Bribery Library Blog - Commentary on the UK Bribery Act and Its Impact on International Business

A recent survey conducted by Ernst & Young has revealed that 72% of UK middle managers have never heard of the Bribery Act.  Of the remaining 28%, only 55% felt they had received adequate training on the Act.  In other words, 72% of the people responsible for the day to day operations of UK companies and those on the front line of policy implementation are completely in the dark about the Bribery Act.

The results of the survey, which polled 1,000 middle managers, is striking given the Bribery Act has been in force for nearly a year.  John Smart, partner at Ernst & Young, has speculated that the lack of any reported cases may have lulled organisations into a false sense of security, with some either underestimating their exposure to bribery risks, failing to see any urgency in ensuring their organisations are compliant or not feeling sufficiently educated to offer their staff guidance.

Many organisations see compliance with the Bribery Act as yet another drain on already stretched compliance resources.  But the cost of doing nothing could be far greater.  Having in place adequate anti-corruption procedures is the only defence against prosecution under section 7 of the Act.  It is also the benchmark expected by an increasing number of compliant organisations when looking to enter into or renew business relationships with third parties. 

There is no time like the present to start educating yourself and your team on the Bribery Act and its implications.  The Ministry of Justice Quick Start Guide and Guidance are good resources for those who are looking at the Act for the first time.  Once you understand how the Act works and what corruption risks you need to avoid, your next step is to look at your organisation’s operations and consider the risks you face (e.g. operations in high risk jurisdictions).  If you have significant budget constraints, your initial compliance efforts should be directed towards high risk areas of your business. 

For those that have programmes up and running, it is important to remember that these need to be monitored and reviewed.  It is not sufficient to put in place policies, educate senior management and then just hope the message trickles down through the organisation.  You need people to spread the word.  To this end, middle managers have the potential to be your best town criers...but they need to know the message.

We attended a seminar on deferred prosecution agreements at the offices of the leading white collar crime barrister set, QEB Hollis Whiteman.  The guest speakers were Her Majesty’s Solicitor-General, Edward Garnier QC, MP and Amy Jeffress, a Department of Justice attaché from the US Embassy, together with Sean Larkin QC and Edward Brown QC, both of QEB Hollis Whiteman.

We learnt some interesting statistics from the United States, from where the idea of deferred prosecutions and non-prosecution agreements has been taken.  By 2007 there were 39 deferred prosecution agreements and non-prosecution agreements a year and since then they seem to have been averaging at approximately 30 per year.

As a consequence, there has been growth in the total amount of fines.  The combined total for 2010 and 2011 was US$7.6 billion.  The growth is consistent with the Department of Justice’s priorities in relation to Foreign Corrupt Practices Act, healthcare fraud and anti-trust.

According to a report by the US law firm Gibson Dunn and Crutcher, FCPA violations form nearly half (at 45%) of all economic crime prosecuted by the DOJ.

Factors which might influence a prosecutor in deciding whether or not to negotiate a deferred prosecution agreement might include the following factors:

• The nature and seriousness of the offence – how serious is the criminal conduct?
• The extent of wrongdoing within the corporation – how evasive is the criminal conduct?
• Whether there is any history of similar misconduct.

The additional following factors in terms of how the company has behaved will also be considered by the prosecutors:

• Disclosure of the wrongdoing and cooperation with the prosecuting authority – was the disclosure made in a timely fashion and did it fully disclose the criminal conduct.  Is the company now demonstrating a willingness to cooperate?
• Is there a pre-existing compliance program, and was it effective?
• In terms of remedial action – what steps has the company taken to address the issues?

Other considerations might include:

• Collateral consequences – what is the impact of enforcement on employees, investors and the public in general?
• In relation to the prosecution of individuals, has this been caused by a poor corporate culture or are they simply bad individuals within an otherwise good corporation?
• Are civil or administrative enforcement actions adequate to address the problems?

In the US key provisions of a deferred prosecution agreement (or a non-prosecution agreement) would include the following:

1. The Department of Justice policy is to charge the most serious provable offence.  Criminal information will be filed for the deferred prosecution agreement (but not for a non-prosecution agreement).
2. A statement of facts will be filed at court.
3. Penalties will be agreed upon between the prosecution and defence
4. The agreement will set out steps which the defendant will need to take in order to ensure compliance – this is most usually the imposition of a monitor who will review the compliance program and ensure that remedial steps are put in place.
5. A period of probation or good behaviour is agreed which tends to range from six months to five years although apparently the average is two years.

In the event of a breach there are various options open as the prosecutor could decide if you require an extension of the term of the deferred prosecution agreement or non-prosecution agreement or to revoke the agreement and to file or pursue criminal charges.

Apparently, revocation has been extremely rare and extensions to the probationary period are much more common.

In conclusion it appears to be the view of the American justice system, and one with which Edward Garnier QC, MP the Solicitor General agrees strongly, that the option of resolving investigations of corporate crime with these type of agreements is very beneficial.

The Solicitor General confirmed that draft legislation will be introduced for deferred prosecution agreements in the next parliament i.e. it will be legislated no later than May 2013.

In addition he confirmed that:

• There would be no non-prosecution agreements, but only deferred prosecution agreements
• It would only be for corporates, and not for individuals
• It is likely that DPAs would be available to the Financial Services Authority and the Office of Fair Trading, as well as the Serious Fraud Office
• A statutory power for the SFO to negotiate DPAs would be introduced.  It is unclear yet whether this would be a short bill specifically for DPAs or whether the statutory powers would be tacked on to another criminal justice bill.

Anyway the political will within the government is that there should be royal assent to this new legislation no later than Spring 2013 following which there would need to be secondary legislation to ensure that DPAs actually work in practice.  As always, Mr Garnier says, the “devil is in the detail”.

Mr Garnier admitted that the idea had been taken from the United States but the intention was the UK would “leave behind the worst bits” and that “I will learn the lessons of Innospec and of BAE Systems…we don’t want to get kicked around by the court again”.

Mr Garnier pointed out that the UK courts had already made it very clear that prosecutors, specifically the SFO, are not permitted to make so-called “private deals” with the defence and that sentencing is purely within the jurisdiction of the court.  All that prosecutors are permitted to do are to advise the court of the range of possible sentences under the relevant statute.  Mr Garnier concluded therefore that in order for DPAs to work, English judges would need to be involved at a much earlier stage of the criminal proceedings so that they could see what was being discussed and could indicate what they, the judge had in mind.

  “…I am going to need judicial buy-in to deferred prosecution agreements and to ensure that judicial control is preserved for the judiciary…”

Mr Garnier said that he had been speaking to many people over the last few months about the possibility of DPAs and that most of the big law and accountancy firms with whom he had spoken were very positive about the introduction of DPAs.

In order to ensure that DPAs started off smoothly his view is that Lord Justice Thomas, (who had been very critical in recent corruption prosecutions of so-called private deals between the SFO and defendants), ought to be the judge who hears the first deferred prosecution agreement in order so that he could set the rules for the court generally thereafter.  Beyond that, Mr Garnier believes that a small group of specialist judges should deal with serious economic crime so that they developed a particular expertise in this area of criminal enforcement.

In our view, the Solicitor General’s confirmation that DPAs would be introduced into UK law is a very positive step forward in the enforcement of complex international crime.  Although the road to its introduction may be bumpy, it is clear that he is very determined that it should happen and he is working with the judiciary to ensure that it is a success.

There is bound to be a great deal more to blog on on this subject in the coming months and years.

This was the title of a seminar at which the Director of the Serious Fraud Office, Richard Alderman, spoke at the Said Business School and Oxford University on 6 March 2012.

The full text of the speech is here.  Actually the speech contains a review of the SFO’s activities in the area of corruption, and the various criminal procedures which are (or ought to be) available to it to deal with corruption offences.  As Mr Alderman is stepping down as Director soon (in April) it is a kind of goodbye and “this is what I have achieved – this is what more needs to be done - hand-over” speech to the new Director.

The Director began by making a few general comments about the genesis of the SFO 25 years ago; pointing out that it is a small office with about 300 staff and that the current budget is approximately £38 million and is decreasing.

Mr Alderman is of the view that the SFO has an important international role and that over the last three to four years in particular law enforcement has become increasingly internationalised.

He continues that the SFO’s view is that law enforcement in the modern environment is about far more than just prosecution

 “…it also involves education, prevention and disruption.  What this means is that the SFO places great emphasis on helping individuals and corporations get it right in the first place…of course, helping people get it right is of limited benefit if we don’t also tackle very vigorously those who have no intention of getting it right.  This is why I want to focus SFO resources as much as possible on the individuals and corporations who continue to act criminally rather than on those who are trying to get it right but have come unstuck in some way or another.”

Mr Alderman believes that although the SFO’s new policy which is to engage with corporations was initially regarded with suspicion by corporations, the SFO is now regarded as being sensible and constructive.

Our view, at the BriberyLibrary, is that for many people and corporations this new policy must be regarded as a sea change in attitude.  Hitherto, prosecutors have been regarded with great fear and suspicion.  In other countries, such as the United States, the various prosecuting bodies across the US are still, with considerable justification, regarded as very aggressive and uncooperative.  It is interesting, therefore, that British and American prosecutors are now working together much more closely despite the “cultural” differences.  Presumably the SFO’s cooperative approach, as outlined by the Director in this speech, may come as a surprise to many American prosecutors many of whom may formulate their own career paths and personal public profiles from aggressive and high profile prosecution strategies.  Whether the new Director, David Green QC, will adopt the same apparently cooperative approach remains to be seen.  Our sources, who know him, suggest he may be a lot more aggressive prosecutor than Mr Alderman.

Corruption

Back to Mr Alderman’s speech: he then turned to the subject of corruption, stating that this area of work had been one of the major changes in the United Kingdom over the last four years.  Prior to then “for one reason or another” there were no prosecutions relating to overseas corruption in the UK and the previous law was widely regarded as being wholly inadequate for modern purposes.  Mr Alderman publicly recognises that the UK’s reputation had also suffered great and lasting damage as a result of the decisions involving BAE Systems and Saudi Arabia (as reported in my blog post of 13 March 2012 and other earlier posts).

Mr Alderman takes the view that:

1. The UK’s new Bribery Act 2010 has made a very great difference to the UK’s shattered (our word) reputation as it has replaced the previously unsatisfactory law with a range of new offences including one aimed specifically at corporations.
2. Secondly, another feature of the new Bribery Act is the extraterritorial jurisdiction of the Bribery Act and it will include the activities of many companies around the world.
3. Companies internationally are now regarding the Bribery Act as the global gold standard for anti-corruption legislation and as a part of the rules that corporations internationally have to meet.
4. Anti-corruption should just be one part of a company’s overall ethical approach, and that the tone should be set from the top of the organisation.
5. That the SFO expects corporate boards to conduct risk assessments on themselves in order to identify what measures that need to take to mitigate the risks, and to look at agents in high risk countries in great detail.
6. The SFO expects corporates to make sure that their processes are actually implemented in practice and that this should be done on a proportionate and commercial basis using sensible judgment.
7. A number of corporations both British, American and indeed others are increasingly coming to visit the SFO to talk to them about what they are doing in terms of compliance.  It appears that corporations around the world are starting to wake up to the fact that the Bribery Act potentially has global application.

Self-Reporting

The Director stated that self-reporting was something that the SFO introduced in 2009 and reflects existing US practice.  In his view, the process has been a success in the UK and the SFO has had over twenty corporations come in to the SFO to self-report (he does not say over what period these twenty self-reports took place so it is unclear to us whether it is twenty since 2009 or twenty in the last twelve months).

Mr Alderman recognises that a corporation, when discovering that corruption has taken place within the organisation, is faced with a choice of whether to self-report or not to self-report, and hope that no one finds out.  He then outlined a number of reasons why a corporation may want to self report, as follows:

1. The SFO will work with the corporation on managing the reputational risk, pointing out that reputational damage can happen almost instantaneously and can be long lasting in its effect;=

2. The SFO can work with the corporation towards a civil law resolution of the problems which, if it happens, means that there is no criminal conviction for corruption, remembering that a conviction can lead to public procurement debarment in the EU and elsewhere which he claims: “this is a very powerful deterrent.  Indeed some companies could go out of business, faced with debarment”.

As an aside, we at the BriberyLibrary are not aware of many instances either in the UK or the US where public procurement debarment has been exercised or anywhere it has led to a company going out of business (if we are wrong, please tell us!).  This is perhaps because judges would regard this as an excessive and disproportionate punishment with unfathomable and unjustifiable consequences on shareholders, employees and others who supplied to the company and are reliant on the supply-chain for business.

3. Another advantage is the opportunity to work towards a relatively speedy outcome.  The damage to reputation will be much less if the result takes months to achieve, rather than several years, which can occur through the normal criminal processes.

How Self-Reporting actually works

The Director then explains how this all works.  Usually it starts with an allegation of bribery internally at the company, possibly through a whistleblower line.  The corporation does some preliminary work and then may bring in their professional advisers to investigate further.

It is only at this point that corporations tend to contact the SFO (presumably on advice) and they are required to involve the SFO in the processes of investigation.  Naturally they also want “full credit from us” for self reporting.  The Director states that that credit can come in the form of recognition that this process should have a civil and not a criminal outcome.

The Director explains that the case is discussed with the corporation at senior levels and that the SFO will normally agree that the investigation should be carried out by the corporation’s own professional advisers but that the SFO expects to negotiate the terms of reference and the work plan for the investigation.  The SFO also expects regular updates from the corporation so that there are no “surprises” when the eventual report comes to the SFO.

The SFO does not necessarily take the report completely at face value: they will probe it in order to find out whether the company has genuinely uncovered what has happened and has now faced up to the consequences.  Apparently, there can sometimes be a lengthy process of discussion with the company.

Civil Recovery

Mr Alderman reports that the SFO has been using its powers under the Proceeds of Crime Act 2002 (“POCA”) to obtain recovery of the proceeds of criminal conduct.  Vivian Robinson QC has blogged on this subject previously here on 19 January 2012, in the context of the Mabey & Johnson case.

The Director reports (as he did in his speech, on which we blogged on 13 March 2012) that in cases where the choice is between a civil recovery order and no action at all, a civil recovery order is a good result.  However he reports that there are critics of the CRO procedure and that although these cases have to be approved by a High Court judge, less is published about the illegal conduct than would otherwise happen in a criminal case.  Another criticism apparently is that the SFO is only able to recover the proceeds of the unlawful conduct and cannot impose a fine on top of the civil recovery.

Because of these criticisms of the civil recovery process, the Director has been pushing for a more powerful system of settlement that would involve a “deferred prosecution”.

Deferred Prosecutions

The Director then outlined the way in which deferred prosecutions work and that this idea has been taken from the US where they have worked very powerfully within the criminal justice system.  In short, however, he says that in the US the Department of Justice and the corporation reach agreement about the criminal conduct that has taken place; there is agreement on the amount of the fine and other penalties; there is also agreement about monitoring and other measures, and a term for which the Department of Justice agrees to defer the prosecution for a set number of years.  That prosecution is then cancelled if the corporation complies with all the terms of the agreement and there would be no conviction in respect of corruption.

The agreement is then taken to a judge who is able to express his or her own views.

Mr Alderman very much wants to see deferred prosecutions in the UK and reports that the Solicitor General, Edward Garnier QC MP has been pushing this idea very hard in seminars and the media (including one seminar at QEB Hollis Whiteman this week which we attended and on which we may blog soon).  If it does become law in the UK then, when faced with a new case, the SFO will have a choice of either:

1. No action at all;
2. Making a civil recovery order;
3. Entering into a deferred prosecution agreement; or
4. Pursuing a full criminal prosecution.

He says that if it becomes law, “transparent guidelines” will need to be agreed and published.

He is adamant that a significant difference about the way in which things will have to work in the UK, as opposed to the way they work in the US, is that in the US, the Department of Justice and the corporation themselves reach agreement on the amount of the fine and other issues.  The courts in the UK have made it very clear in recent cases (in belligerent judgments in both Dougall and Innospec) that the SFO has no role to play in discussing questions of penalty or sentence.  Therefore Mr Alderman concludes that the only way to deal with this is to involve a judge at a much earlier stage, which itself will be a significant change.

A further change is that the SFO will still have to talk figures with the corporation which can then be brought to the judge so that the judge can express a view, otherwise he says this isn’t going to work (so in our view the SFO will have to tread carefully here, given Lord Justice Thomas' previous outburst on the subject).

Finally, the Director says that there must be much more transparency about the process so that when an agreement is reached, the facts can be explained in open court and documents placed on websites so that the public can see what has happened and that a judge has agreed to the proposals.

Plea Bargaining

The Director then turned to plea bargaining.  In the US, where plea bargaining is very common, he points out that there is a very striking difference between the sentence on pleadings guilty and the sentence after conviction following a contested trial.

In the UK the difference to the US approach is that plea negotiations tend to be engaged at a much later stage of the criminal process.  He repeats that British judges are not happy with the role of the SFO in these plea negotiations and certainly do not want the SFO to suggest a sentence to the judge.

He doesn’t say as much, but reading between the lines it looks like the Director thinks that this is something else that needs to be addressed by the legislature, as the plea negotiation process currently takes far too long.

Companies that do not self report

Mr Alderman concludes by warning that neither the Department of Justice nor the SFO will be sympathetic to a company which has failed to come forward with information.

Further, if the corporation (aware of the criminal activity) allows the corruption to go unpunished, then the profits of that crime may well form a separate offence under the UK’s anti money laundering legislation.

Furthermore, since the establishment of the new whistleblower line called “SFO Confidential”, they received in the first month 2000 reports.  In the US, by contrast, they have set up a whistleblower program with very large rewards for whistleblowers, so there is a very high incentive for someone else to report the corporation even if the corporation decides not to report itself.

If senior executives turn a blind eye to corruption, they themselves risk committing an offence personally under the new Bribery Act (section 14) as well as committing personal money laundering offences, concealing criminal conduct and perverting the course of justice.

In short, his message seems to be: whether or not a corporation self reports should not be regarded as an option for an ethical well run corporation.  It should do so automatically.

Finally, and with no real connection to the themes in his speech on self-reporting, the Director talked about the possibility of creating a new offence of recklessly running a financial institution.

He believes that a new offence needs to be created as there is not one specifically dealing with the conduct of senior executives whose reckless conduct led to the (2008) financial crisis (that we are currently still experiencing).  He reports that

 “there has been considerable interest in this from Parliamentarians and others.  I notice as well that the FSA has put forward proposals about changes to the criminal law in its report on RBS, although it has suggested a rather different solution to mine.  All of these issues will be for Parliament to consider.  I would like to see change”. 

Something for the new Director to pursue, perhaps, when he takes office in April?

We have previously posted blogs on this story on 8 June 2011 and 13 October 2011.

In the last post we reported that the Attorney General, Dominic Grieve, was said to be considering whether the Serious Fraud Office should be permitted to continue to investigate allegations that GPT, a UK subsidiary of the global defence manufacturer, EADS, made illicit payments to a member of the Saudi Royal family in order to secure a contract worth £2 billion.  We previously suggested that if this report were true, then it echoed the BAE Systems case in 2006 when Tony Blair, the then Prime Minister caused an international outcry by effectively forcing the SFO to drop an investigation into allegations of bribery in the multibillion dollar Al Yamamah UK – Saudi defence contract.

Six months later, it appears that the Attorney General has decided not to get involved because, we suppose,  of the risk to Britain’s international reputation if there is further political interference in the workings of the criminal justice system.  A decision to stop the SFO’s investigation would be politically explosive, both domestically and internationally.

For those of you who are following this story, the investigation started as a result of an employee of GPT, Lt Col Ian Foxley, who was stationed in Saudi Arabia, whistleblowing on the company’s alleged illicit activities.  Our first blog post on this story looked at a comparison of relevant whistleblower laws in the US and the UK.  In short, however, it seems that the life of a whistleblower becomes particularly difficult once he or she has decided to go down that path.  In the US, within certain very strict parameters, whistleblowers can be well rewarded or compensated for taking this courageous step.  We have previoulsy posted on the new SEC whistleblower rules here and here.  In the UK, by comparison, there is no compensation for whistleblowers generally, other than to a limited extent within the competition arena.

In the Financial Times on 6 March 2012 it was reported that the Foreign Office had confirmed in late 2011 that allegations of bribery against GPT had been discussed by Foreign Office officials with representatives of the Kingdom of Saudi Arabia on a number of occasions.  Further, in GPT’s 2010 accounts, it stated that it was not yet clear what would be the outcome of the SFO’s investigation.  It stated:

“The certain allegations have been made in connection with the company’s contracts with a subcontractor group.  These allegations have been notified to the UK authorities with whom EADS is maintaining a dialogue…the relevant subcontracts were terminated.  This termination has led recently to an unquantified claim from the subcontractor group for monetary damages…”

It is further reported by the FT that the SFO is allowing GPT to undertake its own internal investigation into the matter which will then be reported to the agency itself.  This is not at all unusual.  The SFO is generally happy for companies to undertake their internal investigations, on understanding that the results will be shared with them, as it saves the SFO a significant amount of time and precious resources.

This is an interesting story which will probably run on for some time yet.  However, the fact that the Attorney General has decided not to get involved in trying to block the investigation is a sign that the government is taking the Bribery Act and the recent enhanced enforcement of the UK’s existing corruption laws much more seriously than it was six years ago.  If the Saudis are trying to use the threat to withdraw from the intelligence sharing agreement, it appears not to have gained traction with the current British government.

It was reported this week that one of the US Department of Justice’s largest ever prosecutions under the FCPA has collapsed during trial.  It was formally dropped on 21 February 2012 at the DOJ’s request.  The prosecution first hit the headlines over two years ago in January 2010 when the DOJ charged 22 individuals with agreeing to pay bribes to an FBI agent posing as a buyer of security equipment for Gabon.  However, two six month long trials in the case produced unsatisfactory results.  It is reported that juries could not reach a verdict with respect to seven defendants; two were acquitted by a jury and another was acquitted by a judge although three others pleaded guilty earlier on.

The prosecutors made a court filing in which they stated “the government has carefully considered (1) the outcomes of the first two trials…(2) the impact of certain evidentiary and other legal rulings in the first few trials and the implications of those rulings for future trials…and (3) the substantial governmental resources, as well as judicial, defence and jury resources, that would be necessary to proceed with another four or more trials…in light of all the foregoing, the government respectfully submits that continued prosecution of this case is not warranted under the circumstances”.

In a separate but well-timed move the US Chamber of Commerce has published its own strong objections to the way in which the FCPA is being enforced and its effect on corporate America in terms of both the added expense of compliance and also its ability to win business overseas.  On 21^st February 2012 the US Chamber of Commerce and 36 other business organisations and professional associations across America sent a joint letter to Lanny Breuer, the Assistant Attorney General at the DOJ, and Robert Khuzami, the Director of Enforcement at the US Securities and Exchange Commission, requesting guidance to “address several issues and questions of significant concern to businesses seeking in good faith to comply with the FCPA.

The signatories to the letter claim to represent more than 3 million businesses and organisations.

The letter is 10 pages long and too detailed to do justice to in this blog post but you can read it here.

In summary, the issues which the senders of the letter have asked for guidance include:

• Definitions of “foreign official” and “instrumentality” under the FCPA

The letter states that “without a clear understanding of the parameters of “instrumentality” and “foreign official”, companies have no way of knowing whether the FCPA applies to a particular transaction or business relationship, particularly in countries like China where most, if not all, companies are at least partially owned or controlled by the state.  The result of these circumstances has been a chilling effect on legitimate business activity (as companies perceive a real risk of prosecution even in scenarios involving only the most remote and attenuated connection to foreign governments) and a costly misallocation of compliance resources…”

By comparison Section 6 of the Bribery Act deals with bribery of a foreign public official section 6(5) defines foreign public official as meaning an individual who (a) holds a legislative, administrative or judicial position of any kind, whether appointed or elected of a country or territory outside the United Kingdom; (b) exercises a public function (1) for or on behalf of a country or territory outside the United Kingdom or (2) for any public agency or public enterprise of that country or territory or (c) is an official or agent of a public international organisation.

Although the definition in the UK law is reasonably clear, there is bound to be debate when this section and definition first comes before the courts, whenever that is, whether it is one year or ten years from now.

• Consideration of compliance programs in enforcement decisions

The letter continues that under the current FCPA enforcement regime the business community lacks confidence that the DOJ and the SEC will give sufficient consideration to potential defendant companies’ strong, pre-existing compliance programs when making enforcement decisions.  Although the DOJ and the SEC recommend that prosecutors should consider a company’s compliance program when making enforcement decisions, the letter suggests that the guidance given is presented in a manner which is so general that it provides little concrete aid to companies attempting to implement or enhance compliance programs.  It goes on to suggest that the guidance should establish standards that businesses may adopt and incorporate as part of their compliance programs, and identify the specific components that the DOJ and the SEC consider to be essential to a robust FCPA compliance program.

By comparison, of course, under UK law the British government issued a 40 page Guidance on 30 March 2011 pursuant to section 9 of the Bribery Act.  Even though that guidance is not prescriptive, it does offer some considerable assistance to corporations which are trying to comply with the Bribery Act.

The letter also suggests that the DOJ and the SEC should describe in the guidance how they would factor companies’ voluntary disclosures of FCPA violations by their employees into enforcement decisions.

• Parent-subsidiary liability

The letter continues that the FCPA itself does not set out circumstances when a parent company may be held liable for a foreign subsidiary’s violations of the anti-bribery provisions of the FCPA.  It points out that the approach taken by the DOJ and by the SEC are not identical.  It continues

“in the absence of any judicial guidance on the contours and the limits, if any, of this potential parent-company liability, it remains a source of significant concern for US companies with foreign subsidiaries.  Accordingly, we respectfully request that the forthcoming guidance clarify and confirm that both the Department and the SEC consider parent-company liability under the FCPA’s anti-bribery provisions to extend only to circumstances in which the parent actually authorised, directed or controlled the improper activity of its subsidiary…”

Under the UK Bribery Act, by comparison, the issue of the liability of a parent for its subsidiary is addressed in the Guidance at paragraph 36 “…likewise, having a UK subsidiary will not, in itself, mean that a parent company is carrying on a business in the UK, since a subsidiary may act independently of its parent or other group companies…”

Under paragraph 42 of the same Guidance, it states that, in describing the liability for associated parties under the Bribery Act

“…so, for example, a bribe on behalf of a subsidiary by one of its employees or agents will not automatically involve liability on the part of its parent company, or any other subsidiaries of the parent company, if it cannot be shown the employee or agent intended to obtain or retain business or a business advantage for the parent company or other subsidiaries.  This is so even though the parent company or subsidiaries may benefit indirectly from the bribe.  By the same token, liability for a parent company could arise where a subsidiary is the “person” which pays a bribe which it intends for result in the parent company obtaining or retaining business or vice versa…”

• Successor liability

Under the FCPA, a company may be held liable for the actions of a company that it acquires or merges with, even if those actions took place prior to the acquisition or merger and were entirely unknown to the acquiring company.  While a company in certain circumstances may mitigate its risk by conducting due diligence prior to an acquisition or merger (or, in certain circumstances, immediately following the transaction), such due diligence is only a factor that the DOJ or the SEC may consider when deciding whether to exercise their discretion not to prosecute or file claims.  The letter continues to say that the

 “threat of successor liability even if a thorough investigation is undertaken prior to a transaction has had a significant chilling effect on mergers and acquisitions, and therefore clearer parameters for successor liability under the FCPA are needed…”

It points out that although the DOJ addressed this topic in Opinion Release 08-02, the Department’s guidance required the company in question to conduct due diligence on a scale equivalent to a massive internal investigation in order to avoid prosecution for any FCPA violations committed by the acquired company prior to the transaction.  The letter concludes on this topic that the sweeping expectations set out in Opinion Release 08-02 are unrealistic and unduly punitive and merit thorough reconsideration.

In relation to the Bribery Act, by comparison, the UK Guidance offers no comment in relation to due diligence on mergers and acquisitions.  Cautious purchasers will ask their lawyers to establish that there are “adequate procedures” in place at the target company prior to its acquisition and will demand suitable warranties and indemnities.  In practice if the purchasing company later discovers that offences have taken place at the acquired company, the SFO will look much more favourably on the purchaser if it approaches the SFO to discuss circumstances as quickly as possible.  This can be done confidentially and the SFO will offer guidance very quickly.

• De minimis gifts and hospitality

The DOJ has stated that it does not prosecute conduct involving de minimis gifts and hospitality to foreign officials although it states that in fact such gifts and hospitality remain subject to prosecution at the whim of the government.

The letter points out that compliance officers of corporations are routinely called upon to address questions relating how much can be spent on a meal; how many meals in a year may an official be invited to attend and similar issues.  The letter concludes that in the absence of any guidelines from the government regarding the threshold below which it ordinarily would not bring such cases has resulted in a serious misallocation of compliance resources to detect and address potential breaches that should fall below any reasonable threshold.

By comparison, the UK Guidance under the Bribery Act gives many examples of and “case studies” for gifts and hospitality.  Again, whilst they are not wholly prescriptive, they do give a good indication of the reasonable approach that UK prosecutors will take in considering such circumstances.

Indeed, the letter concludes on this topic “As you know, the UK Ministry of Justice already has provided such Guidance regarding the application of the UK Bribery Act” and it cites from the UK guidance and concludes “similar concrete examples in your forthcoming Guidance would be extremely useful to the business community”.

• Mens rea standard for corporate criminal liability

Although the FCPA expressly limits an individual’s liability for violations of the anti-bribery provisions to situations in which the individual has committed those violations “wilfully”, it does not contain any similar language with regard to corporate criminal liability.  The letter continues “this inconsistency in the statutory language appears to expose companies to criminal penalties for violations of the FCPA even if there is no identifiable person of authority who knew that the conduct was lawful or even wrong…”

By contrast of course the corporate liability offence in the UK Bribery Act, in Section 7, is a strict liability offence so no knowledge of any person of authority in the company is required.  The UK legislative intention by making it a strict liability offence was to put a very heavy burden on the organisation to put in place adequate procedures in order to protect itself from the risk of committing an offence under Section 7, in other words failing to prevent bribery.  The strict liability offence also addressed the considerable difficulties in securing convictions of corporate defendants on the “controlling mind” theory in the UK.

The letter concludes by requesting that the formal guidance which the DOJ and SEC are to issue in 2012 should have the same force as other policies of the DOJ and the SEC and that to ensure uniform policy it should be issued by or adopted by both agencies.

We will blog further on this subject should either of the agencies respond to the letter publicly or indeed when the guidance which has been promised by them in 2012 is issued.