The In-House Lawyer

As part of its ongoing initiative to combat corrupt business practices, the Serious Fraud Office (SFO) issued written guidance (the guide) to the corporate sector in July 2009.¹ This set out the approach that the SFO will take in dealing with overseas corruption and, in particular, the manner in which companies that self report can expect to be dealt with.

The genesis for the guide was undoubtedly, at least in part, the Balfour Beatty settlement, which was concluded in October 2008.² This settlement saw the first use by the SFO of civil recovery powers acquired in April 2008 pursuant to s74 of the Serious Crime Act 2007.

Richard Alderman, the SFO’s director, has since repeatedly made clear his belief that the settlement could form a template for future enforcement actions in appropriate circumstances. The guide therefore contains many features that are germane to the settlement and its underlying investigation.

This article will briefly summarise the present law on corruption and its shortcomings, provide an analysis on the guide and anticipate what impact it might have on the way businesses may address corruption in the future.

Existing Law on Corruption

The law in the UK is currently disjointed and has been subject to much criticism both at home and internationally, not least by the Organisation for Economic Co-operation and Development (OECD).³

At present, corrupt practices are principally prosecuted under the following law:

• the common law offence of bribery;
• the Public Bodies Corrupt Practices Act 1889 (a statute limiting corruption to local government officers);
• the Prevention of Corruption Act 1906 (extending the statutory crime to central government officials and the private sector);
• the Prevention of Corruption Act 1916 (providing a presumption of corruption when dealing with public officials); and
• the Anti-terrorism, Crime and Security Act 2001 (providing jurisdiction to the UK courts to prosecute corrupt behaviour overseas, provided it would constitute an offence in the UK under one or more of the above offences).

Difficulties with the existing law, in particular the lack of a definition of the term ‘corruptly’, which is central to the statutory offences, have long been apparent. Perhaps in consequence of that fact, prosecutions for corruption have, to date, been rare.

On 15 February 1999 the UK ratified the OECD’s Convention on Combating Bribery of Foreign Public Officials in International Business Transactions and, in doing so, committed to updating the existing law. Progress in doing so, however, has been torturously slow. The Law Commission first made recommendations for reform in 1998.⁴ However, the government did not produce a draft Bill until 2003 and it did not follow the Law Commissioners’ recommendations. The Bill was eventually withdrawn in 2007 having received severe criticism. The Law Commission then made further recommendations in 2008 and a new Bribery Bill was laid before Parliament in 2009.⁵

To summarise, if enacted the Bribery Bill will:

• repeal all existing law;
• create two primary offences, one for paying bribes and one for receiving them, covering both the private and public sector;
• introduce a specific offence of bribing foreign public officials; and
• provide for a new corporate offence of negligently failing to prevent bribery.⁶

The conduct targeted by the two principal offences is the improper performance of a duty that is secured by a bribe. Improper performance is defined as the breach of a relevant expectation that the performance of any duty will be done in good faith, impartially or consistent with any position of trust. This is a complicated definition and it will be interesting to see whether it becomes a focus of defences advanced by those accused of the new offences.

It remains to be seen, however, whether the Bill will be enacted in this Parliament and, if not, what priority it will be given following any change of government.

At present the maximum sentence for the statutory corruption offences is seven years’ imprisonment and/or an unlimited fine. If the Bill is enacted this will increase to a ten-year maximum sentence. Of note, those who subsequently deal with funds flowing from historical corruption, even if they were not involved with the initial conduct, may risk prosecution for money laundering, which carries a maximum 14-year sentence.⁷

summary of the Guide

The guide provides detail on the following core elements:

• approaching the SFO;
• the investigation;
• settlement discussions and global settlements;
• a US-style opinion procedure; and
• what happens if there is no self referral.

Central to the guide are the provisions of clause 4, which sets out the factors that the SFO will want to see established if there is to be any prospect of a resolution other than through full criminal prosecution.⁸ These are as follows:

• Is the board of the corporate body genuinely committed to resolving the issue and moving to a better corporate culture?
• Is the corporate body prepared to work with us on the scope and handling of any additional investigation that we consider to be necessary?
• At the end of the investigation (and assuming the acknowledgement of a problem) will the corporate body be prepared to discuss resolution of the issue on the basis, for example, of restitution through civil recovery, a programme of training and culture change, appropriate action where necessary against individuals and, at least in some cases, external monitoring in a proportionate manner?
• Does the corporate body understand that any resolution must satisfy the public interest and must be transparent? This will almost invariably involve a public statement, although the terms of this will be discussed and agreed by the corporate body and with us?
• Will the corporate body want us, where possible, to work with regulators and criminal enforcement authorities, both in the UK and abroad, to reach a global settlement?

Paragraph 5 of the guide makes it clear that where these factors are present the SFO will seek to settle matters using civil, as opposed to criminal, processes wherever possible. It nevertheless goes on to caution that, even if all the above factors can be demonstrated, prosecution will follow if board members have personally engaged in corrupt activity and, in particular, if they derived personal benefit.

Commentary on the guide

Speaking before the 5th European Forum on Anti-Corruption, Jack Straw, the Home Secretary, highlighted the ‘moral and practical imperative[s] for tackling corruption’.⁹ Straw stated that the negative effect of corruption on business should no longer be underestimated or ignored:

‘Corrupt practices undercut honest companies, destroy professional reputations, distort competition and undermine the very basis of the free-market system.’

Straw went on to make plain that the SFO’s aim is therefore to create a system of effective and proportionate sanctions by bringing about ‘a new corporate culture… in which no form of corruption is tolerated’. However, he conceded that for progress to be made, companies must be given incentives ‘to report corruption and develop corporate cultures in which it is challenged and resisted’. The guide therefore seeks to provide an element of that incentive.

The guide aims to facilitate an environment whereby the corporate body can work with the SFO, both to manage the practical difficulties that a prolonged, and potentially costly, criminal investigation may entail, and also to mitigate the negative publicity that may arise.

Importantly, the guide lays early emphasis on the potential benefit of avoiding the draconian debarment provisions of The Public Contracts Regulations 2006 and The Utilities Contracts Regulations 2006.¹⁰ These regulations contain a mandatory, and indefinite, exclusion from the ability to bid for relevant contracts if a company, or one of its directors, has been convicted of an offence prescribed by the regulations, including corruption. Critically, a civil recovery order will not trigger these Regulations.

The civil settlement route also allows a company to retain some degree of control over the investigation and, subject to the SFO approving the methodology chosen, to undertake aspects of the investigation through its own legal advisers. While in many ways this can be viewed as the SFO outsourcing the costs of an investigation, it is likely that, despite the cost, a company will deem it far more preferable to take responsibility for securing evidence and presenting it to the SFO in agreed form, rather than have the SFO raid company premises to do it themselves. In this respect the guide seeks to be flexible and pragmatic with a view to the SFO and corporate body working together once a report has been made.

The guide cannot, however, give an unconditional guarantee that a self-report will not lead to criminal prosecution. Before self-reporting, companies therefore need to be aware of the risk that the SFO may rely on information provided by a company to prosecute it and that this may be information that otherwise would not have come to the SFO’s attention.

If the SFO is willing to settle without criminal proceedings it is likely that it will require the corporate body to agree to several conditions, which can be seen in the Balfour Beatty settlement, and more generally in the US-style enforcement model that the SFO is keen to promote. These may include:

• restitution of any unlawful property;
• the possibility of future monitoring of the company by an independent concern;
• an agreed programme of culture change and training;
• discussion about individuals; and
• agreed public statements.

Even if the company is able to secure a deal whereby it avoids prosecution, the SFO still reserves the right to prosecute individual directors and employees in appropriate circumstances. The factors that would lead the SFO to prosecute individuals are set out in the guide and include their level of involvement and benefit in addition to any action taken by the company. The fear is that companies will be tempted to sacrifice individuals to protect the company. Whether such a Faustian pact would be of long-term interest to corporate moral is a question that companies may have to grapple with.

The guide provides the interesting possibility that in due course the SFO may be willing to provide advice to a company as to future action it may take. For example where, in the process of acquiring another company, issues of corruption are uncovered during due diligence inquiries.¹¹ It also warns of the potential consequences of issues coming to the attention of the SFO that have not been self reported and, in doing so, clearly seeks to wield a stick to offset the carrot of leniency that may follow a self report.

Finally, the SFO may share any information provided to it with other regulatory agencies, including overseas authorities such as the US Department of Justice (DOJ). While the SFO has indicated that it will assist companies to achieve a ‘global settlement’, in reality it may not always be able to tie the hands of overseas authorities once the wheels have been set in motion. If proceedings are then instigated overseas, in particular by the DOJ, the potential sanction to be imposed may be much more severe than would be the case in the UK.

Conclusion

It is clear that the SFO is keen to make use of its new civil recovery powers, used in the Balfour Beatty settlement, to promote a new, and undoubtedly more American-style, mode of enforcement for matters that might otherwise have been prosecuted. The model that the SFO would plainly like to have at its disposal is the Deferred Prosecution Agreement (DPA) that is frequently utilised in the US by the DOJ and the Securities and Exchange Commission (SEC). This allows the US authorities to impose a settlement similar to Balfour Beatty but, significantly, retains the ability to prosecute a company at some future time if the terms of the DPA are not fully complied with.

Notably, a standard feature of DPAs is the need for a company to enter into a period of post-agreement monitoring, often of two to three years. During this time its compliance systems will be subject to external monitoring to demonstrate compliance with relevant anti-corruption laws. The SFO has, at present, no power to impose compliance monitoring and has therefore endeavoured to address this lacuna by making the voluntary submission to monitoring an essential part of any civil settlement.

What has, however, been unclear to date is the way in which the SFO would respond to companies that self report, with the attendant concern that this lack of clarity was potentially preventing other companies from following the Balfour Beatty approach. In issuing the guide the SFO clearly hopes that such uncertainty will be removed.

Despite the recent plea by Mabey & Johnson Ltd [2009], so becoming the first British company to be convicted of overseas corruption, the UK remains under close scrutiny from the OECD and the wider international community over its record on tackling corruption.12 The SFO is therefore under pressure to produce results and it clearly wants to use the guide to avoid the need for protracted, and costly, prosecutions.

Companies are now plainly at risk if their compliance systems do not specifically address corruption, but whether the guide will induce frequent US-style self-reporting remains to be seen. The Balfour Beatty settlement shows what may be achieved if companies do self report. There are still however clear risks, both to the company and individual employees, if a report is made. Companies and their advisers will undoubtedly need to pay close attention to how the guide works in practice.

By Jeremy Summers, partner in the business crime and regulation group, London, Russell Jones & Walker.

E-mail: j.summers@rjw.co.uk.

notes

1. 1) Approach of the SFO to dealing with overseas corruption. 21 July 2009. www.sfo.gov.uk.
2. 2) The investigation related to the construction of the Bibliotheca in Alexandria. Rod Fletcher and Jeremy Summers represented Balfour Beatty. SFO press release 6 October 2008: www.sfo.gov.uk.
3. 3) OECD reports 21 June 2007 and 16 October 2008: www.oecd.org.
4. 4) Legislating the Criminal Law: Corruption Report 248, 1998.
5. 5) 25 March 2009: www.justice.gov.uk.
6. 6) The Report of the Joint Parliamentary Committee responding to the Bill dated 28 July 2009 recommends that this offence should be one of strict liability. It is, however, proposed that a defence of having adequate procedures in place to guard against corruption will be available.
7. 7) Sections 327-329 Proceeds of Crime Act 2002.
8. 8) In that event plea negotiation pursuant to the Attorney General’s Framework for Plea Negotiations (effective from 5 May 2009) may be possible: www.attorneygeneral.gov.uk. A detailed discussion of the Framework is available on p42, IHL173 September 2009.
9. 9) 23 June 2009.
10. 10) In force from 31 January 2006 to give effect to EU Directives 2004/17 and 2004/18 passed by the European Parliament in March 2004.
11. 11) Such an opinion procedure is available for the US Department of Justice.
12. 12) Reference is also made to the six-month sentence imposed, following a guilty plea, on Nigel Heath in October 2008. SFO press release 17 October 2008.

Mabey & Johnson Ltd [2009] (unreported at present)