Just before Christmas, Transparency International UK (TI-UK) published a short article reviewing the highs and lows of 2012 in terms of corruption. The article can be found here.  Many of these stories we covered in our blog posts.  It was an interesting year. Ignoring for the moment the long running Leveson Inquiry into the cosy relationship between the media, the police and politicians, the conclusions of which will be debated for years, no doubt, the stories actually listed by TI-UK concerned the police, politicians, banks and former soldiers, and not so many from big business itself (although Oxford University Press reached a settlement in July and Rolls Royce PLC referred some information concerning historic activities to the SFO in November).

Doubtless other less famous companies have also been in touch with the SFO to notify them of other potential corruption issues. It should be assumed that the SFO has a growing pile of cases to investigate. We will blog on the growth in self-reporting to the SFO separately. The common theme between those individuals identified in the TI-UK end of year report was that they were all in a position of power and decided to try to take advantage of it for personal gain in an illegal manner.  For some, there was a swift end and resolution to their conduct, but for others the prosecution and civil litigation will follow them for years and may taint themselves for ever.  

In December 2012,  TI published its annual Corruption Perceptions Index. The graphics are quite jazzy and informative and it is well worth a visit via this link.  The United Kingdom is still much lower than it should be, at 17, with a score of 74 out of 100, compared with Denmark and Finland which scored 90. I will now let Susan Côté-Freeman, Programme Manager, Private Sector Programmes, at Transparency International, explain Transparency International’s Corruption Perceptions Index 2012:-

Corruption is the world’s most talked about global problem according to a survey commissioned by the BBC. It’s up there with other seemingly intractable problems like poverty and unemployment.

Transparency International’s Corruption Perceptions Index 2012 – which measures the perceived levels of public sector corruption in 176 countries and territories – is not likely to put an end to discussions on the topic. The index has become an essential tool for policy-makers, activists and the many businesses that use it to develop their anti-corruption risk management systems.

Corruption Perceptions Index: ranking highlights

What is noteworthy about this year’s index? Denmark, Finland and New Zealand tie for first place while Afghanistan, North Korea and Somalia once again cling to the bottom rung (read about the top and bottom ranked countries here). What is more dismaying, however, is that two-thirds of the countries ranked in the index score below 50 on a scale from 0 (perceived to be highly corrupt) to 100 (perceived to be very clean).

What do this year’s rankings mean for governments? They need to take a stronger stance on governance, including the introduction of more stringent rules on lobbying and political financing, making public spending and contracting more transparent and ensuring that public bodies are more accountable to citizens.

And what should business take away from this year’s index? Transparency International’s message on corruption is clear: corruption can happen anywhere and no country and no company can afford to be complacent. But in looking at the bottom two-thirds of the rankings, it’s clear that the major emerging economies, where so much of today’s economic activity is taking place, continue to be seen as highly corrupt.

How do the BRICS perform?

This year’s rankings for the BRICS economies show Brazil and South Africa tied for 69th place, China at 80, India at 94 and Russia trailing the group at 133. All but one of the world’s 10 fastest growing economies score less than 40 out of 100.

It is estimated that the BRICS have contributed up to 50% of global economic growth over the last decade. It therefore stands to reason that growing emerging economies are attractive for business looking for new markets. But unless persistent corruption is addressed, it will continue to present high risks for foreign investors and for emerging economies, which could see their growth stunted by failure to confront problems like bribery.

Companies also need to be more transparent. Our research shows that while the world’s 105 biggest multinationals are doing more to report on their anti-corruption programmes,  but they are not doing so well when it comes to reporting country-by-country. The BRICS all have more than 60 of those 105 companies operating in their borders, but in none of them do more than a dozen of the companies disclose their revenues and/or taxes paid in the country on their corporate website (for more details, click here).

Tackling corruption is a challenging and complex task. But it is critical for all of us, whether we are in emerging or more advanced economies, to defeat corruption, thus ensuring that governments gain and maintain the trust of citizens and business can thrive in a competitive environment that is open and fair

Overall, this looks like a sorry story, with a great deal of work around the world required to improve the position. Whether the richer countries such as the US and the UK are in fact able to demonstrate leadership to other countries is still not certain. It is true that these countries have tough laws and that enforcement of those laws is increasing year by year, but the number of corruption stories is not diminishing. If anything, it appears to be growing. But is that because we are all more aware of it and there is increased enforcement, self reporting and whistle blowing? Or is there just more corruption? It is probably hard to tell, and it is far too early to work out whether the Bribery Act 2010  has had any real impact, yet, on British or foreign companies’ conduct. Some of those companies currently self-reporting may end up being prosecuted for activities or conduct which took place many years ago. It is going to take at least ten years and probably many more until we can look back and examine whether most businesses which operate in some way in the UK are adhering to the new laws.

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.

A few days ago the new Director of the Serious Fraud Office, David Green QC, used his first public speech at a corporate accountability conference in London organised by the accountancy firm PwC to set out his plans to reconfigure the UK’s leading prosecution agency for serious economic crime.  The author was a guest of PwC at this conference which had many high profile speakers and great content throughout the day.

Mr Green told the audience of approximately 200 leading anti-corruption practitioners, at a session chaired by Lord Wolfe:

“I aim to recharge the SFO’s corporate self respect and lead it to the top of its game as a major crime fighting agency”

Mr Green continued to say that he would advertise for four senior roles and this is likely to lead to new officials entering the agency.  He is seeking a new chief investigator (to replace Keith McCarthy who left a few months ago to join PwC), a new general counsel (to replace Vivian Robinson QC who left 11 months ago to join the international law firm McGuireWoods), a new head of policy and external affairs and a new role focussing on managing cases between charge and trial.  Mr Green said that this latter position would also advise on the suitability of settlements and on American style deferred prosecution agreements (“DPAs”), should they be introduced into law, as is planned by the current government.  We have blogged on the subject of DPAs here previously.

Mr Green’s planned restructuring of the agency is partly as a result of a greatly reduced budget, which itself is a consequence of the government’s severe cut backs on public expenditure (the SFO’s budget has gone down from £52 million in 2008 to £32 million in 2012) and also due to the recent severe criticism by Lord Justice John Thomas of the way that the SFO had handled the investigation into and raid on the Tchenguiz brothers.  The Judge undertaking the judicial review brought by the Tchenguiz brothers was particularly critical of the outgoing director of the SFO, Richard Alderman.

Mr Green announced at the PwC conference that four teams would be created within the SFO: two teams would oversee fraud cases and two would manage bribery cases; a fifth team would include support functions such as human resources.  See the FT.com report here.

Amongst other things revealed by Mr Green at the conference were:

• The Serious Fraud Office should not necessarily be the agency to undertake the prosecution of boiler room scams and mortgage frauds (the implication being that these types of crime be dealt with by other agencies including presumably the Crown Prosecution Service).
• That the Serious Fraud Office may look at alternatives to prosecution (such as civil settlements) but if the SFO does not prosecute, it does not mean that it is a failed investigation.
• That the SFO will expand and develop their investigation capabilities including the use of open source research and SARs (Suspicious Activity Reports).
• Mr Green is keen to recruit solicitors and barristers from the private sector, including through secondments from their employers.
• There would be a renewed focus on training at the SFO.
• The SFO would be collaborative with other agencies, both domestically and internationally.
• Mr Green welcomed the current inspection being undertaken by the Crown Prosecution Service.
• That the SFO would remove income from shareholders for illegally obtained contracts under the Proceeds of Crime Act (“POCA”) (this is a continuation of the new policy brought into force by Mr Green’s predecessor, Richard Alderman, in January 2012 when the SFO made a civil recovery from the shareholders of Mabey & Johnson which itself had previously agreed to a civil settlement order in relation to allegations of corruption.
• In relation to deferred prosecution agreements, Mr Green said:
  • That this was a new and imaginative tool for economic crimes committed by commercial organisations;
  • That he was looking at how one could prevent corporate defendants from “forum shopping”;
  • That sentencing of defendants is solely for the courts to decide and not for prosecutors;
  • And that corporations must not be seen to be able to escape from punishment where they had committed a crime.
• Mr Green added that the fact of self reporting is recognised in the public interest limb of deciding whether to prosecute or not.  The introduction of DPAs in this context would be very helpful.
• However, information provided to the SFO as a result of self-reporting may be disclosable to international agencies, so corporations may want to seek global settlements of related crimes.
• Ultimately, where it is in the public interest for the SFO to prosecute, it will indeed prosecute.

We look forward to further announcements from the new Director as his reforms at the SFO are put into effect.

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

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

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

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

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

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

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

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

Corruption

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

Mr Alderman takes the view that:

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

Self-Reporting

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

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

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

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

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

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

How Self-Reporting actually works

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

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

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

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

Civil Recovery

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

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

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

Deferred Prosecutions

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

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

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

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

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

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

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

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

Plea Bargaining

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

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

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

Companies that do not self report

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

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

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

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

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

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

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

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

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

The U.S. Securities and Exchange Commission (SEC) announced on Monday a settlement with London-based medical device company Smith & Nephew PLC to resolve charges that the company violated the US Foreign Corrupt Practices Act (FCPA) when its US and German subsidiaries bribed public doctors in Greece.  Putting the Smith & Nephew settlement in context, Nathalie Tadena of the Wall Street Journal explains:

The settlement came as US authorities have stepped up enforcement of the [FCPA], which bars US companies from bribing foreign officials.  Smith & Nephew and other medical-device companies were asked by the SEC and the Justice Department [DOJ] in late 2007 to look into possible improper payments to government-employed doctors and to voluntarily report any issues.

Indeed, according to the SEC, ‘[t]he charges stem from the SEC’s and DOJ’s ongoing proactive global investigation of bribery of publicly-employed physicians by medical devise companies.’  This global initiative to crack down on instances of bribery in the medical services industry is, perhaps, typified by the $70 million settlement the SEC and DOJ reached with Johnson & Johnson last April, resolving charges that the company paid bribes to public doctors in Greece and other European countries.  The $48 million collected by the SEC in that matter was the largest FCPA settlement the SEC attained in 2011. 

Although the SEC alleges that Smith & Nephew “failed to act on numerous red flags of bribery as employees at the company and its subsidiaries became aware of the payments,” the company was permitted to settle the matter without admitting or denying guilt in exchange for its consent: (i) to pay the SEC $5.4 million; (ii) for the entry of a court order permanently enjoining it from future violations; and (iii) to obtain an independent corporate monitor for eighteen months to review its FCPA compliance.  Smith & Nephew also negotiated a deferred prosecution agreement with the DOJ, pursuant to which the company will pay a $16.8 million fine. 

At $22 million, the Smith & Nephew settlement is unlikely to be the largest FCPA settlement in 2012.  It demonstrates, however, the US regulators' continued focus on FCPA enforcement.  The SEC and DOJ continue to investigate the matter.  It is unclear whether the Serious Fraud Office assisted in the US authorities’ investigation or if it is conducting a parallel inquiry.

The McGuireWoods Guest Bloggers are Robert Plotkin, a partner based in McGuireWoods LLP's Washington and New York offices and head of the firm's SEC Enforcement Defense group, and Kurt E. Wolfe, an associate based in McGuireWoods LLP's Washington office and a member of the firm's Government, Regulatory and Criminal Investigations department.

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.

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

The SFO Director, Richard Alderman, said:

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

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

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

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

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

In order to entice corporates to voluntarily disclose instances of fraud and corruption, meaningfully cooperate with government investigations, and/or undertake remedial measures, the US Department of Justice and Securities and Exchange Commission will, in appropriate circumstances, enter into Deferred Prosecution Agreements (DPAs) and Non-Prosecution Agreements (NPAs) with corporations.  The US Attorneys Manual describes the agreements as follows: ‘[A] deferred prosecution agreement is typically predicated upon the filing of a formal charging document by the government, and the agreement is filed with the appropriate court. In the non-prosecution agreement context, formal charges are not filed and the agreement is maintained by the parties rather than being filed with a court’. While DPAs and NPAs are not, by any means, agreed in most DOJ and SEC investigations, they turn up more frequently than one might guess. 

The DOJ has a long-established, though increasingly common, practice of negotiating and entering into DPAs and NPAs with corporates in appropriate circumstances.  DPAs are particularly popular with the DOJ for resolving corporate fraud matters, and are most frequently employed in connection with FCPA violations.  According to a United States Government Accountability Office Report, summarized here, the DOJ entered into four deferred and non-prosecution agreements in fiscal year 2003 and 38 agreements in 2008.  The DOJ entered into 35 agreements in fiscal year 2010, and based on its activity in the first half of 2011, the Justice Department appears to be on pace to meet or exceed that number in 2011.   The SEC, too, is beginning to make use of DPAs and NPAs, having entered into its first deferred and non-prosecution agreement within the last year. 

Through these agreements, federal regulators agree to forgo criminal prosecution and/or civil enforcement actions.  In exchange for the agreement, a corporate may be required to admit to some wrongdoing, pay fines or restitution, take remedial measures, commit to a future course of conduct, and/or submit to a corporate monitorship.  Both the SEC and DOJ view DPAs and NPAs as a means of encouraging companies and individuals to cooperate with ongoing investigations and enforcement actions.  One key principal underpinning the use of DPAs and NPAs is that prosecutors and enforcement staff can sanction corporates without resorting to a formal criminal prosecution or civil enforcement action and, thus, without subjecting the corporate to any unintended consequences that might come with formal enforcement proceedings. 

Taking an overly simplistic view of the matter, it may useful to think of DPAs, NPAs, and plea agreements (which we address in Part V of this series) not as extraordinary dispute resolution tools, but as something akin to a Tomlin order (or another form of consent decree, which is not uncommon in the English civil justice system).  In the US, at least, these agreements are viewed by the courts and practitioners as simple agreements memorialized in a written document.  The terms can be modified by the courts or the rejected by the courts and, indeed, enforced in the courts – as with any consent order. 

At present, however, deferred prosecution agreements simply do not exist in the UK.  The SFO, however, seem to like the idea of deferred prosecution agreements.  In a speech delivered at the London School of Economics on 30 March 2011, Richard Alderman, Director of the SFO, discussed the US Department of Justice’s use of deferred prosecution agreements, and explained how they might work for the SFO. 

In the wake of the Arthur Andersen and Enron scandals, Mr Alderman said, the DOJ devised the concept of deferred prosecution agreements, through which corporates ‘enter into a settlement with the Department of Justice under which the firm or corporation agreed to plead guilty to various charges, but the DOJ deferred the prosecution for a number of years to allow the corporation to pay substantial fines together with other remediation including monitoring’.  If the corporate meets the requirements of the agreement, the prosecution ends without conviction. 

Mr Alderman admits he ‘find[s] the model of deferred prosecutions attractive’.  While he recognises that some debate exists in the UK as to the efficacy of DPAs, Alderman believes ‘deferred prosecutions are … the best answer to a complicated and very real problem’.  Alderman does not advocate, however, a system in which prosecutors and corporates enter into ‘private agreements’ with wrongdoers.  Judicial oversight is paramount, he says, for ‘[o]nly a judge can decide whether the terms are appropriate’.  Nevertheless, Alderman insists there is ‘considerable scope’ for the use of DPAs in SFO matters. 

Indeed, according to Philip Urofsky and Josanne Rickard of Shearman & Sterling LLP in a recent Reuters blog, ‘the SFO and companies should continue the experiment of negotiating pre-charge alternative dispositions – known in the U.S. as ‘deferred prosecution agreements’ – which will be a less expensive option for the budget-constrained SFO and a more predictable process for companies.’   This, they say, will demonstrate that the UK Bribery Act is ‘effective and enforceable’ by ensuring that ‘prosecutions are resolved quickly and with clear and certain consequences’.

Interestingly, Mr. Urofsky and Ms. Rickard note that the SFO have already engaged in ‘pre-charge alternative dispositions’, citing the 2008 case of Balfour Beatty.  In that case, Balfour Beatty agreed to admit ‘payment irregularities’ related to a construction project in Alexandria, Egypt, and to pay a £2.25m penalty, in exchange for the SFO’s agreement not to bring charges.  This, Urofsky and Rickard submit, ‘was essentially a deferred prosecution’. 

Whether the SFO will adopt the DPA (and NPA) as a tool for resolving fraud and corruption practices remains to be seen.  It might, however, present a useful alternative to the problems UK regulators face in attempting to fashion binding plea agreements.  We will discuss those issues in greater detail in our next post on Identifying and Resolving Fraud and Corruption Cases in the US and the UK.

The McGuireWoods Guest Bloggers are Robert Plotkin, a partner based in McGuireWoods LLP's Washington and New York offices and head of the firm's SEC Enforcement Defense group, and Kurt E. Wolfe, an associate based in McGuireWoods LLP's Washington office and a member of the firm's Government, Regulatory and Criminal Investigations department.

On 22 July 2011 the SFO announced it had entered into an £11 million civil settlement with UK company, Macmillan Publishers Limited; the fifth and largest civil settlement entered into by the SFO to date.

Pursuant to a High Court Civil Recovery Order, Macmillan has been ordered to pay £11,263,852.28 (plus £27,000 for the SFO’s costs) in recognition of the proceeds it received as a result of unlawful conduct related to its Education Division in East and West Africa. 

At a time when many are questioning the SFO’s budget and ability to fund and pursue multiple large scale corruption investigations, the settlement with Macmillan demonstrates that SFO investigations can reach an outcome in a timely and cost effective manner.  The model followed for the Macmillan investigation is likely to be replicated for investigations into offences under the Bribery Act. 

The settlement with Macmillan came approximately 16 months after the matter was brought to the attention of the SFO and was the result of a combination of inter-authority referrals and extensive cooperation, both between the authorities and with Macmillan itself.

The SFO began its investigation into Macmillan in March 2010 following a referral from the World Bank’s Integrity Vice Presidency, which is responsible for investigating allegations of fraud, collusion and corruption in World Bank projects.  The World Bank’s own investigation was commenced after an agent attempted to pay a bribe in support of an unsuccessful bid to secure the award of a World Bank funded tender to supply education materials in Southern Sudan.  As a result of its investigation and admissions made by Macmillan, the World Bank debarred Macmillan from being awarded contracts financed by the Work Bank for a minimum period of three years.

The SFO cooperated closely with the World Bank and the City of London Police to identify the three jurisdictions in which Macmillan’s conduct was to be investigated (namely Rwanda, Uganda and Zambia) and to subsequently investigate all of the public tender contracts in those three jurisdictions in which Macmillan was involved in the period 2002 – 2009, whether funded by the World Bank or otherwise. 

Commenting on the settlement, Stephen Zimmermann, Director of Operation, World Bank Integrity Vice Presidency stated:

“Today’s announcement is testament to the importance of unified global action against corruption to ensure efforts to educate the children of Sudan and other developing countries are not undermined by corruption...

...To be truly effective in breaking the cycle of corruption, we must leverage the impact and deterrent effect of the World Bank’s investigations and referrals.”

In addition to co-operation with the World Bank and City of London Police, one of the key ways in which the SFO was able to conduct such a large scale investigation cost effectively was to shift the burden and cost of much of the investigation work on to Macmillan itself.  Macmillan was required to follow a procedure that complied with the Serious Fraud Office's guidance on self reporting in respect of overseas corruption.  At Macmillan’s own cost it instructed external lawyers to review the company’s books and records in order to identify areas of corruption risk.  The SFO used the results of this initial investigation to select the areas of the business and the three jurisdictions that would be the focus of its investigation.  The baton was subsequently passed back to Macmillan’s external lawyers, who conducted detailed investigations into the business activities of Macmillan’s Education Division operating in East and West Africa.  The results of those investigations were presented to the SFO and the World Bank, and were regarded by the SFO as being thorough and satisfactory.  The costs of those investigations were met by Macmillan.

It would appear that the speed and efficiency of the investigation into Macmillan had a great deal to do with Macmillan’s own willingness to provide its full cooperation to the SFO and the World Bank.  In return, it avoided a protracted investigation into its affairs by the SFO, which would likely have resulted in extensive cost and disruption to the business and possibly a criminal prosecution. 

In response to the settlement, Richard Alderman, Director of the Serious Fraud Office stated:

"I am pleased with this outcome.  Civil recovery allows us to deal with certain cases of corporate wrong-doing effectively.  It delivers value for money to the public by saving the cost of lengthy investigations and protracted legal proceedings and removes any property obtained as a result of the wrong-doing.  At the same time it forces the company to reform its practices for the future."

Given the success of the SFO’s approach in reaching a quick and cost efficient outcome through cooperation and the use of the civil recovery route as opposed to a criminal prosecution, we can expect to see more of the same. 

Although not strictly relevant to the Bribery Act, I was interested to read about a Californian case reported this week.  This was a five week trial of a US company and some individuals prosecuted under the Foreign Corrupt Practices Act (“FCPA”), the nearest US equivalent to the UK Bribery Act 2010. The case is USA v. Noriega et al., case number 2:10-cr-01031, in the U.S. District Court for the Central District of California.

Although there have been many hundreds of prosecutions under the FCPA, particularly over the past 10 years or so, this was, we are told, the first such case against a company which had made it all the way to a jury trial.  This alone I found rather surprising. Usually corporations do not like to fight the charges in a public trial, and they negotiate a deal whereby they often agree to plead guilty to a lesser offence, often the books and records offence under the FCPA (which has no UK equivalent), and to pay civil damages, disgorgement and/or a criminal fine. I do not think I had appreciated until now that the fear of the consequences in terms of reputation, fines and possible public contract debarment means that every company had hitherto negotiated their way out of the prosecution rather than face a damaging trial and possible conviction.            

On this rare occasion the defendants, Lindsey Manufacturing Co., its president, Keith Lindsey, and CFO, Steve Lee, and an intermediary, Angela Aguilar, all defended the charges. In fact, the jury eventually found against them all on every charge.

The case concerned bribes paid through an intermediary to a state owned Mexican utility company.

The defendants challenged the interpretation of “foreign public official”. It was argued that the utility company was not part of the state and that therefore its employees could not be foreign public officials. The law states that a foreign official is "any officer or employee of a foreign government or any government agency or instrumentality thereof”.   The judge rejected this challenge and the jury convicted the defendants. 

The facts show a serious breach of the law which included amongst other bribes giving a $300,000 Ferrari motor car in order to win contracts for Lindsey manufacturing.

Certainly on the facts as reported they would have given rise to a liability under the Bribery Act which of course covers both bribery of foreign public officials AND business-to-business bribery, assuming the UK court had jurisdiction over the defendants. Under S.6 (5) of the Act, foreign official can include an employee of any public enterprise.The defendants will appeal but are facing severe financial penalties and imprisonment for the individuals if the conviction stands.Assistant Attorney General, Lanny Breuer, said after the trial that

“Today’s guilty verdicts are an important milestone in our Foreign Corrupt Practices Act (FCPA) enforcement efforts. Lindsey Manufacturing is the first company to be tried and convicted on FCPA violations, but it will not be the last. Foreign corruption undermines the rule of law, stifling competition and the health of international markets and American businesses. As this prosecution shows, we are fiercely committed to bringing to justice all the players in these bribery schemes – the executives who conceive of the criminal plans, the people they use to pay the bribes, and the companies that knowingly allow these schemes to flourish. Bribery has real consequences.”

So will it take 34 years for there to be a contested trial in the UK under the new Bribery Act? Well I seriously doubt it (and I may not be here to see it if it does take that long!) for a number of reasons including that fines are unlikely to be so large in the UK as they are in the US, so not such a great deterrent and not so much incentive to do a deal before trial. We have not seen any evidence of the UK courts imposing fines anywhere near the size of those levied in the US. Further, there is not the same encouragement to whistle blow in the UK (there is no equivalent of the US Dodds-Frank Act which rewards whistle blowers), and the culture of self-reporting, whilst encouraged by the Serious Fraud Office officially, has not yet been inculcated into the UK legal system in the same that it has in the US.  Added to which the UK Court of Appeal last year dealt a fatal blow to the Serious Fraud Office’s hopes that they could encourage the use of plea bargaining to encourage people to come forward and self-report. Only primary legislation can change that view, and former Attorney General, Lord Goldsmith, is amongst those (as am I) who believe that plea bargaining should now be permitted by the UK courts in order to achive justice more cost effectively.

Still, despite all the above, its still curious that it took 34 years for there to be a jury trial under the FCPA.