In October 2005, the Independent Inquiry Committee (IIC) chaired by Paul Volcker and established by the UN to examine alleged misappropriations under its Oil For Food Programme (the OFFP) published a lengthy report in which it claimed to have identified over 2,000 companies associated with tainted contracts for oil and humanitarian goods, giving a total of over $1.8bn in illicit payments to the Saddam Hussein regime. The report admitted that the identification of a particular company’s contracts as associated was not, of itself, to be taken as an allegation that the company – as opposed to its agents or secondary purchasers – made, authorised or knew of any illicit payment.

The onus then shifted to the individual UN member states to act in relation to their own nationals and companies. This is a strong example of the current trend for international co-ordination between criminal authorities (those involved in setting up this process considered that they were breaking new ground in a coherent attack on international criminal problems).

Most UN member states have been slow to act. However, recently, the UK’s Serious Fraud Office (SFO) has been taking action and has written to various UK companies, including a number of our clients, serving notices under section 2 of the Criminal Justice Act 1987 requiring them to provide certain information about their OFFP-related contracts. The timetables are relatively short, though they can be negotiated in appropriate circumstances. Accordingly, clients that had any connection with the OFFP should be on the alert for an enquiry. They should consider whether they should take any appropriate steps in the interim, including document preservation and pre-emptive review of any relevant factual material. This briefing identifies some of the possible legal issues that could arise, depending on the facts, focusing in particular on possible areas of legal exposure that the entities concerned may face.

Possible legal exposures

The SFO investigation will seek to identify whether any criminal offences have been committed as a matter of English law. Such offences may include the following. (There are complex issues over whether English criminal law bites before February 2002 (when the jurisdictional position was extended) and over whether sufficient acts were taken in the UK, or by a UK company, for any liability to attach.) 

  • Common law bribery or conspiracy to defraud. 
  • Offences under the Public Bodies Corrupt Practices Act 1889 or the Prevention of Corruption Acts 1906 and 1916 (relating to bribes being paid to agents or public officials). 
  • Theft Act 1968 offences (eg false accounting, obtaining export licences by deception).

It is also possible that any illicit payments made in relation to OFFP contracts, if proved, would constitute a breach of UK secondary legislation enacted to give effect to the Iraqi sanctions regime that was in place from 1990 onwards under Chapter VII of the Security Council Resolutions. This could give rise to additional criminal liability on the part of the company and/or its directors.

Clearly, any non-trivial allegations of such behaviour raise a series of wider governance, systems and controls, compliance, investor/stakeholder and other issues. It may be appropriate and necessary for a company to consider what wider action should be taken in the light of any issue that becomes apparent, including in appropriate cases a formal internal investigation.

Other possible consequences of further investigation by the SFO may include the following:

  • because of inter-agency co-operation, possible further investigations by other authorities (eg the US Securities and Exchange Commission (SEC) or the US Department of Justice (DoJ) if a company has US-listed securities, US corporations or nationals are involved or enough acts took place in the USA) including under the Foreign and Corrupt Practices Act 1977; 
  • proceedings under the Company Directors Disqualification Act 1986;
  • civil claims, for example actions by competitors, who may allege that, but for any wrongdoing, they would have won the contracts in question; 
  • action by the UN. This seems unlikely, as explained above: it has sought to delegate further action to individual member states. The IIC has been disbanded and the new regime within the UN has sought to draw a line under the OFFP affair. In theory, however, the UN Office of Internal Oversight Services could still investigate contracts said to be tainted; and
  • political action within the Organisation for Economic Co-operation and Development (OECD) framework. The UK is a signatory of the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions and has been criticised by the OECD for taking insufficient steps to implement its convention obligations into domestic law. The OECD’s formal powers are very limited.

The OECD claims that the UK government has set aside £23m to fund the SFO investigation over the next five years but also comments that the UK authorities have indicated to the OECD that the Volcker allegations, even if proved, would probably not be prosecuted under bribery or corruption legislation in the UK but under other statutes. This may reflect the difficulties posed by the jurisdiction and timing issues referred to above and the UK’s management of OECD expectations.

We are currently representing some of the UK companies that have received SFO enquiries. Other recent highprofile relevant experience includes:

UN Oil For Food Programme 

  • Acting for a European industrial in its dealings with the Volcker Inquiry and domestic criminal authorities.

SFO/fraud

  • Advising a company in relation to the largest investigation currently being undertaken by the SFO into overseas corruption; and 
  • advising Compass Group PLC in the highly publicised multi-agency (US Attorney, UN Office of Internal Oversight, US Congress, SFO, SEC) investigation into allegations of fraud and corruption in relation to UN procurement.

Iraqi sanctions

  • Acting for Saipem SpA in its successful High Court action in 2007 based on rights accrued against Iraq in the 1990s, despite the imposition of sanctions; and 
  • advising various multinationals on the legality of sanctions-era oil transactions.