if the corruption has no connection with that business presence. This is a very important provision for us. I believe that foreign corporates are waking up to the significance of this."
"Let me comment on two particular issues arising from the Bribery Act because I know that they have caused a lot of concern to the corporate sector. These issues concern promotional expenditure and small facilitation payments. It may be helpful if I comment on both of those issues. In doing this I shall follow an important speech given by the UK's Attorney General, The Rt Honourable Dominic Grieve QC MP, to the World Bribery Forum on 14 September. [See here for my coverage of these remarks]. This speech is available on the Attorney General's website and is particularly important."
"First of all promotional expenditure. There are some who have said that the effect of the Bribery Act is to outlaw all promotional expenditure. I do not agree. Sensible, proportionate expenditure is not unlawful under the Act. But, of course, once the expenditure starts to be on a more lavish scale and is intended to influence decision makers in awarding contracts, then we do get into the area of criminal offences. The Act seems to me to take a very sensible approach. And so the message from me is that sensible proportionate promotional expenditure remains perfectly lawful."
"The other issue that causes difficulty concerns small facilitation payments. I appreciate the difficulties because of the realities of doing business in many parts of the world. I also bear in mind that the US Foreign Corrupt Practices Act exempts these payments from criminal offences in certain circumstances."
"There is a lot of focus on small facilitation payments these days. Just before Christmas the OECD published a paper talking about the corrosive impact that these payments have on societies and calling on Governments to take more vigorous action in order to penalise them. This is an important message to all of us."
"Let us be clear. Small facilitation payments are bribes and they are unlawful under our current law. That will not change and they will be unlawful under the Bribery Act. Nevertheless, I have said in public that the chances of the SFO prosecuting a small (say $50) one off facilitation payment that is picked up and remedied by a corporate's internal processes are remote. That does not mean though that corporates can decide that it is acceptable to have a number of so called one off payments provided that in total they do not exceed shall we say $20 million a year. That is certainly a view that has been put to me. I said that I strongly disagreed. I also said that I could not understand how payments amounting to $20 million a year could be regarded as small one off facilitation payments. They are a course of business that is approved by the corporate. The chances of a criminal investigation and prosecution, where that is company policy, would be high."
"There are two other points I would like to make."
"First, do not under-estimate the scale of the co-operation between the SFO and law enforcement authorities in other countries. This is very extensive particularly with my colleagues in the US Department of Justice but also with other countries such as Australia. It is something that means a lot to us. We discuss cases, intelligence leads, policies and risks. There is a lot of discussion that goes on behind the scenes."
"Finally, there is an invitation from the SFO to approach us to discuss these issues, either directly or through professional advisers. We can discuss your company's policies and we can discuss the issues that you are finding in practice. We find this very beneficial ourselves and I know that corporates do as well. We are very ready to have these discussions with you."
Bribery Act - What Does it Mean?
In a 30 minute webcast (here) Robinson speaks on a variety of topics.
Among other things:
Robinson says that it is right to describe the Bribery Act as the most "draconian" anti-corruption measure in the world.
As to the adequate procedures defense, Robinson says that because of the defense "there is every reason to be optimistic that we won't get as a result of the Act and this particular section a huge expanse in the number of prosecutions of corporates."
As to self-reporting, Robinson says that the SFO will not sit back and wait for cases to come to it. He mentions that there is increased information sharing, greater cross-border cooperation, that the SFO's investigations have dramatically increased, and that more information is coming from whistleblowers. He stated that "companies are at greater risk than ever before that SFO will discover matters on its own." He stated that "self-reporting makes absolute sense [and that the SFO is] encouraging it as strongly as we possibly can."
As to small to medium size companies, Robinson says that smaller organizations are not absolved from liability under the Bribery Act. but that the SFO "would not expect the same from a small or medium size company that we would expect from one of the larger ones." He said that the SFO will take "into consideration the extent to which a small, medium size operation can put in place the same sort of procedures as a larger organiztion with much greater resources." As to due diligence, Robinson says that small to medium size companies "should carry out as much due dilignce as they reasonably can, but what they reasonably can do in that way may not be as much as a large corporate can reasonably be expected to do."
*****
A good weekend to all.
Bribery Act 2010 - A New Beginning
Earlier this week, Alderman gave a speech "Bribery Act 2010 - A New Beginning" (see here).
[See here for my recent Q&A with Mr. Alderman on the Bribery Act and other topics].
Below are some excerpted highlights.
"Those corporates and individuals that ignore recent developments in this jurisdiction concerning bribery legislation and the enforcement of the law do so very much at their peril. The UK will soon have the toughest bribery legislation in the world and it will be vigorously enforced by the Serious Fraud Office. In the meanwhile, the work of the SFO in enforcing the current law has been widely praised. Indeed as a result of what we have been doing the OECD, Transparency International and TRACE International have put the UK very much in the lead after the US in enforcing anti-corruption legislation. I have been very pleased to see this. The UK is regarded as an active enforcer of bribery legislation. This is exactly where we need to be."
"We want to encourage corporates that identify a problem to come and talk to us at an early stage. The incentive for them is that a self report could potentially lead to a civil resolution through a Civil Recovery Order. We have done this in two cases that are in the public domain and we currently have some other cases that are being dealt with in this way." [Those two cases are Balfour Beatty Plc (here) and AMEC Plc (here)]
"The sentencing remarks by Lord Justice Thomas in the Innospec case [see here for a prior post] have been regarded as casting some doubt on this. In that case, Lord Justice Thomas stressed the importance of dealing with corruption and the need for very significant sentences when individuals and corporates are brought before the Criminal Courts. He also discussed civil recovery and said that the public would expect suitable cases of corruption to go to the Criminal Courts. I entirely accept this guidance. There will be cases where we shall decide, in accordance with the Code for Crown Prosecutors and the Guidance for Corporate Prosecutions, which because of the nature and seriousness of what is alleged we must prosecute. For example, it is likely that cases involving systemic failings at Board level would be prosecuted. However, there maybe cases where we are unable to prosecute and we consider that a civil recovery order is appropriate. This is a civil remedy. We have given detailed guidance on these issues in the context of corporate prosecutions. There is also Attorney General's guidance on the Use of Civil Recovery."
"While I am talking about guidance from the courts, let me also refer briefly to the comments in the Innospec and Dougall cases concerning documents agreed by the SFO and the corporate when a case comes to a criminal court. The Judge took the view that the SFO had gone too far in these cases in recommending or commenting on the sentence that the Judge should impose. I accept these criticisms. Plea negotiations of this nature are new and there is a lot for us all to learn. We have had other cases where the Judge has been satisfied with the agreed documentation as a basis for sentence. This is what we shall need to aspire to in all of these cases."
"Let me now turn to the subject of the Bribery Act because there are a number of issues here that I would like to talk you through. First of all, I very much welcome the Bribery Act. The SFO has been working with colleagues in Government on proposals for changes in the legislation for a number of years and I am delighted to see the Bribery Act. It is a very tough piece of legislation. It is tougher than the FCPA because it also deals with private sector bribery as well as bribery of public officials and it gives no exemption for small facilitation payments. So it is a tough piece of legislation."
"The offence at the corporate level that you will need to know all about is the provision that makes it an offence for a corporate if it fails to prevent bribery. There is a defence to this if the corporate had adequate procedures to prevent bribery."
"I have heard some people say that this offence is one of strict liability. I do not agree. No offence will have been committed if there were adequate procedures. I have also heard people say that the fact of bribery might mean that there were inadequate procedures by definition and so the defence can never be made out. Again, I do not agree. In the real world there may be occasional lapses despite adequate procedures rigorously enforced. The issue ultimately for the Judge and jury (and for the SFO in deciding on a prosecution) will be - were those procedures adequate?"
"I have mentioned the corporate offence but, of course, the Act goes wider that. There are offences of giving and receiving bribes and there is an offence of bribing a foreign public official. There is also an offence targeted at senior officers of a corporate who consent to, or connive at, bribery."
"The Act also looks at issues of jurisdiction. For the first time non UK corporates will be brought within the jurisdiction of the SFO if they have some business presence in the UK. What this will mean is that a foreign corporate that is involved in corruption anywhere in the world will be within the SFO's jurisdiction if it has a business presence here even if the corruption has no connection with that business presence. This is a very important provision for us. I believe that foreign corporates are waking up to the significance of this."
"Let me comment on two particular issues arising from the Bribery Act because I know that they have caused a lot of concern to the corporate sector. These issues concern promotional expenditure and small facilitation payments. It may be helpful if I comment on both of those issues. In doing this I shall follow an important speech given by the UK's Attorney General, The Rt Honourable Dominic Grieve QC MP, to the World Bribery Forum on 14 September. [See here for my coverage of these remarks]. This speech is available on the Attorney General's website and is particularly important."
"First of all promotional expenditure. There are some who have said that the effect of the Bribery Act is to outlaw all promotional expenditure. I do not agree. Sensible, proportionate expenditure is not unlawful under the Act. But, of course, once the expenditure starts to be on a more lavish scale and is intended to influence decision makers in awarding contracts, then we do get into the area of criminal offences. The Act seems to me to take a very sensible approach. And so the message from me is that sensible proportionate promotional expenditure remains perfectly lawful."
"The other issue that causes difficulty concerns small facilitation payments. I appreciate the difficulties because of the realities of doing business in many parts of the world. I also bear in mind that the US Foreign Corrupt Practices Act exempts these payments from criminal offences in certain circumstances."
"There is a lot of focus on small facilitation payments these days. Just before Christmas the OECD published a paper talking about the corrosive impact that these payments have on societies and calling on Governments to take more vigorous action in order to penalise them. This is an important message to all of us."
"Let us be clear. Small facilitation payments are bribes and they are unlawful under our current law. That will not change and they will be unlawful under the Bribery Act. Nevertheless, I have said in public that the chances of the SFO prosecuting a small (say $50) one off facilitation payment that is picked up and remedied by a corporate's internal processes are remote. That does not mean though that corporates can decide that it is acceptable to have a number of so called one off payments provided that in total they do not exceed shall we say $20 million a year. That is certainly a view that has been put to me. I said that I strongly disagreed. I also said that I could not understand how payments amounting to $20 million a year could be regarded as small one off facilitation payments. They are a course of business that is approved by the corporate. The chances of a criminal investigation and prosecution, where that is company policy, would be high."
"There are two other points I would like to make."
"First, do not under-estimate the scale of the co-operation between the SFO and law enforcement authorities in other countries. This is very extensive particularly with my colleagues in the US Department of Justice but also with other countries such as Australia. It is something that means a lot to us. We discuss cases, intelligence leads, policies and risks. There is a lot of discussion that goes on behind the scenes."
"Finally, there is an invitation from the SFO to approach us to discuss these issues, either directly or through professional advisers. We can discuss your company's policies and we can discuss the issues that you are finding in practice. We find this very beneficial ourselves and I know that corporates do as well. We are very ready to have these discussions with you."
Bribery Act - What Does it Mean?
In a 30 minute webcast (here) Robinson speaks on a variety of topics.
Among other things:
Robinson says that it is right to describe the Bribery Act as the most "draconian" anti-corruption measure in the world.
As to the adequate procedures defense, Robinson says that because of the defense "there is every reason to be optimistic that we won't get as a result of the Act and this particular section a huge expanse in the number of prosecutions of corporates."
As to self-reporting, Robinson says that the SFO will not sit back and wait for cases to come to it. He mentions that there is increased information sharing, greater cross-border cooperation, that the SFO's investigations have dramatically increased, and that more information is coming from whistleblowers. He stated that "companies are at greater risk than ever before that SFO will discover matters on its own." He stated that "self-reporting makes absolute sense [and that the SFO is] encouraging it as strongly as we possibly can."
As to small to medium size companies, Robinson says that smaller organizations are not absolved from liability under the Bribery Act. but that the SFO "would not expect the same from a small or medium size company that we would expect from one of the larger ones." He said that the SFO will take "into consideration the extent to which a small, medium size operation can put in place the same sort of procedures as a larger organiztion with much greater resources." As to due diligence, Robinson says that small to medium size companies "should carry out as much due dilignce as they reasonably can, but what they reasonably can do in that way may not be as much as a large corporate can reasonably be expected to do."
*****
A good weekend to all.
Thursday, October 7, 2010
Securency International Probe Heats Up
According to this U.K. Serious Fraud Office (SFO) release, "a coordinated search and arrest operation" involving U.K., Spanish, and Australian authorities focused on Securency International PTY Ltd. has taken place. According to the release, the action involves the "activities of employees and agents of Securency International and their alleged corrupt role in securing international polymer banknote contracts."
Securency International (here) is a joint venture between the Reserve Bank of Australia, the country’s central bank, and Innovia Films (here), a Cumbria, England-based company that makes cellulose films for packaging and labels.
According to this article in the Sydney Morning Herald the "Reserve Bank is reeling after Federal Police and overseas law-enforcement agencies staged co-ordinated global raids yesterday to uncover evidence of corruption and bribery involving the bank note firm Securency." Bribery is suspected to have occurred in several countries, including Vietnam, Nigeria, Malaysia and Indonesia. As the article notes, if criminal charges are filed, it would be Australia's first foreign bribery prosecution.
The above linked Sydney Morning Herald article also has an informative five minute audio clip about the raid and the allegations against Securency International.
Will the U.S. get involved?
That depends if there is even jurisdiction.
Neither Securency or Innovia appear to be an "issuer" or "domestic concern." But there is still the 78dd-3 prong of the FCPA which applies to "any person" (corporate or individual) that generally performs any act in furtherance of an improper payment scheme while in the territory of the U.S. Like most FCPA issues, the DOJ takes an expansive view of this jurisdictional element and prior enforcement actions have been based on use of the U.S. bank accounts, U.S. dollar-denominated financial transactions, and use of the U.S. mail and wires (such as e-mail) in connection with the improper payment scheme.
For more on expansive FCPA jurisdiction over non-U.S. companies, see this July 2010 Shearman & Sterling publication.
Securency International (here) is a joint venture between the Reserve Bank of Australia, the country’s central bank, and Innovia Films (here), a Cumbria, England-based company that makes cellulose films for packaging and labels.
According to this article in the Sydney Morning Herald the "Reserve Bank is reeling after Federal Police and overseas law-enforcement agencies staged co-ordinated global raids yesterday to uncover evidence of corruption and bribery involving the bank note firm Securency." Bribery is suspected to have occurred in several countries, including Vietnam, Nigeria, Malaysia and Indonesia. As the article notes, if criminal charges are filed, it would be Australia's first foreign bribery prosecution.
The above linked Sydney Morning Herald article also has an informative five minute audio clip about the raid and the allegations against Securency International.
Will the U.S. get involved?
That depends if there is even jurisdiction.
Neither Securency or Innovia appear to be an "issuer" or "domestic concern." But there is still the 78dd-3 prong of the FCPA which applies to "any person" (corporate or individual) that generally performs any act in furtherance of an improper payment scheme while in the territory of the U.S. Like most FCPA issues, the DOJ takes an expansive view of this jurisdictional element and prior enforcement actions have been based on use of the U.S. bank accounts, U.S. dollar-denominated financial transactions, and use of the U.S. mail and wires (such as e-mail) in connection with the improper payment scheme.
For more on expansive FCPA jurisdiction over non-U.S. companies, see this July 2010 Shearman & Sterling publication.
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