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Recent developments in the United Kingdom highlight the government's increased focus on overseas corruption. New draft legislation that went through a third reading in the U.K. House of Lords on February 8, 2010, would provide a comprehensive scheme pertaining to bribery in the U.K. and abroad. It would also introduce a new offense of "negligently failing to prevent bribery." In addition, there is a clear trend of more aggressive approach to investigation and enforcement of the relevant rules.
SFO Guidance Encourages Self-Reporting
The Serious Fraud Office (SFO) is an independent government department that investigates and prosecutes serious and complex fraud and overseas corruption.
The SFO has been devoting greater attention to combating overseas corruption. Structurally, it set up a specialized work area—the Anti-Corruption Domain—and announced its intention to have a staff of 100 working in that area. As part of its recent attempts to combat overseas corruption, on July 21, 2009, the SFO published a guidance detailing how to self-report cases of overseas corruption to the SFO and the benefits of such self-reporting.
Advantages of Self-Reporting
The two main advantages of self-reporting, according to the guidance, are the greater probability of a civil (as opposed to criminal) outcome, and the ability to manage and coordinate with the SFO the issues and the publicity concerning them.
The guidance indicates that the SFO would settle self-reporting cases civilly wherever possible (unless board members of the corporation have personally engaged in the corrupt activities). In making its decision, the SFO will be looking at the public interest, as well as several criteria concerning the relevant corporation. Such civil settlements may include restitution by way of civil recovery, possible external monitoring over the corporation, putting in place a program of "culture change and training," and the issuance of a public statement agreed upon by the SFO and the corporation.
The guidance also indicates that should the SFO discover the case of corruption on its own, i.e., without self-reporting by the relevant corporation, it would regard the failure to self-report as a negative factor and the chances of a criminal investigation, followed by prosecution and confiscation, against the corporation would be "high."
Other Guidance Highlights
The guidance contains several other issues of note:
- Regardless of whether a case was self-reported to the SFO and the outcome vis-à-vis the corporation, the SFO makes "no guarantees" with respect to criminal investigations of individuals.
- Discussions with the SFO are confidential, subject to any need to make a report that is required by law and to any public statements that will be made in that case.
- The SFO indicates its willingness to assist and be involved in trying to reach a global settlement (i.e., where a case involves several jurisdictions), but where a case also requires notification of the U.S. Department of Justice (DOJ) under U.S. law, the SFO expects to be notified of the matters giving rise to the issues at the same time as the DOJ.
- It is important that corporations have both document retention and recovery capabilities, as well as internal monitoring and compliance programs.
- The SFO states in the guidance that a company should refer to and involve appropriately experienced advisers throughout and before any self-reporting process.
- The guidance also indicates the SFO will be looking into the possibility of offering an advance opinion procedure in various cases along the lines offered by the DOJ. Yet, without waiting for further review, the SFO is already willing to offer its advance opinion in one such case, namely when a company takes over another company and, during due diligence, discovers overseas corruption issues in the latter.
Companies Could Face Debarment
A company that discovers it was embroiled in overseas corruption activities must face mandatory debarment provisions under Article 45 of the EU Public Sector Procurement Directive. Article 45 provides that any candidate or tenderer who has been the subject of a conviction by final judgment for, among other things, corruption, shall be excluded from participation in a public contract.
While the SFO's guidance suggests that a negotiated settlement, rather than a criminal prosecution, would mean that such mandatory debarment would not apply to the relevant company, concerns have been raised that in those cases where the investigated company enters a guilty-plea for corruption—as was the case with Mabey & Johnson (see below)—it would be barred from such public contracts.
Bribery Bill Provides More Effective Legal Framework
In March 2009, a draft Bribery Bill, was published by the British Ministry of Justice. The bill provides a comprehensive scheme pertaining to bribery in the U.K. and abroad and a more effective legal framework to combat bribery in the public or private sectors.
Committing an offense under the bill can carry significant penalties for both a corporation and its officers. An individual can be punished for offenses in relation to the bill with a period of imprisonment of up to ten years or an unlimited fine, while a corporation can be punished by an unlimited fine.
A Parliamentary Joint Committee considered the draft Bribery Bill and published a detailed report on July 28, 2009. On February 8, 2010, the bill went through a third reading in the House of Lords and was presented to the House of Commons on February 9 for the first reading. At this point, the date of the second reading is yet to be confirmed.
New Offenses of Bribery
The bill sets two general offenses of bribery relating to all functions of a public nature and all activities connected with a business, trade or profession, in the U.K. or abroad. These involve bribing another person by offering, promising or giving of an advantage and being bribed by requesting, agreeing to receive or accepting an advantage. The bill also sets one specific offense of bribery of a foreign, i.e., non-U.K., public official that closely follows the requirements of the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions.
Senior Officer Connivance
The bill provides that if any of the offenses above are proved to have been committed with the consent or connivance of a senior officer of a corporation, that person (as well as the corporation) is guilty of an offense. As there can be a large number of people in an organization who would be caught by the definition of "senior officer" in the bill, this could potentially be very wide-reaching.
Failing to Prevent Bribery Offense
The bill also introduces a new offense of "negligently failing to prevent bribery." This offense can only be committed by a commercial organization (which, for the purposes of the bill, is a corporation or partnership either formed in the U.K. or carrying on business in the U.K.) . Under the bill, the offense is committed when (1) a person performing services for the commercial organization bribes another person, (2) the bribe is in connection with the commercial organization's business, and (3) another person connected with the organization who has the responsibility of preventing bribery, negligently fails to prevent the bribe. Note that if there is no such "other person," the responsibility is deemed to be that of any senior officer of the organization.
A defense to a charge of negligent failure to prevent bribery may be available where the relevant commercial organization can demonstrate that it had adequate procedures in place to prevent bribery being committed on its behalf. No guidance is currently available on what will constitute "adequate procedures" for the purposes of the bill. However, this defense would not be available where the negligence is that of a senior officer of the organization. In other words, the bill reemphasizes the significance of in-house comprehensive compliance procedures. This is also evident in the SFO's guidance where the SFO expressly states that in the context of the offense of negligent failure to prevent bribery it will be looking specifically for "evidence of adequate procedures to assess how successful the corporate has been in mitigating risk" and at "the culture within the corporate."
Prosecutions and Litigation Move Forward
The SFO's self-reporting initiative was recently put to the test in a case brought against a British supplier of steel bridging—Mabey & Johnson Ltd (M&J). M&J voluntarily disclosed to the SFO that it paid bribes in order to be awarded public contracts in Jamaica and Ghana. It also breached UN sanctions as they applied to contracts in the Iraq "Oil-for-Food" program.
This case—the first prosecution and conviction in the United Kingdom of a company for charges of overseas corruption—led to M&J being sentenced to pay £6.6M in fines, reparation and confiscation. In addition, M&J agreed to submit its internal compliance program to an SFO-approved independent monitor.
On October 1, 2009, the SFO announced it intended to prosecute BAE Systems PLC—the world's second largest defense contractor—for offenses related to the payment of millions of Pounds in bribes to secure defense contracts in the Czech Republic, South Africa, Romania and Tanzania. According to media reports, BAE rejected the SFO's £300M offer to settle the case. According to those reports, BAE's advisers consulted the company that £20M was "closer to the mark" and that if the company complied with the SFO's demand it might open itself to lawsuits from shareholders for misuse of funds.
Fighting on Two Fronts: DOJ Involvement Possible
The BAE investigation may also indicate willingness of the SFO to get, or at least strategically threaten to get, other national agencies—particularly the DOJ—involved in an effort to increase pressure on the investigated companies. Thus, in the BAE context, media reports suggest that as part of its strategy to get BAE to settle the case, the SFO is considering assisting the DOJ in investigating BAE's contracts in Africa and central Europe.
BAE is currently under investigation in the U.S. for bribes allegedly paid to secure military contracts in Saudi Arabia. However, to date the SFO resisted U.S. involvement in the investigation of BAE's contracts in Africa and Europe.
Due Diligence Is Essential
Attention to bribery and corruption abroad is continuing to grow in the U.K. Commercial organizations should, as a rule, prohibit bribery in any form and commit to implementing systems to counter bribery.
The form of these systems will vary from organization to organization, and should be implemented following appropriate professional advice. Certain suggested principles and practical guidance on this issue have already been published. Some organizations may find the Business Principles for Countering Bribery publication by Transparency International (www.transparency.org) helpful in this regard.
Even when an organization is structured so as to best prevent bribery and corruption in its day-to-day operations, particular issues can arise in the context of M&A activity. In particular, it is becoming increasingly important to ensure that targeted questions are asked at the due diligence stage as to the existence of bribery and corruption in any target entity. If reasonable suspicion of such activities arises, organizations will need to consider the appropriateness of seeking advice and opinion from the SFO before any purchase is completed. In all cases, appropriate professional advice should be sought at the earliest opportunity.