Fraud and financial crime conference The battle against bribery and corruption Patrick Rappo, trustee director Friday 3 November 2017 WHO WE ARE AND WHAT WE DO We are a respected, influential and independent voice of the anti-fraud community. We seek to make a tangible, practical difference in the fight against fraud and financial crime by championing anti-fraud best practice and helping everyone to increase their fraud resilience and risk awareness. We lead the drive to improve fraud awareness, understanding and resilience. 1
FREE ONLINE RESOURCES PERCEPTIONS TI corruption perceptions index 2
LOCATIONS Chinese public officials were the alleged recipients of bribes in nearly 100 enforcement investigations or concluded cases: The next highest number of enforcement actions involved Iraqi officials Followed by officials from Nigeria, Brazil, India, Russia, and Indonesia (Trace International Global Enforcement Report 2015) INDUSTRIES US ABC enforcement 1977-2015 (Trace Global Enforcement Report 2015) Industry: Number of cases: Jurisdictions of the company or individual: Extractive Industries 43 145/199 cases brought against US Companies, citizens: 73% Manufacturer/Service Provider 33 54/199 cases brought against non-us Companies, citizens: 27% Aerospace / Defence / Security 32 Of the 54 cases brought against non-us Companies, citizens: Health Care 22 The UK made up the highest number, 9, 16% Transportation / Communications 16 72% were from Europe (& UK) Engineering / Construction 14 20% Asia-Pacific Agriculture / Food 13 6% Americas Technology / Software 11 2% Africa Financial Services 7 Consulting / Advertising / Other 5 Retail 3 Education / Publishing 1 Entertainment / Film 1 Non-Profit 1 3
US FCPA ENFORCEMENT TRENDS US FCPA ENFORCEMENT TRENDS 4
ANTI-CORRUPTION STANDARDS OAS Convention 1996, 33 parties e.g. US, Argentina, Chile, Mexico, Panama, Peru, OECD Convention 1997, 41 parties e.g. US, United Kingdom, Colombia, Russia, South Africa Council of Europe Criminal Law Convention 1999, 42 parties e.g. UK, Albania, Azerbaijan, Russia, Turkey, Ukraine UN Convention against Corruption 2004, 178 parties e.g. US, UK, Indonesia, Panama, Democratic Republic of Congo, Nigeria, South Africa, Uganda ANTI-CORRUPTION LEGISLATION Key ingredients 1. Make active and passive bribery illegal: Offer, promise or give any advantage request, agree to receive or accept any advantage 2. Make public sector and private sector bribery illegal No exception for small bribes / facilitation payments 3. Control liability: Make company responsible for employees / subsidiaries / agents Corporate criminal liability or regulatory liability 4. Extra-territoriality & significant penalties (including fines / imprisonment) 5. Recover assets / provide compensation 6. Incentivise whistle-blowers and provide protections 7. Incentivise compliance, co-operation, self reporting & settlements 5
UK ANTI-CORRUPTION STRATEGY First UK cross-governmental strategy 66 action points Overarching themes: Raise global awareness of anti-corruption National and international co-operation Civil society, business and Government working together Using enforcement tools better (DPAs, UK BA, POCA, AML) New intelligence team: to collate / share data, globally New central investigation unit: to investigate cases & improve quality Single reporting mechanism: to ease and increase reporting Support whistle-blowers and consider incentives: to increase reports UK ANTI-CORRUPTION SUMMIT Corruption is at the heart of so many of the world s problems. We must overcome it, if our efforts to end poverty, promote prosperity and defeat terrorism and extremism are to succeed. Global Declaration Against Corruption 12 May Commitment from 40 attendee countries to tackle corruption: Transparency of beneficial ownership, public procurement and tax transparency Intelligence sharing International co-operation Improved ABC and AML and asset recovery laws Country statements from: Ghana, Kenya, Nigeria, South Africa, Tanzania, Tunisia, Turkey Specific UK commitments: Beneficial ownership registers Abolition of bearer shares Consider altering corporate criminal liability; failure to prevent tax evasion; failure to prevent economic crime offences 6
US FCPA AND UK BRIBERY ACT US Foreign Corrupt Practices Act First foreign bribery statute to be enacted 1977 Covers public sector bribery Facilitation payments exempt Respondeat superior DoJ/SEC Resource Guide No compliance programme defence Significant enforcement Billion $ fines UK Bribery Act Effective July 2011 Covers both public and private sector Facilitation payments not exempt Directing mind & Strict liability MoJ Guidance Adequate procedures defence Limited convictions Rolls Royce 497M UK BRIBERY ACT Effective 1 July 2011, said to be the most robust ABC legislation. Prohibits 1) Bribery of public officials (broadly construed) 2) Bribery of private sector or commercial business, and 3) Facilitation payments Creates new corporate offence of Failure to prevent bribery Strict liability for acts of employees/subsidiaries/3 rd parties (and other associated persons ) Extends jurisdiction to non UK corporates who carry on business or part of a business in the UK Having a best practice anti-bribery compliance program can amount to the adequate procedures defence. 7
UK BRIBERY ACT: SECTION 7 Section 7 Failure by commercial organisation to prevent bribery: Relevant commercial organisation Liable for person associated Who pays bribe under sections 1/6 Intending to to obtain/retain business or an advantage in conduct of business for the commercial organisation Relevant commercial organisation: is one that carries on business or part of a business in the UK Associated person: is a person who performs services for or on behalf of C Defence: if have adequate procedures (on the balance of probabilities). UK BRIBERY ACT: ADEQUATE PROCEDURES 8
WHISTLEBLOWERS Olympus (Manufacturing) Japan. Accounting fraud. GSK (Pharma) China ( 300M fine). Corruption investigation. Rolls Royce (Aero engines) ( 497M fine). UK Public Interest Disclosure Act 1998 Protects employees who disclose certain types of information, e.g. illegal activity From retribution from employers e.g. dismissal Can take action against employer / obtain compensation US Dodd-Frank Act 2010 Securities and Exchange Commission (SEC) reward whistleblowers who voluntarily provide original information regarding securities violations 10 30 % of monetary recovery of over $1 million that the SEC obtains from an offending party through enforcement actions. MANDATORY REPORTING Proceeds of Crime Act 2002 Entities operating in the UK and their employees, who participate in money laundering activities, are subject to the Proceeds of Crime Act 2002 (POCA) This requires businesses to monitor for and to report when there is knowledge or suspicion or reasonable grounds to suspect money laundering providing them with a defence to money laundering offences: Creates three primary offences of money laundering namely: 1) concealing, disguising, converting or transferring the proceeds of criminal conduct; 2) becoming concerned in an arrangement to facilitate the acquisition, retention, or controlling of, or to otherwise make available, the proceeds of criminal conduct; and 3) acquiring, possessing, or using the proceeds of criminal conduct. 9
MANDATORY REPORTING Proceeds of Crime Act 2002 Creates three secondary offences, namely: 1) failing to disclose any of the foregoing offences; 2) tipping-off persons engaged in money laundering or terrorist financing as to any investigation; and 3) prejudicing an investigation in relation to money laundering or terrorist financing offences. Fines can be imposed on a company and its directors, managers, and officers. Individuals can also be imprisoned for up to 14 years for committing a primary money laundering offence, or for up to 5 years for committing a secondary offence. UK DERRED PROSECUTION AGREEMENTS Crime and Courts Act 2013: in force Feb 2014; apply retrospectively 4 DPAs agreed: Standard Bank, XYZ, Rolls Royce, Tesco Only for economic/financial crimes by organisations Only for SFO and CPS: not regulators/investigators; main prosecutors Do not alter extra-territoriality provisions of UK law Do not alter UK corporate criminal law Voluntary, by invitation of the prosecutor, judge decides: reasonable suspicion offence committed and public interest test Do not have to admit guilt. 10
ENFORCEMENT TRENDS Further legal and procedural changes Corporate criminal liability (failure to prevent); beneficial ownership registers; AML; EITI Transparency in procurement exercises; integrity pacts; high-level reporting mechanisms International cooperation re intelligence and evidence sharing E.g. Petrobras (Brazil, US, Norway, Sweden); GSK (China, UK) Enforcement investigations and prosecutions: Increase in global investigations, charges against individuals and companies e.g. UNAOIL, Petrobras (oil and gas), FIFA (sport), GSK (pharma), Hitachi (power), Och Ziff (private equity) Sharing between prosecutors and regulators e.g. LIBOR, SNC Lavalin, OUP, Goodyear Incentives for good compliance, self-reporting and settlements US DoJ Pilot Program (50% discounts) UK DPAs (Standard Bank; XYZ cases); Australia and France considering introducing DPAs Incentives/Protections for whistle-blowers E.g. Dodd Frank Act 10-30% of recovered assets; Olympus, Rolls Royce, UNAOIL Scrutiny of gatekeepers SARs, action against compliance officers, company officers and directors, auditors ENFORCEMENT TRENDS Flurry of corporate activity pre-uk BA and in its immediate aftermath to update policies and procedures Lack of prosecutorial activity as UK BA not retrospective in effect Limited number of cases actually undertaken 2011-2016: Brand Rex settlement Scotland Standard Bank DPA Sweet Group Prosecution Those cases limited to companies where who either have: No or woefully inadequate policies and procedures Masses of guidance from prosecutors, NGOs, industry organisations But very limited court guidance as to what is adequate. 11
ENFORCEMENT TRENDS Associated person is an employee, agent or other person, who performs services for or on behalf of the relevant body. In the Standard Chartered case, Stanbic Tanzania was seen to be the associated person, even though: It was a sister company in respect of which Standard Bank had no interest, oversight, control or involvement and The activities carried out by Stanbic, under the joint mandate, designed to benefit both parties, was sufficient to amount to performing services for or on behalf of Standard Chartered. ENFORCEMENT TRENDS Intention either to obtain or retain business for the commercial organisation, or to obtain or retain an advantage in the conduct of business for the commercial organisation. Stanbic, as a joint beneficiary of the mandate and not simply an agent, should be presumed to have been seeking business benefits for itself in the first instance any intention to benefit Standard Bank being a secondary goal nevertheless the court supported the view that this was enough to intend to benefit the commercial organisation a wide interpretation of this intent element. 12
CORRUPTION INDICATORS Abnormal cash payments Abnormally high commission payments Inflated invoice prices Unexplained expenses Lavish gifts or overseas trips provided Payment of education fees Payments routed through offshore accounts with no apparent business links Payments made via 3 rd party countries Urgent or advance payments for bringing forward orders CORRUPTION INDICATORS Agents with little or no subject knowledge Agents/intermediaries with government connections/local expertise Lack of evidence of work done by agents Little evidence of due diligence or independent oversight: Of selection process Of work carried out Of value for money Bypassing normal tendering or contract procedures. 13
NO COMPLIANCE PROGRAMME CAN STOP EVERYTHING. AN EFFECTIVE PROGRAM SHOULD AIM TO: PREVENT, DETECT, REMEDIATE PREVENT Regularly risk assess, risk mitigate, review and update Due diligence - Och Ziff (DRC), Pre & post acquisition checks Goodyear (Kenya/Angola)) Create a culture of compliance - Tone from the top / Message from the middle Not just for ABC, but AML, fraud, sanctions and other compliance issues DETECT Incentivise/train employees agents & intermediaries to be ethical, report internally Audit, Audit, Audit - Companies must investigate promptly & thoroughly 1) Cash payments, gifts (Akamai; Nortek (China)) 2) Local content /BEE (Hitachi; Gold Fields (RSA)) 3) CSR/charity 4) Customs/immigration/licensing 5) Security 6) Freight/logistics (Bertling (Angola) 7) 3 rd parties (agents, govt officials, political parties, vendors) (Johnson Controls (China) REMEDIATE Encourage early liaison with the compliance team and external experts Build up a positive & proactive relationship with prosecutors and regulators. Consider self-reporting to the authorities and early resolutions Q&A SESSION Patrick Rappo Director at Fraud Advisory Panel Partner at Steptoe & Johnson, International Regulation & Compliance Group, 02073678089 prappo@steptoe.com 14