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Former Alstom Executive Lawrence Hoskins Files Motion To Dismiss

Lawrence Hoskins is a United Kingdom citizen who lived and worked his entire life in the U.K. with the exception of a 35 month period between 2001 and 2004 during which he worked for Alstom in France.  In 2004, he resigned from his job at Alstom to resume his career in the U.K. and retired in 2010.  In April 2014 Hoskins and his wife disembarked from a ferry in the U.S. Virgin Islands en route to Dallas, Texas when he was arrested by U.S. authorities for an alleged bribery scheme dating back to his time at Alstom.

So began the Foreign Corrupt Practices Act journey of Lawrence Hoskins.

As highlighted in this previous post, Hoskins was criminally charged in connection with the same Indonesian power plant project that also resulted in criminal charges against other individuals associated with Alstom – Frederic Pierucci, David Rothschild, and William Pomponi.

Pierucci, Rothschild and Pomponi have all pleaded guilty.  However Hoskins is fighting the criminal charges filed against him and last week he filed a motion to dismiss.

The Memorandum in Support of the Motion to Dismiss states, in pertinent part, as follows.

“Resting as it does, upon an infirm foundation of aged allegations, overly expansive applications of law, and novel theories of criminal liability, the Indictment in this case suffers from numerous and fatal defects of law and logic. Among other things, it charges stale and time-barred conduct that occurred more than a decade ago; it asserts violations of U.S. law by a British citizen who never stepped foot on U.S. soil during the relevant time period; and, it distorts the definition of the time-worn legal concept of agency beyond recognition. In other words, the Indictment marks an excessive and improper exercise of executive authority. This is an Indictment that never should have been brought.

The Indictment seeks to hold Lawrence Hoskins, a retired 63-year-old British citizen, responsible for his alleged conduct that occurred—outside the United States more than ten years ago—while he was working in Paris at Alstom Holdings, SA (―Alstom‖), the parent company of the French conglomerate. The Indictment asserts that Mr. Hoskins, in his capacity as a Senior Vice-President of the Alstom parent company, approved and authorized the retention and compensation of two consultants, knowing that they would bribe Indonesian officials to help a consortium (including Alstom and one of its U.S. subsidiaries) obtain a contract to construct a power plant in Indonesia. According to the Indictment, Mr. Hoskins‘s limited, dated, and purely extraterritorial conduct subjects him to liability for two conspiracies and a total of ten substantive violations of the Foreign Corrupt Practices Act (―FCPA‖) and United States‘ money-laundering statutes. These charges all fail.

First, the Indictment is time-barred. Mr. Hoskins resigned from Alstom ten years ago, in August 2004, after 35 months of employment with the parent company and, when he did so, he withdrew from any alleged conspiracy operating therein. Second Circuit precedent makes clear that resignation from a business constitutes withdrawal from any criminal conduct operating within that entity if, following resignation, there is no promotion of or benefit received from the alleged illegal activity. Mr. Hoskins passes the Second Circuit‘s test with ease. After he resigned from Alstom, he immediately moved from Paris back to his home in England and started a new job, at a new company, in a new industry. He had no contact with, and received nothing from, any of his alleged co-conspirators. He also had no involvement with criminal conduct of any kind. To the point, the last act attributable to Mr. Hoskins in the Indictment occurred in March 2004, and the wire transfers that constitute the FCPA and money-laundering offenses all occurred long thereafter, between November 2005 and October 2009. Thus, Mr. Hoskins successfully withdrew from any alleged criminal conduct upon his resignation from Alstom. As such, all of the charges in the Indictment are time-barred and should be dismissed.

Second, the FCPA charges are facially defective. The Indictment alleges that Mr. Hoskins was an ―agent of a domestic concern,‖ to wit, an agent of Alstom‘s U.S. subsidiary. While it is black letter law that the fundamental characteristic of agency is control, the supporting factual allegations in the Indictment make plain that Mr. Hoskins was in no way under the control of the U.S. subsidiary. Indeed, much to the contrary, the Indictment demonstrates that Mr. Hoskins was ―approving‖ and ―authorizing‖ certain requests from employees of subsidiary companies ―in his capacity‖ as an executive of the Alstom parent company. Thus, because the allegations in the Indictment describe conduct bearing no semblance to an agency relationship, the FCPA-related charges are facially defective and should be dismissed.

Third, the Indictment‘s use of the term ―agent‖ is so counter-intuitive to the common understanding of that phrase that its application to Mr. Hoskins‘s relationship with the U.S. subsidiary renders the FCPA unconstitutionally vague as applied. Such a construction of the term ―agent‖ could not have provided Mr. Hoskins with fair warning that his alleged conduct—authorizing and approving matters at the request of employees of subsidiaries in his oversight capacity at the parent company—could expose him to criminal liability. As such, the FCPA charges are also constitutionally flawed and should be dismissed.

Fourth, the FCPA charges do not apply to Mr. Hoskins‘s purely extraterritorial conduct. Though Congress directed certain provisions of the FCPA to have extraterritorial effect, the subsection of the FCPA charged in the Indictment was not included in any such direction. Accordingly, the presumption against extraterritoriality applies. Thus, because all of Mr. Hoskins‘s alleged conduct occurred outside of the United States in the territory of a foreign sovereign, the substantive FCPA charges fail and should be dismissed.

Fifth, given the pronounced defects with the Indictment‘s FCPA charges, any theory of liability premised upon conspiracy and/or aiding and abetting also necessarily fail. Applicable Supreme Court precedent holds that when Congress affirmatively chooses to exclude a certain class of individuals from liability under a criminal statute, the government cannot circumvent that intent by alleging conspiracy. Moreover, federal courts have repeatedly held that ancillary offenses, including aiding and abetting and conspiracy, are only deemed to confer extraterritorial jurisdiction to the extent of the offenses underlying them. For these reasons, the conspiracy and aiding and abetting theories advanced in the Indictment cannot stand once the underlying FCPA charges fail.

Finally, the money-laundering charges are improperly venued in the District of Connecticut. The venue provision of the money-laundering statute establishes that venue lies only where the predicate money laundering transaction was ―conducted. The Indictment makes clear that the allegedly offending transfers were initiated from Maryland. As such, the District of Maryland is the only proper venue for the money-laundering charges, and they should be dismissed.

For the reasons described above and explained below, all of the charges should be dismissed. Mr. Hoskins never should have been charged on such old, infirm, and overextended allegations and legal theories. He should be freed to resume his life in England.”

*****

Hoskins is represented by Christopher Morvillo (Clifford Chance) and Brian Spears (Brian Spears LLC).  Both were previously AUSAs at the DOJ.

Non-FCPA Legal Developments Should Cause Pause As To Certain FCPA Enforcement Theories

The substance of this post is the same as this August 2013 post regarding the civil RICO action involving Pemex and Siemens.  The only difference is that instead of a S.D. of New York decision that should cause pause as to certain FCPA enforcement theories, it is now a Second Circuit decision that should cause pause.

By way of background, the FCPA is explicit as to the jurisdictional scope of the anti-bribery provisions and states as follows as to foreign companies.

  • As to foreign issuers subject to 78dd-1 of the FCPA (i.e. foreign companies with shares registered on U.S. exchanges or otherwise required to file periodic reports with the SEC), the jurisdictional prong is “use of the mails or any means of instrumentality of interstate commerce corruptly in furtherance” of a bribery scheme.
  • As to persons other than U.S. persons (legal or natural) or foreign issuers, the FCPA was amended in 1998 to create an entire new category of “person” subject to the FCPA’s anti-bribery provisions.  See 78dd-3.  This category applies to non-U.S. actors and non-foreign issuers such as foreign private companies and foreign nationals and contains the following jurisdictional prong – ”while in the territory of the United States, corruptly to make use of the mails or any means or instrumentality of interstate commerce or to do any other act in furtherance [of a bribery scheme.”

In  short, as to foreign actors, the FCPA’s anti-bribery provisions contain explicit territorial requirements.

Several FCPA enforcement actions have been brought against foreign companies based on sparse U.S. jurisdiction allegations. For instance:

  • The Total enforcement action (the third largest in FCPA history in terms of fine and penalty amount) was based on a 1995 wire transfer of $500,000 (representing less than 1% of the alleged bribe payments at issue) from a New York based account.
  • The JGC Corp. enforcement action was based on the jurisdictional theory that certain alleged bribe payments flowed through U.S. bank accounts and that co-conspirators faxed or e-mailed information into the U.S. in furtherance of the bribery scheme.
  • The Magyar Telekom enforcement action was based on allegations that a company executive sent two e-mails to a foreign official from his U.S. based e-mail address that passed through, was stored on, and transmitted from servers located in the U.S. and that certain electronic communications made in furtherance of the alleged bribery scheme and the concealment of payments, including drafts of certain agreements and copies of certain contracts with intermediaries, were transmitted by company employees and others through U.S. interstate commerce or stored on computer servers located in the U.S.
  • The Bridgestone enforcement action was based on allegations that employees sent and received e-mail and fax communications to/from the U.S. in connection with the bribery scheme.
  • The Tenaris enforcement action was based on allegations that a payment to an agent in connection with the alleged bribery scheme was wired through an intermediary bank located in New York.

The above background is important in understanding why a recent Second Circuit decision should cause pause as to the above FCPA enforcement theories.

The decision involved a civil RICO action in which PEMEX alleged that Siemens, among others, violated RICO and engaged in common law fraud by bribing PEMEX officials to approve overrun and expense payments to to CONPROCA, a Mexican corporation completing an oil refinery rehabilitation project in Mexico.  According to the complaint, CONPROCA would receive payment from PEMEX’s Project Funding Master Trust (the “Master Trust”), organized under Delaware law, and managed by its then-trustee Bank of New York.  According to the complaint, The Master Trust paid each invoiced amount from its New York account to CONPROCA’s account at Citibank in New York.  The complaint further alleged that CONPROCA financed the project at issue ”through the issuance of bonds registered with the SEC, and through institutional credit, a substantial amount of which were issued by U.S. financial institutions and guaranteed by the Export Import Bank of the United States.”

The DOJ would surely take the position that the above U.S. jurisdictional allegations would be sufficient to bring a criminal FCPA enforcement action against a foreign company for bribing foreign officials.

Not so in a civil RICO action subjected to actual judicial scrutiny.

As noted in the prior August 2013 post, in ruling on the defendants’ motion to dismiss based on the argument that the RICO claims were extraterritorial, the S.D. of N.Y. first noted that because RICO is silent as to any extraterritorial application, the RICO statutes do not apply extraterritorially.  The court then observed that “when foreign actors were the primary operators, victims, and structure of a RICO claim” courts have properly concluded that the claims were extraterritoritial.  The S.D. of N.Y. then held that PEMEX’S RICO claims were extraterritorial because “they allege a foreign conspiracy against a foreign victim conducted by foreign defendants participating in foreign enterprises.”

As to those U.S. jurisdictional allegations, the S.D. of N.Y. stated:

“They fail to shift the weight of the fraudulent scheme away from Mexico. Seen simply, as a result of the claimed conspiracy PEMEX, the Mexican Plaintiff for whom the work was done in Mexico, paid fraudulent overcharges to CONPROCA, the Mexican corporation which did the work.  PEMEX officials in Mexico granted the challenged approvals to pay CONPROCA. The American trustee merely transferred the payments through two banks in New York.  The defendants’ bribery of PEMEX officials, and CONPROCA’s underbidding and submitting false claims under Mexican public works contracts, all occurred in Mexico. Thus, ‘it is implausible to accept that the thrust of the pattern of racketeering activity was directed at’ the United States.  The RICO claims are accordingly dismissed.”

PEMEX appealed the S.D. of N.Y. dismissal and last week the Second Circuit (see here) affirmed the dismissal.  In pertinent part, the Second Circuit’s order states:

“To the extent Pemex relies on several allegations of domestic activity to support its RICO claim, these, too, are insufficient.  “[S]imply alleging that some domestic conduct occurred cannot support a claim of domestic application.” […]

The scheme alleged by Pemex possesses three minimal contacts with the United States: the financing was obtained here, the invoices were sent to the bank for payment, and the bank issued payment. Absent from the pleadings are any allegations that the scheme was directed from (or to) the United States. The activities involved in the alleged scheme–falsifying the invoices, the bribes, the approval of the false invoices–took place outside of the United States. The allegations of domestic conduct are simply insufficient to sustain RICO jurisdiction.”

Because of the general absence of substantive FCPA case law, one must often reference non-FCPA case law involving similar legal issues to best appreciate the many controversial aspects of FCPA enforcement.

As the above Second Circuit highlights, such case law should cause pause as to certain FCPA enforcement theories.

Potpourri

Inversions

Readers of business news know that a term du jour these days is “inversion.”  In other words and at the risk of oversimplification , the process by which, largely for tax reasons,  a U.S. company acquires a foreign company, obtains that foreign company’s “legal address,” yet maintains – in many cases –  its operational base in the U.S.

I’ve been asked a few times recently what impact, if any, “inverting” will have on a company’s FCPA exposure.  My answer has been very little, if any, impact.

Most of the companies that are “inverting” remain issuers under the FCPA.  Moreover, even if an “inverted” company is not an issuer, because most of these companies are keeping an operational base in the U.S. – even if a legal address elsewhere – it is likely that the DOJ would consider such companies to be “domestic concerns” under the FCPA.

The FCPA defines “domestic concern,” in pertinent part, as follows.

“any corporation, partnership, association, joint-stock company, business trust, unincorporated organization, or sole proprietorship which has its principal place of business in the United States, or which is organized under the laws of a State of the United States or a territory, possession, or commonwealth of the United States.”

In other words, place of incorporation and “legal address” is one way for an entity to be a domestic concern under the FCPA, but so too is having a principal place of business in the U.S.

For instance, in the Weatherford action, the DOJ stated:

“Prior to March 2009, Weatherford was incorporated in Bermuda and headquartered in Houston, Texas … As of March 2009, Weatherford was incorporated and headquartered in Switzerland, although it maintained a significant presence in Houston, Texas.”

In short, while inversions may have tax implications, it is difficult to see any meaningful implication under the Foreign Corrupt Practices Act.

It Can Be Done

You know the narrative.

In 2002, an accounting partnership (Arthur Anderson) was convicted of obstruction of justice for shredding documents related to its audit of Enron.  Even though the Supreme Court ultimately tossed the conviction, Arthur Anderson essentially went out of business.  Because of this, in the minds of some, the DOJ can’t criminally charge business organizations with crimes and business organizations can’t mount legal and factual defenses to criminal charges.  Thus, the DOJ has crafted, and the business community has accepted,  alternative resolution vehicles such as non-prosecution and deferred prosecution agreements to avoid the perceived collateral consequences of a criminal indictment or conviction.

Never mind that the narrative is based on a false premise.  (See here for the guest post and article by Gabriel Markoff titled “Arthur Anderson and the Myth of the Corporate Death Penalty).

Nevertheless, the narrative persists and is accepted by some as gospel truth.

I have been publicly wondering since 2010 (see here) what the “shelf life” of the Arthur Anderson effect would be and how long the Arthur Anderson myth would be believed.

If there are still believers, witness yet another instance (PG&E from earlier this year was an example as well – see here) that companies (even publicly-traded companies) can mount legal and factual defenses to what the company views as aggressive and overzealous DOJ enforcement theories.

As widely reported, last week FedEx Corporation, FedEx Express, Inc., and FedEx Corporate Services, Inc.,  were criminally indicted “with conspiracies to traffic in controlled substances and misbranded prescription drugs for its role in distributing controlled substances and prescription drugs for illegal Internet pharmacies.”  (See here for the DOJ release).

In response, FedEx issued this statement which stated, in pertinent part, as follows.

“FedEx is innocent of the charges brought today by the Department of Justice. We will plead not guilty. We will defend against this attack on the integrity and good name of FedEx and its employees.”

FedEx stock is still trading, (in fact it is up since the criminal charges were announced), it is still employing people, and it is still operating its business.  In fact, a FedEx truck just went down my residential street a few hours prior to writing this post.

While the FedEx example is outside the FCPA context, the message to corporate boards, audit committees, and other corporate leaders should be clear.

Yes, there are “carrots” and “sticks” which motivate risk-adverse business organizations to do things regardless of the law or facts in any particular matter.  However, fighting back against what the company perceives to be aggressive and overzealous DOJ theories is an acceptable and viable option in many cases despite speculative doomsday scenarios to the contrary.

If more companies would do what FedEx is doing in the FCPA context. and thereby expose certain DOJ and SEC theories of enforcement, I am confident of one thing.  This “new era” of FCPA enforcement would look different than it does today.  In this regard, and as highlighted in my recent article, the business community is, at least in part, responsible for the current aggressive FCPA enforcement climate. Indeed, as Homer Moyer, a dean of the FCPA bar, recently observed:

“One reality is the enforcement agencies’ [FCPA] views on issues and enforcement policies, positions on which they are rarely challenged in court. The other is what knowledgeable counsel believe the government could sustain in court, should their interpretations or positions be challenged. The two may not be the same. The operative rules of the game are the agencies’ views unless a company is prepared to go to court or to mount a serious challenge within the agencies.”

Kudos to FedEx, its board, counsel and corporate leaders for having the courage of conviction and not rolling over and playing dead in the face of DOJ scrutiny.  (Note, last year UPS resolved its alleged scrutiny for the same core conduct by agreeing to a non-prosecution agreement in which it paid $40 million).

In-House Counsel Opportunity at Avon

Avon Cosméticos, a subsidiary of Avon Products, Inc., based near Buenos Aires, Argentina, is looking for an attorney to join the Ethics & Compliance team.  The Compliance Counsel has day-to-day operational responsibility for managing the compliance program in the South Markets Group (Argentina, Chile, Paraguay and Uruguay).  The program seeks to minimize risk exposure of corporate and regulatory law through company guidance and controls.  A primary activity of the Compliance Counsel is to provide operational advice and interpretation of company policies and procedures, including but not limited to the company’s anti-corruption policy.  As part of the program, the Compliance Counsel supports corporate, regional and local governance, monitoring, auditing, training and communication initiatives.  A primary goal for the Compliance Counsel is to enhance the culture of awareness and adherence to company policies.  Prospective candidates should apply via the Avon website:  https://avon.zonajobs.com.ar/listadoAvisosBj/.

Comparing DOJ FCPA Enforcement To SEC FCPA Enforcement Is Not A Valid Comparison

Jurisdiction

This recent Wall Street Journal Risk & Compliance Journal headline stated “SEC Stays on the FCPA Sidelines” and states in relevant part:

“The Securities and Exchange Commission has largely stayed on the sidelines of anti-bribery enforcement so far this year … The agency has brought just two enforcement actions tied to the Foreign Corrupt Practices Act in the first six months of the year, compared to 13 brought by the Justice Department.”

For starters, there have not been 13 FCPA enforcement brought by the DOJ this year and, once again, it is only through creative counting methods that some industry participants are able to reach numbers.  As noted in this recent post, thus far this year the DOJ has brought 3 corporate enforcement actions (HP related entities, Alcoa and Marubeni) and 3 core individual enforcement actions (5 individuals in connection with Indian mining licenses, 3 individuals associated with PetroTiger and 2 individuals added to the 2013 case involving individuals associated with broker-dealer Direct Access Partners).  As highlighted several times on these pages, the most reliable way to keep FCPA statistics is using the “core” approach (i.e. the Indian mining licenses case is one “core” action, etc.), an approach endorsed by the DOJ and an approach that is a commonly accepted method used in other areas.

Regardless of counting method, comparing DOJ FCPA enforcement to SEC FCPA enforcement is not a valid comparison because – sticking with the “sidelines” reference – the DOJ and SEC “play” on different fields.

As demonstrated visually below, the SEC has FCPA jurisdiction over only issuers and associated person (78dd-1 – a relatively narrow slice of the range of “persons” subject to the FCPA).

The DOJ, by contrast, has FCPA jurisdiction over issuers and associated persons (78dd-1), as well as domestic concerns (78dd-2 – all U.S. companies regardless of form of business organization and U.S. persons) and persons other than issuers or domestic concerns (78dd-3 – literally any company in the world or any person in the world to the extent certain jurisdictional requirements are met).

Jurisdiction

In 2014, when the DOJ and SEC are playing on the same field – that is issuer FCPA enforcement actions – there is perfect 2 for 2 overlap as the SEC also brought enforcement actions against HP and Alcoa.  (Marubeni is not an issuer).  Even if it wanted to, the SEC could not bring FCPA charges against individuals in the Indian mining license enforcement action, individuals associated with PetroTiger or individuals associated with Direct Access Partners (although the SEC did bring non-FCPA charges against certain of the Direct Access Partners individuals because the entity was a broker-dealer).

In short, it is not that the SEC is staying on the “sidelines,” rather it is not allowed under the FCPA to step onto the same “playing field” as the DOJ.

In case you are wondering, in 2013 the DOJ brought 6 issuer FCPA enforcement actions (ADM, Weatherford, Diebold, Total, Ralph Lauren and Parker Drilling) and in all 6 of those DOJ issuer actions there were also related SEC enforcement actions against those same issuers.  In 2013, the SEC brought an additional 2 issuer enforcement actions (Stryker and Philips) that the DOJ theoretically could have joined, but here, it is not surprising that the SEC, a civil law enforcement agency, brought more issuer cases than the DOJ, a criminal law enforcement agency.  To complete the analysis from 2013, there was 1 DOJ enforcement action (Bilfinger) involving a non-issuer and thus the SEC was not allowed on that “playing field”).

Checking In With Richard Alderman

Richard Alderman is the former Director of the United Kingdom Serious Fraud Office (“SFO”).  Since leaving the SFO in April 2012, Alderman has remained active in anti-corruption projects.

In this Q&A, Alderman discusses certain of these projects and offers insight on the following issues:  the current international enforcement climate including multi-jurisdictional issues; voluntary disclosure; DPAs; and a compliance defense.

*****

In April 2012, you left the SFO.  What have you been doing since?

I have been working with some international institutions and NGOs dealing with anti-corruption on the front line. This is what I wanted to do because I had met a number of individuals who inspired me. Recent examples are the Convention on Business Integrity in Nigeria and an initiative by the Egyptian Junior Business Association aimed at the vibrant SME sector in Egypt. I have also had the privilege of meeting individuals involved in the radical transformation of the procurement practices of Moscow City Council.

How do you see the current international corruption enforcement scene?

We have moved on from where we were a few years ago when there were only a few states that took action in these cases. Examples of issues now are-

  • How do we deal with the interests of the different states that want to enforce the law?
  • What will be the impact of more enforcement by demand states (including demand states that are also supply states)?
  • When will law enforcement agencies uncover and prosecute corrupt companies that have no intention of complying with global rules?
  • How do we get the proceeds of settlements back to the demand states?
  • Can a system of incentives be devised to reward companies with top quality anti-corruption systems?

In current enforcement era, multiple sovereigns may have jurisdiction over the same alleged conduct.  What issues do you see regarding multi-jurisdictional enforcement?

This is becoming a key issue. I prepared a detailed report for the UNCAC conference in Panama in November 2013 that covered these and other issues.

Companies are undoubtedly at risk here. If we look at violations first, different states can prosecute for the same violation. The company’s only protection is the principle of double jeopardy but this is interpreted in different ways in different states. For example it is not an issue for the US because the US does not recognise foreign convictions and acquittals for this purpose.

This will become a particular issue when one of the enforcing states is the demand state. Why should such a state be prevented from taking action in its own courts because of a resolution elsewhere? We can expect national sovereignty issues.

Companies can also seek to exclude a state with a wide concept of double jeopardy by reaching a settlement with another state and then pleading double jeopardy in the first state. I have seen this.

The issue also arises with asset forfeiture. I do not understand how multiple states can confiscate the same asset or profit. Once the money has been paid to law enforcement somewhere then any further disgorgement is actually a criminal fine.

What about global settlements?

I am very much in favour of these. I know from my own experience that they are very difficult to bring about. The international mechanisms in Article 47 of UNCAC and Article 4(3) of the OECD Convention should be used to discuss how the different enforcing states should work together and how a global settlement should be structured. Neither mechanism has yet been used for this purpose but they are available. Enforcing states will be nervous but these mechanisms will be vital as more and more states start to enforce the law.

Do the recent Libor settlements have any implications for global settlements in corruption cases?

These settlements have been very remarkable. A UK prosecutor cannot however enter into such an agreement if there are criminal pleas in the UK. This is because the senior judge in the Innospec case said that it was wrong for the SFO to discuss the penalty to be paid by the company even if the penalty was subject to the overall approval of the court.

One consequence of the new UK DPA system is that the UK enforcing authority can enter into these discussions if what is being discussed is a DPA rather than a traditional prosecution. It will be up to the judge to decide if this is the right way forward.

The result is that UK prosecuting authorities will not be able to participate in global settlements in the future unless there is a DPA approved by the court. I see this as an issue that will be increasingly important in the UK.

Do you still favour corporate self-reporting of conduct that could implicate bribery and corruption laws?

Yes. I remain a keen supporter of self-reporting. This has however become more difficult for companies. There are two main reasons. These are-

  • No enforcing state has set out its policy on when it will refer the self-report to another state.  A company considering a self-report therefore has to think about the other states that may see the report (and whether employees are at risk). We need a proper understanding of what enforcing states should do. This needs to be publicly available and agreed by the UN and the OECD.
  • Even if the report is not passed to another state, that other state is likely to see media reports of the resolution and the admissions made by the company and decide to start its own action. There is an increasing risk of these follow up cases.

Should companies carry out their own investigations when alerted to alleged instances of improper conduct?

My experience is that major global companies take these allegations very seriously and want to see what happened. There is an issue about whether the company should self-report immediately or whether it should carry out some preliminary work to satisfy itself that there is something in the allegation. The expectations of enforcing authorities can vary here. My view has always been that the company should be satisfied first that there is something that requires detailed investigation.

I am in favour of companies carrying out their own investigations with agreement from the enforcing state about scope, milestones and regular updates. I know that some enforcing states will also want to carry out their own independent investigation. I understand the reasons for this but it means that the authority is spending its scarce resource on a case where the company is willing to cooperate and not on the more difficult cases where the company has no intention of self-reporting and cooperating. As I see it there is too little action by enforcing authorities in finding such companies and dealing with them.

Recently the U.K. adopted DPAs.  How do you feel about DPAs and what are the issues as you see them?  What issues do you see regarding DPAs?

I have always been in favour of DPAs as one tool available to prosecutors. My experience was that the UK was in a poor position in global cases with international resolutions with the traditional criminal justice tools. I saw two main advantages of DPAs. These are-

  • They can form part of a system of incentives to encourage companies to self-report and cooperate and to improve compliance.
  • They enable prosecutors to discuss global resolutions without contravening the Innospec case.

I know that the FCPA Professor has expressed considerable public opposition to DPAs. I agree that they need to be transparent and that the judges have to be fully involved. I also agree that we still need to see the traditional full prosecution with debarment in suitable cases. This could be where the company is systemically corrupt and has no intention of abandoning corruption. I want to see more of these cases being pursued by enforcing states.

The full prosecution should be part of the toolkit of the prosecutor. There should be other tools for other types of case. It is notable that the only states that have made a sustained attack on corporate corruption over the years have either not used traditional prosecution or have used it sparingly and have also used alternatives. This is significant although it seems to me to be insufficiently appreciated.

Should corporate compliance be a defence to a bribery or corruption offense or merely mitigate the potential fine and penalty amount?

I remain in favour of the compliance defence. The Bribery Act offence is an excellent model in this area. I have seen how much impact this had on companies and the scale of the improvement made in their anti-corruption work. There are a number of other states that have compliance as a defence.

There is however an issue that is going to be increasingly relevant in those states that have compliance as a defence. The public wants to see the offence produce results in terms of criminal convictions. So far there do not appear to be any in the states with a compliance defence. There will be a question about whether compliance as a defence is right or whether the US approach with compliance as mitigation is to be preferred because of the results achieved. We can expect a lot more on this. It may be one of the issues to be considered in the recently announced UK review of the effectiveness of the enforcing institutions.

You have talked publicly about sanctions and incentives for companies as it relates to bribery and corruption offenses.  Can you elaborate on this issue?

Alternatives to traditional prosecution together with self-reporting and cooperation are important incentives in the area of violations. There is though a wider issue that is not sufficiently recognised and discussed. This is whether there should be more general incentives to companies that have brought about an excellent standard of anti-corruption compliance.

There was a Recommendation by the OECD in 2009 encouraging states to look at public procurement, licenses, aid funding and export credits as a way of recognising companies with the highest standards of anti-corruption. There has been little progress on this although a few states have introduced some initiatives.

I am very much in favour of this. For example the citizens of a state will benefit if a company that meets very high standards is successful in a public procurement exercise and companies with a poor anti-corruption approach are not. If those companies with a poor record decide that they have to reform then that is a benefit to everyone.

I see this as one of the key issues in anti-corruption that will become increasingly prominent in the coming years. It has great potential to make a difference.

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