Friday Roundup
From the dockets, cleared, when the dust settles, outreach, and quotable. It’s all here in the Friday roundup.
From the Dockets
Sigelman
This recent post highlighted the motion to dismiss filed by Joseph Sigelman. Among other things, Sigelman challenged the DOJ’s interpretation and application of the “foreign official” element in regards to Ecopetrol, the alleged “the state-owned and state-controlled petroleum company in Colombia.”
On December 30th, U.S. District Judge Joseph Irenas denied the motion (as well as addressed other motions) in a 1 page order.
Hoskins
This recent post highlighted the motion to dismiss filed by Lawrence Hoskins. Among other things, the motion argued that the indictment “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 this December 29th ruling, U.S. District Court Judge Janet Arterton (D. Conn.) denied the motion to dismiss concluding that factual issues remain as to the disputed issues.
Cleared
Remember Kazuo Okada and Universal Entertainment Corp. They were at the center of a boardroom battle royal with Wynn Resorts in which a Wynn sanctioned report stated:
“Mr. Okada, his associates and companies appear to have engaged in a longstanding practice of making payments and gifts to his two (2) chief gaming regulators at the Philippines Amusement and Gaming Corporation (“PAGCOR”), who directly oversee and regulate Mr. Okada’s Provisional Licensing Agreement to operate in that country. Since 2008, Mr. Okada and his associates have made multiple payments to and on behalf of these chief regulators, former PAGCOR Chairman Efraim Genuino and Chairman Cristino Naguiat (his current chief regulator), their families and PAGCOR associates, in an amount exceeding $110,000.” The report categorizes this conduct as “prima facie violations” of the FCPA.
Universal recently issued this release which states:
“The Prosecutor General of the Philippines has proposed to the Secretary of Justice to terminate the investigation into the groundless suspicion that our group may have offered bribes to officials of Philippine Amusement and Gaming Corporation …”.
When The Dust Settles
It is always interesting to see what happens when the dust settles from an FCPA enforcement action (see here for the prior post).
A portion of the recent Alstom enforcement action alleged improper payments in connection with power projects with the Bahamas Electricity Corporation (“BEC”), the state-owned and state-controlled power company.
According to the Nassau Guardian “Attorney General Allyson Maynard-Gibson said The Bahamas has requested information from the US regarding the allegations, including the identity of the alleged bribe taker.”
This follow-up report states:
“Former Bahamas Electricity Corporation (BEC) board member Philip Beneby said on Tuesday he would find it hard to believe that any member of the board accepted bribes from a French power company to swing BEC contracts its way. […] “The allegation is stating that a member of the board received some kickback, but it’s kind of strange to me that a member of the board would receive a kickback if the board unanimously agreed that the contract be awarded to Hanjung out of Korea, then only to find out later that the Cabinet overturned the board’s decision. So that decision to not award Hanjung from Korea the contract came from the Cabinet, not from the board.” According to Beneby and former minister with responsibility for BEC, Bradley Roberts, in 2000 the board of BEC unanimously voted to award a generator contract to Hanjung Co. out of South Korea, but that decision was overturned by the then Ingraham Cabinet, which decided to award the contract to Alstom (then ABB). […] Former deputy prime minister Frank Watson was the minister at the time responsible for BEC. He said the decision to award the contract to Alstom was a Cabinet decision that involved no bribery. Watson insisted he was unaware of any claims that a bribe had been paid with respect to the award of that particular contract. Beneby, who is the proprietor of Courtesy Supermarket, said he remembers the event quite well as it was the first time a board decision was overturned.”
As explored in this prior post, many FCPA enforcement actions assume an actual casual link between alleged payments and obtaining or retaining business. However, the reality is that such a casual link is not always present.
Outeach
This event notice from the New England Chapter of the National Defense Industrial Association caught my eye.
“FBI Seminar on FCPA and International Corruption: Outreach to Industry Education Session
Join us for an engaging morning seminar to learn how to be compliant with the Foreign Corrupt Practices Act (FCPA). The FBI’s International Corruption Unit (ICU) is conducting private sector outreach and education to support a new initiative. The FBI recognizes the importance of forging new partnerships and strengthening existing relationships to help level the playing field for US businesses competing internationally. By fostering better understanding of FCPA requirements, the FBI and private sector can join forces more efficiently to fight international corruption and ensure fair global markets and a strong US economy.
The FBI is excited to showcase five pillars of FCPA compliance in their program: Private Sector Outreach, Training and Education, Dedicated Personnel, Domestic and International Partnerships and Proactive Enterprise Theory Investigations. Utilizing the five pillars approach, the FBI is gaining new momentum and expertise.
Additionally, the FBI will discuss new analysis outlining bribery hotspots and trends. Using charts and graphs the FBI will examine the latest bribe payment techniques, who is paying bribes and who is accepting bribes. Specific regions of the world will be discussed along with the various risks associated with doing business in these areas.
Lastly, the FBI will present a guest speaker who violated the FCPA, cooperated with the FBI and eventually was incarcerated for his crimes. This segment will provide a unique and impactful insight into the rationalization of an employee who paid bribes, despite knowledge and training on FCPA.The FBI is looking forward to the opportunity to discuss best practices and enhance FCPA compliance with industry partners”
Quotable
This recent Forbes article ask “isn’t it strange that the U.S. gets to fine Alstom, a French company, for bribery not in the U.S.?” The article concludes:
“It’s most certainly not good economics that one court jurisdiction gets to fine companies from all over the world on fairly tenuous grounds. Who would really like it if Russia’s legal system extended all the way around the world? Or North Korea’s? And I’m pretty sure that the non-reciprocity isn’t good public policy either. Eventually it’s going to start getting up peoples’ noses and they’ll be looking for ways to punish American companies in their own jurisdictions under their own laws. And there won’t be all that much that the U.S. can honestly do to complain about it, given their previous actions.”
That is pretty much what Senator Christopher Coons said during the November 2010 Senate FCPA hearing. “”Today we the only nation that is extending extraterritorial reach and going after the citizens of other countries, we may someday find ourselves on the receiving end of such transnational actions.”
In a recent speech, Stuart Alford QC (Joint Head of Fraud at the Serious Fraud Office) addressed the following question: “why have there been no Bribery Act prosecutions; is this Act really being taken seriously?” In response to his own question, Alford stated, in pertinent part:
“The Bribery Act is not retrospective. Therefore, for conduct to be criminal under the Act it has to have been undertaken after 1 July 2011. Often conduct of this type takes some time to surface; and, once it does, it takes time to investigate. SFO cases must, by definition, be serious or complex and they very often include international parties and conduct. While the SFO is always striving to investigate criminal conduct in as timely a way as possible, these types of cases will take some time to move through the process of investigation and on to prosecution.
The Bribery Act represented a very significant shift in setting the standards for the more ethical corporate culture I referred to a moment ago. When one looks at legislation of this kind, both here and abroad, one can see that a flow of prosecutions can take time to develop. We only have to look at the 1977 Foreign Corrupt Practices Act in the USA, to see that it took many years for that work to build up a head of steam, and not really until the turn of the century did we start to see the level of prosecutions that we do now.”
Spot-on and consistent with my own observations on July 1, 2011 when the Bribery Act went live.
Top Book Review
International Policy Digest recently compiled its top book reviews of 2014. On the list is the following.
Review of Mike Koehler’s ‘The Foreign Corrupt Practices Act in the New Era’
By John Giraudo
If you care about the rule of law, ‘The Foreign Corrupt Practices Act in the New Era’ by Mike Koehler, is one of the most important books you can read—to learn how it is being eroded. Professor Koehler’s book may not make it to the top of any summer reading list, but it is a must read for people who care about law reform.
For more information on the book, see here.
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A good weekend to all.
Across The Pond
Today’s post highlights various developments across the pond in the United Kingdom.
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Last week, Sweett Group (a U.K.-based provider of professional services for the construction and management of building and infrastructure projects) provided this update regarding its previously disclosed scrutiny:
“Sweett Group, notified the Serious Fraud Office (SFO) last year about an allegation of impropriety concerning the conduct of a former employee in 2010, which was reported in the Wall Street Journal in 2013. That former employee operated from an office in Dubai under contract with Cyril Sweett International Limited (CSI). CSI is a company registered in Cyprus and is a wholly owned subsidiary of Sweett Group plc. Sweett Group initiated independent investigations of the allegation and has been keeping the SFO regularly informed as to the progress of those investigations. As was reported on 2 April 2014, evidence came to light that suggests that material instances of deception may have been perpetrated by a former employee or employees during the period 2009 – 2011. One of the former employees refused to answer questions asked of him by the independent investigators. The SFO has now decided to exercise its statutory powers under the Criminal Justice Act to investigate this matter. Sweett Group continues to cooperate fully with the SFO on this matter.”
The U.K. SFO issued this release stating:
“The SFO confirmed today that the Director has opened an investigation into Sweett Group in relation to its activities in the United Arab Emirates and elsewhere.”
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This recent front-page Wall Street Journal article added Tradition Financial Services of Switzerland to the growing list of financial services firms under scrutiny for prior relationships with senior Libyan officials under Moammar Gadhafi. According to the article, “City of London police pursuing a criminal probe have interviewed former employees of Tradition and are nearing a decision on whether to bring charges.” The article also suggests that the SEC and DOJ are also “examining whether the firm or its employees were part of what authorities believe was a broad pattern in which Western companies used improper means to curry favor with officials in the Gadhafi regime.” According to the article, “U.S. investigators have also looked into the Libyan activities of hedge-fund manager Philip Falcone of Harbinger Capital Partners.”
This 2011 guest post predicted scrutiny concerning business practices in Libya after Gadhafi. This previous post asked – in connection with the various Libya probes – whether the U.S. government bears some responsibility.
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This Pillsbury client alert asks – in regards to the Bribery Act’s recent three-year anniversary – “The UK Bribery Act, Three Years On: Can We Relax Yet?” The alert begins:
“The Bribery Act 2010 has now been in force for three years. Despite the announcements and commentary that it heralded a new and aggressive face toward corporate corruption, there have as yet been no corporate prosecutions brought under the Act. Was it all sound and fury signifying nothing? Or should all involved remain cautious and focused on compliance?”
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In this recent speech, Ben Morgan (Joint Head of Bribery and Corruption at the U.K. Serious Fraud Office) asks “Deferred Prosecution Agreements: What Do We Know So Far?”
The obvious answer is nothing since there has not yet been a UK DPA in the “FCPA-like” context or otherwise. Nevertheless in the speech Morgan did highlight what “you need to do if a DPA is to be a potential resolution to an issue you discover.”
Morgan stated:
“It is not my job to try to persuade you to seek a DPA – that is a matter entirely for you and it is open to you to ignore that potential disposal of an issue and defend a prosecution instead. We are very comfortable with both scenarios, but the point of today is to concentrate on the DPA fork in the road as opposed to the adversarial prosecution fork in the road, so that’s what I will concentrate on. While my intention today is to encourage co-operation between you and the SFO, do remember that that only applies to those of you who choose the DPA fork in the road. For everyone else, remember we are ultimately a prosecutor and you can expect the bulk of our case load to be prosecuted in the usual way – the Director has made that entirely clear.”
[Comment: years ago the DOJ said the same thing about NPAs and DPAs (i.e. they were to be used sparingly and only in appropriate circumstances) however the passage of time has suggested otherwise].
Back to Morgan’s speech. He stated:
“If I was back in my old job, advising a company that had become aware of a potential criminal incident, I would be asking myself these two questions:
- 1) Will the SFO ever find out? and
- 2) If they do, what would they really do about it anyway?
Those of you who follow what the SFO has to say about DPAs will know that the Director and our General Counsel have spoken about both of these points at length. I do not repeat what they have said today, although I do endorse it. Today I want to make just two new points to amplify that.
As for “will the SFO find out” the point is simply this – our intelligence capability is expanding and as is widely known, we are investing heavily in it. The Director has said that we are seeking to make use of the full range of investigative tools available to us, and I can say from personal experience that that is now moving to a new level in practice. Through our own capabilities, and in conjunction with our law enforcement and intelligence partners, we have access to and are using that full range of tools. That is potentially game changing for us, not only in respect of forensic recovery of things that have happened in the past, but also in respect of evidence of things happening right now – crime in action.
Judging whether we will find out has always been an exercise in balancing risk. My message for you is if you don’t understand what that full range of investigative tools entails, you are not doing a proper balancing exercise – so you need to do some research on that, and have another think about your risk appetite. Refresh your assessment of what we’re able to do and how that might affect you.
As for “the SFO won’t do anything anyway”, I have to acknowledge history – we have very few corporate convictions in our stable. But under the current Director’s leadership I and others are expressly addressing that as a priority. Three points are worth making.
1) It is often said that it is too difficult to prosecute under pre-Bribery Act legislation. I disagree with that strongly – it can be done if the evidence is there. With the convictions recently of two of the controlling minds of Innospec – the former CEO and current Sales Director – we have shown that we have the resilience to find that evidence and make sure a jury has the opportunity to consider it, however long that takes and however robustly defendants try to stop that happening. Had the company not already pleaded, we would have had a conviction of a corporate under the old legislation for the bribery of foreign public officials. It can be done, we are doing it on other cases right now and we have the appetite to take it on on new cases as well if the evidence leads that way. It is not too difficult to prosecute under pre-Bribery Act legislation. It is hard, yes, but that is what the SFO is for, and we will do it.
2) Of course as time moves on, more and more of the conduct we are looking at is starting to straddle or post-date the coming into force of the Bribery Act, so for corruption offences at least, the job of prosecuting a corporate should become easier.
3) Finally on this, you will have heard the Director speak about the need for the logical expansion of the section 7 offence to cover other economic crimes, and my own view is that that logic is irresistible, such that the job of prosecuting corporates for more than just corruption offences should also become easier.”
As to “what we know about DPAs so far,” Morgan stated:
“[W]hen you become aware of potentially criminal conduct, there is a fork in the road – do you keep quiet and brace yourself for a fight if the SFO comes calling; or do you come and talk to us, work with us rather than against us, and try to manage the consequences of that incident responsibly, exhibiting the characteristics of honesty and integrity that I am sure every one of you has a lot to say about in your Code of Ethics and your Corporate Social Responsibility literature. Do you do the right thing morally, regardless of your analysis of the balance of risk?
I speak to defence barristers and solicitors about this a lot, and I am frequently told that the impediment to corporates coming forward is that their advisers cannot say with enough certainty what will happen if they do. That’s nonsense. Ever since DPAs have been on the agenda the consistent message from the SFO has been that a company that comes to tell us about a problem and genuinely co-operates with us in resolving it is unlikely to be prosecuted. While there will still be corporate prosecutions, the Director has said on many occasions that if a company genuinely does that, it will weigh heavily against the public interest parts of the Full Code Test pointing toward a prosecution. So actually, the position is pretty clear.
The question that naturally arises then is what is meant by genuinely co-operating with us? Again, I personally think this is pretty clear too – the DPA code covers it, and we have developed that in several speeches since. It seems to me that the issue amongst defence lawyers on co-operation is less a lack of clarity about what we are asking for, and more the fact that they don’t particularly like what we are asking for. For that reason I am glad to have this opportunity to speak directly to the corporates present here today. I think it’s important people hear from us about what we are asking for. If you want to have a chance of getting a DPA when you discover an issue somewhere in your network, you need to think through some of the following:
1) Tell us something we don’t already know, and do it within a reasonable period of the incident coming to light. I accept that it is hard to strike the balance between knowing enough about what has happened to make it worth speaking to us, and leaving it too long and us finding out anyway. If I was an adviser, I would be trying to approach that judgement by reference to the SFO’s own criteria for taking on a case. The Director has the power under section 1 of the Criminal Justice Act to open a criminal investigation into a suspected offence which appears to him on reasonable grounds to involve serious fraud, bribery or corruption. Practical tip number one is why not approach your analysis using that same test? I can’t guarantee it will get you a DPA, but it is the best help I feel I can offer in terms of when to come and talk to us.
One thing I can say with confidence is that generally speaking, the time to come will be a lot sooner than people have tended to think in the past. We certainly do not need you to have instructed lawyers to do an 18 month internal investigation and produce a weighty report. In the context of DPAs, from the SFO’s perspective those days are over. You need to decide early if you want a DPA to an option, and come and see us promptly if you do. And if that seems worrying, remember this – we have to apply the Full Code Test to any charging decision we make, so if you come and tell us something early you have the security that if having looked at it together, the evidence of a crime is not there, we MUST NOT pursue the case, and I can promise you we won’t. We are far too busy to try to force a square peg into a round hole.
[…]
4) There are a series of other important steps a co-operating company needs to take – and these are set out in the Code of Conduct: engaging with us on the scope of an ongoing investigation, points around the capture and sharing of digital material, that sort of thing. The final practical tip I would offer is this. In the case of all co-operative steps, make sure that you really are co-operating; genuinely. I came across the awful phrase recently at an event “the impression of co-operation” and believe me, nothing is more likely to derail the DPA process than a stage-managed attempt to co-operate that, as our investigation progresses, inevitably transpires to have been designed to give no more than the impression of co-operation. It is a matter of substance, sustained over time, not form, and proper co-operation requires genuine effort on the part of a company from the point of coming to speak to us, right through the DPA process, and then on throughout the life of the DPA.
Remember that ultimately it is a matter for a judge whether a DPA is finalised, not the SFO. I can say for my part that I certainly won’t be inviting any corporate into the process who I do not honestly believe is being fully frank with us. Littering correspondence with the word “co-operation” but in fact doing anything but is really not good enough. Co-operation is something we will judge by actions, not words. And while I can’t speak for the judiciary, I would be stunned if anything other than genuine, unreserved co-operation from a corporate would be enough to satisfy a judge that it is in the interests of justice to dispose of criminal conduct through a DPA rather than a prosecution.
For those that choose the DPA fork in the road, my message for you today is a warm one; if we think a DPA is appropriate then we are willing to work with you, collaboratively, to present to the court a DPA that is properly in the interests of justice. To get to that mutual goal, where we are both in court asking the judge for the same thing, you will have to be frank and open with us, and co-operate with us. I’ve explained what that means to us. A DPA won’t be appropriate in every case, and even if you follow everything I’ve said this morning I can’t guarantee you will get a DPA, but if you choose to ignore everything I’ve said, you might quickly find you’ve ruled one out.”
“Friday” Roundup
On the brink of trial, statistics of note, the over-hyped U.K. Bribery Act turns 3, say what?, and for the reading stack. It’s all here in a special Thursday edition of the Friday roundup.
On The Brink of Trial
This February 2012 post highlighting the SEC’s enforcement action against Mark Jackson and James Ruehlen (a former and current executive of Noble Corp. respectively) asked – “will the SEC be put to its burden of proof.” Among other things, the post noted that the SEC has never prevailed in an FCPA enforcement action when put to its burden of proof.
With the passage of time, the SEC’s case against the defendants was consistently trimmed as the SEC attempted to meet its burden (see this post as well as here). Among other things, a portion of the SEC’s claims were dismissed or abandoned on statute of limitations grounds and the trial court judge ruled, in an issue of first impression, that the SEC has the burden of negating the FCPA’s facilitation payments exception.
On the brink of the SEC’s first-ever FCPA trial (trial was scheduled to begin next week), the parties have agreed to settle.
Without admitting or denying the SEC’s allegations, Jackson consented to a final judgment permanently restraining and enjoining him from violating the FCPA’s books and records provisions. Jackson was represented by, among others, David Krakoff (Buckley Sandler). In a release, Krakoff stated:
“We are very pleased with today’s settlement. It resolves allegations that have hung over Mr. Jackson for many years without any admission of liability, without any payment of money and without any restriction on Mr. Jackson’s future employment opportunities. Mr. Jackson can now move forward with his life and career.”
Without admitting or denying the SEC’s allegations, Ruehlen consented to a final judgment permanently restraining and enjoining him from aiding and abetting FCPA books and records violations. Ruehlen was represented by, among others, Joseph Warin and Nicola Hanna (Gibson Dunn). In a release, Warin stated:
“We are very pleased with yesterday’s settlement. Mr. Ruehlen is an exemplary and dedicated employee who first brought the allegations to light and fully cooperated with the SEC’s investigation. While we were looking forward to presenting our case to a jury, the settlement of one record-keeping claim – without any admission of liability or wrongdoing, monetary penalty, or restriction on Mr. Ruehlen’s employment – satisfactorily ends the matter and allows Jim to focus his energies on his work for Noble.”
In neither consent is Jackson or Ruehlen required to pay any civil fine.
Score this one as you see fit, but my take is that this case represents yet another SEC failure in an FCPA enforcement action when put to its burden of proof. As the Second Circuit recently recognized, SEC neither admit nor deny settlements are not about the truth, but pragmatism.
Statistics of Note
EY recently released its 13th annual Global Fraud survey (the results were based on interviews with more than 2,700 executives across 59 countries). Statistics of note include the following.
“Despite the aggressive enforcement environment, our research suggests that the percentage of companies that have anti-bribery/anticorruption (ABAC) policies has increased by only 1% over the past two years, and a persistent minority has yet to take even the basic steps toward an effective compliance program. One in five businesses still does not have an ABAC policy. Less than 50% of respondents have attended ABAC training. There has been a reduction in the level of reporting on compliance issues to boards.”
“The survey results show that executives in different roles have a differing view of the level of risk. 27% of chief compliance officers (CCOs) believe bribery and corrupt practices happen widely in their country versus 38% of all respondents — so they appear to have a more optimistic view than their colleagues. 18% of sales and marketing executives believe it is common practice to use bribery to win contracts in their sector versus 12% of all respondents — so they appear to have a more pessimistic view than their colleagues.”
“Additionally, the survey results suggest that compliance efforts may not always be targeting the right risks in the most effective way. Less than a third of businesses are always or very frequently conducting anti-corruption due diligence as part of their mergers and acquisitions process. 45% of organizations are not mitigating risks by introducing a whistleblower hotline. ABAC training is less likely to occur in jurisdictions where there is a higher perceived risk of bribery. Sales and marketing executives are the least likely of all our respondents to be included in risk assessments — despite being exposed to and aware of significant risks. ABAC training, for example, is more likely to be attended by executives in mature markets, where corruption is perceived to be lower, than in higher-risk emerging markets. Of the survey population, 58% of respondents in developed markets had received ABAC training, compared with just 40% in emerging markets.”
Consistent with the observation in this recent post, these survey results again ought to prompt questions whether the current approach to enforcement – as well as enforcement policy – are effective.
Bribery Act Turns 3
The U.K. Bribery Act, a massively over-hyped law when it was being proposed and went live, has turned three. On the day it went live, I offered the following two cents.
“As with any new law, there is likely to be a learning phase for both the enforcement agencies and those subject to the law. That was certainly the case in the U.S. in the years following passage of the FCPA in 1977. Thus, it very well may be the case that there are no enforcement actions for some time (recognizing that it often takes a few years from beginning of an inquiry to resolution of an action). Thus the greatest immediate impact of the Bribery Act is sure to be the compliance ethic it inspires. I expect that the enforcement actions that may develop over time to focus on egregious instances of corporate conduct on which no reasonable minds would disagree. I do not get the sense, based on public comments of the Ministry of Justice and the Serious Fraud Office, that the envelope will be pushed too far in the early years of the Bribery Act.”
Indeed, there has yet to be an “FCPA-like” Bribery Act enforcement action. This troubles Transparency International – see here.
Say What?
Speaking of the Bribery Act, this is from “The Lawyer” regarding corruption allegations at FIFA and the ability of the U.K. Serious Fraud Office to bring an enforcement action against FIFA sponsors.
“Section 7 [of the U.K. Bribery Act] is entitled “Failure of commercial organisations to prevent bribery”. Its reach is as global as the World Cup. The fact that Fifa is a Zurich-based NGO does not mean it’s offside. Similarly for the sponsors so long as some aspect of their business is carried out in the UK. A single sale of an Adidas football boot via a Visa credit card is sufficient for David Green [Director of the SFO] to apply to the courts for search warrants in order to unleash dawn raids on their UK HQs.”
Regarding the italicized portion … say what?
For the Reading Stack
See here for the always informative Debevoise & Plimpton FCPA Update. Regarding the Second Circuit’s recent decision in SEC v. Citigroup, the Update states:
“For companies subject to the SEC’s authority to enforce the FCPA, the Second Circuit’s decision in the Citi matter provides some comfort that a corporate resolution requiring judicial approval, once achieved, should be subject to appropriate deference when it comes before a district court for review. At the same time, however, the decision also reinforces the understanding that resolutions achieved by settlement, even if approved by a court, do not constitute legal precedent.”
An interesting read here from the BBC regarding “contemporary business culture” in China.
“Chinese workplaces are just as political as those anywhere else in the world, some would argue more so because the value placed on outward harmony in Chinese culture drives the rivalry underground. […] The politics in a multinational’s China operation can be especially insidious when there’s a thin layer of western management attempting to operate according to principles which have limited purchase in the Chinese business culture beneath.”
Aboard the “bribery express” – from Eurasianet.
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A Happy Independence Day to U.S. readers and a good weekend to all.
Confusing And Conflicting Policy Statements From The U.K. SFO
As the United Kingdom settles into the Bribery Act and enters the “facade” era of enforcement (see here for the prior post), it is difficult to reconcile the confusing and conflicting statements from Serious Fraud Office officials.
For instance, in this recent speech by Alun Milford (SFO General Counsel) titled “Corporate Criminal Liability and Deferred Prosecution Agreements” he states:
“Whatever the offence under investigation, there can be no prosecution unless the two stage test set out in the Code for Crown Prosecutors is met. First, there must be sufficient evidence for a realistic prospect of conviction. If there is not, then that is the end of the matter.”
This is inconsistent with what the SFO previously said when it rolled out its Code of Practice relevant to DPAs. In defending adoption of the “lower evidential test” in the Code of Practice and addressing concerns that this standard “was so easily satisfied as to have very little substance,” the SFO’s response was, in pertinent part, as follows.
“One of the principal purposes of DPAs is to bring a resolution to cases of corporate criminality more quickly. […] If a prosecutor had to be satisfied that the evidence against an organization was sufficient to meet the Full Code Test (“Prosecutors must be satisfied that there is sufficient evidence to provide a realistic prospect of conviction against each suspect on each charge”) without the alternative of the ‘lower’ evidential test before considering whether a DPA was in the public interest, a key purpose of DPAs, as was the express intention of parliament, would become redundant. In order to achieve one of parliament’s key intentions in legislating for the introduction of DPAs a ‘lower’ evidential test is necessary.”
“Satisfaction of the Full Code Test, particularly in view of the well documented difficulties in proving corporate liability, would in most circumstances require a complete an full scale investigation, sometimes spanning many jurisdictions, which inevitably is time consuming and expensive. It is not intended for there to be such an investigation before a DPA is entered into.”
It is also difficult to square the above previous SFO statement – “it is not intended for there to be such a [full scale] investigation before a DPA is entered into” with the following statement from Milford’s recent speech regarding self-reporting:
“It is clear that we cannot accept such [self] reports at face value, especially where the company denies any wrongdoing on its part. [Note: Query why a company would self-report if it denies any wrongdoing on its part – but that is separate issue]
Even in the case of a self-report, we will need to conduct our own, independent investigation into the extent of the wrongdoing not least because, if on initial review the case seemed right in principle for a DPA disposal, we would need to satisfy ourselves and possibly also a judge that the extent of what was reported was accurate. If, on embarking on our investigation, we find evidence trails disturbed, witnesses tipped off and their first accounts denied us, then we will find it hard to regard the company’s conduct in the preparation of the report as anything other than unhelpful, not least as we will in all probability have identified key individuals within the company as suspects who we might wish to prosecute.”
When law enforcement agencies create alternate realities with different standards and procedures – none of which have historical grounding in rule of law principles – the end result is confusing and conflicting policy statements.
That is exactly what is occurring at the present as the U.K. prepares to enter the “facade” era.
The U.K. Enters The Facade Era
In my 2010 article “The Facade of FCPA Enforcement,” I warned that this was going to happen.
Under the heading “why the facade of FCPA enforcement matters,” I noted, among other things, the “increasing frequency by which other nations are modeling enforcement of their own bribery laws on U.S. enforcement methods and theories” and stated that “these methods and theories, unless addressed and corrected here in this country, will continue to be replicated elsewhere, perhaps leading to a global facade of enforcement.”
Today, the U.K. formally enters the facade era as deferred prosecution agreements become available to U.K. prosecutors. (See here and here for relevant documents recently released by the Serious Fraud Office (SFO) and Crown Prosecution Service (CPS)).
To anyone who values the rule of law, reading these documents is truly distressing and I imagine Sir William Blackstone (the famed English jurist best known for his Commentaries on the Laws of England) has flipped in his grave.
Why did the U.K. adopt DPAs?
In short, the SFO and CPS tell us that doing things the old-fashioned way (i.e. proving a criminal violation in an adversarial system) is too difficult and takes too long. The SFO Director’s language on this issue is blunt as he states that “one of the principal purposes of DPAs is to bring resolution to cases of corporate criminality more quickly.”
The U.K.’s justification for DPAs is really quite sad as ease and efficiency are not concepts normally associated with the rule of law and justice. Yet, when politicians and civil society groups are clamoring for more prosecutions this is the end result.
Before highlighting certain troublesome features of the U.K.’s new system, it is important nevertheless to recognize the following.
When the U.K. was considering its approach, it rejected U.S. style non-prosecution agreements and stated that such agreement
“[Are] unsuitable for the constitutional arrangements and legal traditions in England and Wales. We have concluded that [NPAs] are not suitable for this jurisdiction due to their markedly lesser degree of transparency, including the absence of judicial oversight.” (See here for the prior post).
Moreover, even though the U.K. is adopting DPAs, the DPA regime is most certainly different from the U.S. regime in that the U.K. regime contemplates active and early involvement by the judiciary.
U.K. DPAs will be used to resolve a variety of corporate criminal actions, not just actions under the Bribery Act. My opposition to the U.K. adopting DPAs has been limited to application to Bribery Act offenses (see here for my prior submission to the U.K. Ministry of Justice as well as prior posts here, here and here). The questions I posed have never been answered.
“Why does a law with an adequate procedures defense require the third option of a deferred prosecution agreement (the first two options being prosecute vs. not prosecute)? If a corporate has adequate procedures, but an isolated act of bribery nevertheless occurs within its organization, the corporate presumably would not face prosecution under the Bribery Act. This seems like a just and reasonable result and there is no need for a third option in such a case. On the other hand, if a corporate does not have adequate procedures (thus demonstrating a lack of commitment to anti-bribery compliance) and an act of bribery occurs within its organization, it presumably would face prosecution under the Bribery Act. This seems like a just and reasonable result. Does a third option really need to be created for corporates who do not implement adequate procedures? I submit the answer is no and urge the MoJ to reject use of DPAs in the Bribery Act context.”
For years, I have been highlighting how the DOJ picks and chooses which aspects of the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions it chooses to follow. When the DOJ wants to justify a position it is taking and feels like the OECD Convention supports this position, the DOJ cites to the OECD Convention. However, when the DOJ is acting inconsistent with the OECD Convention, it simply ignores the Convention.
For instance, OECD Convention Article 5, under the heading “Enforcement,” states that investigation and prosecution of bribery offenses “shall not be influenced by considerations of national economic interest, the potential effect upon relations with another State or the identity of the natural or legal persons involved.” Every time the DOJ enters into an NPA or DPA and justifies its decision through reference to potential collateral consequences that may result to a particular company, the DOJ is considering the “identity” of the “legal persons involved” in violation of Article 5.
The U.K.’s Code of Practice for DPAs does the same thing.
Section 2.7 of the Code of Practice states:
“Prosecutors should have regard when considering the public interest stage to the U.K.’s commitment to abide by the OECD Convention on ‘Combating Bribery of Foreign Public Officials in International Business Transactions’ in particular Article 5. Investigation and prosecution of the bribery of a foreign public official should not be influenced by considerations of national economic interest, the potential effect upon relations with another State or the identity of the natural or legal persons involved.”
Yet a page later, at Section 2.8 under the heading “additional public interest factors against prosecution,” the Code of Practice sets forth the following:
“[whether] a conviction is likely to have disproportionate consequences for [an organization], under domestic law, the law of another jurisdiction including but not limited to that of the European Union …”
“[whether] a conviction is likely to have collateral effects on the public, [an organization’s] employees and shareholders of [an organization] and/or institutional pension holders.”
In other words and contrary to Article 5, the U.K., like the U.S., will take into account the identity of the legal person involved.
Notwithstanding the above, the most troubling feature of the Code of Practice concerns the evidence sufficient for U.K. prosecutors to resolve an action via a DPA. In defending adoption of the “lower evidential test” in the Code of Practice and addressing concerns that this standard “was so easily satisfied as to have very little substance,” the SFO’s response is, in pertinent part, as follows.
“One of the principal purposes of DPAs is to bring a resolution to cases of corporate criminality more quickly. […] If a prosecutor had to be satisfied that the evidence against an organization was sufficient to meet the Full Code Test (“Prosecutors must be satisfied that there is sufficient evidence to provide a realistic prospect of conviction against each suspect on each charge”) without the alternative of the ‘lower’ evidential test before considering whether a DPA was in the public interest, a key purpose of DPAs, as was the express intention of parliament, would become redundant. In order to achieve one of parliament’s key intentions in legislating for the introduction of DPAs a ‘lower’ evidential test is necessary.”
“Satisfaction of the Full Code Test, particularly in view of the well documented difficulties in proving corporate liability, would in most circumstances require a complete an full scale investigation, sometimes spanning many jurisdictions, which inevitably is time consuming and expensive. It is not intended for there to be such an investigation before a DPA is entered into.”
This response is nothing short of laughable and truly distressing to anyone who values the rule of law. The SFO is defending the DPA regime by saying that the old regime of proving corporate criminal liability required a complete and full scale investigation that took too long.
At the end of the day, the U.K.’s adoption of DPAs is a political response to show results. Because this new system expands the market for legal services, you will find few opposing it.
What a sad state of affairs the U.S. has started and is now spreading across the world.