THE CORPORATE INVESTIGATIONS GROUP SEMINAR
SJ BERWIN
FRIDAY, 12 FEBRUARY 2010
SPEECH BY RICHARD ALDERMAN
DIRECTOR, SERIOUS FRAUD OFFICE
Good morning
I am very grateful to SJ Berwin for the invitation to be with you this morning and to talk about bribery and corruption issues. I regard this as a very important topic for those who work in corporates and for those who advise them.
I want to talk for about 20 minutes and then leave time for a few questions. Although there is much that I could say this morning on all sorts of topics, I want to address three particular issues. These are:
The Bribery Bill
- The approach of the SFO to guidance
- Our approach in enforcing the existing law with a few comments on the recent BAe case.
First - the Bribery Bill.
I am very pleased that this is making such good progress through Parliament. It has just finished the various stages in the House of Lords and has now gone to the House of Commons. I have read the debates in the House of Lords with great interest. The debates have been exceptionally well informed as a result of the very distinguished speakers. I hope that the Bill will go through the House of Commons speedily and will receive Royal Assent before the election. The New Bribery Act will then come into force in stages.
Let me comment on the two aspects of the Bill that are going to have the most impact as far as the SFO is concerned. The first of these is the new corporate offence of failing to prevent bribery with the defence of adequate procedures. There has been discussion about whether the word negligently should be reinstated in the offence. This was rejected in the House of Lords and I think rightly, because I am not sure what the addition of the word would add to the defence of adequate procedures.
This new offence is very important and is a very significant advance on what we had before. We all know that our current law is antiquated and is not fit for purpose in the modern world. Reform is very much needed and the new offence strikes the right balance here. Of course, a great deal depends on what is meant by adequate procedures. I shall deal with this shortly.
The next important provision in the Bill for the SFO is one that seems to have attracted little attention. This is the extension of liability to foreign corporates. If these corporates have some business presence in the UK, then in certain circumstances the SFO will have jurisdiction in respect of corruption by those corporates anywhere in the world. This produces a level playing field. This means that I will have an answer to those ethical UK corporates who complain to me that they are very committed to an anti-corruption culture but that they are being undercut in other countries by foreign corporates which have a very different approach.
I recognise that concern and very much sympathise with it. I want to do something about this so far as I can. I shall have some jurisdiction over these foreign corporates when the new Bill comes into force. What this means, of course, is that we in the SFO will need help and information from corporates, advisors, NGOs and others. It is all very well hearing in general terms that ethical UK corporates are being undercut; what we need is the information and evidence that we can use in order to be able to attack this. Of course, we shall need to know that bribery is involved. There may be other reasons why foreign corporates are obtaining this business. It may be that they are willing to accept a lower return or to take on more risk. What we need to be able to do is to identify those cases where bribery was the reason for the award of the contract.
Supporting ethical corporates in this way is very important to me for this reason. My view of the SFO is that we should be seen as being a support to those businesses in their operations whether here or elsewhere. We share a common objective in making sure that those who use illegal or unethical practices to obtain a competitive advantage over ethical corporates do not flourish and that we put them out of business. I view the SFO as being part of what is needed in the UK to support a competitive environment that operates to high principles. This means a twofold approach; first supporting ethical corporates who want to get it right, and secondly, coming down hard on those whether here or outside the UK who undercut those businesses.
That brings me on to the question of guidance. I mentioned earlier the defence of adequate procedures. Naturally, many have asked for a full definition of adequate procedures. We did our best last July in publishing our Guidelines on how corporates should approach us generally. We also set out what we would expect to see in a well run ethical corporate that subscribes fully to ethical values. I know as well that many other organisations have provided guidance. There is material available for instance from the OECD, NGOs and others.
The Government is committed to providing help to the corporate sector on this. My understanding is that this will be developed in the months following Royal Assent and that the new offence will not come into force until this guidance has been published. I very much welcome this. We need to note though what this guidance from Government is likely to be all about. It will not be a checklist telling people how to avoid a criminal charge of bribery. What it will be instead is guidance on how to go about establishing a true anti-corruption culture. This will be very helpful because, of course, the needs of corporates vary and of course we have to be very sensitive to the fact that what it is reasonable to ask of a large corporate may be totally impractical and disproportionate in the case of a very small one.
In the SFO we are closely involved in the drafting of this guidance. We are also looking to see what changes we need to make to our Guidelines. Let me give you an example of one issue that we are currently working on.
Let me introduce this issue by saying that what we have been looking at of late is the question of what 'good' looks like in terms of an anti-corruption culture. We have looked at this up to now to some extent by reference to the corporate itself and what it does. This is obviously something we need to do. What we are thinking about now though is whether what is 'good' for these purposes varies according to particular countries in which business is done.
Let me put this in context. You will all know that there are very good commercial opportunities in countries where governance, security and corruption are systemic issues. These countries have a very low score on the rating scales published by various organisations. Doing business in these countries presents very different issues to doing business in more developed countries. But the future may well lie in doing business with those countries.
For me, there are certain guiding principles here:
- I do not want the SFO to be seen in anyway as an obstacle to legitimate and ethical corporate activity.
- I also believe very strongly that if our ethical corporates go and do business in these countries, then the overall standard in that country ought to improve to the benefit of ordinary members of society in those countries.
- A number of these countries will be applying for financial assistance from global institutions. Increasingly, that aid is tied to real change on governance. The SFO has been asked on occasions to help with this by going to countries and doing reviews. We are also frequently asked for our views on these countries generally by international institutions. There can be a real incentive to countries to improve if they need international aid.
- While we cannot compromise overall ethical standards, there needs to be considerable sensitivity as to how those standards play out in those jurisdictions.
And so, what does this mean? Let me give you an example. I was approached by the Board of a corporate that is involved in one of these countries. They had a 100% subsidiary. This was becoming very profitable and so they received an approach from the Government. They were told that if they wanted to continue to do business in the country then they would need to transfer a 51% interest in the subsidiary to the family of the President. That gave rise to all sorts of worries for them for obvious reasons. One of these was whether or not the SFO would take the view that payment in this way was a bribe. They were concerned we might investigate and prosecute. I assured them that I would have no intention of doing that whatsoever. I said I recognised the very great difficulty of the moral and ethical position that they were in. This was something they would have to resolve. What I could do though was to give them comfort that whatever they did, we would be sensitive to the circumstances here and would not seek to take any action, even if technically the transfer of the interest in the subsidiary constituted a bribe. They found that very helpful.
Let me now turn to enforcement of the law. There is an important general point here. It would be a serious mistake to think that dealing with corruption is something that needs to be addressed only once the Bribery Bill comes into force. The current law applies and we are enforcing this very vigorously despite the many difficulties with the law.
Let me start by saying that we are getting very much better at enforcement than ever before. The traditional conviction rate of the SFO over the five year period before I joined was about 61%. This went up to about 80% last year. Currently this year, it is running at about 90%. Furthermore, we have obtained at least one conviction in every case that we have taken this year. This is an excellent record. Previously, those charged by us may well have thought that there was a pretty good chance that the SFO would be unsuccessful. Now I think that calculation has changed. Defendants in our cases and their advisors need to realise that the SFO has got very much better at prosecution and that those charged by us are highly likely to be convicted. That is an important message.
We are also getting very much faster at what we do. Traditionally, cases took a very long time from the date when we started the case. Years could be spent in the investigation and then the prosecution. We are getting this time down very considerably. Indeed we have a few cases where we have got the cases to court within months of the time when we took up the case for investigation. We can move quickly.
We are also looking at wider powers than we have ever used before and we have been considering these powers in deciding what to do about corporates as well as individuals. Let me give you some examples.
We dealt with Balfour Beatty through a civil recovery order. This was not a corruption case but involved financial irregularities in an off-shore subsidiary. It seemed to us that civil recovery to recover the proceeds of the irregularities was the most appropriate way of dealing with this case. We also decided that it was unnecessary to prosecute individuals.
Contrast this with Mabey and Johnson. We prosecuted this company last year for two sets of offences. First of all, there was corruption in Ghana and Jamaica. And secondly, there were breaches of UN sanctions relating to Iraq. The Judge pointed out that this was a particularly serious case. I was pleased that the company pleaded guilty to the very serious offences of corruption and breach of sanctions that we brought. In addition to this, we decided that we needed to prosecute some of the senior individuals who were allegedly involved in what had happened. They appeared in court recently and will stand trial in due course.
The next example is one where we reached an agreed civil recovery order against AMEC in respect of financial irregularities. In this case, unlike Balfour Beatty, we decided that we needed to investigate the role that various individuals had played in this.
We have also started proceedings against Mr Dougall, the former Vice President of De Puy International, a UK subsidiary of the major US corporate Johnson & Johnson. He is being prosecuted for his alleged role in paying bribes to Greek health care officials to buy medical devices.
Of course, there is also BAe and the global settlement there. I shall provide a few observations on BAe in conclusion
What you will see, therefore, from this activity is a choice of tools that we use in particular cases against corporates and individuals depending upon our assessment of the seriousness of what has happened and the overall public interest. Sometimes, these factors will point towards a prosecution; sometimes they will point either in favour of a civil resolution or indeed the SFO simply concluding its investigation. Professional advisors I know are following these developments very closely and will be in a very good position to assist their clients with advice on the likely approach of the SFO in particular circumstances.
Prosecution will continue to be a very important part of what we do and we shall continue to do it well. Nevertheless, I remain firmly of the view that while it is an important tool for us it is not the only one. In the context of corruption, I want to see changes of behaviour so that corporates move to a modern anti-corruption culture. Prosecution may be needed in some cases but there will be many where it is unnecessary. This is why the SFO published guidelines last July on how corporates should approach us when they discover corruption issues.
I was very pleased with the warm welcome that these guidelines received. I have been particularly struck by the readiness of corporates to come and talk to us, whether about general issues or particular problems, since those guidelines were published. The feedback I have received has been that the SFO is regarded as being pragmatic and sensitive to commercial issues. We are able to come up with innovative solutions. We have been receiving praise from corporates and advisors for our approach.
I have spoken on various occasions about why corporates should be using our guidelines in coming to us. There are lots of advantages. Someone said to me though that there seems to be little downside in not coming to the SFO and in hoping that we do not find out what has happened.
I could give you a number of reasons why I think that that would be wrong. Let me though just give you one. Which of you would like to go and visit your CEO and CFO in a police station where they are being held following arrest on money laundering charges. Those charges will be based upon decisions by the CEO and CFO on your advice that disclosure will not be made to the SFO and that the benefit of the corruption will therefore be retained within the corporate. I can imagine some difficult discussions.
I do not think that I could conclude this speech at this particular time without offering a few thoughts on the very recent BAe outcome. This has rightly given rise to much interest and much discussion. People feel very passionately about these issues and rightly so. This is not the end of the process because BAe will be standing trial before the Crown Court on the issue relating to Tanzania and will be pleading guilty. As in any other guilty plea, Counsel will be explaining the facts to the Judge and Counsel for the company will enter a plea in mitigation. I am sure that there will be much interest in the hearing.
Let me though just offer you a few thoughts about what has happened.
- First, this was very much a team effort by the Department of Justice in the US and the SFO in order to produce a global settlement. We worked very hard with the DOJ over a period of many months over this. The overall settlement of some £286 million was achieved as a result of the joint efforts of the DOJ and the SFO. The SFO could not have achieved this without the DOJ and the DOJ have acknowledged publicly and privately that they could not have achieved this result without the involvement of the SFO. The first lesson is therefore that the DOJ and the SFO work very well together.
The second lesson is that global settlements can be achieved. This is the first time that we have been able to achieve anything of this nature. In doing so we had to address very many legal issues about the US system, the UK system and how those systems relate to each other. Nevertheless, innovative solutions can be found to these problems as a result of the skill and ingenuity of the many excellent people in DOJ and the SFO.
- The last lesson is a simple one. If we think we are right, we do not give up. There are many who thought that the SFO investigation would come to nothing either because we were unable to find evidence or because of a lack of will and commitment on the part of the SFO to continuing with such a high profile case. Those who said that were wrong. Clearly there were moments when I had anxious thoughts about the investigation but I continued to take the view that what we were doing was right. This means that both I and the SFO will continue to pursue cases when we think it right to do so but that we are always open to appropriate solutions. I believe that what happened in BAe has demonstrated that.
