- imposition of major penalties under the UK Bribery Act is only a matter of time, so business should not become complacent,
- prosecutors in the UK may soon have a new enforcement tool – deferred prosecutions agreements,
- shareholders who receive proceeds of crime by way of dividend may force civil action to recover those funds.
Enforcement of the UK Bribery Act
The UK Bribery Act received much fanfare as one of the strictest anti-bribery regimes anywhere in the world when it was introduced little more than a year ago. In response, many businesses stepped up anti-corruption measures in an effort to become Bribery Act compliant. Since then, we have seen little in the way of tangible enforcement and imposition of penalties by UK authorities.1 However, this apparent lack of enforcement is not surprising. The Bribery Act only applies to conduct after 1 July 2011, and it takes significant time to conduct investigations, compile evidence and prosecute complex cases of corporate economic crime. Moreover, many of the witnesses and much of the evidence relevant to such prosecutions will necessarily be located in foreign jurisdictions–which presents its own challenges.
Commercial organisations should not allow this ‘slow start’ to lull them into a false sense of security. Even before the arrival of the Bribery Act, the UK’s Serious Fraud Office had stepped up its enforcement activity. This has been confirmed by a recent OECD working group report. In recent years several companies have been convicted of foreign bribery under the former UK anti-bribery laws including Mabey & Johnson Ltd and Innospec Ltd along with several individuals. Indeed, during 2011 the SFO commenced 6 new bribery cases (mostly under the old law), achieved a fine against Macmillan Publishers Limited of more than £11 million2, and presently has upwards of 20 bribery investigations underway. Presumably, some of these will relate to conduct after July 2011, when the Bribery Act took affect.
Given the level of investigatory activity, the strictness of the Bribery Act per se and novel provisions like the offence of failing to prevent bribery, it seems likely that major prosecutions of commercial organisations are just a matter of time. When that time arrives, whatever else may happen it will have major reputational ramifications for the businesses and individuals involved, quite apart from potentially significant financial ramifications.
As it currently stands, the SFO has two ways to enforce breaches of the Bribery Act: criminal prosecutions or civil recovery. Both involve complexity, expense, delay and uncertainty of outcome. Criminal prosecutions are a blunt instrument and not always the most appropriate mechanism to pursue wrongdoers – they can also have unintended affects on commercial organisations and ‘innocent’ stakeholders (such as other employees, shareholders and customers). Civil action, which can be a highly effective tool in response to corporate bribery offences, generally provides a little more flexibility in outcomes. For example, in January 2012, the SFO used civil recovery proceedings to recover dividends connected with corruption paid to a corporate shareholder of Mabey & Johnson Ltd. That case marked a new approach by the SFO. Richard Alderman (then director of the SFO) commented:
… shareholders who receive the proceeds of crime can expect civil action against them to recover the money…shareholders and investors in companies are obliged to satisfy themselves with the business practices of the companies they invest in. This is very important and we cannot emphasise it enough., It is particularly so for institutional investors who have the knowledge and expertise to do it… we will be much less sympathetic to institutional investors whose due diligence has clearly been lax in this respect.3
For reasons such as these, the UK Ministry of Justice (MOJ) has foreshadowed the introduction of a new enforcement tool.
A new tool - deferred prosecution agreements
Another tool that we may soon see in practice in the UK is deferred prosecution agreements (DPA). DPAs have been used extensively in the USA in response to corporate bribery and corruption. In May 2012 the MOJ released a public consultation paper seeking comment on its proposal to allow prosecutors to tackle corporate economic crime by way of DPAs.
DPAs enable prosecutors to lay but not proceed with criminal charges on the condition that the accused person takes specified remedial action and pays certain penalties. In that sense, they can provide a penalty that is much more targeted than court orders consequent upon criminal or civil action. They can also see the imposition and collection of financial penalties much earlier than may otherwise be possible.
The proposed DPA process
Under the UK proposal, the terms of the DPA, along with an agreed statement of facts, would initially be negotiated between the accused and prosecutor. The DPA may potentially include terms imposing a fine, disgorgement of profits, reparation to victims, ongoing cooperation, investigation or audit, the replacement of implicated individuals, withdrawal from certain markets and/or monitoring. The DPA and the agreed statement of facts would be binding on the commercial organisation and admissible in any subsequent proceedings.
Unlike DPAs in the USA, the MOJ proposes early and active involvement from the judiciary. A DPA could not proceed unless a judge was satisfied that the DPA was in the ‘interests of justice’ and that the terms of the DPA were ‘fair, reasonable and proportionate’. Only once approved by the Court, would the terms of the DPA become publicly available.
In principle, the benefits of the proposed DPAs are clear: both sides incur less cost, avoid a full trial and have certainty as to outcome. Commercial organisations avoid the stigma of a criminal conviction and the collateral consequences that a conviction may bring, but are still effectively punished for the crime.
Despite the obvious benefits of DPAs, further detail is needed as to how the process will actually work before the proposal can be properly assessed. The MOJ proposes that a Code of Practice, operational guidance and procedural rules be released. Those documents will need to provide clarity in relation to the remaining, important issues, namely:
- the use of information obtained during negotiations (especially in circumstances where negotiations break-down),
- the degree of court involvement in negotiations, how early that will occur, and what impact negotiations with the court may have if negotiations breakdown,
- the power of judges to call for more evidence and generally how to deal with new evidence that emerges during the negotiation phase,
- the level of cooperation needed to merit a reduction in financial penalty and by how much, and
- how to handle reputational issues following publication of an approved DPA.
Whether DPAs are to be adopted is yet to be decided.
Ultimately, commercial organisations who are offered a DPA will need to carefully weigh the benefits and costs of entering into such an arrangement before proceeding down that course. Indeed critics of DPAs argue that those guilty of such offences ought not be able to make such a choice. Ultimately, that is a policy question for parliament, but it is a question that has been answered affirmatively many times before in other contexts. It is hard to see that bribery and corruption laws are so special that such mechanisms ought not be available.