Friday Roundup
Make your voice heard, scrutiny alerts, “foreign official” fun, and for the reading stack. It’s all here in the Friday roundup.
Make Your Voice Heard
Yesterday, the U.K. Serious Fraud Office announced a consultation on “a draft Code of Practice setting out their approach to the use of Deferred Prosecution Agreements (DPAs).” According to the release, the U.K. is seeking “views on eight points covered in the draft Code, including the circumstances when a prosecutor should consider a DPA, the criteria to apply when making this decision, and on the disclosure approach envisaged.”
Make your voice heard, “comments are welcome from interested individuals and organisations” and “the consultation closes on Friday 20 September 2013.” See here for my previous post urging the U.K. to reject DPAs.
Staying in the U.K. this report states as follows. “The UK Serious Fraud Office is actively investigating two cases under the Bribery Act, said Kevin Davis, the SFO’s chief investigating officer. He also revealed that a further six cases which might lead to prosecutions were under investigation.”
Scrutiny Alerts
Medtronic
Let’s say law enforcement sets up a sobriety checkpoint on the highway. A sober driver successfully passes through it. Would we call this an instance of law enforcement “declining” to prosecute the driver for drunk driver?
Of course not, and the same logic should apply in the FCPA context as well.
In June 2008, Medtronic disclosed as follows.
“On September 25, 2007, the Company received a letter from the SEC requesting information relating to any potential violations of the U.S. Foreign Corrupt Practices Act in connection with the sale of medical devices in an unspecified number of foreign countries, including Greece, Poland and Germany. The letter notes that the Company is a significant participant in the medical device industry, and seeks any information concerning certain types of payments made directly or indirectly to government-employed doctors. A number of competitors have publicly disclosed receiving similar letters. On November 16, 2007, the Company received a letter from the Department of Justice requesting any information provided to the SEC. The Company is cooperating with both requests.”
In June 2009, Medtronic disclosed as follows.
“On September 25, 2007, the Company received a letter from the SEC requesting information relating to any potential violations of the U.S. Foreign Corrupt Practices Act in connection with the sale of medical devices in an unspecified number of foreign countries, including Greece, Poland and Germany. Turkey, Italy and Malaysia have since been added to the inquiry. The letter notes that the Company is a significant participant in the medical device industry, and seeks any information concerning certain types of payments made directly or indirectly to government-employed doctors. A number of competitors have publicly disclosed receiving similar letters. On November 16, 2007, the Company received a letter from the Department of Justice requesting any information provided to the SEC. Since that time the SEC and Department of Justice have made additional requests for information from the Company. The Company is cooperating with the requests.”
Earlier this week, Medtronic stated as follows.
“On September 25, 2007 and November 16, 2007, the Company received letters from the U.S. Securities and Exchange Commission (SEC) and the U.S. Department of Justice (DOJ), respectively, requesting information relating to any potential violations of the U.S. Foreign Corrupt Practices Act in connection with the sale of medical devices in several non-U.S. countries. A number of competitors have publicly disclosed receiving similar letters. Subsequently, the SEC and DOJ made additional requests for information from the Company. In June 2013, the SEC and the DOJ both informed the Company that they would be closing their investigations without pursuing any enforcement action or charges against the Company.”
The headline on the FCPA Blog read “Medtronic Wins Double Declination.” The headline on the Risk & Compliance Blog of the Wall Street Journal read “Medtronic Says SEC, DOJ Declined to Prosecute for FCPA Violations.”
I just don’t understand it at all. (See here for more).
HLW International / Sweett Group
Architecture firm HLW International LLP and Sweett Group Ltd. (a U.K. based construction company) recently were the subject of a leading Wall Street Journal article titled “Inside U.S. Firm’s Bribery Probe” by Joe Palazzolo and Chris Matthews. The focus of the article concerns the construction of a hospital in Morocco and the alleged promise by a Sweet executive that HLW would get the design contract if it agreed to pay 3.5% of the contract value to “an official inside the United Arab Emirates President’s personal foundation, which was funding the project.”
Charitable donations have been the focus of prior FCPA enforcement actions against Eli Lilly and Schering-Plough as well as the focus of Wynn Resort’s current FCPA scrutiny.
“Foreign Official” Fun
In the Carson “foreign official” challenge, Judge Selna concluded, in denying the defendants’ motion to dismiss (see here), that “the question of
whether state-owned companies qualify as instrumentalities under the FCPA is a question of fact.” Judge Selna stated that “several factors bear on the question of whether a business entity constitutes a government instrumentality” including the following.
- The foreign state’s characterization of the entity and its employees;
- The foreign state’s degree of control over the entity;
- The purpose of the entity’s activities;
- The entity’s obligations and privileges under the foreign state’s law, including whether the entity exercises exclusive or controlling power to administer its designated functions;
- The circumstances surrounding the entity’s creation; and
- The foreign state’s extent of ownership of the entity, including the level of financial support by the state (e.g., subsidies, special tax treatment, and loans).
According to Judge Selna, the above “factors are not exclusive, and no single factor is dispositive.”
According to this recent article in the Wall Street Journal:
“Companies listed on China’s stock exchanges received 85.68 billion yuan ($13.83 billion) in government subsidies last year, up 23% from a year earlier, while corporate profits rose less than 1%, according to a Chinese data provider. The subsidies were equivalent to more than 4% of the companies’ total profits last year, up from around 3% between 2009 and 2011. The subsidies—largely from local authorities but also from the national government—took the form of cheap land, tax rebates, support for loan repayments and straight-up cash. There were a range of reasons, including research and development and support for government environment priorities.”
Reading Stack
The Seventh Edition of the FCPA Handbook from O’Melveny & Myers.
A focus on Southeast Asia in the always informative FCPA Update from Debevoise & Plimpton.
A mini-roundup of Canada’s recent amendments to its Corruption of Foreign Public Officials Act here (Osler), here (Dentons), and here (Fasken Martineau).
*****
A good weekend to all.
Friday Roundup
Survey says, an editorial, I’ll second that, and spot-on. It’s all here in the Friday roundup.
Survey Says
The recently issued Kroll / Compliance Week Anti-Bribery and Corruption Benchmarking Report was based on responses from “nearly 300 executives” and “participants hailed from all manner of industry.”
Survey findings of note.
“Was the FCPA Guidance any help? Nearly 53 percent rated the guidance as “a good read, but it didn’t tell me anything new.” Another 23.5 percent deemed it very helpful, 18.8 percent didn’t know, and 4.6 percent said the guidance actually left them more confused.”
Regarding third parties:
- “The average respondent reports that his/her company conducts business with more than 3,500 third parties”
- “Most companies (79 percent) will drop a potential third party even upon rumor of bribery without any hard proof”
- “47 percent of all respondents said they conduct no anti-corruption training with their third parties at all”
Financial Times Editorial on Bribery Act
I was pleased to speak to the Financial Times in connection with its recent Bribery Act editorial. It stated in full as follows.
Government Needs to Clarify Application of Bribery Act
Britain was once considered a laggard in the international battle against corruption. The Bribery Act, which came into force in 2011, was the first overhaul of anti-corruption laws in almost a century. Two years on, the government wants to review it. This is sensible, as new legislation can have unintended consequences. But any review should not result in a weaker law. That would only allow greater scope for graft.
The government is responding to complaints from small and medium-sized businesses that the costs of compliance are too high. In particular, they are worried about the ban on facilitation payments, small amounts paid to officials to expedite services such as visas or customs checks. Businesses argue that Britain holds its companies to a higher standard than other countries – particularly the US, where such payments are not banned. They say this puts them at a disadvantage.
These concerns are understandable, but exaggerated. Facilitation payments have always been illegal in the UK. Yet conflicting signals from the authorities have sown confusion. Moreover, the absence of case law leaves companies in the dark as to how the law will be applied and what defence is valid. This has created a climate in which companies easily fall prey to firms peddling overly-prescriptive and costly advice on compliance.
More can and should be done to clarify the circumstances under which a company will be pursued. This will help to counter the scaremongering that has led some businesses to pass up export opportunities. To be fair, the guidelines already allow some flexibility for smaller businesses. They are not expected to use the same procedures as big multinationals. When choosing an agent to open a new market, for example, it might be sufficient to verify business references, conduct an internet search and refer to the local chamber of commerce or UK embassy, as long as the anti-corruption policy is widely enough disseminated. The government’s duty is to ensure resources are sufficient to meet such requests.
Authorities must also be consistent. Businesses will not respond to demands that breaches be reported if they fear they will be prosecuted for any and all transgressions.
British companies have other competitive advantages to win business with than bribery. Graft is an evil that blights developing economies and the companies which resort to it. The Bribery Act does not need changing. It just needs supporting.
I’ll Second That
Earlier this week in a Wall Street Journal editorial titled “Mum’s the Word About SEC Defeats” Russ Ryan (Partner, King & Spalding and former Assistant Director of the SEC Enforcement Division) stated as follows. “Like other federal agencies, the SEC has long been good at publicizing its initial accusations of wrongdoing – which is fair enough – but not so good at letting the public know when those accusations turn out to be unfounded or an overreach.” As Ryan rightly noted, in this internet age, “SEC publicity is permanent and widely dispersed. The regulator’s accusations can persist indefinitely among the top search-engine results for the names of those accused.”
I’ll second that and have previousy written about the same dynamics Ryan highlights under the heading “Writer’s Cramp at the DOJ.” See prior posts here and here.
Spot On
Colleen Conry (Ropes Gray) stated as follows in a recent Law360 interview.
Q: What aspects of your practice area are in need of reform and why?
A: The government’s attempts to hold foreign companies accountable for having compliance programs that are on par with those we see at companies that are headquartered in the United States are challenging. Foreign companies often lack notice of that expectation and as a result suffer the consequences. Over time, I hope the government will at least consider as one factor the compliance standards that are the norm in the country in which the foreign entity operates.
*****
A good weekend to all.
Friday Roundup
Boondoggle specifics, another DOJ enforcement official to FCPA Inc., scrutiny alert, across the pond, and for the reading stack. It’s all here in the Friday roundup.
Wal-Mart’s FCPA Expenses
Previous posts (here) and (here) have calculated Wal-Mart’s per working day FCPA related professional fees and expenses.
No wonder Wal-Mart’s first quarter professional fees and expenses equal approximately $1.16 million per working day. According to this recent article in India’s Economic Times, concerning just the India portion of Wal-Mart’s investigation:
“So far Greenberg Traurig and KPMG have spent 26,000 hours on consulting and shaping anti-corruption compliance programme for Bharti Walmart, which operates 20 Best Price Modern Wholesale stores in various cities in India. This work has included developing and implementing procedures and providing training to over 1,800 senior business and store level associates in India,” a Bharti Walmart spokesperson said in an e-mail response to ET. “For the past several months, the company has also been using Greenberg Traurig and KPMG to perform due diligence on third party service providers in India.” Currently there are about 20 Greenberg Traurig attorneys stationed in India working on Bharti Walmart’s compliance programme, the spokesperson said.”
Relevant to FCPA investigative expenses, this FCPA Inc. participant marketing pitch caught my eye. Is it really necessary to analyze millions of documents in an FCPA review? Also, since when did FCPA investigations focus on “proving a negative that [the company] did not bribe foreign officials?”
Suleiman to FCPA Inc.
As noted in this recent post, earlier this month Daniel Suleiman (DOJ Deputy Chief of Staff for the Criminal Division) stated in a speech that the DOJ’s FCPA enforcement efforts “are as active today … as we have ever been.”
Earlier this week, Covington & Burling announced (here) that Suleiman would be joining his former boss Lanny Breuer (see here for the prior post concerning Breuer’s jump to FCPA Inc.) at Covington. Suleiman thus becomes the latest in a long-line of former DOJ or SEC FCPA enforcement attorneys to depart for FCPA Inc. The firm stated, in pertinent part, as follows.
“Mr. Suleiman joins the firm’s Washington office as special counsel where he is expected to focus on defending individuals and corporations facing white collar criminal charges, Foreign Corrupt Practices Act investigations and congressional inquiries. […] In his Justice Department role, Mr. Suleiman helped oversee about 600 lawyers and 1,000 employees, and managed an annual budget of approximately $600 million. He provided advice on a wide range of federal law enforcement priorities, with particular focus on Foreign Corrupt Practices Act and financial fraud enforcement.”
In his speech earlier this month, Suleiman rightly observed an issue I have long pointed out that, among other things, warrants a five-year bar on DOJ FCPA enforcement attorneys from providing private sector FCPA services. Suleiman stated as follows. “It is Justice Department policy that no FCPA prosecution can be brought without authorization from the Criminal Division, which distinguishes FCPA prosecutions from most other kinds of federal criminal cases.”
Scrutiny Alert
According to this report by the Organized Crime and Corruption Reporting project, the SEC “has opened an investigation into Swedish multinational Ericsson’s business practices in Romania. The investigation is related to allegations made by a former Ericsson employee that the company used an approved slush-fund to pay off Romanian officials and decision makers to win contracts.”
Ericsson has ADR shares listed on NASDAQ in the United States.
Across the Pond
From thebriberyact.com, a useful of summary (here) of recent remarks by U.K. Serious Fraud Office Director David Green.
Staying in the U.K., a useful summary (here) by Eversheds of the “third conviction for an individual under the Bribery Act 2010.” The case concerns a Chinese national studying in the U.K. who attempted to bribe his professor for a passing grade. As noted in the Eversheds summary, “the UK has yet to see prosecution of a corporate under the [Bribery] Act, so companies are still awaiting judicial interpretation the corporate offence under [section] 7 of the Bribery Act and the Ministry of Justice’s Guidance on ‘adequate procedures’”. [Note the U.K. Bribery Act has domestic bribery provisions as well as “FCPA-like” foreign bribery provisions. The three individual Bribery Act convictions have all been domestic bribery prosecutions].
Reading Stack
Trace International recently released (here) its third annual Global Enforcement Report. The report provides an updated summary of international anti-bribery enforcement trends based on the cases and investigations tracked in the TRACE Compendium, TRACE’s public, online database of transnational corruption cases.
Sound advice from Tim Peterson (a former SEC enforcement attorney) and Robertson Park (a former DOJ enforcement attorney) in this article in Inside Counsel regarding voluntary disclosures.
“Not all potential [FCPA] problems, however, are appropriate for disclosure. After investigation, allegations of misconduct may not result in a determination that illicit activity has occurred. Problematic payments may not be sufficiently material to amount to an FCPA violation (though companies should be aware of different standards for liability under other jurisdictions’ anti-corruption laws; for example, the U.K. Bribery Act of 2010). Prematurely attracting the government’s attention may, as a practical matter, shift the burden to the company to prove the absence of a corruption problem. Enforcement officials may feel the need as a matter of basic human nature to seek some type of resolution to a case where they have invested significant time and effort. Companies need to weigh the potential benefits of cooperation against the significant costs of initiating a potentially unwarranted government investigation.”
From Compliance Week, a useful summary (here) of recent remarks by Chuck Duross (DOJ FCPA Unit Chief) and Kara Brockmeyer (SEC FCPA Unit Chief).
*****
A good weekend to all.
The U.K.’s Growing Pains
A recent post at thebriberyact.com highlighted a recent U.K. House of Lords select committee report (here) on small and medium size enterprises. The objective of the committee was “to consider the Government’s assistance and promotion of the export of products and services by Small and Medium Sized Enterprises and to make recommendations.”
A section of the report concerns the Bribery Act, and as detailed below, the committee recommends that “the Act should be the subject of post legislative scrutiny by a Parliamentary select committee.”
Chapter 10 of the report states, in full, as follows (emphasis in original).
Introduction
10.1. The Bribery Act 2010 came into force in July 2011. Its purpose was to modernise domestic and foreign offences of bribery. Its enactment led to a flurry of concern that SMEs would be particularly harshly affected. Mr Simon of UKTI agreed that the Act had “provoked a bit of anxiety” and said that “it is possible that [the UK] have lost some business”
10.2. It was not surprising, therefore, that whilst several witnesses recognised it as having enhanced the reputation of the UK in terms of business ethical standards, some expressed concern that the Act had given rise to uncertainty and put the UK at a trading disadvantage. Deltex Medical Ltd, for example, said: “The Bribery Act is a concern because it creates an imbalance with other markets. We support appropriate measures to uphold industry best practice and ethical business practices. However, the terms of the Bribery Act itself potentially restrict trading opportunities—for example in countries such as China and Brazil that do not conform to the same code of practice as the UK. In our experience, we have had to pay to review potential overseas distributors in China. Many Directors of SMEs are rightly concerned about being able to expand export markets whilst conforming to the Bribery Act.”
10.3. He went on: “BRIC countries especially raise challenging questions around the Bribery Act. My fellow directors and I have concerns over how we operate correctly under the Bribery Act within those countries. We have taken legal advice. We have made changes to our contracts. All of those areas have ways of trading that are different from those that we have in the UK, and different standards. It is difficult for any company to go in and follow the recommendations.”
10.4. Tony Shepherd of Alderley plc expressed his views robustly: “The existing Act is virtually impossible to operate as far as a UK company is concerned. You cannot really take someone out to dinner without committing a crime. I am very strongly in favour of trying to eliminate bribery, but to have a situation where we are subject to a law that is much more severe than anywhere else in the world is not good.”
10.5. ADS also recognised the value of the Act but asked for “clearer guidance … on its practical application and its implications, particularly the responsibility on SMEs for local ‘agents’. They also thought it “essential that the UK pursues a global level playing field in bribery rules so UK companies are not disadvantaged”. LMK Thermosafe Ltd. similarly understood the purpose of the Act but said that adhering to the Act restricted their ability to sell successfully and, as a result of Act, they preferred to “work in markets where honesty is appreciated”. Mr. Ehmann of the IoD described the Bribery Act as a “counterproductive” measure that has “held us back”. It had had, he said, “a significant impact” on his members, especially for those trading with BRIC countries and developing economies.
Current Government action
10.6. The Government explained to us what action they had taken to help SMEs to understand the implications of the Bribery Act 2010. The Ministry of Justice has published guidance on the Act and has run a programme of awareness-raising, prioritising UK industrial sectors most exposed to corruption risks. There is an online Business Anti-Corruption Portal which is specially targeted at SMEs and provides a comprehensive and practical business tool to help them avoid and fight corruption, with specific advice on 62 countries. Commercial Awareness training for FCO staff aims to equip them with the knowledge and skills to be able to provide suitable support to businesses, including advice on this issue. Mr. Simon referred also to an initiative being considered by UKTI, “a potential signposting opportunity to people who can give specific guidance to companies as to how directors can take appropriate levels of care to ensure they do not infringe the Bribery Act”. He suggested that the “most dangerous thing” was not “the legislation per se” but a “lack of confidence”
10.7. As with intellectual property issues, we exhort the Government to make efforts to promote the international harmonisation of standards, and also to raise awareness amongst SMEs about the application of the Bribery Act 2010 and explain exactly how it will be applied in practice.
10.8. Mr Simon suggested that “there is a desire that the Bribery Act be tested by the Crown Prosecution Service, because then the community as a whole will have a better sense of where it stands”. We do not agree. It is not satisfactory to wait for elaborate court cases to define the actual workings of the Bribery Act 2010 in case law.
10.9. Whilst we acknowledge the importance of the example of high ethical standards being set by the UK, application of the Bribery Act 2010 has been met with confusion and uncertainty. We recommend, therefore, that, at the earliest opportunity, the Act should be the subject of post legislative scrutiny by a Parliamentary select committee.
To be sure, the report and its recommendation represent U.K. growing pains. But let’s not forget, here in the U.S. we too had growing pains concerning the young FCPA.
As detailed in prior posts here and here, the ink was hardly dry on the FCPA when concerns were raised that the law was harmful to U.S. business.
There was much activity on this issue in the early 1980′s and among other things:
(i) the Carter administration (Carter signed the FCPA into law in December 1977) “sent a hefty 250-page report to Congress on the various ways the U.S. discourages exporters” – one example – “the provisions of the 1977 Foreign Corrupt Practices Act, which have never been clearly spelled out by the Justice Department;”
(ii) the GAO released a report in 1981 detailing how the FCPA “is riddled with complicating ambiguities and shortcomings;”
(iii) President Reagan’s “transition team on the workings of the Securities and Exchange Commission […] recommended decriminalization of bribery; and
(iv) John Fedders, named in 1981 to be the SEC’s Director of Enforcement to replace Stanley Sporkin who left to become general counsel at the CIA, stated during a news conference that he “pledged to enforce, with discretion, the Foreign Corrupt Practices Act, which he criticized as being ambiguous.”
Our FCPA growing pains lasted until 1988 when the FCPA was amended in significant ways and, to a certain extent, the growing pains have not fully disappeared even as the FCPA has matured into an “adult” statute.
In short, the U.K’s growing pains are understandable and to be expected.
Across The Pond
After focusing on the FCPA guidance for the past few weeks, this post goes across the pond to check in on three U.K. developments.
First Her Majesty’s Crown Prosecution Service Inspectorate, the independent Inspectorate for the U.K. Crown Prosecution Service, recently released (see here) a “Report to the Attorney General On The Inspection of the Serious Fraud Office.” The report focuses mostly on general issues, but readers may be most interested in Chapter 8 dealing with “Asset Recovery and Alternative Resolution.”
Second, the Crown Office (the agency responsible for prosecution of crime in Scotland) recently announced (here) a £5.6 million civil recovery enforcement action against Aberdeen, Scotland based drilling company Abbot Group Limited. According to the release, Abbot “admitted that it had benefited from corrupt payments made in connection with a [2006] contract entered into by one of its overseas subsidiaries and an overseas oil and gas company.” According to the release, “the sum to be paid by Abbot represents the profit made by the company under the contract.” Two things to note. First, the release makes much of the fact that Abbot “self-reported” the conduct at issue. Yet, the release itself states that “the corrupt payments were brought to light in May 2011 following enquiries by an overseas tax authority which resulted in an investigation by a firm of solicitors and a firm of accountants instructed by Abbot itself.” Second, the release notes that the enforcement proceeds “will be invested in the Scottish Government’s hugely successful CashBack for Communities Programme which takes cash from the Proceeds of Crime and invests it in a range of sporting, cultural, community mentoring projects and sports facilities for the benefit of our young people and their communities.”
Third, David Green (Director of the U.K. Serious Fraud Office) recently answered questions before a House of Commons Justice Committee. (See here for the transcript). In his comments, Green: (i) says FCPA / Bribery Act Inc. created unnecessary “spin” regarding the SFO’s recent policy revisions; (ii) discusses the role of the SFO; (iii) makes an apt analogy to early enforcement of the FCPA; and (iv) talks about the prospect of DPAs in the U.K.
Below are excerpts from the Q&A’s that touch upon bribery and corruption issues.
“Q24 Steve Brine: […] I want to ask you about the notes that I have been reading about facilitating payments, business expenditure and corporate self-reporting. What is your intention behind the revision of policies on those three areas? Are they really a radical departure from the previous guidance, or is there a bit of spin there?
David Green: It is not my spin. What you might call the bribery and corruption industry-by which, I suppose, if I was being unkind, I might mean lawyers who make an enormous amount of money out of it, advising corporates-wants to put it that way. In fact, it is not that. What I have done, as you know, is to withdraw policies in relation to bribery and corruption, and they have been replaced with a statement that we are subject to the joint guidance agreed with the Crown Prosecution Service. In other words, all I have done is to remove what is actually a unilateral gloss placed on that joint guidance by my predecessor at the SFO. It was also done in order to comply with the recommendations of the OECD which, as you will know, are about being careful how a self-report is defined.
What I have done most specifically, which certainly excited some-perhaps they are easily excited-is to withdraw the exclusive pledge that the SFO would not prosecute if you self-report. Why did I do that? In my view, it is not something that a responsible prosecutor should be saying, simply because you have no idea what kind of facts or combination of facts you might be presented with when somebody comes through your door with an expensive lawyer. You have no idea, so you cannot cater for it in advance. What you can say, without question, is that the fact of a genuine self-report-by a genuine self-report I mean, in its purest form, telling us something that we did not know already, and the corporate acting proactively to investigate it-must be very significant as a factor in weighing up the public interest limb of the decision to prosecute; that is the code test. That is what I am about. That is why I did that.
There is one other thing. I have said that I wanted to restate the SFO’s role as a crime-fighting agency. In addition, frankly, so far as I am concerned, we are not there to give advice to people. They can get their advice from their lawyers and their other experts, which they have in spades. I am not there, nor are my staff there, to give advice. We are there to investigate and prosecute serious fraud, bribery and corruption.”
[…]
Q26 Steve Brine: […] “Without specifying details, would you give us some indication of how many investigations you are currently undertaking into potential offences under the Act?
David Green: Under the new Act?
Q27 Steve Brine: Yes, because you are also bringing cases under old bribery legislation, are you not? Let us just look at the new Act. It is not retrospective, if I am correct.
David Green: That is exactly right. We are just concerned with stuff after July 2011. It is important to understand that section 2A of the Criminal Justice Act 1988 added a pre-investigation power in relation to bribery and corruption, which enables us basically to look at the facts and assess them, and to see whether there is material that would justify, in law, my launching a full-scale investigation. If I may, for the sake of clarity, I shall call those pre-investigation investigations “projects”.
From recollection, we have seven cases that are in the project phase. What will come of them I cannot tell you; I really do not know, but if we can we will turn them into investigations if we are justified in doing so. We have another half dozen cases that relate to pre-Bribery Act law; again, they are in the same phase.
Understandably, legislators, journalists and, indeed, members of the public may say, “Well, you have this marvellous new Bribery Act. What are you doing about it?” As a kind of private project, I have been looking at the fortunes of the FCPA-the Foreign Corrupt Practices Act of the United States. That was enacted in the late 1970s, and the first prosecution was in 1981. It did not get any teeth, in a really meaningful way, until the penalties were enhanced, and so forth, in the 1990s. I am not saying for a moment that you are going to have to wait 20 years for your first Bribery Act prosecution, but things are in hand and no one would be keener than I would to see a good, solid Bribery Act prosecution. We are working on it.”
[…]
“Q30 Mr Buckland: May I move on to the question of deferred prosecution agreements? I have read very carefully the memorandum and evidence that you have submitted to the Committee, and it is clear that the SFO supports the Government’s proposals to amend the current Crime and Courts Bill and to bring in DPAs. I do not know whether you or your office have troubled yourselves with the potential impact assessment, in terms of financial benefit and whether the SFO directly would receive either a share or the entirety of any receipts from financial settlements pursuant to DPAs.
David Green: As I understand it, all funds from DPAs will go directly to the Treasury, to avoid concerns over conflicts of interest.
Q31 Mr Buckland: So there is no hypothecation. Would it be fair to say that the SFO would have a legitimate expectation that, even though the moneys were not hypothecated, you could end up receiving some additional funding to help deal with the work that you are doing?
David Green: It has always been my view, Mr Buckland, that the SFO is here to stay, but that it needs to prove itself. Assuming that it proves itself-I hope fervently that it does-I would be the first to join any negotiation on an enhanced budget to get us more resources to do more good work. But I would say that, wouldn’t I?
Q32 Mr Buckland: I would expect you to, and I am glad to hear it. Having looked at the impact assessment prepared by the MoJ on DPAs, I was a little concerned. My reading of it is that there was an assumption in the document that there would not be an overall increase in the number of cases dealt with. In other words, there would potentially be a shift from early guilty pleas to DPAs, meaning no overall increase in the number of cases dealt with. Would that be your expectation, or would you hope for something more ambitious?
David Green: I would be far more ambitious. I would expect our case load-including cases dealt with under DPAs-to increase significantly once they kick off. I hope, as I am sure you do, that we will have our first DPA in place in early 2014.
Q33 Mr Buckland: Obviously, public perception is very important. Two aspects of DPAs as currently proposed may cause some concern. The first is having the preliminary hearings in private, as opposed to having all hearings in public. Does the SFO have a view on the reasons for that proposal?
David Green: I do not, as I sit here, have a particular view on that. What I would say is that later on, as the process develops, it does of course become public. Obviously a big difference between our DPAs and the US model is judicial involvement from day one. I would not be happy in expressing a particular view on that. It is something that I would have to think about, but I would be happy to let you know in due course.
Q34 Mr Buckland: I would be very grateful, Mr Green. Thank you. Again, public perception is important. The idea that you are doing some sort of niche job is wholly wrong, I think. The public are genuinely concerned about a culture of impunity that is perceived to have grown up around corporate and serious fraud. Is there a danger, with DPAs, that we could end up with white-collar crime somehow being seen as less serious than other types of crime?
David Green: That is obviously something that I have thought about a lot-indeed, it has troubled me-and I think that the answer is this. It is important that DPAs are seen as just one additional tool in the prosecutor’s toolkit. They are certainly not, in any sense, a universal panacea for corporate misconduct. They will be used in the right circumstances only. An example of what I think would be the right circumstance is where an incoming board chooses to self-report past misconduct by a previous board, which it has unearthed and proactively investigated. That would be just the sort of challenge to be met, in my view, by a DPA. It would certainly not be appropriate if, for instance, the corporate had been set up and used as a vehicle for fraud. That would be quite wrong. Obviously our first principle, as I hope I have made clear, is that serious fraud, bribery and corruption must always be prosecuted where that is possible-always.
Q35 Mr Buckland: Do you see this as having the potential to deal with the common scenario of when a legitimate business becomes dishonest? I am sure that, like me, you have had plenty of experience of that sort of scenario.
David Green: Of course, we would only be dealing with the corporate itself, under a DPA.
Q36 Mr Buckland: Not the individual.
David Green: Indeed. If there was a case against individuals, we would obviously prosecute if we could.
Q37 Mr Buckland: One concern that has been put to me about DPAs is that we have looked to the United States as an example, but that the US has a very big stick in terms of how they-I won’t say aggressively, but certainly robustly-police their free market, and the penalties available under the criminal justice system in the various US states to deal with wrongdoers. Do you think that the British scenario, where the stick is much less potent, is a good parallel to draw with the United States?
David Green: Just as we have adapted the US model for our circumstances, so we have adapted the carrot and stick equation. I have touched on this twice, but I cannot overemphasize the importance of our decision to enhance our intelligence capability. I really mean business on that. At the moment, our intelligence capability-the one I inherited-is really a sort of vetting process. I want to be far more aggressive in our intelligence activities, not to run it ourselves but to buy it in from, say, the City of London police or external agencies, going up to all sorts of exotic intelligence. The intelligence capability being built up-that is the stick. These people may well be found out, and they need to understand that. The carrot, of course, is often said to be certainty. Actually, it is not really certainty, because when they come along to self-report, they are not sure how they are going to end up. What they mean, I think, is finality. In other words, a line will be drawn in the sand under previous corporate misconduct, under certain conditions, and a company can then move on. Having thought about it quite a lot, I think that that is really what a corporate wants.”