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

Although France has ratified and implemented various international conventions against corruption (OECD and UN Conventions on Bribery and Corruption), it is disappointing to note that there have been only two minor convictions in France in relation to corruption of foreign public officials over the last ten years compared to 42 in Germany .

A report published by Transparence Internationale (French branch of Transparency International)  portrays a rather bleak state of affairs for the Judiciary in France in charge of cases relating to corruption (justice financière) which appears to be unable, due to a serious lack of resources, to investigate and pursue corruption matters properly.

In particular, this report shows that:

• Both the police and the judiciary are understaffed and lack experienced investigators to deal with complex issues relating to corruption.  Between 2009 and 2011, the number of judges within the Financial Crime Section at the Tribunal de Grande Instance of Paris dropped from 46 to 39. 
• The small number of successful prosecutions is due to the increased role played by the government at the investigation stage of corruption cases.  Prosecutors in France receive instructions from the government and are not independent.  The hierarchy which exists in France between the prosecutors and the Ministry of Justice has been criticised by the Council of Europe and was also condemned by the European Court of Human Rights (Medvedyev v France 10 July 2008) which held that French prosecutors “lack in particular of independence towards the Executive” and as a result cannot be considered to be a judicial authority which can guarantee the rule of law. 
•  French Judges lack the power to prosecute the corruption offences when such offences have been committed abroad.  Under the current legislation, French judges only have jurisdiction in respect of corruption offences where either the offender or the victim is a French national and the facts relating to the offence also constitute an offence in the country where they were committed.  Further, prosecutors have exclusive jurisdiction as regard investigations of corruption of foreign public officials outside the European Union.

Transparence Internationale recommends:

• The creation of a “Prosecutor General of the Nation” which would be independent from the Ministry of Justice and the executive and would be in charge of overseeing prosecutors’ activities for a period of five to six years.
•  A review of the French Official Secrets Act, which has been used recently by the Executive in connection with corrupt matters being investigated to prevent disclosure of classified information.
• The introduction of plea bargaining agreements in order to speed up the resolution of corruption cases.

It is hoped that the coming presidential election in 2012 will enable candidates and political parties to put forward proposals in line with Transparence Internationale recommendations to ensure that the fight against corruption in France is not mere lip service.

On 1 November 2011, the SFO launched a confidential hotline (called “SFO Confidential”) together with an online reporting form to facilitate reporting suspected fraud or corruption.  

The SFO Director, Richard Alderman, said:

“I want people to come forward and tell us if they think there is a fraud or corruption going on in their workplace.  Company executives, staff, professional advisers, business associates of various kinds or trade competitors can talk to us in confidence.”

The SFO’s whistleblowing hotline is aimed not at victims of serious or complex fraud , but at those who want to give information about serious or complex fraud or corruption on the understanding that their identity will not be inappropriately disclosed. The service is confidential and the SFO has agreed that it will only reveal the whistleblower’s identity on a strictly “need-to-know basis” or if a Judge orders the SFO to do so.  The information provided will be stored centrally by the SFO and any information sent via the SFO’s website will be encrypted immediately.  Such information will be handled by trained staff at the SFO.

However, it remains to be seen whether the SFO whistle blowing hotline will increase the number of corruption offences enforced by the SFO.  In the US, the Dodd-Frank Act of 2010 provoked a large number of investigations by the Department of Justice (DOJ) and by the Securities and Exchange Commission (SEC), due to the rewards provided to whistleblowers who can be entitled to a maximum of 30% of monetary sanctions exceeding US$1m that the government recovers as a result of their assistance.

For example, in March this year, the sum of US$96m was paid to Cheryl Eckard under the Dodd-Frank Act as a reward for acting as a whistleblower at the conclusion of a US$750m settlement with GlaxoSmithKline. 

For further information on this topic, please read the blog of my colleague Adam Greaves posted on 23 October 2011.

In the EU and in the US, companies and individuals can be suspended or even debarred from public procurement on public policy grounds if they are found or suspected to have committed specific offences.

The offence of bribery is a cause for debarment in both the US and the UK. The two countries have however taken a different approach to debarment. In the US, both debarment and suspension are measures which are imposed for a limited period of time at the discretion of public authorities or agencies. In the EU and in the UK, debarment is mandatory, permanent and used as a deterrent. These differences in approaching debarment have created an uneven playing field on both sides of the Atlantic. Further, the future implementation of Bribery Act in the UK raises new issues and more uncertainties concerning the approach which will be taken by prosecuting authorities towards debarment in this country.

In the US, public authorities and agencies have a discretion to suspend or debar persons or companies under the Federal Acquisition Regulation (‘FAR’). In a nutshell, administrative debarments and suspensions are usually imposed where contractors are convicted or suspected of offences relating to bribery, fraud and drug trafficking.  The underlying public policy goal of the FAR  is to prevent improper dissipation of public funds and to avoid excluding contractors who appear unlikely to engage in similar prohibited conduct in the future.  The US administration maintains  a searchable database (the Excluded Parties List System ) of persons who have been debarred or suspended from receiving Federal contracts (https://www.epls.gov/). 

In the UK, Regulations 23 of the Public Contracts Regulation 2006 and 26 of the Utilities Contracts Regulations 2006 (‘the Regulations’) govern debarment.  In summary, these regulations provide for the debarment from public procurement contracts of an “economic operator” by a “public contracting authority” when it has actual knowledge that the economic operator (or its directors or representatives) have been convicted of offences relating to corruption, bribery, fraud or money laundering. Public authorities have no duty to investigate whether economic operators have been convicted of relevant offences. Debarment is permanent. There is no central European database to list convicted operators in the EU.

The Bribery Act has called into question how these Regulations will be applied in light of the new bribery offences created under the Act. In particular section 7 (failing to prevent bribery ) has provoked much debate as to whether a conviction under this strict corporate liability offence should lead to an automatic debarment.  On 23 March 2011, Ken Clarke, the Secretary of State for Justice,  confirmed in Parliament that an organisation convicted under that section will not be automatically be barred from tendering for public contracts. However, he stated that  public authorities will still have the discretion to exclude organisations convicted under section 7 pursuant to the Regulations and also announced that a consultation on changes to the Regulations would be launched shortly.

Clearly in the EU, the mandatory and permanent characteristics of debarment can lead to drastic consequences for companies and individuals trading within this economic area. The difference of approach between the US and the UK as regards debarment  (discretionary/ mandatory) and the difference concerning the effects of these measures (temporary/ permanent)  have important practical consequences on how cross-border  corruption  will impact upon prosecuting authorities in the UK and in the US. The drastic effects of debarment in the EU have lead US prosecuting authorities to accept guilty pleas from European offending companies for breaches of accounting provisions in order to avoid a conviction for bribery. For example, in the case of Siemens, which involved allegations of corruption by the German parent company and its subsidiaries in Argentina, Bangladesh and Venezuela, guilty pleas for bribery were only entered by its non-European subsidiaries to avoid debarment in the EU.

Bearing in mind that the debarment regime will shortly be reviewed in the UK, perhaps the following issues could be considered by the government during in its next consultation on the Regulations:

1. Should more flexibility and more discretion be given to public authorities in the UK in the debarment process?
2. Should public authorities be under a duty to investigate whether economic operators have been convicted of relevant offences?
3. What weight should prosecuting authorities give to debarment when deciding or not to prosecute?
4. Should a European central database be created to list all convicted economic operators in the EU?
5. Should debarment be extended to the foreign subsidiaries of a European parent company?
6. Should foreign convictions of related companies be taken into account?
7. Should the duration of the exclusion (currently indefinite) be more proportional?

The Bribery Library will be blogging on this issue further as the debate progresses.

The further delay of the implementation of the Bribery Act by the Ministry of Justice in order to review its guidance raises the issue as to whether the time for the coming into force of this Act will ever be right.

Most fair-minded people will be delighted to know that the UK will have the most far-reaching anti-corruption legislation in the world, but many will admit that the economic climate in which businesses will have to implement this legislation is far from ideal.

At a time when the British economy is trying to move slowly out of recession, British businesses now have to cope with the additional costs of implementing strict anti-corruption procedures.

Won’t British business interests be disadvantaged compared to foreign competitors who are not required under their local laws to run up such compliance costs? Couldn’t these compliance requirements even deter foreign business from setting up operations in the UK at a time when foreign investment is needed most?

Despite this criticism, John Cridland, Director-General of the Confederation of British Industry ('CBI'), considers that this “temporary delay will strengthen the Bribery Act by providing firms with the clarity and confidence they need to do business abroad. Britain needs to be free to compete internationally while meeting legal an ethical standards”.

There is no doubt that the Bribery Act will ultimately be implemented. Although it is not possible to say at this stage when it will precisely come into force, it is indeed difficult to see how this piece of legislation, which received full cross-party support and was based on a Law Commission report, could ever be amended or even watered down.  

How the government and prosecuting authorities will enforce the Act is yet to be seen and remains unknown. Richard Alderman (the Director of the Serious Fraud Office) announced on 9 February 2011 that in addition to the Section 9 Guidance of the Ministry of Justice, the Serious Fraud Office ('SFO') (the main prosecuting authority for serious fraud and corruption offences in the UK) will publish on the same day another document to be called “Directors' Guidance” which will “discuss the detail of various offences and what needs to be proved".  It will also set out the public interest factors that prosecutors will need to take into account in deciding whether to prosecute. According to the Director of the SFO, this guidance will “shed a lot of light on some of the issues raised concerning facilitation payments and hospitality”.

However recent cuts announced by the UK Treasury Department to the budget of the SFO (which will be cut from £34 millionin 2011 to £29 million in 2014) cast doubt on the vigour that the SFO will be able to apply towards anti-corruption. 

Further, Jonathan Russell reported in the Daily Telegraph that the Justice Minister Lord McNally said in reply to a question in the House of Lords (the UK's upper House in its Parliament) that the SFO will only “have an additional cost of £2m for enforcement of the new offence of failure by commercial organisation to prevent bribery”.

To add to this problem, Alex Spence reported in the Times  that the SFO could be reorganised and absorbed by a new agency called the National Crime Agency (‘NCA’) which would take over the handling of complex fraud cases.

It is likely though that fighting fraud and corruption will not be the top priority of the NCA, which will also have to focus on tackling organised crime and terrorist networks.

Perhaps the way forward for the Act to remain a deterrent and to encourage Defendants to come forward and self-report would be for the government to follow Lord Goldsmith’s (the former Attorney General in the UK) proposal to allow the SFO to enter plea bargaining in bribery cases, but this proposal would require the government to legislate.