Prosecution and enforcement of the UK Bribery Act

David Green CB QC, Director of the Serious Fraud Office (SFO), was invited to lead GoodCorporation’s Autumn Business Ethics Debate on the subject of ‘Prosecution and Enforcement of the UK Bribery Act’.

He began by talking about guidance and guarantees, stating that it would be wrong for a prosecutor to give any form of guarantee in advance. However, before any proceedings commence, the SFO will always apply the full code test for crown prosecutors. This test poses two key questions. First, is there sufficient evidence to prosecute and second, is prosecution in the public interest?

Consequently, he continued, it would be nonsense to say that if a company self-reports it will automatically be prosecuted. This is particularly so where a company self-reports, cooperates with the SFO and works to put preventive measures in place.

The case for self-reporting was put forward:

1. It mitigates the chances of prosecution and opens up the possibility of recovery and Deferred Prosecution Agreements (DPAs)
2. It is a moral and reputational imperative for the following reasons:
   •  It is the right thing to do
   • It demonstrates that the company takes ethical conduct seriousl
   • It minimises reputational damage
3. If corrupt activities have occurred, there will always be a real risk of discovery, either due to whistleblowing or as a result of SFO intelligence. Not reporting would make matters worse.

A comparison between the UK and the US was made. When it comes to prosecution, the SFO’s performance is often compared unfavourably with the Department of Justice. The key reason for this, it was said, is that the UK has a much higher bar for proving corporate liability. In the US, the corporate is held responsible for the actions of its employees. In the UK, prosecutors need to establish the identity of the offenders and prove that the controlling mind of the corporate was complicit in the criminal activity. In practice, the email trail dries up at middle management level.

The UK’s high bar is likely to have an impact on a company’s willingness to sign a DPA. If the bar is so high that a prosecution is unlikely, why would a company sign one?

A call for UK legislation to be amended was made so that failure to prevent bribery also included failure to prevent fraud. Where corporates have profited from dishonest activity and have failed to put sufficient procedures in place, particularly in high-risk areas, it should be possible to prosecute the corporation.  Businesses should face the consequences of such failures and not be allowed to throw the towel at a few individuals.

The debate was opened up with a question. ‘After hearing what the SFO has to say, would you advise a company to self-report if it discovers corrupt activities in its organisation?’

Many in the room would still advise against self-reporting and the majority was unsure. Law firms, it was said, are telling clients not to self-report as it is too uncertain, they cannot say where it will lead and fear for a company becoming the first ‘scalp’ for prosecution under the Act. There was concern that it could unleash a nightmare scenario with consequences that a business could not anticipate.

A duty to shareholders and the possible negative impact of a massive fine on the shareholding was also mentioned as a reason for not reporting.

Businesses called for greater international co-operation.  It was felt that it is not currently clear how different international reporting authorities will respond. Consequently, for companies operating in multiple jurisdictions, this lack of clarity makes it difficult to decide whether to report and to whom. It was suggested that there should be one lead reporting authority and a uniform procedure.

There was also a fear that reporting to the SFO would lead to publicity and reputational damage for the organisation. Businesses were advised that investigations were only put in the public domain if Section 2 notices have to be served. However, recent experience would suggest that it is the companies themselves that are releasing the stories to the media.

Some businesses felt that the decision to self-report would depend on the circumstances. If it were not clear that a criminal offence had been committed, they would be inclined to take a chance and fight it in court, stating again that their duty to protect the share price obliges them to do this. Incentives to report may encourage businesses to come forward, avoiding the fight and any inevitable reputational damage a court case would bring.

However, if there were clear evidence of wrong-doing, many would come forward. Some businesses said they would be tempted to try to put remedies in place to deal with the situation before self-reporting to demonstrate that they had recognised the problem and tried to take action. By taking such action they would look less like a company out of control. Others felt that the cost of finding out what had happened might be higher than the benefit obtained from the criminal activity; this would be a deterrent. However, it was pointed out that the longer a business took to report, the greater the likelihood of a whistleblower reporting the crime or the SFO finding out anyway as a result of their own investigations.

Some felt that corporates might not fully understand the tools at the SFO’s disposal for discovering corrupt practices and guidance was again called for.

Despite the arguments against self-reporting, many felt that they would have no choice. Corrupt behaviour is likely to mean that the company was already guilty of the criminal offence of profiting from the proceeds of a crime, in which case they would be obliged to report. Others concurred, adding that not to do so could breech the Companies Act.

Others viewed self-reporting not as an ethical or moral imperative, but as a vital risk management exercise; a means of demonstrating that the company takes the issue seriously and is determined to take steps to stamp out corrupt behaviour. The ethical thing to do would be to correct the problem. It was also said that any company that professed core values of honesty, integrity and respect should have a default position to report if the breech of the law could be substantiated.

In response to the question of uncertainty it was argued that the law is no more uncertain than anything in business.  Should corporates be entitled to any more certainty when they break the law than anyone else?

Those in favour of reporting stated that as codes of ethics speak of co-operation with the authorities, if companies are prepared to do this for health and safety issues, they should be prepared to do the same with corruption.

Adequate procedures were discussed in some detail. A business with robust management systems in place to stop corruption should be reassured, but businesses were fearful that what they have in place might not be enough and called for clarity from the SFO. Some were worried that they would not know what was adequate until they had been the subject of an investigation and told so by the SFO.  The government has imposed laws that corporations find hard to implement, businesses should therefore be given more help to get adequate procedures in place, particularly in overseas markets.

Others said that large companies do know what adequate procedures look like; the Ministry of Justice has provided guidance. Nonetheless, there was a call for authorised advisors to be able to check and verify procedures. It was also suggested that there could be some value in industry standards, providing guidance by sector.

Many professional advisors, it was argued, were not clarifying the position for corporates. Indeed, some were felt to have a vested interest in making it harder. This is creating more uncertainty for businesses, which is unhelpful. What businesses should really be looking for are the tools to eradicate corruption from their organisations rather than advice on how to manage prosecution. Others advised strongly that good professional advisors will clarify the position and should be able to answer any of the questions posed with practical suggestions.

The debate concluded with the comments that this is early days, in terms of prosecution and enforcement of the Bribery Act, that businesses should continue to strengthen adequate procedures while building up a library of experience as the Act is implemented.

GoodCorporation Business Ethics Debate: October 2013