The U.K. OECD Phase 3 Report
The OECD recently released its “Phase 3 Report on Implementing the OECD Anti-Bribery Convention in the United Kingdom” (see here for the report). As stated by the OECD (here) “the purpose of Phase 3 is to maintain an up-to-date assessment of the structures put in place by Parties to the OECD Anti-Bribery Convention to enforce the laws and rules implementing the Convention and the 2009 Recommendations.”
This post provides a brief overview of certain issues in the report.
In the report, the U.K. was generally commended for the increase in enforcement of its foreign bribery laws in recent years. In addition, the report notes that, as of January 31, 2012, the SFO indicated “it had 11 active bribery / corruption cases and a further 18 cases under consideration.”
The U.K. received high marks “for publishing guidance to commercial organizations which led to the entry into force of the Bribery Act”(see here for the guidance). With the U.S. eagerly anticipating DOJ guidance as to the FCPA and with some viewing the upcoming guidance as a panacea for many of the issues in this new era of FCPA enforcement, it is noteworthy to observe that the U.K. report states that guidance does not have the force of law, is not binding on prosecutors or courts, and that judges consulted during the OECD visit stated that the guidance was not issued by Parliament and is thus of comparable authority to an academic text.
In the report, the U.K. also received high marks for its “recent significant increase in foreign bribery enforcement actions” and was urged to “sustain these efforts.” However, the report notes that the lead examiners were “concerned over certain aspects of the U.K.’s foreign bribery enforcement framework.”
For instance, the report is critical as to the transparency of enforcement. The report states “in some cases it is unclear how the amount of the penalties agreed between the SFO and the defendant was arrived at” both in terms of criminal actions and civil recovery orders under the Proceeds of Crime Act 2002.
As to the latter, the report states as follows. “Unlike a criminal plea agreement, there is no court hearing. A judge does not assess the factual basis of the order, or determine the amount that the defendant should pay.” The report further states that “the disadvantage of reduced judicial scrutiny is that there is even less transparency with consent civil recovery orders than cases resolved through criminal plea agreements.” The report notes that in response, the SFO said that “it is unable to disclose more information in some cases because the settlement agreement includes confidentiality clauses.” According to the report, “the SFO further argued that civil settlements ‘are by their very nature private disputes between the parties and the information disclosed by one side to the other is confidential.'” As to this argument, the report notes as follows. “However this overlooks the fact that the conduct underlying these consent civil recovery orders is foreign bribery and related misconduct. These are therefore not private disputes but criminal matters about which the public has an interest and a right to be fully informed.” In short, the report states as follows. “The lead examiners are extremely concerned that many key details about the SFO’s civil settlements of foreign bribery cases remain private. […] The settlement process is opaque, lacks accountability, and thus fails to instill public and judicial confidence.”
Another notable aspect of the OECD Phase 3 report is in reference to the SFO’s recent demonstrated committment, particularly leading up to the Bribery Act going live in July 2011, of active engagement with the business community on risk management and prevention. The report references prior SFO statements that its “emphasis is on helping corporations to develop [a modern corporate] culture and to use enforcement actions only where this is necessary and proportionate.” The report further noted that in the U.K.’s questionnaire responses that the priority for small and medium sized enterprises is not enforcement, but raising awareness of what is needed to build an anti-corruption corporate culture.” As to this approach, the report states that “the SFO’s policy on giving advice to rather than prosecuting companies is consistent with prioritizing corruption prevention over enforcement.” The report further states as follows. “The lead examiners consider that preventing corruption and promoting an anti-corruption corporate culture are equally important as criminal investigations and prosecutions.”
The U.K. Phase 3 report has much in common with the October 2010 U.S. Phase 3 report (see here for the prior post). In both reports, the countries are loudly praised for the high level of enforcement (as in the case of the U.S.) or the increase in enforcement (as in the case of the U.K.). Yet both reports also quietly criticize and question many of the policies which yield the high level or increased level of enforcement and a common thread in both reports is the general lack of transparency, judicial scrutiny, and accountability in many enforcement approaches.
Here’s To You Mr. Alderman
I remember the day well. In July 2010, an e-mail appears in my inbox from the U.K. Serious Fraud Office in which I am told that Richard Alderman (Director of the SFO), a reader of FCPA Professor, would like to have a discussion with me about anti-corruption issues. FCPA Professor was then 1 year old and learning of readers the caliber of Mr. Alderman … well, let’s just say that was awesome. Since then, I’ve had the pleasure to visit the SFO’s offices in London and continue the dialogue with Alderman, including through his contributions to this website.
In “A Conversation with Richard Alderman” (here), Alderman responded to approximately thirty detailed questions I submitted covering a broad range of topics and he: (i) compares and contrasts the SFO’s role with the DOJ’s role in enforcing the Foreign Corrupt Practices Act, including the more active and independent role U.K. courts have in reviewing SFO charging decisions; (ii) talks about voluntary disclosure, and the role of non-prosecution and deferred prosecution agreements; (iii) discusses reputational harm, debarment, and reparations; and (iv) talks specifically about the Bribery Act.
In this follow-up after BAE’s settlement, Alderman responsed to six pointed questions I submitted concerning the BAE case and his responses address the following topics. (i) how the U.K. law on double jeopardy significantly affected the SFO’s investigation of BAE and how the “current system [in the U.K.] for dealing with parallel criminal investigations conducted in a number of different countries does not work effectively and needs change;” (ii) whether the U.K. government was faithful to its OECD obligations in its handling of the BAE matter; (iii) criticism of the SFO-BAE plea agreement by the U.K. sentencing judge; and (iv) “shortcomings” in the U.K. system and how Alderman would like a system that “is far more transparent […] that commands public confidence, together with a much stronger role for the judiciary.”
In this guest post, Mr. Alderman discusses engagement with companies and compliance effects in the aftermath of the Bribery Act.
Active engagement was a hallmark of Alderman’s tenure at the SFO – and his willingness to engage with me on topics we occassionaly sparred has been one of the highlights of my young academic career.
So on this, your last day at the SFO, here’s to you Mr. Alderman.
What’s next for Alderman? He told me in a recent e-mail (published with his permission) the following – all the more reason for me to tip my hat to him.
“When I leave here at the end of this week I shall not be going through the revolving door into some well paid job in a legal firm. Nor will I be taking on anything that will bring me into any contact with the SFO. My successor needs to get on with the job himself. What I shall be looking for instead are opportunities to work on anti-corruption initiatives that make a real difference in other countries. This will not be by way of a job or a consultancy. There are very many interesting people in this area that I admire very much and who do so much to fight corruption and the damage it causes. I shall obtain real satisfaction if I can find ways of helping them as I move on.”
Where Should The Money Go?
It is a thorny question with no easy answer. Where should the money go when a company resolves an FCPA enforcement action? It was addressed last year in connection with the Alcatel-Lucent enforcement action. (See here, and here for prior posts). Two recent events raise the issue again.
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Earlier this month, it was announced (here) that the U.K. “Serious Fraud Office, the Government of Tanzania, BAE Systems and the Department for International Development (DFID) … signed a Memorandum of Understanding enabling the payment of £29.5 million [$47 million USD] plus accrued interest to be paid by BAE Systems for educational projects in Tanzania.” As noted in the release, “textbooks will be purchased for all 16,000 primary schools in the country and as a result 8.3 million children will benefit” in subjects such as Kiswahli, English, Maths and Science. The release further notes that funds will also be used to “provide all 175,000 primary school teachers with teachers’ guides, syllabi and syllabi guides to help improve their teaching skills” as well as the purchase of desks. In the release, SFO Director Richard Alderman stated as follows. “This agreement is a first for the SFO which piloted it through the UK legal system. It provides a satisfactory outcome for all concerned but most of all for the Tanzanian people and I am personally delighted that SFO staff were able to achieve this.”
In this release, BAE stated as follows. “We are glad to finally be able to make the payment to the Government of Tanzania and bring this matter to a close. We are grateful to DFID for their work in agreeing the Memorandum of Understanding with the Government of Tanzania.” The BAE release states that the “payment follows the settlement agreed between BAE Systems and the SFO.” For a prior post on the settlement, see here.
To be sure, BAE’s payment to Tanzania, and the role of the SFO in brokering the payment, feels good. What is not to like about children receiving textbooks?
However, the feel good nature of this most recent BAE development should not mask the significant problems with the BAE enforcement action (on both sides of the Atlantic). As noted in this prior post, even the U.K. judge who accepted the SFO-BAE plea agreement called it “loosely and hastily drafted” and said the fine he levied reflected that he couldn’t “sentence for an offense which the prosecution failed to charge.”
And let’s not forgot how this story began. In 2004, the SFO began investigating whether BAE made bribe payments to secure Saudi fighter jet contracts. However, in late 2006, the SFO was forced to halt its investigation under pressure from the U.K. government, which cited national security concerns should the investigation go forward. However, because BAE also allegedly made bribe payments in numerous other countries to secure business, the SFO, under a new Director, revived its investigation of BAE, at least as to non-Saudi issues, including whether the company paid bribes to secure contracts in various European and African countries. After settlement talks stalled – the conventional wisdom is that BAE was unwilling to plead guilty to bribery related offenses given the collateral effect of the mandatory European Union debarment provisions – the SFO pressed ahead with the case. In late January 2010, the SFO issued a release (here) stating that Count Mensdorff, a former BAE agent, was criminally charged with “conspiracy to corrupt” and for “conspiring with others to give or agree to give corrupt payments […] to officials and other agents of certain Eastern and Central European governments, including the Czech Republic, Hungary and Austria as inducements to secure, or as rewards for having secured, contracts from those governments for the supply of goods to them, namely SAAB/Gripen fighter jets, by BAE Systems Plc.” Then, in early February 2010, the SFO announced (here) its long-awaited resolution of the BAE matter. Despite allegations of wide-spread bribery on a global scale, and despite BAE’s agent being criminally indicted a few days earlier in connection with bribe payments in “certain Eastern and Central European countries” (presumably on evidence that such payments did indeed occur), the SFO resolution related solely to the company’s failure “to keep reasonable and accurate accounting records in relation to its activities in Tanzania.” Most dramatic, and in a strange turn of events, the SFO announced that it had withdrawn the criminal charges filed days earlier against Count Mensdorff. The same release also noted that “[t]his decision brings to an end the SFO’s investigations into BAE’s defense contracts.” For more on “BAE – Inside the SFO”, see this prior post.
In any event, at least some children in Tanzania received some textbooks from BAE as a result.
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As previously highlighted on the FCPA Blog (here), Socio-Economic Rights and Accountability Project (“SERAP”) (a non-governmental civil society organization in Nigeria) recently wrote a letter (here) to SEC Enforcement Division Director Robert Khuzami (with a copy to Assistant Attorney General Lanny Breuer and Deputy Chief, Fraud Section Charles Duross) regarding “FCPA civil penalty and disgorgement proceeds that companies agree to pay to resolve US Foreign Corrupt Practices Act investigations.” As the letter notes, “currently such proceeds, once paid, are retained by the U.S. government.”
In summary, the SERAP letter requests “that the Enforcement Division establish a case-by-case policy or process that would enable foreign governmental entities that have been victims of corruptly-procured contracts to apply for, subject to appropriate anti-corruption safeguards, some or all of the civil penalty and disgorgement proceeds that would eventually be paid by companies alleged to have violated the U.S. Foreign Corrupt Practices Act.” SERAP also suggests that “civil society groups in the home country, or U.S. non-profit organizations serving that country, be eligible within a short time-period to apply for such proceeds as well, or instead, for use for ‘public benefits projects’ in the affected foreign country, again subject to anti-corruption safeguards.”
The SERAP letter notes, among other things, as follows. “… Many citizens in a country where such bribery has occurred might consider FCPA civil penalties and disgorgement payments imposed by the US, and then kept by the US, as in fact representing funds that rightfully ‘belong’ to the victim.”
Stating that “corruptly procured contracts ‘cost’ the victim at least 10 percent extra” the SERAP letter says that “this figure ought to be a presumed measure of possible funds available for third-party application in the context of a civil FCPA settlement, particularly since the Enforcement Division typically settles an investigation before extensive evidence of damages, as opposed to liability, is placed in the public realm.”
The specific SERAP proposal is as follows. “…[A]fter, and ony after, public notice of an FCPA settlement agreement, the victim foreign government entity and any applicant NGO would have 60 days to file a request that the Enforcement Division pay some or all of the agreed payment proceeds to or for the benefit of the victim government entity or to a home country-based or US based NGO that would present a proposal [to] spend the proceeds for public purposes (e.g. on public health programs) in the country of the victim entity. Thereafter, the Enforcement Division would have 60 days to act upon the request, favorably or not in its discretion; in this context the Enforcement Division should provide a brief statement of its reasons for its decisions. In reaching its decisions the Enforcement Division would have the inherent authority to consult with Executive Branch agencies of the US government.
The SERAP letter raises some interesting issues regarding alleged victims of FCPA enforcement actions. The SERAP letter also raises some interesting questions, including the following.
If the SEC would be required to relinquish a certain portion of money recovered in an FCPA enforcement action, what impact would this have on FCPA enforcement? Would the SEC be less aggressive in bringing enforcement actions or perhaps more aggressive because more enforcement actions would be needed to sustain the current FCPA “revenue stream”? For instance, 10% of SEC FCPA “revenue” in 2011 was approximately $15 million, in 2010 approximately $53 million.
The SERAP proposal appears to assume that all FCPA enforcement actions involve foreign government procurement. This is not the case. Approximately 50% of recent FCPA enforcement actions (i.e. in the past five years) do not involve foreign government procurement, but rather issues relating to foreign taxes, customs duties, or foreign licenses, permits, certifications and the like. Is the victim analysis the same in these FCPA enforcement actions compared to foreign government procurement enforcement actions?
Are individuals or organizations located in the country giving rise to the FCPA enforcement action really the most direct victims of the conduct at issue? In the procurement context, what about a competitor who may have lost out on the foreign business because it was unwilling to make an improper payment? With victim issues attracting new attention, should an FCPA private right of action receive new attention?
Last, but certainly not least, companies settling SEC FCPA enforcement actions are allowed to settle without admitting or denying the SEC’s allegations. Even the SEC itself has stated that this settlement device often leads to settlements that “do not necessarily reflect the triumph of one party’s position over the other.” Given this dynamic, would SERAP’s proposal lead to undeserved “windfalls” for civil society organizations? [In this prior post, I asked the same question as to Dodd-Frank Act whistleblowers.]
Worth Reading
Transparency International – UK (“TI-UK”) recently published “Deterring and Punishing Corporate Bribery” (here) and it is worth reading. A meaty 93 pages, the document is full of useful information, from U.K. charging issues, corporate criminal liability principles under U.K. law, a list of SFO and FSA bribery or related enforcement actions and much more.
As noted in the foreword, the “paper seeks to identify the problems faced by prosecutors and companies in trying to settle cases of overseas bribery against the background of the current legal system and practice, and to make some recommendations to improve transparency, recognising that bribery is a serious criminal offence and there is a strong public interest in seeing offenders prosecuted.”
Several of the recommendations in the report I agree with such as the following.
- “all settlements should be subject to judicial scrutiny independent from the prosecutor’s office” [that clearly does not happen in the U.S. given frequent use of non-prosecution and deferred prosecution agreements]
- “victim countries should receive restitution and prosecutors should work with development agencies … to manage this process” [although figuring out just how to do this is the difficult issue]
- “prosecutors should properly label bribery offenses and not select alternative charges in order to avoid mandatory debarment, which is a logical and fair outcome in certain cases as it provides a very strong deterrent to corporate offending” [this frequently happens in the U.S., for instance, Siemens, Daimler, BAE – none of these companies were charged with FCPA anti-bribery violations because of potential debarment concerns]
The recommendation from the TI-UK report that I disagree with (and I am grateful for the citations and mentions in the report) is the following. “[The U.K.] government should consider the introduction of DPAs or some similar sentencing procedure after a thorough assessment of the alternatives. DPAs have proved to be a useful procedure to settle FCPA cases in the USA but the process has also been criticized with little judicial oversight.” Elsewhere, the report states as follows. “The reason that this [high level of U.S. enforcement of the FCPA] is possible with relatively few resources is that in the US most FCPA cases are settled through either [DPAs or NPAs] both of which avoid the preparation of casework for a trial by jury.”
How is a resolution vehicle that avoids the preparation of casework for a trial by jury a good thing? Requiring an enforcement agency to meet its burden of proof in an adversarial proceeding before independent observers who consider mitigating facts and weigh viable defenses is central to the rule of law and how law best advances. Allowing enforcement agencies a third option (the first two options being prosecute vs. not prosecute) facilitates both the under-prosecution of egregious instances of corporate conduct as well as the over-prosecution of corporate conduct and contributes to a facade of enforcement.
Moreover, as I noted in this previous post, why does the U.K. need alternative resolution vehicles when the U.K. Bribery Act has an adequate procedures defense. 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. Seems like a reasonable result. In other words, no need for the third option in such a case. On the other hand, if a corporate does not have adequate procedures (i.e. has no committment to anti-bribery compliance) and an act of bribery occurs within its organization, it presumably would face prosecution under the Bribery Act. Seems like a reasonable result. Does a third option really need to be created for corporates who do not implement adequate procedures? Also relevant to the analysis and further suggesting that alternative resolution vehicles are not needed in the U.K. is the notion that (Section 7 of the Bribery Act aside) corporate criminal liability in the U.K. requires evidence that a so-called controlling mind of the corporate was involved in the improper conduct.
Friday Roundup
Dear Attorney General Holder, U.K. developments not involving News Corp., and Halliburton updates its disclosure … it’s all here in the Friday roundup.
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Senators Klobuchar and Coons Write to Attorney General Holder On FCPA Guidance
As noted in this previous post, in November 2011, Senator Charles Grassley (R-IA) asked Attorney General Holder for detailed information about the DOJ’s promised upcoming FCPA guidance.
Earlier this week, Senators Amy Klobuchar (D-MN) and Chris Coons (D-DE) sent Attorney General Holder this letter regarding the DOJ’s forthcoming FCPA guidance. From my perspective, the most notable paragraph of the letter was as follows. “[I]t has become apparent that too many companies are devoting a disproportionate amount of resources to FCPA compliance and internal investigations. To be clear, it is both necessary and desirable that companies pay adequate attention to compliance efforts, and in certain cases, adequate anti-corruption initiatives may require a significant corporate committment. Over-compliance, however, can have a negative effect on product development, export promotion, and workforce expansion.”
I agree and devoted an entire section of “The Facade of FCPA Enforcement” (see here pages 997-1009) to why the facade of FCPA enforcement matters including the breeding of overcompliance and time-consuming internal investigations. See also here pages 8-9 of my Senate FCPA testimony.
In addition, Senator Klobuchar and Coons encouraged the DOJ “to seek out the participation of U.S. corporate stakeholders when formulating its guidance.” The Senators stated as follows. “Engagement with the stakeholder community ought to occur prior to the release of guidance. In the alternative, guidance should be issued in draft form and finalized after a comment period of sufficient length.”
U.K. Developments
Some recent U.K. developments that do not involve News Corp.
In this release, the U.K. Serious Fraud Office announced that Bruce Hall was charged with corruption offenses based on his alleged receipt of bribes while an employee of Aluminium Bahrain B.S.C. (“Alba”). The charges against Hall relate to previous SFO charges against Victor Dahdaleh, an agent for Alcoa, who allegedly made bribe payments to Alba – see here for the prior post. In recent years, the DOJ has likewise brought non-FCPA charges against bribe recipients. See here for instance.
In this release, the U.K. Serious Fraud Office announced charges against a fourth person in connection with the Innospec enforcement action. (See here for more on the corporate enforcement action). Miltos Papachristos, a former Regional Sales Director for the Asia Pacific Region for Innospec, was charged with “conspiracy to corrupt in that he gave or agreed to give corrupt payments to public officials and other agents of the Government of Indonesia as inducements to secure, or as rewards for having secured, contracts from the Government of Indonesia for the supply of Innospec Ltd products including Tetraethyl Lead.” For more on the other three individuals charged – see here.
Halliburton Updates Disclosure
Yesterday’s post (here) touched upon FCPA disclosures and how it seems like every week there is new disclosure to report.
Halliburton’s disclosure yesterday was not new, but it stated as follows. “We are conducting an internal investigation of certain areas of our operations in Angola, focusing on compliance with certain company policies, including our Code of Business Conduct (COBC), and the FCPA and other applicable laws. In December 2010, we received an anonymous e-mail alleging that certain current and former personnel violated our COBC and the FCPA, principally through the use of an Angolan vendor. The e-mail also alleges conflicts of interest, self-dealing and the failure to act on alleged violations of our COBC and the FCPA. We contacted the DOJ to advise them that we were initiating an internal investigation with the assistance of outside counsel and independent forensic accountants. During the third quarter of 2011, we met with the DOJ and the SEC to brief them on the status of our investigation and provided them documents. We are currently responding to a subpoena from the SEC regarding this matter and are producing all relevant documents. We understand that one of our employees has also received a subpoena from the SEC regarding this matter. We expect to continue to have discussions with the DOJ and the SEC, and we intend to continue to cooperate with their inquiries and requests as they investigate this matter. Because these investigations are at an early stage, we cannot predict their outcome or the consequences thereof.”
In 2009, Halliburton (and related entities) resolved a $579 million DOJ/SEC FCPA enforcement action concerning conduct at Bonny Island, Nigeria. (See here).
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A good weekend to all.