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World Bribery and Corruption Compliance Forum

14 September 2010

WORLD BRIBERY & CORRUPTION COMPLIANCE FORUM 

14 September 2010 

SPEECH BY ROBERT AMAEE

 

I am grateful for the opportunity to talk to you this afternoon about a topic that is both historic and compelling, namely the impact of the Bribery Act on companies conducting business in the United Kingdom and how we at the SFO intend to help shape the enforcement landscape to bring about the behavioural change that the Act makes possible.

There is no doubt that we now stand on the cusp of a revolution in the way that the United Kingdom fights bribery and corruption. Over the last 12 months or so the SFO has significantly stepped up its efforts leading to a whole raft of cases that we've now brought before the courts from Balfour Beatty, AMEC and Mabey & Johnson through to the more recent cases of Innospec and Dougall, dealing with a range of novel and difficult issues on which we are pleased to be receiving guidance from the courts.

I will address some of these issues today including some questions that I am frequently asked such as: what is the future of plea bargaining? Will the SFO enter into any more global settlements? And I will of course talk to you about the Bribery Act and the approach of the SFO to enforcing it.

 

BRIBERY ACT

We now know that the Bribery Act will sweep into force in the early part of 2011 and that it brings with it a fresh perspective on how we as prosecutors can tackle the damage that bribery causes across the globe and in particular in the poorer regions of the world.

Whilst there has been understandable concern expressed by some at the delay in the implementation of the Act, the SFO welcomes the opportunity this provides for businesses to digest the significant new provisions of this Act.  It is important that companies have the opportunity to examine their business practices and to take any remedial action well in advance of the Act coming into force.  After all the Act is not designed to snarl decent law abiding commercial organisations but is aimed at bringing about a self reinforcing cycle of behavioural change within the corporate world.

Bribery is a matter that the Courts are taking ever more seriously.  Anyone who has read the judgements in the recent SFO cases of Dougall and Innospec will have been left in no doubt as to the reception that awaits any wrongdoers at court especially once the Bribery Act is in force.  To quote from LJ Thomas in the case of Innospec:

"There can be no doubt that corruption of foreign government officials or foreign government ministers is at the top end of serious corporate offending both in terms of culpability and harm.  It is deliberate and intentional wrongdoing.  It causes serious harm"

All three judgements have set out the UN Secretary General, Kofi Annan's words in the foreword to the UN Convention against Corruption 2004 describing Corruption as an insidious plague, an evil phenomenon and a key element in economic underperformance and a major obstacle to poverty alleviation and development.

It is clear that the courts will be looking to pass on stiffer sentences to the real offenders in this field.  Again to quote from LJ Thomas:

"The courts have a duty to impose penalties appropriate to the serious level of criminality that are characteristic of this offence.  For example one of its many effects is to distort competition; the level of fines in cartel cases is now very substantial and measured in tens of millions.  It is self evident that corruption is much more serious in terms of both culpability and harm caused".

Not only does bribery distort markets, it leads to a wider loss of trust in the fabric of government and the administration of law. And as the Attorney General said this morning, "it is morally repugnant and it is quite simply wrong".

With that context in mind, let me talk to you now about our view of some of the key provisions of the Bribery Act that we think we will be keeping us busy at the SFO:

 

SIGNIFICANT PROVISIONS

The main problem confronting prosecutors in this country today is how to put companies in the dock, together with those individuals who have behaved corruptly for their benefit.

In order to indict a company, we need to prove that at least one individual who was a 'controlling mind' of that company had been involved in the corruption.

In practice that means someone at or very close to Board level. You can immediately appreciate the difficulty in proving that especially in global companies where much of the decision making is devolved away from the Board. 

 

THE CORPORATE OFFENCE - section 7

The new Act sweeps away this requirement and introduces a new corporate offence of failing to prevent bribery.

This is a novel concept under English law and one which we are likely to see more of the years to come.

This makes a commercial organisation criminally liable if one of its employees, agents or subsidiaries bribes another person, intending to obtain or retain business or an advantage in the conduct of business for the company.

It can be seen at once that this is a huge shift away from the current 'controlling mind' law.

The new act also significantly extends the jurisdictional reach of this offence.

Section 7 (5) (b) the corporate offence may be committed by a company wherever incorporated which carries on a business or part of the business in the UK

Section 12 (5) the corporate offence can be committed irrespective of whether the acts or omissions which form part of the offence take place in the UK or elsewhere.

In practise, a company registered anywhere in the world and having part of its business in the UK could be prosecuted for failing to prevent bribery on its behalf wherever in the world that bribe was paid. 

This is a very significant addition to the SFO's powers. 

 

THE DEFENCE OF ADEQUATE PROCEDURES

Companies are now at greater risk than ever before of finding themselves in court facing allegations of corruption and the business community is understandably anxious to understand what steps can be put in place to offer protection.

There is some comfort for business though, in the form of a defence under section 7 and that is if the company can itself prove (on a balance of probabilities) that it had in place 'adequate procedures' designed to prevent persons associated with it from undertaking such conduct.

 

GUIDANCE

The Act imposes (section 9) a requirement on the Secretary of State to publish guidance that companies can put in place to prevent persons associated with it from bribing.

You will have seen from the Ministry of Justice's announcement in July that this guidance is now expected in the early part of 2011 and will follow a period of consultation which, as the Attorney General confirmed this morning, commenced today. There will also be a series of awareness raising events to follow.

That certainly seems to me to be a perfectly proper timeframe for the implementation of such a significant piece of legislation and one which honours the commitments given in March by the then government during the passage of the Bill, where the former Lord Chancellor said:

'The guidance will be issued before the Bill [Now Act] comes into force…and we will ensure that businesses and organisations representing them have time to digest it before the sections of the Act to which it relates come into force''.

It was also recognised at the time that organisations

'… must be able to develop procedures appropriate to their own circumstances and business sectors, which take into account their size and the particular risks to which they might be exposed'.

The guidance is not expected to create prescriptive standards but is intended to set out relevant principles backed up by good practice examples.

As you've heard from the Attorney General this morning, there will also be joint legal guidance from the Director of the SFO and the DPP to the prosecutors dealing with the essential legal elements of the offences and the public interest considerations.   

But what is abundantly clear is that the business community need not wait for such guidance. Many companies I speak to already have in place exemplary procedures which demonstrate a responsible commitment in this area. In addition, there is wealth of detailed and constructive advice from numerous respected sources, including the OECD and Transparency International and others.

And reading such material, it is clear to see that the golden thread running through all of it is common sense. Common sense underpinned by two factors: Good clear auditable system of records and above all complete transparency.

There is no doubt that you as business leaders know your business better than anyone else. Better than the Government, better than any prosecutor. You will know the risks you face and you will know where you need to concentrate your resource and efforts to ensure you live up to your own high ethical standards.  

But let me say a few words about three particular areas of risk that I am asked about most frequently:

 

1. INTERMEDIARIES

Many of the companies I speak to have identified their relationships with Intermediaries (agents, distributors, contractors) as their number one area of focus when it comes to ensuring readiness for the Bribery Act. 

We recognise that many companies rely on intermediaries, often based in high risk jurisdictions, to open doors for them.  We also recognise that some companies have in the past chosen not to ask too many questions about how those doors are being opened by those intermediaries.  Often either not conducting sufficient due diligence or ignoring clear and cogent warning signs.  Under the Bribery Act, that simply will not do. 

I know of a number of very respectable companies who tell me that they are now very sensibly re-vetting their entire intermediary base in anticipation of the Bribery Act, conducting the level of due diligence they perhaps should have undertaken in the first place, and some have already terminated relationships with Intermediaries who are not able or not willing to provide the reassurances that are being sought.

And the SFO is taking this very seriously and I will tell you that we are closely monitoring and collecting information on intermediaries operating on behalf of British companies in certain high risk jurisdictions.  We would certainly like to hear from companies who may have concerns about particular intermediaries they may have come across.

In the end it comes down to two simple questions:  The Board should ask where are we doing business? and how are we doing that business?  And if the Board does not like the answers, it should be prepared to take the business elsewhere. 

 

2. JOINT VENTURES

Similar considerations apply to the second area of risk, namely joint ventures and the type of companies that you chose to go into partnership with. 

There are certain sectors where joint ventures are routine with companies having varying degrees of interest and control in the joint venture.  We appreciate the concerns that have been raised by some companies over the degree of influence they may have on some joint ventures. 

It is however in the interests of your company to ensure that you do not go into partnership with companies who are not willing to be open and transparent with you and are not willing to demonstrate their commitment to a code of conduct that matches your own.

Whilst it will undoubtedly be difficult and potentially costly for companies to extricate themselves from existing joint venture agreements, companies would be well advised to start the process of assessing their risk right now and taking appropriate action, no matter how painful. 

It will of course be more straightforward for companies to vet any new proposed joint venture agreements to ensure compliance with the forthcoming Act and to ensure they have, for example, the appropriate audit rights and relevant termination clauses in place. 

3. SUPPLIERS

It is clear that under the Act, the actions of your suppliers have the potential to expose you to liability under section 7.  I know, from speaking to Boards of Directors that this is another area that companies are taking very seriously.  Not only because of the potential liability but also because of the knock on effects on your business if one of your suppliers were to be targeted by the law enforcement authorities.  

If a supplier, which forms a crucial part of your supply chain, is targeted by the SFO and perhaps shut down, even for conduct not related to your business, your whole supply chain could be at risk of falling down.  The exposure could be even more significant when considering suppliers who are not UK based and may therefore be subjected to enforcement action by authorities overseas. 

Companies must therefore vet their supply chain properly, not only to ensure compliance with the Act but as a matter of simple business continuity in the era of the more readily enforceable bribery laws. 

Before I move on to talk to you about the approach of the SFO to enforcing the Bribery Act and at the risk of adding more to your list of concerns under the Act,  let me say just a few words about the section 6 offence, Bribery of Foreign Public Official.

 

FOREIGN PUBLIC OFFICIALS

This is clearly an area of concern for anyone working closely with Foreign Public officials.  It will also be an area of concern for companies with joint ventures where foreign public officials are involved.

The section 6 offence neither requires the intention that the FPO will improperly perform his duties, nor for the payment to be made corruptly. 

Simply what is required is: 

•           An intention to influence the FPO in his official capacity; and

•           An intention to obtain or retain business, or an advantage in the conduct of business.

There are many questions yet to be answered about the precise ambit of this section.  What is clear though is that the Act is not designed to catch you out and to criminalise legitimate business conduct. It is designed to put a stop to unscrupulous business practices for example such as conferring significant advantage to a FPO in the run up to the award of major contract or the systematic offering of facilitation payments. And you can be certain that when such criminality is brought before the courts, the judges will undoubtedly apply as a wide an interpretation of the section as possible to ensure the appropriate misconduct falls within its ambit.

Looking for a moment at the wider question of corporate hospitality, a degree of reassurance was provided during the passage of the Bill (now the Act) when the then Government (Lord Tunicliffe) acknowledged that corporate hospitality is an accepted part of modern business and it was not seeking to penalise expenditure on corporate hospitality for legitimate commercial purposes.

But it was equally recognised by Parliament that lavish corporate hospitality can be used to secure advantages and the Act must be capable of penalising those who use it for such purposes.

 

THE SFO APPROACH TO THE NEW LEGISLATION

The SFO is the UK's principal enforcement agency for overseas corruption and we hold the UK's one and only anticorruption register which stores allegations of UK entities paying bribes overseas. 

We will also be the lead agency charged with enforcing the provisions of the new Act. We can now institute proceedings under the Act without the requirement to seek the consent of the Attorney General (section 10). The Director of the SFO can now consent to a prosecution.

What will be our approach to such enforcement?

There are two strands to our approach to corruption issues. 

The first is active engagement with ethical corporates.  At its simplest we are talking about engaging with companies who pride themselves on high ethical standards and who are doing their best to establish an anti-corruption culture.  Let me say at once that we believe that the overwhelming majority of British and non-UK companies fall within that category. 

We are ready to talk to those ethical companies about the strengths and weaknesses of their procedures and to provide as much assistance as we are able to in order to ensure that the highest ethical standards are upheld. 

We recognise that every company is at a different stage in its journey to full ethical compliance and that some companies will be more advanced than others.  What is essential and is something we look for though is a true Board level commitment to improving its culture and maintaining the highest standards.

We find a lot of interest in this approach and I regularly meet with senior officials and Boards of Directors of companies who are trying to find the best way to design and implement an anti-bribery ethos in their organisation. As part of this active engagement agenda, many corporates talk to us about the challenges and the obstacle they come up against in doing business across the globe. We welcome that and I invite you to start that dialogue with me today.

You will of course recognise immediately that once the ethical companies have got their house in order, this has the direct consequence of creating a landscape where the second category of company, those who have no interest in playing by the rules, will find it much more difficult to operate and will be much more readily exposed.

This leads me to the second strand of our approach. The SFO takes a vigorous approach to those corporates who believe that using corruption gives them a business advantage over their ethical competitors. It is simply not right for the ethical majority to be put at a disadvantage by those with unethical practices wherever in the world the bribery takes place. The extension of our jurisdiction under the new Act to foreign corporates and their activities abroad in certain circumstances will certainly provide us with means to effectively reinforce this message. 

We believe that the criminal courts are the place for the real offenders in this field and when we identify these cases, a prosecution will inevitability follow.

But it needs to be recognised that effective enforcement does not just equate to criminal convictions.

It always has been and always will be a matter for our discretion whether criminal proceedings are appropriate in the circumstance or some other means of disposal such as a civil sanction in the form of a Civil Recovery Order may be appropriate.

In exercising that discretion we will of course take account of all the circumstances (sufficiency of the evidence, public interest considerations, concurrent jurisdiction matters and the implications of debarment from bidding for Government contracts under Article 45 of the EU Public Sector Procurement Directive 2004); but there are two overarching factors which are likely to play a significant part in the exercise of our discretion.

The first is whether a company has self reported to the SFO a matter which is not yet under full investigation.

 

SELF-REPORTING

In spite of some suggestions to the contrary, self reporting remains a very significant part of the SFO's strategy for dealing with corruption cases. It is in everyone's interests that corporates come forward and make a full disclosure of corruption issues and offer full restitution and remediation with the prospect, at least, of being considered for a civil resolution.

Just as in US, there are no unconditional guarantees here.

The cases of Mabey & Johnson and Innospec stand testament to the fact that in certain cases the level of criminality is such that even where there has been a self referral and full cooperation, a criminal prosecution is the only proper outcome. 

The second overarching factor we will consider is what existing procedures a company had in place to avoid the risk of corrupt activity occurring.  If those procedures are in place, and the wrongdoing was an isolated instance which had slipped through the net and if it could be demonstrated that the company had taken responsible steps to strengthen any weakness in their system to prevent a recurrence, this would play a part in the exercise of our discretion.

So, drawing these two points together, and again quoting the former Lord Chancellor:

'The message is clear: companies can expect less severe treatment if they approach the authorities as soon as they discover corruption and if they put in place strong measures… …to deter misconduct in the future'.

Let me strike a cautionary note at this point: we are getting much better at finding out about corruption for ourselves.  We have a newly bolstered intelligence team actively trawling and cataloguing new areas of concern.  We are also benefiting from an increasing level of information sharing and cooperation between different prosecuting and regulatory agencies both in this jurisdiction and overseas and of course we're receiving information from individuals who wish to tell us about their own misdemeanours or that of others as well as information from professional advisors pursuant to their obligations under the money laundering legislation. 

Those in the regulated sector, including accountants, bankers, financial advisers, will be vulnerable to prosecution themselves for failure to report instances where they suspect or should suspect money laundering, by another, including their (corporate) client. (s 330 POCA).

And of course for the purposes of the Proceeds of Crime legislation, once bribery has occurred, there will be a distinct likelihood of money laundering in relation to the "profits" derived from any business secured through the payment of bribes.

You will recognise at once that this factor alone creates a powerful incentive for professional advisors to lodge reports to the authorities, thereby exposing unscrupulous operators.  And let me tell you that we expect these types of reports from professional advisors to increase significantly with the advent of the Bribery Act. 

And if by such means we discover corruption which a company could and should have self reported, we would regard that failure as being a major negative factor.

 

PLEA DISCUSSIONS

We have had a number of cases before the courts involving plea discussions under the Attorney General's framework for plea discussions and two of these have given rise to some publicity.

The first is Innospec. This is in many ways a landmark case.  It is significant first of all because of the praise that LJ Thomas gave to the SFO for our vigorous approach in dealing with corruption.

"The Director of the SFO has commendably adopted a vigorous policy of investigating corruption and other serious crime whilst at the same time encouraging co-operation by companies and individuals in the investigation of such serious criminality and the provision of evidence against others" 

The case is also notable for LJ Thomas's comments that corruption of foreign Government officials is at the top end of corporate offending and should be taken very seriously by English courts with fines being high and reflecting the US model. He also believed that asset forfeiture in these cases should be the value of the contract obtained through corruption. 

The judge did of course also comment on the way in which we had carried out the plea discussions. It is clear from the Attorney General's guidance that there should be a joint submission to the court on sentence setting out the aggravating and mitigating factors and the appropriate range of sentence.  And that it is ultimately for the court to reach a decision on the appropriate penalty.

In this case, LJ Thomas decided that the prosecution (SFO) had in fact gone too far in the joint submission and that a sentence had been agreed with the defendant.  We respect the judge's comments and we will ensure that we take note of the guidance in what we do in the future. 

Let me talk now about the next recent case involving corruption in Greece. That is the case of Robert Dougall whose prison sentence was suspended in recognition of the cooperation he had provided to law enforcement agencies including the SFO.  The LCJ presided over the Court of Appeal hearing in that case and again stressed that overseas corruption is a very serious offence and made it clear that in his view that the maximum term of imprisonment currently permitted is too low.

We explained the importance of whistleblowers in the joint sentencing submission and the importance of giving them an incentive to come and co-operate with us. The LCJ thought that we had gone too far in that submission and said that this was advocacy and so was not acceptable from the prosecutor. Clearly, we accept the criticism and in future cases we look to draft the joint sentencing submission in a manner that avoids advocating a particular outcome.   

This is an evolving area and we are at the first stages of that evolution.  There are a lot of issues arising which need to be clarified. What will remain the same though, is our commitment to using the plea negotiation framework as the basis for dealing with suitable cases.

 

GLOBAL SETTLEMENTS

Global settlements in cases of concurrent jurisdiction are new and, until recently, judges have not had to consider the issues.  Innospec was our first global resolution and we are, as we speak, applying what we've learned from that case to the future cases that we will be bringing before the court. 

These resolutions are in everybody's interests. Companies want this in order to be able to close the chapter and start the process of rebuilding their reputation. It is in the interests of the authorities in each jurisdiction as well to reach a swift and just resolution and to move on to the next case.

With our extended jurisdictional reach under the Bribery Act, it is inevitable that we will have more and more cases where we will need to take account of the interests of other jurisdictions in any resolution we seek to reach.

Something that is very clear though is that these resolutions are subject to the role of the court in each jurisdiction.

In cases of plea negotiations involving pleas of guilty, the judge will be involved in the process because the judge has the final say on whether the pleas are acceptable and on the penalty to be imposed. 

In the case of civil outcomes involving civil recovery orders, a judge needs to consider the application by the SFO and the corporate for the consent order. 

As I make clear at the start of any discussion with companies, the SFO and the company must be able to come to court with a transparent and fully justifiable position and to be prepared to explain every decision made and every action taken.

It is paramount that professional advisers ensure that companies who wish to self report to the SFO are fully aware of these issues and in particular advise their clients that the judges can accept or reject what the parties submit.  This is as true in the US as it is in the UK.   

INDIVIDUALS

The SFO reserves the right to prosecute individuals in addition to corporates or in cases where a civil settlement is reached with a company, the individuals alone. 

Under the Bribery Act we will seek to prosecute those responsible for the criminality of an offence under s.1, 2 or 6.  This could be a rogue individual who has bypassed the company's adequate procedures.  Or it could be that an offence has been committed under s.1, 2 or 6 by the company with the consent or connivance of senior officers who will then be prosecuted alongside the company. 

The SFO proceeds of crime team will also be very interested in examining any such senior officers' potential liability under money laundering legislation.  If money from a corrupt contract is circulating within a company with their knowledge, they could face up to 14 years in prison.

CONCLUSION

The stakes are higher than ever before for senior officers of companies as well as for companies themselves.  The Bribery Act brings about a self reinforcing cycle of behavioural change which will expose the real and persistent offenders in this field.  Under the Bribery Act it is no longer possible for those within a company with knowledge of bribes being paid on its behalf to bury their head in the sand or to look the other way.  If the consequences for the company were not a big enough incentive to take action then the consent and connivance provisions should act as a long overdue sharp wake up call for senior officers.

The best way for you as Directors to protect yourselves and your organisations is to have robustly defined and robustly implemented anti bribery procedures in place with clear ownership from the top of the organisation

It is our expectation that effective anti-bribery procedures will be seen as a 'must have' seal of approval for modern socially responsible business.  And I wholeheartedly welcome that.