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The Investigative Agency That Prefers Not to Investigate

By on December 21, 2009 in Enforcement Agency Policy, Serious Fraud Office, Voluntary Disclosure

The Serious Fraud Office (“SFO”) in the United Kingdom is similar to the U.S. DOJ.

According to the SFO’s website (here), it “investigates fraud and corruption.” Elsewhere on the website (here) it notes that the SFO is the “lead agency” in the U.K. “for investigating and prosecuting cases of domestic and overseas corruption.” Elsewhere on the website (here) is a specific page as to how the SFO “investigates and prosecutes” and the page notes that a thorough investigation “often includes examining vast quantities of documents which have often been left in a deliberately obscure and fragmented form.”

All sounds rather intense from an investigative standpoint.

Problem is, the SFO recently stated that it would prefer not to investigate bribery and corruption cases!

As discussed elsewhere (see here), the SFO recently made public additional guidance as to its July 2009 memo titled “Approach of the Serious Fraud Office to Dealing with Overseas Corruption.” (See here for my prior post on this memo).

While it is commendable for a government agency to provide more guidance to those subject to a law, the following sentence in the SFO letter (see here) caused me to pause (let alone read multiple times):

“Our very strong preference is that all investigative work should be carried out by the professional advisers [of the company disclosing a potential issue] and that it is not necessary for the SFO to conduct any investigation itself.”

Have we seriously come to the point (on both sides of the Atlantic) where the government agencies tasked with investigating and prosecuting bribery and corruption cases no longer view it as their responsibility to investigate the factual circumstances supporting the charges?

A Trip Around the World

By on December 3, 2009 in Australia, DePuy, Extradition, Greece, Kozeny, Robert John Dougall, Securency International, Serious Fraud Office, Siemens

Grab your bags and your passport, it’s time for a quick trip around the world.

First stop, Germany.

Siemens

In December 2008, Siemens (a global corporation organized under the laws of Germany with shares listed on the New York Stock Exchange since March 2001) agreed to pay $800 million in combined fines and penalties to settle FCPA charges for a pattern of bribery the Department of Justice (“DOJ”) termed “unprecedented in scale and geographic scope.” The combined fines and penalties were easily the largest ever levied against an FCPA violator.

This week, Siemens announced (see here) that it “has come to an agreement about settlements with six further former Board members against whom damages were claimed in connection with past cases of corruption in the company.” See (here) for press coverage.

Next stop, the U.K.

SFO Charges Former DePuy Executive

The U.K.’s Serious Fraud Office (“SFO”) (an enforcement agency similar to the U.S. DOJ), recently announced (see here) that Robert John Dougall, the former Vice President of Market Development of DePuy International Limited was charged with conspiracy for “making corrupt payments and/or giving other inducements to medical professionals working in the Greek public healthcare system.” The SFO has previously indicated (see here) that it seeks to generally model DOJ’s enforcement strategies, and that model now seems to include a broad interpretation of the potential universe of recipients of improper payments (i.e. not just core government officials, but also employees of public healthcare systems). There is greater cooperation between law enforcement agencies around the world in investigating cases of alleged improper payments, a fact highlighted by the SFO release which notes that the case “was referred to the [SFO] by the [DOJ] and accepted in March 2008.” Depuy (see here) is “part of the Johnson & Johnson family of companies.” In February 2007, Johnson & Johnson disclosed a potential FCPA issue and the company’s most recent announcement on the issue is in its November 2009 10-K filing (see here).

Next stop, Australia.

Money to Print Money

The Age of Melbourne has reported (see here) that Securency International (see here) and certain of its executives are being investigated by the Australian Federal Police for alleged breaches of Australia’s criminal code which prohibit payments to foreign government officials to obtain a business advantage. According to the article, Securency (according to its website – a world leader in secure polymer substrate technology and the supplier of a range of unique substrates which are used for the printing of banknotes and other security documents), is also under scrutiny in the U.K., Vietnam, and Nigeria. The article notes that the Securency matter could be Australia’s first prosecution for foreign bribery.

Final stop, the beaches of the Bahamas.

Kozeny Extradition Hearing

While Frederic Bourke (see here) prepares his appeal, Viktor Kozeny, the alleged master-mind of the bribery scheme, continues to enjoy life in the Bahamas as U.S. government attempts at extradition have thus far failed. This week, the U.S. government’s appeal hearing was heard in the Bahamas. See here for press coverage.

Halliburton / KBR … The Sequel

By on October 24, 2009 in Bonny Island Bribery, Halliburton, KBR, Nigeria, Serious Fraud Office

In February 2009, Halliburton Co., KBR Inc., and Kellogg Brown & Root LLC agreed to resolve parallel DOJ and SEC FCPA enforcement actions concerning improper payments to Nigerian officials in connection with the Bonny Island liquefied natural gas project. (see here, here, and here).

The combined $579 million in fines and penalties remains the most ever against a U.S. company for FCPA violations.

Included in the web of companies involved in the Nigeria conduct was M.W. Kellogg Company (“MWKL”), a United Kingdom joint venture 55% owned by KBR. MWKL is mentioned in the linked DOJ and SEC materials above.

It looks like Halliburton’s exposure via M.W. Kellogg is not over.

Today, in a 10-Q filing (see here – p. 10), Halliburton stated as follows:

“In the United Kingdom, the Serious Fraud Office (SFO) is considering civil claims or criminal prosecution under various United Kingdom laws and appears to be focused on the actions of MWKL, among others. Violations of these laws could result in fines, restitution and confiscation of revenues, among other penalties, some of which could be subject to our indemnification obligations under the master separation agreement. Our indemnity for penalties under the master separation agreement with respect to MWKL is limited to 55% of such penalties, which is KBR’s beneficial ownership interest in MWKL. Whether the SFO pursues civil or criminal claims, and the amount of any fines, restitution, confiscation of revenues or other penalties that could be assessed would depend on, among other factors, the SFO’s findings regarding the amount, timing, nature and scope of any improper payments or other activities, whether any such payments or other activities were authorized by or made with knowledge of MWKL, the amount of revenue involved, and the level of cooperation provided to the SFO during the investigations.”

It used to be that companies with FCPA exposure could get a good night’s sleep after resolving DOJ and (if an issuer) SEC enforcement actions.

As this action (and others in recent years) demonstrate, the landscape has changed and “tag-a-long” FCPA-like enforcement actions or inquiries in other countries I think will become the new norm.

An Update From Across the Pond

By on September 29, 2009 in Angola, Bangladesh, Ghana, Iraq, Jamaica, Joint Venture, Mabey Johnson, Madagascar, Mozambique, Serious Fraud Office, United Kingdom, Voluntary Disclosure

The U.S. is not the only country with an “FCPA-like” domestic statute. The United Kingdom has a similar law (actually a mix of several different statutes on the books for nearly one-hundred years – however, in March 2009, a new bill – the “Bribery Bill” was introduced in Parliament and is currently being debated).

As discussed in a July post (see here), the U.K.’s Serious Fraud Office (“SFO”) (an enforcement agency similar to the U.S. DOJ) announced “the first prosecution brought in the U.K. against a company for overseas corruption.”

The company – Mabey & Johnson Ltd. (“M&J”) – a U.K. company that designs and manufacturers steel bridges used in more than 115 countries worldwide.

Last week, the SFO issued a press release announcing the details of M&J’s £6.6 million sentence (see here).

The SFO also released two “prosecution opening statements” relating to (a) the company’s conduct in Jamaica and Ghana; and (b) the company’s breach of United Nations Oil for Food Regulations (see here and here).

To state the obvious, one enforcement action does not constitute a practice.

Subject to that qualification, I offer some comments about the SFO’s released documents compared to what the DOJ and SEC typically release in an FCPA enforcement action (where indeed a common practice has developed).

Naming Names

Unlike a typical DOJ deferred prosecution, non-prosecution agreement or plea or SEC complaint, the SFO documents name names. Specifically identified in the documents are numerous “public officials” in Jamaica, Ghana, Angola, Madagascar, Mozambique, and Bangladesh (see pages 11, 25, 28, 32, 33, 35, and 38) alleged to have received improper payments from M&J (or its agents) to help secure company business.

The SFO documents also specifically identify the agents and their companies which were used by M&J to make certain of the improper payments (see pages 12, 22, 28, 32, 35, 37).

Is there value to “naming names,” does it “punish” the foreign or public official recipient of the improper payment (given that the FCPA only punishes the bribe payor not the bribe recipient)? Does naming the agent effectively blacklist the individual/company and thus serve a useful public function for other companies doing business in that particular market?

All interesting questions to ponder. There is also an interesting historical FCPA angle as well. Many, including the Ford administration, were opposed to the FCPA as it now exists, opting instead for a disclosure approach on the theory, to use the famous Justice Brandeis quote that “sunshine is the best disinfectant.”

Back to the SFO documents.

As referenced above, the applicable term used in the SFO documents is “public official” not “foreign official” as used in the FCPA. Do these terms means the same thing? All of the “public officials” identified in the SFO documents are government Ministers or Ambassadors (what I’ll call core government officials).

There is no exception though, an exception relevant to the current debate over the FCPA’s “foreign official” term and whether it should include employees of state-owned or state-controlled companies.

The Angolan “public officials” appear to be Directors of Empresa Nacional des Pontes, an “Angolan State owned entity.”

Joint Venture Partners

Under the FCPA, conventional wisdom seems to hold that joint venture partners will be liable for improper payments made by other joint venture partners, particularly when the joint venture partners share revenues and profits of contracts secured through improper payments and particularly when the joint venture’s board includes individuals from both companies. (see here for a discussion of this issue in connection with the recent Halliburton/KBR enforcement action).

Not so in the M&J matter.

The SFO documents reference a joint venture relationship between M&J and Kier International Ltd. (“Kier”) in order to facilitate both the construction and engineering aspects of “Jamaica 1” (the contract allegedly secured through the bribe payments).

According to the SFO documents, M&J and Kier agreed that “overall revenue and profits from the JV with respect of Jamaica I would be divided 57% and 43% respectively.” The documents further state that under the terms of the JV “a sponsor would have primary responsibility for representing the JV” and that “Kier was nominated to act as the sponsor.” Further the documents indicate that “the supervisory board” of the JV comprised both M&J and Kier executives.

However, the documents evidence that the “SFO has investigated the relationship between Kier and M&J in respect of this contract” and “all the evidence currently available to the SFO” indicates that “there is no evidence that Kier [was] privy to these corrupt practices.”

Will JV partners in the cross-hairs of a future FCPA enforcement action be citing to the SFO’s decision as to Kier in the M&J enforcement action to argue that there is no basis for FCPA liability (whether anti-bribery or books and records of internal controls)? Perhaps so.

Cooperation

Despite these apparent differences between the M&J enforcement action and a “typical” FCPA enforcement action, there are some similarities and it is clear that the SFO is following DOJ’s lead when it comes to “rewarding” voluntary disclosure (see pages 40-41 “the SFO have sought where appropriate to have regard to the model for corporate regulation adopted by the Department of Justice in the United States of America under the Foreign Corrupt Practices Act 1977.”).

The SFO’s stance in the M&J matter, in which it noted that M&J’s internal investigation and subsequent voluntary disclosure were “meriting specific commendation” (see pg. 7) is consistent with the approach the SFO set forth in July when it released a memo titled “Approach of the Serious Fraud Office to Dealing with Overseas Corruption” (see here).

Individuals

Finally, much like the DOJ, the SFO appears interested in charging individuals (not just corporations) for participating in improper payments. The SFO specifically noted that “a number of individuals are the subjects of investigation with regard to the corrupt business practices of M&J” (see pg. 5) and it explained that it did not “name certain directors, executives and employees of M&J at this stage because they may face trial in English Courts.”

Again, to restate the obvious, one enforcement action does not constitute a practice. Yet when doing a comparative analysis of the FCPA with other FCPA-like statutes one has got to start “somewhere” and that “somewhere” now exists with release of the specific facts of the U.K.’s first prosecution against a company for overseas corruption.”

Across the Pond

By on July 23, 2009 in Enforcement Agency Policy, Ghana, Jamaica, Mabey Johnson, Serious Fraud Office, United Kingdom, Voluntary Disclosure

Some noteworthy anti-corruption developments to report from the United Kingdom.

Landmark Mabey & Johnson Ltd. Prosecution

Like the U.S., the U.K. has domestic anti-corruption statutes (actually a mix of several different statutes on the books for nearly one-hundred years – in March 2009, a new bill – the “Bribery Bill” was presented to the U.K. Parliament – an issue I will be following).

However, unlike the U.S., the U.K. has never brought a corporate prosecution under the statutes. For this, U.K. government has been criticized. If you want to fill your afternoon with reading just “google” BAE, Saudi Arabia, and corruption. If you prefer listening over reading, you may want to check out portions of Frontline’s “Black Money” (See here).

Against this backdrop, it is noteworthy that in July 2009, the U.K.’s Serious Fraud Office (“SFO”) (an enforcement agency similar to the U.S. DOJ) announced “the first prosecution brought in the U.K. against a company for overseas corruption.” (See here for the SFO Press Release).

According to the SFO press release, the prosecution arises from Mabey & Johnson Ltd.’s (a U.K. company that designs and manufacturers steel bridges used in more than 115 countries worldwide) voluntary disclosure to the SFO “of evidence to indicate that the company had sought to influence decision-makers in public contracts in Jamaica and Ghana between 1993 and 2001.” According to the release, the prosecution also involves breach of United Nations sanctions as applied to contracts in connection with the Iraq Oil for Food program.

My efforts to locate the actual Mabey & Johnson charging documents (statement of facts, etc.) have thus far proven fruitless. To the extent such documents are publicly available and you have a copy, please do share them with me.

SFO Memo on Corruption Enforcement and the Benefits of Self-Reporting

Also in July 2009, the SFO released a memo titled “Approach of the Serious Fraud Office to Dealing with Overseas Corruption.” The memo notes that the SFO is significantly expanding its anti-corruption resources and staff and that the office will be using “all of the tools at our disposal in identifying and prosecution cases of corruption” as the office “conduct[s] more criminal investigations and prosecutions in the future (particularly if the Bribery Bill becomes law).”

The memo notes that there has been much interest among business and professional advisers for a system of self-reporting cases of overseas corruption to the SFO and the purpose of the memo is thus to set forth SFO policies on self-reporting and the SFO’s position on the benefits which can be obtained from self-reporting.

The memo specifically notes that the benefit to a corporation of self-reporting will be “the prospect (in appropriate cases) of a civil rather than a criminal outcome,” and that a “negotiated settlement rather than a criminal prosecution means that the mandatory debarment provisions under [the relevant EU Directive] will not apply.”

The remainder of the memo touches on general topics familiar to FCPA practitioners currently found in Title 9, Chapter 9-28.000 of the U.S. Attorney’s Manual (Principles of Federal Prosecution of Business Organizations) (the so-called Filip Memo – see here). It is encouraging to see that the SFO, unlike the DOJ/SEC thus far, is willing to articulate, in a specific memo, its views and enforcement policies on corruption issues.

The benefits of self-reporting and voluntarily disclosing conduct which does, or could, violate the FCPA is indeed a “hot topic.” DOJ/SEC enforcement officials routinely say that the benefits of self-reporting are real, whereas FCPA practitioners and the clients they represent aren’t so sure. It now looks like this topic will be debated on both sides of the Atlantic and it will indeed be an interesting issue to monitor.

Of particular interest to FCPA practitioners, the SFO memo notes as follows: “We would also take the view that the timing of an approach to the U.S. Department of Justice is also relevant. If the case is also within our jurisdiction we would expect to be notified at the same time as the DOJ.” Of further interest to FCPA practitioners, the memo announces an initial opinion procedure along the lines currently offered by the U.S. DOJ. The memo notes, “[t]he circumstances in which this procedure will be appropriate will need to be discussed, but we are ready to offer assistance in one type of case” and that type of case is where an acquiring company, during due diligence of a target, discovers corruption issues.

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