In recent weeks there have been a number of significant anti-bribery, money laundering, and corruption matters in the United Kingdom, both in the UK courts and involving the Serious Fraud Office (“SFO”). These developments suggest that the SFO remains committed to the policy of its Director, David Green QC, of prosecuting bribery and corruption offences in the courts as opposed to through settlement. Such a view is supported by the SFO’s very recent charging of Jean-Daniel Lainé, a retired Senior Vice President for Ethics & Compliance at Alstom, with two charges of corruption under section 1 of the Prevention of Corruption Act 1906, as well as two offences of conspiracy to corrupt in breach of section 1 of the Criminal Law Act 1977. The alleged offences are said to have taken place between 1 January 2006 and 18 October 2007 and concern the supply of trains to the Budapest Metro. Lainé is the sixth individual to be charged by the SFO in its investigation of Alstom and his position as a former head of compliance makes this an unusual prosecution. It is not yet known whether the SFO alleges direct involvement by Lainé in criminal activity, or some kind of criminal “failure of responsibility.” The matter has been sent for trial at Southwark Crown Court. Beyond the Lainé prosecution, which is at its earliest stages, important recent events in the United Kingdom include two very recent – and as yet formally unreported – successes for the SFO in the UK courts. One concerns the recent prosecution of a UK national for historic (pre-Bribery Act 2010) corruption offences. The other relates to the SFO’s ability to compel the production of documents belonging to a suspect where those documents are held by law firms. In this article, we assess these new developments and their significance to antibribery compliance for companies subject to the jurisdiction of the courts of England and Wales. The article also addresses a UK Supreme Court judgment clarifying the definition of “criminal property,” a key concept under the Proceeds of Crime Act 2002 (“POCA”), the UK’s principal money laundering legislation. www.debevoise.com FCPA Update 20 May 2015 Volume 6 Number 10 SFO Obtains Access to Documents Held by Beny Steinmetz’s Lawyers As reported in the British press, including The Financial Times, lawyers acting for the mining arm of Israeli tycoon Beny Steinmetz’s business empire are to be required to produce documents related to an alleged African bribery scheme to the SFO. It was reported that, on 30 April 2015, the UK High Court rejected an application by Steinmetz’s Guernsey-registered company, BSG Resources (“BSGR”), to block the SFO from assisting a criminal investigation in the west African state of Guinea, including by compelling the production of documents held by BSGR’s lawyers. BSGR had held mining rights in Guinea worth US$ 5 billion, including virgin deposits of iron ore considered amongst the world’s highest quality and potentially most profitable. Last year, Guinea’s government annulled the mining rights following a two-year inquiry that concluded that the company had won the mining rights by making payments of cash and shares to the wife of Lansana Conté, the former Guinean president. Following this determination, BSGR brought arbitration proceedings against Guinea. Vale, the Brazilian mining company that had bought a majority stake in BSGR’s Guinean prospects in 2010, brought separate proceedings against BSGR. Both Guinea and the United States Department of Justice launched criminal investigations. Neither the company nor Steinmetz has been charged in any of the investigations although Frederic Cilins, a former agent for BSGR in Guinea, was jailed last year after pleading guilty to obstructing the US probe. As part of its investigation, Guinea sought assistance from the UK authorities. As a result, last year the SFO issued notices under Section 2 of the Criminal Justice Act 1987 compelling the production of documents from Mishcon de Reya and Skadden, Arps, Slate, Meagher & Flom LLP – respectively the current and former lawyers for BSGR – and Onyx Financial Advisers, the company’s agents in London. The documents requested are said to be voluminous. BSGR sought permission to apply for a judicial review of the decision by the SFO (and Home Secretary Theresa May) to assist the Guinean probe. The company argued that Guinea’s request for legal assistance should have been denied because it was part of a politically motivated plot that led to the cancellation of BSGR’s mining rights. Dag Cramer, a BSGR director, claimed in a witness statement that the government of Alpha Condé, the current president of Guinea, had expropriated the company’s assets as part of a conspiracy to reward the people behind what Cramer alleged was a scheme to rig the election that brought Condé to power in 2010. Victories for UK Law Enforcement in Corruption and Fraud Cases Continued from page 19 Continued on page 21 www.debevoise.com FCPA Update 21 May 2015 Volume 6 Number 10 The High Court dismissed BSGR’s application. No official judgment is yet available, but Lord Justice Davis is reported to have stated that Mr. Cramer’s statement showed “little first-hand knowledge of the underlying facts” of the alleged plot against BSGR. The court ordered BSGR to pay costs and, as of this time, reports were that BSGR did not intend to appeal. The High Court’s ruling means that the SFO is now free to enforce the Section 2 notices. The decision confirms the breadth of the powers available to the SFO to compel the production of information, even where such information is contained in documents held by a company or individual’s lawyers. British Procurement Engineer Jailed Following SFO Energy Corruption Prosecution On 11 May 2015, British national Graham Marchment, a former procurement engineer, was sentenced to two and a half years of imprisonment in respect of three counts of conspiracy to corrupt under section 1(1) of the Criminal Law Act 1977. The prosecution was part of a long-running SFO action against illicit trading of information for payment. These terms will be served concurrently. The court will determine compensation and confiscation at a later date. His sentencing followed an earlier guilty plea and the imprisonment of four co-conspirators in January 2012.1 The conviction related to acts taking place between 2004 and 2008, during which time Marchment (together with his co-conspirators) supplied confidential information on high-value energy and infrastructure projects to targeted bidding companies in exchange for illicit payments concealed as consultancy services. The projects in question were the QASR Gas Gathering Project in Egypt, the Sakhalin Island Field Project in Russia, Victories for UK Law Enforcement in Corruption and Fraud Cases Continued from page 20 Continued on page 22 1. See Karolos Seeger, Matthew Getz, and Lucy Norris, “SFO Successfully Prosecutes Four Individuals for Private Sector Corruption in Offshore Oil and Gas Projects,” FCPA Update, Vol. 3, No. 8 (Mar. 2012), http://www.debevoise.com/insights?tab=Search%20 Insights&keyword=FCPA%20Update. “The [Marchment] conviction related to acts taking place between 2004 and 2008, during which time Marchment (together with his co-conspirators) supplied confidential information on high-value energy and infrastructure projects to targeted bidding companies in exchange for illicit payments concealed as consultancy services.” www.debevoise.com FCPA Update 22 May 2015 Volume 6 Number 10 2. SFO Press Rel., Four Guilty in £70 Million Contracts Corruption Case (Jan. 25, 2012), http://www.sfo.gov.uk/press-room/latest-pressreleases/press-releases-2012/four-guilty-in-70-million-contracts-corruption-case.aspx. and the Parallel Train Project in Singapore, collectively worth approximately £40 million (US$ 62 million).2 Marchment and his alleged co-conspirators had acquired this information through their employment with companies acting as procurement agents for projects in Egypt, Russia, and Singapore. During the SFO’s initial investigation, Marchment had been living in the Philippines and had refused to return to the United Kingdom for questioning when the SFO requested his attendance. At the time of the trial of his co-defendants, no extradition treaty existed between the Philippines and the United Kingdom and the SFO was not able to compel Marchment’s return to the United Kingdom. He therefore did not stand trial with his co-defendants, Andrew Rybak, Ronald Saunders, Philip Hammond and Barry Smith, who were each found guilty and received custodial sentences (Smith received a suspended sentence). It was only when Marchment’s UK passport expired last year and he was unable to renew it due to the arrest warrant against him that he was compelled to return to the United Kingdom, whereupon he was arrested and charged. He was subsequently denied bail. The sentencing of Marchment brings to an end a seven-year joint investigation by the SFO and City of London Police Force into energy and infrastructure linked corruption which covered numerous foreign jurisdictions. It also demonstrates how the SFO is actively seeking to prosecute individuals, as well as corporate entities, for their part in corporate crime. The SFO first became aware of the corruption through a tip-off in respect of the Parallel Train Project in Singapore. It was alleged that the defendants had passed on confidential information about three specific components of the project. The SFO alleged that this information had subsequently been offered to bidders Ecodyne Ltd, a Canadian water treatment company, and Ondeo Industrial Solutions (based on France), which allegedly agreed to pay commissions if awarded the contracts. A third company, GE Water & Process Technologies Ltd, was also approached, but turned the information down and instead reported the offer thereof to the procurement company. This in turn led to the SFO and the City of London Police being called in to investigate the case. In the 2012 proceedings, the companies that provided the procurement services for the three projects in Egypt, Russia, and Singapore offered significant assistance to the SFO’s investigation. These companies were not charged. Victories for UK Law Enforcement in Corruption and Fraud Cases Continued from page 21 Continued on page 23 www.debevoise.com FCPA Update 23 May 2015 Volume 6 Number 10 3. SFO Press Rel., Guilty Plea in Multi-Million Pound Energy Corruption Case (May 11, 2015), http://www.sfo.gov.uk/press-room/latest-pressreleases/press-releases-2015/guilty-plea-in-multi-million-pound-energy-corruption-case.aspx. 4.  UKSC 24. 5. Section 327 of POCA covers concealing, disguising, converting or transferring criminal property, or removing criminal property out of the UK; s.328 concerns entering into or becoming concerned in an arrangement linked with criminal property; and s.329 is the offence of acquiring, using, or being in possession of, criminal property. 6. Kensington Int’l Ltd. v Republic of Congo (formerly People’s Republic of Congo) (Vitol Services Ltd, Third Party)  EWCA (Civ) 1128. 7. R v Amir and Akhtar,  EWCA (Crim) 146. The case underscores the extra-territorial application by the courts of England and Wales of the criminal law of conspiracy in cases in which the accused is a UK national. As Detective Constable Martina McGrillen of the City of London Police was quoted as saying: “Marchment’s imprisonment . . . sends out a clear message that if you break UK laws you should expect to face the consequences in a British court. Hiding away overseas is not the answer; it is just delaying the inevitable.” Matthew Wagstaff, the Joint Head of Bribery at the SFO, said: “Collaboration with national and international agencies enabled the SFO to secure Mr. Marchment’s conviction, despite his attempts to evade justice for this greedy and parasitic crime.”3 Section 328 Proceeds of Crime Act 2002: When Does an Arrangement Become Criminal? In its 22 April 2015 judgment in R v GH, 4 the UK Supreme Court provided some clarification as to the meaning of “criminal property” as defined in POCA. The concept of “criminal property” is an essential component of the substantive POCA offences (which are identified in sections 327, 328, and 329 of the statute5 ) and has arisen in a number of contexts, including alleged bribery6 and fraud7 offences. The Supreme Court has confirmed that, for liability under the POCA substantive offences to arise, the property in question must constitute “criminal property” prior to the commission of the alleged POCA offence. Lord Toulson’s leading judgment also delivers a message to the UK’s law enforcement agencies and prosecutors that use of POCA is not always appropriate in cases in which the criminal conduct in question is “sufficiently covered by substantive offences.” The facts in the most recent case involved a fraudster, “B,” who had set up four websites which falsely purported to offer cut-price motor insurance. The fraudster recruited “H,” a third party, to open bank accounts for channelling the proceeds. Victories for UK Law Enforcement in Corruption and Fraud Cases Continued from page 22 Continued on page 24 www.debevoise.com FCPA Update 24 May 2015 Volume 6 Number 10 8. R v Geary,  EWCA (Crim) 1925. One of the fraudulent websites, relating to AM Insurance, operated from September 2011 to January 2012. Shortly before the website went live, H opened two bank accounts, of which B subsequently took control. In total, members of the public paid £594,143 into the bank accounts for non-existent motor insurance cover. B pleaded guilty to a number of offences. H stood trial at the Central Criminal Court, charged with the section 328(1) offence of entering into or becoming concerned in “an arrangement which he knows or suspects facilitates (by whatever means) the acquisition, retention, use or control of criminal property by or on behalf of another person,” namely the money received into the two bank accounts, by or on behalf of B. The trial judge determined that H had no case to answer, holding that at the time H entered into the arrangement, no criminal property existed, because the money paid into the account by those defrauded was not itself criminal property. The Court of Appeal agreed with the trial judge, though it focused on the moment the money was paid into the account by those defrauded, ruling that it was not criminal property even then as it was not the benefit of criminal conduct. The Supreme Court, however, unanimously allowed the prosecution’s appeal and reversed the judgment below. Lord Toulson held that property is “criminal property” if it has that quality or status by reason of prior criminal conduct. In this case, he found that the money being paid into the accounts that H had set up was criminal property because it resulted from B’s fraud on the unwitting consumers – which was a criminal act. Lord Toulson distinguished the facts of this case from those in R v Geary, 8 a leading ruling regarding what is and is not “criminal property.” For property to be “criminal property,” it must both (i) constitute or represent the benefit criminal conduct, and (ii) be known or suspected by the offender to constitute or represent such benefit. Geary focused on the second element of the definition. In Geary, the defendant helped a friend to hide money by allowing it to be transferred into his bank account before repaying it to his friend. The money had originally been stolen, so it satisfied the first element of the definition of criminal property. But Geary argued that he had not known of the theft, but instead thought that his friend wanted to hide the money from his wife, as he was about to get divorced. That may have been illegal, but Geary denied any knowledge that there had been prior criminal conduct. Victories for UK Law Enforcement in Corruption and Fraud Cases Continued from page 24 Continued on page 25 www.debevoise.com FCPA Update 25 May 2015 Volume 6 Number 10 9. Moore-Bick L.J. at ¶ 19. 10.  H.K.C.F.A. 48, Ribeiro and Fok, PJJ., joint judgment, ¶ 84. The trial judge in Geary directed the jury that Geary’s explanation did not provide him with a defence, and Geary was found guilty, on the basis of a plea. However, he then successfully appealed against his conviction to the Court of Appeal, which held that “to say [section 328(1)] extends to property which was originally legitimate but became criminal only as a result of carrying out the arrangement is to stretch the language of the section beyond its proper limits.”9 Lord Toulson distinguished the present case from Geary, holding that the monies transferred by the victims became criminal property for the purposes of POCA at the moment when the victims paid the money into the respondent’s accounts because of the fraud perpetrated on them, and not merely by reason of the arrangement made between B and H – which was the case in Geary. However, the existence of prior criminal conduct remains essential to a conviction. Lord Toulson observed that significant uncertainty would ensue if liability for the substantive POCA offences could arise where there had been no prior criminal conduct. He noted that this would particularly be the case for banks and other financial institutions which are already under broad and onerous obligations to report known, suspected or reasonably suspected money laundering. Lord Toulson quoted with approval the Hong Kong Court of Final Appeal in HKSAR v Li Kwok Cheung George, 10 which held: “It is one thing to criminalise dealing with funds where the dealer knows or has reasonable grounds to believe that they are the proceeds of crime, it is quite a different matter to stigmatise as a money launderer, a lender dealing with its own ‘clean’ funds because of what the borrower does or intends to do with them.” Victories for UK Law Enforcement in Corruption and Fraud Cases Continued from page 23 Continued on page 26 “However, the existence of prior criminal conduct remains essential to a conviction. Lord Toulson observed that significant uncertainty would ensue if liability for the substantive POCA offences could arise where there had been no prior criminal conduct.” www.debevoise.com FCPA Update 26 May 2015 Volume 6 Number 10 Although this remains a complex area of law, the Supreme Court ruling has provided some certainty that funds received as a result of fraud are criminal property as soon as an “arrangement,” in the terms of section 328 of POCA, acts on them. In this case, the arrangement was the payment of funds into the agreed bank account. The Supreme Court’s statements will also perhaps encourage prosecutors to consider further whether a prosecution under POCA is appropriate in the absence of a compelling public purpose for doing so. Financial institutions may take some comfort from the fact that the UK’s highest court did not seek to further extend the application of POCA offence to encompass situations in which a bank or financial institution may suspect that legitimate funds paid into accounts will subsequently become criminal property. Given the UK court’s decision last year seemingly extending the reach of POCA to apply to the receipt of the proceeds of a fraud in the UK into Spanish bank accounts (R v Bradley David Rogers & Ors,  EWCA (Crim) 1680), POCA liability continues to be a relevant issue not only to UK-based companies but also to foreign companies and individuals acting in connection with property that may be the benefit of criminal conduct in the United Kingdom. Karolos Seeger Alex Parker Matthew Getz Ceri Chave Pam Shearing Karolos Seeger is a partner, Alex Parker and Matthew Getz are international counsel, and Ceri Chave and Pam Shearing are associates, in the London office. They are members of the Litigation Department and the White Collar Litigation Practice Group. The authors may be reached at email@example.com, firstname.lastname@example.org, email@example.com, firstname.lastname@example.org, and email@example.com. Full contact details for each author are available at www.debevoise.com.