Something To Think About

The holiday weekend is upon us and perhaps you have already left the office.

Here is something to think about over the long weekend.

India's Chief Economic Adviser, the economist Kaushik Basu, recently posted a paper titled "Why, for a Class of Bribes, the Act of Giving a Bribe Should be Treated as Legal" (here).

The abstract is as follows.

"The paper puts forward a small but novel idea of how we can cut down the incidence of bribery. There are different kinds of bribes and what this paper is concerned with are bribes that people often have to give to get what they are legally entitled to. I shall call these harassment bribes. Suppose an income tax refund is held back from a taxpayer till he pays some cash to the officer. Suppose government allots subsidized land to a person but when the person goes to get her paperwork done and receive documents for this land, she is asked to pay a hefty bribe. These are all illustrations of harassment bribes. Harassment bribery is widespread in India and it plays a large role in breeding inefficiency and has a corrosive effect on civil society. The central message of this paper is that we should declare the act of giving a bribe in all such cases as legitimate activity. In other words the giver of a harassment bribe should have full immunity from any punitive action by the state.

It is argued that this will cause a sharp decline in the incidence of bribery. The reasoning is that once the law is altered in this manner, after the act of bribery is committed, the interests of the bribe giver and the bribe taker will be at divergence. The bribe giver will be willing to cooperate in getting the bribe taker caught. Knowing that this will happen, the bribe taker will be deterred from taking a bribe.

It should be emphasized that what is being argued in this paper is not a retrospective pardon for bribe-giving. Retrospective pardons are like amnesties. They encourage rather than discourage corrupt behavior by rewarding the corrupt. And, in the process, they corrode society‘s morals."

See here for the recent CNN segment "What in the World" for more on Basu's proposal as well as other innovative ideas to reduce bribery and corruption.

The solution Basu addresses would seem most applicable to domestic bribery where a prosecuting agency has jurisdiction over both the bribe payor and bribe recipient. That is not the case in a typical FCPA scenario, but Basu's paper and proposal is indeed interesting, thought provoking material.

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Finally, a previous post (here) discussed customer rewards programs and the SEC's interest in RAE Systems.

Turns out there is an interest in this general issue on the other side of the Atlantic as well.

The office of Richard Alderman (Director of the U.K. Serious Fraud Office) alerted me to a recent speech he gave (here) at the 2011 International Medical Device Industry Compliance Conference. In the speech, Alderman talked about the soon-to-go live Bribery Act, self reporting, and the SFO's relationship with the DOJ.

Alderman also talked about "incentive payments" and stated as follows.

"What I am also seeing is corporates having a hard look at some of the arrangements that are in fact justifiable for commercial reasons but which have not been scrutinized before with a view to seeing whether or not there are risks of bribery. Let me give you an example. Incentive payments. These are a common feature of many industries and I suspect of your own as well. I know that a number of companies and a number of industry organisations have been looking at this issue in order to see whether there are risks when the Bribery Act comes into force. We have had a number of meetings in the SFO with corporates and industry bodies about this issue. We have been able to talk through the issues and offer reassurance.

Clearly, these incentive payments are normally designed for commercial reasons and are commercially justifiable. There are risks though. What we have been talking about with corporates is the need for transparency and, in particular, the need to know where the money goes and the fact that it is justifiable. We also talk about the need for a senior person at the corporate's head office to have visibility of what is happening and to be satisfied that what is happening is justifiable.

This may well be a feature of your own industry (and indeed I imagine that it probably is) and it may be that this is something that you want to discuss."

*****

A good weekend to all.

UK Bribery Act - Sensible and Senseless

The U.K. Bribery Act, set to go live on July 1st after much delay, has been the focus of much prognostication and the foundation for many marketing initiatives.

In this post, I highlight two recent events - one sensible, the other senseless.

Sensible

Mark Miller (a partner at Baker Botts - see here) recently published "The U.K. Bribery Act 2010 - Enforcement is the Rest of the Story" in BNA's White Collar Crime Report. See here.

Miller sensibly notes as follows.

"Much of the commentary about the new U.K. Bribery Act 2010 has been filled with alarm that the new law will be even stricter—and therefore more dangerous—than the U.S. Foreign Corrupt Practices Act. Although there are ways in which the Bribery Act is stricter than the FCPA, that is not the whole story. The real measure of how dangerous the Bribery Act will be is not the provisions of the law itself but how that law will be enforced, and from indications so far, that is a big unknown."

Countering alarmist commentary of the Bribery Act - including that it represents a major change in law because facilitating payments are not allowed - Miller rightly points out "the predecessors to the Bribery Act (the Prevention of Corruption Acts 1889 to 1916 and the Anti-Terrorism, Crime and Security Act 2001) did not have exceptions for facilitating payments either ...".

Indeed this same point was noted by the U.K. Ministry of Justice in its March 30th guidance (see here). Can anyone point to a prior U.K. enforcement action concerning facilitating payments?

Miller also notes as follows. "The other Bribery Act provision usually pointed to as being stricter than the FCPA is the new offense described in Section 7, failure of commercial organizations to prevent bribery." However, Miller again sensibly notes as follows. "This appears to create a strict liability standard for companies whose employees, officers, or agents engage in bribery on their behalf. Although the FCPA itself contains no analogous provision, the standard in U.S. law for attributing criminal liability to corporate entities is similar. The more important distinction between the Bribery Act and U.S. law is that the former contains a defense for when the corporation is able to "prove that [it] had in place adequate procedures designed to prevent persons associated with [the corporation] from undertaking such conduct.'"

As to the Bribery Act's coverage of purely commercial bribery, Miller states as follows. "Another aspect of the Bribery Act has been pointed to as being broader than the FCPA: its prohibition against bribery of nongovernmental officials." Here again, Miller sensibly points out as follows. "True, the FCPA itself does not contain such a provision, but U.S. law does. The federal government routinely uses other statutes—such as the Travel Act and the mail and wire fraud statutes—to prosecute conduct that would not fall strictly within the FCPA’s prohibitions."

Miller then notes as follows. "The real story here is not the Bribery Act itself, because there is nothing truly revolutionary about it - except possibly the publicity it has generated. The real story is enforcement, and how the SFO will carry out its duties remains a big question mark." Miller then identifies several "reasons to believe that the SFO’s enforcement of the Bribery Act will turn out to be a less serious threat than U.S. enforcement."

All sensible observations and consistent with my own observations that "the Bribery Act may turn out to be more lenient than the FCPA" (see here) and that "enforcement of the U.K. Bribery Act will be disciplined and measured." (See here).

Senseless

The alarmist commentary Miller spoke of in the above article was on display last week as Deloitte issued a press release (here) stating that "few business professionals are familiar with UK Bribery Act taking effect July 1."

According to Deloitte's own survey results - results not actually released - 73% of "business professionals" participating in a Deloitte webcast "earlier this year" said "they are not familiar with provisions in the U.K. Bribery Act." The leader of Deloitte's FCPA "consulting services practice" is quoted as saying that "organizations should focus on expanding their anti-corruption programs beyond FCPA to fully address the new Bribery Act 2010 provisions.”

What Deloitte's release doesn't mention is that its own survey took place on January 18th (see here) - a time when it was uncertain if or when the Bribery Act would ever go live and a full two months before the U.K. Ministry of Justice released (here) extensive guidance and case studies on the Bribery Act.

Against this backdrop, it is surprising not that 73% of "business professionals" were not "familiar" with the Bribery Act, but that 27% of "business professionals" were familiar with the Bribery Act.

Is it often that the majority of "business professionals" are "familiar" with a foreign law months before the law is scheduled to go live?

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.

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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.

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."

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."

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A good weekend to all.

The Shrinking U.K. Bribery Act

Recent developments reported by the U.K. Telegraph suggest that when Bribery Act guidance is finalized and released, the Bribery Act will look very much like the FCPA. In fact, because of the Bribery Act's adequate procedures defense and other hinted at limitations, the Bribery Act may turn out to be more lenient than the FCPA.

The Telegraph reported (here) that eventual guidance to be released by the U.K. government "will make allowances for the use of so-called 'facilitating payments'" and that the guidance "will clarify how the law will view corporate hospitality and will give companies some protection against illegal acts committed by joint venture partners."

According to the Telegraph, "the new guidance will acknowledge [facilitating payments] payments are a global problem that cannot be eradicated overnight." According to the Telegraph, the eventual guidance "will say that while facilitating payments remain illegal, payments not considered 'serious' may not attract prosecution."

This eventual guidance seems to be similar to the conclusion Congress arrived at in 1977 when enacting the FCPA. For instance, House Report No. 95-640 (September 28, 1977) states as follows:

“The language of the bill is deliberately cast in terms which differentiate between [corrupt payments] and facilitating payments, sometimes called ‘grease payments.’ […] For example, a gratuity paid to a customs official to speed the processing of a customs document would not be reached by this bill. Nor would it reach payments made to secure permits, licenses, or the expeditious performance of similar duties of an essentially ministerial or clerical nature which must of necessity be performed in any event. While payments made to assure or to speed the proper performance of a foreign official’s duties may be reprehensible in the United States, the committee recognizes that they are not necessarily so viewed elsewhere in the world and that it is not feasible for the United States to attempt unilaterally to eradicate all such payments. As a result, the committee has not attempted to reach such payments.”

Even though the Bribery Act will still apparently prohibit facilitating payments - in contrast to the FCPA's express facilitating payment exception - numerous prior posts (see here, here and here for example as well as all the CustomsGate enforcement actions) raise the issue of whether the enforcement agencies recognize such an exception and whether the FCPA's facilitating payment exception has any real meaning.

The expected U.K. guidance on corporate hospitality would seem to be akin to the FCPA's current affirmative defense for "reasonable and bona fide expenditures, such as travel and lodging expenses, incurred by or on behalf of a foreign official" " directly related to (A) the promotion, demonstration, or explanation of products or services; or (B) the execution or performance of a contract with a foreign government or agency theorof."

Without the benefit of an actual analysis of the expected guidance on joint ventures, it is a bit difficult to draw conclusions from the Telegraph article. But if, as reported, the eventual guidance "will give companies some protection against illegal acts committed by joint venture partners" this protection will make the Bribery Act even more lenient than the FCPA (or at least FCPA enforcement theories).

Several FCPA enforcement actions in recent years, including some of the most high profile (see e.g., Bonny Island, Nigeria enforcement actions), have been based on conduct of joint venture partners.

Of note, the reported U.K. guidance regarding joint ventures would seem to conflict with the justification underlining the recent SFO charges against MK Kellog Ltd. under the Proceeds of Crime Act. (See here).

The oft-cited statement that the Bribery Act is the "FCPA on steroids" was curious to begin with; the statement now appears to be completely off-base given expected guidance on the Bribery Act.

Friday Roundup

Fear mongering and the dark empire, FCPA scrutiny of Hamid Karzai's brother, the DOJ's kleptocracy unit takes shape, and survey findings ... it's all here in the Friday roundup.

Fear Mongering and the Dark Empire

What does Sharie Brown (here), Chair of DLA Piper's Foreign Corrupt Practices Act, Anti-Corruption and Corporate Compliance Practice, think about the U.K. Bribery Act, the surge in FCPA Inc., and the revolving door? See here for a recent interview with Corporate Crime Reporter.

A Future Afghanistan Related FCPA Enforcement Action?

A federal grand jury in the Southern District of New York is reportedly hearing evidence against Mahmood Karzai (a dual Afghan and U.S. citizen and the brother of Afghan President Hamid Karzai) including possible evidence that Afghan Investment Co. (incorporated in Virgina until 2010) bribed Afghanistan's then mining minister to secure a lease on the country's only cement factory. See Matthew Rosenberg "Grand Jury Investigates Karzai Brother) (Wall Street Journal - Feb. 16th).

If evidence exists that Karzai did indeed violate the FCPA, one can only imagine the political / foreign policy considerations of criminally indicting the brother of the Afghan President. I like to think that the government blindly goes where the evidence leads them, but the BAE and James Giffen enforcement actions suggests that may not always be the case.

To my knowledge, there has never been an FCPA enforcement action involving conduct in Afghanistan.

DOJ Kleptocracy Unit

Joe Palazzolo (Wall Street Journal Corruption Current) recently spoke with several officials involved in the DOJ's nascent kleptocracy unit. See here for previous discussion and other links regarding the kleptocracy initiative.

Palazzolo reports (here) that the unit will be housed in the DOJ's Asset Forfeiture and Money Laundering Section and staffed by five lawyers. The FBI's Asset Forfeiture and Money Laundering Unit will also divert two agents to the new unit. According to the report, "U.S. officials expect that most cases will involve foreign politicians who have left office and are no longer in a position to obstruct investigations." Palazzolo reports that the unit's "first major case could be ready in the next month and several more are expected this year."

Survey Findings

Among the findings in Deloitte and Forbes Insights 4th annual "Look Before You Leap" survey (here) is the following:

"Almost two-thirds (63%) of total survey respondents identified Foreign Corrupt Practices Act (FCPA) and anti-corruption issues that led to an aborted deal or a renegotiation over the past three years. Lack of transparency or unusual payment structures in contracts was cited by one in five and 18% pointed to the use of agents, consultants, distributors, or third parties to obtain or facilitate business."

The survey results indicate that strategic buyers are more impacted (and perhaps more sensitive to FCPA issues) than financial buyers such as private equity firms and hedge funds.

*****

A good weekend to all.

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.

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.

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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.

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.

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.

Friday Roundup

FCPA enforcement down 100% and some items for the weekend watch/read list.

Enforcement Down 100%

Last year at this time there were already 23 FCPA enforcement actions (22 defendants in the Africa Sting case and the Natco Group enforcement action).

So far this year there have been 0.

Thus, FCPA enforcement is down 100%.

I don't expect you to take this statistic seriously and I don't intend it to be. Rather, it is meant as a commentary on the often times odd obsession some have with FCPA enforcement statistics (misleading as they may be in many cases).

On to more meaningful commentary by others.

For Your Viewing Pleasure

Two titans of the FCPA bar, Homer Moyer (here) and Martin Weinstein (here) were recently the focus of separate interviews on the BulletProofBlog as to various FCPA topics.

Informative views here and here.

For Your Reading Pleasure

Gary Stein (here - Schulte Roth & Zable) has an informative overview (here) of "Sentencing of Individuals in FCPA Cases."

I've been documenting the growing trend of judges significantly rejecting DOJ sentencing recommendations in FCPA cases (see here) and Stein "hits the nail on the head" with this paragraph:

"The DOJ exercises virtually unlimited discretion in deciding who gets charged in FCPA cases and, for all practical purposes, in deciding the amount of the financial penalty imposed against corporate violators. But sentencing of individual defendants, particularly after U.S. v. Booker, is ultimately a matter of judicial, not prosecutorial discretion. And it has become apparent that there is a wide and growing rift between the views of the DOJ and the courts as to the appropriate sentences for individual violators in FCPA cases."

Tired of all the "are you ready" hysteria surrounding the U.K. Bribery Act?

If so, you will want to read "Keep Calm and Carry On" (here) by Alexandra Wrage (President of Trace) recently published by In Compliance Magazine. Among other things, Wrage states that "the argument that companies that have navigated FCPA waters for a decade or more are unprepared for the new UK Act is unfounded."

See here for my "bold" prediction that implementation of the U.K. Bribery Act (whenever that occurs) is not that big of deal for most companies and that U.K. enforcement of the Bribery Act is likely to be measured and disciplined.

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A good weekend to all.

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.

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.

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.

A Practical Resource For Managers and Executives

Aaron Murphy (Latham & Watkins - here) has published a new book - "The Foreign Corrupt Practices Act: A Practical Resource For Managers and Executives" (here).

In this Q&A exchange, Murphy describes his book and his motivations for writing it. He also answers a few questions about FCPA reform proposals and the U.K. Bribery Act.

*****

Having spent several years at a large law firm with an FCPA practice, I know how busy the practice can be. Where did you find the time to write such an extensive book?

I spend a lot of my life on airplanes and in hotel rooms.

This book is different from the treatises and manuals that are already out there. Why did you write this book, and in particular, this kind of book?

There are some good legal treatises and manuals. But they aren’t aimed at educating the managers and employees who can be on the receiving end of an FCPA investigation. My book is written for managers and others who are on-the-ground in foreign countries. I wanted to write an engaging book that changed the kinds of internal questions that get asked about expenses, agents, state-owned entities, and other issues.

The book grew out of the fact that I was having the same conversation with clients and their managers over and over again. It occurred to me that despite sitting through a couple of PowerPoint slides about the FCPA during a compliance training, the managers did not understand how and where bribery occurs.

I’d be interviewing the manger of a company’s foreign operations in a high risk country and have a stack of documents to go through with him. I’d ask him a series of questions about some fairly run-of-the-mill issues – why certain dinners occurred with some government officials, what the thousand dollars of “miscellaneous” expenses on a hotel bill were for, whether the manager ever saw any of the holiday gifts he approved a large budget for – and it would often become clear to me that the manager had no idea that I was asking him about possible bribes. It had simply never occurred to him that there could be FCPA risks associated with any of these kinds of expenses. And those kinds of blind spots existed with managers who supposedly had received FCPA training.

Numerous times people have told me that they remember the FCPA training they had, but that they never thought the Act applied to the kinds of expenses I’m asking them about.

I tried to keep this book tethered to real-world situations. Theoretical discussions and policy debates are interesting and important – and there is some of that in the book – but it doesn’t really help a manager spot concrete issues. It doesn’t tell a manager what to watch out for. And that was the aim of this book.

I think there is plenty to debate about anticorruption enforcement generally, but whether you agree with the DOJ or the SEC’s position on something doesn’t really matter a whole lot when you’re trying to answer a question on a live issue, in real time. Can we make this payment or not? Should we use this agent, despite these rumors? Can I take this guy from a state-owned company out for a round of golf and dinner? Those are real questions. Hard, fact-specific questions that often need to be answered immediately. My goal was to make sure that managers understand that those are the questions they need to ask. Those are the questions they need to get some help answering. Theoretical debates don’t help a manager who is faced with a situation in the real world.

Do you think business personnel are surprised by the breadth of the FCPA, at least as it is interpreted and enforced by the DOJ and SEC?

Absolutely. Everyone thinks bribery is about suitcases full of money. Even though managers get trained and are told it’s much broader, they either don’t hear it, don’t believe it, or just think “Yeah, but it couldn’t happen in my organization.” They walk out of the training and it’s business as usual. Senior executives back at headquarters think everything is fine because their people have all been shown some slides with FCPA language. But there’s often a fundamental disconnect between the training and life on the ground in a company’s foreign operations.

I kept thinking there had to be a better way to help companies train their people on the front end, so I would quit having those conversations on the back end, after violations have already occurred.

I set out to write a book that was non-technical. A book that was practical. Something that takes managers – and I use that term loosely, meaning anyone who is in charge of other people – through all of the areas where FCPA issues typically come up and show them how they come up. I wanted something that gave managers a guided tour of the kinds of things FCPA practitioners see everyday.

What do you think is behind the inadequacy of much FCPA training?

I think it’s mostly a function of resources. I’m really sympathetic to in-house compliance personnel who are tasked with FCPA training. Usually, FCPA is just one of several areas they’re responsible for, and their organization is spread out over ten, twenty, fifty, or a hundred countries. It just becomes impossible for them to get out there and directly train all of their company’s employees. And, with constant turnover, acquisitions, mergers, it’s a never-ending task. New people are always joining a large organization. And FCPA training is just one of the things they have to do.

So you see the FCPA getting a few slides in a much larger PowerPoint that tries to cover insider trading, antitrust, OFAC and money laundering issues, regulatory issues, and all kinds of other stuff. Employees walk out with a glazed look on their faces and they haven’t really learned anything.

I wanted to help solve that problem. Here is something that companies can make required reading for all finance people and every manager over a certain level. Put it in their new hire package. Make them sign a certification that they’ve read and understood it, and put that in their personnel file. Then companies at least have documentation that the people charged with overseeing their business really were trained in detail. It hopefully gives companies some protection down the road if there is a problem, and, most importantly, it will educate employees about how the FCPA works and how FCPA compliance issues come up in the real world. If it does that, the book isn’t just insurance against future violations, it will actually result in compliance.

Plus, making the book required reading sets expectations and sends a serious message to management that this is an issue the company cares about.

In terms of FCPA compliance, one often hears about "tone at the top." Is this just a buzzword or do you think it has real-world application?

I think it’s extremely important with an issue like bribery. Small shifts in attitudes can have huge consequences. I think just making off-hand jokes along the lines of “we all know how it is in Country X” sends a powerful message that low-level regulatory bribery is okay. Meaning, as long as we’re not talking about suitcases full of cash, it’s no big deal, no one is really going to get upset about it.

But regulatory issues can be huge. Just look at the recent Panalpina settlements.

At the end of the day, my mantra is this: Companies don’t pay bribes. People do. The best thing a company can do is to train its people by showing them how real world situations affect them. That’s what this book is about.

There is a lot of talk these days about FCPA reform. What are your thoughts on this issue?

Well, it makes for good controversy, but I always say that no politician ever got elected by saying it was time to get soft on crime. Certainly not a pro-corruption platform. So I think there’s very little chance of any overhaul that is going to make compliance easier on companies. That said, there may well be some chance for clarifying legislation.

Everyone out there lobbying for reform needs to be very careful what they wish for. Corruption is a topic that makes for good headlines and politicians love good headlines. It’s not hard to imagine a politician who doesn’t care too much about the FCPA trying to do away with facilitating payments, or press for more severe jail time, just to make a name for themselves. So as I see it, there’s a risk that any reform process could get hijacked, and we could end up with a statute that looks more like the UK Bribery Act. Although that might not be a bad thing if US companies could get a very solid and clear adequate procedures defense out of it.

Although, as you know because you were there at the recent Senate hearings, the DOJ’s current position is that it’s not interested in what it views as a compliance amnesty program. I suspect we’re stuck where we are for the time being. Although the forthcoming enforcement of the UK Bribery Act will keep things interesting.

If the DOJ is enforcing, in many cases, a statute in a way that Congress did not intend, why is this a political issue? Can any legislative reform proposal address this structural issue?

These things are always ultimately political. There’s no question that DOJ has an aggressive interpretation of certain FCPA provisions. Whether DOJ is transcending Congressional intent or not is no different from any other problem of interpretation. The difference in the FCPA context, as you have raised in your work, is that there is only limited judicial oversight of those interpretations because so few of these matters ever get litigated. And while that point is well-taken, many courts might well interpret the FCPA the same way DOJ interprets it. So my view is that whether we take issue with DOJ’s interpretation or court interpretations, the solution always becomes a political issue. Congress is aware of the DOJ’s view and can take steps to modify or clarify the statute if it disagrees with that view, the same as it can and often does when it dislikes court interpretations of any other statute.

Now, whether any Congressional solution would result in anything better than what we currently have is anyone’s guess.

Do you think the UK Bribery Act is going to be a real game-changer? A lot of people are talking about the lack of a facilitating payments exception. Do you think the landscape is going to be very different once the Bribery Act comes into force?

I actually think that the biggest effect that it’s going to have is that it’s going to force large British companies that may not have focused on corruption issues before to finally have to focus on them. But for most multinationals – many of whom will be subject to both the FCPA and the Bribery Act – I think the landscape stays largely unchanged. The biggest deal for them is going to be getting an adequate compliance program in place.

The underlying ways in which bribery occurs inside of companies will remain the same. The controls and procedures that can address bribery will also remain the same. At the margins, there are some obvious differences between the FCPA and the Bribery Act, but the conduct they cover is mostly identical.

A lot of people have been talking about the different treatment of facilitating payments. I don’t think that’s nearly as big of a deal as the other main difference, which is the criminalization of private conduct. The UK statute explicitly looks to whether a relevant function of an employee’s job has been performed improperly as a result of a payment or gift. Who defines what the proper performance of an employee’s job is? The employer, of course.

So has the UK Bribery Act essentially transformed employee manuals and company policy manuals into de facto statutes? Improperly perform your job in violation of your company policy and you’ve committed a crime under British law? I see a potentially serious problem there. After all, many companies have policies that prohibit their employees from giving or receiving gifts from people with whom they do business. Do they need to think more carefully about what they put in those policies in light of what the UK Bribery Act does with them?