FCPA Compliance and Ethics Blog

April 12, 2013

They are back, although they never really left, thebriberyact.com guys

Unlike that fabulous song-writing team of Lennon and McCartney, these two guys promised that they would be back and from what we have seen over the past few weeks, they have kept to their collective word. Yes, those two light-shiners on all things UK Bribery Act, thebriberyact.com guys have re-entered the blogging fray. While I will it to you to figure out which briberyact.com guy most closely corresponds to which song-writer, all I can say is it is hard to say where one’s contribution ends and the others begins. To celebrate their roaring return, I want to highlight some of the great posts that they collectively put up last month.

March 2 – Opinion: Don’t buy snake oil. Why a lack of Bribery Act prosecutions should not signal complacency. The guys begin their comeback last month with this post, which was their take on the status of some investigations and why there has yet to be a substantive prosecution. It is a good explanation of where things have been and where they might be headed. The guys end by noting, “In the meantime the chances of violations of the Bribery Act emerging are increasing with the passage of time. This is borne out in fact. We are aware that the SFO has a number of pre-investigation (or projects as the new Director of the SFO has dubbed them) in connection with the Bribery Act already. Whether these develop into Bribery Act enforcement cases remains to be seen. One thing is for sure. Bribery Act enforcement for corporate violations is inevitable. Those who would suggest otherwise are selling snake oil. Don’t buy it.”

March 3 – The Bribery Act, its material impact since 2011 & the Aston Martin analogyIn this post the guys take on Howard Sklar and everyone else who says it is time to bring an enforcement action under the Bribery Act. They put it as such, “For those seeking instant gratification then the Bribery Act, it turns out, is not Coca Cola. But we’ll stick with the Aston Martin analogy. Aston Martin took off with the arrival of a certain David Brown. The SFO now has David…Green… But on a serious note, the impact of the Bribery Act should not just be measured in enforcement (though that will happen). It’s ultimate purpose was to foster behaviourial change. The genie is out of the bottle, the Aston is out of the garage and 18 months in change is already happening.”

March 5 – Don’t mention the ‘war’? Scotching the myth that saying the ‘b’ word will freak out employees in high risk markets. This post speaks to that most classic of English traits, to apologize for everything English. The guys point out that it is actually OK to tell employees not be pay bribes or otherwise engage in corrupt behavior, you will not insult them by doing so. They properly note, “The sight of people from Head Office taking the trouble to visit the local office with strangers in tow asking lots of questions underscores the importance the business attaches to anti-bribery.  It sends a very clear message to those in the organisation who might seek to apply unfair pressure on others to engage in questionable practices. A clear directive that bribes will not be paid is likewise well received. Employees like to know that they will not be sacked for losing a sale as a result of not bending to improper requests and demands,” they then conclude with this universal truism, “And for the very tiny minority (in our experience) who don’t like it – you don’t want to employ them anyway.” As we might say here in the  south, the American south that is, “Amen, brother.”

March 14 – Parliament report calls for Bribery Act review: Our opinion – Junk in. Junk Out. With typical British tact, the guys skewer a claim presented in the House of Lords committee that the Bribery Act has met with “confusion and uncertainty.” The guys end by offering to help these forlorn Lords with a bit of education by saying, “There is plenty of free guidance out there on the application of the Bribery Act. We cannot think of a piece of legislation which has sparked much more commentary, advisory, much of it on line and completely free, including our own eponymous website. Complaints about a lack of information and desire for more guidance ring hollow – especially when a centerpiece propping up the claim is the concern that taking someone to dinner is a criminal offence. The calls for a review need to be seen in context. Junk in. Junk out. And, Tony from Alderly PLC, if you’re reading feel free to give us a call. We can help you.”

March 22 – (Contrarian) Opinion: Corporate crime in the UK. A shift in public perception? In this piece, the guys noted that “Notwithstanding the barrage of criticism which has been meted out to the SFO in recent months it appears the perception of the public in general may be changing about it, and the UK’s approach to dealing with corporate crime.” They ended this post with the following witty observation, “And, while it may not be politik to say it, (but then we like to be visionary contrarians like others we can think of…), perhaps criticism of the SFO today for historic conduct is just a bit harsh and opportunistic? Perish the thought….”

March 24 – The Met, City of London Police & SOCA spearheading additional £8 million crackdown on overseas corruption. In their final March post  the guys report on some very clear indications that the UK government is putting its money where its collective mouth is regarding its seriousness to combat bribery and corruption. The guys noted that “The UK government has reportedly earmarked a further £8 million in the fight against corruption to go to specialist anti-corruption teams in the Metropolitan and City of London Police, the Serious Organised Crime Agency (SOCA) as well as additional support for the Crown Prosecution Service (CPS).”

So while it is true they never really left, because you know they do practice law for a living; it is good to see them back up on the site and providing their collective opinions and insights.

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

February 6, 2013

The Bribery Act in 2012: a Year for Transition

The past year has been one of transition for the UK Bribery Act and the Serious Fraud Office (SFO). The transitions began with the appointment of David Green QC, as Director of the SFO. Green’s appointment brought a different focus to the SFO regarding the enforcement of the Bribery Act. At the start of his four-year term David Green released a statement to the press in which he said, in part, “The SFO is here to stay. It is and will remain a key crime fighting agency targeting top-end fraud, bribery and corruption. We will play our part in maintaining in the national interest a level playing field for investors and the business community. We will work cooperatively with others in the emerging counter-fraud landscape. We will press for all the tools necessary to maximise our impact. The SFO will be tough but approachable. I am delighted to take on the leadership of the agency at this exciting and challenging time. There is much to be done.”

This change in tone was perhaps responding to a critical report by Transparency International (TI) in its 8th annual progress report on OECD Convention enforcement, entitled “Exporting Corruption”. While the TI report focused on anti-corruption efforts across the globe, it did state that “The UK Government must strengthen its anti-bribery effort by ensuring that the Serious Fraud Office (SFO) has adequate resources to investigate and prosecute bribery”. Although TI noted that under the Bribery Act, prosecutions had increased over the past year, “cutbacks to the SFO could see a decline in future UK enforcement. The Government has cut more than a third of the SFO’s budget in the last four years, hampering the prosecutor’s ability to tackle complex and damaging bribery cases.” Chandu Krishnan, Executive Director of Transparency International UK, was quoted in a Press Release as stating, “If the Government is serious about fighting corruption, it should not be cutting resources for enforcing the legislation designed to do just that. We must ensure that the SFO is not outgunned by those it should be prosecuting, who incidentally can usually afford the best legal advice available. The SFO should never be in a position where it is unable to investigate and prosecute cases due to a lack of resources.”

I.                   Change in Tone at the Top

This new tone was a departure from the prior Director Richard Alderman. This noticeable change began in earnest in September with the statement by Director Green, that his agency has no real interest in pursuing cases concerning corporate hospitality under the Bribery Act. He was quoted as saying “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.”” This was followed by the removal from the SFO’s website of pages for its guidance on facilitation payments and corporate hospitality. Then in October, the SFO published their position in relation to facilitation payments, corporate hospitality and self-reporting. As noted by Barry Vitou and Richard Kovalevsky, QC, writing in thebriberyact.com, “The honeymoon is over.” They went on to say that “The revised guidance is a model of clarity.  The new Director has previously made his position clear namely that the SFO is not there to provide guidance and those seeking it should liaise with their advisers.”

II.                The New Guidance

In a Press Release announcing this new guidance the SFO stated that “the Serious Fraud Office has reviewed its policies on facilitation payments, business expenditure (hospitality) and corporate self-reporting. The purpose is to: (1) restate the SFO’s primary role as an investigator and prosecutor of serious or complex fraud, including corruption; (2) ensure there is consistency with other prosecuting bodies; and (3) meet certain OECD recommendations.” The new guidance discussed three areas that companies need to address in their compliance programs. These were self-reporting, business expenditures and facilitation payments. Writing in the Bribery Library, Adams Greaves said “the guidance reinforces a widely held belief by the legal profession that Mr. Green is likely to prove to be a much tougher prosecutor than his predecessor Richard Alderman, who had (perhaps a little unfairly) acquired a reputation for seeking civil settlements with corporate defendants rather than prosecuting them through to trial.”

Self-Reporting

The SFO stated that it will prosecute a company if it is in the public interest to do so. The fact that a corporate body has reported itself will be a relevant consideration to the extent set out in the Guidance on Corporate Prosecutions. The Guidance explains that, for a self-report to be taken into consideration as a public interest factor tending against prosecution, it must form part of a “genuinely proactive approach adopted by the corporate management team when the offending is brought to their notice”. However, the SFO cautioned that self-reporting is no guarantee that it would not prosecute and emphasized that each case would ‘turn on its own facts.”

Business Expenditures

The SFO recognized in the new Guidance that bona fide hospitality, promotional or other legitimate business expenditure is recognized as an established and important part of doing business. It is also the case, however, that bribes are sometimes disguised as legitimate business expenditure. However, the SFO would prosecute if there was a realistic prospect of conviction, the SFO will prosecute if it is in the public interest to do so. The SFO could also use its powers under proceeds of crime legislation as an alternative (or in addition) to prosecution.

Facilitation Payments

In the area of facilitation payments, the SFO was very clear that it considers facilitation payments as a type of bribe. It provided the example where a government official is given money or goods to perform, or speed up the performance of, an existing duty. The SFO emphasized that facilitation payments were illegal before the Bribery Act came into force and they are illegal under the Bribery Act, regardless of their size or frequency. This SFO position basically restates the UK legal position and the various tests the SFO will use when weighing prosecution.

III.             The Rolls-Royce Investigation

One of the areas of criticism of the SFO has been the lack of prosecutions. This may have an effect on the SFO in the recent announcements by Rolls-Royce that it is investigating allegations of bribery. In December, the BBC online service reported that Rolls-Royce was in talks with the SFO regarding potential allegations of bribery and corruption in Indonesia and China. It was reported that this investigation began 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 FT has also reported that Rolls-Royce has now retained Lord Gold for a review of its compliance on a world-wide basis.

Such a high profile UK company and investigation will certainly test the mettle of the SFO regarding prosecutions of UK entities. While the FT noted that Lord Gold was brought in by Rolls-Royce “precisely to avoid the costs” that the British company BAE incurred in its massive scandal and to perhaps make a “radical change” in not only Rolls-Royce but the entire British aerospace industry, if there are allegations of bribery and corruption substantiated by the internal investigation and Rolls-Royce is not prosecuted, it may make companies less inclined to follow the strictures of the Bribery Act.

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 12, 2012

What’s Going On? Some Questions Regarding UK Regarding Anti-Bribery Enforcement

For my money, the greatest R&B single ever was Marvin Gaye’s 1971 smash hit “What’s Going On?” While I knew that Gaye, who died in 1984, had been posthumously inducted to the Rock and Roll Hall of Fame in 1987; I did not know that he had a a three-octave vocal range or that he  was ranked at number 6 on Rolling Stone’s list of the Greatest Singers of All Time. Gaye also ranked high on music magazines’ lists, ranking at number 18 on the 100 Greatest Artists of All Time on the  music magazine, Rolling Stone and he ranked number 20 on VH-1’s list of 100 Greatest Artists of All Time. See if you want to hear some of the most beautiful and heartfelt singing, head over to YouTube for a clip of Gaye belting out the classic.

I thought about the song’s title recently as over the past couple of weeks there have been some interesting articles appearing in interviews, reports and a London court ruling which raise some difficult questions as to just what may be going on at the UK Serious Fraud Office (SFO) regarding its enforcement of the UK Bribery Act and the ongoing ability of the SFO to bring enforcement actions for those companies which engage in bribery or otherwise violate the Bribery Act.

The Interview and Questions on Enforcement of Corporate Hospitality Requirements

It all began with an interview, given by David Green, Director of the SFO, to the Daily Mail on September 2. As reported in thebriberyact.com, Director Green said the following:

‘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”.’

The briberyact.com guys, Barry Vitou and Richard Kovalevsky Q.C., made clear their feelings on this statement by Director Green when they said “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.” The Bribery Act and its corporate hospitality requirements are “not rocket science.” They believe that   “Companies should put in place proper procedures to deal with corporate hospitality in line with SFO guidance. Broadly speaking, “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 Briberyact.com guys do not believe that the “SFO is unlikely to be bringing a stand alone Bribery Act prosecution over corporate hospitality.” They also believe that the key in justifying your actions with gifts and entertainment “is to be able to justify why you picked approval thresholds and that the policy is actually followed. Both should be well documented.” In other words, you should have a policy, follow that policy and then document whatever decisions that you make under your policy.

However, a contrary position was taken by Alexandra Wrage, President of Trace International, who wrote in a blog post in CorporateCounsel.com, entitled “When Governments Undermine Antibribery Compliance Efforts. Wrage asked the following question regarding Director Green’s advice on corporate hospitality, “So where does Green’s advice leave in-house compliance officers?” She went on to state that she believed such advice left compliance practitioners “arguing for frugality in the face of a restrictive law that the SFO has announced it isn’t too bothered about enforcing. There are few U.S. compliance departments that would deem a day at Wimbledon as “reasonable” hospitality. In the U.S., the argument is: this is permitted, as long as we’re reasonable. The argument for companies with operations in the U.K. must be: this is not permitted under the law, but the SFO, at least for now, will not investigate such matters.” She ended her piece with the following, “It is difficult enough to guide a company through the morass of antibribery compliance when the threat of enforcement is real and management is focused not only on the ethics of the situation, but also legal risk. It is indeed more difficult when the enforcement agency itself makes light of the chances of prosecution and trivializes the very decisions with which compliance departments struggle. The UK Bribery Act may offer the clarity compliance officers have long hoped for, but it raises a new question for companies with U.K. operations that may be more challenging than the last: When do boundaries really matter to the SFO and, in turn, to employees?”

The TI Exporting Corruptions Report

On September 6, Transparency International (TI) published its 8th annual progress report on OECD Convention enforcement, entitled “Exporting Corruption”. The OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions, adopted in 1997, requires each signatory country, of which the United Kingdom is a member, to make foreign bribery a crime. TI believes that such laws are a key instrument for curbing the export of corruption globally because the 39 signatory countries are responsible for two-thirds of world exports and three-quarters of foreign investment. The OECD Working Group on Bribery conducts a follow-up monitoring program which reviews the parties’ implementation of the Convention’s provisions. Nine to ten country reviews are issued each year. This 8th annual progress report represents an independent assessment of the status of OECD Convention enforcement, based on reports from our national chapters in 37 OECD Convention countries (excluding Iceland and Russia). Countries are classified in four enforcement categories this year: Active, Moderate, Little and No enforcement.

TI opined in its report that “The UK Government must strengthen its anti-bribery effort by ensuring that the Serious Fraud Office (SFO) has adequate resources to investigate and prosecute bribery”. Although IT noted that under the Bribery Act, prosecutions had increased over the past year, “cutbacks to the SFO could see a decline in future UK enforcement. The Government has cut more than a third of the SFO’s budget in the last four years, hampering the prosecutor’s ability to tackle complex and damaging bribery cases.” Chandu Krishnan, Executive Director of Transparency International UK, was quoted in a Press Release as stating, “If the Government is serious about fighting corruption, it should not be cutting resources for enforcing the legislation designed to do just that. We must ensure that the SFO is not outgunned by those it should be prosecuting, who incidentally can usually afford the best legal advice available. The SFO should never be in a position where it is unable to investigate and prosecute cases due to a lack of resources.”

The Court Finding – Bribery as a (legal) way of doing business?

As reported in a Bloomberg.com post by Leonid Bershidsky, entitled “Russian Graft Goes Legit in London”, a London court recently found that influence-peddling in Russia is an “internationally recognized business arrangement.” In a recent decision, London’s Commercial Court found that the legal Russian concept of “krysha” where a “powerful person, often a government or law-enforcement official, who defends their interests and protects them from predators in return for a piece of the action” can be enforced in a English civil court. Bershidsky wrote that “Flimsy as the arrangement sounds, it’s how business is still often done in Russia when the help of a government official or facilitator is needed. I have personally seen such schemes in action. A private businessman, who is to all intents and purposes the owner of a business, takes on a raking bureaucrat as a silent and undocumented partner. The bureaucrat is not allowed to own his stake officially. He relies on his influence to guarantee that the businessman won’t ignore the arrangement.”

The plaintiff had sought to enforce a “krysha” arrangement where there was no written contract. The Court did not hold that such payments were bribes, corruption or otherwise illegal, but instead held there was not sufficient evidence of a binding contract. The invidious of this arrangement is clear in that money is being paid for ‘influence’ and such payments are kept “off-books” via an undeclared ownership structure. In other words, about as many Red Flags as you can get. If such arrangements are legal in Russia, why are they not anywhere else in the world?

All of the above may leave many compliance practitioners scratching their heads and wondering what is going on in the UK. Hopefully there will be some clarity, for the better, in the coming months.

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

September 4, 2012

Travel and Entertainment Guidance from the DOJ

Yesterday I had a guest post by thebriberyact.com guys about some of the thoughts by David Green, the head of the UK Serious Fraud Office, on travel and entertainment under the Bribery Act. I had a comment along the lines that the statements by Green were nothing new in the way of guidance about what is required or allowed under the Bribery Act.  Based on this comment I thought it might be an appropriate time to review Department Of Justice (DOJ) Opinion Releases on travel and lodging expenses for government officials to discuss this area of a Foreign Corrupt Practices Act (FCPA) compliance program.

  1. Opinion Releases

In 2007, the DOJ issued two FCPA Opinion Releases which offered guidance to companies considering whether to, and if so how to, incur travel and lodging expenses for government officials. Both Opinion Releases laid out the specific representations made to the DOJ, which led to the Department approving the travel to the US by the foreign governmental officials. These facts provided strong guidance to any company which seeks to bring such governmental officials to the US for a legitimate business purpose. In Opinion Release 07-01, the Company was desired to cover the domestic expenses for a trip to the US for a six-person delegation of the government of an Asian country for an educational and promotional tour of one of the requestor’s US operations sites. In Opinion Release 07-01 the representations made to the DOJ were as follows:

  • A legal opinion from an established US law firm, with offices in the foreign country, stating that the payment of expenses by the US Company for the travel of the foreign governmental representatives did not violate the laws of the country involved;
  • The US Company did not select the foreign governmental officials who would come to the US for the training program;
  • The delegates who came to the US did not have direct authority over the decisions relating to the US Company’s products or services;
  • The US Company would not pay the expenses of anyone other than the selected official;
  • The officials would not receive any entertainment, other than room and board from the US Company;
  • All expenses incurred by the US Company would be accurately reflected in this Company’s books and records.

The response from the DOJ stated: “Based upon all of the facts and circumstances, as represented by the requestor, the Department does not presently intend to take any enforcement action with respect to the proposal described in this request. This is because, based on the requestor’s representations, consistent with the FCPA’s promotional expenses affirmative defense, the expenses contemplated are reasonable under the circumstances and directly relate to “the promotion, demonstration, or explanation of [the requestor’s] products or services.”

In Opinion Release 07-02 the Company desired to pay certain domestic expenses for a trip within the US by approximately six junior to mid-level officials of a foreign government for an educational program at the Requestor’s US headquarters prior to the delegates attendance at an annual six-week long internship program for foreign insurance regulators sponsored by the National Association of Insurance Commissioners (NAIC).

In Opinion Release 07-02 the representations made to the DOJ were as follows:

  • The US Company would not pay the travel expenses or fees for participation in the NAIC program.
  • The US Company had no “non-routine” business in front of the foreign governmental agency.
  • The routine business it did have before the foreign governmental agency was guided by administrative rules with identified standards.
  • The US Company would not select the delegates for the training program.
  • The US Company would only host the delegates and not their families.
  • The US Company would pay all costs incurred directly to the US service providers and only a modest daily minimum to the foreign governmental officials based upon a properly presented receipt.
  • Any souvenirs presented would be of modest value, with the US Company’s logo.
  • There would be one four-hour sightseeing trip in the city where the US Company is located.
  • The total expenses of the trip are reasonable for such a trip and the training which would be provided at the home offices of the US Company.

As with Opinion Release 07-01, the DOJ ended this Opinion Release by stating, “Based upon all of the facts and circumstances, as represented by the Requestor, the Department does not presently intend to take any enforcement action with respect to the planned educational program and proposed payments described in this request. This is because, based on the Requestor’s representations, consistent with the FCPA’s  promotional expenses affirmative defense, the expenses contemplated are reasonable under the circumstances and directly relate to “the promotion, demonstration, or explanation of [the Requestor’s] products or services.” 15 U.S.C. § 78dd-2(c)(2)(A).

  1. Travel and Lodging for Governmental Officials

What can one glean from these two 2007 Opinion Releases? Based upon them, it would seem that a US company can bring foreign officials into the US for legitimate business purposes. A key component is that the guidelines are clearly articulated in a Compliance Policy. Based upon Releases Opinions 07-01 and 07-02, the following should be incorporated into a Compliance Policy regarding travel and lodging:

  • Any reimbursement for air fare will be for economy class.
  • Do not select the particular officials who will travel. That decision will be made solely by the foreign government.
  • Only host the designated officials and not their spouses or family members.
  • Pay all costs directly to the service providers; in the event that an expense requires reimbursement, you may do so, up to a modest daily minimum (e.g., $35), upon presentation of a written receipt.
  • Any souvenirs you provide the visiting officials should reflect the business and/or logo and would be of nominal value, e.g., shirts or tote bags.
  • Apart from the expenses identified above, do not compensate the foreign government or the officials for their visit, do not fund, organize, or host any other entertainment, side trips, or leisure activities for the officials, or provide the officials with any stipend or spending money.
  • The training costs and expenses will be only those necessary and reasonable to educate the visiting officials about the operation of your company.

Incorporation of these concepts into a compliance program is a good first step towards preventing any FCPA violations from arising, but it must be emphasized that they are only a first step. These guidelines must be coupled with active training of all personnel, not only on the Compliance Policy, but also on the corporate and individual consequences that may arise if the FCPA is violated regarding gifts and entertainment. Lastly, it is imperative that all such gifts and entertainment are properly recorded, as required by the books and records component of the FCPA.

It is always good to review the parameters of your compliance program. In addition to the wealth of commentary by compliance practitioners there is solid information from the DOJ in their Opinion Releases. Sometimes it is good to review these to make sure your company’s compliance program is following what the DOJ thinks is a best practices program.

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

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. 

============================================================================================

‘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.”

April 19, 2012

London Calling: The Olympics and Corporate Hospitality under the UK Bribery Act

As The Clash sang, London Calling, and the London Olympics are now less than 100 days away. One of the areas which has generated the greatest amount of hyperbole is over corporate hospitality at the upcoming 2012 summer Games. There has been rampant speculation that under the UK Bribery Act, corporations may well be prosecuted for providing corporate hospitality events before or during the Games. Indeed some have speculated that even purchasing a ticket at the face price for a client or customer would draw the scrutiny of the UK Serious Fraud Office (SFO). As a lawyer, I certainly appreciate the ‘going down the slippery slope’ argument and I may have even engaged in that technique once or twice. However, neither the UK Bribery Act nor the US Foreign Corrupt Practices Act (FCPA) prohibits corporate hospitality. Further, I think the ‘slippery slope’ argument is one that fails to stand up to scrutiny.

However, recognizing that my interpretation of UK law is simply that and I am not licensed to practice law in the UK and hence cannot provide a legal opinion on the Bribery Act, I went to thebriberyact.com to see what thebriberyact.com guys (who are licensed to practice law in the UK) might have opined on this issue. They have a couple of interesting posts up on this specific issue. Recently they had the opportunity to put this question to the SFO and, in a blog entitled “The SFO’s view on corporate hospitality”, they have posted what they heard from the SFO, , which I quote in its entirety::

The SFO have told us that they will be looking at five factors when considering corporate hospitality in the context of the Bribery Act.

Where the SFO is considering whether any particular case of corporate expenditure appears to fall outside the bounds of reasonable and proportionate hospitality, it will be looking to see whether:

1.    the company has a clear issued policy regarding gifts and hospitality,

2.    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,

3.    the expenditure was proportionate with regard to the recipient,

4.    there is evidence that such expenditure had been recorded by the Company,

5.    the recipient was entitled to receive the hospitality under the law of the recipient’s country.

The inference that the expenditure was intended as a bribe would be strengthened if it should transpire (a) that there had been any unjustifiable ‘add-ons’, for example with regard to travel or accommodation, or (b) that that the expenditure in question could be related in time to some actual or anticipated business with the recipient, particularly in a competitive context.

In another post, entitled “Jo Morgan CCO IMI PLC – Debunks Olympic corporate hospitality myths”, the guys questioned a compliance practitioner Jo Morgan, the Chief Compliance Officer (CCO) of IMI PLC, a global engineering group focused on the precise control and movement of fluids in critical applications.  The question posed to Jo and her answer are as follows:

Question: I’d like to entertain some clients at the Olympics in the summer. I’ve read lots in the press about lavish hospitality being outlawed by the Bribery Act. My concern is that some of the tickets for popular events run into thousands of pounds and so I’m concerned that the amount is too much. On the other hand, the Olympics is a once in a lifetime chance for us to entertain our best clients. Surely, I can’t be prevented from inviting clients along as a result of the Bribery Act? Help.

Answer: Here at IMI plc we have very clear guidelines on entertaining. We have monetary limits above which one needs Executive Director approval for the event. In reviewing such requests the Directors look at:

a) who the entertainment is being offered to (i.e. customer, supplier, public, private, what level in the organization the person receiving the entertainment is);
b) what circumstances exist at the time the offer of the entertainment, and at the time the entertainment will take place, (i.e. is there a live bid or other circumstance which would mean that the entertainment could improperly influence a decision or provide an improper advantage);
c) whether there are any other circumstances which might make the entertainment look inappropriate – essentially this is the “newspaper test” – how would we feel if the entertainment was reported in the newspaper? Would it look OK to the ordinary man? That will generally tell you how the law enforcers would view it too.

I do not believe that it was the intention behind the Bribery Act to prevent attendance at events such as the Olympics and therefore if you consider the points above and you are comfortable with answers then you should be OK.

So for those of you who need “English English” translated into “American English” (or Texan for that matter), I think what both thebriberyact.com guys and Jo are saying is that your company should have a written policy on corporate hospitality and procedures for following that policy. If you want to take a customer or client to the Olympics, follow your company’s written procedure so that if the amount you intend to spend is above the limit set forth in the policy, follow the procedures and fill out the required forms and obtain approval before you engage in the corporate hospitality. You need to make certain that the hospitality is proportional AND that it is allowed by both the laws of the home country of the recipient and his or her employer. Lastly, all corporate hospitality must be correctly recorded in your company’s books and records. But at the end of the day, I think Jo Morgan’s final test may be the most appropriate, what we might call the “Wall Street Journal” test. How would your company feel (and you too for that matter) if the corporate hospitality you engaged in at the Olympics was reported on the front page of the Wall Street Journal?

Sometimes common sense is a good rule of thumb. And document, document document.

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

September 15, 2011

Preparing for the End of Facilitation Payments

In an article published in the July issue of the Compliance Week magazine, entitled  “The UK Bribery Act: How to Mitigate the Risks or Prosecution for Making Facilitation Payments, authors Jonathan Feig and Richard Thomas discuss how companies can mitigate their risks of prosecution for making facilitation payments under the Bribery Act. This is an area that many US companies may have exposure to as the Foreign Corrupt Practices Act (FCPA) has an exception for facilitation payments but there is no corresponding exception or exemption under the Bribery Act.

Richard Alderman, Director of the Serious Fraud Office (SFO), was recently quoted in thebriberyact.com regarding facilitation payments as saying:

“…I do not expect facilitation payments to end the moment the Bribery Act comes into force. What I do expect though is for corporates who do not yet have a zero tolerance approach to these payments, to commit themselves to such an approach and to work on how to eliminate these payments over a period of time. I have also said that these corporates should come and talk to the SFO about these issues so that we can understand that their commitment is real. This also gives the corporate the opportunity to talk to us about the problems that they face in carrying on business in the areas in which they trade. It is important for us to know this in order to discuss with the corporate what is a sensible process.” [emphasis mine]

As a lawyer, you might well seek from further clarification on what the “sensible approach” might be and how one could advise a client on such a term. Fortunately that is exactly what my colleagues who run the site, thebriberyact.com, did. Richard Kovalevsky Q.C. and Barry Vitou, sought further guidance from the SFO and reported that the SFO will be “looking to see” the following:

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

2. Whether written guidance is available to relevant employees as to the procedure they should follow when asked to make such payments;

3. Whether such procedures are being followed by employees;

4. If there is evidence that all such payments are being recorded by the company;

5. 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;

6. Whether the company is taking what practical steps it can to curtail the making of such payments.

If the answers to these questions are satisfactory then the corporate should be shielded from prosecution. The Feig and Thomas article would seem to speak to this final Point 6, what practical steps is your company taking “to curtail the making of such [facilitation] payments”? They lay out a 5 step process to help curtail the making of facilitation payments.

I.                   Revisit the Anti-Corruption Policy

Your company should have a plan to phase out facilitation payments made by both company employees and those working on your behalf such as agents, resellers, distributor and other foreign business partners.

II.                Understand How Operations Have Changed Since the Ban on Facilitation Payments

Your company should consider key areas where facilitation payments occur to make certain that they are not being paid in another form. For instance, do employees wait in line like everyone else to go through customs or do they now use an agent to shuffle them through in groups. If your company has engaged in such a customs representative, has this agent been vetted through your due diligence program and if so has this agent been audited.

III.             Understand How Employees Manage Situations Where They are Pressured to Make Facilitation Payments

The key here is listening. Your company needs to listen to key employees who travel overseas to high risk areas about situations that they face where a bribe is solicited. Your company also needs an understanding of areas where what employees face is not solicitation of bribes but really extortion because their life, liberty or health and safety is in immediate peril. Your company will back them up if they are required to pay monies to extricate themselves from such a situation.

IV.              Update Training and Internal Communications for Facilitation Payments

Your company must update your training to make clear that facilitation payments will no longer be allowed under your compliance program. The information that your company obtains from listening to your employee, as set out above will enable your company to develop information that they will need for situations where a bribe is demanded. Incorporating the likely scenarios that employees will face into your training is important so that your company can present responses which can be used by employees. This way an employee is not left out in the cold or in the dark about what might happen and what he or she can do about it.

V.                 Update Your Anti-Corruption Monitoring Program

Your company should update its anti-corruption monitoring program to ensure that it captures the identification of facilitation payments. If any such payments are identified, they should be elevated to the compliance department. These controls need to be tested to ascertain their effectiveness. Lastly such controls need to be extended to your foreign business partners.

As I have previously written, the end of facilitation payments in coming. The OECD recommends that they be done away with and the Bribery Act provides no exemption for them. Perhaps a Republican Congress would feel that by removing the facilitation payment exemption it would somehow hurt US businesses overseas. But this feeling would not last for long. So if your company does business in the UK or has a UK subsidiary, you need to start preparing for the end of facilitation payments. You would do well to regularly read thebriberyact.com and to follow the steps laid out by Feig and Thomas in the Compliance Week magazine.

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

August 4, 2011

Letter from England: The Bribery Act Guys and the Act’s US Implications

Earlier this week I had the opportunity to sit down and lunch with Barry Vitou and Richard Kovalevsky, QC, authors of the website, thebriberyact.com. A great time was certainly had by all and in honor of their website and the venue; I enjoyed a fine meal of fish and chips.

The two are a great pair, with Barry a solicitor and Richard a barrister (hence the omnipresent ‘QC’ after his name). One of the things I was interested in was how these two came to the field of anti-corruption and how they came to start up such a focused, and maintain what I believe to be the best, and comprehensive website for information on the UK Bribery Act;  and other anti-bribery and anti-corruption news across the globe. Back in 2009 they began to follow the legislative meanderings for the Bribery Act and decided to start  a website to highlight on the legislation and bring commentary and analysis to the Bribery Bill as it worked its way through Parliament and to the Bribery Act after it received its Royal Assent.

From my perspective, the site has been an excellent resource for the US compliance practitioner. As I previously wrote their commentary and analysis is insightful and cuts much of the speculation about the reach and over-reach of the Act. They blog about concrete topics and issues and provide to the compliance practitioner useful guidance on how to implement or enhance a compliance program to comply with the strictures of the Act. However, for my money, the one thing that makes their website stand out is the interviews they have provided of UK officials charged with implementing the Act. These interviews provide, not only, awareness into the thinking of the very highest level of UK officials but more importantly they allow the US compliance practitioner to read and inform his or her own views of how the Act will be implemented going forward.

One of the areas we discussed was US companies and their implementation of Bribery Act compliance programs or enhancing their Foreign Corrupt Practices Act (FCPA) based compliance programs to incorporate the requirements of the Bribery Act. One area which I do not see significant thought or compliance program enhancement for is regarding the fact that under the Bribery Act, the US is a foreign jurisdiction, therefore all the requirements of the Act come into play in transactions in the US.

Most US companies do not subject their US sales channel: whether they are sales agents, representatives, distributors or others to the same type of compliance due diligence that is  required of their sales channel outside the US. The same is true for vendors in the supply chain; a Dun and Bradstreet credit worthiness report may be all the investigation that they do.

The same lack of process and procedure is true for other components of the Six Principles of an Adequate Procedures compliance regime. There is no compliance training required of US based sales channel or supply chain, no requirement for ongoing compliance assessment or evaluation, no requirement for a like or similar overall company compliance program, no requirement of risk assessment or ongoing monitoring or review. In short the vast majority of US companies do not meet the standards of Adequate Procedures of the Bribery Act when looking at the companies they do business with, both ingoing and outgoing in the US.

As our lunch was winding down I told both Richard and Barry one thing was definitely, and certainly, required and that was  that they come to the US and put on Bribery Act events across the US. They somewhat blushed when I told them that the Bribery Act Guys on Tour would be quite successful and many, many of my fellow compliance practitioners would certainly benefit from their collective wit and wisdom. I know I would….

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

July 22, 2011

The FSA Bares its Teeth: Be Aware of International Enforcement Regimes

While many companies here in the US complain about the enforcement of the Foreign Corrupt Practices Act (FCPA), and are actively seeking to soften its enforcement by lobbying Congress to amend the FCPA, just imagine how they might feel about paying a multi-million dollar fine for a situation in which no bribery was proven. That is the situation that UK insurance broker Willis Ltd., found itself in yesterday, in what reporter Sam Rubenfeld termed “the largest fine by the FSA (the UK Financial Services Authority) … ever imposed for failure to implement controls to prevent financial crimes”. The FSA announced on July 21 that it had assessed a penalty of £6.9MM to the insurance broker Willis Ltd., for failing to ensure payments it made to third parties were not used for corrupt purposes.

In an article in the Wall Street Journal’s Corruption Currents blog, entitled “FSA Fines Willis GBP6.9 Million For Anti-Corruption Failures”, Rubenfeld detailed that Willis had, from January 2005 through December 2009, made payments of over £27MM to foreign third party agents to assist in obtaining business of £60MM. Of this £27MM there were $227,000 (yes the FSA switched from GBP to USD in mid-Final Notice) identified in suspicious payments to counterparties in Egypt and Russia, which the FSA said were referred to the UK Serious Organized Crime Agency for further investigation.

Rubenfeld noted that the fine could have been significantly higher as the FSA recognized that Willis had “taken significant steps” to address failings identified by the FSA. These steps, together with Willis’ cooperation and willingness to settle, qualified the company for a 30% discount on its fine. He reported that without the discount, Willis would have had to pay £9.85 million. So for those of you keeping score at home, that is £60MM ($97MM) in business, generating £27MM ($44MM) in commissions, for which a ‘suspicious $227K’ was found. All of this resulted in a fine of £ 6.9MM ($11.2MM).

The FSA Final Notice detailed several clear guidelines which the UK Bribery Act or FCPA practitioner may find useful in establishing an adequate procedures or a best practices compliance program. The FSA stated that Willis had failed to:

  • Make and document a business case for the payments to overseas third parties;
  • No formal training was provided to Willis’ staff in analyzing requests for payments or third party billings;
  • There was no risk assessment of the third parties;
  • There was inadequate monitoring of the third parties;
  • There was inadequate due diligence performed on the third parties, particularly their relationships to foreign governmental officials; and
  • Willis ignored clear Red Flags that the third parties would make improper payments.

All of these factors led to an overall “weak control environment” regarding payments to foreign third parties. This gave rise to unacceptable risk that the payments made to these third parties could be used for the payments of bribes. The FSA noted that although Willis had introduced improved policies and guidance, aimed at reducing and better managing its compliance risks, the company failed to ensure that these new policies were followed. Additionally, although the Willis Board was involved in the new policy development, the Board did not receive adequate information from senior management to assess whether the risks of bribery and corruption “were effectively mitigated.

So while your company is complaining about the US enforcement regime, perhaps it might reflect on actual violations of the FCPA, or as our colleagues from thebriberyact.com, Barry Vitou and Richard Kovalevsky, QC, put it yesterday, “If your business is regulated by the FSA take note. This warning is directed to your business.”

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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