So far, since the Bribery Act came into force on 1^st July 2011, the largest fines for activities relating to anticorruption controls have been dished out by the FSA, which regulates the financial services sector in the UK, rather than by the courts. There has, so far, only been one case tried under the new laws (the case of Munir Patel, on which we blogged here, here and here) although the courts are, of course,  continuing to hear cases under the old corruption laws (for acts or omissions taking place before 1st July 2011).

When we at the BriberyLibrary give presentations on anticorruption, we often tell the audience that companies which are regulated by the FSA may, if they get their compliance systems wrong, suffer a "double whammy" because firstly the FSA can raise an administrative fine if it finds that a company has not put in place adequate systems and controls but, further, if it finds evidence of an actual offence having taken place, it can then refer the company to the Serious Fraud office ("SFO"), which may decide to investigate and prosecute, leading to a fine being imposed on it by the court. Often a double/triple whammy may occur anyway when the company is sued by competitors or others who claim to have been damaged by it's illegal actions. When bad news is discovered in the form of a bribe being paid to win business, it can really be long-lasting bad news for the company, and in our experience, it can take 5 to 10 years to sort it all out, remembering that in addition to the fines (and prison sentences for individuals), courts in the US and the UK are becoming more willing to impose lengthy court monitorships, but that's the subject of another blog topic for the future.

In May 2010 the FSA published the first of its thematic review reports into anticorruption, following a detailed review of a sample of firms in the insurance broking industry.  We blogged on it here.  The report, which is lengthy and quite scathing of this industry, was startling reading, not least because in truth the complaints which the FSA made of this industry were mostly very obvious ones, and were criticisms which could almost certainly be made of almost any other industry (whether in the regulated sector or not). They mostly concerned the absence of adequate systems and controls. The evidence collected by the FSA demonstrated clearly that many companies had not taken the risk of anticorruption seriously and had not attempted to deal with the risks adequately. The inference to be made is that firms were not investing enough of their resources in their risk and compliance departments, and/or that those departments were not up to the job. Two large broker firms received very large fines from the FSA. 

In March 2012, the FSA published a  further report following its second thematic review of anticorruption, this time of the investment banking sector. The report looked remarkably similar to the insurance broking sector report, underlining our view that the mistakes being made when it comes to establishing systems and controls are common to other industries in the UK (whether in the regulated sector or not).  A copy of the FSA’s press release is here.  They visited a sample 15 firms including 8 major banks.  A summary of their findings, in the FSA’s own words:- 

“In particular, we found the following common weaknesses:

• most firms had not properly taken account of our rules covering bribery and corruption, either before the implementation of the Bribery Act 2010 or after;
• nearly half the firms in our sample did not have an adequate ABC risk assessment;
• management information on ABC was poor, making it difficult for us to see how firms’ senior management could provide effective oversight;
• only two firms had either started or carried out specific ABC internal audits;
• there were significant issues in firms’ dealings with third parties used to win or retain business
• though many firms had recently tightened up their gifts, hospitality and expenses policies, few had processes to ensure gifts and expenses in relation to particular clients/projects were reasonable on a cumulative basis.”

In November 2012, Tracey McDermott, the FSA’s Director of enforcement and financial crime made a key note address at the Association of Private Client Investment Managers and Stockbrokers’ (“APCIMS”)conference in which she explained why the FSA is currently focusing so much on anti money laundering (apart from anything else, because London financial  institutions are being used to launder illegal drug money). Ms McDermott also talked about the imminent split of the FSA into two new organisations in April 2013, when the Prudential Regulation Authority (“PRA”) will take over prudential regulation of much of the regulated sector (although in fact the Financial Conduct Authority ("FCA") will be the prudential regulator for most of APCIMS’s members), and the FCA will be the conduct regulator, thereby separating out these different responsibilities. The Bill creating the PRA and the FCA makes it clear that only the FCA will have enforcement powers, and not the PRA, in order to avoid the obvious risk of duplication of resources, and any overlapping functions.

Ms McDermott also announced that the third sector to receive the thematic reviews of her department will be asset managers and that their first visits are imminent.  The review will sample 22 firms and will look at these firm’s systems and controls to counter both money laundering and bribery and corruption.  She said:

“... we are about to start a thematic review of how asset managers handle the risks of money laundering and bribery. Let me now give you the details. Perhaps this review is overdue: the asset management sector holds over £4 trillion in assets, with APCIMS members alone collectively managing assets of half a trillion pounds for 6 million clients. Clearly this is a huge industry, and the scope for damage should financial crime risks be mishandled is enormous.

London is an attractive destination for the world’s wealthy and their money – unfortunately including those whose wealth is illegitimate. I expect you, as UK-based wealth management professionals, to be developing your business by offering peerless service and unmatched expertise: not by accepting money without properly gauging its provenance.

We hope the findings of this review will be better than the disappointing findings of our 2011 review into banks handling of high risk situations. We were greatly concerned by the findings of that 2011 review, and Enforcement actions followed.  Since publication we have fined three banks with more to go....”.

We at the BriberyLibrary suspect that, even having had the opportunity to review the FSA’s 2010 report on the insurance broking industry review and its’ 2012 report on the investment banking sector review, the FCA will find many of the same problems and failures arising within the asset managers sector, and that the FCA’s report will also be depressing reading. We feel almost certain that further fines will follow. But if this is what is required to make all these companies wake up and smell the coffee of the new regulatory regime in the UK, following the 2008 financial crisis, then British voters and tax payers are unlikely to complain. And London should be a safer place for all investors, British or foreign.

If you are one of the 22 specially selected asset manager firms in the review sample, this would be a good time to start upgrading your systems and controls, although you may still receive criticisms and fines if they are still deficient when the FSA/FCA visit you. For everyone else in this sector not in the sample, who has not recently reviewed their systems thoroughly, now is time to get on with reviewing and improving your compliance department's systems and controls. Or start saving for a massive fine.

We will report back on the FCA’s findings in the third quarter of 2013 when Ms McDermott has indicated their report will be published.

According to an article in the Financial Times on 14 January 2013, the number of companies voluntarily admitting wrong doing to the Serious Fraud Office, otherwise known as self-reporting, has nearly doubled in the past fiscal year.  The FT suggests that this indicates that the new anti-bribery legislation, the Bribery Act 2010, is proving to be a deterrent.

The article goes on to report that 12 companies had “confessed to the SFO that they had issues in the year ending March 31^st compared with seven during the two preceding years, according to data from a Freedom of Information request”.

The article suggests that one reason for the increase in self-reporting could be the introduction of the Bribery Act in July 2011, which enables the SFO to prosecute people for corruption no matter where in the world it takes place, as long as there is a link to the United Kingdom.

However, in our view this is only part of the story.  The stiffer penalties and more far reaching legislation, including the global extra territorial reach of the Bribery Act, are an important factor, but other factors are the increased political and prosecutorial interest in the enforcement of anti-corruption laws.  In addition, the encouragement in civil settlements by the SFO over the past three or four years, under the previous Director, Richard Alderman, and the promised introduction of Deferred Prosecution Agreements by the government in the near future, is changing the way that defendants and their lawyers behave when considering possible actions, following discovery of an offence having been committed.  The commercial desire to dispose of a problem as quickly as possible, and as cheaply as possible, where there would be less damage to a company’s brand image and products than defending the case through a trial is likely to be a very significant driver in deciding whether to report corruption issues to the Serious Fraud Office.  Coming clean about embarrassing issues does not come naturally to many corporations, nor hitherto to their defence lawyers, but the threat of unlimited fines, combined with the possibility of public procurement debarment orders, the damage to reputation, and the likelihood of the withdrawal of some of your business partners from relationships with you, are  important  factors to consider when weighing the alternatives to self reporting.

The fact that there were only twelve companies self-reporting to the SFO in the year ending 31 March 2012, however, is still in our view pitifully low and we think that this is likely to be the tip of the iceberg in terms of the number of corporations who are now under the jurisdiction of the British Courts under the Bribery Act and who have reportable issues.  We would expect this figure to grow and grow, particularly when the SFO starts to prosecute high profile corporations.  The reader may recall that the new director of the SFO, David Green QC, has indicated that whilst he will still consider settling with companies that self-report in the appropriate circumstances, there will be cases where even though a company has self-reported, due to the seriousness of the crime it may be in the public interest to prosecute in any event.  As the FT article itself states, Mr Green’s new stance “…could result in fewer companies coming forward, however”.

The new FCPA guidance ("Resource Guide") states that the FCPA’s anti-bribery provisions can apply to conduct both inside and outside the United States and that issuers and domestic concerns (as well as their officers, directors, employees, agents or stockholders) may be prosecuted for using the US mails or any means or instrumentality of interstate commerce in furtherance of a corrupt payment to a foreign official.

The FCPA defines “interstate commerce” as:

“trade, commerce, transportation, or communication among the several States, or between any foreign country and any State or between any State and any place or ship outside thereof…”

The term also includes the intrastate use of any interstate means of communications or any other interstate instrumentality.  The guide explains that by way of example placing a telephone call or sending an email, text message or fax from, to, or through the United States involves interstate commerce as does sending a wire transfer from or to a US bank or otherwise using the US banking system, or travelling across state borders or internationally to or from the United States.

This is very interesting, because clearly very little indeed needs to be done in order for the United States’ courts to take jurisdiction over foreign defendants.  The jurisdictional hurdle is so low that defendants can pretty much fall over it without even realising!

By way of comparison with the UK Bribery Act, section 7 (which deals with the failure by commercial organisations to prevent bribery) applies to foreign corporations and partnerships which carry on

 “a business, or part of a business, in any part of the United Kingdom”.

The British government’s Guidance on the Bribery Act, dated 30 March 2011, provides at paragraph 35:

“…the Government expects that whether such a body or partnership can be said to be carrying on a business will be answered by applying a common sense approach…”.  The BriberyLibrary thinks that that particular piece of guidance is challenging in its vagueness, as we find that common sense is not something everyone shares, and even those who do possess it, may find that there is not an entirely common standard of it.  The UK Guidance points out that, of course, the courts will be the final arbiter as to whether a business was being carried on in the United Kingdom “however, 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.  The Government would not expect, for example, the mere fact that a company’s securities had 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.  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”.

There are some anti-corruption practitioners (including those blogging at the BriberyLibrary), however, who believe that the courts, when these issues are put before it in the future, may take a different view to the government’s Guidance and that the fact that a foreign company has agreed to abide by the rules and laws of the United Kingdom in relation to the listing of its securities on the London Stock Exchange means that it should also be expected to adhere to the laws in the Bribery Act.

Further, in relation to the parent-subsidiary relationship, where a parent has a controlling interest, it does by definition control the subsidiary, so the subsidiary could in our view never be regarded as acting truly independently: this is something else for the court to consider in due course.

We would not necessarily expect the British courts to go to the same lengths of finding that merely placing a telephone call in the United Kingdom (perhaps while passing through the UK on your way to another country) means that one is necessarily doing business here, but the court might find, for example, that foreign businesses which sell goods into the United Kingdom via a website, which are paid for from the United Kingdom by the purchaser using a Sterling bank account, and which are delivered into the United Kingdom means that even if the seller has no physical presence and no employees in the United Kingdom, that nevertheless it is clearly doing business in the UK and is susceptible to the Bribery Act’s provisions.

The FCPA Guidance continues that a foreign national or company may also be liable under the FCPA if it aids and abets, conspires with, or acts as an agent of an issue or domestic concern, regardless of whether the foreign national or company itself takes any action in the United States.

In truth, it is increasingly likely that two or more foreign prosecutors could simultaneously have jurisdiction over a defendant, due to the international nature of many illegal transactions, and the increasing globalisation of trade generally.  This may lead to related (but not identical) charges being pursued in several jurisdictions, although it is unlikely there would be direct overlap because of the double jeopardy rule (which many countries adhere to, although not always in the same way).  We blogged on Transparency International’s publication “Deterring and Punishing Corporate Bribery” on 30 January 2012.  Recommendation 7 sets out TI UK’s position on double jeopardy.  For its part, the SFO currently regards the double jeopardy rule as applying across borders.

In practice we suspect that the SFO will probably only prosecute if British interests are adversely affected by a rigged competitive bid process abroad, and not on a pure jurisdictional hurdle test of any calls made in the UK etc.

In the US, the SEC and the DOJ have been negotiating civil settlements with defendants for violations of the FCPA for several years, raising plenty of revenue for the US government in the process. The SFO’s last director, Richard Alderman, has followed the same path during his four year tenure at the SFO - all of the corporate defendants who were charged with corruption in recent years agreed to a civil settlement instead of defending the charges at trial. This chosen path has been repeatedly criticised by the new Director, David Green QC, who took up office in April 2012. In his public speeches since April, Mr Green has made it clear that while civil settlements remain an option for the SFO, in cases where there has been a systemic and major breach of corruption laws, it is more likely to be in the public interest to prosecute, and that is precisely what he will do. His view is that settlements are for corporates which are less culpable, either because the conduct wasn’t systemic, and/or that it was the result of the misconduct of one or two rogue employees, rather than being an institutional issue. It will be remembered that the courts, and in particular Sir John Thomas (the President of the Queen's Bench Division), was very vocal in his criticism of the SFO’s so-called "private deals" with defendants, not least because in his view the jurisdiction of the judges was being usurped.  

Nevertheless the SFO’s resources to try cases are very limited,  due to government cutbacks, so whatever the strong words of Mr Green about bringing more prosecutions, the reality is that the SFO does not have the funds or people to pursue to trial more than one or two large corruption cases in any year.

One of the more serious consequences of the many civil settlements in the US has been that there is almost no FCPA jurisprudence at all in the US, despite the Act being 35 years old. This fact is particularly surprising when you remember that due to the size of the country and its litigious culture, for most areas of law disputed before the courts there is a huge and almost overwhelming volume of case-law: so much so that one can often find lines of legal authority going in opposite directions in different courts around this huge country.

The paucity of case-law means that it is difficult for corporates, individuals, defendants and their lawyers to know or to advise with particular certainty on specific provisions of the FCPA. This was itself one of the many complaints made in the letter which was sent jointly to the SEC and the DOJ in February 2012, and on which we posted a blog here on 23^rd February 2012.  The absence of authority means that many terms of the FCPA eg the definition of “foreign official” or “instrumentality”, or the way in which successor liability would be treated in mergers and acquisitions are still, many decades after the FCPA was enacted, ambiguous.

It seems highly probable that the same thing will happen in the UK – namely, that if only 1 or 2 corruption cases are pursued to trial by the SFO per year, as seems likely, then ten years from now, there will be only 10 or 20 authorities, or maybe a lot fewer if the US experience really rings true in the UK.

One of the ways in which the US system has addressed this problem, whether intentionally or not, is by the DOJ’s opinion procedure. This is dealt with at Chapter 9 of the new FCPA Guidance, from pages 86 to 88 which can be found here.

“DOJ’s opinion procedure is a valuable mechanism for companies and individuals to determine whether proposed conduct would be prosecuted by DOJ under the FCPA.398 Generally speaking, under the opinion procedure process, parties submit information to DOJ, after which DOJ issues an opinion about whether the proposed conduct falls within its enforcement policy. All of DOJ’s prior opinions are available online.399 Parties interested in obtaining such an opinion should follow these steps....”

The Guidance then outlines the formal requirements and steps to obtain an opinion. It continues:

“DOJ will evaluate the request for an FCPA opinion.410 A party may withdraw a request for an opinion at any time prior to the release of an opinion.411 If the request is complete and all the relevant information has been submitted, DOJ will respond to the request by issuing an opinion within 30 days.412 If the request is incomplete, DOJ will identify for the requestor what additional information or documents are required for DOJ to review the request. Such information must be pro­vided to DOJ promptly. Once the additional information has been received, DOJ will issue an opinion within 30 days of receipt of that additional information.413 DOJ’s FCPA opin­ions state whether, for purposes of DOJ’s present enforcement policy, the prospective conduct would violate either the issuer or domestic concern anti-bribery provisions of the FCPA.414 DOJ also may take other positions in the opinion as it con­siders appropriate.415 To the extent that the opinion concludes that the proposed conduct would not violate the FCPA, a rebuttable presumption is created that the requestor’s con­duct that was the basis of the opinion is in compliance with the FCPA.416 In order to provide non-binding guidance to the business community, DOJ makes versions of its opinions pub­licly available on its website.”

So although the opinion is to be regarded as non-binding guidance, it is nevertheless still hugely useful to parties all across the US, to enable them to understand the US government’s position on many issues under the FCPA. Here is a link to the opinion releases on the DOJ’s website.

By way of example, here is a summary of one dated 14^th June 2004 taken from the DOJ's website here:

“2004-03

June 14, 2004

Background: Requestor, a U.S. law firm, proposed to sponsor a trip to the U.S. for twelve Chinese officials. On the trip, the officials would meet with U.S. public sector officials to discuss U.S. regulation of employment issues, labor unions, workplace safety, and legal institutions and procedures regarding workplace conflict resolution. The firm intended to pay for travel, lodging, meals, and insurance for the twelve officials and one translator during the ten-day, three-city trip.

Decision: DOJ explained that it did not intend to take enforcement action based on the disclosed facts and circumstances, including that:

(1) the firm had no business before the entities that might send officials;

(2) the firm obtained written assurance the visit would not violate any PRC laws;

(3) the foreign Ministry would select the officials participating;

(4) the firm would pay all costs directly to providers; and

(5) the firm would not pay expenses for spouses, family, or other guests.”

 

The full text of it is also available although it is still only a couple of pages.

By way of contrast, in the UK there is no such formal procedure and therefore no body of opinions available for parties or adviser to access. It may not have been widely known that the SFO did have, under Mr Alderman's directorship, an option whereby a party and/or its lawyers could approach the SFO and ask for informal guidance on a particular situation, either anonymously or otherwise, and the SFO would give its view – orally,  face to face.  This was not as useful, however, as it was not in writing and it was not published anywhere for others to see. That option was effectivley removed by Mr Green on his arrival  at the SFO, however, who has said publicly that it is not the SFO's job to advise companies on their future conduct and that there is plenty of guidance "out there already", the inference being, clearly, that a request for a face to face meeting will no longer be granted.

Our proposal at the Bribery Library is that the US DOJ opinion procedure should be adopted in a similar way in the UK. It will greatly assist companies which are still struggling with understanding and complying with the new laws, but it will also serve UK society well in that it will assist in making the Bribery Act effective by preventing bribery. Ultimately, the government’s aims are to reduce the amount of corruption both domestic and overseas, not to raise money by fining large corporations. This is unlikely to be an unduly burdensome additional task for the SFO because it could pick and choose which requests it actually answers, those which it feels will be widely read and considered. If the SFO is worried about costs, it could consider charging companies for the privilege of obtaining an opinion? If the new Director's concerns are not about costs, it would be interesting to know his views on the US opinion procedures, and why his position on opinions should differ.

The SFO has today published new guidance on self-reporting, business expenditure and facilitation payments.  The new Director has made it all a lot simpler, and in effect the guidance is that the Bribery Act itself is what people should consider and not any government guidance. It is almost startling in its brevity, and rather refreshing, as a consequence!   We have blogged on the previous guidances for these subjects on several occasions including here, here and here.

The SFO’s press release and the new guidance is very short so, for ease of reference for the reader, we will quote from it all in full:

“The Serious Fraud Office has reviewed its policies on facilitation payments, business expenditure (hospitality) and corporate self-reporting.  The purpose is to:

1. restate the SFO's primary role as an investigator and prosecutor of serious or complex fraud, including corruption;
2. ensure there is consistency with other prosecuting bodies; and
3. meet certain OECD recommendations.

The Director of the SFO, David Green CB QC, wishes to re-emphasise that all decisions to prosecute unlawful activity will be governed by the Full Code Test in the Code for Crown Prosecutors and the applicable joint SFO/CPS prosecution guidance.

Self reporting corruption

Whether or not the SFO will prosecute a corporate body in a given case will be governed by the Full Code Test in the Code for Crown Prosecutors, the joint prosecution Guidance on Corporate Prosecutions and, where relevant, the Joint Prosecution Guidance of the Director of the SFO and the Director of Public Prosecutions on the Bribery Act 2010.

If on the evidence there is a realistic prospect of conviction, the SFO will prosecute if it is in the public interest to do so. The fact that a corporate body has reported itself will be a relevant consideration to the extent set out in the Guidance on Corporate Prosecutions. That Guidance explains that, for a self-report to be taken into consideration as a public interest factor tending against prosecution, it must form part of a "genuinely proactive approach adopted by the corporate management team when the offending is brought to their notice". Self-reporting is no guarantee that a prosecution will not follow. Each case will turn on its own facts.

In appropriate cases the SFO may use its powers under proceeds of crime legislation as an alternative (or in addition) to prosecution; see the Attorney General's guidance to prosecuting bodies on their asset recovery powers under the Proceeds of Crime Act 2002. If the SFO uses its powers under proceeds of crime legislation, it will publish its reasons, the details of the illegal conduct and the details of the disposal.

In cases where the SFO does not prosecute a self-reporting corporate body, the SFO reserves the right (i) to prosecute it for any unreported violations of the law; and (ii) lawfully to provide information on the reported violation to other bodies (such as foreign police forces).

This statement of policy has immediate effect. It supersedes any statement of policy or practice on self-reporting previously made by or on behalf of the SFO.

Business expenditure

The Bribery Act 2010 came into force on 1 July 2011.

Bona fide hospitality or promotional or other legitimate business expenditure is recognised as an established and important part of doing business. It is also the case, however, that bribes are sometimes disguised as legitimate business expenditure.

Whether or not the SFO will prosecute in respect of a bribe presented as hospitality or some other business expenditure will be governed by the Full Code Test in the Code for Crown Prosecutors and the Joint Prosecution Guidance of the Director of the SFO and the Director of Public Prosecutions on the Bribery Act 2010. Where relevant, the Joint Guidance on Corporate Prosecutions will also be applied.

If on the evidence there is a realistic prospect of conviction, the SFO will prosecute if it is in the public interest to do so. In appropriate cases the SFO may use its powers under proceeds of crime legislation as an alternative (or in addition) to prosecution; see the Attorney General's guidance to prosecuting bodies on their asset recovery powers under the Proceeds of Crime Act 2002.

This statement of policy has immediate effect. It supersedes any statement of policy or practice on business expenditure previously made by or on behalf of the SFO.

Facilitation payments

The Bribery Act 2010 came into force on 1 July 2011.

A facilitation payment is a type of bribe and should be seen as such. A common example is where a government official is given money or goods to perform (or speed up the performance of) an existing duty. Facilitation payments were illegal before the Bribery Act came into force and they are illegal under the Bribery Act, regardless of their size or frequency.

Whether or not the SFO will prosecute in respect of a facilitation payment (or payments) will be governed by the Full Code Test in the Code for Crown Prosecutors and the Joint Prosecution Guidance of the Director of the SFO and the Director of Public Prosecutions on the Bribery Act 2010. Where relevant, the Joint Guidance on Corporate Prosecutions will also be applied.

If on the evidence there is a realistic prospect of conviction, the SFO will prosecute if it is in the public interest to do so. In appropriate cases the SFO may use its powers under proceeds of crime legislation as an alternative (or in addition) to prosecution; see the Attorney General's guidance to prosecuting bodies on their asset recovery powers under the Proceeds of Crime Act 2002.

This statement of policy has immediate effect. It supersedes any statement of policy or practice on facilitation payments previously made by or on behalf of the SFO.”

Clearly the new Director believes that there was previously too much guidance and that the combination of the Bribery Act (and other relevant criminal justice statutes)  together with the Code for Crown Prosecutors, the Joint Prosecution Guidance and the Joint Guidance on Corporate Prosecutions was more than enough, and to have additional detailed guidance would only serve to confuse businesses, defendants and their advisers.

Also, the guidance reinforces a widely held belief by the legal profession that Mr. Green is likely to prove to be a much tougher prosecutor than his predecessor Richard Alderman, who had (perhaps a little unfairly) acquired a reputation for seeking civil settlements with corporate defendants rather than prosecuting them through to trial.

In relation to self-reporting,  some corporates may feel that the SFO's latest pronouncement is hardly likely to encourage potential defendants to come forward and self-report, with the risk that the SFO may refuse to agree to a civil settlement, and prosecute the corporation anyway.

According to a recent press release, the Director of the Serious Fraud Office (SFO) has taken action in the High Court, which has resulted in an Order that Oxford Publishing Limited (OPL) pay £1,895,435 in recognition of sums it received which were generated through unlawful conduct related to subsidiaries incorporated in Tanzania and Kenya.

OPL is owned by Oxford University Press (“OUP”), which itself is owned or is part of the universally esteemed and world famous Oxford University.

OUP discovered that its subsidiaries in Kenya and Tanzania had used illegal means to win contracts to sell its educational publications in these two countries. Some of these contracts are funded by the World Bank. OUP acted immediately to investigate the matter, instructing independent lawyers and forensic accountants to undertake a detailed investigation. Subsequently OUP self-reported some concerns which it had to the SFO.

The SFO required OUP to follow a procedure based on the guidance contained within its published protocol document - "The Serious Fraud Office's Approach to Dealing with Overseas Corruption".

Because two of the tenders were funded by the World Bank, OUP also voluntarily reported on a potential breach of the World Bank's Procurement Guidelines to the World Bank.

The investigation was thorough - involving numerous interviews and an extensive review of documents and electronic data - and completed to the satisfaction of the SFO. The substantial product of those investigations was presented to the SFO and, in a separate presentation, to the World Bank. The product of that work led the SFO and the World Bank to believe that OUP East Africa ("OUPEA") and OUP Tanzania ("OUPT") had offered and made payments, directly and through agents, intended to induce the recipients to award competitive tenders and/or publishing contracts for schoolbooks to OUPEA and OUPT. 

Civil Recovery Order

As wholly owned subsidiaries, OUPEA and OUPT pay dividends and certain fees to OPL.  Accordingly, OPL has and would receive revenue that had been derived from unlawful conduct; namely bribery and/or corruption. Following an accounting examination of the benefit obtained from the affected contracts, the SFO was in a position to determine the appropriate amount to be recovered.  The approach to costs was conservative, with the result that the agreed methodology produced a higher figure than would normally be recognised as trading surplus in the accounts.  No allowance has been made for the payments which are considered bribes or inducements. 

Compliance procedures

Since the occurrence of the conduct that is the subject matter of the civil recovery order, OUP has introduced enhanced compliance procedures intended to significantly reduce the risk of recurrence of such conduct within OUP.  These procedures will be subject to review by a monitor who will report to the Director of the SFO within twelve months, with additional and separate reporting to the World Bank.  The monitor must meet strict criteria including clear independence from OUP.

Reasons for civil recovery order

A number of relevant features have led to the decision to pursue a civil recovery order in place of a criminal prosecution.  They include the following (we will not repeat them all but the most relevant appear to be as follows):

a)        The test under the Code for Crown Prosecutors in relation to the case meeting the criteria to prosecute has not been met at this point and there is no likelihood that such a standard would be met in the future.  This view is based on a number of factors including, but not limited to, (i) key material obtained through the investigation is not in an evidentially admissible format for a criminal prosecution and (ii) witnesses in any such prosecution would be in overseas jurisdictions and are considered unlikely to assist or co-operate with a criminal investigation in the UK.

b)        OUP has conducted itself in a manner which fully meets the criteria set out in the SFO guidance on self reporting matters of overseas corruption.

c)        The products supplied were of a good standard and provided at 'open market' values.  This means that the jurisdictions involved have not been victims as a result of overpaying for the goods or as a result being supplied goods which were unsuitable or not required.

Finally the SFO Press Office reports that in addition to the property recovered under the civil recovery order, OUP unilaterally offered to contribute £2,000,000 to not-for-profit organisations for teacher training and other educational purposes in sub-Saharan Africa.  This was a reflection of the seriousness with which OUP views the course of events that were subject to the investigation and a wish to acknowledge that the conduct of OUPEA and OUPT fell short of that expected within its wider organisation.  The contribution would benefit the people within the affected region and be consistent with the overall mission of OUP.  The offer also confirmed that the funds would not be used so as to provide OUP with a commercial advantage.

This press release appears to address previous criticisms which were made of the SFO that it had not been sufficiently transparent about the settlements it had made, no doubt being leant on by the corporate defendants and their lawyers to be treated in confidence.

It also reinforces the view which the SFO publicly encourages that where the illegal acts are not systemic within the organisation, and particularly in circumstances where the organisation owns up to the wrongdoing by self reporting, the SFO will “reward” the defendant by offering a civil settlement.

The use of a monitor, a frequent practice in the US, and used in the Innospec case in the UK has been employed in this case too and signals to the defendant and to other corporates the tremendous burden on your organisation if you are unable to put in robust compliance procedures – the court will make sure that you do it by the imposition of a monitor, which itself is costly.

This appears to be the first civil settlement approved by the new Director of the SFO, David Green QC. It confirms what he has said publicly, that he will agree to civil settlements where appropriate (even though they have been the source of criticism in the past) but the SFO will prosecute when it is the public interest to do so.

Related court documentation is linked to on the SFO’s own press release.

In a separate press release from the World Bank on 3 July 2012, it said  that the World Bank Group had announced the debarment of two wholly-owned subsidiaries of Oxford University Press (OUP), namely: Oxford University Press East Africa Limited (OUPEA) and Oxford University Press Tanzania Limited (OUPT) - for a period of three years following OUP’s acknowledgment of misconduct by its two subsidiaries in relation to two Bank-financed education projects in East Africa.

The debarment is part of a Negotiated Resolution Agreement between OUP and the World Bank Group.  In May 2011, investigators from the World Bank’s Integrity Vice Presidency (INT) approached OUP about potential misconduct in Africa.  Following this, OUP conducted an internal investigation into its operations and reported its findings to INT.

“This debarment is testimony to the Bank’s continued commitment to protecting the integrity of its projects.  OUP’s acknowledgment of misconduct and the thoroughness of its investigation is evidence of how companies can address issues of fraud and corruption and change their corporate practices to foster integrity in the development business.  In this case, working with the Serious Fraud Office also demonstrates the scope of collective action in deterring corruption impacting the progress of development,”

 said Leonard McCarthy, World Bank Integrity Vice President.

Transparency International UK (“TI-UK”) recently published this guidance relating to mergers and acquisitions, private equity investments and other forms of investment.

As reported by the Ernst & Young 2011, 11^th Global Fraud Survey:

“Despite the many recent examples of the perils of ignoring the fraud and corruption dimension of these assessments, a fifth of companies still do not consider it as part of M&A due diligence and a quarter never consider it in a post-acquisition review”.

TI-UK says that the guidance has been provided in the context of three considerations:

• Anti-bribery due diligence should be applied to all investments, but on a risk-based approach, with the level of due diligence being proportionate to the investment and the perceived likelihood of risk of bribery.
• In many cases the necessary information for due diligence may not be accessible such as in acquisition of public companies, hostile takeovers, auctions or minority investments.  This does not obviate the need for anti-bribery due diligence, but has an effect on the timing i.e. it may need to be undertaken post closure.
• A good practice approach characterises ethical and responsible businesses but is also the most effective means for companies to manage bribery risks across multiple jurisdictions and in a changing legal and enforcement environment.

What to look for in anti-bribery due diligence

• Has bribery taken place historically?
• Is it possible or likely that bribery is currently taking place?
• If so, how widespread is it likely to be?
• What is the commitment of the board and top management of the target to countering bribery?
• Does the target have in place an adequate anti-bribery programme to prevent bribery?
• What would the likely impact be if bribery, historical or current, were discovered after the transaction had completed?

One startling statistic reported by TI-UK is that almost 50% of US corruption – related prosecutions in 2007 were connected to M&A transactions.

TI-UK say that the broad principles and approaches to anti-bribery due diligence apply to both M&A transactions and private equity investments, and this guidance is therefore written for both audiences.  However, the type of transaction and the size of the stake will clearly have an effect on the purchaser’s ability and resources to undertake due diligence, its assessment of investment risks accruing from bribery, and its ability to access and influence the target company. 

 “This guidance provides a generic frame work for applying due diligence, but purchasers will need to decide in each case what level of due diligence is appropriate.  Some targets will be judged to present low risks and to require lower levels of due diligence whereas others will have higher risks.  The size of investment should not be a determining factor as small investments can carry disproportionate risks; and moreover the material risks attached to bribery may not necessarily reflect the size of the bribe...”.

TI-UK refers to the facts that the Serious Fraud Office has already made several statements about the responsibilities and liabilities of private equity and institutional investors including in January 2012 when the SFO said

“Shareholders and investors in companies are obliged to satisfy themselves with the business practices of the companies they invest in...  It is particularly so for institutional investors who have the knowledge and expertise to do it.  The SFO intends to use the civil recovery process to pursue investors who have benefited from illegal activity.  Where issues arise we will be much less sympathetic to institutional investors whose due diligence has clearly been lax in this respect”.

The report goes on to suggest that the purchaser’s board members, senior management and investment committees should seek to develop a full understanding of bribery risks related to target companies during transactions in order to understand the investment risk.  The nature of the investment risk from bribery falls into four broad areas:-

• Financial:  The financial data may be distorted or falsified e.g. the target’s sales figures may be inflated by contacts obtained through bribe paying;
• Legal:  There may be inheritance of legal risks e.g. the purchaser may incur liability leading to fines and regulatory action;
• Reputational:  For example, the purchaser may find that owing to publicity surrounding a poor acquisition, it is regarded that the less favourable partner or investment vehicle by others including institutional investors; and
• Ethical:  Purchasing companies, or requiring individuals within those companies that are willing to engage in bribery, risks and infecting the ethical culture of the purchaser and having a deleterious effect on the organisation.   A corrupt target may introduce dishonest and corruption to the purchaser’s own activities. 

All in all this is a very useful guide which TI-UK has produced.

Those involved in mergers and acquisitions or institutional investors, and their advisors, will find this a very useful resource.

The report can be found here.

The Daily Telegraph reported on 15^th March that last week the Chief Executive of BP, Robert Dudley, received a letter from a whistleblower describing himself as a BP employee alleging that corruption has been going on at BP over the last five years.  As reported, the allegation centres on the relationship between a senior BP employee and one of the company’s suppliers.

The author of the letter, who does not identify himself or herself, apparently sets out precise details of how the bribes were paid.  The writer also offers to supply BP with further evidence to back up these allegations once BP has launched an internal investigation.

The Daily Telegraph reports that the central allegation is that there was chartering of tankers at preferential terms for the supplier in return for cash payments to the senior BP employee.

What is certain is that BP will be communicating with the SFO and that BP will conduct its own internal investigation, most likely with the assistance of external lawyers.

The issue of self-reporting does not arise here as the SFO has already been made aware of the allegations as they had been sent a copy of the whistleblower’s letter by the whistleblower himself.

If these allegations turn out to be correct, it may well be that they are capable of being prosecuted under both the old corruption legislation and/or the Bribery Act 2010, if some of the instances of the alleged corruption have taken place since 1 July 2011, when the Bribery Act came into force.

As we understand them, the allegations made to date centre on the receipt of bribes by a BP employee, which on its own would not give rise to an offence by BP under section 7 (“failure to prevent bribery”).  Section 7 is only concerned with the active offence of giving bribes, it does not cover receipt.  There may, however, be grounds for prosecution under Section 2 (the offence of being bribed), although unlike Section 7, this would require a far greater hurdle for the SFO to overcome in order to secure a conviction against the company itself.  While we are not aware of any allegations that BP employees have been paying bribes, should such allegations emerge it may be that Section 7 will become relevant, as will the question of whether BP has failed to put in place "adequate procedures".

The SFO has repeatedly said that it has been looking for a large, high profile international company to pursue in order to send a message around the world that it is serious about its enforcement under the Bribery Act.  Could this be one of those cases?  Is this the one they have been waiting for? We will have to wait and see. We will return to this story as and when there is any further news.

On Tuesday 28 February 2012 Mr Richard Alderman, the current director of the SFO, delivered a speech to the All Party Parliamentary Group (“APPG”) on anti-corruption.  Mr Alderman’s speech is, overall, very encouraging in that he believes that we in Britain often underestimate the way the rest of the world views the way in which the UK is tackling corruption, and that the respect shown overseas extends to the rule of law in the UK and the independence of our courts and judiciary as well as to our parliament.

Mr Alderman also reports that the approach taken by the British Government in enacting the Bribery Act 2010, as regards facilitation payments, has also been positively received abroad.  He comments that

“one of the big challenges for the future concerns what to do about the demand side of bribery…tackling the demand side is partly, of course, about prosecutions of officials who take bribes and cooperation between countries so that evidence can be provided.  But a successful approach needs more than this.  We also need to see proper salaries for public officials in countries where these payments are common.  I come across cases where the public officials are paid nothing or very little and are expected to make money to support their family by taking bribes…a successful approach on the demand side also involves education.  The most successful anti-corruption agencies worldwide devote a lot of time to this even, for example, starting by conducting sessions in kindergartens about ethics and the difference between right and wrong”.

Mr Alderman goes on to say, quite rightly, that the Bribery Act is now being regarded, together with the Ministry of Justice Guidance on the Bribery Act, as being the gold standard that there is internationally for what is to be expected of corporations in dealing with anti-corruption.  Mr Alderman also recognises, very realistically, that not everyone wants to get to the gold standard.

Turning to enforcement, the director reported that there is internationally increasing respect for the United Kingdom’s robust approach in dealing with corruption cases.  He said that when he arrived at the SFO [four years ago] there were

 “no convictions for corruption and of course the UK was best known for BAE and Saudi Arabia.  Of course we are still known for BAE and Saudi Arabia.  This regularly comes up in my discussions with foreign corporations and law enforcement officials.  Indeed a few months ago I gave a presentation to senior judges in another jurisdiction.  Towards the end one of them said “this is all very well Richard but tell us about BAE””.

Mr Alderman went on to say that the decision to stop the investigation into BAE’s alleged corruption in Saudi Arabia, despite the support of the House of Lords, “caused the UK great reputational damage” (this shows of course that a damaged reputation can take many years to repair).  On the other hand, he reports, there are many others who recognise that the UK’s enforcement record has been transformed over the last three to four years as a result of [increased] enforcement action and the passing into law of the new Bribery Act and that, in terms of enforcement, there are NGOs who say that the UK is a close second to the US Department of Justice in this area (personally, I find this a little hard to accept since I heard the Department of Justice saying at a conference that they have over 150 “open” corruption cases and the SFO on its own admission has a small fraction of this number).

Although there are large corporations who are stepping up to the plate and will endeavour to reach the gold standard set by the new Bribery Act and the Government’s guidance, there are others who plainly will not.  Mr Alderman says that by definition the way they carry out their corruption activities is often hidden and using complex international structures and that this takes some time to detect and unravel, but the SFO has very good international contacts which are “…essential in order to be able to investigate and prosecute these cases”.

Mr Alderman then listed a few challenges for the SFO, which I paraphrase below, as follows:

• Getting money back to victims:  He praises the International Development Committee which decided to look at this issue in the context of the BAE payment to Tanzania.  He reports that this has taken longer than he anticipated but following guidance from the IDC, the SFO needs to reflect on what they should be doing as regards restitution in the future.  Mr Alderman wholeheartedly believes that financial settlements should go to the victims of the crime of corruption.
• Civil Recovery Orders:  He reports that whilst the use of CROs is controversial, they do have their place and the IDC has accepted that a judge needs to be involved earlier in the discussions in order to be able to give any views he/she may have about a proposed settlement.  He offers the view that this should not be a choice between a civil recovery order and a criminal trial, but in the past it has often been the difference between there being a civil recovery order or nothing happening at all due to the inadequacies of the existing corruption laws.
• Deferred prosecutions:  Mr Alderman is very supportive of the Solicitor General, Edward Garnier QC MP who is trying to introduce deferred prosecutions into the criminal justice system’s armoury and he believes offers prosecutors and courts an alternative to the current choice between civil recovery and no criminal action.
• Full public and parliamentary discussion:  Mr Alderman said that it needs to be understood and discussed as to the circumstances in which society feels there should be a full prosecution, or when there should be a deferred prosecution and indeed when a civil recovery may still be appropriate.

He concludes by saying that bearing in mind that he is leaving his position as director of the SFO in April, a number of the challenges that he had outlined in this speech will have to be left to his successor David Green CB QC to follow through, so this may in effect be Mr Alderman’s “valedictory” speech.

The full text of the director’s speech is here.

For those reading this blog site outside the United Kingdom, it may interest you to know that the Leveson Inquiry into culture, practice and ethics of the press rolls on and on.  It is now in its second phase or “module”:

“The relationships between the press and police and the extent to which that has operated in the public interest”. 

If you are interested in following the inquiry you can watch it live from your computer by clicking on the link on www.levesoninquiry.org.uk under “latest news”.

More and more evidence is emerging from the inquiry which indicates that there was wide spread corruption of the police and other public servants by representatives of the media.  The evidence of corruption by the press has spread beyond the News of The World, the defunct news publication that was closed down by Rupert Murdoch last year and now it also allegedly stretches to The Sun, another of the tabloid newspapers within Mr Murdoch’s stable of UK publications.

It seems fairly certain that there will be a string of prosecutions over the coming years of members of the media and police officers and other public servants who are apparently involved in this growing scandal.

It seems likely that if these allegations are proved in court that it will demonstrate that the UK is a much more corrupt country than many of us had all previously assumed.  One consequence will be that the UK will slip further down the Transparency International index, which is published annually, notwithstanding the Government’s best efforts to put in place the tough, gold plated, Bribery Act 2010 which came into force on 1 July 2011.

In fact, it is a great shame that the events which are currently being investigated by the Leveson Inquiry did not take place after 1 July 2011, for it would have given the Government and the UK courts a good opportunity to test the Bribery Act and to send out strong messages under the Bribery Act across the UK and also around the world’s business community about the UK’s determination to stamp out corruption.

As it is, the trials which will take place following the Leveson Inquiry will, we assume, be prosecuted under the old corruption laws, some of which date back to the late 19^th century and early 20^th century, and other related offences (e.g. misconduct in public office) will also, likely, be prosecuted.

It has been suggested in the press just this week that the Serious Fraud Office is already considering some investigations under the Bribery Act, which must, by definition, be for offences which have taken place since 1 July 2011.  This is good news.  The quicker the Serious Fraud Office can bring a prosecution of some large scale, high profile corruption, the better it will be for publicising the Bribery Act and its effects around the world.  We believe that many companies around the world, whilst aware of the Bribery Act, are still in denial that it might apply to them.  Our perception is that certainly in some countries very little is being done to comply with the Act, notwithstanding the obvious application of the Act, jurisdictionally, to those particular international companies.  By analogy, it is rather like when the law was introduced many years ago compelling car passengers to wear seat belts: people didn’t wear them because they always assumed the car crash happened to someone else, and never to themselves.  The enforced use of seat belts in fact prevented many injuries and saved lives.  Likewise a robust compliance programme will save companies from financial and reputational damage, but, some will only spend the money on compliance when they see their competitors being prosecuted.

In the meantime, in the last week, it has been announced that the Serious Fraud Office itself is being investigated by the much larger Crown Prosecution Service which prosecutes all other crime i.e. not serious economic crimes.  The CPS is the body that the Home Secretary planned to reverse the SFO into but was “persuaded” by a number of people within the legal establishment in the UK that this would not be beneficial and that the timing was poor, particularly at a time when the SFO was trying to promote and broadcast the effects of the new Bribery Act on businesses around the world.

It must be particularly galling, however, for the SFO to be investigated by the CPS.  One can’t help wondering whether the CPS might make some self-serving findings in their report as to the way in which the SFO is working if the CPS believes that it would be better off having the SFO merged in with it.

One can’t help also feeling, despite the official denials, that the investigation by the CPS into the SFO is linked with, amongst other things, the news story that the SFO has had to apologise to the billionaire Tchenguiz brothers whose offices the SFO raided in a high profile operation in March 2011 for alleged fraud involving the now defunct Kaupthing Bank.  The Tchenguiz brothers were both arrested although one year on neither has been charged.

The SFO has now admitted that information was put before the court (in order to obtain the search warrants) which was not accurate.  The court was misled due to a number of “human errors”, according to the Director of the SFO, Richard Alderman.  Human error when conducted by a professional sounds to us to be professional negligence, so it is not altogether a surprise that the Government ordered the CPS to conduct an investigation.  It might suggest that Theresa May’s original plans are merely on hold.

This story will continue for a while, despite the SFO’s apology, because the Tchenguiz brothers will be pursuing the Serious Fraud Office not only for their costs, but also, we understand, for damages.  Ultimately, though, that cost will not fall upon any individuals at the SFO but will have to be borne by the taxpayer which funds the SFO.

But back to News International which launched a new British newspaper this week, The Sun on Sunday.  Whilst the timing of the launch of this new publication seems particularly dubious during the second module of the Leveson Inquiry, it is reported by Mr Murdoch that its first edition was very successful and that the number of copies sold beat expectations at 3.26m copies.

However, the news is not all good for News International because one of the MPs at the heart of the campaign for an investigation into the media, Chris Bryant MP, the Shadow Justice Minister, has been speaking out again.  He claimed this week at a private members debate held in Westminster Hall that the phone hacking scandal will be the single largest corporate corruption case for 250 years.  He has also claimed that the cover-up extended to James Murdoch, the former Chairman and Chief Executive of News Corporation, something which James Murdoch has strenuously denied when giving evidence to the House of Commons Culture, Media and Sport Committee.  One can only assume that Mr Bryant’s comments are covered by parliamentary privilege.  On 29 February James Murdoch resigned from any further involvement with News International’s British newspapers, perhaps fearing further criticism of his stewardship of News International.

As News Corporation, the parent company of the News of the World and The Sun, is US based, stories surface upon time to time as the whether US prosecutors will pursue an FCPA investigation.  The signs seem to be, for the moment, that the US prosecutors will let the British prosecutors have the first run at it all, which makes sense as it does seem to be a British problem, even though, technically, some of the alleged offences may also constitute offences under US law.

All in all, the last week’s news has been quite hectic and disturbing, particularly under the themes of wide scale public corruption and the perceived (but unrelated) problems within the Serious Fraud Office itself, the main prosecuting body charged with pursuing corruption in the UK.  Let’s hope the SFO stays focussed.  The new Director, David Green, takes up his position in April.

Of course, we will continue to keep you posted on developments on these interesting stories.

Today it was reported in the UK’s Daily Telegraph newspaper that the Director of Public Prosecutions (the DPP), Mr Keir Starmer, is developing an interim policy for prosecutors which will give them guidance as to the factors which they should take into consideration when deciding whether or not to prosecute journalists acting in the course of their work as journalists.

This announcement was made as Mr Starmer gave evidence to the long running Leveson Inquiry into press ethics in the UK.

The interim policy, when published, will be subject to a 12 week public consultation before the final policy was put into force.

Apparently it is intended that the policy will cover offences committed by journalists under the Regulation Of Investigatory Powers Act (which covers phone hacking and under cover surveillance), the Bribery Act (which makes no exceptions or defences for journalists but only for the armed forces and the secret services), the Data Protection Act and the Computer Misuse Act. In addition, the Telegraph reports, it would cover the Official Secrets Act and offences of aiding and abetting misconduct in public office which prevents civil servants and police officers from leaking information to journalists.

The policy will probably be one of many new recommended laws, regulations and policies to emanate from the Leveson Inquiry. It is very likely that the lobbying industry will be more tightly regulated than hitherto.  As to the press and media industry, it is still not clear how much new regulation will be put in place, given that freedom of speech and of the press is usually well protected in the UK.

We will blog further on Mr Starmer’s interim policy for prosecutors when it becomes available.

The Leveson Inquiry continues.  The official website for the Inquiry is here.

The UK chapter of Transparency International has recently published a new report subtitled “An evaluation of UK corporate plea agreements and civil recovery in overseas bribery cases”.

The report contains a very useful review of the following:

• Plea agreements and civil settlements, including the legal framework that governs plea agreements, protocols that govern the conduct of prosecutors, plea negotiations and the principles of civil recovery;
• Sentencing, including fines, confiscation, rehabilitation (monitors), restitution (compensation) and debarment;
• Alternative legal procedures including prosecutions in the United States for FCPA offences and in other jurisdictions;
• Case studies in criminal proceedings including the recent cases of Mabey & Johnson, Innospec Ltd, the BAE Systems case;
• Commentary and issues in criminal plea agreements including prosecution, conduct and sentencing issues;
• Case studies and civil settlements including the recent cases of Balfour Beatty, AMEC, the Aon settlement with the Financial Services Authority, MW Kellogg Limited, Depuy, Macmillan Publishers, and the Willis settlement with the Financial Services Authority;
• Commentary and issues on civil settlements including the use of civil powers under Proceeds of Crime Act, prosecution practice, sentencing issues and the role of the FSA;
• Emerging issues and recommendations including the primacy of criminal settlements, transparency, the respective roles of the judiciary and prosecutor in criminal plea agreements, the seriousness of overseas bribery, rehabilitation – the appointment of monitors, bribery offences and debarment, limitations of civil settlements, deferred prosecutions and international cooperation on investigations and prosecutions.

TI states that the report intends to provoke discussion and to make recommendations to the UK government and prosecuting authorities that will “help to ensure just, fair and transparent outcomes”.  Transparency International states that “the right balance, both on the exercising of prosecutorial discretion and in sentencing, has yet to be realised…”.

Transparency International make 23 recommendations (set out on pages 6 to 8 of the report).  The ones which we find particularly interesting include:

• Recommendation 6: Protocols in international cases:  The Attorney General should agree some form of protocol or Memorandum of Understanding with his counterparts, especially with the US, which deals with the underlying principles of settling concurrent jurisdictional issues.  Decisions should be taken on grounds of public interest rather than narrow national self interest.  Defendants should not be encouraged to believe that they can forum shop in the expectation that they can play jurisdictions against each other.
• Recommendation 7: Double jeopardy:  Double jeopardy should not be used to frustrate criminal proceedings in the UK, in those cases where there is a strong public interest to argue for primacy of the UK courts.  In those cases where double jeopardy is pleaded as a reason for not proceeding with criminal charges it should be fully reasoned and publicly justified.  The SFO should contribute to the legal debate over double jeopardy by publicly explaining its view on the application of double jeopardy in US and European cases.
• Recommendation 8: Sentencing guidelines:  The Sentencing Guidelines Council should issue guidance on sentencing in overseas bribery cases, reflecting the seriousness of the offences, the damage that bribery inflicts on society and to provide an effective deterrent to future corporate defending.  There should be greater clarity and certainty over the level of fines and the method of calculation, and the aggravating or mitigating factors that should be taken into account in the sentencing.
• Recommendation 12: Corporate liability:  The work of the Law Commission on corporate criminal liability should be finalised as soon as possible to enable the SFO to seek to clarify its application in respect of offences under the Bribery Act and if necessary test its interpretation before the courts.
• Recommendation 19: Debarment:  There should be more clarity on the process for entering and exiting the debarment process, including taking into account any remedial action taken by the company.  TI–UK recognises that the current uncertainty over the risk and nature of debarment can play a disproportionate role in pre-negotiations, which may result in an inappropriate charge being laid before the court.
• Recommendation 20: Appointment of monitors:  The process by which monitors are appointed, their terms of reference, their powers and reporting need to be subject to clear published guidelines.
• Recommendation 22: Earlier judicial oversight:  Prosecutors should have access to the court at an earlier stage in plea negotiations to obtain tacit judicial approval of plea agreements and to obtain an indicative range of the fine and confiscation.  It is important that whatever extended role is played by the judiciary, the independence and separation of powers between the judiciary and prosecutors is not undermined.
• Recommendation 23: Use of Deferred Prosecution Agreements:  The Government should consider the introduction of DPAs or some similar sentencing procedure after a thorough assessment of the alternatives.  DPAs have proved to be a useful procedure to settle FCPA cases in the USA but the process has also be criticised with little judicial oversight.

We will blog further on this comprehensive and stimulating report, including US perspectives on it, in due course.

Rule of Law and Anti-Corruption Centre was launched in Qatar yesterday with a call by the United Nations Secretary General Ban Ki-moon to  fight corruption and promote human rights to achieve all the Millennium Development Goals (MDGs) . This story was reported in The Gulf Times today.

Moon said the fight against  corruption is and should remain at the centre of rule of law, “and the fight against corruption requires more urgency now than before to promote human rights and ensure all the Millennium Development Goals (MDGs) are achieved”.

"Corruption is a global phenomenon  that impedes growth and development, which is also a threat to the important efforts being made in reducing poverty and achieving the MDGs. Because of corruption, many poor and vulnerable people are being denied education and other essential services they need to maintain a normal day-to-day living,” he said.

He described the centre in Qatar as a “step forward in a collective journey of implementing the UN’s effort against corruption”, saying: “The launching of this centre is coming at a time when people in the Arab world are rising and fighting against corruption. And as billions of ordinary people are saying no to corruption, the international communities must listen...all must heed their cry.”

Ki-moon, who drummed up support for the Doha centre, said the UN welcomed increased number of activities being initiated by governments and private organisations across the globe to fight corruption.
“Corruption distorts the market and increases costs for companies, so building partnership between public and private sectors is very crucial to combat the threat of corruption against global economy,” he noted while also calling on co-operations between civil society organisations (CSOs) across the board.

“All people have the responsibility to speak against corruption because combating it starts with every individual, which makes it important to focus on anti-corruption education in order to tackle the issue head on,” Ki-moon said.

While pledging further support by the UN for the centre’s operation, he commended Qatari leadership for always taking a pioneering role in the region, especially for hosting in Qatar, some two years ago, the Third Session of the Conference of Parties of States to the UN Convention Against Corruption. “Qatar has once again showed its role in championing efforts in the region and for setting international agenda and it should be our collective desire to recover the stolen future of the ordinary people...we can’t fail them,” he added.

Qatar’s Attorney General Dr Ali bin Futais al-Marri noted in a welcome address that corruption and lack of transparency as well as absence of such centre as the one being launched in Qatar have led to some of the recent uprisings in the region and also contributed to the financial crises in the eurozone. He maintained that Qatar has remained on top of the list of less-corrupt countries, attributing the present status to the country’s free and independent judiciary system.

“The launch of this centre here is a further proof of the commitments by HH the Emir Sheikh Hamad bin Khalifa al-Thani and HH the Heir Apparent Sheikh Tamim bin Hamad al-Thani to ensure the rule of law and guide against corruption, especially by making sure that the judiciary is completely independent which is not the case in many countries in the region,” he pointed out.

Although many people regard the Middle East region generally as a highly corrupt region (and there are many examples of corruption in the region often involving Western and other companies securing huge defence and infrastructure contracts by the use of bribes and so-called commission payments), Qatar should not be included within this group. Qatar has been ranked at 22 by Transparency International's recently published public perceptions index 2011 The UK by comparison was only a few places ahead of Qatar at 16, and the US has fallen behind Qatar at 24th place, with Spain at 31st place.

Compared with some of its Middle Eastern neighbours, Qatar is 1st in the regional rankings within the Middle East and North Africa geographic group, Israel being at 36, Bahrain at 46, Oman at 50, Saudi Arabia at 57 and Tunisia at 73.

The launch of this centre will not only encourage inward foreign investment into Qatar, but it will also set an example for the rest of the Middle East region and, we hope, encourage other regional countries to reform their own laws and enforce those laws properly in order to drive down the high levels of corruption.

This week saw the publication of the British Government's International Development Committee's report, on which we have already blogged. The committee focused much of its report on what it regarded as the deplorable delay in BAE Systems paying over to the people of Tanzania the agreed sum of reparation representing proceeds of sale of the air traffic control system it sold (prosecutors say illegally) to the Government of Tanzania.

A number of individuals and organisations were invited to submit written evidence to the committee, including Transparency International. It made some interesting and we believe very thoughtful suggestions to the committee. We quote part of the evidence which TI submitted on this subject:

 

II. Resources for Law Enforcement and its Coordination

23. The relevant questions raised in the IDC’s notice are as follows:

Whether the UK prosecuting authorities have the resources and powers they need to prosecute transnational financial crimes, particularly when there are also criminal proceedings in another jurisdiction in respect of the same issue.

How the Government co-ordinates its policy against transnational financial crime.

Resources

24. The investigation and prosecution of transnational financial crimes, especially when they involve multiple jurisdictions, can be complex, time-consuming and therefore relatively more resource-intensive than law enforcement in other areas. During the past few years, the SFO has been involved in multi-jurisdiction cases, notably those involving BAE and Innospec. Provided the extra-territorial reach of the Bribery Act has not been weakened by certain parts of the Government’s final Guidance to companies under Section 9, it is possible that UK law enforcement will become involved in a larger number of multi-jurisdiction cases.

25. The issues of resources and the institutional arrangements for law enforcement against financial crimes are of increasing concern to TI-UK. The budget of the SFO, which leads the UK’s enforcement efforts, has already been reduced substantially. It is reported that the SFO is to be disbanded with its investigative function merged with a new National Crime Agency (NCA) (expected to be set up in 2013) and its prosecutorial function subsumed into the Crown Prosecution Service. Since the NCA (into which the Serious Organised Crime Agency will be subsumed) is expected to have a mandate to focus chiefly on antiterrorism and organized crime, there is a danger that the prosecution of bribery will be given a much lower priority. The separation of the investigatory and prosecutorial functions may also have an adverse impact on law enforcement against bribery. The Home Office has stated that, “No decisions have been taken” on institutional restructuring. Unfortunately, uncertainty about the future has led to the departure from the SFO of several senior prosecutors in recent months.

26. TI-UK recommends that adequate financial and human resources should be allocated for the effective prosecution of transnational financial crimes. Any changes to the institutional arrangements for the investigation and prosecution of foreign bribery should not result in fewer resources for enforcement, a downgrading of the priority given to combating foreign bribery and a fragmentation of responsibility for investigations and prosecutions among different agencies.

Coordination

27. Several government departments and agencies are currently involved in combating transnational financial crime and there is clearly scope for improved coordination. It is unclear how the changes the Government proposes to make to law enforcement will affect coordination. The lack of transparency in this area could be remedied through publication by the Government of its proposals and a proper public consultation. Furthermore, the publication of an annual Action Plan for combating international corruption, including transnational financial crime, and periodic reviews of its implementation would make transparent the UK’s priorities, the resources devoted to them, and the effectiveness of activities to implement the Plan. A number of benefits can be expected to flow from mechanisms to improve co-ordination, oversight and reporting, including more efficient use of scarce resources by avoiding duplication of effort and consistency in policy across departments.

28. TI-UK makes the following recommendations to increase transparency and improve co-ordination, oversight and reporting:

A public consultation on the Government’s proposals for re-organising the machinery for law enforcement against financial crime;

Annual progress reports by the Secretary of State for Justice, who is the Government’s Anti-Corruption Champion, on the implementation of the Action Plan;

Creation of a new House of Commons committee to provide oversight of the implementation of the Action Plan - this committee could be made up of members of the following committees (recognising the cross-cutting nature of efforts to tackle corruption and transnational financial crimes): Business, Innovation and Skills; Defence; Foreign Affairs; International Development; Justice; and Treasury; and

Establishment of a cross-Whitehall group of officials to coordinate cross-Departmental work to deliver the Action Plan.

In short, TI is recommending better communication between all those in government who are involved in the prevention of international financial crime and better reporting so that the public and others can identify what the Government is actually doing and achieving in this regard. This will also employ scarce resources more economically. We at the BriberyLibrary wholly endorse TI's recommendations which must surely be unarguable.

One example of where the left hand of government doesn't know what the right hand is doing (at least by appearance anyway) is that the SFO is against the introduction of rewards for whistleblowers, whereas the Office of fair Trading, which of course regulates and prosecutes inter alia UK competition rules, reportedly does pay rewards of up to £100,000. We have blogged on this subject before. It makes no sense to us that one UK prosecutor has adopted this reward system whereas another takes the contrary view. Joined up thinking from Government should not be difficult to achieve.  How can we expect enforcement cooperation at an international level if there is an inadequate level of communication at national level?

The Transparency International Corruption Perceptions Index 2011 has been published today.

This is TI's explanation of the index:

"The Corruption Perceptions Index ranks countries according to their perceived levels of public-sector corruption. The 2011 index draws on different assessments and business opinion surveys carried out by independent and reputable institutions. The surveys and assessmentsused to compile the index include questions relating to the bribery of public officials, kickbacks in public procurement, embezzlement of public funds, and questions that probe the strength and effectiveness of public-sector anti-corruption efforts."

Further, from the report:

"The 2011 Corruption Perceptions Index shows that public frustration is well founded. No region or country in the world is immune to the damages of public-sector corruption, the vast majority of the 183 countries and territories assessed score below five on a scale of 0 (highly corrupt) to 10 (very clean).

New Zealand, Denmark and Finland top the list, while North Korea and Somalia are at the bottom.  According to Huguette Labelle, Chair of Transparency International:

"This year we have seen corruption on protestors’ banners be they rich or poor. Whether in a Europe hit by debt crisis or an Arab world starting a new political era, leaders must heed the demands for better government.

Public-sector governance that puts the interests of its citizens first is a responsibility that is not restricted to any border. Governments must act accordingly. For their part, citizens need to continue demanding better performance from their leaders. If we work together, the situation shown by this year’s Corruption Perceptions Index can improve. These are our countries and our future."

The UK is 16th from the top, a position which needs much improvement but still higher, by comparison, than the US at 24, France at 25, Spain at 31 and Italy a depressing joint 69 with Ghana and Macedonia.

Here is TI's press release which accompanies the new index.

We have previously blogged on the SFO's controversial decision not to prosecute BAE Systems in relation to an investigation into corruption of Tanzanian government officials who purchased a highly expensive air traffic control package which was over specified for Tanzania's needs. On 21st December 2010 BAE Systems Plc was fined £500,000 after admitting it had failed to keep adequate accounting records in relation to this defence contract. Here is the SFO's press report on it.

To recap: the Judge took into account in sentencing BAE that the group had committed itself to a process of change following the Report of Lord Woolf and that BAE would be making a payment for the benefit of the people of Tanzania of £30 million less the fine. The Judge said that the people of Tanzania were the real victims. The Judge decided in these circumstances to impose a fine of £500,000. The Judge, Mr Justice Bean, was not pleased at all about the decision not to prosecute the company for corruption and he suggested that the fine which had been agreed for the offences to which BAE pleaded guilty was totally inadequate. He said in his judgment:

"I also cannot sentence for an offence which the prosecution has chosen not to charge. There is no charge of conspiracy to corrupt, nor of false accounting contrary to section 17 of the Theft Act 1968. More obviously still, the Court does not decide who should be prosecuted"

On 5 February this year BAE concluded settlement negotiations with the US Department of Justice in relation to contracts with Saudi Arabia and Central and Eastern Europe, and with the SFO in relation to the Tanzania contract.

This week it was reported that a British cross-parliamentary committee, the International Development Committee, also wants any others involved in the deal to face prosecution including those individuals in Tanzania. The Commons committee is reported as saying that it is appalled to find that the compensation has still not been paid.

BAE Systems says it is now working with the Department for International Development as to how the money should be spent.

It is noteworthy how long this type of investigation and prosecution last. Even though it was disposed of by the court almost one year ago in the UK, the bad publicity for BAE Systems continues in the media and is still now being debated by senior politicians within the British government and the Tanzanian government.

“This report should be welcomed by all those who are concerned about bribes paid overseas by British companies. Bribery is not a victimless crime and it is important that reparations are also made to the countries whose citizens suffer when bribes are paid.

    

“The long saga of allegations about corruption involving BAE Systems has been a national embarrassment to both the UK and Tanzania, and it is astonishing that no individual has yet been found guilty despite the company having to pay fines and reparations of $450 million for Tanzania and other cases. We are pleased to hear that the Tanzanian government may prosecute individuals, and hope that the UK authorities will cooperate fully if UK nationals are found to have broken Tanzanian law.  We particularly endorse the suggestion that the Government’s Anti-Corruption Champion should publish annual reports on his work.”

Let's also not forget that the $400m fine which was paid in the US for related corruption offences was one of the largest imposed in the last year, so that very fact too attracts further publicity of the wrong kind (not all publicity is good publicity, contrary to the old saying) around the world.

Pfizer Inc has agreed to pay more than $60 million to settle investigations by the US Securities Exchange Commission and the US Department of Justice in connection with “potentially improper payments” made by units of Pfizer and Wyeth which Pfizer acquired in 2009 for $68 billion.

It is reported that Pfizer and its rival Johnson & Johnson, which itself settled a bribery investigation earlier this year, have provided US authorities with information about widespread industry practices that could violate the FCPA.

The Department of Justice has previously reported that Johnson & Johnson had received a $17 million discount on its $21.4 million criminal fine for “substantial assistance in the prosecution of others”.

This latest settlement is part of an industry focus by the SEC and the DOJ on the pharmaceutical and medical device industry globally (something which my colleague, Patrick Gilfillan, has previously blogged on), including financial arrangements with foreign doctors some of whom may be regarded as foreign public officials under the FCPA

The global accounting firm Deloitte LLP has published its 2011 anti-corruption practices survey.

Deloitte reports that companies have increased their focus on preventing and detecting corrupt activities and their global operations in response to the increase in prosecutions under the US Foreign Corrupt Practices Act (FCPA) and the increased size of penalties.  However, only 29% of the 276 executives surveyed by the Deloitte Forensic Centre were very confident that their company’s anti-corruption program would prevent or detect corrupt activities.  Deloitte concludes that this low level of confidence indicates that many companies may need to evaluate and upgrade their anti-corruption efforts.

A combination of the increased enforcement of the FCPA, and the increase in the size of penalties over the last few years, together with the coming into force of the new UK Bribery Act 2010 means that organisations all around the world are re-examining their anti-corruption compliance programs.  Indeed several we at the Bribery Library have spoken to over the past year have no anti-corruption controls in place at all, which is perhaps surprising when you realise that they are entities with turnovers of $billions.

Some other interesting statistics from the Deloitte report:

• 90% of executives said their company had an anti-corruption policy (one wonders precisely who Deloitte were surveying, because this is not necessarily our experience).
• Only 45% of the companies surveyed had a stand alone anti-corruption policy, while the remaining companies have a policy that was part of a broader code of conduct.  Deloitte offer the commentary that in their experience anti-corruption issues may not receive adequate attention unless they are addressed by the policies specifically focussed on corruption, is a view with which we agree.
• Although roughly 80% of executives said their company conducted internal audits of its foreign operations to identify corrupt activity, only 32% said these audits were conducted annually or more often.

Third party risks

• 52% of executives see the activities of third parties as the greatest source of corruption risk.
• 43% of executives considered that identifying and managing third party relationships was a significant challenge, more than for any other issue.
• Despite these concerns, only 41% of executives said their company regularly conducted due diligence on third parties in foreign countries that interact with foreign government officials.
• 9% of executives said that they conducted very detailed monitoring of third parties to ensure that they are complying with the company’s anti-corruption requirements.  This statistic certainly is in line with our experience of talking to clients and contacts.
• When conducting anti-corruption internal audits, only 50% of executives said that their company’s audits covered foreign sales agents.

Increased corruption risk in emerging markets

• 55% of executives said their company was extremely concerned about the potential impact on their business of corruption in China.
• 43% had the same view about Russia.
• 39% had the same view about India.
• 26% had the same view about Brazil.

“Tone from the top”

• 80% of executives said that their board of directors received updates on the status of their anti-corruption compliance program, and roughly two thirds said that they received updates annually or more often.
• However 32% of executives from smaller companies (with less than $1 billion in annual revenues) said that their board of directors did not receive any updates on their compliance programs.

Assessing risky activities

• Approximately one third of executives considered that customs clearance and importation of goods, and entertainment or business development expenses related to government business or to government relations, presented a significant corruption risk for their companies.
• 20% or more of executives felt that a number of other activities pose a significant risk including bribes, gifts to foreign government officials, expenses incurred in connection with sponsored travel and lodging for foreign government officials and facilitating payments.
• 63% of executives at larger companies believe that the use of third parties posed a significant risk, compared to 33% of those at smaller companies.
• 35% of executives from larger companies received a significant risk from entertainment or business development expenses related to government business or to government relations, while only 19% of those at smaller companies shared that concern.
• 58% of executives said that their companies relied extensively on internal risk assessments and past experience with corruption issues.
• One third of executives said that their companies relied extensively on industry information or on the ratings of the Transparency International Corruption Perceptions Index.
• In spite of the very significant financial incentives arising out of the Dodd-Frank SEC whistleblower provisions, 37% of smaller companies and 20% of larger companies said that they were not likely to re-evaluate their anti-corruption programs in light of these new rules.

Training and communication

• 73% of executives said that their companies provided anti-corruption training, of whom 64% said that they trained select employees such as those in higher risk positions.  However, many executives said that their company cast a much wider net for anti-corruption training.
• Half of the executives said that their company trained all international employees, while 44% said that they trained all domestic employees.
• Roughly one third of executives said that their company also trained members of its board of directors on the company’s anti-corruption policy.
• Only 26% of executives said that their company trainer third parties on anti-corruption requirements which, Deloitte comment, is surprising given the general concern over corrupt activities involving third parties.

Personally, we are surprised at the low level of training revealed by this survey and feel certain that this must increase rapidly and extend to all staff if companies are to meet the UK Bribery Act Guidance published on 30 March 2011.

Deloitte conclude that while training is important in helping all employees understand the legal requirements and company policy on what constitutes corrupt activity and its consequences, it is unlikely to be enough.  Anti-corruption training programs should be supplemented by a robust monitoring programme throughout the year, and by an effective approval process for transactions and for the use of third parties.

In conclusion, this survey is a stark reminder that there is a great deal more work to be done by companies all around the world, including those in countries where there is already medium or high levels of enforcement, to deal with the risk of corruption and to meet the expectations of regulators, especially in the US and the UK.

A motion has recently been voted at the European Parliament in Strasburg with a view to encouraging the European Commission to prepare a directive to fight against international organised crime (mafia) throughout the European Union. 

This proposal was initiated by the Italians Sonia Alfano and Antonio Di Pietro (former prosecutor in Italy).

In their report to the European Commission, the motion suggested the creation of new offences relating to organised crime with a view to seize offenders’ assets which are proceeds of crimes and to creating a temporary commission within the European parliament to fight organised crime. 

We will blog again on this topic as and when the motion has been considered by the European Commission.