October 11, 2012
Yesterday‘s Press has variously reported the 9 October 2012 announcement by the SFO of revisions to its published guidance relating to facilitation payments, corporate hospitality and self-reporting under titles such as "SFO toughens stance on bribery", "Companies face bribery crackdown after new SFO rules" and "UK fraud buster tells firms no more cosy chats". Upon careful review, however, the reader may question whether the revised guidance really reflects any substantive change in the SFO’s previous approach, and whether the real departure here is in the tone and emphasis adopted by the SFO.
The revised guidance fills the gaps left in September when the SFO quietly removed sections on its website giving official guidance for the Bribery Act 2010 regarding facilitation payments, corporate hospitality expenditure and self-reporting of misconduct. The new guidance replaces the old with "immediate effect" and "supersedes any statement of policy or practice" previously made in relation to facilitation payments, corporate hospitality, and corporate self-reporting. While the impression created is one of a new departure, the substantive effect of these revisions might be described as modest.
"A facilitation payment is a type of bribe and should be seen as such," begins the revised guidance. The SFO makes plain that this is nothing new: "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." Although accurate as to the law, the old guidance included policy factors tending against prosecution, and indicated that a small single payment would likely result only in a nominal penalty.
The new guidance is comparatively black and white in its tone. The SFO’s Q&A on the revised guidance, in response to the question, "Is there now no flexibility in relation to facilitation payments?", states, "It would be wrong to say there is no flexibility", but then provides no specifics on such latitude as there is.
Actual examples of prosecutions for facilitation payments are difficult to identify, barring one prosecution, dating from the 1970s, for a £4 bribe, paid to speed up the issuance of a wedding licence.
The SFO states, in its new guidance, that it will prosecute "if on the evidence there is a realistic prospect of conviction" and if it is in the public interest to do so. Corporations and individuals should not necessarily assume a lack of "public interest" in prosecuting small bribes. A 2010 case under the pre-Bribery Act legislation involved a prosecution for the gift of a DVD player, £100 in cash and £100 in Paypal credits, while the only individual yet to be convicted under the Bribery Act is currently serving three years in jail for accepting £500 in return for removing minor driving offences from official records.
Remaining the same under the new guidance is the fact that the Bribery Act’s complete prohibition of facilitation payments stands in stark contrast to the facilitation payment exception found in the U.S. Foreign Corrupt Practices Act. The U.S. law allows facilitation payments "[t]o expedite or to secure the performance of a routine governmental action." The statute defines "routine governmental action" as "an action which is ordinarily and commonly performed by a foreign official."
Upon the Bribery Act coming into force in July 2011, many multi-national companies ceased allowing facilitation payments entirely, preferring a conservative approach rather than trying to divine from snippets of published guidance and public statements by SFO officials those cases in which facilitation payments would be unlikely to lead to prosecution. Other companies took the view that there are circumstances more akin to extortion where staff should be permitted to make the required payment. The English Court of Appeal, with one eye explicitly on the Bribery Act, recently stated that: "the payment of a ransom in response to threats to life or liberty is not prima facie a bribe, done for the purpose of obtaining an improper advantage".
If the SFO is to be taken at this, its most recent word on the subject, companies falling within the reach of the Bribery Act that currently allow facilitation payments in some circumstances falling short of extortion might be advised to revisit those policies in light of the revised guidance.
Hospitality payments have been a hot topic in the UK this year, with news outlets criticising the Bribery Act for operating as a chill-factor on corporate entertainment expenditure at the London 2012 Olympics. The new guidance acknowledges that bona fide hospitality, promotions and other legitimate business expenditure is "an established and important part of doing business." However, when bribes are disguised as legitimate business expenditure, the SFO may prosecute if there is a realistic prospect of conviction and if the circumstances meet the Full Code Test in the Code for Crown Prosecutors and the Joint Prosecution Guidance of the Director of Public Prosecutions on the Bribery Act 2010. This represents a change in tone, if not content, from the previous guidance, which accepted hospitality and promotional expenditures as long as they were reasonable, proportionate and made in good faith.
That said, David Green, the SFO’s Director, has recently said, "We are not interested in [ordinary corporate entertaining]. We are interested in hearing that a large company has mysteriously come in 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.‘" Green has also chosen publicly to eschew the role of guidance counsellor, stating, "We are investigators and prosecutors. We are not here to offer advice, to preach or to make moral judgments . . . there is oodles of guidance out there."
Indeed not. Nonetheless, the SFO has not taken the opportunity offered by this revision to provide additional clarity as to the point at which business expenditure may be so lavish as to tend towards bribery. The fact that the SFO has chosen not to restrict its freedom of action by providing more user-friendly guidance may suggest that either it wishes to retain the option of expansive interpretation, or, at a policy level, it feels that the residual uncertainty fosters zealous compliance and avoids corporate brinkmanship. Again, any change here may be seen as one of emphasis and tone, rather than a fundamental change in policy.
Nevertheless, companies should continue to ensure that any hospitality or promotional expenditure be proportionate and properly documented. One example of corporate hospitality leading to prosecution arose earlier this year when a potato buyer for a UK supermarket chain was sentenced to four years in jail for accepting, along with cash payments, several million pounds worth of hospitality from a supplier. Those providing the hospitality were sentenced to two and half, and three years, respectively.
Perhaps the change in Bribery Act guidance that will attract most attention is that regarding the self-reporting of corporate misconduct. The previous guidance stressed that self-reporting companies would "wherever possible" only face civil enforcement rather than criminal prosecution. The revised guidance states that, "Self-reporting is no guarantee that a prosecution will not follow."
On one analysis, the revised guidance can be seen as a restatement of the existing position. While there have been examples of self-reporting companies facing civil enforcement only, one self-reporting company has been prosecuted for corruption offences. Conversely, some companies that did not self-report received a civil recovery order, while another which did not self-report was prosecuted. Clearly, self-reporting is but one of the factors to be considered by the SFO in any decision on enforcement actions. Indeed this was made plain in the most recent civil recovery settlement in the UK where self-reporting was just one of eight factors cited by the SFO as justifying the decision not to prosecute. The other factors included the absence of evidence of Board involvement, the fact that a separate World Bank sanction had been imposed, and the difficulty of obtaining admissible evidence from other jurisdictions.
Before Director Green’s appointment, the prevailing perception was that the SFO positively encouraged businesses to self-report, with the prospect that they would likely receive lesser penalties, and ideally avoid criminal law outcomes. Repeated public statements of SFO officials suggested that the SFO would be receptive to a self-reporting company. As former Director Richard Alderman emphasised in a recent speech, twenty companies self-reported between 2009 and 2012. Of these only four have, to date, been subjected to either civil recovery or prosecution. The majority of self-reporting companies have (at least as yet) faced no enforcement from the UK authorities.
This new guidance, the first issued under Director Green, adopts a different emphasis, casting a company’s decision to self-report as merely one of a number of factors to be taken into consideration by the SFO in deciding whether to prosecute, and stressing that the SFO will pursue criminal prosecution of the corporate entity and individuals where appropriate. Again, this was the case before the guidance. The change (if any) appears primarily tonal.
The SFO’s guidance has been issued shortly before the long-promised FCPA guidance from US regulators at the DOJ and SEC. One might speculate that the SFO wishes partly to set a firmer course in advance of what many expect will be articulation of a more modulated tone from the US regulators.
Other Agencies Taking Up the Anti-Bribery Mantle
The SFO is not the only prosecutorial agency willing or able to take on bribery matters. The first case brought under the Bribery Act was not brought by the SFO. Any police force in the UK, including the dedicated City of London Police Overseas Corruption Unit, can bring a prosecution under the Bribery Act, albeit with the consent of either the Director of Public Prosecutions, the Director of the SFO, or the Director of Revenue and Customs Prosecutions. Indeed, the potato buyer prosecution referred to above was brought, under pre-Bribery Act legislation, by the relevant local police force.
Allowing other agencies to bring prosecutions may free up the SFO to go after the most complex and challenging cases. As Director Green recently indicated, the law will be clarified as prosecutions make their way through the courts. The 9 October guidance suggests that, pending judgments in such cases, substantial clarification of the Act in the form of official guidance is unlikely to be forthcoming.
Gibson Dunn lawyers in the United States and United Kingdom are experienced advisors on the design and implementation of anti-corruption programs, investigating and advising on issues arising under anti-corruption laws, and questions of reporting. If your organisation has experienced potentially problematic conduct, our lawyers can work with you to make the initial determination of whether to self-report and, if so, to devise a coordinated strategy for working with US and UK regulators.
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