The In-House Lawyer

As of 1 October 2009, BAE Systems (BAE), the UK’s biggest manufacturer, faces bribery charges and possible confiscation of potentially hundreds of millions of pounds.

This article explores the accountability of both individuals and corporations with regard to overseas bribery and corruption, the relevant legislation and how considering the potential outcomes should influence a business in managing this risk.

CORPORATE ACCOUNTABILITY

A company convicted of the bribery of a foreign public official can face serious consequences, including a confiscation order potentially running into millions of pounds, a huge fine and complete loss of reputation.

On 25 September 2009, in the first conviction in this country of a company for overseas corruption and for breaking the United Nations (UN) Iraq sanctions, Mabey & Johnson was fined a total of £3.5m.₁ The company was ordered to pay a £1.1m confiscation order and £350,000 in prosecution costs. In addition the firm made £1.4m available as reparations to Ghana, Jamaica and Iraq. The British company had tried to influence officials in Jamaica and Ghana when bidding for public contracts, and had also paid money to Saddam Hussein’s regime, violating the terms of the UN oil-for-food programme. Following extensive discussions with the Serious Fraud Office (SFO), the firm pleaded guilty to two charges of conspiracy to corrupt and one charge of breaching UN sanctions on Iraq.

INDIVIDUAL ACCOUNTABILITY

An individual convicted of corruption faces not only a fine, confiscation order and loss of reputation, but also a sentence of imprisonment. They will also be ordered to serve a term of imprisonment in default of payment of the confiscation sum ordered.

On 22 September 2008 a Ugandan government official, Ananias Tumukunde, who received bribes from a Danish businessman, became the first foreign government official to be convicted of overseas corruption.

Niels Jørgen Tobiasen was the managing director of CBRN, a company registered in England, which specialised in chemical, biological, radiological and nuclear detection. CBRN became involved with the Ugandan government when it advised the government on security issues before the 2007 Commonwealth Summit attended by Her Majesty Queen Elizabeth and Gordon Brown. It trained several Ugandan presidential guards and successfully negotiated a legitimate contract in respect of that work. A further tender was placed in relation to detection devices that were to be installed prior to the summit concerning possible threats posed by chemical, biological, radiological and nuclear weapons.

While negotiating the second contract Tobiasen was told by Tumukunde that a ‘tax’ had to be paid in relation to the money he had received for the first contract. Tobiasen knew that the ‘tax’ was a bribe, but was also aware that, without paying it, the second contract was unlikely to be awarded to his company.

Tobiasen agreed to pay the ‘tax’ in relation to the first contract and an ‘agent’s fee’ in relation to the second contract. The money was transferred by Tobiasen to Tumukunde between bank accounts in this country with both parties committing a criminal act. Making and receiving a corrupt payment is an offence in this jurisdiction.

Tobiasen was arrested and charged in connection with conspiracy to make corrupt payments to a Ugandan government official, and being concerned in money laundering in relation to the money he had paid by way of a bribe. Tumukunde was charged with making corrupt payments.

Ultimately, in September 2008, Tumukunde was sentenced to 12 months’ imprisonment and had over £50,000 confiscated. Tobiasen was given a five-month suspended sentence.

LEGISLATION

The current law on corruption is principally contained within the common law offence of bribery, the Public Bodies Corrupt Practices Act 1889, the Prevention of Corruption Act 1906, the Prevention of Corruption Act 1916 and the Anti-Terrorism, Crime and Security Act 2001 (the 2001 Act).

Section 108 of the 2001 Act clarifies that the existing offences of bribery and corruption apply to the bribery of foreign public office holders (including foreign MPs, judges, ministers and agents in the public or private sector).

Section 109 of the 2001 Act is a free-standing provision that gives the courts in England, Wales and Northern Ireland extraterritorial jurisdiction over bribery and corruption offences committed abroad by UK nationals and/or bodies incorporated under UK law.

By virtue of the laws of incitement and conspiracy, a company can also be held criminally liable if it can be shown to have authorised, directed or actively connived in an act of bribery by any of its overseas subsidiaries.

Part 12 of the 2001 Act came into force on 14 February 2002, thus cases where all elements of the criminality take place overseas can only be prosecuted in the UK if a relevant event took place after that date.

Furthermore, corporates should be aware of the extraterritorial reach of the US anti-bribery laws. In particular, the US Foreign Corrupt Practices Act 1977 comprises two sets of prohibitions and requirements, known as the ‘anti-bribery’ provisions and the ‘books and records’ provisions.

A new bribery bill in draft format was published on 25 March 2009, its purpose being to reform the criminal law of bribery to provide for a new consolidated scheme of bribery offences to cover bribery both in this country and abroad. This bill also provides for extraterritorial jurisdiction to prosecute bribery committed abroad by persons ordinarily resident in the UK, as well as UK nationals and UK corporate bodies.

THIS COULD BE AN ISSUE FOR US: WHAT IS OUR LEVEL OF EXPOSURE?

In July 2009 the SFO published ‘Approach of the Serious Fraud Office to dealing with Overseas Corruption’ (the Guide).₂ At paragraphs 21-22 the SFO, when assessing whether a company has negligently failed to prevent bribery, will consider the following factors:

• whether there is a clear statement of an anti-corruption culture fully and visibly supported at the highest levels of the organisation;
• code of ethics;
• principles that are applicable regardless of local laws or culture;
• individual accountability;
• policy on gifts and hospitality and facilitation payments;
• policy on outside advisers/third parties, including vetting and due diligence and appropriate risk assessments;
• policy concerning political contributions and lobbying activities;
• training to ensure dissemination of the anti-corruption culture to all staff at all levels within the corporate;
• regular checks and auditing in a proportionate manner;
• a helpline within the corporate that enables employees to report concerns;
• a commitment to making it explicit that the anti-bribery code applies to business partners;
• appropriate and consistent disciplinary processes; and
• whether there have been previous cases of corruption within the corporate and, if so, the effect of any remedial action.

In January 2009 the Financial Services Authority (FSA) imposed a £5.2m fine on Aon Inc for failing to ‘properly assess the risks involved in its dealings with overseas firms’. This penalty was imposed for its failure to ensure that it had effective anti-bribery and corruption systems in place in breach of principle three of the FSA’s principles for businesses. A corporate involved in dealings with overseas third parties must implement effective controls to offset the risk of corruption and bribery, to include the implementation of robust procedures, guidance and training to staff, due diligence, and reviews and monitoring of relationships and payments with overseas third parties, and the appointment of a committee to oversee the risks.

WHAT ARE THE OPTIONS TO RESOLVE THIS?

The SFO emphasise that it is keen for companies and individuals to approach it as soon as they discover corruption or bribery. In return for co-operation the SFO will, in appropriate cases, be minded to explore resolution away from prosecution.

The Guide sets out at paragraph ₄ those matters that if satisfied in self-referral cases the SFO would wish to settle through civil rather than criminal sanctions:

• Is the board of the corporate genuinely committed to resolving the issue and moving to a better corporate culture?
• Is the corporate prepared to work with the SFO on the scope and handling of any additional investigation it considers to be necessary?
• At the end of the investigation (and assuming acknowledgement of a problem) will the corporate be prepared to discuss the 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 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 and the SFO.
• Will the corporate want the SFO, where possible, to work with regulators and criminal enforcement authorities, both in the UK and abroad, to reach a global settlement?

Advisers may be able to approach the SFO to obtain an early indication where appropriate (and subject to a detailed review of the facts) of the SFO’s approach (paragraph 2 of the Guide).

In October 2008, in the first civil settlement as part of a foreign bribery investigation, the SFO reached a £2.5m settlement with major construction firm Balfour Beatty plc for unlawful conduct, in the form of inaccurate accounting records arising from certain ‘payment irregularities’. A negotiated settlement rather than a criminal prosecution meant that the mandatory debarment provisions under Article 45 of the EU Public Sector Procurement Directive in 2004 did not apply.

Paragraph 14 of the Guide sets out that the SFO, in discussing settlement terms, will be looking to the following:

• Restitution by way of civil recovery to include the amount of the unlawful property, interest and the SFO’s costs.
• Monitoring by an independent, well-qualified individual nominated by the corporate and accepted by the SFO. The scope of the monitoring will be agreed with the SFO. The SFO undertakes that if monitoring is going to be needed, it will be proportionate to the issues involved.
• A programme of culture change and training agreed with the SFO.
• Discussion, where necessary, and to the extent appropriate, about individuals.

In addition, a public statement agreed by the corporate and the SFO will be needed so as to provide transparency so far as possible for the public.

If it is not possible to avoid criminal proceedings, it may be possible to enter a plea agreement, as was done in the case of Mabey & Johnson. Mabey & Johnson secured contracts worth £60m by bribing foreign politicians and other officials with pay-outs totalling £1m. The case came to light after five of the company’s directors stepped down and the new board decided to ‘dramatically’ turn itself in to the SFO. It later handed over ‘deeply incriminating’ documents detailing its bribery and ‘sanctions-busting’. The firm took extensive steps to distance itself from its criminal past and ensure there was no repetition. In sentencing at Southwark Crown Court, HHJ Rivlin QC stated that the firm therefore deserved ‘recognition and approval’ for its efforts to put matters right and that he wanted to ensure any penalties imposed would not prevent the company ‘continuing in business and giving employment to very many people and bringing further significant revenue into this country’. Plea negotiations are entered into within the context of the Attorney General’s Framework for Plea Negotiations.₃

An investigation of BAE by the SFO into a huge 1980s’ arms deal BAE secured from Saudi Arabia was dropped in 2007 after it was decided that national security was at risk. BAE now faces bribery charges relating to allegations that the UK firm paid out millions of pounds to win contracts from countries including Tanzania, the Czech Republic, Romania and South Africa. It is understood that all attempts at negotiating a settlement have, at this stage, failed.

INDIVIDUALS: ASSESSING THE LEVEL OF CULPABILITY

To determine the level of involvement and knowledge that a person may or may not have, the SFO would ask the following:

• How involved were the individuals in the corruption (whether actively or through failure of oversight)?
• What action has the company taken?
• Did the individuals benefit financially and, if so, do they still enjoy the benefit?
• If they are professionals should the SFO be working with the appropriate disciplinary bodies?
• Should the SFO be looking for directors’ disqualification orders?
• Should the SFO think about a serious crime prevention order?

Practical Guidance on SOCPA

Where an individual has breached bribery and corruption legislation and is facing criminal proceedings, the full consequences may be mitigated if the Crown Prosecution Service (CPS) agrees to enter into a Serious Organised Crime and Police Act (SOCPA) 2005 agreement with them. An approach to the CPS may be successful where the individual is not the principal defendant.

Section 71, SOCPA 2005, creates a statutory mechanism to enable a ‘specified prosecutor’ to grant immunity in writing against prosecution for any offence.

The test that is applied when deciding whether or not to grant immunity is whether the information about the extent and nature of the criminal activities is of greater importance than the possible conviction of an individual.

Section 73 puts in place a mechanism for allowing assistance by a defendant to be rewarded by a reduction in sentence.

By James Carlton, partner, Russell Jones & Walker.

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1. 1http://www.sfo.gov.uk/press-room/latest-press-releases/press-releases-2009/mabey--johnson-ltd-sentencing-.aspx
2. 2http://www.sfo.gov.uk/news/downloads/SFO-COP-dealing-with-overseas-corruption.pdf
3. 3http://www.attorneygeneral.gov.uk/attachments/AG_s%20Guidelines%20on%20Plea%20Discussions%20in%20Cases%20of%20Serious%20or%20Complex%20Fraud%20doc.pdf