The future of anti-corruption prosecution

David Green, Director of the SFO opened our first business ethics debate of 2018 by stating that anti-corruption is now firmly on the corporate, national and international agendas and will stay there. He then went on the question, how did this come about?

The decision by the UN General Assembly in 2003 to adopt the UN Convention Against Corruption was significant. Kofi Annan’s speech as UN Secretary General, commemorating that decision was quoted as the perfect description of the effects of corruption.

“Corruption is an insidious plague that has a wide range of corrosive effects on societies.  It undermines democracy and the rule of law, leads to violations of human rights, distorts markets, erodes the quality of life, and allows organized crime, terrorism and other threats to human security to flourish…Corruption hurts the poor disproportionately by diverting funds intended for development, undermining a government’s ability to provide basic services, feeding inequality and injustice, and discouraging foreign investment and aid. ”

The key drivers that have pushed anti-corruption up the agenda were identified as follows:

• The passing of the UK Bribery Act and the establishment of Deferred Prosecution Agreements (DPAs)
• Active enforcement by the SFO
• Recognition of the SFO by the OECD as a key global agent in the fight against corruption
• David Cameron’s Anti-Corruption Summit in 2016
• Work by agencies such as Transparency International

Why should we keep the anti-corruption agenda prominent?

• Bribery damages reputations of countries – the decision by the SFO not to prosecute BAE had a negative impact on the UK’s reputation as a rule of law jurisdiction.
• Post-Brexit, we must acknowledge that the UK will need to attract inward capital investment. This will require certainty provided by the rule of law that we offer a reliable and level playing field for investors.

How should we keep the anti-corruption agenda prominent?

• Those in authority must make a firm rejection of pleading arguments that bribery is a necessary evil in the market place. Rich countries like the UK must take the lead.
• Businesses must accept that there may be some jurisdictions in which business cannot be done.
• Clear demonstration from the business community itself that compliance and strong anti-corruption commitment make for better, more profitable businesses.
• The SFO should maintain the consistency of enforcement. Business has seen that self-reporting, co-operation and reform can lead to a DPA.
• The UK must maintain the integrity of its brand of DPA, following an established and transparent process and resisting any tilt towards a US model. A UK DPA is not a cosy deal, there are no Damascene conversions, self-reporting is and must remain an essential component.
• Pressure to introduce a corporate offence for failing to prevent economic crime must continue as a sensible next step in the fight against corruption.
• The planned national economic crime centre within the National Crime Agency is a welcome initiative designed to co-ordinate the national response to economic crime.

Following the introduction questions were asked around the existing framework and the improvements businesses would like to see.

Is there a clear and effective anti-corruption framework?

• The UK Bribery Act has had a positive impact, helping companies and businesses alike by establishing clear expectations and requirements.
• The Ministry of Justice Guidance is seen as a useful tool.
• The Act has led to a significant improvement in the anti-corruption policies and procedures that are now in place in the vast majority of businesses.
• The Act has also increased awareness of adequate procedures and the steps needed to have these in place.
• SFO prosecutions have provided clarity for business and establishing DPAs has shown how positive co-operation can work.
• A robust SFO can contribute to greater board effectiveness: the threat of an investigation empowers non-executive board members to ‘hold management feet to the fire’.

What improvements could be made?

• More clarity on what to expect when self-reporting, including:
  • more details on the pros and cons – currently compliance and legal teams cannot quantify the downside so don’t feel able to give best advice if making a decision on whether or not to report
  • legal privilege and how this is affected when self-reporting
  • what to expect under an SFO investigation – clearer information for corporates about the steps and timing of the process
  • what might trigger prosecution, particularly around facilitation payments
  • what business entertainment is acceptable.
• Businesses would welcome a more precise definition of an associated person.
• Recognition from the SFO that companies should be allowed time to investigate internally before reporting. The threat of an investigation can suppress the share price placing businesses under pressure to report before establishing whether or not there is a case to answer.
• More resources for the SFO – is the Department of Justice self-funding model an option?
• Swifter responses from the SFO.
• Extending DPAs to individuals to encourage reporting. Some companies may be reluctant to report as doing so could put the senior executive at risk of criminal prosecution. Some senior individuals would welcome a clear process to report personally where their corporate employer is not willing to report.
• Guidance on how to mitigate risk in challenging locations rather than walk away would be a more pro-business approach.
• Some more guidance on what actually constitutes ‘adequate procedures’ would be welcome.
• Debarment can and should be used as a tool to raise standards.

The issues raised were discussed in detail, including self-reporting which looks set to remain an essential requirement for any future DPAs. It is also clear that resources are not a constraint, as the SFO has access to blockbuster funding from the Treasury.

The SFO is pushing companies to self-report faster, DPAs will be more likely when companies don’t delay. Lawyers are not helping the process, delaying initial reporting, being uncooperative with SFO requests for information and dragging out corporate responses. Lawyers might even be dragging out the process to increase fees and these delays could actually be harming the corporate’s interests in securing a DPA. The reasons for the SFO’s long processes may be in part explained by the uncooperative approach taken by the legal firms that deal with the SFO.

The issue of privilege is complex, evolving and becoming a decreasingly less useful shield for corporate internal investigations. Overall companies cannot expect to hide behind privilege while at the same time hoping to receive lenient treatment from the SFO. A recent case was cited where the corporate was over-ruled and not allowed to assert privilege over some of its SFO related documentation.

While the interplay between the criminal and the regulatory can seem highly complex, robust systems and procedures should be built around first principles, is it right or wrong? How would this look to a reasonable onlooker?

Context and timing will always be important. The occasional facilitation payment to move goods through a port is unlikely to be of interest to the SFO. However systematic payments whenever goods are moved would be seen as problematic. Similarly, client entertainment at Wimbledon or Twickenham is not in and of itself a bribe. However, if involved in a take-over, inviting the entire board of the target company to the Men’s final followed by dinner could be, in effect, a corrupt payment.

It was suggested that further clarity on some of the points raised may be found in the Ministry of Justice and Sentencing Council guidelines.

The SFO’s significant efforts since 2012 to set up a clearer and more consistent framework to prosecute serious corruption were broadly welcomed by all attendees at the debate. However, it was clear from the discussion that more can still be done to make these processes more streamlined and more certain for corporates.

The GoodCorporation View

The costs of corruption are real and the UK needs to have a leading and robust approach to anti-corruption prosecution. This is crucial because it protects the interests of those businesses that are determined to stamp out corruption. The steps taken by the SFO to set up a clearer regime with a clear benefit to self-reporters is welcome. The cooperation of the SFO with other global agencies will increase prosecution risks and costs for corporates.

Given the significant increase in reports and concerns about corruption it is clear that the topic will remain high on the corporate agenda, so embedding robust and effective anti-corruption procedures will continue to be a key focus for legal compliance teams. Board assurance of adequacy is a must-have as businesses contemplate the reputational risk of an investigation and potential prosecution. Despite this, there are still some signs of complacency.

From our work, we know that the best companies have established effective systems and processes, taking a top-down approach, ensuring that a zero-tolerance message is communicated throughout the organisation and to third parties. For many, however, particularly those with complex supply chains or operating in certain sectors and in challenging parts of the world, establishing and evidencing adequate procedures remains a challenge. Our Anti-Corruption Framework can be used to help evaluate, measure and benchmark an organisation’s adequate procedures. Our ABC services can help our clients to design, build and embed their anti-corruption programmes.

Posted March 2018