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World Bribery & Corruption Compliance Forum – Comments By U.K. Officials

Day one of the World Bribery & Corruption Compliance Forum in London featured addresses by Dominic Grieve (the U.K. Attorney General) and Robert Amaee (Head of Anti-Corruption U.K. Serious Fraud Office). This post provides a summary overview of their comments.

Tomorrow’s post will provide a summary overview of comments made by Charles Duross (Deputy Chief – Fraud Section, DOJ) and Thierry Olivier Desmet (Assistant Regional Director, FCPA Unit, SEC).

Before turning to Grieve and Amaee’s remarks, the U.K. Ministry of Justice yesterday (see here) officially launched the consultation process to “gather the views of interested parties” on the Bribery Act that “will help shape guidance about procedures which commercial organisations can put in place to prevent bribery.” In connection with the launch, the Ministry of Justice released this 35 page document which contains statements of various officials, draft guidance, and draft illustrative scenarios. Interested persons are encouraged to make their views known (see here).

Remarks of Attorney General Grieve

Attorney Grieve began by noting the “pernicious” effects of bribery and that tackling bribery requires an effective law – something he firmly believes the U.K. Bribery Act (with implementation slated for April 2011- see here for a prior post) will do. Attorney Grieve noted that the Bribery Act takes the U.K.’s antiquated bribery laws and modernizes these laws into a modern statute.

However, Attorney Grieve noted that one would be wrong to assume that the U.K. was ignoring bribery issues prior to passage of the Bribery Act. Indeed, he stated that even under the U.K.’s existing law strong enforcement has taken place and that it was “pleasing” that the U.K.’s recent enforcement actions were recognized in Transparency International’s recent report (see here for a prior post on the subject).

Attorney Grieve provided a brief overview of the Bribery Act’s offenses (see here for the Act itself), including, most notably the Section 7 offense for “failure to prevent bribery.”

Attorney Grieve noted that while “it has been suggested that Section 7 creates a strict liability offense” he emphatically stated that “it does not.” He drew upon his prior experience as a health and safety prosecutor and stated that the practice of having an occurrence of an event “and then reversing the burden of proof” is a “perfectly acceptable tool within [the U.K.] legal system.” Regarding adequate procedures which indeed are a defense under Section 7, Attorney Grieve noted that “any company small or large” that puts into place a system of adequate procedures “has nothing to fear” when an employee or agent “goes off the rails” and makes a bribe payment.

Speaking of the Bribery Act more generally, Attorney Grieves said that “it is not a bad thing” that the Bribery Act views bribery broadly because in practice bribery can “take many forms” and the Bribery Act “needs to take account of that.”

Attorney Grieve spent a few minutes talking about corporate hospitality. He said that the starting point is that corporate hospitality is “not illegal” and that the Bribery Act is “not intended to clamp down” on acceptable corporate hospitality. He did caution however that lavish hospitality “can be used as a bribe” and that the Bribery Act “must be capable of penalizing such conduct.”

Attorney Grieve referenced a recent article in the Financial Times “Mining and Oil Groups Dig In For Bribery Act.” The article notes concern by the mining industry over an example of a company arranging to fly a local Chilean mayor to a remote region of the country to view the company’s production facilities and that during the trip, food and lodging would also be provided by the company. Attorney Grieve said he “found it difficult” how any “sensible person” could think that this was bribery. He contrasted this example with a company paying for a foreign public official to stay at the Ritz in Paris with “go-go girls” also provided.

In concluding his remarks on this issue, Attorney Grieve said that “common sense” needs to be taken into account when providing corporate hospitality.

Returning to the issue of adequate procedures, Attorney Grieve said that a company should have nothing to fear if it is “walking the walk, and talking the talk” when a rogue employee makes an improper payment. On the other hand, Attorney Grieve stated that that “those who don’t heed the warnings and don’t take the necessary steps have something to fear.”

Remarks of Robert Amaee

Amaee began by stating that the SFO “welcomes the opportunity [delay of the Bribery Act] provides for business to digest and implement remedial actions” to put them in compliance with the new Bribery Act.

Amaee spoke of the “main problem” confronting SFO prosecutors under existing U.K. law and that is the “concept of a controlling mind” – in other words, to indict a case today, the SFO needs to show that “at least one controlling mind (a person at the board level or close to such a position) knew of and participated in the conduct at issue. Given the nature of the modern multinational corporation – where decision making is often made on a regional basis, Amaee said that this standard is difficult to meet.

Amaee noted that “Section 7 sweeps away that whole requirement” and establishes the new corporate offense of failing to prevent bribery. Under Section 7, Amaee explained that a corporate can be criminally liable if its employees or agents made improper payments – something he described as a shift in U.K. law and a new and “novel offense for U.K. law.”

Amaee also commented how the Bribery Act will “significantly extend” the SFO’s jurisdictional reach in prosecuting bribery offenses. He noted that if a company is registered anywhere in the world, but conducts some business in the U.K., that company can be prosecuted for failing to prevent bribery wherever in the world that bribe was paid.

Even with the new offense, Amaee stressed that the Bribery Act does provide some “comfort in the form of a defense” and that is the defense of adequate procedures.

Amaee also touched upon certain risk areas that he is often asked about.

The first is intermediaries. He noted that the SFO clearly recognizes that intermediaries serve a useful purpose by opening up doors in foreign markets, but that “in the past, some companies have chosen not to ask too many questions” of the intermediary or that companies have in the past “ignored clear warning signs” as to the intermediary. He noted that under the Bribery Act – neither of these past practices “will do” and that corporates should think about re-vetting their entire intermediary base. Amaee stated – “a board should always ask – where are we doing business and how, and that if the board doesn’t like the answers it receives, it should be prepared to take the business elsewhere.”

The second area of risk is joint venture. Amaee acknowledged that in certain sectors joint ventures are routine. However, he cautioned that companies should be mindful of not partnering up with a company that is not “willing to be open and transparent or not willing to demonstrate that its code of conduct does not match your own.”

Like Attorney Grieve, Amaee also spoke of corporate hospitality. He noted that during passage of the Bribery Act, assurance was provided that the U.K. government will not seek to penalize legitimate corporate hospitality. He stated however that “lavish corporate hospitality can be used to secure an advantage and that the Bribery Act must be wide enough to cover it.”

Amaee next spoke of the SFO’s approach to combating bribery. He spoke of two strands – active engagement to assist companies improve its corporate culture and to maintain high standards and vigorous enforcement when dealing with corporates who believe in using corruption and thus put others at a disadvantage.

Amaee stated that the “criminal courts are the right place for the right defendants,” but he also noted that criminal prosecution is not the “only means of effective enforcement.”

He stated that the SFO has discretion to consider non-criminal resolutions such as civil sanctions and listed the following factors as relevant to the issue of resolution: sufficiency of the evidence, public interest considerations, concurrent jurisdiction issues, and potential debarement issues.

Amaee also spent a few minutes talking about the SFO’s approach to individuals and he noted that the Bribery Act contains several sections under which individuals may be prosecuted – both rogue employees who bypass a company’s adequate procedures and high-ranking corporate executives who consent or condone the improper conduct. Amaee stated that with the Bribery Act, the “stakes are higher than ever before for senior officers within a company” and that under the Bribery Act “it is no longer possible” for senior executives “to bury their head in the sand and look the other way.”

During a panel discussion about self disclosure, Amaee was asked when a corporate should consider making the voluntary disclosure decision. In summary fashion, he said that the SFO’s preference is “as soon as possible” because this allows the SFO a much better chance for it to tell the company what the SFO is thinking and that if the company self-reports early in the investigative process the company can actually end up saving money because the SFO may suggest a more limited scope of investigation than the company perhaps was considering.

Report Cards

The start of school is just around the corner, but summer is report card time for various groups focused on reducing bribery and corruption.

This post highlights two such report cards: Transparency International’s Annual Progress Report of the OECD Anti-Bribery Convention and The OECD Working Group on Bribery Annual Report.

Transparency International 2010 Progress Report of the OECD Anti-Bribery Convention

On July 28th, Transprancy International (TI) (see here) released its sixth annual Progress Report on Enforcement of the OECD Convention.

“The 2010 report covers 36 of the 38 parties to the Convention, all except Iceland and Luxembourg. It covers enforcement data for the period ending 2009 unless otherwise stated and includes reports on recent case developments through June 2010. Like prior reports, this report is based on information provided by TI experts in each reporting country selected by TI national chapters.”

According to Appendix A of the report, the U.S. experts responding to the TI questionnaire were Lucinda Low (here) and Tom Best (here) of Steptoe & Johnson LLP.

In summary fashion, the report states:

“The increase in the number of countries with active enforcement from four to seven is a very positive development, because active enforcement is considered a substantial deterrent to foreign bribery. With the addition of Denmark, Italy and the United Kingdom, which previously were in the moderate category, there is now active enforcement in countries representing about 30 per cent of world exports, 8 per cent more than in the prior year.”

“The number of countries in the moderate category has changed from 11 to 9 countries, because three countries have moved up to the active category and one country, Argentina have moved up from the lowest category. The risk of prosecution in the nine countries with moderate enforcement – representing about 21 per cent of world exports – is considered an insufficient deterrent. Among this group are G8 members France and Japan.”

“The most disappointing finding is that there are still 20 countries – including G8 member Canada – with little or no enforcement, representing about 15 per cent of world exports. That number has shown little change in the last five years. This is deeply disturbing because companies in these countries will feel little or no constraint about foreign bribery, and many are not even aware of the OECD Convention. Governments in these countries have failed to meet the Convention’s commitment for collective action against foreign bribery.”

The report contains the following conclusions.

Current Levels of Enforcement are too Low to Enable the Convention to Succeed

“With active enforcement in only seven of the 38 parties to the Convention, the Convention’s goal of effectively curbing foreign bribery in international business transactions is still far from being achieved. The current situation is unstable because the Convention is predicated on the collective commitment of all the parties to end foreign bribery. Unless enforcement is sharply increased, existing support could well erode. Danger signals include efforts in some countries to limit the role of investigative magistrates, shorten statutes of limitations and extend immunities from prosecution. The risk of backsliding is particularly acute during a time of recession, when competition for limited orders is intense.”

Cause of Lagging Enforcement: Lack of Political Will

“The principal cause of lagging enforcement is lack of political will. This can take a passive form, such as failure to provide adequate funding and staffing for enforcement. It can also take an active form, through political obstruction of investigations and prosecutions. The lack of political will must be forcefully confronted not only by the Working Group on Bribery but also by the active involvement of the OECD Secretary-General, as well as high-level pressure on the laggards from governments committed to enforcement.”

Although the TI Report probably did not have the U.S. and U.K. in mind when making the above statement, many have questioned whether both the U.S. and U.K. governments lacked the political will to charge BAE, a large defense contractor to both governments, with bribery offenses. The U.S. enforcement action (see here) was not an FCPA enforcement action and the U.K. enforcement action (here) merely concerned a book keeping issue in Tanzania. And of course, TI’s statement about lack of political will was made before the Giffen Gaffe (see here).

Positive developments noted in the TI Report include:

“During the last year prosecutors in the US, Germany and the UK announced a number of settlements of important foreign bribery cases in which the defendants agreed to pay fines amounting to many hundreds of millions of dollars. These settlements demonstrate the ability of prosecutors to resolve cases without interminable litigation. The settlement levels provide a sharp wake-up call to international business regarding the gravity of foreign bribery.”

In seeming recognition of how aggresive enforcement of bribery laws can become a cash cow (see here for more) for the enforcing government, the report then states: “[The settlements] should also make clear to laggard governments that investing in adequate enforcement can have substantial returns.”

Other snippets from the TI Report.

As to the U.K.’s delay of the Bribery Act (see here for more) the report states:

“… it is regrettable that the entry into force of the law has been delayed until April 2011. There should be no further delay. It is also important that the consultation on the publication of official government guidance on compliance will not result in weakening any provision of the law.”

As to the use of alternative resolution vehicles such as non-prosecution and deferred prosecution agreements – a common way corporate FCPA enforcement actions are resolved (see here and here for more) and a model the U.K. SFO seeks to follow – the report contains this recommendation:

“The Working Group should undertake a study on the use of negotiated settlements to resolve foreign bribery cases. There are strong reasons for negotiated settlements, most importantly to avoid the high costs, long delays and unpredictable outcomes of litigation. However, there is concern that these settlements could be questionable deals between prosecutors and politically influential companies. Therefore, procedures should be adopted to make settlement terms public and subject to judicial approval. This should follow a public hearing where representatives of the country where the bribes were paid, competitors and other interested stakeholders such as public interest groups should be given an opportunity to present their views.”

The report also states as follows:

“TI considers that all settlements should be submitted to judicial review independent from the Prosecutor’s Office. This review should include a public hearing with representatives of the country where the bribe was paid, competitiors and civil society organisations before the settlement becomes final and published detailed conclusions.”

In a section of the report discussing current cases and trends, the report notes that some fines and penalties are based on the amount of the bribe while in other cases the fines and penalties are based on the amount of profit or gain from the transaction.

In apparent recognition that many FCPA fines and penalties (even eye-popping ones such as Siemens) still result in the company seemingly emerging from the prosecution with a net profit from the improper activity, the report states:

“TI considers that corporate fines should exceed the amount of profit from the wrongdoing.”

Further, the TI report questions whether the increase in enforcement and the penalties imposed are actually making any difference as it states: “[w]hile the amounts paid by companies are rising steadily in some jurisdictions, the question remains whether there is adequate deterrence.”

Continuing the dialogue on the question of “where should fines and penalties” go (see here and here for more) the report states:

“It would be desirable for the OECD Working Group on Bribery to conduct a study on corporate liability and penalties. TI considers that part of the fines paid or profits reimbursed should be made available for the benefit of the country that suffered from the offence.”

In addition to Transparency International, the OECD itself issued a summer report card.

OECD Working Group on Bribery Annual Report

On June 15th, the OECD Working Group on Bribery issued its annual report (see here).

As stated in the report, “the OECD has been at the forefront of international efforts to combat corruption in business, taking a multi-disciplinary approach, via its Convention on Combating Bribery of Foreign Public Officials in International Business Transactions, as well as through its work in the areas of taxation, development aid, and governance.”

The Anti-Bribery Convention (here) has been implemented by 38 countries (see here) and these countries comprise the OECD Working Group on Bribery.

Among recent achievements noted by OECD Secretary General Angel Gurría are:

“Israel—the Working Group’s newest member— […] underwent a series of intense
evaluations and implemented significant anti-bribery legislative changes to the anti-bribery standards expected of candidates for membership of the OECD;” and

“Chile, which recently became a member of the OECD, also passed legislation that holds Chilean companies liable for bribing foreign public officials when doing business abroad;”.

Secretary General Gurria also noted that “in 2009, Russia officially asked to join the Anti-Bribery Convention as part of its OECD membership drive” and that the OECD is also deepening relations on anti-bribery issues with China, India, Indonesia and Thailand, and hopes to bring other countries on board.”

As the report notes, 2009 “marked the completion of ten years of monitoring Parties’ implementation and enforcement of the Anti-Bribery Convention.”

This is the first year that official data on enforcement efforts by Parties
to the Anti-Bribery Convention is publicly available. The data (see here) is from “Decisions on Foreign Bribery Cases from 1999 to December 2009.”

According to the report, “the data has been compiled and published by the OECD Secretariat on the basis of statistics, data and information provided by the Parties to Convention in order to provide a realistic picture of the level of enforcement in the jurisdiction of each of the Parties. However, the responsibility for the provision and accuracy of information rests solely with the individual Parties.”

Further, in a seeming reference to U.S. enforcement of the FCPA and the frequency by which FCPA enforcement actions are resolved through non-prosecution agreements, the report notes that the data includes information “provided on a voluntary basis by certain countries concerning the number of foreign bribery cases that have been resolved through an agreement between the law enforcement authorities and the accused person or entity, with or without court approval.”

Interested in how many individuals and business entities have been criminally sanctioned by OECD signatory nations for bribery? Curious as to how many investigations are currently pending by signatory nations? Want to compare Hungary to Iceland or the U.S. to Germany?

It is all possible with OECD data.

U.K. Bribery Act Delayed

The U.K. Ministry of Justice announced yesterday (see here) that implementation of the Bribery Act will be delayed until April 2011. Among other things, the release states as follows:

“In September the Government will launch a short consultation exercise on the guidance about procedures which commercial organisations can put in place to prevent bribery on their behalf.

This will be published early in the New Year to allow businesses an adequate familiarisation period before the Act commences.

The consultation will be followed by a series of awareness-raising events to ensure everyone is aware of the changes the Bribery Act makes to the current law.”

The Bribery Act (see here) is generally viewed as being more broad in scope than the Foreign Corrupt Practices Act. Originally planned to “go live” in Fall 2010, the Bribery Act was creating much angst among the business community as to how to comply with many of its vague provisions.

The Financial Times reports that Kenneth Clarke, recently appointed as the U.K. international anti-corruption champion (see here), “bowed to pressure from business by delaying implementation of the long-awaited Bribery Act by six months, a move anti-corruption activists claimed could lead to it being watered down.”

The Financial Times article quotes Chandrashekhar Krishnan, the executive director of Transparency International – UK, as saying that the delay is “extremely disappointing” and that the “danger is that under the guise of consultation attempts” attempts may be made to “water down the Act.”

Whatever the reason or motivation for the delay, it is always a good idea to have clear laws which put all on notice of what is prohibited. If that is the end result of the additional consultations, that is a result all can cheeer.

For more on the U.K.’s enforcement of anti-corruption laws, including how the U.K. Serious Fraud Office is adopting DOJ-like enforcement strategies see here and here.

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