Category: United Kingdom

Friday Roundup

Fear mongering and the dark empire, FCPA scrutiny of Hamid Karzai’s brother, the DOJ’s kleptocracy unit takes shape, and survey findings … it’s all here in the Friday roundup.

Fear Mongering and the Dark Empire

What does Sharie Brown (here), Chair of DLA Piper’s Foreign Corrupt Practices Act, Anti-Corruption and Corporate Compliance Practice, think about the U.K. Bribery Act, the surge in FCPA Inc., and the revolving door? See here for a recent interview with Corporate Crime Reporter.

A Future Afghanistan Related FCPA Enforcement Action?

A federal grand jury in the Southern District of New York is reportedly hearing evidence against Mahmood Karzai (a dual Afghan and U.S. citizen and the brother of Afghan President Hamid Karzai) including possible evidence that Afghan Investment Co. (incorporated in Virgina until 2010) bribed Afghanistan’s then mining minister to secure a lease on the country’s only cement factory. See Matthew Rosenberg “Grand Jury Investigates Karzai Brother) (Wall Street Journal – Feb. 16th).

If evidence exists that Karzai did indeed violate the FCPA, one can only imagine the political / foreign policy considerations of criminally indicting the brother of the Afghan President. I like to think that the government blindly goes where the evidence leads them, but the BAE and James Giffen enforcement actions suggests that may not always be the case.

To my knowledge, there has never been an FCPA enforcement action involving conduct in Afghanistan.

DOJ Kleptocracy Unit

Joe Palazzolo (Wall Street Journal Corruption Current) recently spoke with several officials involved in the DOJ’s nascent kleptocracy unit. See here for previous discussion and other links regarding the kleptocracy initiative.

Palazzolo reports (here) that the unit will be housed in the DOJ’s Asset Forfeiture and Money Laundering Section and staffed by five lawyers. The FBI’s Asset Forfeiture and Money Laundering Unit will also divert two agents to the new unit. According to the report, “U.S. officials expect that most cases will involve foreign politicians who have left office and are no longer in a position to obstruct investigations.” Palazzolo reports that the unit’s “first major case could be ready in the next month and several more are expected this year.”

Survey Findings

Among the findings in Deloitte and Forbes Insights 4th annual “Look Before You Leap” survey (here) is the following:

“Almost two-thirds (63%) of total survey respondents identified Foreign Corrupt Practices Act (FCPA) and anti-corruption issues that led to an aborted deal or a renegotiation over the past three years. Lack of transparency or unusual payment structures in contracts was cited by one in five and 18% pointed to the use of agents, consultants, distributors, or third parties to obtain or facilitate business.”

The survey results indicate that strategic buyers are more impacted (and perhaps more sensitive to FCPA issues) than financial buyers such as private equity firms and hedge funds.

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A good weekend to all.

SFO Flexing It Muscle Even Without the Bribery Act

In previous statements (see here for instance) U.K. officials have said that it would be wrong to assume that the U.K. was ignoring bribery issues prior to passage of the Bribery Act.

Case(s) in point – the recent enforcement actions announced by the Serious Fraud Office against MK Kellogg Ltd. and Mabey & Johnson directors.

MK Kellogg Ltd.

Yesterday, the SFO announced (here) that M.W. Kellogg Limited (“MKWL”) has been ordered to pay “just over £7 million [approximately $11.2 million] in recognition of sums it is due to receive which were generated through the criminal activity of third parties.”

This SFO enforcement action has been expected for some time, as noted in this previous post from October 2009.

MKWL was the entity that originally formed the TSKJ consortium the focus of the Bonny Island bribery scandal. See this post for current enforcement statistics as to KBR/Halliburton, Technip, and Snamprogetti / ENI.

MKWL is currently a wholly-owned subsidiary of KBR and as noted in this previous post as well as KBR’s release (here) Halliburton has indemnification obligations to KBR in connection with the SFO enforcement action of “55% of such penalties, which is KBR’s beneficial ownership interest in MWKL.”

According to the SFO release, “the SFO recognized that MKWL took no part in the criminal activity that generated the funds” but that the “funds due to MKWL are share dividends payable from profits and revenues generated by contracts obtained through bribery and corruption undertaken by MWKL’s parent company and others.” The SFO release notes that “MWKL was used by the parent company and was not a willing participant in the corruption.”

As noted in the SFO release, the court order against MKWL was pursuant to the Proceeds of Crime Act 2002. What is the Proceeds of Crime Act? See this piece from John Rupp (Covington & Burling).

Richard Alderman, the Director of the SFO, stated in the release: “our goal is to prevent bribery and corruption or remove any of the benefits generated by such activities – this case demonstrates the range of tools we are prepared to use.”

Mabey & Johnson Directors

In July 2009, the SFO brought an enforcement action against Mabey & Johnson Ltd. (a U.K. company that designs and manufacturers steel bridges). The conduct at issue involved allegations (that the company voluntarily disclosed) that it sought to influence decision-makers in public contracts in Jamaica and Ghana between 1993 and 2001. The prosecution also involved breaches of United Nations sanctions in connection with the Iraq Oil for Food program.

It was the first ever prosecution against a U.K. company for overseas corruption. See here and here for the prior post.

On February 10th, the SFO announced (here) that “two former directors … of Mabey & Johnson Ltd. [Charles Forsyth and David Mabey] have been found guilty of inflating the contract price for the supply of steel bridges in order to provide kickbacks to the Iraqi government of Saddam Hussein.”

According to the release, at the time of the offense, Forsyth was the Managing Director of Mabey & Johnson and Mabey was the Sales Director. The release notes that Richard Gledhill, a Sales Manager for contracts in Iraq, previously pleaded guilty. According to the release, all individuals are to be sentenced on February 23rd.

The U.S. has prosecuted numerous companies in connection with Iraqi Oil-For-Food fraud. See here for such allegations in the ABB matter, here for such allegations in the Innospec matter, here for such allegations in the General Electric matter.

However, these prosecutions have generally been corporate only prosecutions with few related enforcement actions against individuals.

In just its single Mabey & Johnson prosecution, the SFO would appear to have prosecuted more individuals than the U.S. has in its approximately 15 Iraqi Oil for Food corporate enforcement actions combined.

Robert Amaee on the “The Elusive UK Bribery Act”

In this guest post, Robert Amaee (the former Head of Anti-Corruption and Proceeds of Crime Unit at the U.K. Serious Fraud Office and current counsel with Covington & Burling LLP in London – see here) addresses several issues regarding the U.K. Bribery Act, including its recently announced delay.

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The Elusive UK Bribery Act

The UK Ministry of Justice (the “MoJ”) announced within the past few days that implementation of the UK Bribery Act 2010 (the “Bribery Act”) is to be postponed for a second time; leading to a barrage of criticism from respected sources such as the OECD and Transparency International. The Bribery Act will now not enter into force until three months after the MoJ publishes its guidance on certain provisions of the Bribery Act. The MoJ has not announced a date for the issuance of this guidance.

So, what’s going on?

Some business leaders and their representatives reportedly have complained about the impact the Bribery Act could have on the competitiveness of British business overseas; with the incoming head of the Confederation of British Industry claiming that the Bribery Act is “not fit for purpose”. The Bribery Act also stands accused of leaving too much discretion in the hands of officials at the UK Serious Fraud Office (the “SFO”) to resolve questions that have been posed concerning the Bribery Act’s jurisdictional reach as well as several of its substantive provisions. Others — even within the UK Government — are reported to have complained that the Bribery Act was rushed through Parliament without sufficient scrutiny of the impact on British business. So, what’s going on?

The Bribery Act has had an exceedingly long gestation period by any standard and, like many welcome but overdue arrivals, it is now causing a few birthing issues. You may not like this analogy much but the fact of the matter is that ever since the UK made a commitment in 1998 to fulfill its obligations under the OECD Anti-Bribery Convention and became a signatory to the UN Convention against Corruption, there has been an unremitting flow of effort aimed at transforming the UK’s complex Victorian laws on bribery and corruption into something more readily understandable and enforceable.

Since 1998, there has been, inter alia, in the UK a Law Commission Report, Draft Corruption Bill 2003, Draft Corruption Bill 2006, Law Commission Consultation 2007, a further Law Commission Report, a Draft Bribery Bill published in March 2009, the Joint Committee Report on the Draft Bribery Bill and the UK Government’s positive response to that report, which described the Joint Committee’s scrutiny of the Bill as “thorough.”

It is a fact that the Bribery Act did move through Parliament at breakneck speed in the final hours of the last UK Government in April 2010, receiving Royal Assent with little time to spare. What is also true, though, is that the Bribery Act was extensively debated in Parliament between November 2009 and April 2010 and made its way onto the statute books with resounding cross party support.

Will the Bribery Act ever enter into force?

There remains very strong support, across the UK Government and within the wider business community, for an effective and enforceable statute to combat bribery and other forms of corruption. The UK Attorney General Dominic Grieve QC has expressed publicly his support for the Bribery Act as has the Justice Minister and UK Anti-Corruption Champion, Ken Clarke. I believe that there is practically no prospect of the UK Government reneging on the commitments the UK has made to modernise the laws prohibiting bribery and other forms of corruption or indeed significantly disarming the Bribery Act, as enacted last April.

No one in the UK or elsewhere can assert a legitimate interest in permitting corrupt officials around the globe to continue to amass personal wealth at the expense of their fellow citizens, who often are left to endure abject poverty. Quite apart from the moral repugnance that one feels, it is important to ensure that corrupt officials do not act as an impediment to economic growth and job creation within their often resource rich countries by holding companies to ransom and pocketing their nation’s wealth.

The Bribery Act aims to tackle business involvement in corruption by making the boardroom responsible for keeping a tight reign on the company’s employees as well as the actions of “associated parties,” thereby aspiring to stem the flow of corporate funds into corrupt hands. No one will argue against that laudable aim but at the same time it is important to ensure that the law is not so widely drafted that it leaves well meaning and ethical companies in the invidious position of sanctioning technical breaches of the Act in the hope of salvation through prosecutorial pragmatism.

What’s all the fuss about?

The Bribery Act runs to a mere 17 pages and contains only four substantive offences. But it is the scope of two offences in particular that has caused business leaders to reach for the nearest packet of aspirin.

The major criticism has focused on the offences in sections 6 and 7 of the Bribery Act, both of which stand accused of being too widely drawn and introducing novel concepts that the Bribery Act fails to define. In relation to both of those sections, implementing policies to deal with corporate hospitality, facilitation payments and the extent of a company’s exposure to third party folly are regularly cited as problematic by company representatives.

In essence, the section 6 offence of “bribery of a foreign public official” makes a person liable if he or she offers, promises or gives a financial or other advantage to a foreign public official with the dual intention of influencing the official and obtaining or retaining business or a business advantage. The concern that has been raised is that for an offence to be made out under this section there is no requirement to show that the person trying to win the business had a corrupt intent or an intent to induce “improper performance” on the part of the official (as is required for the section 1 offence) and that many routine innocent interactions with foreign public officials could, as a consequence, amount to technical breaches of the Bribery Act.

Section 7 of the Bribery Act creates a wholly unprecedented UK offence of “Failure of a commercial organisation to prevent bribery.” A UK registered company or a non-UK registered company that “carries on a business or part of a business” in the UK, with no “knowledge” of or involvement in bribery could find itself in the uncomfortable position of having to explain to a UK prosecutor how a rogue employee or “associated person” in a remote part of the world could have paid a particular bribe. If facing such a charge, the company would have to convince the prosecutor and, if it came to it, a court that the policy and procedures that it had developed and implemented amounted to the only defence available under section 7, namely the much talked about “adequate procedures”.

The Bribery Act stipulates that a person is associated with a company if that person “performs services” for or on the company’s behalf. The Bribery Act states that an employee, agent or subsidiary “may (for example)” be deemed to be an associated person but goes on to say that in determining the question of who performs a service on for you or on behalf of a company one would have to look at “all the relevant circumstances” and not just the ”nature of the relationship.”

The manner in which an “associated” person is treated in the Bribery Act certainly does give prosecutors wide discretion in deciding whether a company should be held to account for the conduct of those who are representing the company. In addition, whether a company is “carrying on a business or part of a business in the UK” is not defined or circumscribed in the Bribery Act itself. Rather, it has been left — according to the Bribery Act’s legislative history — to the judgment of prosecutors and the UK courts, grappling with the pertinent facts on a case by case basis and applying “common sense.”

In relation to the “adequate procedure” defence under section 7, the Bribery Act obliges the UK Government, through the Secretary of State, to publish guidance on procedures that companies “can put in place to prevent persons associated with them” from engaging in bribery. This will, in due course, be supplemented by prosecutorial guidance setting out the elements of each of the Bribery Act offences and the public interest considerations that prosecutors will take into account in deciding whether to prosecute.

The MoJ’s draft guidance on “adequate procedures” was published in September 2010 and was followed by a short consultation period, which ended in November 2010. The MoJ had been expected to publish in January 2011 its final guidance on “adequate procedures,” leaving thereafter a three month window for companies to digest the guidance and refine their anti-bribery procedures.

What’s next?

In postponing release of the final guidance and implementation of the Bribery Act, the UK Government appears to have taken note of the cumulative effect of the concerns outlined above, albeit rather late in the day, and put off implementation of the Act until the guidance can be shaped to address those concerns. The MoJ is reported to have explained the delay in issuing the statutory guidance by stating that it is assiduously working on the guidance to make it “practical and comprehensive for business.”

Practical and comprehensive guidance certainly would be a step in the right direction and would be welcome by all British businesses as well as by those non-UK registered companies carrying on a business, or part of a business, in the UK who are working hard to compete globally whilst staying on the right side of the law.

Charlie Monteith on U.K. Bribery Act Issues

In case you were sleeping last week …

The U.K. Bribery Act, originally scheduled to “go live” in Fall 2010 and then pushed back to April 2011, has been further delayed so that guidance on the Act can be developed. A week ago, the U.K. Ministry of Justice confirmed the delay and a spokesperson said: “We are working on the guidance to make it practical and comprehensive for business. We will come forward with further details in due course. When the guidance is published it will be followed by a three month notice period before implementation of the Act.”‪

What does Charlie Monteith, the former Head of Assurance at the SFO and currently counsel at White & Case in London, think about the delay.

He writes as follows:

“As the former Head of Legal Assurance at the SFO, and the lead drafter of the AG’s guidance on what constitutes the legal elements of the offences under the Bribery Act plus public interest factors for and against prosecution, as well as contributing to the drafting of the Ministry of Justice’s guidance on adequate procedures, I find it perplexing why neither were published at the end of January.

It is frankly difficult to see how there can be any changes now to an Act of Parliament that Parliament (albeit the last one) has approved. That would entail amending the Act and debating and approving the amendments through this Parliament for which there does not appear to be time in this current session due to end in the summer.”

Monteith recently published this piece in the Criminal Law Review.

In it, he notes, among other things as follows.

That the Bribery Act’s failure to prevent bribery offense “is a big stick, but with it comes an enormous carrot of a defence of having ‘adequate procedures’ designed to prevent bribery. (Unlike the FCPA). It may seem an odd thing for a prosecutor to say, but the defence is actually the most important aspect of the whole Act because it gives business the incentive to do something about preventing bribery.”

Other topics covered in Monteith’s article include: the SFO’s approach to enforcement, debarment, disgorgement, and sentencing issues under the Bribery Act.

An Ocean Apart

Under the FCPA “foreign official” is defined, as relevant to this point, as “any officer or employee of a foreign government or any department, agency, or instrumentality thereof, or of a public international organization …”.

Under the U.K. Bribery Act the operative term is “foreign public official” defined, as relevant to this post, as “an individual who – exercises a public function – (i) for or on behalf of a country or territory outside the United Kingdom, or (ii) for any public agency or public enterprise of that country or territory …”.

During a recent Securities Docket’s webcast “The Impact of the UK Bribery Act on U.S. Companies,” Vivian Robinson QC (General Counsel of the UK’s Serious Fraud Office) was asked a question (submitted by me) about officials of so-called state-owned or controlled enterprises (“SOE”). To listen to the Q&A (see here around the 1 hour mark), better yet Bruce Carton (moderator of the event) summarized the Q&A’s (here) including the SOE Q&A.

Q: Recognizing that the Bribery Act does not just apply to payments made to “foreign public officials,” under the Bribery Act will employees of General Motors or American International Group be deemed “foreign public officials” because the U.S. government owns, either a majority stake or significant stake, in the companies? What standards will the SFO use as to the general issue of alleged so-called state-owned or state-controlled companies?

A: We don’t think the Act is directed to people of that sort. We are not regarding employees of a state-owned company as falling in the ambit of Section 6. People can rest assured that is not what we are looking at at all…. Also, such people would not likely have a sufficient connection with the UK.

As I noted in a recent post (here) 60% of corporate FCPA enforcement actions in 2010 and 66% in 2009 involved (in whole or in part) SOE employees.

The DOJ and the SFO are literally separated by an ocean.

The agencies’ views on whether SOE employees are “foreign officials” or “foreign public officials” also appears to be an ocean apart.