In the first prosecution of its type, the UK Serious Fraud Office (SFO) has successfully pursued a UK company for corrupt practices abroad. BAE Systems (BAE), the world's second largest defense manufacturer, now faces potential prosecution. The SFO has significantly expanded its capacity to investigate overseas corruption. The number of investigations and prosecutions can be expected to increase. Companies which self-refer to the SFO will, wherever possible, have their actions treated as a civil matter, rather than criminal, thereby avoiding debarment under the EU Public Sector Procurement Directive.
Multinational corporations potentially facing allegations of foreign corruption have historically been more concerned with the actions of the US Department of Justice ("DOJ") than the UK's Serious Fraud Office ("SFO").
The DOJ has aggressively pursued a variety of multinational corporate entities and individuals, from the well-known extradition requests for the "Natwest Three" and Ian Norris, to the pursuit of the companies and executives involved in the infamous Marine Hose Cartel. The DOJ has also invested heavily in unveiling overseas corrupt practices, and these targets are pursued with no less vigor. For example, the recent prosecution of Gerald and Patricia Green, Los Angeles-area film executives found guilty of bribery payments to a senior Thai tourism official to obtain lucrative contracts, is only one of a long line of successful DOJ prosecutions under the Foreign Corrupt Practices Act.
In contrast, the SFO has only just achieved its first successful prosecution (of bridge equipment manufacturer Mabey & Johnson) for overseas corruption offenses. Although it may have been less of a threat relative to the DOJ in the past, the SFO's first successful prosecution marks its emergence at the forefront of bringing to justice those suspected of foreign corruption. Those non-UK companies and executives who were previously unaware of or unconcerned by the SFO should be on alert.
The Changing Landscape
Fresh from securing a £4.6 million fine for bridge equipment manufacturer Mabey & Johnson for bribes paid in Ghana, Jamaica and Iraq, the SFO announced on October 1, 2009 that it will seek the prosecution of BAE for illegal payments in Africa and Eastern Europe (it currently awaits the Attorney General's consent to the prosecution). The SFO now treats the actions of self-referring companies as civil matters, offering an escape route from the negative effects of criminal prosecutions.
Following publication in July 2009 of a report by the Joint Committee on the Draft Bribery Bill, the anti-bribery bill is expected to become UK law during the next parliamentary session. The sweeping modernization of law relating to corrupt practices both at home and abroad will clarify the existing medley of common law and legislation. It will introduce a stand-alone corporate offense. It will also remove the requirement for the SFO to obtain the consent of the Attorney General before commencing criminal proceedings. Both UK companies and multinationals with inadequate anti-corruption measures should take heed of the changing political and legal landscape.
A Bridge Too Far
Construction company Mabey & Johnson's clients include international highways authorities and governments. After a damning internal memorandum, which detailed some of its underhand dealings in foreign jurisdictions came to light during civil proceedings in the UK High Court in 2008 its reputation was at stake.
The company had, between 1993 and 2001, made payments to officials in Ghana and Jamaica. During 2001 to 2002 it made payments to the Iraqi Government in breach of UN sanctions as they applied to the oil-for-food program. In total these payments secured Mabey & Johnson contracts worth over £60 million.
For the first time in the UK, a US-style plea bargain approach was adopted. Mabey & Johnson's holding company approached the SFO in February 2008, offered its full cooperation to the subsequent investigations, and pleaded guilty to charges of bribery and "sanctions-busting" at Westminster Magistrates' Court on July 10, 2009.
A separate sentencing hearing was held at Southwark Crown Court on September 25, 2009. Despite the presence in court of representatives of the Ghanaian Government, and the naming of the very foreign officials who had received bribes, it was a low-key affair which belied the significance of the proceedings. It marked the successful end-point of but one of the SFO's investigations.
In addition to ordering a fine of £4.6 million, the judge made a confiscation order of £1.1 million, ordered reparations payments to be made to the governments of Ghana, Jamaica and Iraq totalling £1.4 million and awarded the SFO its costs incurred both in the prosecution and also the first year of monitoring the compliance of the company.
In making the decision the judge took into account several mitigating factors, the single most important of which was Mabey & Johnson's initial decision to approach the SFO and cooperate with its investigations and subsequent recommendations for change. The judge noted that the management of the company had been replaced, new ethical procedures had been introduced and, in all relevant respects, this was not the same company which had made the illegal payments.
The judge deemed the level of fines realistic and just in the context of the financial ability of the company, the seriousness of the offenses committed, and also the public interest in ensuring that the company remained able to function as an employer and earn revenue. However, if Mabey & Johnson had not admitted its former practices so readily, nor applied to the fullest extent possible the remedial measures which were suggested by the SFO, the fines would without doubt have been considerably higher. It is worth noting that under the proposed Bribery Bill, fines for corporate offenders would be unlimited.
The price of failure to take steps either to (a) prevent immediately any ongoing or potential corrupt practices from taking place, or (b) approach the SFO and seek leniency before it commences a criminal prosecution for past practices, is one of which the owners and managers of many companies should be aware.
Rising From the Ashes
BAE is the second largest arms manufacturer in the world, and Europe's largest. Its operations are not without controversy. In 2006 an investigation into its business with the Saudi Arabian government was discontinued by the government, overtly in the interests of national security. The decision to halt the investigation was subjected to judicial review, and the House of Lords found that the decision, though unpalatable, was lawful.
The investigations into BAE were halted as they related to Saudi Arabia, but their scope included payments to other foreign government officials. At the behest of the SFO's director they were revisited and reinvigorated. Attempts over the summer of 2009 to seek BAE's agreement to plead guilty to corruption offenses, in return for a measure of leniency, failed to reach a conclusion by the deadline of September 30 imposed by the SFO. On October 1 the SFO announced its decision to seek the consent of the Attorney General to prosecute BAE.
These circumstances provide a useful wake-up call to all other companies which may find themselves under investigation by the SFO.
Come Clean Now
In light of the increasingly evident political will to combat international corruption and white collar crime in general, a resurgent and successful SFO and the expected passage into law of the new Bribery Bill, there will be few companies which are willing, or able, to ride out the barrage of adverse publicity which accompanies extended, contested criminal proceedings.
The SFO has increased the number of its anti-corruption investigators to over 100, with the operations headed by Keith McCarthy, a former Revenue and Customs investigator. More numerous and widespread investigations will inevitably give rise to future prosecutions.
The stick is obvious; the proffered carrot is enticing. A company which voluntarily approaches the SFO will, wherever possible, have its offenses dealt with as a civil matter, rather than a criminal one. The SFO published guidance spelling out this new policy in July 2009 (click here). An exception to the stated practice would be where the directors of the company concerned had personally engaged in the corrupt activities and derived personal benefit.
A self-referral to the SFO may stave off the worst negative publicity, and prevent corporate and personal reputations from being unduly tarnished. It may ensure that more value is retained for shareholders and customers than otherwise would have been the case. But, crucially, a negotiated settlement rather than a criminal prosecution also means that the mandatory debarment provisions under Article 45 of the EU Public Sector Procurement Directive in 2004 will not apply. A failure to approach the SFO voluntarily will be regarded negatively in any future criminal investigation and prosecution, and opportunities for the SFO to learn about criminal conduct from whistleblowers and government agencies, both foreign and domestic, are widespread. The message is clear: if companies come clean early, they will be treated fairly.
It is worth noting the most pertinent features of the new Bribery Bill.
- Offenses committed by individuals will be punishable by a fine or imprisonment for up to ten years.
- Offenses committed by corporate entities will be punishable by an unlimited fine.
- Criminal liability for the corporate officers involved is expressly contemplated.
It is likely that there will be changes to the bill before it comes into effect. The Joint Committee recommended, for example, removing the negligence component for the corporate offense, to make the offense one of strict liability if the organization does not have adequate procedures in place. What "adequate procedures" entails is yet to be made clear. Further clarification is required as to the overlap between payments made inducing improper performance as opposed to mere civil wrongs. However, there should be no doubt that the law and politics relating to corrupt practices is going through a sea change. Companies will need to refocus in light of these developments, in particular the SFO's practices and the new corporate offense, and consider all avenues for mitigating their potential criminal liabilities.