Corruption?! slaughter and may April 2008
introduction There is increasing awareness of the fact that (a) UK and other European companies are directly at risk of liability if they engage in corruption overseas and (b) the US Department of Justice and the Securities and Exchange Commission make vigorous efforts in pursuing non-us companies under the Foreign Corrupt Practices Act 1997 ( FCPA ) for corruption overseas. The reasons for this heightened awareness are obvious. The public commitment of politicians is clear. The UK ratified the OECD s Convention on Combating Bribery of Foreign Public Officials on 14 December 1998 and amended English law in 2001 to comply with its obligations under that convention. The US has had equivalent legislation since the 1970s in the form of its FCPA. On 22 June 2006 Tony Blair announced new measures to tackle international corruption, identified as one of the priorities at the Gleneagles G8 summit: African leaders and the heads of the G8 countries were united in identifying the importance of fighting corruption to help reduce poverty in Africa and worldwide. The UK has a responsibility to tackle money laundering and bribery where it stems from our own shores, and to support developing countries in fighting corruption. In addition to these statements of policy, there have been an increasing number of investigations in this area. Significant fines have been imposed in some instances. Notable cases include: > The ongoing controversy over the investigation and allegations in connection with the Al Yamamah arms deals with Saudi Arabia. > The extensive investigations conducted by Siemens in connection with widespread allegations of bribery and corruption: it has reported 1.3 billion, of unclear payments made between 2000 and 2006 and has said it is cooperating with the authorities. At least a dozen countries are reportedly involved. > Fines and penalties imposed by the US authorities include amounts of $19.6m (AB Volvo 2008), $44.1 (Baker Hughes 2007), $26m (Vetco 2007), $15.2m (Statoil 2006); and $28.5m (Titan 2005). There are reportedly 82 on-going FCPA investigations by DOJ/SEC. These examples highlight the financial and reputational damage that can be wrought on a company as a result of its involvement in what might be regarded as questionable practices. The law In theory, the English legal position is easy to express. With deliberate over simplification, it may be stated as follows: > It is illegal to corrupt within England (domestic corruption). 1 1 Common law bribery and statutory offences under the Prevention of Corruption Acts 1886-1916 1 slaugh ter and may
> Since St Valentine s Day 2002, it has been illegal for a British legal or natural person to corrupt abroad (overseas corruption). 2 > It matters not whether the subject of the corruption is the agent of a commercial organisation (e.g. an employee) or is a public official. The English legal position differs from that in the US under the FCPA in a number of respects. First, unlike the FCPA, the English legislation does not have a carve out for so-called facilitation or grease payments (small payments to secure the performance of a pre-existing duty e.g. customs clearance). Second the FCPA has a series of associated offences which give prosecutors wider scope for charging. These include the so-called books and records violations. Third the FCPA is directed at public officials only, whereas the UK legislation covers both public officials and commercial agents. Finally, the UK parent will not be liable for the acts of an overseas subsidiary, provided it has not become tangled up in them the FCPA books and records provisions are wider and can make the parent responsible for failings in its subsidiaries. In addition to the corruption offences there may be other potential criminal law or regulatory offences that could be relevant, including competition law issues and false accounting offences. If your business may have obtained a benefit from suspicious conduct, then you may well be advised to make a report to the Serious Organised Crime Agency under the anti-money laundering legislation. The sentences available for an offence include an unlimited fine for companies and imprisonment for up to 7 years for individuals. This is, of course, besides the reputational damage. The law in practice in England Despite the ease with which the English legal position may be stated, in practice prosecutions even for domestic corruption are rare (statistics show that between 2001 and 2005 there were just 46 convictions under the two main statutes). To date, there have been no prosecutions for overseas corruption under the provisions that have been in effect since 14 February 2002. The UK has come in for serious criticism from the OECD over its lack of prosecutions for offences of overseas corruption. Other Western European countries have prosecuted suspected corruption and the UK s complete absence of prosecutions was described in 2005 by the OECD as surprising, given the size of the UK economy, its levels of exports and involvement in business transactions in sectors and countries that are high risk for corruption. According to published figures, as of early 2007 there were 99 entries by the Serious Fraud Office ( SFO ) on its register of foreign bribery allegations. Of these, fourteen enquiries were underway. Ten of these are being carried out by the SFO. One was in Scotland and the other three were being investigated by the MOD Police working with the SFO. 2 Brought about by Part 12 of the Anti-Terrorism, Crime and Security Act 2001, giving effect to the UK s obligations under the OECD Convention. 2 slaugh ter and may
The substantive English law on corruption, although described very simply above, has also been criticised and is seen as a potential bar to successful prosecutions. A number of Law Commission reports have been published, along with a draft Bill. These have been revised and in late November 2007 a further Consultation Paper was published (a mere 337 pages long). It remains unclear whether the substantive law will be revised. However the Law Commission neatly summarised the criticisms: It is almost universally believed that the current law is in need of rationalisation and simplification. As observed in a recent Government consultation paper the present law is fragmented and out of date and needs to be reformed. The Organisation for Economic Co-operation and Development ( the OECD ) has been highly critical of our present law observing that: it is widely recognised that the current substantive law governing bribery in the UK is characterised by complexity and uncertainty. The OECD has also commented about what it perceives as: a lack of clarity among the different legislative and regulatory instruments in place Criticisms that have been levelled include the difficulty of making out offences against corporate bodies as opposed to individuals, a complete absence of clarity on what corruptly actually means (an essential element of the offences) and various procedural requirements for prosecutions under the different acts. It is perhaps as a result of these weaknesses of the current law that we do not have large numbers of prosecutions for domestic corruption nor any track record at all for overseas corruption, as illustrated by the above figures. Compared to the sort of fines and activity seen in the US, the UK record looks weak indeed. Despite the absence, hitherto, of a strong prosecution culture in the UK in this area, UK and European companies are nonetheless often involved in corruption investigations, either in their home countries, another European country or more likely by the US authorities. It is important therefore for senior management and legal functions in the UK and Europe to be aware of the existence of an exposure to these offences, to consider the need for the company to have a compliance programme in this area, to understand the warning signs to look out for and, if the unacceptable happens, to know how to react to an issue once identified. Compliance programmes Most companies have general business ethics policies which include prohibitions on winning business through corruption. This is no surprise. Fewer companies, however, have fully blown corruption compliance programmes, mainly those with exposure to higher risk sectors and countries. It is sensible for companies to review, periodically, their spread of business by type and geography and to consider whether a detailed compliance programme should be implemented. 3 slaugh ter and may
A robust compliance programme will include the appointment of a sufficiently senior executive to oversee the programme, a reporting mechanism for employees to share any concerns without fear, clear support from the highest levels of the organisation, written policies and materials supporting the programme being readily available internally, an internal education programme and an effective process of monitoring of compliance with the programme and its overall adequacy. Things to look out for: warning signs Many cases of corruption are remarkably unsophisticated. Some cases involve direct requests and payments of bribes and this information receives a degree of publicity internally (through confirmations that the deal has been struck, the requests for the cash to pay the bribe and so on), yet alarm bells are not rung. In addition to these direct payments there are other signs which can be tell tale indications that further questions ought to be asked. The most obvious sign that a business ought to be on its guard is doing business in risky places or sectors. Transparency International publishes (at www.transparency.org) a number of indicators of the levels of corruption in various jurisdictions through its Corruption Perceptions Index and its Bribe Payers Index. Aside from the general risks of entering into business in certain locations, there are a number of other warning signs which ought to alert a business to the potential for corruption. One particular area for concern is the use of local consultants or agents in the relevant overseas location. Whilst the use of such persons or organisations is often a necessary part of seeking to establish business and contracts in new territories, they can be the source of embarrassment and problems. Warning signs in respect of consultants and agents include; requests for cash advances for expenses ; very high levels of remuneration (particularly when on a percentage fee); attempts to bring others on board as part of the local team ; routing of payments through new or unusual countries or banks; lack of transparency in descriptions of contacts my friends ; concerns over the level/standard of services actually performed; and suggestions that consultancy fees be passed on to or shared with others not previously identified. The final set of obvious warning signs concerns corporate entertainment and hospitality/gifts. Is someone being entertained particularly often? Does his or her role justify this? Is the level of hospitality etc. appropriate for the level of person or grossly disproportionate? Does he (and his wife) need to be flown to the World Cup first class, put up in the finest hotel for a week and given cash for their expenses? Dealing with a problem Each case will be different of course. However, a brief checklist of immediate issues to be addressed in the first few days upon discovery of a problem might include (leaving aside the instruction of lawyers ): > Where is the immediate legal exposure? UK? US? Place of alleged corruption? All of the above? 4 slaugh ter and may
> What document retention and recovery processes ought to be put in place immediately? Is there a data protection issue? > Who are the likely witnesses? Should they be suspended? Do they need independent legal advice? > Is there a self-reporting obligation? If no obligation, does it nonetheless make sense? > What other exposures are there money laundering offences under the Proceeds of Crime Act 2002 in the UK or equivalent legislation? Is there a need to self report under these provisions? > Who will carry out an investigation? Internal? External? Lawyers? Accountants? From which jurisdictions and where do they need to go? > To whom will the investigation team report? The Board? General Counsel? Audit Committee? > Is this issue required to be announced under any applicable public market (or other) disclosure requirements? Do you need a press announcement/pr strategy in case of a leak? > Should you notify your counterparties, whether commercial or public, of what you have uncovered? Will they sue? 5 slaugh ter and may
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