Survey Says

The recently issued Kroll / Compliance Week Anti-Bribery and Corruption Benchmarking Report was based on responses from “nearly 300 executives” and “participants hailed from all manner of industry.”

Survey findings of note.

“Was the FCPA Guidance any help?  Nearly 53 percent rated the guidance as “a good read, but it didn’t tell me anything new.” Another 23.5 percent deemed it very helpful, 18.8 percent didn’t know, and 4.6 percent said the guidance actually left them more confused.”

Regarding third parties:

• “The average respondent reports that his/her company conducts business with more than 3,500 third parties”
• “Most companies (79 percent) will drop a potential third party even upon rumor of bribery without any hard proof”
• “47 percent of all respondents said they conduct no anti-corruption training with their third parties at all”

Financial Times Editorial on Bribery Act

I was pleased to speak to the Financial Times in connection with its recent Bribery Act editorial.  It stated in full as follows.

Government Needs to Clarify Application of Bribery Act

Britain was once considered a laggard in the international battle against corruption. The Bribery Act, which came into force in 2011, was the first overhaul of anti-corruption laws in almost a century. Two years on, the government wants to review it. This is sensible, as new legislation can have unintended consequences. But any review should not result in a weaker law. That would only allow greater scope for graft.

The government is responding to complaints from small and medium-sized businesses that the costs of compliance are too high. In particular, they are worried about the ban on facilitation payments, small amounts paid to officials to expedite services such as visas or customs checks. Businesses argue that Britain holds its companies to a higher standard than other countries – particularly the US, where such payments are not banned. They say this puts them at a disadvantage.

These concerns are understandable, but exaggerated. Facilitation payments have always been illegal in the UK. Yet conflicting signals from the authorities have sown confusion. Moreover, the absence of case law leaves companies in the dark as to how the law will be applied and what defence is valid. This has created a climate in which companies easily fall prey to firms peddling overly-prescriptive and costly advice on compliance.

More can and should be done to clarify the circumstances under which a company will be pursued. This will help to counter the scaremongering that has led some businesses to pass up export opportunities. To be fair, the guidelines already allow some flexibility for smaller businesses. They are not expected to use the same procedures as big multinationals. When choosing an agent to open a new market, for example, it might be sufficient to verify business references, conduct an internet search and refer to the local chamber of commerce or UK embassy, as long as the anti-corruption policy is widely enough disseminated. The government’s duty is to ensure resources are sufficient to meet such requests.

Authorities must also be consistent. Businesses will not respond to demands that breaches be reported if they fear they will be prosecuted for any and all transgressions.

British companies have other competitive advantages to win business with than bribery. Graft is an evil that blights developing economies and the companies which resort to it. The Bribery Act does not need changing. It just needs supporting.

I’ll Second That

Earlier this week in a Wall Street Journal editorial titled “Mum’s the Word About SEC Defeats”  Russ Ryan (Partner, King & Spalding and former Assistant Director of the SEC Enforcement Division) stated as follows.  “Like other federal agencies, the SEC has long been good at publicizing its initial accusations of wrongdoing – which is fair enough – but not so good at letting the public know when those accusations turn out to be unfounded or an overreach.”  As Ryan rightly noted, in this internet age, “SEC publicity is permanent and widely dispersed.  The regulator’s accusations can persist indefinitely among the top search-engine results for the names of those accused.”

I’ll second that and have previousy written about the same dynamics Ryan highlights under the heading ”Writer’s Cramp at the DOJ.”  See prior posts here and here.

Spot On

Colleen Conry (Ropes Gray) stated as follows in a recent Law360 interview.

Q: What aspects of your practice area are in need of reform and why?

A: The government’s attempts to hold foreign companies accountable for having compliance programs that are on par with those we see at companies that are headquartered in the United States are challenging. Foreign companies often lack notice of that expectation and as a result suffer the consequences. Over time, I hope the government will at least consider as one factor the compliance standards that are the norm in the country in which the foreign entity operates.

*****

A good weekend to all.

A section of the report concerns the Bribery Act, and as detailed below, the committee recommends that “the Act should be the subject of post legislative scrutiny by a Parliamentary select committee.”

Chapter 10 of the report states, in full, as follows (emphasis in original).

Introduction

10.1. The Bribery Act 2010 came into force in July 2011. Its purpose was to modernise domestic and foreign offences of bribery. Its enactment led to a flurry of concern that SMEs would be particularly harshly affected. Mr Simon of UKTI agreed that the Act had “provoked a bit of anxiety” and said that “it is possible that [the UK] have lost some business”

10.2. It was not surprising, therefore, that whilst several witnesses recognised it as having enhanced the reputation of the UK in terms of business ethical standards, some expressed concern that the Act had given rise to uncertainty and put the UK at a trading disadvantage. Deltex Medical Ltd, for example, said: “The Bribery Act is a concern because it creates an imbalance with other markets. We support appropriate measures to uphold industry best practice and ethical business practices. However, the terms of the Bribery Act itself potentially restrict trading opportunities—for example in countries such as China and Brazil that do not conform to the same code of practice as the UK. In our experience, we have had to pay to review potential overseas distributors in China. Many Directors of SMEs are rightly concerned about being able to expand export markets whilst conforming to the Bribery Act.”

10.3. He went on: “BRIC countries especially raise challenging questions around the Bribery Act. My fellow directors and I have concerns over how we operate correctly under the Bribery Act within those countries. We have taken legal advice. We have made changes to our contracts. All of those areas have ways of trading that are different from those that we have in the UK, and different standards. It is difficult for any company to go in and follow the recommendations.”

10.4. Tony Shepherd of Alderley plc expressed his views robustly: “The existing Act is virtually impossible to operate as far as a UK company is concerned. You cannot really take someone out to dinner without committing a crime. I am very strongly in favour of trying to eliminate bribery, but to have a situation where we are subject to a law that is much more severe than anywhere else in the world is not good.”

10.5. ADS also recognised the value of the Act but asked for “clearer guidance … on its practical application and its implications, particularly the responsibility on SMEs for local ‘agents’. They also thought it “essential that the UK pursues a global level playing field in bribery rules so UK companies are not disadvantaged”.  LMK Thermosafe Ltd. similarly understood the purpose of the Act but said that adhering to the Act restricted their ability to sell successfully and, as a result of Act, they preferred to “work in markets where honesty is appreciated”.  Mr. Ehmann of the IoD described the Bribery Act as a “counterproductive” measure that has “held us back”. It had had, he said, “a significant impact” on his members, especially for those trading with BRIC countries and developing economies.

Current Government action

10.6. The Government explained to us what action they had taken to help SMEs to understand the implications of the Bribery Act 2010. The Ministry of Justice has published guidance on the Act and has run a programme of awareness-raising, prioritising UK industrial sectors most exposed to corruption risks. There is an online Business Anti-Corruption Portal which is specially targeted at SMEs and provides a comprehensive and practical business tool to help them avoid and fight corruption, with specific advice on 62 countries. Commercial Awareness training for FCO staff aims to equip them with the knowledge and skills to be able to provide suitable support to businesses, including advice on this issue.  Mr. Simon referred also to an initiative being considered by UKTI, “a potential signposting opportunity to people who can give specific guidance to companies as to how directors can take appropriate levels of care to ensure they do not infringe the Bribery Act”. He suggested that the “most dangerous thing” was not “the legislation per se” but a “lack of confidence”

10.7. As with intellectual property issues, we exhort the Government to make efforts to promote the international harmonisation of standards, and also to raise awareness amongst SMEs about the application of the Bribery Act 2010 and explain exactly how it will be applied in practice.

10.8. Mr Simon suggested that “there is a desire that the Bribery Act be tested by the Crown Prosecution Service, because then the community as a whole will have a better sense of where it stands”.  We do not agree. It is not satisfactory to wait for elaborate court cases to define the actual workings of the Bribery Act 2010 in case law.

10.9. Whilst we acknowledge the importance of the example of high ethical standards being set by the UK, application of the Bribery Act 2010 has been met with confusion and uncertainty. We recommend, therefore, that, at the earliest opportunity, the Act should be the subject of post legislative scrutiny by a Parliamentary select committee.

To be sure, the report and its recommendation represent U.K. growing pains.  But let’s not forget, here in the U.S. we too had growing pains concerning the young FCPA.

As detailed in prior posts here and here, the ink was hardly dry on the FCPA when concerns were raised that the law was harmful to U.S. business.

There was much activity on this issue in the early 1980′s and among other things:

(i) the Carter administration (Carter signed the FCPA into law in December 1977) “sent a hefty 250-page report to Congress on the various ways the U.S. discourages exporters” – one example – “the provisions of the 1977 Foreign Corrupt Practices Act, which have never been clearly spelled out by the Justice Department;”

(ii) the GAO released a report in 1981 detailing how the FCPA “is riddled with complicating ambiguities and shortcomings;”

(iii) President Reagan’s “transition team on the workings of the Securities and Exchange Commission [...] recommended decriminalization of bribery; and

(iv) John Fedders, named in 1981 to be the SEC’s Director of Enforcement to replace Stanley Sporkin who left to become general counsel at the CIA, stated during a news conference that he ”pledged to enforce, with discretion, the Foreign Corrupt Practices Act, which he criticized as being ambiguous.”

Our FCPA growing pains lasted until 1988 when the FCPA was amended in significant ways and, to a certain extent, the growing pains have not fully disappeared even as the FCPA has matured into an “adult” statute.

In short, the U.K’s growing pains are understandable and to be expected.

First Her Majesty’s Crown Prosecution Service Inspectorate, the independent Inspectorate for the U.K. Crown Prosecution Service, recently released (see here) a “Report to the Attorney General On The Inspection of the Serious Fraud Office.”  The report focuses mostly on general issues, but readers may be most interested in Chapter 8 dealing with “Asset Recovery and Alternative Resolution.”

Second, the Crown Office (the agency responsible for prosecution of crime in Scotland) recently announced (here) a £5.6 million civil recovery enforcement action against Aberdeen, Scotland based drilling company Abbot Group Limited.  According to the release, Abbot “admitted that it had benefited from corrupt payments made in connection with a [2006] contract entered into by one of its overseas subsidiaries and an overseas oil and gas company.”  According to the release, ”the sum to be paid by Abbot represents the profit made by the company under the contract.” Two things to note.  First, the release makes much of the fact that Abbot “self-reported” the conduct at issue.  Yet, the release itself states that ”the corrupt payments were brought to light in May 2011 following enquiries by an overseas tax authority which resulted in an investigation by a firm of solicitors and a firm of accountants instructed by Abbot itself.”  Second, the release notes that the enforcement proceeds “will be invested in the Scottish Government’s hugely successful CashBack for Communities Programme which takes cash from the Proceeds of Crime and invests it in a range of sporting, cultural, community mentoring projects and sports facilities for the benefit of our young people and their communities.”

Third, David Green (Director of the U.K. Serious Fraud Office) recently answered questions before a House of Commons Justice Committee.  (See here for the transcript).  In his comments, Green: (i) says FCPA / Bribery Act Inc. created unnecessary “spin” regarding the SFO’s recent policy revisions; (ii) discusses the role of the SFO; (iii) makes an apt analogy to early enforcement of the FCPA; and (iv) talks about the prospect of DPAs in the U.K.

Below are excerpts from the Q&A’s that touch upon bribery and corruption issues.

“Q24 Steve Brine: [...] I want to ask you about the notes that I have been reading about facilitating payments, business expenditure and corporate self-reporting. What is your intention behind the revision of policies on those three areas? Are they really a radical departure from the previous guidance, or is there a bit of spin there?

David Green: It is not my spin. What you might call the bribery and corruption industry-by which, I suppose, if I was being unkind, I might mean lawyers who make an enormous amount of money out of it, advising corporates-wants to put it that way. In fact, it is not that. What I have done, as you know, is to withdraw policies in relation to bribery and corruption, and they have been replaced with a statement that we are subject to the joint guidance agreed with the Crown Prosecution Service. In other words, all I have done is to remove what is actually a unilateral gloss placed on that joint guidance by my predecessor at the SFO. It was also done in order to comply with the recommendations of the OECD which, as you will know, are about being careful how a self-report is defined.

What I have done most specifically, which certainly excited some-perhaps they are easily excited-is to withdraw the exclusive pledge that the SFO would not prosecute if you self-report. Why did I do that? In my view, it is not something that a responsible prosecutor should be saying, simply because you have no idea what kind of facts or combination of facts you might be presented with when somebody comes through your door with an expensive lawyer. You have no idea, so you cannot cater for it in advance. What you can say, without question, is that the fact of a genuine self-report-by a genuine self-report I mean, in its purest form, telling us something that we did not know already, and the corporate acting proactively to investigate it-must be very significant as a factor in weighing up the public interest limb of the decision to prosecute; that is the code test. That is what I am about. That is why I did that.

There is one other thing. I have said that I wanted to restate the SFO’s role as a crime-fighting agency. In addition, frankly, so far as I am concerned, we are not there to give advice to people. They can get their advice from their lawyers and their other experts, which they have in spades. I am not there, nor are my staff there, to give advice. We are there to investigate and prosecute serious fraud, bribery and corruption.”

[...]

Q26 Steve Brine:  [...] “Without specifying details, would you give us some indication of how many investigations you are currently undertaking into potential offences under the Act?

David Green: Under the new Act?

Q27 Steve Brine: Yes, because you are also bringing cases under old bribery legislation, are you not? Let us just look at the new Act. It is not retrospective, if I am correct.

David Green: That is exactly right. We are just concerned with stuff after July 2011. It is important to understand that section 2A of the Criminal Justice Act 1988 added a pre-investigation power in relation to bribery and corruption, which enables us basically to look at the facts and assess them, and to see whether there is material that would justify, in law, my launching a full-scale investigation. If I may, for the sake of clarity, I shall call those pre-investigation investigations “projects”.

From recollection, we have seven cases that are in the project phase. What will come of them I cannot tell you; I really do not know, but if we can we will turn them into investigations if we are justified in doing so. We have another half dozen cases that relate to pre-Bribery Act law; again, they are in the same phase.

Understandably, legislators, journalists and, indeed, members of the public may say, “Well, you have this marvellous new Bribery Act. What are you doing about it?” As a kind of private project, I have been looking at the fortunes of the FCPA-the Foreign Corrupt Practices Act of the United States. That was enacted in the late 1970s, and the first prosecution was in 1981. It did not get any teeth, in a really meaningful way, until the penalties were enhanced, and so forth, in the 1990s. I am not saying for a moment that you are going to have to wait 20 years for your first Bribery Act prosecution, but things are in hand and no one would be keener than I would to see a good, solid Bribery Act prosecution. We are working on it.”

[...]

“Q30 Mr Buckland: May I move on to the question of deferred prosecution agreements? I have read very carefully the memorandum and evidence that you have submitted to the Committee, and it is clear that the SFO supports the Government’s proposals to amend the current Crime and Courts Bill and to bring in DPAs. I do not know whether you or your office have troubled yourselves with the potential impact assessment, in terms of financial benefit and whether the SFO directly would receive either a share or the entirety of any receipts from financial settlements pursuant to DPAs.

David Green: As I understand it, all funds from DPAs will go directly to the Treasury, to avoid concerns over conflicts of interest.

Q31 Mr Buckland: So there is no hypothecation. Would it be fair to say that the SFO would have a legitimate expectation that, even though the moneys were not hypothecated, you could end up receiving some additional funding to help deal with the work that you are doing?

David Green: It has always been my view, Mr Buckland, that the SFO is here to stay, but that it needs to prove itself. Assuming that it proves itself-I hope fervently that it does-I would be the first to join any negotiation on an enhanced budget to get us more resources to do more good work. But I would say that, wouldn’t I?

Q32 Mr Buckland: I would expect you to, and I am glad to hear it. Having looked at the impact assessment prepared by the MoJ on DPAs, I was a little concerned. My reading of it is that there was an assumption in the document that there would not be an overall increase in the number of cases dealt with. In other words, there would potentially be a shift from early guilty pleas to DPAs, meaning no overall increase in the number of cases dealt with. Would that be your expectation, or would you hope for something more ambitious?

David Green: I would be far more ambitious. I would expect our case load-including cases dealt with under DPAs-to increase significantly once they kick off. I hope, as I am sure you do, that we will have our first DPA in place in early 2014.

Q33 Mr Buckland: Obviously, public perception is very important. Two aspects of DPAs as currently proposed may cause some concern. The first is having the preliminary hearings in private, as opposed to having all hearings in public. Does the SFO have a view on the reasons for that proposal?

David Green: I do not, as I sit here, have a particular view on that. What I would say is that later on, as the process develops, it does of course become public. Obviously a big difference between our DPAs and the US model is judicial involvement from day one. I would not be happy in expressing a particular view on that. It is something that I would have to think about, but I would be happy to let you know in due course.

Q34 Mr Buckland: I would be very grateful, Mr Green. Thank you. Again, public perception is important. The idea that you are doing some sort of niche job is wholly wrong, I think. The public are genuinely concerned about a culture of impunity that is perceived to have grown up around corporate and serious fraud. Is there a danger, with DPAs, that we could end up with white-collar crime somehow being seen as less serious than other types of crime?

David Green: That is obviously something that I have thought about a lot-indeed, it has troubled me-and I think that the answer is this. It is important that DPAs are seen as just one additional tool in the prosecutor’s toolkit. They are certainly not, in any sense, a universal panacea for corporate misconduct. They will be used in the right circumstances only. An example of what I think would be the right circumstance is where an incoming board chooses to self-report past misconduct by a previous board, which it has unearthed and proactively investigated. That would be just the sort of challenge to be met, in my view, by a DPA. It would certainly not be appropriate if, for instance, the corporate had been set up and used as a vehicle for fraud. That would be quite wrong. Obviously our first principle, as I hope I have made clear, is that serious fraud, bribery and corruption must always be prosecuted where that is possible-always.

Q35 Mr Buckland: Do you see this as having the potential to deal with the common scenario of when a legitimate business becomes dishonest? I am sure that, like me, you have had plenty of experience of that sort of scenario.

David Green: Of course, we would only be dealing with the corporate itself, under a DPA.

Q36 Mr Buckland: Not the individual.

David Green: Indeed. If there was a case against individuals, we would obviously prosecute if we could.

Q37 Mr Buckland: One concern that has been put to me about DPAs is that we have looked to the United States as an example, but that the US has a very big stick in terms of how they-I won’t say aggressively, but certainly robustly-police their free market, and the penalties available under the criminal justice system in the various US states to deal with wrongdoers. Do you think that the British scenario, where the stick is much less potent, is a good parallel to draw with the United States?

David Green: Just as we have adapted the US model for our circumstances, so we have adapted the carrot and stick equation. I have touched on this twice, but I cannot overemphasize the importance of our decision to enhance our intelligence capability. I really mean business on that. At the moment, our intelligence capability-the one I inherited-is really a sort of vetting process. I want to be far more aggressive in our intelligence activities, not to run it ourselves but to buy it in from, say, the City of London police or external agencies, going up to all sorts of exotic intelligence. The intelligence capability being built up-that is the stick. These people may well be found out, and they need to understand that. The carrot, of course, is often said to be certainty. Actually, it is not really certainty, because when they come along to self-report, they are not sure how they are going to end up. What they mean, I think, is finality. In other words, a line will be drawn in the sand under previous corporate misconduct, under certain conditions, and a company can then move on. Having thought about it quite a lot, I think that that is really what a corporate wants.”

• restate the SFO’s primary role as an investigator and prosecutor of serious or complex fraud, including corruption;
• ensure there is consistency with other prosecuting bodies; and
• meet certain OECD recommendations.

For the most part, although much ink is likely to be spilled by FCPA Inc. / Bribery Act Inc. in the coming days, the SFO’s “revised policies” are a yawner.

As to facilitation payments (here) and business expenditures (here), the SFO notes as follows.  Whether or not the SFO will prosecute in respect of a facilitation payment or payments or in respect of a bribe presented as hospitality or some other business expenditure will be governed by the Full Code Test in the Code for Crown Prosecutors and the Joint Prosecution Guidance of the Director of the SFO and the Director of Public Prosecutions on the Bribery Act 2010.

The Full Code Test (see here at Section 4) is essentially a realistic prospect of conviction plus in the public interest standard for bringing prosecutions.

As to facilitation payments, the SFO stated that “facilitation payments were illegal before the Bribery Act came into force and they are illegal under the Bribery Act, regardless of their size or frequency.”

Treatment of facilitation payments under the Bribery Act has been analyzed to death since enactment of the Bribery Act, however I have yet to see any reference to a pre-Bribery Act prosecution even though such payments were illegal prior to the Bribery Act.  That would seem to answer the public interest prong of the Full Code Test the SFO refers to regarding facilitation payments.

The Joint Prosecution Guidance of the Director of the SFO and the Director of Public Prosecutions on the Bribery Act 2010 (here) that the SFO refers to in its “revised policies,” and that it reaffirms, states as follows concerning facilitation payments and hospitality expenditures.

“Facilitation payments

Facilitation payments are unofficial payments made to public officials in order to secure or expedite the performance of a routine or necessary action. They are sometimes referred to as ‘speed’ or ‘grease’ payments. The payer of the facilitation payment usually already has a legal or other entitlement to the relevant action.  There is no exemption in respect of facilitation payments. They were illegal under the previous legislation and the common law and remain so under the Act.

Public Interest Considerations

Prevention of bribery of foreign public officials is a significant policy aspect of the Act. In the context of facilitation payments, the following public interest factors tending in favour of and against prosecution may be relevant. A prosecution will usually take place unless the prosecutor is sure that there are public interest factors tending against prosecution which outweigh those tending in favour.

Factors tending in favour of prosecution:

• Large or repeated payments are more likely to attract a significant sentence;
• Facilitation payments that are planned for or accepted as part of a standard way of conducting business may indicate the offence was premeditated;
• Payments may indicate an element of active corruption of the official in the way the offence was committed;
• Where a commercial organisation has a clear and appropriate policy setting out procedures an individual should follow if facilitation payments are requested and these have not been correctly followed.

Factors tending against prosecution:

• A single small payment likely to result in only a nominal penalty;
• The payment(s) came to light as a result of a genuinely proactive approach involving self-reporting and remedial action;
• Where a commercial organisation has a clear and appropriate policy setting out procedures an individual should follow if facilitation payments are requested and these have been correctly followed;
• The payer was in a vulnerable position arising from the circumstances in which the payment was demanded.

Hospitality and promotional expenditure

Hospitality or promotional expenditure which is reasonable, proportionate and made in good faith is an established and important part of doing business. The Act does not seek to penalise such activity.

Hospitality and promotional expenditure could, however, form the basis of offences under s1 (bribing another person) or s6 (bribing a foreign public official) and constitute a bribe for the purpose of s7 (failure to prevent bribery). Under section 1 there must be an element of “improper performance”. Under section 6, it will be necessary to show that the provision of hospitality or promotional expenditure was intended to influence the foreign public official so as to obtain or retain business, or an advantage in the conduct of business.

The more lavish the hospitality or expenditure (beyond what may be reasonable standards in the particular circumstances) the greater the inference that it is intended to encourage or reward improper performance or influence an official. Lavishness is just one factor that may be taken into account in determining whether an offence has been committed. The full circumstances of each case would need to be considered. Other factors might include that the hospitality or expenditure was not clearly connected with legitimate business activity or was concealed.

Public Interest Considerations

Prevention of bribery of foreign public officials is a significant policy aspect of the Act. When considering the public interest stage, the factors tending in favour of and against prosecution referred to in respect of “active bribery” (section 1) are likely to be relevant. A prosecution will usually take place unless the prosecutor is sure that there are public interest factors tending against prosecution which outweigh those tending in favour.”

As noted in this March 2011 post, U.K. guidance on facilitation payments and hospitality expenditures pretty much aligns the Bribery Act and the FCPA despite the obvious statutory differences.  I predicted in January 2011 (see here) that enforcement of the Bribery Act will be disciplined and measured and this belief is further strengthened by yesterday’s SFO release of its “revised policies.”

As the SFO indicates in this Q&A regarding its “revised policies,” the only change “is that reference in the joint prosecution guidance to the SFO’s former policy on self-reporting has been removed.”  (See here for that policy which explained that ”the benefit to the corporate [in self-reporting] will be the prospect (in appropriate cases) of a civil rather than a criminal outcome as well as the opportunity to manage, with us, the issues and any publicity proactively.”

The Joint Prosecution Guidance, which the SFO reaffirms in its “revised policies,” stated as follows regarding self-reporting.

“The SFO encourages corporate self-reporting, but offers no guarantee that a prosecution will not follow any such report.”

The remainder of the “revised policy” on self-reporting (here) states as follows.

“If on the evidence there is a realistic prospect of conviction, the SFO will prosecute if it is in the public interest to do so. The fact that a corporate body has reported itself will be a relevant consideration to the extent set out in the Guidance on Corporate Prosecutions. That Guidance explains that, for a self-report to be taken into consideration as a public interest factor tending against prosecution, it must form part of a “genuinely proactive approach adopted by the corporate management team when the offending is brought to their notice”. Self-reporting is no guarantee that a prosecution will not follow. Each case will turn on its own facts.”

There is nothing revolutionary about any of this.

It substantively aligns with the DOJ’s Principles of Prosecution of Business Organizations (here) which states that a company’s ”timely and voluntary disclosure of wrongdoing and its willingness to cooperate in the investigation of its agents” is one factor the DOJ will consider in deciding whether to criminally charge a business organization.”

In short, although much ink is likely to be spilled in the coming days, the SFO’s revised policies are a yawner.  Speaking of the ink, before the clock struck midnight on the SFO’s “revised policies” the industry was cranking out the marketing material.

This industry participant stated as follows regarding the “revised policies” and the DOJ’s promised forthcoming guidance.  “Given this activity from government regulators, it is more important than ever that companies develop a meaningful compliance program that can be adapted if needed to meet changing government expectations. A successful compliance system must adequately educate employees and create a framework that can prevent violations before they occur. [Company] has the expertise to implement a truly functional FCPA or UK Bribery Act compliance program. We can help companies protect themselves in the face of strict enforcement of these laws and constantly changing government guidance.”

This industry participant stated as follows.  “Given the new [Bribery] Act’s tough penalties and the apparent ambiguity surrounding the consequences of self-disclosure, businesses may want to take extra care to comply with its provisions. Accordingly, businesses should consider seeking the advice of legal counsel in navigating this statute and its attendant revisions.”

Recent Comments From The Director of the U.K. SFO

The briberyact.com previously mentioned here recent comments made by David Green (Director of the U.K. Serious Fraud Office) in a Daily Mail article (here) that “mainstream corporate entertaining” is of little concern to the SFO.  Green states in the article as follows.  “We are not  interested in that sort of case. We are interested in hearing that a large company has mysteriously come second in bidding for a big contract. The sort of  bribery we would be investigating would not be tickets to Wimbledon or bottles of champagne. We are not the ‘serious champagne office.’”

The same can not always be said of the DOJ or SEC.  Although such seemingly minor corporate entertainment expenditures have never been the sole focus of an enforcement action, several enforcement actions have included such allegations. For instance, the UTStarcom enforcement action (see here for the prior post) contained allegations about a $600 bottle of wine.  The Data Systems and Solutions enforcement action (see here for the prior post) contained allegations regarding a Cartier watch.  The IBM enforcement action (see here for the prior post) contained allegations about a camera.  The RAE Systems enforcement actions (see here for the prior post) contained allegations about kitchen appliances, business suits, and high-priced liquor.  Numerous other examples abound.  One must assume that the enforcement agencies included such allegations in the resolution documents for a reason, not just to fill up paper.

Alexandra Wrage (President of Trace International) noted the U.K. / U.S.  irony in this recent piece for Corporate Counsel.   ”[W]hereas the U.S. law permits these expenditures [facilitation payments and reasonable entertainment expenses], within reason, and then enforces when companies overstep, the U.K. prohibits them, but assures the public that they won’t be prosecuted.”

Green’s comments to the Daily Mail were also notable for his calling out of FCPA (or as the case may be Bribery Act) Inc.  The Daily Mail article notes as follows.  “[Green] criticised American law firms that had taken  advantage of the uncertainty. ‘It is in their interest to focus attention on the  Bribery Act. They put up talking heads and arrange conferences. It is a huge  industry.’”  Green’s comments are similar to those noted in this prior post by Kenneth Clark (the U.K.’s anti-corruption champion) who stated, in the House of Commons, leading up to the Bribery Act as follows.   “I hope to put out very clear guidance [regarding the Bribery Act] to save [businesses] from the fears that are sometimes aroused by the compliance industry, the consultants and lawyers who will, of course, try to persuade companies that millions of pounds must be spent on new systems that, in my opinion, no honest firm will require to comply with the Act.”

Harris Corp.

As previously noted in this Wall Street Journal Corruption Currents post, Harris Corporation disclosed as follows in its recent annual report.

“[I]n April 4, 2011, we completed the acquisition of Carefx and thereby also acquired its subsidiaries, including in China (“Carefx China”). The consolidated revenue of the Carefx China operations for fiscal 2012 was approximately $1.4 million, or less than 0.1% of our consolidated revenue. In connection with our integration activities and the subsequent audit of the financials of the Carefx China operations, we became aware that certain entertainment, travel and other expenses in connection with the Carefx China operations may have been incurred or recorded improperly. In response, with the concurrence of our Audit Committee, we initiated an internal investigation, with the assistance of outside legal counsel, to determine whether violations of the FCPA potentially occurred. In the course of our investigation, we learned that certain employees of the Carefx China operations had provided pre-paid gift cards and other gifts and payments to certain customers and potential customers. Although our investigation is not complete, we have already taken remedial actions related to the Carefx China operations, including changes to internal control procedures, termination of the gift-giving practice, additional compliance training and termination of the employment of certain individuals. The preliminary results of the investigation have been disclosed to our Audit Committee, Board of Directors and auditors, and we have also contacted the U.S. Department of Justice and the SEC to voluntarily disclose that we are conducting the investigation and to advise that it is our intent to fully cooperate with any investigation that they may conduct with respect to this matter. We cannot predict at this time any regulatory action that may be taken with respect to this matter or any other potential consequences that may result. However, based on the information available to date, we do not believe that this matter will have a material adverse effect on our financial condition, results of operations or cash flows.”

As noted in this previous post, Harris Corp. is part of FCPA history.  It is believed to be the first, and to this day only, publicly traded company to have put the DOJ to its burden of proof at trial.  As noted in the post, Harris Corp. prevailed in the enforcement action (1990-1991).  I noted in the previous post as follows.  If non-prosecution and deferred prosecution agreements existed in 1990, would Harris have resolved the enforcement action via such a resolution vehicle? Likely yes. Yet Harris and the individual defendants all prevailed at trial.

If the conduct Harris recently disclosed gives rise to an enforcement action, will Harris likewise this time around put the DOJ to its burden of proof?  Even if it has valid legal and factual defenses, not a chance.  NPAs and DPAs exist today and resolving FCPA inquiries is often more about cost-beneft / risk-reward, than law and facts.

*****

A good weekend to all.

*****

This letter responds to the Ministry of Justice’s (“MoJ”) request for consultation regarding deferred prosecution agreements (DPAs) (Consultation Paper CP9/2012).

While the MoJ’s DPA proposal concerns a variety of economic crimes, it is probable that a significant percentage of DPAs, if implemented, will be used to resolve Bribery Act enforcement actions as has happened in the U.S. where a significant percentage of DPAs and related nonprosecution agreements (NPAs) have been used to resolve Foreign Corrupt Practices Act (“FCPA”) enforcement actions. Given that my primary area of expertise is the FCPA and related anti-corruption laws and initiatives including the Bribery Act, I confine my comments to potential application of DPAs to resolve Bribery Act prosecutions.

To begin, I applaud the MoJ for its wholesale rejection of non-prosecution agreements (“NPAs”) to resolve allegations of corporate criminal activity. Like the MoJ, I agree that such resolution vehicles, which are a prominent feature of the U.S. criminal justice system including in FCPA enforcement actions, are not suitable given the lack of transparency in such agreements including the lack of judicial oversight. I can only hope that the U.S. Department of Justice sees the wisdom of your decision and likewise abolishes such agreements as I have advocated.

I also applaud the MoJ for insisting, should there be DPAs in the U.K., “that there should be judicial involvement from an early stage whereby the proposed DPA is considered at a preliminary hearing before it returns for final judicial approval.” As noted by the MoJ’s consultation paper, U.S. style DPAs lack such a feature.

I am concerned however that in its consultation paper the MoJ relies upon several unfounded assertions when discussing use of DPAs in the U.S. For instance, the consultation paper asserts, as if a fact, that such vehicles have been “successfully adopted” in the U.S. and that such vehicles “support an existing culture of self-reporting of serious economic crimes.”

If “successfully adopted” means that such vehicles has resulted in an increase in enforcement actions, then yes I agree with the MoJ’s statement. After all, it is not surprising that the more options an enforcement agency has (beyond the traditional two options of prosecuting and not prosecuting) the more enforcement actions that will result. Yet, I submit that a factor in determining success ought to be quality of the enforcement action and whether an enforcement agency theory of prosecution, if subjected to judicial scrutiny and an adversarial proceeding, can meet its high burden of proof. This element of “success” is missing from U.S. style resolution vehicles replaced with a system whereby entering into such a resolution vehicle is often merely a cost/benefit exercise for a company often divorced from the law and relevant facts. I’ve called this dynamic “the façade of enforcement” and I urge the MoJ to place greater importance on quality, not quantity, in assessing “success.”

Moreover, the MoJ asserts, as if fact, that such resolution vehicles “support an existing culture of self-reporting of serious economic crimes” in the U.S. While empirical data is lacking as to the frequency of voluntary disclosures of improper conduct during this era of frequent U.S. use of NPAs and DPAs, anecdotal evidence and comments from various experts suggest that a high percentage of corporate conduct that could implicate criminal laws is not reported to the enforcement agencies. I submit that one factor driving this dynamic is that companies and its counsel have come to realize that the enforcement agency will not be diligent and complete in its application of law to facts and its consideration of mitigating facts because the enforcement agency will never have to prove its enforcement theory to anyone other than itself. In short, U.S. alternative resolution vehicles ought not be viewed as a successful or desirable export.

Regardless of the divergent views one may have as to the “success” of alternative resolution vehicles in the U.S. and whether such vehicles support a culture of self-reporting, my primary concern with the U.K. looking to the U.S. for support in considering DPAs is the material differences between U.K. and U.S. corporate criminal liability, including in the bribery context.

Under the U.S. principle of respondeat superior a business organization can face criminal liability based on the acts of any employee or agent to the extent the individual’s conduct was in the scope of their duties and was intended to benefit, at least in part, the organization. U.S. adoption of alternative resolution vehicles largely developed out of a sense of injustice when this principle was applied to organizations based on isolated conduct or conduct that occurred despite the organization’s good faith compliance efforts.

Unlike the ease in which a business organization can be subject to criminal liability under U.S. law, as the consultation paper itself notes, organization criminal liability under U.K. law is very difficult to prove and “depends on establishing that the ‘directing mind and will’ of an organization was at fault.” In short, U.S. adoption of DPAs was largely a function of general circumstances not present under U.K. law.

Moreover, U.S. use of alternative resolution vehicles in the FCPA context implicates specific circumstances not present in the Bribery Act. As the consultation paper itself notes, the Bribery Act is a unique law in that it already provides in Section 7 a unique offense to hold organizations liable that fail to adopt adequate procedures to prevent bribery. Although many, including myself, have called for the FCPA to be amended to include such a compliance defense, the FCPA currently does not contain such an exception.

In conclusion, I pose the following questions the MoJ should consider during its consultation process. Why does a law with an adequate procedures defense require the third option of a deferred prosecution agreement (the first two options being prosecute vs. not prosecute)? 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. This seems like a just and reasonable result and there is no need for a third option in such a case. On the other hand, if a corporate does not have adequate procedures (thus demonstrating a lack of commitment to anti-bribery compliance) and an act of bribery occurs within its organization, it presumably would face prosecution under the Bribery Act. This seems like a just and reasonable result. Does a third option really need to be created for corporates who do not implement adequate procedures? I submit the answer is no and urge the MoJ to reject use of DPAs in the Bribery Act context.

*****

UK Bribery Act – Year One

The UK Serious Fraud Office is yet to take enforcement action under the UK Bribery Act (“Bribery Act”).  This is hardly a surprise to those familiar with the demands of an investigation into complex economic crime.  The type of bribery cases that the SFO is duty bound to investigate and prosecute are precisely those that involve a heavy commitment of resource and time.   The SFO is reported to currently spend an average of three and a half years and £1.5 million ($2.25 million) investigating each bribery case.  These are not the Munir Patel type of bribery prosecutions that are typically handled by the UK Crown Prosecution Service (“CPS”).

Some commentators had set unrealistic expectations for the speed at which enforcement actions would appear, predicting a swift procession of dawn raids and arrests.  This sense of anticipation and the inevitable anti-climax may well, at least in part, explain the findings of recent surveys, including a poll conducted by Deloitte.   The poll found that fewer than one in ten of the 1200 compliance professionals polled expressed any concern about the possibility of a Bribery Act enforcement action being brought against their organisation.  There appears to be little to fear from the SFO for the vast majority of those polled.  In spite of the undoubted challenges that confront the SFO in the year ahead, it is important for companies and senior individuals to guard against complacency.

In the year since the Bribery Act came into force, David Green CB QC has taken over as Director of the SFO and the UK government has made tangible strides towards the adoption of a UK version of the US Deferred Prosecution Agreement (“DPA”).  The new director will have little choice but to continue the SFO’s policy of guiding, assisting and engaging with responsible corporates and senior individuals, but there is no doubt that he will instil a more hard edged prosecutorial approach at the SFO than has been the case in the past.   Green is a seasoned barrister who has defended and prosecuted serious economic crime cases during his 25 year career at the criminal bar.  He also has prior experience of leading two prosecutions agencies. He was appointed the first director of the Revenue and Customs Prosecutions Office (“RCPO”) in April 2005, and served as director of the CPS Central Fraud Group from January 2010 until his return to the bar in April 2011.

Green began his four year term at the SFO on 23 April 2012.  Since then, he has started to articulate his plans for the SFO in interviews with the Financial Times and most recently in a keynote address he delivered at an anti-corruption conference held in London on 26 June.   At the conference, Green described this as a “challenging but exciting time” for the SFO.  In a likely reference to the Tchenguiz case, he accepted that some of the recent “trenchant” criticism of the SFO has been justified, but stated that the SFO was “here to stay.”  He warned against the “dilution” of the SFO brand by chasing “eye-catching quick results or taking short cuts” and said that he will not “sacrifice solid prosecutorial demands for easy headlines.”  Green will focus the SFO’s “blood and treasures” on only the “most important cases *** that undermine confidence in UK Plc. and the City of London” and those that “undermine a level playing field.”   He said that the SFO would not pursue cases of “crooks overcharging” but would look to use its “unique set up and capabilities to do what others cannot do.”

Green made no reference to the CPS Inspectorate-led review of the SFO that is currently underway, but explained that he has set about re-organising the SFO into four operational divisions; two dedicated to bribery and two to fraud.  He is in the process of recruiting four senior civil servants into the “divisional head” roles.  In addition, he is seeking to appoint a General Counsel to “shape and critique” cases, and a “Specialist Advisor” to “sharpen cases” and advise him on DPAs and civil settlements.  Green made it clear that he is looking to bring external expertise into the organisation.  He said that he wants to “foster and encourage a revolving door between private practice and the SFO” and extended an invitation to members of the junior bar, solicitors, investigators and accountants to join the SFO, either on a permanent basis or on secondment.

Green reiterated his support for the introduction of a UK DPA mechanism, stating that prosecutors should have “access to the broadest possible range of prosecutorial tools” so that they are not “outdone by the opposition.”   He talked about strengthening his intelligence unit and made it clear that he would welcome a debate on whether UK whistle-blowers should be financially rewarded.  He would like to “extend the reach” of the SFO and “encourage and increase self-reporting.”  He expressed the view that the “advantages of self-reporting need to be articulated” so that companies are “inclined” to self-report.  While he cannot give guarantees, he said that “self-reporting is a strong factor in deciding whether to prosecute or not.”  If a prosecution is not in the public interest he said that the SFO is “likely to seek a civil settlement.”  It is clear that the civil recovery mechanism, afforded by the UK Proceeds of Crime Act 2002, will continue to play a major role in future SFO enforcement actions.

Anti-corruption enforcement remains a priority for Green’s SFO which will continue to bring cases under the old UK bribery laws as well as the Bribery Act.  Green confirmed that the SFO is currently handling four self-referrals and that eleven further cases are “being developed.”  He said that most of these involve allegations of corruption.  In relation to the Bribery Act, Green expressed his desire to bring cases that would help clarify the boundaries of the “adequate procedures” defence.  In respect of the term “carries on business or part of a business in the UK” he warned that, in any court case, the SFO would “argue against an overly technical interpretation.”

The SFO’s priorities in relation to enforcement under the Bribery Act will become clearer in the year ahead.  However, companies must not expect early answers on some of the thornier issues under the Bribery Act, such as the extent of the UK’s jurisdiction over non-UK companies; the extremities of third party liability; and the borderline between acceptable corporate hospitality and a prosecutable bribe.  The SFO is likely to begin enforcement under the Bribery Act by seeking prosecutions or settlements in cases where there is clear criminal culpability, before it ventures on to tackle cases that test the boundaries of the Bribery Act.  As we await further clarity from the UK, the recent US Department of Justice declination in the Morgan Stanley case provides companies with valuable insights into considerations that can successfully persuade a prosecutor not to prosecute.  The relevance of this guidance to an assessment of the adequacy of a company’s policies and controls in the context of the Bribery Act will not be lost on readers of this publication.  The DoJ is set to provide further assistance to us all when it launches its much anticipated FCPA guidance.  This is expected in the next few weeks.

Credit When Credit is Due

In this previous February 2012 post, I called out the DOJ for its deficient and misleading FCPA website in that the website did not inform the public of the DOJ’s setbacks in the Africa Sting cases, the O’Shea case, the Wooh case and the Lindsey Manufacturing cases.  I ended the post by saying that the DOJ’s FCPA website ought to be improved and ought to keep citizens informed of all FCPA developments – not just those that cast the DOJ in a favorable light.

I am happy to dole out credit when credit is due and can now report that Wooh’s entry (here), O’Shea’s entry (here), the Lindsey related entry (here) and the numerous Africa Sting related entries have all been updated to reflect the final disposition of those cases.

Few Companies Concerned About the U.K. Bribery Act

Despite marketing campaigns that were often based on fear and overblown rhetoric, one year into the U.K. Bribery Act few companies have changed their compliance programs as a result and even fewer are concerned about an enforcement action being brought against their organization, according to this recent poll by Deloitte Financial Advisory Services.  Specifically 24% of respondents answered “yes” to the following question - ”in July 2012, one year after the UK Bribery Act enforcement began, will your company have changed its anti-corruption program to comply” and 9% answered “yes” to the following question – “one year after UK Bribery Act enforcement began, is your company concerned about a UK action being brought against your organization.”

That is pretty much what I predicted in this January 3, 2011 post that states as follows – “I don’t see how companies already subject to the FCPA and already thinking about compliance in a pro-active manner, have much to worry about when it comes to the U.K. Bribery Act …”.

Even so, the silly marketing continues as evidenced by this post “Don’t Be Lulled by a Dearth of UK Bribery Act Convictions” which begins as follows.  “Be warned that the UK Bribery Act is considered to be the world’s most restrictive and far-reaching anti-corruption law to date. This measure differs in many key aspects from the US Foreign Corrupt Practices Act.”

A Further Section 1504 Development

This recent post provided an update on Section 1504 of Dodd-Frank, the so-called Resource Extraction Issuer Disclosure Provisions, an ill-conceived “miscellaneous provision” tucked into Dodd-Frank at the last minute that will substantially increase compliance costs and headaches for numerous companies that already have extensive FCPA compliance policies and procedures by further requiring disclosure of perfectly legal and legitimate payments to foreign governments.

In a further update, last week several House members wrote to SEC Chairman Mary Schapiro “regarding the status of the long-delayed final rule making.”  In the letter, the House members state that the Commission “has had more than enough time to consider and respond to all of the substantive comments from industry, civil society, investors and others” and that the “issue is too serious to allow further delay.”

Canada Prosecutions

Recent media articles (see here from the Globe and Mail and here from the Canadian Press) report that “two former executives of SNC-Lavalin Group Inc. have been charged with corrupting foreign officials” under Canada’s FCPA-like law, the Corruption of Foreign Public Officials Act.  Ramesh Shah (a former Vice President) and Mohammad Ismail (a former Director of  International Projects) allegedly ”offered payment to secure contracts for supervision and construction of the Padma Bridge and an elevated expressway in Dhaka, Bangladesh.”

*****

A good weekend to all.

Recently the U.K. Ministry of Justice announced (here) the opening of a consultation process concerning DPAs.  The consultation period is open until August 9th and the MoJ states that its “ambition [in proposing DPAs] is to ensure that a higher proportion of economic crime is identified, investigated and dealt with. DPAs are a tool that seeks to achieve these goals whilst being transparent, clear and consistent.”

In a supplemental consultation paper, Crispin Blunt (Parliamentary Under-Secretary of State) and Edward Garnier QC (H.M. Solictor General) write a foreward that states, among other things, as follows.

“The obstacles [to prosecuting white collar crime] are familiar. Investigations and trials are forbiddingly long, expensive and complicated – particularly where offences occur across multiple jurisdictions. Identifying wrongdoing in hidden, specialist or technical fields often depends on commercial organisations cooperating or whistleblowers coming forward, but organisations have little incentive to self-report. Law enforcement agencies complain that they have a relatively narrow range of tools available to identify and bring corporate offenders to justice. In modern corporations, where responsibility for decision-making is distributed quite widely, it is very difficult to prove criminal liability, which depends on establishing that the ‘directing mind and will’ of an organisation was at fault. The consequence of all of this has been too few organisations held to account for their crimes, and too many victims waiting in vain for restitution.”

“… [W]e need to look again at the range of tools open to prosecutors when dealing with certain types of economic crime. We believe that deferred prosecution agreements (DPA), on which we are consulting in this paper, can make a valuable contribution to efforts to identify and address corporate economic crime. A DPA would sit alongside existing means of tackling crime, criminal prosecution and civil proceedings. Under its terms, a prosecutor would lay but would not immediately proceed with criminal charges against a company pending successful compliance with tough requirements such as financial penalties, restitution for victims, confiscation of the profits of wrongdoing and measures to prevent future offending.”

“DPAs would be a fair and pragmatic approach to tackling a serious problem and would need to be used judiciously. Where the alleged wrongdoing is most serious, or the public interest would otherwise require it, a criminal prosecution would continue to be the most appropriate course of action. As DPAs would be sanctioned by judges, the judiciary would be able to block DPAs which they do not think would serve the interests of justice, for example where prosecution would be the appropriate response. Entering into a DPA will be voluntary both for companies accused of wrongdoing and for prosecutors.”

“DPAs would contribute to a just outcome, enabling prosecutors to secure penalties for and the surrendering of the proceeds of wrongdoing, and providing benefits for victims in a way that is sanctioned by a judge, without the uncertainty, expense, complexity or length of a full criminal trial. They also enable commercial organisations to be held to account – but without unfairly affecting employees, customers, pensioners, suppliers and investors who were not involved in the behaviour that is being penalised. The process will be transparent; as DPAs will be public, the public will always know what wrongdoing has taken place, and the penalty that has been paid.”

“Our ambition is to ensure that a higher proportion of economic crime is identified, investigated and dealt with. DPAs are a tool that seeks to achieve these goals whilst being transparent, clear and consistent. We hope that you will consider our proposals carefully to help ensure that they are sensible, proportionate and will make a genuine difference when they are introduced.”

An entire section of the consultation paper is devoted to the U.S. approach and it states among other things as follows.

“[Non-prosecution agreements] NPAs and DPAs have been successfully adopted in a variety of circumstances. [...]  The availability of NPAs and DPAs, coupled with the risk of prosecution, incentivizes commercial organizations to cooperate with investigations, reducing the likelihood of a trial and of a criminal conviction.  In general, once a commercial organization comes to the attention of authorities in the U.S., it is common for the organization to conduct its own internal investigation, and to submit a report to the prosecutor setting out its conclusions.  [...] The use of DPAs and NPAs therefore supports an existing culture of self-reporting of serious economic crimes in the U.S. [...]  Neither NPAs nor DPAs have a statutory basis, relying instead on the United States Attorney’s manual, Principles of Federal Prosecution of Business Organisations, which sets out the circumstances in which they are appropriate and the factors to consider when investigating, charging, and discussing an agreement with respect to corporate crimes.  [...] There has been increasing scrutiny of the use of NPAs and DPAs as an enforcement tool, with concerns over the lack of transparency around the factors that determine whether the DOJ grants a NPA or DPA, and that they inappropriately excuse criminal behavior.  The DOJ has sought to address these criticisms and has continued to use these agreements to conclude a variety of investigations.”

The consultation paper section on the U.S. then discusses NPAs and how there is no judicial oversight of these agreements and, even as to DPAs, how little judicial scrutiny and review there is of these agreements.

The consultation paper section on the U.S. then contains a few sentences that should be of great interest to U.S. policy makers.  The section states as follows.  “In practice the extent of judicial involvement generally appears to be limited in the U.S. model, and despite the effectiveness of the process, is unlikely to be at a level suitable for the U.K.’s constitutional arrangements.”  Elsewhere, the section states as follows.  “Despite the effectiveness of the U.S. model, the lack of judicial oversight is likely to make it unsuitable for the constitutional arrangements and legal traditions in England and Wales.  We have concluded that [NPAs] are not suitable for this jurisdiction due to their markedly lesser degree of transparency, including the absence of judicial oversight.”

Kudos to the U.K. for rejecting NPAs – a resolution vehicle that was used to resolve four corporate FCPA enforcement actions in 2011 and four corporate enforcement actions in 2010.

[For more on the use of NPAs and DPAs to resolve FCPA enforcement actions and how use of these resolution vehicles have contributed to a "facade of enforcement" see here - my scholarship titled "The Facade of FCPA Enforcement"]

Even so, it is clear from the consultation paper that the U.K. proposed model for DPAs is inspired by the U.S. model.  Yet from the consultation paper proposal, even though the U.K. proposes to adopt DPAs, it is clear that U.S. style DPAs is not the goal.  Among other things, the consultation paper states as follows as to transparency.  ”Public confidence in the justice system is vital. The public need to have confidence that a prosecutor is not entering into a ‘cosy deal’ with a commercial organisation ‘behind closed doors’. We therefore believe that there should be judicial involvement from an early stage whereby the proposed DPA is considered at a preliminary hearing before it returns for final judicial approval.”

Should the U.K. adopt DPAs they would be used, as the consultation paper makes clear, in a variety of cases, not just Bribery Act cases.  The same is true in the U.S.  DPAs (and NPAs) are not just used to resolve FCPA enforcement actions, although their most frequent use is in FCPA enforcement actions.  (See here from Gibson Dunn – FCPA enforcement actions comprised approximately 40% of DOJ NPAs or DPAs in 2011; here from Gibson Dunn – FCPA enforcement actions comprised approximately 50% of DOJ NPAs or DPAs in 2010).

My concern with U.K. adoption of DPAs in the Bribery Act context is the same as when I originally voiced it in this October 2011 post.

Why does a law with an adequate procedures defense require the third option of a deferred prosecution agreement – the first two options being prosecute vs. not prosecute?  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?

Even the MoJ consultation paper recognizes that the Bribery Act is different from other U.K. economic crime laws.  For instance, the executive summary portion of the paper states as follows.  “Options for dealing with offending by commercial organisations are currently limited and the number of outcomes each year, through both criminal and civil proceedings, is relatively low. In part, this is because of difficulties with the law of corporate criminal liability, which does not reflect the 21st commercial organization.  It is also because offending in the area of economic crime is becoming increasingly sophisticated.  As the size of commercial organizations and the reach of their interests grow, so too do the difficulties of identifying criminal activity and of prosecution at  a national level for what can often be wrongdoing across a number of jurisdictions.  This calls for increasingly close working with international law enforcement agencies. Although the creation under the Bribery Act 2010 of criminal liability for a commercial organisation that fails to prevent bribery is a notable improvement and although prosecuting agencies are taking more pro-active approaches in identifying and investigating serious economic crime, more needs to be done.” (emphasis added).

Likewise, elsewhere the consultation paper states as follows. ”[The U.K.] law of corporate criminal liability poses some problems. Under the current law, in order to obtain a conviction a prosecutor must show that the ‘directing mind and will’ of the commercial organisation had the necessary fault element or ‘mens rea’ for the offence. However, this is often difficult to prove, especially in increasingly large and more sophisticated modern commercial organisations. While the new offence in connection with the failure of a commercial organisation to prevent bribery under section 7 of the Bribery Act 2010 will help, more needs to be done, especially in relation to other types of economic offending.” (emphasis added).

In short, the consultation paper recognizes that the Bribery Act is cut from a different cloth compared to other U.K. economic crime laws, but it fails to see how this key distinction ought to disfavor, not favor, use of DPAs to resolve Bribery Act cases.

For more on this recent U.K. development, see here from Debevoise & Plimpton (discussion included within its FCPA Update), here from Skadden, here from Bryan Cave, and  here from DLA Piper.

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.