FCPA Compliance and Ethics Blog

January 16, 2013

Glengarry Glen Ross and the Internal Marketing of a Compliance Program

One of the great plays and movies that I enjoy is ‘Glengarry Glen Ross’. As you might expect with anything that David Mamet pens the dialogue is absolutely spot on, fast paced and non-stop. The action generally revolves around the desperate attempts of a company’s sales man to sell parcels in two real estate developments named Glengarry Highlands and Glen Ross Farms. The movie cast is outstanding with Al Pacino, Jack Lemmon, Kevin Spacey, Alec Baldwin, Ed Harris and Alan Arkin. One of my favorite lines in the movie comes from the corporate motivator, the Baldwin character who says “ABC – Always Be Closing”.

One thing which tends to bedevil many compliance practitioners is the internal marketing of a compliance program. Most compliance professionals came to this area of practice from the legal profession, internal audit, or some other discipline which did not include a marketing background. But in many ways teaching, training and informing employees on compliance is marketing. I thought about the concept of marketing and the signature line of “Always Be Closing” from Glengarry Glen Ross when I read a recent article in the January-February issue of the Harvard Business Review (HBR), entitled “Rethinking the 4 P’s”, by authors Richard Ettenson, Eduardo Conrado and Jonathan Knowles. In this article, the authors posit that the “4 P’s” of marketing need to be changed for “today’s B2B reality.” I believe that a best practices compliance program can use these concepts to help internally market a compliance program.

The old “4 P’s” of marketing are product, place, price and promotion. The authors conducted a five-year study involving over 500 managers and customers across multiple countries and industries. From this study, the authors found that the old 4 P’s of marketing undercut the B2B markets in three key areas. First, the old paradigm asked marketing and sales teams to “stress product technology and quality even though these are no longer differentiators” but are now simply the cost of entry. Second, the old paradigm “underemphasized the need to build a robust case for the superior value of their solutions.” Third, the prior paradigm distracted the sales and marketing teams from “leveraging their advantage as a trusted source of diagnostics, advice and problem solving.” I believe that these three issues also beset the compliance practitioner as well.

The authors developed four new concepts for marketing in the B2B space. These four used the acronym SAVE and they were: (1) solution, (2) access, (3) value, and (4) education, the author’s defined them as follows:

  1. Solution – Define offerings by the need they meet, not their features, functions or technological superiority. There are multiple anti-corruption and anti-bribery laws in place across the world. From the Foreign Corrupt Practices Act (FCPA) to the UK Bribery Act and beyond. A compliance solution meets the needs of a company to comply with these laws. It can be seen as a market-based solution to a legal requirement and can be defined as such.
  2. Access – Teams should develop a cross-channel presence that considers customers’ entire purchase journey instead of emphasizing individual purchase locations and channels. Here it is important to bring the business unit folks into the discussion. It not only allows buy-in by the business unit but invests them in the overall compliance solution. There is nothing better than a Regional Vice President (VP) explaining to a business relationship how seriously the company takes compliance and they expect that from the business relation as well.
  3. Value – Here the sales and marketing teams should articulate the benefits to price, rather than stressing how price relates to production cost, profit margins or competitors’ pricing. Compliance may be thought of as simply a cost center but I would advocate that it actually brings business to the table. A compliance solution can be a selling point for any company which does business with a US company internationally. Every contract requires (FCPA) compliance and often a new vendor is audited for their compliance program. This is also true in any mergers and acquisition (M&A) transaction.
  4. Education – Under this final prong sales and marketing should provide relevant information to customers’ specific needs at each point in the purchase cycle rather than relying on advertising, PR and personal selling that covers the waterfront. I started this piece by talking about internal marketing and that is what education is. I would change Always Be Selling to Always Be Marketing.

These four concepts are coupled with certain requirements to make the switch over, which I believe are also applicable to the compliance practitioner. Initially, management must encourage a solutions mind-set throughout the organization. If your company comes from an engineering or tech background, it may be difficult to shift over from thinking about technological superiority to a customer-centric perspective. But the key is the tone at the top. Is management willing to make this a priority throughout the sales chain? Is management committed? These are questions that not only a compliance practitioner must answer but ones that the Department of Justice (DOJ) will ask.

The next premise which must be in place is that the design of the sales and marketing team must reflect the customer-centric focus. In the sales and market world, this led one company, Motorola, to reorganize the marketing function into complimentary specialties, allowing a clear focus on each element of the SAVE concept. Here this concept would appear to have been presaged in the Pfizer Deferred Prosecution Agreement (DPA) in the Enhanced Compliance Obligations; the DOJ spelled out what it expected in the company’s compliance department. It listed three separate functions, each designed to deliver a different compliance solution to the compliance department’s internal client, the company.

The final premise I found very significant is that management must create collaboration between the sales and marketing teams and the development and delivery teams. This is important because specialist teams in development and delivery need to concentrate their approaches to specific customer needs. By doing so “this ensured that functional boundaries did not determine” a company’s solutions.

Here I think that the key for the compliance practitioner is to engage business unit employees. Leonard Shen, Chief Compliance Officer (CCO) of PayPal used this approach when and his compliance team traveled to multiple company locations, across the globe, to meet with as many employees as possible. A large number these meetings were town hall settings, and key employee leaders, stakeholders and employees identified as high risk, due to interaction with foreign governmental official touch-points, were met with individually or in smaller groups. Shen and his team listened to their compliance concerns and more importantly took their compliance ideas back to the home office. From this engagement, the team received several thousand employee suggestions regarding enhancements to the company’s compliance program. After returning to the US, Shen and his team winnowed down this large number to a more manageable number, somewhere in the range of a couple of hundred. These formed the basis of a large core of the enhancements to the existing company compliance program.

This was also part of the approach used by Peter Löscher who was hired as the Chief Executive Officer (CEO) of Siemens in 2007. Löscher went on a round the world tour of the company’s facilities, including meetings with customers, local governmental officials and Siemens employees. He accomplished this final component through meetings with local leadership teams, town hall-style meetings with all employees and dinners with top leadership teams in specific locations. He basically learned that Siemens employees were “shocked and ashamed, because they were very proud to be a part of Siemens.” He used these forums as a basis to begin to change the culture of the company which was then enmeshed in what became the world’s largest and most costly bribery and corruption scandal to date.

Many compliance practitioners and lawyers do not think about marketing. The HBR article provides some interest parallels to what compliance practitioners need to communicate. However, if you really want to go all out, check out this clip from the movie of Alec Baldwin with “Always Be Closing” on youtube.com.

This publication contains general information only and is based on the experiences and research of the author. The author is not, by means of this publication, rendering business, legal advice, or other professional advice or services. This publication is not a substitute for such legal advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified legal advisor. The author, his affiliates, and related entities shall not be responsible for any loss sustained by any person or entity that relies on this publication. The Author gives his permission to link, post, distribute, or reference this article for any lawful purpose, provided attribution is made to the author. The author can be reached at tfox@tfoxlaw.com.

© Thomas R. Fox, 2013

January 15, 2013

Rolls-Royce Brings in Lord Gold – Is it Thinking Big Enough?

In December 2012 the BBC online service reported that Rolls-Royce Motor Cars Limited (Rolls-Royce) was in talks with the UK Serious Fraud Office (SFO) regarding potential allegations of bribery and corruption in Indonesia and China. It was reported that the investigation began in 2011 when the SFO requested information from Rolls-Royce about possible bribe-paying in those two countries. This prompted Rolls-Royce “to bring in a legal firm to conduct an internal investigation earlier this year, which uncovered potential misbehaviour in other countries as well as the two named by the SFO.” The investigation focused on certain intermediaries involved in the countries in question. The Guardian reported the initial bribery issue was reported by a whistleblower, former Roll-Royce employee Dick Taylor, and involved allegations of bribery and corruption in Indonesia and China. According to the Financial Times (FT), Taylor had made these allegations for at least six years that Rolls-Royce paid bribes to secure business for its civil aircraft engines in Indonesia. At least as long ago as 2006 Taylor took his concerns public by posting statements on local newspaper and industry news internet sites. The Guardian stated that Taylor “claimed that Tommy Suharto – a son of the late President Suharto – received $20 million and a Rolls-Royce car to persuade the national airline, Garuda, to order Rolls-Royce Trent 700 engines in 1990.”

The FCPA Blog reported earlier this month that a pseudonymous blogger, named by the FT as ‘Soaringdragon’, claimed that “Rolls-Royce propelled itself into the Asian market with the help of payments passed to an executive of Air China and China Eastern Airlines. Executive Chen Qin, who worked for both airlines, allegedly acted as Rolls-Royce’s intermediary in two pivotal deals inked in 2005 and 2010, worth $2 billion in all. Chen is thought to have been detained for corruption in April 2011.” All the allegations currently made against Rolls-Royce were for actions prior to the application of the UK Bribery Act, which became effective on July 1, 2011.

Rolls-Royce is reported to be co-operating with the SFO in the investigation. The company announced that it found concern regarding the markets of China, Indonesia and other markets as well. The company reportedly released its findings over to the SFO which has not yet announced whether it would open a separate investigation or if it had made any decisions on whether it would prosecute the company. Chief Executive John Rishton was quoted as stating, “I want to make it crystal clear that neither I nor the board will tolerate improper business conduct of any sort and will take all necessary action to ensure compliance. This is a company with exceptional prospects, and I will not accept any behaviour that undermines its future success.”

Last week Rolls-Royce announced that it had retained Lord Gold to review its overall compliance program. The FT reported “Having to bring in Lord Gold to examine the robustness of the company’s compliance efforts indicates just how much Rolls-Royce wants to avoid an SFO, or worse, a DoJ probe. He has been brought in to Rolls-Royce precisely to avoid the costs associated with BAE’s bribery investigation, and thus his role is much more similar to the one Lord Woolf played at BAE.” For a company known to have an opaque culture, bringing in Lord Gold “has the potential to upset the Derby-based company’s deep-seated culture more than anyone in its recent history.”

I thought about this move by Rolls-Royce when I re-read a posting, entitled, “Wal-Mart, Go Big on FCPA Compliance”, by my colleague Matt Ellis, in his blog, FCPAméricas. In this post he detailed some of the ways that he thought Wal-Mart could use the opportunity afforded by its bribery and corruption scandal in Mexico “as an opportunity. It is an opportunity to go big on compliance.” Matt talked about how Siemens changed its culture after having paid the highest fine for violations of the Foreign Corrupt Practices Act (FCPA) in the history of the world ever. Moreover, Matt listed several things that he thought Wal-Mart was uniquely positioned to accomplish because of its size and strength, which were as follows:

  • Wal-Mart could use these same tools to build a state-of-the-art corruption risk-tracking program to which its compliance practices could respond in real time.
  • Wal-Mart could use its enormous leverage in international markets to educate foreign audiences on compliance.
  • Wal-Mart could train these landlords of the stores they lease internationally on compliance.
  • Wal-Mart could require landlords to put a FCPA or other anti-corruption compliance programs in place themselves.
  • Wal-Mart could begin to teach communities how to identify and avoid risks of petty corruption.
  • Wal-Mart could partner with local municipalities to launch reporting centers in its Supercenters.

I am not certain Lord Gold could accomplish some of the things that Matt has suggested that Wal-Mart put in place as Wal-Mart is the world’s largest retailer and Rolls-Royce is, well the name says it all, Rolls-Royce. But after the black-eye the British defense and aerospace industry took in the BAE corruption and bribery scandal, Rolls-Royce may be able to use this opportunity to lead a culture change in this British market segment. According to the FT, “Lord Gold’s job at Rolls-Royce will be closer to that of Lord Woolf, who made wide recommendations at BAE after it became embroiled in a corruption and bribery scandal. If Lord Gold is similarly radical, he could completely change the way Rolls-Royce does business, forcing it to limit its use of intermediaries, or even prompt the resignation of senior executives, as happened at BAE.”

I think that the lessons for the compliance practitioner from Rolls-Royce are two-fold. First and foremost, get ahead of the curve. If you believe that you have found evidence of systemic bribery and corruption, your company has to self-disclose and work with the appropriate enforcement agency, whether that is the US Department of Justice (DOJ) or the SFO. But more than self-disclosure and extraordinary cooperation, be proactive in attacking the policies, processes and procedures which led to the allegations of corruption.

Bringing in a Lord Gold, who has dealt with “A multibillion-pound spat between oligarchs, investigating cronyism in British politics, and helping one of the world’s best-known brands respond to corruption allegations have been his bread-and-butter since the veteran litigator set up his own advisory boutique in 2011”, can certainly help give you credibility on either side of the Atlantic. On the US side, the first name that pops in my mind is Louis Freeh, former Director of the Federal Bureau of Investigation (FBI), whose work has ranged from the Penn State/Jerry Sandusky investigation to the Trustee in the MF Global bankruptcy to his appointment to the Ethics Committee of FIFA. If you want another name, I can certainly recommend John Hanson, aka “The Fraud Guy”. He is a retired FBI agent, has worked in the fraud investigations and forensic accounting practice of a large publicly traded international financial consulting firm and has been an independent monitor under Deferred Prosecution Agreements (DPAs). Both of these guys know their stuff and are very well respected in the compliance community.

I think the clear import of Matt Ellis’ article is to ‘think big’ and outside the box. If you proactively attack what went wrong that led to bribery and corruption, I think it will pay off dividends with the DOJ or the SFO.

This publication contains general information only and is based on the experiences and research of the author. The author is not, by means of this publication, rendering business, legal advice, or other professional advice or services. This publication is not a substitute for such legal advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified legal advisor. The author, his affiliates, and related entities shall not be responsible for any loss sustained by any person or entity that relies on this publication. The Author gives his permission to link, post, distribute, or reference this article for any lawful purpose, provided attribution is made to the author. The author can be reached at tfox@tfoxlaw.com.

© Thomas R. Fox, 2013

September 3, 2012

Doomsayers Proven Wrong Yet Again-Gifts and Entertainment Under the Bribery Act

Ed. Note-the following article was posted by our colleagues thebriberyact.com guys, Barry Vitou and Richard Kovalevsky Q.C. We received permission to repost the article in its entirety. 

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‘We are not interested in that sort of case. We are interested in hearing that a large company has mysteriously come second in bidding for a big contract. The sort of bribery we would be investigating would not be tickets to Wimbledon or bottles of champagne. We are not the “serious champagne office”.’

today’s Daily Mail quotes the Director of the Serious Fraud Office as saying.  It is helpful stuff.

We have said time and time again that the SFO is unlikely to be bringing a stand alone Bribery Act prosecution over corporate hospitality.  Scare stories published about Olympic corporate hospitality levels and pictures of empty seats led to reports that the Bribery Act was to blame.

Many of the empty seats were not in fact empty corporate boxes but instead seats belonging to Olympic officials who did not bother to turn up to early qualifiers. But why let the facts get in the way of a good story.

That said, we are aware of instances where corporates had Olympic corporate hospitality rejected because of the Bribery Act.

Hopefully the latest comments from the new SFO Director will kill off some of the scaremongering that has gone before among the media and some legal advisers.

In an excellent post our friend Howard Sklar recently exposed some legal advice given by one lawyer about the Bribery Act who advised:

“The limit should be zero dollars. That will keep you safe”

B******s.

Howard, known for his tempered approach commented:

“Really?  Zero?

Let’s just talk about how advice likes this harms not just the giver, but the receiver too.  First, the giver.  The person who gives this advice will give it to one of two types of people: people who know what they’re talking about, or people who don’t.  I don’t know which comes out on the bottom.  If the lawyer is giving this advice to a knowledgeable person, that person will likely politely smile, nod, and then put the lawyer in the “idiot” box in his head, and not listen to another thing that lawyer says.  Which is a problem, because maybe in the future—even a stopped clock is right, twice a day—that lawyer will give some advice the client should listen to.  But getting out of the “idiot” box is a rare feat.

Or the recipient won’t know what they’re talking about.  In which case, like a wide-eyed doe, they’ll just accept what the lawyer says as a best practice.  Heaven forbid they go back to their own company and repeat that advice out loud.  (We’re back to the “Idiot” box).  Or even worse, that they’re in a position of authority, and could implement that advice.”

This is not rocket science.  Companies should put in place proper procedures to deal with corporate hospitality in line with SFO guidance.

Broadly this means companies should think about their corporate hospitality process, and pick a number above which approval is required.  If you want you can pick some more numbers above which a higher level of approval is required.

The key is to be able to justify why you picked approval thresholds and that the policy is actually followed.  Both should be well documented.

As Howard says: “By the way, that “zero dollars” idea doesn’t keep you safe.  The business will ignore it, sidestep it, and will do that for just about any advice you give from now on.”

June 17, 2012

SFO Director unveils SFO shake up & intention to put ‘Serious’ & ‘Fraud’ back into the SFO

Filed under: Bribery Act,Serious Fraud Office — tfoxlaw @ 3:27 pm
Tags: ,

Ed. Note-The following was published on thebriberyact.com site on Friday. The authors granted me permission to repost the article in its entirety.

In stories carried by the Financial Times and Reuters it was reported that speaking yesterday David Green CB QC revealed more of his plans for the SFO and made it plain he is injecting a healthy dose of self esteem back into the agency.

While much of what he said is a repeat of earlier statements which we distilled back in April there were some new elements.

Mr Green underscored again that the SFO is going to focus on *serious* fraud cases, corruption here and abroad and that cases must be in the public interest to be worthy of scarce SFO resources.

Mr Green highlighted his interest in expanding the SFO’s Proceeds of Crime Act unit adopting a“cradle to grave” approach to investigation, prosecution and confiscation with the SFO’s POCA unit being set up as a separate division of the SFO.   It will have a target to increase confiscation of criminally obtained assets and compensation of victims.

We have written repeatedly about the importance of UK money laundering laws and their ability to be a lucrative source of revenue for the SFO on top of its annual budget from the Treasury.  This could be a game changer for the SFO.

Internally the SFO is to undergo a reorganisation with the creation of four divisions.  Intelligence, known to be a bugbear, will be improved and there will be “layers of quality control” at every stage of an investigation.

A new role of Chief Prosecutor will be created and the new Director will be looking to the City and private practice to second lawyers to the agency.

While the new SFO Director is known to strongly favour Deferred Prosecution Agreements (currently under consultation) in a clear warning and placating opponents who argue that there should not be one rule for some and not for others he reportedly said:

“Corporates cannot be seen to be allowed some special kid glove treatment. In any case where there is a reasonable prospect of conviction, and it’s in the public interest to prosecute, the SFO will prosecute, whether individuals or corporates…”

Opinion

The new SFO Director has set out clear objectives for the agency.

None should come as a surprise and we fully expect that he will deliver.  It is wishful thinking to assume the SFO will not execute on its threats to pursue prosecution of serious fraud and corruption. Don’t fall into the trap of thinking it could never happen.

January 3, 2012

Ten Compliance Issues from 2011

I have seen several lists of the Top Foreign Corrupt Practices Act (FCPA) issues of 2011. Sam Rubenfeld and Chris Matthews at the Wall Street Journal’s Corruption Currents have been interviewing several of the top legal practitioners on their thoughts. The ever-present Mike Volkov has weighed in with his list and his “Person of the Year”, the Chief Compliance Officer. Howard Sklar and I even got into the video act by discussing our most significant issues in “This Week in FCPA”. So as part of the compliance commentariati, I submit, for your consideration, my Top Ten anti-corruption and anti-bribery issues over the past 12 months.

1.         Amendments to the FCPA? The Senate ended 2010 with hearings focusing on why there were not more individual prosecutions under the FCPA. In June, the House Judiciary Committee focused on ways to ease up on or gut the anti-corruption provisions of the FCPA in the name of US “competitiveness” overseas. Then in a stunning turnaround, the House Judiciary Chair asked the Department of Justice (DOJ) representative if the DOJ would support a ban on all commercial bribery, not just a ban on bribing foreign governmental officials. Then again he did say was drafting amendments to the FCPA which we haven’t heard about since the great theater in June.

2.         UK Bribery Act goes live. For many in the anglophile world, the event of the year was the marriage of Prince William to Kate Middleton. However, for us in the anti-corruption and anti-bribery world, it was effective date of the UK Bribery Act, July 1. While some had opined that the Bribery Act was “the FCPA on steroids” the initial prosecution under the Bribery Act was for a £500 bribe paid to a UK court clerk. Perhaps it just takes awhile for UK steroids to kick in.

 3.         Crystal Ball Reading. One does not have to read a crystal ball or tea leaves to know what should constitute a best practices compliance program. The DOJ continues to respond to calls for information by practitioners and the commentarati by providing solid information through which you can implement or enhance your compliance program. In addition to continuing to list the 12 points in a minimum best practices compliance program in each Deferred Prosecution Agreement (DPA)/Non-Prosecution Agreement (NPA) released; the DOJ has provided ‘enhanced compliance obligations’ in DPAs which provide information on evolving standards. Back in January, the DOJ provided information on areas of risk which should be assessed to inform your compliance program.

4.         Chief Compliance Officer Upgrade. With the effective changes in the federal sentencing guidelines from November, 2010 and the DOJ comments this year, it has become clear that companies must give a more prominent role to the Chief Compliance Officer and separate that function from that of the General Counsel.

5.         Investigating Private Equity. Both the DOJ and Serious Fraud Office (SFO) announced that they would be looking at private equity, in conjunction with anti-bribery and anti-corruption. Well known for cost reductions through cutting corporate budgets, they may become a prime and profitable set of targets for enforcement agencies.  Additionally, their unique structure of separately operating portfolio companies may greatly increase ownerships control and person risks. If you are in private equity and are reading this and have no clue what I am talking about, get on the phone to one of Howard Sklar’s recommended FCPA counsel ASAP.

6.         It Just Can’t Get any Weirder. Just when you think you have seen it all in the FCPA world, News Corp., is accused of bribing Scotland Yard to further its newspaper business and it is also alleged that a lawyer representing a US company in Mexican litigation attempts to bribe a court official to obtain a favorable ruling. Then, of course there is Olympus, which not only fires its whistle-blowing Chief Executive Officer (CEO) for questioning Red Flag payments to agents, which reveals that it has been engaged in a decade long corporate fraud. But here’s the topper in my book, someone posted a comment to my blog post about Tyson’s Foods paying bribes to the wives of Mexican food inspectors to obtain ‘favorable treatment’. She said the following “The meat being TIF-certified for export was not meat distributed to U.S. The meat was being exported to countries such as Japan and other Asian destinations.” I am sure that is of great comfort to the folks in “Japan and other Asian destinations”. Memo to Tyson: Call Gini Dietrich at Spin Sucks for some serious PR help.

7.         Plaintiff’s Bar gets that old time (FCPA) religion. The FCPA was used, in a somewhat novel manner, in three civil actions which may portend an entire new wave of private and civil FCPA litigations. In SciClone a shareholder derivative action was filed after the announcement of a FCPA investigation. During the pendency of a FCPA investigation, this civil action was settled with the company agreeing to implement a best practices compliance program. In Alba v. Alcoa a company whose employees were allegedly paid bribes (Alba) sued the alleged bribe-payor (Alcoa) for damages in driving up the costs for products sold because of the corrupt acts of Alcoa. In ICE, the Costa Rican telecom company sought to use the victim restitution component to allow it to participate in the DOJ’s FCPA settlement with Alcatel-Lucent.

8.         Rule of Law. Several DOJ prosecutions of individuals under the FCPA have brought a plethora of legal rulings to flesh out legal standards under the FCPA. In the spring, there were district court rulings on whether a state owned enterprise is covered by the FCPA and an analysis of what constitutes a state owned enterprise. These cases will probably be appealed so we may have the first US court of appeals’ interpretation of the FCPA in quite some time.

9.         Wide World of Enforcement. More countries are implementing new anti-corruption laws and more resources are being dedicated to enforcement. The US has had significant cooperation with the UK SFO and Financial Services Association (FSA) and this will increase with the go live date of the Bribery Act. However, the BRIC countries have passed, or are considering, significant anti-corruption laws. The US is starting to coordinate and share more information with these countries — China being the most significant.  For global companies, this increase will portend greater numbers of fines and penalties and will complicate international settlement efforts.

10.       Year of the FCPA Trial. This was the year that the DOJ brought out the big trial guns for three very high profile FCPA trials: the Gun Sting cases; Lindsey Manufacturing; and Haitian Telecom. The resolution results have been mixed, with convictions in Lindsey and Haitian Telecom; mistrial in the first of four Gun Sting trials and some dismissals in the second Gun Sting trial. However, the government has taken a black eye for some procedural missteps, particularly the judge throwing out the entire guilty verdict for prosecutorial misconduct in the Lindsey Mfg. case.

This publication contains general information only and is based on the experiences and research of the author. The author is not, by means of this publication, rendering business, legal advice, or other professional advice or services. This publication is not a substitute for such legal advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified legal advisor. The author, his affiliates, and related entities shall not be responsible for any loss sustained by any person or entity that relies on this publication. The Author gives his permission to link, post, distribute, or reference this article for any lawful purpose, provided attribution is made to the author. The author can be reached at tfox@tfoxlaw.com.

© Thomas R. Fox, 2012

December 16, 2011

More Wisdom from the Bribery Act Guys

Ed. Note-today we host our colleague Matt Ellis who reports on the recent World Compliance event where the Bribery Act guys spoke. This article originally appeared in Matt’s blog, FCPAméricas Blog, which we reprint, in its entirety with his permission. 

In FCPAméricas’s last post, it gave highlights from Tom Fox at the World Compliance FCPA Summit 2011 in Houston, TX. At the same seminar, the Bribery Act Guys (UK attorneys Barry Vitou and Richard Kovalevsky QC) offered their own wisdom.

 Transitioning Away from Facilitating Payments

While it is commonly known that, unlike the FCPA, the UK Bribery Act prohibits facilitating payments, the Bribery Act Guys offered insight into how the Serious Fraud Office (SFO) will give companies time to bring their practices into compliance. The SFO has offered a 6-step guidance. The Bribery Act Guys explain that, “If the answers to these questions are satisfactory then the corporate should be shielded from prosecution”:

Whether the company has a clear issued policy regarding such payments;

  1. Whether written guidance is available to relevant employees as to the procedure they should follow when asked to make such payments;
  2. Whether such procedures are being followed by employees;
  3. If there is evidence that all such payments are being recorded by the company;
  4. If there is evidence that proper action (collective or otherwise) is being taken to inform the appropriate authorities in the countries concerned that such payments are being demanded;
  5. Whether the company is taking what practical steps it can to curtail the making of such payments.

Corporate Hospitality under the UK Bribery Act

The Bribery Act Guys report that, when deciding whether a specific corporate expenditure falls outside of the bounds of reasonable and proportionate hospitality, the SFO will look to see whether:

the company has a clear issued policy regarding gifts and hospitality;

  1. the scale of the expenditure in question fell within the confines of such policy and if not, whether special permission for it had been sought at a high level within the organization;
  2. the expenditure was proportionate with regard to the recipient;
  3. there is evidence that such expenditure had been recorded by the company; and,
  4. the recipient was entitled to receive the hospitality under the law of the recipient’s country.

Predictions on UK Bribery Act Enforcement in Coming Months

The Bribery Act Guys have built a good track record with their predictions. They correctly predicted the delay on UK Bribery Act guidance, dismissed suggestions that the Bribery Act would be canned and said that the SFO would survive when others thought it would not.

They have now offered their predictions on enforcement activity. These predictions are timely since the UK Bribery Act just went into force on July 1, 2011 and applies only to conduct occurring after that date (although enforcement may incorporate prior activity if it is part of a ongoing “system” of wrongdoing). Will they get these ones right too?

Proceedings against Foreign Companies. The Director of the SFO, Richard Alderman, has a personal commitment to enforcement similar to that of U.S. Department of Justice Assistant Attorney General Lanny Breuer. Both regulators see their jobs as crusades. As such, Alderman is concerned less with proceeding against “low hanging fruit” and more in pursuing the harder cases that test the limits of the UK Bribery Act, especially with respect to extraterritorial jurisdiction. As a result, the Bribery Act Guys predict several proceedings against foreign companies so that the SFO can “level the playing field,” similar to the approach taken by U.S. enforcement.

  1. Alderman’s Successor Might Seek to Bring in Money. After Alderman departs in Spring 2011, his successor might look to bring easier, lucrative cases. The SFO is highly underfunded, a fact that has impeded its ability to fully flex its muscles. Revenue from cases can change that.
  2. Focus on Individuals. Like U.S. authorities, the SFO will focus on prosecuting individuals. For example, if a company discloses prior bribery of an acquiree discovered in acquisition due diligence, it can obtain a clean bill of health going forward. The individuals authorizing the scheme for the seller, on the other hand, will likely be prosecuted. Likewise, the target may also be subject to enforcement proceedings to recover the benefits of the proceeds of crime.
  3. The Announcement of First Major Cases Will Take Time. It will likely take at least a year for major SFO prosecutions to be announced. This is because, broadly speaking, the SFO only announces actions at a very advanced stage or after it has concluded the investigation.

When the SFO Can Use UK Subsidiaries to Assert Jurisdiction over U.S. Parents

For the UK Bribery Act offenses of bribing, receiving a bribe, and bribing a foreign public official, it is, generally speaking, harder to assert jurisdiction over an overseas parent (unless the activity takes place in the jurisdiction). But for the offense of failing to prevent bribery, the SFO has more leeway in asserting jurisdiction over the parent through its UK subsidiary, even if the subsidiary is not directly involved in the scheme.

The SFO takes the view that, the less autonomous the UK subsidiary’s operations are from those of the U.S. parent, the more authority the SFO has to bring a case, even if the bribe was committed in a third country by an entirely different subsidiary. In other words, the more common the management and services functions between the UK subsidiary and the U.S. parent, the stronger the jurisdictional basis for proceeding against the parent. The extent of the connection will likely be tested in the courts.

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Matt Ellis, Principle and Founder of the law firm of Matteson Ellis Law, PLLC. He blogs at the  FCPAméricas Blog, a blog that explores corruption issues throughout Latin America and speaks to the companies and business-people in the region seeking to comply with international anti-corruption norms. He can be reached via phone at 1.855.FCPA.LAW.

October 28, 2011

The Bribery Act and DPAs: Transparency is the Key

The debate now ongoing in the UK about whether Deferred Prosecution Agreements (DPA) should be a tool available to prosecutors in the Serious Fraud Office (SFO) and Crown Prosecutors is an important issue that should be well reasoned and thoroughly vetted. However, from where I sit in the US, I believe that the ability to enter into a DPA is a powerful tool that advances the interests of prosecutors, the judiciary and the public. Based on the reasons I will set out below, I believe that the UK should incorporate such a tool into those mechanisms available to the SFO and Crown Prosecutors to resolve cases brought under the Bribery Act.

The key issues that law makers in the UK must resolve is how to incorporate the concept of a DPA into a system which only allows prosecutors the option of bringing criminal charges or declining to do so coupled with a judiciary system that has unfettered discretion to accept or reject any settlement agreement brought before it. In an article entitled “The US Model for Deferred and Non-Prosecution Agreements” Mike Volkov phrases the question as “For UK policy makers, the balance between judicial review and prosecutorial discretion is one which has to be resolved before any new policy can be enacted.”

The primary reason for both the prosecution and a company which violates the Bribery Act entering into a DPA is certainty. The one thing I learned in almost 20 years of trying cases in the US (civil side only) is that nothing is certain when you leave the final decision to an ultimate trier of fact who is not yourself, whether that trier of fact be a jury, judge or arbitrator. The most important thing for a company is certainty and that is even more paramount when a potential criminal conviction looms over its corporate head. Certainty is equally critical for the prosecution. No matter how ‘slam dunk’ the facts are, or appear to be, once a prosecutor turns over the final decision in a case to another trier of fact; the prosecution has also lost certainty in the final decision. Every corporate defendant which goes to trial can and should raise all procedural and factual defenses available to it. No prosecutor can ever be 100% certain that it will win every court ruling or that a guilty conviction will be upheld on appeal.

However, a DPA can bring certainty. For a company certainty in its rights and obligations, for the prosecution the same is true. The key then is how to achieve this certainty through the judicial process where the judicial system has other interests to protect. These interests include the right of judicial review and protection of the public interest. The key is how to reconcile these competing interests.

One of the suggestions in the Bribery Act debate on this issue is to allow a judicial representative to be a part of the negotiations between companies and prosecutors before a final DPA is agreed to by the parties. The judicial representative could provide guidance on what might be acceptable under a final judicial review when the DPA is submitted to a court for acceptance and Entry of Judge. To forestall any claim of conflict of interest, the reviewing court would be a different judge than the judge who provided the guidance in the pre-court review stage.

However, I would not advocate such an approach for several reasons. I believe that the judiciary has a different role which is to ensure that laws are followed and administered justly and to safeguard that the public interest is represented in any settlement which results in a DPA. For one judicial representative to assist in the crafting of the DPA and another judicial representative to rule upon the DPA demeans from this role. While not enshrined in a written constitution as in the US, there is a distinction between the prosecution, which is a function of the executive branch and the judiciary, which is a function of the judicial branch. While the UK has a different form of democracy than the US, parliamentary vs. representative democracy, the executive and judicial functions remain separate and distinct. Next, no matter how independent the final reviewing judge is, the fact that another judge assisted in fashioning a DPA would factor into any judicial analysis and usually a reviewing judge respects the rulings and decisions of another judge, at least at the trial court level. This respect would most probably continue in the court review of DPAs negotiated with the help of another member of the bench.

Nevertheless, I still argue that DPAs still should play an important role in the resolution of Bribery Act cases. However, I would not urge early judicial involvement but that the key to certainty is transparency. The transparency comes into play in the crafting of the DPA, which should include a full analysis of the penalty to which the parties agreed to in the DPA. Here guidance might be taken from the US Department of Justice’s (DOJ) approach to list out the factors and the attendant scoring in each DPA. This scoring can go up or down depending on many factors which are now discussed in each DPA. Further the underlying factors and scoring are based upon the US Prosecutors Guidelines which are also publicly available.

It is through this transparency that a court can determine if the law, here the Bribery Act, has been fairly or justly administered. A court can then also use this transparency to ensure that the interests of the British public are also properly taken into account. The fact that the Bribery Act is a new law should not prevent a thorough analysis of such factors. The prosecution can simply do what lawyers are trained to do; review the prior law to provide guidance or look at other similar laws for guidance.

I understand the response that a DPA brought before a court under such a scenario that I have listed above is still open to judicial rejection. However, I believe that most courts will follow precedent, if such precedent is used in a well-reasoned manner and presented logically to a court. As for the argument that such an approach may well lead to higher fines or greatly penalties being levied, I would respond that such higher fines or greater penalties should have then been agreed to in the first place.

A DPA can be, and is, a powerful tool in the arsenal to fight bribery and corruption. The US DOJ has used it successfully, I would argue, for many years, to the benefit of the US public. I would also urge that such a tool become available to the SFO and Crown Prosecutors in their fight against bribery and corruption. However, the maintenance of judicial independence is a key component of any democracy. This judicial independence can continue in a manner consistent with the certainty brought by DPAs and court oversight and approval through transparency.

This article originally appeared in thebriberyact.com.

This publication contains general information only and is based on the experiences and research of the author. The author is not, by means of this publication, rendering business, legal advice, or other professional advice or services. This publication is not a substitute for such legal advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified legal advisor. The author, his affiliates, and related entities shall not be responsible for any loss sustained by any person or entity that relies on this publication. The Author gives his permission to link, post, distribute, or reference this article for any lawful purpose, provided attribution is made to the author. The author can be reached at tfox@tfoxlaw.com.

© Thomas R. Fox, 2011

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