UK Serious Fraud Office Discusses Details of UK Bribery Act with Gibson Dunn

September 7, 2010

On July 26, 2010, the Senior Staff of the UK’s Serious Fraud Office ("SFO")[1] hosted attorneys from Gibson, Dunn & Crutcher and Kingsley Napley at the SFO’s Offices in London for a discussion about the recently enacted UK Bribery Act ("Act").  The SFO Senior Staff (or "Staff") present were: Richard Alderman (Director); Robert Amaee (Head of Anti-Corruption, Proceeds of Crime and International Assistance); and Charles Monteith (Head of Assurance (Legal)).  Present from Gibson, Dunn & Crutcher were Joel M. Cohen, Lord Charles Falconer and Tim Vogel.  Present from Kingsley Napley were Christopher Murray and Stephen Gentle.

Gibson Dunn and Kingsley Napley had submitted questions about particular aspects of the Act in advance to the Staff, who had agreed to provide answers as fully as possible on the points raised.  The Staff provided guidance on a wide range of issues, offering an unprecedented opportunity to hear their views on matters of great interest to the public about the contours of the Act and its various provisions.  The Staff has reviewed and approved this summary of our discussion, which we are pleased to share with you.

Board Commitment Is Critical

According to the SFO Senior Staff, a board-level commitment to anti-bribery measures is extremely important.  Director Alderman described a "totally unsatisfactory" case in which the committee of a board of a major corporation, but not the board itself, had considered anti-corruption measures.  He stated that a specific board member should be responsible for anti-bribery measures and should personally ensure that anti-corruption is addressed on the agenda of every full board meeting, and he cautioned that any lesser commitment by a company will be viewed negatively by the SFO.

Bribery of a Foreign Public Official

Section 6 of the Act creates an offense of bribery of a Foreign Public Official ("FPO").  Unlike the FCPA, the Act’s terms do not require the intention that the FPO improperly perform his duties, nor do they require that the payment be made "corruptly."  The following elements are required:

• An intention to influence the FPO in his official capacity;
• An intention to obtain or retain business, or an advantage in the conduct of business; and
• That the act is not permitted by local written law.

Mens Rea

The Staff stated that there is no requirement for a dishonest intent under the Act. They acknowledged that under English criminal law, "corrupt" has no commonly accepted specific meaning and that the word "corruptly" does not appear in the Act.  The offense of bribery of an FPO requires the intent to influence the FPO, and the intent to obtain or retain business or other advantage from the payment.  Mr. Monteith stated that he believes Section 6 requires that there must be a "connection" between the intent to influence "by or through" the advantage offered for an offense to be committed, but noted that we await official confirmation in the Attorney General’s ("AG") guidelines, which are being written. [2]

Promotional Expenses

Unlike the FCPA, the Bribery Act has no exception or affirmative defense for reasonable, bona fide expenses related to the promotion, demonstration, or explanation of products or services (e.g. travel and entertainment expenses).  Perhaps more than any other, this issue has concerned companies seeking to ensure their compliance with the Act, and we spent a great deal of time seeking guidance with respect to anticipated nuances in this area.

The Staff made it clear that where promotional expenses are reasonable, moderate and not lavish, although there may be a "technical" breach of the Act, the public interest would probably not require prosecution–but noted that this is subject to the AG’s guidance on the Act.  According to the Staff, public interest factors such as whether to prosecute or not will be resolved in the AG’s guidelines.

Director Alderman offered the following example: A foreign subsidiary of a London-based company asks its headquarters in London whether flying people to South Africa to watch the World Cup would be an offense; headquarters informs the subsidiary that it may be an offense and they should not do it; the subsidiary argues that this will put it at a competitive disadvantage as against its competitors in the region.  Director Alderman acknowledged that while the subsidiary may indeed be disadvantaged in the short term, the aim of the Act is to provide a level playing field so that eventually, all corruption will cease.

We asked how companies can be expected to draft policies that permit even limited and reasonable forms of expenses when, according to the SFO, such expenses technically breach the Act.  The Staff stated that the AG’s guidance will provide clarity over whether the provider has the intent to influence the FPO through the provision of any advantage or whether the offense is triggered by providing any advantage when combined with merely a general intent to influence.  They stated that the SFO is willing to examine a company’s anti-bribery guidance, analyze its processes and talk to it about the specifics of its policies.  They further stated that although the SFO cannot give a company advice as to whether its procedures for preventing bribery are "adequate" so as to provide a defense under Section 7, it can give more general advice such as whether the company’s policies contain any obvious omissions.

This is a tricky area, with no clear rules yet established.  The Staff told us that the SFO is informing companies that this is "dangerous territory."  It is anticipated that the extent to which promotional expenses are acceptable will be covered by the Ministry of Justice’s or AG’s guidance).

Facilitation Payments

Unlike the FCPA, the Bribery Act has no exception or affirmative defense for "facilitation payments"–generally small-scale payments for routine government action of the type that is ordinarily and commonly performed by a foreign official.

The Staff stated that the SFO does not approve of any company that does not adopt a "zero-tolerance" policy regarding facilitation payments.  They stated that the SFO will view a company’s policies, if they allow for facilitation payments, as not constituting "adequate procedures" even if the company allows such payments because it is predominantly a US-based company. 

However, the Staff stated that a company’s policies should address the possibility of such payments being made, incorporating the relevant AG and Ministry of Justice Guidance in this regard.    The Staff explained that the SFO takes a sympathetic approach toward "emergency facilitation payments," and offered an example: a visitor to a foreign country requires an inoculation and is offered the choice of paying $5 to be inoculated with a clean needle, or not paying and being inoculated with a used needle.  They stated that in this case, prosecution is unlikely if the payment is made. 

Additionally, the Staff stated that there is only a remote chance that a small, one-off payment will result in prosecution (for example, a $5 payment for customs clearance)–provided that the company picks up the payment through its internal procedures and makes it clear to those involved that such payments are not acceptable.  The Staff stated that the SFO is concerned about the risk of a single, small one-off payment becoming a regular feature of the business–and that this would not be acceptable to the SFO and prosecution would be considered.  They stated that repeated such payments, even those of small amounts, will indicate a course of conduct that may lead to prosecution.  The Staff confirmed that liability cannot be avoided by keeping repeated facilitation payments of a low value under a certain aggregate amount.

The Staff stated that the SFO welcomes further discussion in this area, because it is important that the SFO be aware of the business issues facing companies around the world.  They noted that it may be possible for the SFO to provide assistance to companies faced with demands for facilitation payments in particular jurisdictions.

Receiving Bribes

Unlike the FCPA, the Bribery Act specifically criminalizes the act of receiving and accepting improper payments, in addition to paying, offering or promising such payments.

The Staff emphasized that companies should not neglect the offense of receiving bribes under Section 2 of the Act, which they stated should be covered in any anti-bribery policy.  They stated that this section should be considered with regard to every employee and every person who provides a service to the company.

Jurisdiction

The Staff declined to opine on specific, hypothetical fact patterns designed to test elements of the Act’s jurisdictional reach.  However, they made clear that the test for jurisdiction is simply whether the company in question carries out business in the UK.  They noted that case law relating to this question will not necessarily be relevant to determining jurisdiction, and this will be a matter of fact in each case, clarifying that the SFO intends to assert broad jurisdiction under the provisions of the Bribery Act. 

The Staff explained that the SFO has been approached by UK companies complaining of being undercut by competitors in foreign countries paying bribes.  They stated that one of the SFO’s policy objectives is to prevent ethical companies from being competitively disadvantaged by the actions of other companies whether they are within or outside the UK.  The Staff emphasized that the SFO is especially interested in hearing complaints from UK companies that "act ethically" about any alleged unethical actions of non-UK companies, offering a particularly strong incentive to UK companies to report conduct to the regulators.

The Opinion Procedure

Any US company or individual may request, by means of the US Department of Justice’s Opinion Procedure process, that DOJ state its present enforcement intentions under the anti-bribery provisions of the FCPA regarding any proposed business conduct.  Any such guidance is presumed to apply only to the facts of that specific case.  We sought clarity regarding the SFO’s use of a similar mechanism.

The Staff noted that so far only a single request has been made for it to provide opinion guidance, arising from a proposed mergers and acquisitions transaction.  They stated that they believe there is not a great demand for pre-acquisition opinion guidance, but that they believe the appetite for such opinions post-transaction is greater.  They stated that guidance on the procedure for requesting an opinion from the SFO was thought to be unnecessary but that this can be reconsidered "if appropriate."

The Staff stated that in the past the SFO has, upon request, written letters to companies or their advisers outlining the SFO’s general approach to a particular problem.  The Staff drew a contrast with the DOJ FCPA Opinion Procedure process, explaining that the SFO envisions any opinions it issues as not commenting on particular facts, but rather providing more general advice on best practice.  They stated that these letters do not comment on individual cases and the company or firm in question is free to publish them.

The Staff reiterated that the SFO has been willing to review and discuss in detail draft guidance prepared by companies, and that it would continue to do so for those who sought its advice.

Finally, the Staff noted that the SFO is considering whether to continue with the procedure in its current form.  Director Alderman stated that he would welcome any views regarding the future of the SFO’s opinion procedure.

Plea Agreements

The Staff stated that the SFO remains committed to plea negotiations.  They noted that in the vast majority of cases where they have been employed, there have been no judicial issues.  The Staff noted that the recent Innospec case[3] had posed specific problems, as it was a multi-jurisdictional case which required final judgments to be produced simultaneously in two jurisdictions.  The Staff noted that professional advisors will need to work with the authorities in each country to agree upon acceptable solutions, subject to the final decision of the courts in each country.

The Staff stated that the SFO anticipates that in the next two years, precedents for multi-jurisdictional cases involving plea negotiations will emerge.

Prosecution of Individuals

The Staff stated that the SFO reserves the right to prosecute individuals in addition to companies or in cases where a civil settlement is reached with a company, and that the SFO will seek to prosecute those responsible for the "criminality of an offense" under Sections 1 (offenses of bribing another person), 2 (offenses relating to being bribed) or 6 (bribery of foreign public officials) of the Act (individuals cannot be prosecuted under Section 7, which deals with the failure of companies to prevent bribery).  They explained that this might be an individual if a company is deemed to have had adequate procedures in place, and the offense can be attributed to a rogue individual within the company.  They noted that if an offense has been committed under Sections 1, 2 or 6 by the company or partnership, then any individual partners, board members, or senior officers can also be prosecuted if they "consented or connived" to the corporate bribe, under Section 14 (which deals with offenses by companies).

Self-Reporting and Whistleblowing

The Staff stated that if a company’s failure to report an offense under the Act is later revealed to the SFO, the company will have to justify its failure to report earlier, and the SFO is likely to draw negative inferences from this failure.  They emphasized that an invitation already exists for companies to report any violations of the Act to the SFO. 

The Staff stated that the SFO encourages whistleblowers, especially those who come forward with evidence of an alleged violation of the Act, and particularly if that company operates abroad, as such a prosecution would make an important point about the jurisdictional reach of the Act.  They stated that the SFO believes that there will be a growing number of whistleblowers coming forward once the Act is in force.

The Staff noted that the Act does not have retroactive effect, and will only apply to offenses committed after it has come into force (expected to be April 2011).  Until that time, the existing UK anti-corruption laws will apply.  The Staff explained that the reason for the delay of the Act coming into force is the new government’s desire for "further consultation and representations."

Director Alderman emphasized that companies with corruption problems within the jurisdiction and scope of the Act that elect not to self-report will face vigorous scrutiny if they later are determined to have committed a Bribery Act violation.  He clarified that this "report now or expect worse consequences later" standard will apply equally to companies that elect not to report an instance of violative conduct that would fall within the scope and jurisdictional contours of the Act but for the fact that the events occurred prior to the Act coming into force.  He also made clear that the SFO expects companies even now–in the interim period before the Act comes into force–to report any corrupt conduct to the SFO.  If they do not, he stated that any subsequent discovery of this or other corrupt conduct by the SFO will be viewed by the SFO as evidence that the company is not seeking to comply with the spirit of the self-reporting process.

Money Laundering

Director Alderman stated that he was eager to remind corporations that bribery could amount to "criminal conduct"; under UK legislation, money laundering offenses are concerned with property derived from criminal conduct.  He stated that for these purposes, "criminal conduct" is conduct that either constitutes an offense in any part of the UK or would constitute an offense in any part of the UK if it occurred there.  Therefore, he stated that once bribery has occurred, there will be a distinct likelihood of money laundering in relation to the "profits" of the bribery.  He stated that those in the "regulated sector"–including accountants, bankers, and financial advisers–will be vulnerable to prosecution for failure to report to the authorities instances where they suspect or should have suspected money laundering by another, including their (corporate) client.[4]

The Staff noted that senior personnel within a company should remember their potential liability under money laundering legislation–if money from a corrupt contract is circulating within a company with the knowledge of the board, the board members face up to 14 years in prison.

The SFO’s Approach to Enforcement

The Staff stated that the SFO will want to recognize that companies may be at different stages of the journey toward a "true anti-corruption culture," and that what may be "good" for a company at the start of that journey may be different from what is "good" for one farther along.  They noted that what is important is the commitment of the board and that the company is committed to improving its culture.  They stated that the SFO will expect continuing development by companies and will expect to see improvements in a company’s procedures since any previous discussions took place.  They noted that this approach is an incentive to companies to develop their ethical programs, because a company that is ethically advanced may be able to enforce its anti-bribery policies on a risk-assessment basis, which would be beneficial to it.  

The Staff stated that the SFO is not looking to bring prosecutions for technical breaches of the Act.  According to the Staff, many of the scenarios discussed in our meeting would not satisfy the required SFO acceptance criteria because they are not sufficiently serious or complex.  The Staff noted that the SFO’s focus will be on cases of "bad corruption," as the SFO will want to maximize the resources it deploys on those cases.  According to the Staff, the SFO regards this as an important part of its strategy because it wants to take action against those companies that seek to obtain a business advantage over ethical companies by using corruption to undercut them.  The Staff stated that this will be a particularly important part of the SFO’s strategy when the Bribery Act comes into force, because the SFO will for the first time have jurisdiction over corruption anywhere in the world committed by foreign companies who are carrying on business in the UK, even if the foreign corruption is unrelated to the UK business presence.  Finally, the Staff noted that transparency is fundamental to avoiding liability under the Act–if a certain payment by a company is not on record, then that company risks liability.

________________________________________

 [1]   The SFO has lead responsibility for investigating and prosecuting complex or serious fraud in England, Wales and Northern Ireland.  For the purposes of this memorandum, only the SFO and the Crown Prosecution Service (CPS) are authorized to prosecute offenses of bribery; prosecutions for bribery will require, as appropriate, the consent of the Director of the SFO, or the Director of Public Prosecutions (DPP), who is the head of the CPS. It is anticipated that serious or complex cases of bribery will be investigated and, if appropriate, be prosecuted by the SFO.  (The CPS lacks investigative powers, which are carried out by the Police.)  All agencies having power to charge and prosecute offenses, including the CPS and SFO, are required to consider the Code for Crown Prosecutors when making decisions on whether to prosecute, who to prosecute, and which charges to bring. There are two tests applied by prosecutors when making charging decisions: the evidential test and the public interest test. There must first be sufficient evidence against a defendant to provide "a realistic prospect of conviction"; only if there is a realistic prospect of conviction, should the prosecutor then consider the public interest in proceeding with a prosecution, balancing factors for and against prosecution carefully and fairly before coming to a decision.

[2]   The Staff clarified that separate government guidelines will be issued by the Ministry of Justice and the Attorney General. The Ministry of Justice guidelines, which are for general readership, will be aimed at proactively preventing offenses, and will include several case scenarios.  The Attorney General’s guidelines, drafted specifically for professionals involved in the criminal justice process,  will outline the essential elements of an offense once it has been committed, and will address public interest issues (for example in relation to facilitation payments).  These two governmental arms are coordinating to make sure their advice is consistent.

[3]   In Innospec, US regulators and the SFO reached a "global settlement" with the company relating to criminal proceedings in both jurisdictions.  In considering the settlement, a UK judge stated that the SFO "had no power to enter into the arrangements made and no such arrangements should be made again." 

[4]   Section 330 Proceeds of Crime Act 2002.