International Law Advisory - 2009 UK Anti-Corruption Year in ReviewFebruary 22, 2010
The year 2009 saw a number of notable developments in the regulation, enforcement and reform of the UK anti-corruption laws, which have continued into the early part of this year. UK regulators have imposed a number of large penalties recently against UK companies for foreign bribery-related offences, and continued their focus on prosecution of individuals involved in overseas corruption. In some cases those cases have been pursued in close coordination with prosecutors in the United States and other jurisdictions. The Government also introduced in Parliament new legislation that would comprehensively revise and expand the UK’s domestic and overseas anti-bribery laws. The following is a brief recap of the key developments from 2009 and early 2010 (some of which are discussed in further detail in alerts that we provided over the course of 2009, which are linked below), including an update on the progress of the Bribery Bill in Parliament.
The U.S. and UK authorities’ multi-year investigation of BAE Systems plc (“BAE”), Europe’s largest and the U.S.’s fourth largest defense contractor, was settled on February 5, 2010. The BAE matter represents the most significant collaboration to-date between the U.S. and UK enforcement authorities in a bribery-related investigation. BAE agreed with the UK Serious Fraud Office (“SFO”), which is responsible for enforcing UK overseas corruption laws in England, Wales and Northern Ireland, to pay £30 million and plead guilty to one count of breach of duty to keep accounting records in connection with commission payments it made to a marketing advisor used to secure the sale of radar systems to the Government of Tanzania. A significant part of that settlement was the SFO’s agreement to drop all pending or contemplated prosecutions of any individuals. Upon reaching the settlement with BAE, the SFO retracted corruption-related charges it had brought a few days earlier against a former BAE marketing agent in Austria in connection with payments in the Czech Republic and Hungary.
BAE simultaneously agreed with the U.S. Department of Justice (“DoJ”) to plead guilty to one count of conspiracy to make false statements to the U.S. Government, and pay a $400 million fine. The DoJ charge cited representations BAE made to the U.S. Department of Defense and Department of State in 2000 and 2002 regarding its adoption of anti-corruption compliance controls, and BAE’s alleged failure to make required disclosures of commissions and payments of other fees to marketing agents and advisors, as required under the U.S. International Traffic in Arms Regulations. The DoJ’s criminal information highlighted payments to third party agents made in connection with the Czech and Hungarian governments’ Gripen fighter jet leases, and in connection with BAE’s sale of Tornado aircraft and ongoing support services through the UK Ministry of Defense to the Kingdom of Saudi Arabia beginning in the mid-1980s. Those activities were, according to the DoJ, not subject to the anti-corruption controls BAE had represented to the U.S. Government in 2000 and 2002.
The Saudi payments alleged by the DoJ had been the subject of intense scrutiny by the DoJ and SFO throughout the agencies’ investigations, and remain a matter of significant public attention. The Saudi matter is often cited by commentators as an example of the UK Government’s failure to effectively prosecute overseas corruption, given the government’s controversial termination of the SFO’s investigation into those payments in late 2006. That decision was challenged in court by a UK non-government organisation, though the government’s action ultimately was upheld by the UK’s highest court (the House of Lords, since replaced by the Supreme Court of the United Kingdom) in July 2008. Given the backdrop of the Saudi matter, the SFO aspect of the BAE settlement has been the subject of considerable scrutiny by commentators as well as non-governmental organisations, and judicial challenges contesting the settlement may follow. However, it is unlikely that any challenges that are launched will have a significant impact on the settlement.
Notably, the BAE settlements follow a model utilised in late 2008 by the DoJ and the German authorities in the Siemens settlement. Similar to Siemens, BAE entered into simultaneous settlement agreements in both jurisdictions. Moreover, the criminal charges in both the Siemens and BAE settlements were tailored carefully to relate not to bribery, but to accounting violations and, in the case of BAE, false statements. Criminal charges relating to bribery would have increased the risk of BAE facing debarment under U.S. and EU government procurement laws.
Other Recent Enforcement Developments
2009 and early 2010 also have seen a number of additional developments in UK enforcement of laws prohibiting overseas corruption. Principal highlights include the following:
- In January of this year, the SFO brought charges against David Mabey, the former head of UK bridge-building company Mabey & Johnson Ltd (which pled guilty to corruption earlier in the year – see note below), for false accounting and breaching United Nations sanctions in connection with Mabey & Johnson transactions relating to the UN’s Iraq Oil-for-Food Program. In December 2009, the SFO confirmed that a former Vice President of Johnson & Johnson subsidiary DePuy International, based in Leeds, had been charged with conspiracy to corrupt in relation to payments made to Greek doctors. The case had been referred to the SFO by the U.S. DoJ, most likely as a result of Johnson & Johnson’s previous disclosure of potential FCPA violations to the DoJ in 2007. This prosecution by the SFO presents one of several recent examples of the increasing cooperation between the DoJ and SFO.
- As reported in further detail in our July 2009 alert, the SFO issued a guidance paper last July (titled the “Approach of the Serious Fraud Office to Dealing with Overseas Corruption”) in which it set forth a policy and terms of reference to encourage companies to self-disclose overseas corruption offenses. The approach outlined by the SFO borrows many concepts from DoJ practices in enforcing the U.S. Foreign Corrupt Practices Act (“FCPA”), though the SFO’s stated approach is broader than that of the DoJ in certain respects. For example, the SFO has suggested that it may seek to obtain potential attorney-client privileged materials from disclosing parties (such as investigation reports and notes investigation interviews), an approach the DoJ has declined to take in recent years. In addition, the SFO noted in the guidance paper that where disclosures are made to the U.S. authorities involving matters within the jurisdiction of the SFO, the SFO will expect simultaneous disclosure in the UK. This further highlights the cross-jurisdictional dynamic that companies must consider in deciding whether to disclose potential violations to either agency.
The SFO white paper came on the heels of the Attorney General’s March 2009 “Guidelines on Plea Discussions in Cases of Serious or Complex Fraud”, which defines – for the first time – procedures for prosecutors in negotiating plea arrangements with defendants in fraud cases. The SFO also has enhanced its internal resources devoted to investigating and enforcing corruption offences, including the creation of a dedicated anti-corruption unit within the agency, and through enhanced cooperation with other UK agencies (such as the City of London Police, who have a team of investigators dedicated to support the SFO on anti-corruption matters, and the Serious Organized Crime Agency, which, among other duties receives and reviews Suspicious Activity Reports filed under the UK’s anti-money laundering laws), and with foreign enforcement authorities.
- As noted above (and discussed in further detail in the attached alert), on 25 September 2009 Mabey & Johnson Ltd received a £6.6 million fine in the UK’s first successful prosecution of a company for foreign bribery offences. The Mabey & Johnson prosecution was a significant milestone for the SFO and had a number of notable characteristics. The settlement represented the first time the SFO had prosecuted a company for overseas corruption using a negotiated plea arrangement. In addition, the underlying violations involved former senior managers of Mabey & Johnson, which at the time had implemented only limited corporate controls to prevent bribery. The prosecution also used tactics commonly followed in FCPA prosecutions by the DoJ: the plea agreement was reached after a detailed internal investigation by outside counsel hired by Mabey & Johnson, and self-disclosure of the results of that investigation, including criminal conduct, to the SFO. Pursuant to the plea agreement, Mabey & Johnson is required to implement a corporate compliance program, which will be subject to independent monitoring. Those features also have been used in FCPA settlements in the U.S. over the last several years.
- On 6 January 2009 (see attached alert), the UK Financial Services Authority (“FSA”), which regulates the financial services industry in the UK, imposed a £5.25 million fine (approximately $7.2 million) on Aon Limited (Aon Corporation’s principal UK subsidiary) (“Aon”), for failing to implement effective systems and controls for countering bribery risks. The FSA determined that limitations in Aon’s pre-existing anti-corruption compliance program contributed to the company making 66 “suspicious” payments between January 2005 and September 2007. The FSA found that Aon’s practices violated Principle 3 of the FSA’s Principles for Businesses, which sets forth a general requirement for FSA-regulated entities to “take reasonable care to organise and control its affairs responsibly and effectively, with adequate risk management systems.” The Aon fine represents the most assertive enforcement action the FSA has taken to-date in the area of corrupt practices, and opened up an entirely new corruption-related regulatory liability for companies within the FSA’s jurisdiction. Although the FSA has not brought additional, similar enforcement actions since Aon, it is in the process of an industry-wide review of anti-bribery and corruption systems and controls in commercial insurance broker firms. In September 2009 the FSA published interim findings in which it identified “significant weaknesses which firms should be aware of” concerning the state of the compliance programs reviewed to-date. It is expected that the FSA will remain active in this area.
Update on the Bribery Bill
As discussed in our alert last Spring, a bribery reform bill was introduced in Parliament in March 2009 that will, once enacted, comprehensively revise the UK anti-bribery laws for both domestic and foreign bribery. This is the product of many years of government and private sector consultation, and would represent the first substantial revision of the UK criminal anti-bribery laws in nearly a century. The existing legal framework, which consists primarily of legislation enacted in the late 19th and early 20th Centuries, is widely acknowledged to be outdated and in need of reform. The most recent version of the draft bill is available on Parliament’s website at the following link.
Corporate Liability Reforms
Among other notable measures, the Bribery Bill will create a new criminal offence, applicable directly to organisations, for “failing to prevent” bribery by employees or representatives acting on behalf of the company. This represents an important expansion of the anti-bribery criminal framework in the UK: at present, it is possible to prosecute corporations for bribery (as for most other criminal offences in the UK) only in cases where senior managers of the company, or others who can be said to hold the “directing mind” of the organisation, were involved in the misconduct. That standard has proven difficult to meet in bribery cases.
Companies will be entitled to an affirmative defence under the new corporate criminal standard if they can demonstrate that they had implemented “adequate procedures” to prevent bribery in the company’s operations. This provision, which goes beyond U.S. law (under which an effective internal compliance program may mitigate penalties, but does not necessarily prevent corporate prosecution), would represent a strong incentive for companies to invest in such procedures.
A number of observers have called for specific guidance to be published by the Government that would clarify what it means for companies to implement “adequate procedures” to protect against bribery risks. This proposal appears to have been endorsed, and the bill has been amended to include a specific clause requiring the Secretary of State to produce such guidance. It remains uncertain how long it will take for the government to publish this guidance following passage of the bill, and exactly what form the guidance will take. However, the substantive content of the guidance undoubtedly will remain close to various international “best practices” standards that already have been developed among leading government and non-government organisations in this area.
Steps Forward Toward Passage
The Bribery Bill also includes a range of other measures, including a comprehensive restructuring of the domestic and foreign bribery offences. A Joint Parliamentary Committee on the Bribery Bill was appointed to review the bill, and published its report on 18 July. The bill was included in the Queen’s Speech (which set forth Parliament’s legislative agenda for the coming legislative session) on 18 November 2009 and introduced in the House of Lords the following day. It had its third and final reading in the House of Lords, and its first reading in the House of Commons, on 9 February. The date of the House of Commons’ second reading has not yet been announced. Once the Commons’ review process is completed, any amendments to the bill will be considered and the final bill will be voted upon.
Given that none of the major parties in the UK oppose the bill, it seems likely that the bill will be passed – the only questions are when, and whether there will be any notable amendments. The most significant debates thus far concerning the text of the bill have centered on the corporate “failing to prevent bribery” offence. For instance, the first draft of the bill provided that in order to be liable, companies would have to be “negligent” in failing to prevent bribery by employees or representatives. The use of a negligence standard was criticised at the Joint Committee stage for a variety of reasons, and it now appears that standard will not be included. Companies thus will face essentially a respondeat superior standard to the extent their employees or representatives engage in improper payments, subject to the “adequate procedures” affirmative defence.
Questions also persist concerning the extra-territorial scope of the bill. For example, the proposed corporate offence would apply to bribes paid by persons who are “performing services for or on behalf” of the commercial organisation and “in connection with” that organisation's business. That standard could apply to a company’s overseas affiliates, as well as more complex business structures such as joint ventures and consortia, where the UK company might not have legal or operational control over day-to-day activities of the joint venture or consortium. It is unclear whether, or under what circumstances, companies subject to the provisions of the new Bribery Bill would be held accountable in those contexts.
Notwithstanding those (and other) debates over the bill’s provisions, it seems unlikely that there will be dramatic changes to the bill during its consideration by the House of Commons, which is expected to complete its review in April or May. Final voting should occur shortly thereafter, as it is the Government’s objective to pass the bill before the next general election, which is anticipated for June of this year.
What’s In Store For 2010?
It seems likely that the SFO and FSA will continue their progress in enforcing the UK’s existing anti-corruption laws and regulations. Though the UK Government is not enforcing foreign bribery offences at the pace of the DoJ under the FCPA, the UK is no longer a “dormant” jurisdiction where anti-corruption enforcement risks can be considered insignificant. Furthermore, the likely introduction and passage of the Bribery Bill will give the SFO new statutory authority to prosecute overseas corruption. As a result, companies with high overseas corruption risk profiles should ensure that they are ready for the new UK regulatory regime and, in particular, that they have implemented anti-corruption compliance programs that address both UK anti-corruption risks, and, given the extent of cooperation between the SFO and DoJ, FCPA risks. Such compliance programs would include clear corporate policies and procedures, training for employees and representatives, appropriate internal controls to ensure transparency and other measures tailored to the particular organisation. While it takes time to design and implement effective compliance programs, the risks of not doing so under the standards contemplated in the Bribery Bill are significant, and will mark a substantial change from the existing UK legal framework.