Today’s post is from Richard Alderman (Director of the U.K. Serious Fraud Office).
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The UK Bribery Act: Engagement With Companies And Compliance Effects
By Richard Alderman (Director, SFO)
In the months since the UK Bribery Act came into force on July 1st 2011, there is one question that I have probably been asked more than any other: what are we actually doing under the Act at the SFO?
In part, people are asking me this because of recent comments by some observers, suggesting that the SFO will be under intense pressure to go out and secure convictions very quickly under the new legislation – and that this means we’ll be out there hunting for easy targets.
That is a fairly easy claim to deal with. Easy targets are easy to find. We could go out and find half a dozen cases very quickly that we could probably investigate and prosecute through the criminal justice system, possibly by Christmas.
The SFO’s approach: Finding the Difficult Cases
But is this really what most people want to see? In my view, many people would regard the SFO as taking a rather lazy and unreflective approach if we pursued easy ‘quick wins’ rather than the really difficult and more serious cases. Also, I know which type of cases our staff would prefer to investigate – and it is definitely the more challenging ones.
So, what are we doing? The plain answer is that we’re actively looking for cases to take up – but these cases are the difficult ones. For example, we have been examining the activities of a number of foreign companies with a UK business presence who are involved in bribery in other countries.
We have found a number of these. But what we are looking for in particular is evidence that they have undermined ethical UK businesses. If they have not, then although there may be a technical Bribery Act offence, it is not the type of case where I would want to use our scarce resources, or take up the valuable time of UK courts and juries.
So we have seen instances of bribery involving foreign companies where we have decided not to take them forward for a full investigation, because we cannot see that a UK company lost out. Other authorities might choose to take action, but it is not a priority for the SFO.
However, there are other cases where we have found potential damage to UK companies and their employees. It is still early days – but I can confirm that we are looking at some cases to see whether or not to start using our compulsory powers.
I am under no illusions about the difficulty of these cases. Getting the evidence and getting people before a UK jury will be incredibly difficult. Investigations will be complex, and we will need to make full use of international co-operation and the SFO’s own powers. But make no mistake, these cases are a high priority for us.
Compliance Effects
Aside from questions about our approach to actions under the Bribery Act, a further area of interest is in our view of its compliance effects on companies. Experience shows that laws – and especially new laws – have an enforcement effect as well as a compliance effect, and that the latter of these is often larger.
In the specific context of the Bribery Act itself, a particular question that arises is whether the Bribery Act without an adequate procedures defence would have had the same compliance effects as the Act with adequate procedures. In other words, is it the Bribery Act itself – or the adequate procedures defence specifically - that has resulted in its compliance effects?
It is still early days for the Bribery Act - and it is difficult to answer these questions in detail without hard research into what companies are doing internally in response. However, looking at what US corporations are telling us, they have realised that being compliant under the FCPA does not automatically mean that they are Bribery Act compliant.
This is a message that professional services firms have been trying to hammer home with their clients whether in the UK, US or elsewhere for some time now. I believe it is getting through and that corporations are going on to take action in response. The likelihood is that those Boards that are more committed to good corporate governance will take notice, but if companies wish to ignore it then that is ultimately their choice. They should not be surprised though if the SFO takes a close interest in them. They should also not be surprised if they find that other corporations become less willing to do business with them. I believe they will suffer commercially if they do not have an anti-corruption culture.
In this context, we take differing views of compliance by SMEs and large corporates. We are aware that SMEs - unlike their larger counterparts - often lack the time, resources and readily-available, expensive professional advice needed to move quickly into compliance. So we are taking a more consultative approach to compliance by SMEs, and accept that they may take longer to get there.
The Act’s Impact on our Engagement with Companies
This leads neatly into a further theme that is especially relevant to our approach to the Bribery Act, but also touches on our work under other pieces of legislation: our commitment to engaging with companies. In general, we are finding that engagement is a more effective tool with bribery and corruption under the Bribery Act than it has been in the past with fraud.
On reason for this is that, for a successful prosecution under the UK’s previous bribery and corruption legislation, we had to prove that there was a ‘controlling mind’ at Board level behind the activities. Under the new Act, the key question is whether the Board has put effective structures in place to prevent bribery from taking place. If a company has not done this, and has significant operations in the UK, we can prosecute it for bribery and corruption by any of its employees anywhere in the world.
This is a big change. One effect is that prosecution of fraud is now out of line with bribery and corruption, since to prosecute a company for fraud we still need to prove that people at a senior level knew the fraudulent activity was taking place. Another effect is that acquirers who take over a business, and then discover that suspected bribery and corruption has been (and probably still is) taking place in it, are more likely to come forward, self-report and engage with us.
They are encouraged to do this by an awareness that we will take a pragmatic approach, quite possibly by letting them conduct their own internal investigation and then report the findings to us so we can take a balanced view on further action. They know that their demonstration of goodwill in initially disclosing their suspicions to us will be taken into account.
Our Broader Approach to Intelligence and Proactive Engagement
More broadly, we constantly monitor and review intelligence and other information relating to the activities of corporations within our jurisdiction. This comes to us in all sorts of ways – including suspicious activity reports to the UK’s Serious Organised Crime Agency (SOCA) and increasingly from whistle-blowers contacting our new SFO Confidential hotline. We also receive a lot of information from our international partners, from individuals across the world and indeed from picking up press reports.
With every piece of information, we need to assess whether there is something here that justifies SFO action. It’s a vital decision, and so we have a rigorous internal process for it, including making a number of enquiries to test the information before deciding formally whether to launch an investigation. We need to be as sure as possible that there is something there that justifies us in taking on the case.
When we do decide to do something, our approach can take a number of different forms. In some cases we contact the corporation involved, and say we believe they have a problem and would they like to come and see us. Most – but not all – do come in for that discussion, where we encourage them to agree to undertake an internal investigation and present the findings to us in due course. This makes obvious sense for the corporation, and several have agreed to this.
The Downside of Non-Cooperation
Of course, some corporations may not be interested in a discussion with the SFO – in which case we can carry on doing what we need to do. However, this does mean the corporation has passed up its opportunity for the maximum degree of mitigation and flexibility on our part. I regard this as a short-sighted and misguided approach, but of course that’s a matter for them.
In other cases we think that approaching the corporate is not appropriate – perhaps because of the size and systemic nature of the alleged corruption, the involvement of very senior people, or the potential for evidence to be destroyed. In that sort of case we may well decide to proceed quietly with our investigation. So the first that the corporate will know of our interest is likely to be when we arrive at its door with search warrants – the worst possible outcome for any business.
This is why we encourage companies to be rigorous in looking at allegations they receive internally about instances of corruption. Senior management should be asking hard questions about these – and should have a robust risk assessment process in place to provide as much reassurance as possible. If companies do not police themselves in this way, then the possibility that the SFO will need to take action is all the greater.
