1.    Mr Patel (the court clerk)

As we have previously discussed at the Bribery Library, the first successful prosecution under the Act was far removed from the high value corporate bribery targeted by the Act.  Mr Munir Patel was a court clerk at Redbridge Magistrate’s Court.  He accepted the sum of £500 in exchange for not adding the details of a traffic summons to the court’s database.  It turned out that Mr Patel was not only corrupt, but had fallen victim to a sting; the Sun had set up and filmed the whole incident having been tipped off by a member of the public about Mr Patel’s willingness to abuse his position.  A prosecution ensued.  Mr Patel asked for a number of similar previous incidents to be taken into account in sentencing.

Mr Patel was sentenced to 6 years imprisonment in November 2011 (reduced to 4 years on appeal).

2.   Mr Mushtaq (the driving examinee)

Second on the list is Mr Mawia Mushtaq, who became the first person to be successfully prosecuted under the Act for offering (as opposed to receiving a bribe).  Having failed a driving test before an Oldham Council licensing officer necessary to secure a taxi licence, Mr Mushtaq offered the sum of £200 (later increased to £300) if the result of the test were changed to a pass.  The officer was not so easily corrupted as Mr Patel.  He refused the bribe and reported the matter to his manager.  The incident was referred to the police.

Mr Mushtaq was sentenced to 2 months imprisonment, suspended for 12 months but subject to a curfew order, in December 2012.  

3.   Mr Li (the university student)

The third individual to join this exclusive set was a Mr Yang Li.  Mr Li, a masters student at the University of Bath, was unsatisfied with  the 37% mark he was awarded for a 12,000 word essay; the pass mark was 40%.  He was given three options by his professor: appeal the mark; resubmit the essay; or withdraw from the course.   Mr Li proposed a fourth option.  He placed £5,000 on the table, stated that he was a “businessman” and told the professor he could keep the money if the mark was raised.  The professor refused.  As Mr Li replaced the money in this pocket, he dropped an imitation firearm on the floor, which had presumably been brought as a back-up in case his first attempt at coercion was unsuccessful.  The police were called in and Mr Li was prosecuted. 

In April 2013, Mr Li was jailed for 12 months (both for the attempted bribery and for possession of an imitation firearm) and ordered to pay £4,800 in costs.

It would also appear that, following a successful prosecution under the Act, a custodial sentence is pretty much inevitable.  At best, a plea in mitigation is likely to focus on obtaining a suspended sentence.

These cases go to reinforce the point that there is no de minimis requirement applicable to prosecutions under the Act; the Director of Public Prosecutions would have authorised all three prosecutions.  Whilst the Serious Fraud Office may not be interested in such low value bribery incidents, it is clear that police will investigate and obtain consent to prosecute such matters.  The SFO does not have a monopoly on prosecutions for bribery.

The question remains as to whether the police and DPP will turn their attentions to the commercial sphere.  The first three prosecutions all involve some element of bribery of a public (or at least quasi-public) official.  In their sentencing remarks, all three judges stressed the importance of court systems, vehicle licensing tests and university examinations respectively being administered fairly; the risk of undermining public confidence in such institutions clearly weighed heavily.  So whilst it remains to be seen whether the police would venture into a purely commercial bribery scenario, it would be unwise to think that only the SFO is interested in corporate corruption.  If the case against a Defendant is well established by the police, the DPP may we be willing to approve prosecutions in a commercial context that are below the financial threshold that would pique the interest of the SFO.

The subject of Deferred Prosecution Agreements (“DPAs”) is covered in section 45 and Schedule 17 of the Crime and Courts Act 2013.

No date has been set for the coming into force of these provisions but they will have retrospective effect with regard to conduct occurring before the commencement of Schedule 17.

The salient provisions contained in the Schedule are as follows:

Characteristics of a DPA

A DPA is defined as ‘an agreement between a designated prosecutor and a person (“P”) whom the prosecutor is considering prosecuting for an offence…..’ whereby ‘P agrees to comply with the requirements imposed on P by the agreement…..’

Effect of DPA on instituted court proceedings

As soon as proceedings for an alleged offence are instituted by a prosecutor, they are automatically suspended on application to the Crown Court by the prosecutor and following approval of the DPA by the court.

‘Instituted proceedings’ are those which have been instituted by the prosecutor in the Crown Court by preferring a bill of indictment charging P with the alleged offence.

Offences to which this applies are specified in Part 2 of Schedule 17.

Persons who may enter into a DPA

P may be a body corporate, a partnership or an unincorporated association but may not be an individual.

Content of a DPA

A DPA must contain a statement of facts relating to the alleged offence and must specify a date upon which it ceases to have effect.

The requirements that a DPA may impose on P include, but are not limited to, requirements to pay a financial penalty to the prosecutor, to compensate victims, to donate money to a charity, to disgorge any profits made, to implement or make changes to a compliance programme, to co-operate in any investigation and to pay costs to the prosecutor.

Any money received by the prosecutor in relation to a financial penalty or disgorgement of profits is to be paid into the Consolidated Fund.

Code on DPAs

The Act imposes upon the DPP and the Director of the SFO a requirement to issue a Code for prosecutors giving guidance on the principles to be applied in determining whether a DPA is likely to be appropriate in a given case.

Preliminary Hearing

Following negotiations between a prosecutor and P, but before the terms are agreed, the prosecutor must apply to the Crown Court at a hearing held in private for a declaration that entering into a DPA with P is likely to be in the interests of justice and that the proposed terms are fair, reasonable and proportionate.

Final Hearing

When a prosecutor and P have agreed terms, a prosecutor must apply to the Crown Court for a declaration that the DPA is in the interests of justice and that its terms are fair, reasonable and proportionate.

Any such declaration and the reasons for approval must be given in open court, at which point the DPA comes into force.

Upon approval, the prosecutor must publish the DPA, the declaration of the court and the court’s reasons for its decision.

Breach of DPA

If while the DPA is in force the prosecutor believes that P has failed to comply with its terms, the prosecutor must bring the matter to the attention of the Crown Court. If the court finds, on a balance of probabilities, that P has failed to comply, it may invite the prosecutor and P to agree proposals to remedy the failure or it may terminate the DPA.

Variation of DPA

The prosecutor and P may agree to vary the terms of the DPA if invited by the court to do so or where it is necessary to avoid a failure to comply by P, in circumstances which had been unforeseen when the DPA was agreed. Any such agreement requires the approval of the Crown Court.

Discontinuance of Proceedings

After the expiry date of the DPA, the proceedings instituted are to be discontinued by the prosecutor. Fresh proceedings may, however, be instituted should it transpire that during the course of negotiations for the DPA, P provided inaccurate, misleading or incomplete information to the prosecutor which he knew or ought to have known was so.

Use of material in criminal proceedings

The statement of facts contained in a DPA is to be treated as an admission by P in any proceedings brought against P for the alleged offence.

Conclusion

These provisions will be of much greater appeal to the SFO as an alternative to criminal prosecution than the current alternative provided by Civil Recovery Orders.

From a corporate perspective, DPAs are likely to provide companies discovering serious fraud or corruption with a greater incentive to make a self-report to the authorities.

Other revealing statistics from the E&Y report:

• 60% of firms with a turnover between £5 and £50m vet their suppliers to assess whether their businesses comply with the Bribery Act (hence 40% do not)
• 16% of these midmarket firms would do nothing if their suppliers failed to comply (so one asks oneself: why bother asking them whether they do comply? )
• Among the 40% of firms which do NOT vet their suppliers, 60 % reported that they were not planning to implement any anti-bribery provisions in the future;
• Of the larger firms (turnover in excess of £50m) only 40% would terminate their suppliers if they failed to comply with the Act.

So one can conclude from these statistics that many British firms have either missed the point of this legislation altogether or are making a positive decision to run a the risk of not being caught, perhaps based on their belief that the Serious Fraud Office and other prosecutors have insufficient resources to discover the fraudulent conduct.  We at the BriberyLibrary wonder whether business managers would be quite so cavalier about not insuring their offices and factories against the risk of fire and flood? The potential disaster which can befall a company which is the subject of an investigation and then a prosecution is not so well known on this side of the Atlantic.  But just look at the examples of Siemens and Innospec, to name but two companies which suffered very significant financial and reputational damage from their prosecutions in the US and other countries. 

The head-in-the-sand approach, which this survey seems to suggest is taking place in many British companies, risks, amongst other things:-

• an unlimited fine for the company,
• a serious prison term for the directors or senior managers who permitted illegal acts to carry on or turned a blind eye to them,
• possible debarment from public procurement tendering in many parts of the world,
• very large legal costs
• consequential civil claims from competitors or others who claim to have lost business as a consequence of illegal acts committed by the company’s associated persons
• a fall in share price for publicly quoted companies

In stark contrast with the Ernst & Young report which suggests not enough is being done, in fact many British businesses are complaining that they feel “hampered” by the Bribery Act and that the Act is unduly restrictive of British trade abroad. This other point of view is summarised, by way of example in a letter in the Financial Times online on 17 March 2013:

“As a businessman I can testify to the shameful cost in executive time that it has caused British companies. In addition it has had an entrepreneurial cost as non-executive directors are understandably anxious about its implications”. 

We at the BriberyLibrary can certainly understand that the Bribery Act will add a certain layer of cost, particularly initially, in order to make sure that you have a robust anticorruption compliance programme, but once it is on its feet, depending on the size of your business and how much you rely on overseas sales, it should not be especially expensive to maintain.  The costs of ensuring that you do not become involved in arrangements which might involve bribing and corrupting others will pale into insignificance when compared with the costs of being prosecuted (see the list of bullet points above).

The Daily Telegraph reported recently that

“…Crispin Simon, a senior executive in UK Trade and Investment, the Government’s export agency, disclosed the move when he gave evidence to the House of Lords committee on small and medium-sized enterprises. He said there was a “desire” that the Bribery Act should be tested by the Crown Prosecution Service to provide a “better sense of where it stands”, and acknowledged it was “possible” that the legislation had resulted in the loss of some business….”

The House of Lords committee, however, believes that there should be some urgent scrutiny of the Act, which in its view has put British business at a disadvantage in the BRIC countries where trade involved  “challenging questions”,  which one assumes means repeated requests for bribes, although it is not entirely clear.

The Daily Telegraph report continues

“Tony Shepherd, of Alderley Group, told the committee: “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 extremely 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.”

It should be said that the Serious Fraud Office, which will be the principal prosecuting body for offences under the Bribery Act , has made it clear on many occasions since the Act was passed in April 2010 (and also in the Government’s Guidance on the Bribery Act in March 2011) that it will not be prosecuting defendants for dinners and other reasonable entertainment. So there seems to be a certain amount of misunderstanding amongst business managers.

The United States has been enforcing its anticorruption laws (under the Foreign Corrupt Practices Act) against American corporations and individuals as well as foreign corporations and individuals (who are subject to its very low jurisdictional hurdles) for many years now.  So in fact the UK is merely playing catch up with one of its allies and competitors in terms of both its laws and its attitude to proper enforcement.

No one case being prosecuted will be able to test all parts of the  Bribery Act.  It may take several such cases to go through the courts (if they do not reach a civil settlement before any trial) to test all parts of the Act.  If the UK’s experience turns out like the United States’ experience, it could take many years, even decades, for enough cases to go through the courts for the law to be clarifies by the judiciary. We all await the first corporate prosecution under the Act with great interest, but we might have to wait some time longer yet as the Act has only been in force for some 21 months, and it takes time for acts and omissions to be reported to or discovered by the investigators, and then more time for a decision to prosecute, and then to go through the justice system.  In the meantime in our opinion, there really is no alternative for British business other than putting in place a robust compliance programme so that the company is best protected against rogue employees or others associated with the company.

When we at the BriberyLibrary give presentations on anticorruption, we often tell the audience that companies which are regulated by the FSA may, if they get their compliance systems wrong, suffer a "double whammy" because firstly the FSA can raise an administrative fine if it finds that a company has not put in place adequate systems and controls but, further, if it finds evidence of an actual offence having taken place, it can then refer the company to the Serious Fraud office ("SFO"), which may decide to investigate and prosecute, leading to a fine being imposed on it by the court. Often a double/triple whammy may occur anyway when the company is sued by competitors or others who claim to have been damaged by it's illegal actions. When bad news is discovered in the form of a bribe being paid to win business, it can really be long-lasting bad news for the company, and in our experience, it can take 5 to 10 years to sort it all out, remembering that in addition to the fines (and prison sentences for individuals), courts in the US and the UK are becoming more willing to impose lengthy court monitorships, but that's the subject of another blog topic for the future.

In May 2010 the FSA published the first of its thematic review reports into anticorruption, following a detailed review of a sample of firms in the insurance broking industry.  We blogged on it here.  The report, which is lengthy and quite scathing of this industry, was startling reading, not least because in truth the complaints which the FSA made of this industry were mostly very obvious ones, and were criticisms which could almost certainly be made of almost any other industry (whether in the regulated sector or not). They mostly concerned the absence of adequate systems and controls. The evidence collected by the FSA demonstrated clearly that many companies had not taken the risk of anticorruption seriously and had not attempted to deal with the risks adequately. The inference to be made is that firms were not investing enough of their resources in their risk and compliance departments, and/or that those departments were not up to the job. Two large broker firms received very large fines from the FSA. 

In March 2012, the FSA published a  further report following its second thematic review of anticorruption, this time of the investment banking sector. The report looked remarkably similar to the insurance broking sector report, underlining our view that the mistakes being made when it comes to establishing systems and controls are common to other industries in the UK (whether in the regulated sector or not).  A copy of the FSA’s press release is here.  They visited a sample 15 firms including 8 major banks.  A summary of their findings, in the FSA’s own words:- 

“In particular, we found the following common weaknesses:

• most firms had not properly taken account of our rules covering bribery and corruption, either before the implementation of the Bribery Act 2010 or after;
• nearly half the firms in our sample did not have an adequate ABC risk assessment;
• management information on ABC was poor, making it difficult for us to see how firms’ senior management could provide effective oversight;
• only two firms had either started or carried out specific ABC internal audits;
• there were significant issues in firms’ dealings with third parties used to win or retain business
• though many firms had recently tightened up their gifts, hospitality and expenses policies, few had processes to ensure gifts and expenses in relation to particular clients/projects were reasonable on a cumulative basis.”

In November 2012, Tracey McDermott, the FSA’s Director of enforcement and financial crime made a key note address at the Association of Private Client Investment Managers and Stockbrokers’ (“APCIMS”)conference in which she explained why the FSA is currently focusing so much on anti money laundering (apart from anything else, because London financial  institutions are being used to launder illegal drug money). Ms McDermott also talked about the imminent split of the FSA into two new organisations in April 2013, when the Prudential Regulation Authority (“PRA”) will take over prudential regulation of much of the regulated sector (although in fact the Financial Conduct Authority ("FCA") will be the prudential regulator for most of APCIMS’s members), and the FCA will be the conduct regulator, thereby separating out these different responsibilities. The Bill creating the PRA and the FCA makes it clear that only the FCA will have enforcement powers, and not the PRA, in order to avoid the obvious risk of duplication of resources, and any overlapping functions.

Ms McDermott also announced that the third sector to receive the thematic reviews of her department will be asset managers and that their first visits are imminent.  The review will sample 22 firms and will look at these firm’s systems and controls to counter both money laundering and bribery and corruption.  She said:

“... we are about to start a thematic review of how asset managers handle the risks of money laundering and bribery. Let me now give you the details. Perhaps this review is overdue: the asset management sector holds over £4 trillion in assets, with APCIMS members alone collectively managing assets of half a trillion pounds for 6 million clients. Clearly this is a huge industry, and the scope for damage should financial crime risks be mishandled is enormous.

London is an attractive destination for the world’s wealthy and their money – unfortunately including those whose wealth is illegitimate. I expect you, as UK-based wealth management professionals, to be developing your business by offering peerless service and unmatched expertise: not by accepting money without properly gauging its provenance.

We hope the findings of this review will be better than the disappointing findings of our 2011 review into banks handling of high risk situations. We were greatly concerned by the findings of that 2011 review, and Enforcement actions followed.  Since publication we have fined three banks with more to go....”.

We at the BriberyLibrary suspect that, even having had the opportunity to review the FSA’s 2010 report on the insurance broking industry review and its’ 2012 report on the investment banking sector review, the FCA will find many of the same problems and failures arising within the asset managers sector, and that the FCA’s report will also be depressing reading. We feel almost certain that further fines will follow. But if this is what is required to make all these companies wake up and smell the coffee of the new regulatory regime in the UK, following the 2008 financial crisis, then British voters and tax payers are unlikely to complain. And London should be a safer place for all investors, British or foreign.

If you are one of the 22 specially selected asset manager firms in the review sample, this would be a good time to start upgrading your systems and controls, although you may still receive criticisms and fines if they are still deficient when the FSA/FCA visit you. For everyone else in this sector not in the sample, who has not recently reviewed their systems thoroughly, now is time to get on with reviewing and improving your compliance department's systems and controls. Or start saving for a massive fine.

We will report back on the FCA’s findings in the third quarter of 2013 when Ms McDermott has indicated their report will be published.

In its statement on facilitation payments, the SFO affirmed that such payments remained illegal, following the UK Bribery Act 2010, and indicated that prosecution in such cases would depend upon

(i)                whether it was a serious or complex case falling within the SFO’s remit, and if so 

(ii)             whether the SFO concluded, applying the Full Code Test in the Code for Crown Prosecutors, that there was an offender who should be prosecuted.

[The Full Code Test requires a prosecutor to be satisfied that there is sufficient evidence to provide a realistic prospect of conviction and that a prosecution is required in the public interest]

In December 2012 the Director of the SFO, David Green QC, published an Open Letter, elaborating on the SFO’s approach to enforcement in this area.

The letter contains the following significant passages:

(a)   ‘Facilitation payments are illegal under the Bribery Act 2010 regardless of their size or frequency’

(b)  ‘If a UK individual or company is asked to make a facilitation payment in the course of doing business overseas, they are actively encouraged to inform the FCO via the local embassy, high commission or consulate. A report will then be sent to the Serious Fraud Office’

(c)  ‘The Serious Fraud Office will decide on the best course of action. This may involve communicating the information to a law enforcement agency in the country where the request was made, so that appropriate measures can be taken against the relevant public official’ 

(d) ‘The UK Government and the Serious Fraud Office are committed to stamping out bribery and upholding the rule of law. The Serious Fraud Office stands ready to take effective action against the use of facilitation payments, regardless of where they are requested’ 

This would appear to be a clear message, both to commercial organisations and to the OECD, that the SFO regards facilitation payments as being an important item on its current agenda. The full text of the Open Letter can be found here.

The article goes on to report that 12 companies had “confessed to the SFO that they had issues in the year ending March 31^st compared with seven during the two preceding years, according to data from a Freedom of Information request”.

The article suggests that one reason for the increase in self-reporting could be the introduction of the Bribery Act in July 2011, which enables the SFO to prosecute people for corruption no matter where in the world it takes place, as long as there is a link to the United Kingdom.

However, in our view this is only part of the story.  The stiffer penalties and more far reaching legislation, including the global extra territorial reach of the Bribery Act, are an important factor, but other factors are the increased political and prosecutorial interest in the enforcement of anti-corruption laws.  In addition, the encouragement in civil settlements by the SFO over the past three or four years, under the previous Director, Richard Alderman, and the promised introduction of Deferred Prosecution Agreements by the government in the near future, is changing the way that defendants and their lawyers behave when considering possible actions, following discovery of an offence having been committed.  The commercial desire to dispose of a problem as quickly as possible, and as cheaply as possible, where there would be less damage to a company’s brand image and products than defending the case through a trial is likely to be a very significant driver in deciding whether to report corruption issues to the Serious Fraud Office.  Coming clean about embarrassing issues does not come naturally to many corporations, nor hitherto to their defence lawyers, but the threat of unlimited fines, combined with the possibility of public procurement debarment orders, the damage to reputation, and the likelihood of the withdrawal of some of your business partners from relationships with you, are  important  factors to consider when weighing the alternatives to self reporting.

The fact that there were only twelve companies self-reporting to the SFO in the year ending 31 March 2012, however, is still in our view pitifully low and we think that this is likely to be the tip of the iceberg in terms of the number of corporations who are now under the jurisdiction of the British Courts under the Bribery Act and who have reportable issues.  We would expect this figure to grow and grow, particularly when the SFO starts to prosecute high profile corporations.  The reader may recall that the new director of the SFO, David Green QC, has indicated that whilst he will still consider settling with companies that self-report in the appropriate circumstances, there will be cases where even though a company has self-reported, due to the seriousness of the crime it may be in the public interest to prosecute in any event.  As the FT article itself states, Mr Green’s new stance “…could result in fewer companies coming forward, however”.

Doubtless other less famous companies have also been in touch with the SFO to notify them of other potential corruption issues. It should be assumed that the SFO has a growing pile of cases to investigate. We will blog on the growth in self-reporting to the SFO separately. The common theme between those individuals identified in the TI-UK end of year report was that they were all in a position of power and decided to try to take advantage of it for personal gain in an illegal manner.  For some, there was a swift end and resolution to their conduct, but for others the prosecution and civil litigation will follow them for years and may taint themselves for ever.  

In December 2012,  TI published its annual Corruption Perceptions Index. The graphics are quite jazzy and informative and it is well worth a visit via this link.  The United Kingdom is still much lower than it should be, at 17, with a score of 74 out of 100, compared with Denmark and Finland which scored 90. I will now let Susan Côté-Freeman, Programme Manager, Private Sector Programmes, at Transparency International, explain Transparency International’s Corruption Perceptions Index 2012:-

Corruption is the world’s most talked about global problem according to a survey commissioned by the BBC. It’s up there with other seemingly intractable problems like poverty and unemployment.

Transparency International’s Corruption Perceptions Index 2012 – which measures the perceived levels of public sector corruption in 176 countries and territories – is not likely to put an end to discussions on the topic. The index has become an essential tool for policy-makers, activists and the many businesses that use it to develop their anti-corruption risk management systems.

Corruption Perceptions Index: ranking highlights

What is noteworthy about this year’s index? Denmark, Finland and New Zealand tie for first place while Afghanistan, North Korea and Somalia once again cling to the bottom rung (read about the top and bottom ranked countries here). What is more dismaying, however, is that two-thirds of the countries ranked in the index score below 50 on a scale from 0 (perceived to be highly corrupt) to 100 (perceived to be very clean).

What do this year’s rankings mean for governments? They need to take a stronger stance on governance, including the introduction of more stringent rules on lobbying and political financing, making public spending and contracting more transparent and ensuring that public bodies are more accountable to citizens.

And what should business take away from this year’s index? Transparency International’s message on corruption is clear: corruption can happen anywhere and no country and no company can afford to be complacent. But in looking at the bottom two-thirds of the rankings, it’s clear that the major emerging economies, where so much of today’s economic activity is taking place, continue to be seen as highly corrupt.

How do the BRICS perform?

This year’s rankings for the BRICS economies show Brazil and South Africa tied for 69th place, China at 80, India at 94 and Russia trailing the group at 133. All but one of the world’s 10 fastest growing economies score less than 40 out of 100.

It is estimated that the BRICS have contributed up to 50% of global economic growth over the last decade. It therefore stands to reason that growing emerging economies are attractive for business looking for new markets. But unless persistent corruption is addressed, it will continue to present high risks for foreign investors and for emerging economies, which could see their growth stunted by failure to confront problems like bribery.

Companies also need to be more transparent. Our research shows that while the world’s 105 biggest multinationals are doing more to report on their anti-corruption programmes,  but they are not doing so well when it comes to reporting country-by-country. The BRICS all have more than 60 of those 105 companies operating in their borders, but in none of them do more than a dozen of the companies disclose their revenues and/or taxes paid in the country on their corporate website (for more details, click here).

Tackling corruption is a challenging and complex task. But it is critical for all of us, whether we are in emerging or more advanced economies, to defeat corruption, thus ensuring that governments gain and maintain the trust of citizens and business can thrive in a competitive environment that is open and fair

Overall, this looks like a sorry story, with a great deal of work around the world required to improve the position. Whether the richer countries such as the US and the UK are in fact able to demonstrate leadership to other countries is still not certain. It is true that these countries have tough laws and that enforcement of those laws is increasing year by year, but the number of corruption stories is not diminishing. If anything, it appears to be growing. But is that because we are all more aware of it and there is increased enforcement, self reporting and whistle blowing? Or is there just more corruption? It is probably hard to tell, and it is far too early to work out whether the Bribery Act 2010  has had any real impact, yet, on British or foreign companies’ conduct. Some of those companies currently self-reporting may end up being prosecuted for activities or conduct which took place many years ago. It is going to take at least ten years and probably many more until we can look back and examine whether most businesses which operate in some way in the UK are adhering to the new laws.

The FCPA defines “interstate commerce” as:

“trade, commerce, transportation, or communication among the several States, or between any foreign country and any State or between any State and any place or ship outside thereof…”

The term also includes the intrastate use of any interstate means of communications or any other interstate instrumentality.  The guide explains that by way of example placing a telephone call or sending an email, text message or fax from, to, or through the United States involves interstate commerce as does sending a wire transfer from or to a US bank or otherwise using the US banking system, or travelling across state borders or internationally to or from the United States.

This is very interesting, because clearly very little indeed needs to be done in order for the United States’ courts to take jurisdiction over foreign defendants.  The jurisdictional hurdle is so low that defendants can pretty much fall over it without even realising!

By way of comparison with the UK Bribery Act, section 7 (which deals with the failure by commercial organisations to prevent bribery) applies to foreign corporations and partnerships which carry on

 “a business, or part of a business, in any part of the United Kingdom”.

The British government’s Guidance on the Bribery Act, dated 30 March 2011, provides at paragraph 35:

“…the Government expects that whether such a body or partnership can be said to be carrying on a business will be answered by applying a common sense approach…”.  The BriberyLibrary thinks that that particular piece of guidance is challenging in its vagueness, as we find that common sense is not something everyone shares, and even those who do possess it, may find that there is not an entirely common standard of it.  The UK Guidance points out that, of course, the courts will be the final arbiter as to whether a business was being carried on in the United Kingdom “however, the Government anticipates that applying a common sense approach would mean that organisations that do not have a demonstrable business presence in the United Kingdom would not be caught.  The Government would not expect, for example, the mere fact that a company’s securities had been admitted to the UK Listing Authority’s Official List and therefore admitted to trading on the London Stock Exchange, in itself, to qualify that company as carrying on a business or part of a business in the UK and therefore falling within the definition of a “relevant commercial organisation” for the purposes of section 7.  Likewise, having a UK subsidiary will not, in itself, mean that a parent company is carrying on a business in the UK, since a subsidiary may act independently of its parent or other group companies”.

There are some anti-corruption practitioners (including those blogging at the BriberyLibrary), however, who believe that the courts, when these issues are put before it in the future, may take a different view to the government’s Guidance and that the fact that a foreign company has agreed to abide by the rules and laws of the United Kingdom in relation to the listing of its securities on the London Stock Exchange means that it should also be expected to adhere to the laws in the Bribery Act.

Further, in relation to the parent-subsidiary relationship, where a parent has a controlling interest, it does by definition control the subsidiary, so the subsidiary could in our view never be regarded as acting truly independently: this is something else for the court to consider in due course.

We would not necessarily expect the British courts to go to the same lengths of finding that merely placing a telephone call in the United Kingdom (perhaps while passing through the UK on your way to another country) means that one is necessarily doing business here, but the court might find, for example, that foreign businesses which sell goods into the United Kingdom via a website, which are paid for from the United Kingdom by the purchaser using a Sterling bank account, and which are delivered into the United Kingdom means that even if the seller has no physical presence and no employees in the United Kingdom, that nevertheless it is clearly doing business in the UK and is susceptible to the Bribery Act’s provisions.

The FCPA Guidance continues that a foreign national or company may also be liable under the FCPA if it aids and abets, conspires with, or acts as an agent of an issue or domestic concern, regardless of whether the foreign national or company itself takes any action in the United States.

In truth, it is increasingly likely that two or more foreign prosecutors could simultaneously have jurisdiction over a defendant, due to the international nature of many illegal transactions, and the increasing globalisation of trade generally.  This may lead to related (but not identical) charges being pursued in several jurisdictions, although it is unlikely there would be direct overlap because of the double jeopardy rule (which many countries adhere to, although not always in the same way).  We blogged on Transparency International’s publication “Deterring and Punishing Corporate Bribery” on 30 January 2012.  Recommendation 7 sets out TI UK’s position on double jeopardy.  For its part, the SFO currently regards the double jeopardy rule as applying across borders.

In practice we suspect that the SFO will probably only prosecute if British interests are adversely affected by a rigged competitive bid process abroad, and not on a pure jurisdictional hurdle test of any calls made in the UK etc.

The resolution of cases involving corporates is guided by the Principles of Federal Prosecution of Business Organisations, set out in the U.S. Attorney’s Manual.

This recognises that the resolution of cases by means other than indictment, including non-prosecution and deferred prosecution agreements, may be appropriate in certain circumstances.

Nine factors are identified as being relevant to such a determination:

1. the nature and seriousness of the offence;
2. the pervasiveness of wrongdoing within the corporation, including management        involvement;
3. the corporation’s history of similar misconduct;
4. the corporation’s timely and voluntary disclosure of wrongdoing and its willingness to   cooperate in the investigation of its agents;
5. the existence and effectiveness of the corporation’s pre-existing compliance programme
6. the corporation’s remedial actions;
7. collateral consequences; 
8. the adequacy of the prosecution of responsible individuals;
9. the adequacy of remedies such as civil or regulatory enforcement actions  

In deciding what, if any, action to take, both the DOJ and the SEC place a high premium on Self-reporting:

• Cooperation       
• Remedial action
• Effectiveness of a company’s pre-discovery compliance programme

Most, if not all, of these considerations will be relevant factors also for the SFO, when considering whether to pursue a criminal investigation in any given case.

The clear articulation of these matters in the Resource Guide provides a useful template for use by those corporates which might be exposed to the UK Bribery Act.

Nevertheless the SFO’s resources to try cases are very limited,  due to government cutbacks, so whatever the strong words of Mr Green about bringing more prosecutions, the reality is that the SFO does not have the funds or people to pursue to trial more than one or two large corruption cases in any year.

One of the more serious consequences of the many civil settlements in the US has been that there is almost no FCPA jurisprudence at all in the US, despite the Act being 35 years old. This fact is particularly surprising when you remember that due to the size of the country and its litigious culture, for most areas of law disputed before the courts there is a huge and almost overwhelming volume of case-law: so much so that one can often find lines of legal authority going in opposite directions in different courts around this huge country.

The paucity of case-law means that it is difficult for corporates, individuals, defendants and their lawyers to know or to advise with particular certainty on specific provisions of the FCPA. This was itself one of the many complaints made in the letter which was sent jointly to the SEC and the DOJ in February 2012, and on which we posted a blog here on 23^rd February 2012.  The absence of authority means that many terms of the FCPA eg the definition of “foreign official” or “instrumentality”, or the way in which successor liability would be treated in mergers and acquisitions are still, many decades after the FCPA was enacted, ambiguous.

It seems highly probable that the same thing will happen in the UK – namely, that if only 1 or 2 corruption cases are pursued to trial by the SFO per year, as seems likely, then ten years from now, there will be only 10 or 20 authorities, or maybe a lot fewer if the US experience really rings true in the UK.

One of the ways in which the US system has addressed this problem, whether intentionally or not, is by the DOJ’s opinion procedure. This is dealt with at Chapter 9 of the new FCPA Guidance, from pages 86 to 88 which can be found here.

“DOJ’s opinion procedure is a valuable mechanism for companies and individuals to determine whether proposed conduct would be prosecuted by DOJ under the FCPA.398 Generally speaking, under the opinion procedure process, parties submit information to DOJ, after which DOJ issues an opinion about whether the proposed conduct falls within its enforcement policy. All of DOJ’s prior opinions are available online.399 Parties interested in obtaining such an opinion should follow these steps....”

The Guidance then outlines the formal requirements and steps to obtain an opinion. It continues:

“DOJ will evaluate the request for an FCPA opinion.410 A party may withdraw a request for an opinion at any time prior to the release of an opinion.411 If the request is complete and all the relevant information has been submitted, DOJ will respond to the request by issuing an opinion within 30 days.412 If the request is incomplete, DOJ will identify for the requestor what additional information or documents are required for DOJ to review the request. Such information must be pro­vided to DOJ promptly. Once the additional information has been received, DOJ will issue an opinion within 30 days of receipt of that additional information.413 DOJ’s FCPA opin­ions state whether, for purposes of DOJ’s present enforcement policy, the prospective conduct would violate either the issuer or domestic concern anti-bribery provisions of the FCPA.414 DOJ also may take other positions in the opinion as it con­siders appropriate.415 To the extent that the opinion concludes that the proposed conduct would not violate the FCPA, a rebuttable presumption is created that the requestor’s con­duct that was the basis of the opinion is in compliance with the FCPA.416 In order to provide non-binding guidance to the business community, DOJ makes versions of its opinions pub­licly available on its website.”

So although the opinion is to be regarded as non-binding guidance, it is nevertheless still hugely useful to parties all across the US, to enable them to understand the US government’s position on many issues under the FCPA. Here is a link to the opinion releases on the DOJ’s website.

By way of example, here is a summary of one dated 14^th June 2004 taken from the DOJ's website here:

“2004-03

June 14, 2004

Background: Requestor, a U.S. law firm, proposed to sponsor a trip to the U.S. for twelve Chinese officials. On the trip, the officials would meet with U.S. public sector officials to discuss U.S. regulation of employment issues, labor unions, workplace safety, and legal institutions and procedures regarding workplace conflict resolution. The firm intended to pay for travel, lodging, meals, and insurance for the twelve officials and one translator during the ten-day, three-city trip.

Decision: DOJ explained that it did not intend to take enforcement action based on the disclosed facts and circumstances, including that:

(1) the firm had no business before the entities that might send officials;

(2) the firm obtained written assurance the visit would not violate any PRC laws;

(3) the foreign Ministry would select the officials participating;

(4) the firm would pay all costs directly to providers; and

(5) the firm would not pay expenses for spouses, family, or other guests.”

 

The full text of it is also available although it is still only a couple of pages.

By way of contrast, in the UK there is no such formal procedure and therefore no body of opinions available for parties or adviser to access. It may not have been widely known that the SFO did have, under Mr Alderman's directorship, an option whereby a party and/or its lawyers could approach the SFO and ask for informal guidance on a particular situation, either anonymously or otherwise, and the SFO would give its view – orally,  face to face.  This was not as useful, however, as it was not in writing and it was not published anywhere for others to see. That option was effectivley removed by Mr Green on his arrival  at the SFO, however, who has said publicly that it is not the SFO's job to advise companies on their future conduct and that there is plenty of guidance "out there already", the inference being, clearly, that a request for a face to face meeting will no longer be granted.

Our proposal at the Bribery Library is that the US DOJ opinion procedure should be adopted in a similar way in the UK. It will greatly assist companies which are still struggling with understanding and complying with the new laws, but it will also serve UK society well in that it will assist in making the Bribery Act effective by preventing bribery. Ultimately, the government’s aims are to reduce the amount of corruption both domestic and overseas, not to raise money by fining large corporations. This is unlikely to be an unduly burdensome additional task for the SFO because it could pick and choose which requests it actually answers, those which it feels will be widely read and considered. If the SFO is worried about costs, it could consider charging companies for the privilege of obtaining an opinion? If the new Director's concerns are not about costs, it would be interesting to know his views on the US opinion procedures, and why his position on opinions should differ.