Taking the Rolls Out for a Spin? Maybe You Should Avoid Brazil

Just as the GlaxoSmithKline PLC (GSK) case in China heralded a new day in international anti-corruption enforcement, the Petrobras case may be equally important going forward. The scope and breadth of the investigation is truly becoming worldwide. Last fall, one of the first questions raised was why was the US Securities and Exchange Commission (SEC) was investigating the company as it is headquartered in Brazil. While there is subsidiary Petrobras USA, which is a publicly listed company, it was not immediately apparent what role the US entity might have had in the bribery scandal, which was apparently centered in Brazil. However some recent revelations from across the pond may shed some light on the topic.

As with any corruption scandal there are both bribe payors and bribe receivers. The Petrobras corruption scandal initially focused on the bribe receivers in Petrobras. But last month one of the key bribe receivers, who is now cooperating with the Brazilian authorities, Pedro Barusco has identified the UK Company Rolls-Royce Group PLC as a bribe payor. As reported in the Financial Times (FT) by Samantha Pearson and Joe Leahy, in an article entitled “Rolls-Royce accused in Petrobras scandal”, Barusco has “told police he personally received at least $200,000 from Rolls-Royce — only part of the bribes he alleged were paid to a ring of politicians and other executives at the oil company.”

However the allegations moved far beyond simply Rolls-Royce. The article also reported, “Brazil’s authorities are already investigating allegations that Petrobras officials accepted bribes from SBM Offshore, a Netherlands-based supplier of offshore oil vessels. SBM has said it is co-operating with the investigation. Units of two Singaporean companies, Keppel Corporation and Sembcorp Marine, along with three Brazilian shipbuilders with large Japanese shareholders, have also been accused of participating in the bribes-for-contracts scheme.” Finally, they reported that “Mr Barusco alleged that his friend Luiz Eduardo Barbosa, a former executive of Swiss engineering group ABB, was responsible for organising bribes from Rolls-Royce, SBM and Alusa, a Brazilian construction company.”

Rolls-Royce is currently under investigation by the UK Serious Fraud Office (SFO) and Department of Justice (DOJ) for allegations of corruption in several countries. Katherine Rushton, reporting in The Telegraph in an article entitled “Rolls-Royce investigated in US over bribery claims”, said “Rolls-Royce is being investigated by the US Department of Justice (DoJ), following allegations that its executives bribed officials in Indonesia, China and India in order to win lucrative contracts.” She cited to the company’s annual report for the following, ““The group is currently under investigation by law enforcement agencies, primarily the Serious Fraud Office in the UK and the US Department of Justice. Breaches of laws and regulations in this area can lead to fines, penalties, criminal prosecution, commercial litigation and restrictions on future business.””

But more than simply Rolls-Royce, readers will recognize several names from a rogue gallery of companies either implicated with corruption violations or under investigation. SBM Offshore was a poster child last year for the DOJ deferring to foreign authorities to prosecute claims of bribery and corruption. I wonder if SBM Offshore attested in its settlement documents with the relevant Netherlands authorities that it had not engaged in any other bribery and corruption beyond that which was the basis of its settlement? I wonder if the company made any such averments to the DOJ? I wonder if the DOJ will make any such deferments again given the SBM Offshore settlement with the Dutch authorities? What about ABB?

In addition to the above, SBM Offshore may be the most relevant example in the debate of an international double jeopardy standard. Jordan Moran, writing in the Global Anti-Corruption Blog, has consistently argued that international double jeopardy is a bad idea. Most recently, in an article entitled “Why International Double Jeopardy Is a Bad Idea”, he said, “when it comes to the global fight against transnational bribery, double jeopardy probably isn’t all it’s cracked up to be. To begin, most arguments calling for the U.S. and other OECD member countries to recognize international double jeopardy are nonstarters.”

Also interesting was the reference to ABB as the company went through its own Foreign Corrupt Practices Act (FCPA) enforcement action. As reported by Dick Cassin, in a 2010 FCPA Blog post entitled “ABB Reaches $58 Million Settlement (Updated)”, the company “reached a settlement Wednesday with the DOJ of criminal FCPA charges and will pay a fine $19 million. And in resolving civil charges with the SEC, the company will disgorge $22.8 million and pay a $16.5 million civil penalty. ABB Ltd’s U.S. subsidiary, ABB Inc., pleaded guilty to a criminal information charging it with one count of violating the anti-bribery provisions of the FCPA and one count of conspiracy to violate the FCPA. The court imposed a sentence that included a criminal fine of $17.1 million.” There was no information at that time as to whether the individual that Barusco named as the bribe payment facilitator, one Luiz Eduardo Barbosa, was involved in the prior ABB enforcement action in any way.

We have one or more companies, who are under current DOJ investigations, now being investigated in connection with the Petrobras bribery scandal. There are also companies that have gone through prior bribery and corruption enforcement actions now identified in the scandal. All of this now leads me to have some type of understanding of why the SEC might be investigating Petrobras USA. First, and most probably, it would be to see if the US entity was involved in the apparent decade long bribery scheme that the Brazilian parent now finds itself embroiled in. What if the US subsidiary was paying bribes to its parent to obtain or retain a benefit? Next would be any evidence of violations of the accounting provisions or internal controls requirements found in the FCPA. Finally, the SEC might be looking at Petrobras USA to see who its suppliers might be and if those companies merited investigation. Similar to looking that the Panalpina customer lists the SEC could review the Petrobras USA contractor list.

Just as GSK heralded the first time the Chinese government prosecuted a western company for violation of Chinese law, I believe the Petrobras bribery scandal will be a watershed. The outpouring of information and allegations at this time point to a multi-year, truly worldwide, bribery scheme. While it may in part have been Petrobras officials shaking down contractors for payments, it really does not matter under the FCPA or UK Bribery Act. If any company subject to either or both of those laws paid monies to Petrobras I expect they will be fully prosecuted. Further, given the arguments against an international double jeopardy standard made by Moran and others AND the apparent recidivism of prior bribery offenders, some companies may be in for a long and expensive ride.

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, 2015

FIFA and Good-Faith Investigations

You know things are getting bad when the Wall Street Journal (WSJ) questions a business’ moral authority. Things certainly cannot be much better when the regulators begin nosing around your own self-indulgence. What happens when you realize all of a sudden that all those actions you have taken may actually fall under the jurisdiction of both the United Kingdom and the United States and their respective anti-corruption laws, the UK Bribery Act and the US Foreign Corrupt Practices Act (FCPA)? It turns out all of this may have come through for our friends at Fédération Internationale de Football Association (FIFA).

Last week FIFA announced that it had considered the investigation into allegations of corruption into the awarding of the 2018 World Cup tournament to Russia and the 2022 World Cup tournament to Qatar and found, as reported in the Financial Times (FT) by Roger Blitz in an article entitled “Fifa thrown into fresh turmoil over Qatar World Cup corruption claims”, that “any improper behaviour in the bidding process for the tournament was “of very limited scope.”” This conclusion was made by a FIFA appointed former judge, “Hans-Joachim Eckert, who is chairman of the adjudicatory chamber of Fifa’s ethics committee.” Eckert had reviewed a 350-page report by investigator Michael J. Garcia, who is a former US prosecutor now practicing law in New York. Eckert released a 42 page “summary study” of the Garcia report, which he claimed supported his decision.

Unfortunately for FIFA and Eckert, Blitz reported in another FT article, entitled “Garcia and Eckert set for showdown over Fifa report”, that “Mr Eckert’s summary was disowned within hours of its publication by Mr Garcia, who claimed it misrepresented his findings. He has protested to Fifa’s appeals committee.” Garcia’s statement “has blown apart Fifa’s attempt to bring to a close nearly three years of allegations of unethical behaviour and has left Mr Eckert under increasing pressure to publish the Garcia investigation.” This action by FIFA led Reinhard Rauball, president of the German football league (DFL), to say, “Europe would have to consider breaking away from Fifa unless the Garcia investigation was published in full.”

All of this came after the summary itself noted that documents and evidence surrounding the Russian bid were lost because the computers on which they were stored had been destroyed. Garcia was not even able to speak with all the relevant witness in the Qatar bid as well. Even with this lack of full investigation, Garcia issues a statement which said that Eckert’s summary contained “numerous and materially incomplete and erroneous representations of the facts and conclusions detailed in the investigatory chamber’s report.”

What does all of this mean for FIFA? Certainly if the head of the German football league says that the European soccer federations may have to pull out of the organization because it is so corrupt that portends poorly. In another article in the FT, entitled “Brussels launches sliding tackle against Fifa”, Alex Barker reported “The EU’s top sports official is urging Fifa to come clean with findings from its corruption investigation, in a warning that signals a Brussels rethink over the commercial freedoms enjoyed by football’s scandal-tarnished governing body. In a direct swipe at Fifa’s attempt to clear Russia and Qatar to run the next two World Cups, Tibor Navracsics, the EU commissioner for sports, has called for full publication of a graft report into the 2010 bidding process to “remove doubts” about its findings. While Sepp Blatter’s Fifa is an unregulated Swiss body independent from government, its lucrative business activities in the European market are subject to rules overseen by EU regulators, including sales of television rights.”

What about any criminal issues? A quick Google search reveals that FIFA has offices in both the US and the UK. Given the very broad jurisdiction of the FCPA and perhaps the UK Bribery Act, it does not seem too far a stretch for either the Department of Justice (DOJ), the FBI, the UK Serious Fraud Office (SFO) or even the Overseas anti-corruption unit of the London police might want to open an investigation. Indeed CNN reported that the FBI is investigating FIFA at this time, saying “Investigators are moving ahead with their probe, which could result in charges against senior FIFA officials, the U.S. law enforcement officials said.”

For the compliance practitioner there are a couple of important lesson in all of this. First and foremost, in your internal investigations, you need to provide access of both documents and witnesses to your counsel. If you do not that alone may certainly compromise your investigation. This point was recently re-emphasized in the ongoing General Motors (GM) scandal over its ignition switch problems. It turns out that over two months prior to the public announcement the company had ordered over 500,000 new switches from its supplier. According to Hilary Stout and Bill Vlasic, writing in the New York Times (NYT) in an article entitled “G.M. Ordered a Half-Million Replacement Switches 2 Months Before Recall”, the order was placed after an internal company committee met. But no records of the meeting were provided to company’s outside counsel investigating this matter, Anton R. Valukas. Interestingly Valukas released a statement which the article quoted, ““To my knowledge, G.M. provided me access to all information in its possession related to G.M. inquiries regarding various repair options and part availability as G.M. considered potential fixes for the ignition switch in the event that a recall would occur,” the statement said.” That is lawyer-speak for I looked at what they showed me.

Hiding or not providing access to internal or outside counsel can be a recipe for disaster with the DOJ. The reason is the same as it is a disaster for FIFA in Europe. There is no trust left for the organization. Ask any ex-DOJer and they will tell you that it is all about credibility when you self-disclose to the DOJ or when you are in negotiations with the DOJ over a potential FCPA penalty. I regularly hear Stephen Martin and Mike Volkov say precisely that when they talk about their experiences from working for the US government. If you do not allow your investigators access to all relevant documents and those witnesses under your control, the DOJ will most probably not consider the results of your investigation valid. The DOJ may not even consider your exertions worthy of a good-faith effort.

One thing is also very relevant for the compliance practitioner. If your outside counsel disavows him or herself from the company’s interpretation of it going forward, you are in big trouble. Even the WSJ, in its Op-Ed piece said, “FIFA’s moral failure stands out.”

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, 2014

Coolness in Being the Bad Guy? Eli Wallach and GSK

Eli Wallach died Tuesday. For my money, he was about the coolest bad guy out there. Not tough like Lee Marvin, just cool. My favorite Wallach roles were as Calvera in The Magnificent Seven and as Tuco in The Good, The Bad and The Ugly. An early proponent of method acting, Wallach performed on the stage and in films for over 60 years. Although originally from Brooklyn, Wallach was also a fellow Texas Longhorn, having attended the University of Texas. He served in France as a Second Lieutenant in France during World War II.

I thought about Wallach’s über coolness when considering the most decided uncool position of the UK pharmaceutical giant GlaxoSmithKline PLC (GSK) recently. Last month the Chinese government issued a most very stern warning to GSK when it accused the former head of GSK’s China business of direct involvement in bribery and corruption. But more than this direct accusation, the move was a clear warning shot across the bow of not only western pharmaceutical companies doing business in China but also all western companies. In an article in the Wall Street Journal (WSJ), entitled “Beijing Warns Sernly on Glaxo”, Laurie Birkett quoted Helen Chen, a director and partner at consultancy L.E.K., as saying “Focusing much of the blame on a foreigner sends a strong message to all. Companies will see that if authorities are willing to accuse even a foreigner, who is in senior management, the issue is being taken seriously, it’s a clear message that bribery is unacceptable in the market.” Burkitt went on to say, “Experts say China’s medical system is deeply underfunded, giving doctors, hospitals and administrators an incentive to overcharge and overprescribe. Glaxo, in the past, organized trips for doctors around China and to places such as Budapest and Greece as part of a broader effort involving perks and cash to get doctors to boost drug prescriptions, according to documents previously reviewed by The Wall Street Journal.”

Such reports of endemic corruption are not new. An article, entitled “GSK China probe flags up wider worries”, in the Wednesday edition of the Financial Times (FT) reporters Andrew Jack and Patti Waldmeir discussed not only the endemic nature of corruption in China but how, in many ways, the Chinese health care system is based on such corruption. The piece quoted George Baeder, an independent drug industry advisor, for the following, “Financial flows – both legal and illegal – tied to drug and device sales are funding perhaps 60-80 per cent of total hospital costs. Without this funding, the current system would collapse.” Further, “central and provincial Chinese governments cannot afford to pay doctors a living wage, and may patients cannot afford to pay the true cost of care.” And finally, “Up to now, Beijing has turned a blind eye as pharma companies find ways to subsidise doctor salaries and underwrite their medical education.” How about that for structural corruption?

Intertwined with this structural issue is the problem of the quantity and quality of the drug supply. Many Chinese doctors do not feel that there is an acceptable alternative to foreign pharmaceutical products. This drives up the cost of prescribed medicines, as this quantity is therefore limited. But even where indigenous Chinese generic drugs are available as alternatives, many patients do not trust these medicines. This restricts the quality of drugs available.

But with this recent round of accusations against GSK it appears that the Chinese government has opened a new front. In an article in The Telegraph, entitled “GSK bribery scan could cause ‘irreparable damage’, says China”, Denise Roland reported that “Beijing has apparently issued a warning to all foreign firms, cautioning that the corruption charges against GlaxoSmithKline executives could cause “irreparable damage” to the drug maker’s Chinese operations.” She quoted from the state news agency Xinhua for the following, “GSK’s practices eroded its corporate integrity and could cause irreparable damage to the company in China and elsewhere. The case is a warning to other multinationals in China that ethics matter.”

In addition to these charges against a senior GSK executive, which could lead liability up to the GSK boardroom, Jonathan Russell, also writing in The Telegraph, in an article entitled “GlaxoSmithKline is facing more than double jeopardy”, said that “GlaxoSmithKline’s problems are multiplying fast. In China authorities have identified 46 individuals connected to the company they claim were involved in “massive and systemic bribery”. In the UK the Serious Fraud Office (SFO) marked out its pitch this week, revealing it has opened an official investigation into allegations of bribery; and an internal GSK probe is looking at potential wrongdoing in Jordan and Lebanon.” More ominously, he also noted that “Given the slew of allegations so far it seems a fair assumption that other international law enforcement agencies, notably the US Department of Justice, will be taking a long, close look at the allegations.”

While Russell points to the general UK prohibition against prosecutions, which might invoke double jeopardy, he says “As ever with the law there are exceptions to the principle. However they are limited in scope and rare in number. It may also be the case that the principle of double jeopardy may not be invoked in this case if the alleged offences the SFO is investigating are separate to those under investigation in China. They could relate to matters that took place in Jordan or Lebanon.” Russell also pointed out that “international prosecutors carving up parts of prosecutions so they can all have their pound of flesh. A very painful prospect for GSK.” It will also be interesting to see if GSK is charged under the UK Bribery Act, under the prior law or both. If charges are brought under the Bribery Act, which became effective on July 1, 2011, do you think GSK would try and raise a compliance defense based on the Six Principals of Adequate Procedures? I guess having a compliance defense is pretty useless if your company engages in bribery and corruption.

While Russell talks about the aggressiveness of US prosecutors under the Foreign Corrupt Practices Act (FCPA), he does not discuss what may be GSK’s greatest exposure in the US. GSK was under the equivalent of a Deferred Prosecution Agreement (DPA) called a Corporate Integrity Agreement (CIA) for its prior sins related to off-label marketing. This CIA not only applied to the specific pharmaceutical regulations that GSK violated but all of the GSK compliance obligations, including the FCPA. In addition to requiring a full and complete compliance program, the CIA specified that the company would have a Compliance Committee, inclusive of the Compliance Officer (CO) and other members of senior management necessary to meet the requirements of this CIA, whose job was to oversee full implementation of the CIA and all compliance functions at the company. These additional functions required Deputy Compliance Officers for each commercial business unit, Integrity Champions within each business unit and management accountability and certifications from each business unit. Training of GSK employees was specified. Further, there was detail down to specifically state that all compliance obligations applied to “contractors, subcontractors, agents and other persons (including, but not limited to, third party vendors)”.

For the compliance practitioner, one clear message from the GSK matter is to monitor, audit and continuously review your Chinese operations. I will have more to say about the China corruption crackdown in an upcoming blog post but just like Eli Wallach as Calvera in The Magnificent Seven told the gunmen hired to protect the Mexican village, you have been warned.

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, 2014

Good Bye To Peter O’Toole and the SFO Prosecution of Victor Dahdahleh

This past weekend Peter O’Toole died. He was one of the foremost actors of his generation, garnering eight Oscar nominations. He also starred in one of my favorite movies of all-time-Lawrence of Arabia. Last week, before O’Toole passed away, the UK Serious Fraud Office’s prosecution of Victor Dahdahleh also died when the SFO notified the Court that it did not believe a guilty verdict was possible due to some very odd in trial machinations. As you might expect, thebriberyact.com guys, Barry Vitou and Richard Kovalevsky QC, wrote about it in their blog, thebriberyact.com. Rather than summarize their thoughts, I asked them if I could re-post their original piece, which they graciously allowed me to do.

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Key question for SFO after Dahdaleh collapse

The collapse of the SFO case against Dahdahleh represents a low point in a bad year for the SFO.

The continuing fall out from the botched Tchenguiz investigation (where the SFO is being sued), finding lost SFO documents relating to the BAE Systems investigation in a Cannabis warehouse in East London and now this all put the SFO in the headlines on the front page, again, for all the wrong reasons.

The new Director is doing his best to fix the SFO.  The question some in Whitehall will be asking now is: can it ever be fixed?

The Dahdahleh case was a high profile prosecution and there will be a post mortem.

Two key pieces to the puzzle

The SFO in its Press Release identified two key points.

First, a key witness, who had already pleaded guilty, changed his tune.

In the words of the SFO: “Bruce Hall pleaded guilty and gave evidence for the prosecution. The account he gave in court differed markedly from the witness statement he had provided to the SFO.”

If you bring cases to trial there is always a risk that witnesses can change their story or crumble under cross examination.

You win some.  You lose some.

David Green has repeatedly made the point that because of the very nature of its work there will always be the risk of losing cases.

That is all part and parcel of the rough and tumble of litigation.

Though the SFO badly needs some more of the ‘You win some’ and less of ‘You lose some’.

Reliance on information obtained from third parties

Second, press reports say that reliance was placed on information received from Akin Gump a law firm representing Alba which in turn is involved in a ‘hotly contested’ civil law suit against Mr. Dahdahleh.

The SFO said in its Press Release yesterday that “Two key witnesses from the USA were unwilling to attend trial in the UK and face cross-examination. That impacts on the fairness of the trial as well as the prospects of conviction.”

In its more detailed statement to the Court the SFO said:

“Secondly, we have the unwillingness of two witnesses to face cross-examination. That impacts both on the fairness of the trial as well as the prospects of conviction.

Since last Thursday, yet further contact has taken place with Akin Gump, the lawyers for Aluminium Bahrain, or “Alba”, to secure the attendance of these two American witnesses, Mark MacDougall and Randy Teslik who are both partners in that firm. As you will see from the correspondence, they have attempted to place limits on the extent to which they can be cross-examined.  The Serious Fraud Office does not believe it would be appropriate to attempt to persuade the court to agree to such limits nor, given your comments last week, that they should appear via video-link.

The Defence have raised issues questioning Akins Gump’s role in the provision of assistance to the Serious Fraud Office both as to what their motives may have been in the dissemination of material and assistance as to witnesses who could provide relevant information, this in the context, as accepted by the defence, of the Serious Fraud Office acting in good faith. The attendance of the two American witnesses would have allowed this aspect of the case to be ventilated before the jury. Their refusal to attend creates a situation where it is clear that the trial process cannot remedy the position and we accept unfairness now exists for the Defence.

In seeking to secure the attendance of these two witnesses – who have previously attended court on every other occasion when their attendance has been required – the Serious Fraud Office has taken every available step, including a direct telephone conversation between the Director of the Serious Fraud Office and the chair of Akin Gump.

Not every unfairness necessarily leads to trials being discontinued, particularly where there is other evidence and taking into account the public interest in pursuing serious crime. After careful consideration of all of the circumstances of the case the Serious Fraud Office has concluded that there is no longer a realistic prospect of conviction in this case and accordingly we offer no evidence.”

The SFO will always need to rely on evidence from others in order to bring cases and those parties may have a variety of motives for supplying it to them.  The fact here is that questions over those motives led to the collapse of the case.

The question for the SFO is did it take reasonable steps to prevent the possibility of the collapse happening in this case.

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While I do not pretend to understand the nuances of British criminal trial procedure, I have some experience trying cases and you always have to expect the unexpected. Even if that means a key witness becomes adverse to your position or indeed his or her prior position in negotiating a plea agreement. That is the reason you have the prior statements memorialized so that they can be used against the interest of the witness, if required. The actions of the law firm Akin, Gump would seem to be more problematic. In the UK, there appears to much criticism of the SFO for using materials developed by Akin, Gump. While, I do not find that conduct troubling, if you are going to rely on a third party for any evidence, you had better be assured that they will show up at trial to prove up such evidence. If it turns out that Akin, Gump went back on its word and did not provide the testimony that it agreed to, that is another story. Lastly, for all those who criticize prosecutors who lose cases, I only have one thing to say, “If you have never lost a case, you have never been to the courthouse.”

So good-bye to Peter O’Toole, good-bye to the SFO prosecution of Victor Dahdahleh but as Barry Vitou reminded me, assured it is not good-bye to the SFO, although I bet it is looking forward to the new year a bit more than most of us.

Reports Just In: Invasions from Mars and the UK Bribery Act

On this day 75 years ago Orson Welles caused a nationwide panic with his broadcast of “War of the Worlds” – a realistic radio dramatization of a Martian invasion of Earth. The show began on Sunday, October 30, at 8 pm. A voice announced: “The Columbia Broadcasting System and its affiliated stations present Orson Welles and the Mercury Theater on the air in ‘War of the Worlds’ by H.G. Wells.” Welles introduced his radio play with a spoken introduction, followed by an announcer reading a weather report. Then, seemingly abandoning the storyline, the announcer took listeners to “the Meridian Room in the Hotel Park Plaza in downtown New York, where you will be entertained by the music of Ramon Raquello and his orchestra.” Then the scare began when a very excited announcer broke in to report that “Professor Farrell of the Mount Jennings Observatory” had detected explosions on the planet Mars. Then the dance music came back on, followed by another interruption in which listeners were informed that a large meteor had crashed into a farmer’s field in Grover’s Mills, New Jersey. The panic was on when as many as a million radio listeners believed that a real Martian invasion was underway.

Fortunately for us Americans, Welles’ show was just that – a dramatized radio show. Just as fortunately for us Americans, and indeed the rest of the world, when it comes to the UK Bribery Act we have thebriberyact.com guys, Barry Vitou and Richard Kovalevsky QC, who continually communicate to us through the shroud of our common language to bring clarity and insight to the UK Bribery Act. Once again proving that they are a prolific duo, they have posted four articles over the past few days which merit discussion.

1.      What’s On Your Mind?

In the first post I want to bring your attention to, entitled “SFO to target UK PLC in corporate crackdown – it’s still all about the money”, the lads discuss some of the issues that the Serious Fraud Office (SFO) must deal with in the enforcement of the Bribery Act. First and foremost is the way in which corporate liability is determined in the UK. “Broadly speaking in the UK the prosecutor needs to finger someone very senior in the Company for criminal liability to be attributed to the corporate.” Further, “the UK position is the opposite of the Respondeat Superior principle in the US” as the “‘directing mind’ principle has to be satisfied.” They go on to note that “evidence to prove the directing mind principle is often hard to find. The SFO Director has (somewhat cynically!) feigned his ‘surprise’ on a number of occasions that the email chain runs out before you get to the main board.” For their recommendation you should read the rest of the article.

2.      Watch This Space

In another post entitled “Corporate prosecutions under the Bribery Act. Racing certainty or outsider? Watch this space” they cite to a talk that SFO Director David Green recently gave at the Pinsent Masons regulatory conference where he said:

“To those who are impatient for the first prosecution under the Bribery Act:-

We still have cases under the old legislation under investigation and awaiting trial.

 The new Act is not retrospective, and covers conduct after 1/7/2011.

Comparisons with the US are misleading. Prosecutions under the FCPA of 1977 did not hit their stride until well into this century.

The DoJ has only last November published detailed guidance on the act, based on the action taken under it thus far.

We have charged our first offences under our Bribery Act. There will be more. We have cases under development.

The SFO will bring the right cases at the time that is right for us.

More generally, the SFO currently has some 13 cases involving 34 defendants (2 of which are corporates) in the court system awaiting their trial. 8 of these trial are listed after April 2014.”

From this, the guys emphasize that now is the time to prepare and get your compliance program into shape as “it would be a mistake to do nothing.” And of course, “Watch this space.”

3.      To Self Report or Not Self Report, that is the Question

A further post, entitled “YES, YES, YES, YEEES, YEEEEES, YEEEEESSSSS. But. SFO Director repeats benefits of Self Reporting. Again”, has SFO Director Green once again extoling the virtues of self-disclosure but he emphasized, “The SFO’s message is carefully expressed and nuanced. Assume the evidential sufficiency test is passed. If a company made a genuine self-report to us (that is, told us something we did not already know and did so in an open- handed, unspun way), in circumstances where they were willing to cooperate in a full investigation and to take steps to prevent recurrence, then in those circumstances it is difficult to see that the public interest would require a prosecution of the corporate.” He then went on to list reasons why a company should self-report. They include:

• A self-report at the very least mitigates the chances of a corporate being prosecuted.  It opens up the possibility of civil recovery or a DPA.
• There is the moral and reputational imperative: it is the right thing to do and it demonstrates that the corporate is serious about behaving ethically.
• If the corporate chooses to bury the misconduct rather than self-report, the risk of discovery is unquantifiable. There are so many potential channels leading to exposure: whistle-blowers; disgruntled counterparties; cheated competing companies; other Criminal Justice agencies in the UK; overseas agencies in communication with SFO; and the SFO’s own developing intelligence capability, to name but a few.
• If criminality is buried and then discovered by any of the above routes, the penalty paid by the corporate in terms of shareholder outrage, counterparty and competitor distrust, reputational damage, regulatory action and possible prosecution, is surely disproportionate.
• Last but not least, burying such information is likely to involve criminal offences related to money laundering under sections 327-9 of the Proceeds of Crime Act.

The guys made clear their thoughts on the matter when they wrote, “where a corporate comes in and tells the SFO about something that they do not know; where the disclosure of the issue to the SFO is not ‘spun’; where genuine and comprehensive action is taken to remedy the problem; and, where there is a serious commitment going forward to ensure no repeat *then* it is very *unlikely* that the Public Interest test would be satisfied and so it is *unlikely* that there would be a prosecution.”

4.      Do the Right Thing

And finally, in a post entitled “A purchaser worries about liabilities after buying a business with limited information up front”, the guys were asked a question by a reader which read, “Will my company and my Board of Directors likely be prosecuted if they buy another company which has problems after doing limited due diligence?” If you have ever met the guys or heard them speak, you know that practical advice is their raison d’etre. They said, “The key is that you do what you can and that you do the right thing post-closing. This means that in cases where you have had limited opportunity to do due diligence up front you should make sure that post-closing proper diligence is done. You should be doing this sort of thing anyway as you integrate the new Company into your own business. However, it will be important to specifically include anti-bribery in that process and an independent work stream post-closing to look at compliance (or lack of it) needs to be undertaken. If as part of this you uncover a problem it is important that this is dealt with in the appropriate way, namely properly investigated, fixed, cleaned up and remediated.” “You should ensure that if money laundering reporting obligations are triggered the appropriate reports are made to the authorities. They end by noting, “in our view the chances of the Purchaser itself being prosecuted for the sins of the target if the purchaser ‘does the right thing’ post-closing should be slim.”

Unlike Orson Welles, who gave America a fictitious report of an invasion from Mars, thebriberyact.com guys continue to shine a light on all things Bribery Act related. Their latest reports from the UK clearly indicate that the SFO is picking up steam and moving forward. You do not have to be afraid, but you do have to be very prepared.

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

Quadrophenia and Four Compliance Issues

This past weekend I saw the remaining members of The Who perform in their Quadrophenia Tour. While I had seen Roger Daltry perform the rock opera Tommy, I had never seen Pete Townsend in concert. To say I was blown away would be putting it mildly, especially as Quadrophenia does not even make it into my top three favorite Who albums, which are, in descending order, Who’s Next, Tommy and Live at Leeds. While Roger Daltry’s voice was not as strong as it was during his Tommy tour, not doubt due to the longer duration of this tour, it was still a great performance and it was worth it to see Pete Townsend. He can still rock. Also they ended the show with three songs from Who’s Next, which alone was worth the price of admission.

The story generally revolves around four themes based upon the four personalities of the members of the band; Daltry, Townsend, Keith Moon and John Entwhistle. However, it was also a play on (for those of you old enough to remember) quadrophonic sound. According to Pete Townsend, “”The whole conception of Quadrophenia was geared to quadraphonic, but in a creative sort of way. I mean I wanted themes to sort of emerge from corners. So you start to get the sense of the fourness being literally speaker for speaker.” So inspired by ‘fourness’ today, I will review four issues that have, or will, impact the compliance practitioner.

I.                   EU and Data Privacy

In an article in the Financial Times (FT), entitled “EU refuses to bend on tough data privacy law”, reporter James Fontanella-Khan wrote that Viviane Reding, the EU Commissioner for Justice, said that she will continue to fight any US attempts to water down its proposed data protection and privacy law, “which would force global technology companies to obey European standards across the globe.” Further, “Exempting non-EU countries from our data protection regulations is not on the table. It would mean applying a double standard.” Fontanella-Khan said that “US tech companies argue that it would be unfair for them to be subject to EU laws that are too stringent and could result in expensive administrative burdens and hefty fines for errant companies.” Can you think of any US laws that non-US companies have to comply with?

Issues for the compliance practitioner? There could be a myriad, from internal investigations, to sharing data with US regulators to ongoing monitoring and auditing. While it is currently US technology companies which are leading the fight against these new tough standards, non-tech companies could do well to assess how these changes may well impact them.

II.                Will DOJ Open FCPA Investigation Against EADS?

Perhaps not fully appreciating the irony in reporting the EADS story in the same issue as the above EU data privacy story, the FT also had an article by Carola Hoyos, entitled “FBI probe of EADS unit claims”, who reported that the Federal Bureau of Investigation (FBI) has interviewed “a witness and taken possession of documents in connection with allegations” that a British subsidiary of the European aerospace entity EADS, named GPT Special Management Systems, bribed Saudi Arabian military officials, in connection with business dealings. Hoyos reported that GPT “made ₤11.5 of unexplained payments – some via the US – to bank accounts in the Cayman Islands.”

Although there is no known open US Department of Justice (DOJ) investigation open into the EADS matter at this point, Hoyos noted that it was the DOJ which led the effort to investigate and eventually fine the UK company BAE, the amount of $400MM after the British government ordered the Serious Fraud Office (SFO) inquiry into allegations of BAE bribery for sales of equipment into Saudi Arabia “citing economic and diplomatic interests”. The FBI interviews occurred even though the SFO is currently investigating the matter. Hoyos also reported that EADS “maintained that its own investigations into the matter had yielded no evidence of wrongdoing.”

III.             Think Before You Hit That Send Button

In a post in his blog, the D&O Diary, entitled “Damning E-mails: Can We Talk?”, author Kevin LaCroix wrote that “revelations this past week arguably represent some type of high-water mark, as a cluster of serious allegations were accompanied by a trove of embarrassing excerpts from emails and instant messages. While the latest disclosures provide yet another reminder of the dangers associated with ill-considered use of modern electronic communications technology, they also raise questions about the use that regulators and claimants are attempting to make of the communications.” He was talking about the Commodities Futures Trading Commission’s press releases announcing RBS’s settlement this past week of charges of alleged Libor manipulation drew heavily on excerpts from the bank’s internal electronic communications. While noting that “emails do sometimes in fact evidence wrongdoing” the problem with them “is that when seemingly damning email excerpts are blasted into the media, it is very difficult to appreciate the larger context within which the excerpts fit.”

As much as he has distaste for the selective use of emails in this manner by regulators, LaCroix believes that they can provide a teachable moment. He writes that “a useful exercise to try to adopt is to pause and ask yourself, before hitting “send”, how the message would look if it were to fall into the hands of a hostile and aggressive adversary who was looking for ways to try to make you or your company look bad. Were this simple test to be more widely implemented, we would certainly see a marked reduction in, for example, running email jokes about the French maid’s outfit. My final thought is this – we all know that many electronic messages are written in haste and sometimes with insufficient care. With full awareness of this attribute of electronic communications, we should hesitate to jump to too many conclusions about the seemingly damaging inferences that could be drawn from email or instant message excerpts. But we should also learn from the inferences that regulators and claimants are trying to draw and try to take that into account in our own communications.” I could not have put it better myself.

IV.              Trust Your Gut and Raise Your Hand

There have recently been a plethora of articles about ‘big data’ and how it can help in the monitoring of a Foreign Corrupt Practices Act (FCPA) compliance program. I have been one of the folks to write and talk about it. However, in an article in the New York Times (NYT), entitled “Sure, Big Data is Great. But So Is Intuition”, reporter Steve Lohr wrote that while he thinks that big data is a powerful tool and an unstoppable tread it “might be a time for reflection, questions and qualms about this technology.” This is because, like all mathematical models, big data is “a simplification.” He quotes Thomas Davenport for the following. “A major part of managing Big Data projects, he says, is asking the right questions: How do you define the problem? What data do you need? Where does it come from? What are the assumptions behind the model that the data is fed into? How is the model different from reality?”

So the underlying basis for analyzing big data may actually be “too simple minded, rather than too smart.” All of this leads back to intuition. I would add that if the hair on the back of your neck stands up, your gut tells you something is wrong or something does not smell right, it probably isn’t right. The implications for the compliance practitioner? I would like to propose that the largest is in the area of training. What I try and tell non-compliance practitioners when I put on training is that if you see, smell or sense one of the above, just raise your hand. You do not have to know the ins and outs of the FCPA or know the answer but I do ask that you raise your hand and get the issue to a person who does have the expertise to analyze the issue.

If you have the chance to see The Who on their Quadrophenia Tour, all I can say is to drop whatever you are doing and go see it. I do not know if it will be your last chance to see Pete Townsend but when he winds up for one of those trademark windmill slams down the guitar strings, just close your eyes and listen. It is pure bliss and a quad of sensations for the ages.

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

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

Settling with Multiple International Regulators: What Has Standard Chartered Wrought?

“Tell me what can a poor boy do; ‘Cept for sing for a rock ‘n’ roll band?”

As a teenager I often pondered those lyrics and wondered if Mick Jagger was really a closet radical who was ready to “let his freak flag fly” (to cross-mix musical metaphors) and take to the streets to protest as was so often done in the 1960s. That Stones lyric popped into my head more than once over the past week when I was trying to sort out the story of Standard Chartered Bank (SBC) and the New York state Department of Financial Services (DFS) in the context of an international company subject to many different international regulators. Quite simply, what is a poor company to do when it is being investigated by multiple regulatory agencies or government departments in many different countries and with even further differentiated jurisdictions within the same country, such as the role of the (DFS) and the US Department of Treasury or Federal Reserve?

Companies and Regulators-waiver of privilege and negotiations

This question clearly came up in the context of the SBC anti-money laundering (AML) fine announced earlier this week. In addition to the UK Financial Services Authority (FSA), SBC was under investigation by several US federal authorities including the Department of Treasury, Department of Justice (DOJ), Federal Reserve and Federal Bureau of Investigation (FBI). Who and how does an entity under investigation communicate? In an article in the Huffington Post, entitled (appropriately enough) “Standard Chartered May Have Burned Itself By Waiving Attorney-Client Privilege In Probe”, reporters Aruna Viswanatha and Andrew Longstreth wrote that SBC “appears to have been burned by a decision to waive attorney-client privilege, a move that usually helps appease U.S. authorities.”

In addition to the waiver issue, how does an institution negotiate with several over-lapping jurisdictions or multiple regulators within one jurisdiction? The Financial Times (FT), in an op-ed piece entitled “StanChart rushes to unsettling deal”, said that “If banks are to be clear about their responsibilities and obligations, regulators have to establish coherent norms and processes.” The piece went on to opine that it would “be perverse” if the DFS is applauded for “going it alone” even though the FT acknowledged that the DFS was “right to raise questions over the legality of wire-stripping”.

Regulators and Regulators-who’s on first?(International Division)

What about the relationship between international regulators, is it now damaged? In a Wall Street Journal (WSJ) article, entitled “Trans-Atlantic Tensions Increase”, Dana Cimilluca and Victoria McGrane reported that “the special relationship between the financial authorities in the U.S. and U.K. is going through a rough patch.” To underscore this point, they noted that after the DFS went public, the Governor of the Bank of England “chastised” US regulators. However, this chastisement did not sit well with all on this side of the pond. In another WSJ article entitled “Bank Deal Rankles Regulators” Liz Rappaport quoted Neil Barofsky, former special inspector general in the US Treasury Department, who believes, “The FSA should stop griping about other regulators and focus on overseeing London’s banks”.

Regulators and Regulators-who’s on first?(US Division)

What about the relationships between US federal and state regulators? Rappaport reported that the DFS met with all other US regulatory agencies investigating SBC conduct in April. The DFS seems to believe that it communicated that it was ready to move while the federal regulators “didn’t feel that they had got any indication from Mr. Lawsky’s office that he was going to pursue a case on his own. Rappaport quoted Mark Williams, a former Federal Reserve Bank examiner, who said that it was “unprecedented, from a regulatory perspective” for a state regulator to move without waiting for federal regulators to move fist. However, he was also quoted as saying “It will likely embolden other state banking commissioners”. But the final word, at least from the US side, may have come from Senator Carl Levin (D-Mi.) who was quoted as saying, “Holding a bank accountable for past misconduct doesn’t need to take years of negotiation over the size of the penalty. It simply takes a regulator with the backbone to act.”

What Should Wal-Mart Do?

So what does all of this mean? Certainly in the financial services sector, counsel needs to tread carefully and have a clear understanding about turning over evidence and how that evidence may be presented. Companies also need to have clear understanding of who they are negotiating with and under what conditions. For those Foreign Corrupt Practices Act (FCPA) compliance practitioners, witness the release of the letter this week by two House members, Oversight and Government Reform Committee Ranking Member Elijah E. Cummings and Energy and Commerce Committee Ranking Member Henry A. Waxman, who sent a letter to Wal-Mart Chief Executive Officer (CEO) Michael Duke regarding the company’s failure to provide Congress with information relating to the Wal-Mart bribery allegations. In the letter, they claim to have found evidence “of “questionable financial behavior” including tax evasion and money laundering in Mexico.” Further, they threaten to make “public any documents we have obtained as part of the investigation.” I probably do not need to remind the readers of this blog that Wal-Mart has announced it is conducting an internal investigation for allegations of FCPA violations in Mexico. So tell me “What can a poor boy [bank, company, fill in the blank] do?”

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

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

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.

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