After 13 years of waiting, international condemnation and – perhaps perversely – a surge in successful investigations and settlement deals, the UK has finally put into law its new Bribery Bill.
The bill, which passed in the so-called ‘wash up’ – the last round of voting before parliament broke for the May 6 general election – brings the UK’s legislation broadly in line with the Organisation for Economic Co-operation and Development (OECD) convention the country signed in 1997, and into the 20th, if not the 21st century. The law replaces a number of statutes dating from as far back as 1889. However, while the passing of the bill is in itself significant, it alone is just a small step in the fight against the supply side of international bribery.
“Fundamentally, the existing law was a mess,” says Will Kenyon, a partner in forensic services at PricewaterhouseCoopers. “It was a patchwork of Victorian and Edwardian statutes with the overlay of the 2001 Anti-terrorism, Crime and Security Act which simply bolted on overseas jurisdiction to the existing laws, which go back into the mists of time. It was not a very effective legislative regime and it had been very heavily criticised by the international community.”
The important changes in the bill reside in two of its provisions, Mr Kenyon says. The first is the creation of the specific offence of bribing an overseas public official, which is “on the wish list” of the OECD anti-bribery convention. “The other big news – and I think this is probably the one thing that is focusing most people’s minds right now and has been throughout the debate – is a new specific corporate offence of failing to prevent bribery,” adds Mr Kenyon.
Corporate cases in the limelight
Under the previous legislation, which had as its basis the concept of a principal and an agent, it was difficult for prosecutors in corporate cases to prove that the principal (the company) had knowledge of or responsibility for the actions of an agent, a subsidiary, intermediary or third-party representative.
“It is not the case that the UK currently does not have laws which allow corporate prosecutions, but it’s very difficult in practice because you have to prove the existence of controlling mind in the company and who authorised the bribe and so forth,” says Chandu Krishnan, executive director of Transparency International UK, which campaigned for the change of legislation. “That challenge will probably remain with us but at least by having this sort of provision within an anti-bribery bill, it will definitely make it easier to prosecute companies, as opposed to individuals, for bribery.”
Important in its own right, the passing of the law comes during a period which has been marked by an appreciable uptick in UK enforcement of overseas corporate corruption offences, building on a wider global trend that has seen European and American authorities investigate and prosecute large multinationals for their conduct overseas.
The most significant recent case, however, has been the tangled investigation of the UK defence and aerospace company BAE Systems, which has been accused of overseas corruption offences in the Middle East and Africa, including the alleged payment of bribes to secure the sale of a military radar system of questionable value to Tanzania and to push through a $66bn deal for the supply of fighter jets to Saudi Arabia. BAE eventually agreed to a $450m bargain with US and UK authorities, but the case was long and bitter and drew in top-level government officials.
For some observers, the BAE Systems case was a watershed. The affair highlighted the frailty of the UK’s legislation, caused huge reputational damage to a country that wanted to be seen as a progressive force in international affairs and also made overseas corporate corruption a mainstream issue in UK politics. This put enormous pressure on the government to begin the process of reform. Furthermore, the UK’s overt criticism of corruption overseas, through both the country’s Foreign Office and the Department for International Development, was somewhat undermined by the apparent behaviour of its companies.
The US model for the UK?
US authorities have been considerably more active in the enforcement of overseas corruption laws than their overseas counterparts. Their principle weapon is the Foreign and Corrupt Practices Act (FCPA), a piece of 1970s legislation which gives prosecutors significant extraterritorial reach. Given their similarities, the FCPA provides, to some extent, the model for UK regulators and enforcement agencies. Despite its heritage the act was little used until the late 1990s, says Reagan Demas, an FCPA expert at US law firm Baker and McKenzie. Since the turn of the century, the number and size of cases has increased, bringing in corporate giants such as Halliburton and Siemens.
The US’s Department of Justice (DoJ) has become more and more vocal about its new-found enthusiasm for the FCPA, and senior staff members are now regularly on-stage at anti-corruption events worldwide.
“[There are people] at the Department of Justice who, basically, have full-time jobs speaking at conferences,” says Mr Demas. “What the department is trying to do is implement a deterrence mechanism because it wants to get the word out, combined with large cases and large fines. It’s trying to have a presence out there.”
Part of the DoJ’s strategy has been to announce specific, industry-focused initiatives. Oil and gas players in west Africa and pharmaceuticals companies have both been explicitly targeted, and the freight forwarding and logistics industry may be next, according to Mr Demas. “That’s another tactic that [the DoJ] is clearly taking, to target industries in the hope that the deterrent effect will cause companies to change and implement a culture of compliance under threat of prosecution and investigation, which is significant.”
The upshot, Mr Demas says, is that companies are “spooked”. An investigation by the DoJ is instantly very damaging to a corporation. The third-party liability aspect of the law means that the company under investigation becomes a pariah, and few will risk using its services for fear of being seen as complicit in bribery.
“If I pay someone to do something on my behalf, to pay a bribe on my behalf or even to do something legitimate on my behalf and that person pays a bribe to help me, and I should have known about it because I knew the [person in question] was shady, then I’m responsible. I can be held legally responsible,” Mr Demas explains. “If you’re a company that’s being investigated for bribery, no one wants to be a part of anything you do until they know you’re clean, because they can be brought down too.”
An unfair challenge?
While the deterrent effect of this is clear, it has meant that companies are largely unable to contest the DoJ’s cases against them through normal legal means. “No one goes to court to contest these charges or to contest the way the investigation is run; they’re really in essence forced to co-operate,” says Mr Demas. “What you have is a situation where companies are not able to challenge some of the tactics and methods or the legal theories used by the US government in these cases, and so I think it’s frustrating for clients, because they’re just riding a wave and they’re out of control... It can even be frustrating for lawyers who work on [these cases], because there are limited abilities in that arena for you to contest the DoJ’s authority.” Even in the controversial Alien Tort Claims Act – the statute that has been used to level claims of complicity in overseas human rights abuses against large foreign multinationals in the US – there have been courts involved, adds Mr Demas.
Perhaps the most compelling FCPA case in the US, albeit one of the smallest, was the US Federal Bureau of Investigation’s ‘sting’ operation that saw executives from an Anglo-American consortium trying to sell security equipment into an unnamed African country. The case had all the hallmarks of a Hollywood drama – Las Vegas cocktail parties, wiretaps, undercover operatives and inside informants.
This demonstrates that US authorities are also increasing their efforts in active enforcement of corruption legislation, according to analysts. “The fact that there is now an FCPA squad of FBI agents means that [prosecutors] have available to them the resources to do much more active investigations,” says Philip Urofsky, a partner at law firm Shearman & Sterling and a former federal prosecutor. “Agents who have been doing bank robberies and gun cases and drug cases investigations are going to take the same tools they use there and apply them to FCPA cases.”
Evidence-gathering in these cases where there has been no corporate self-reporting is rarely easy, although sometimes prosecutors get lucky. Mr Urofsky says: “We had one case where we seized some laptops and in the
laptops were e-mails between two employees. One employee asked the other, ‘are we going to get a receipt for this?’ and the answer was ‘no, this is a bribe,’ in capital letters in the e-mail.” Other times, the evidence is far harder to find – spread widely around the world and in different jurisdictions. This is mitigated in part by an improved environment of co-operation between regulators and enforcement agencies. Given the increasingly global nature of offenders, co-operation at all levels, from evidence-gathering to plea bargaining across jurisdictions, is vital, and the explicit coordination between German and American prosecutors in the recent Siemens case has been welcomed by many observers.
Policing the City
Back in the UK, at the heart of London’s financial district, the man responsible for enforcing the country’s anti-bribery legislation – old and new – is fully aware of the size of the task, and how it measures up to the resources at his disposal. Detective superintendent Colin Cowan heads the Overseas Anti-corruption Unit at the City of London Police. His unit was created three years ago with funding from the UK’s Department for International Development (DFID), along with a parallel unit within the Metropolitan Police, at a combined cost of just over $7m.
Mr Cowan welcomes the clarity of the new Bribery Bill, but says it is no panacea. “It is significant because it’s a new piece of legislation, but the majority of it has existed in previous legislation. The lack of the Bribery Bill hasn’t really hindered us in what we want to do to date because it’s already there, either in the fraud legislation or with one of the older corruption acts.”
A more significant issue has been the lack of resources dedicated to investigation of this particular type of crime. This, no doubt, has been partly due to the relative disinterest from the UK public and government over the years, and the creation of the unit is symptomatic to some extent of a change in perception. DFID’s funding – unusual as it was – is seen as supportive of the agency’s focus on aid effectiveness and accountability.
Even so, the unit remains small and the task enormous, which means that Mr Cowan has to pick his targets. “Where there is any form of financial transaction, there is economic crime. Always has been, always will be,” he says. “Whether it’s at the low end, people ripping each other off, neighbours, shops, whatever it may be, all the way up to the high-end overseas corporate corruption that we deal with here. The art is to work out what the big picture of harm is and where the tolerance bar is. Because you have got the legislation, that’s one thing, but unless you have an army of resources to go with that legislation, you then have to work out what the threat looks like and set the resource tolerance to where that may be.”
Going after individuals who pay a few dollars to jump a queue is likely to fall out of the scope of a City of London Police or SFO investigation. How much higher the bar is set, though, depends on a huge number of factors. Mr Cowan is interested in the approaches taken by the US’s DoJ and FBI to sweep individual sectors and to use more sophisticated policing tactics to catch offenders. As he says: “Corruption is a very proactive enforcement environment, because there is no complainant. No one comes and knocks on your door and says ‘I’ve just received money from some corporate, I’d like to complain about it.’ That doesn’t happen, so you have to actively go and dig.”
A question of resources
Mr Cowan does, however, admit that his resources are less extensive than those of his counterparts in the US. Three years since its formation, the unit is still building the sector and geography expertise to be able to map out likely sources of corruption and the context in which offences may occur. Certain events, Mr Cowan says, such as natural disasters and subsequent reconstruction, or the discovery of resources, set in motion predictable patterns of offence. Developing relationships with potential sources – such as local civil societies and non-governmental organisations, as well as within companies – is also going to be key to the unit’s success.
Building a deterrent through informants, stings and tighter legislation is doubtless an important step, but all stakeholders, including those on the enforcement side, recognise that there will remain high barriers to progress. Corporate culture is changing, but not universally, and regulation is patchy across the world. Privately, companies and their lawyers say that the movement of large companies from outside the OECD countries into the developing world presents a huge challenge.
Companies without a culture of anti-corruption or punitive domestic legislation may be more vulnerable to accepting that bribery is so endemic as to be a necessary part of doing business. In uncontrolled environments bribery can be a competitive advantage, and left unchecked, Western companies could feel forced to put pressure on governments to backtrack. As one US lawyer asked: “At some point do we imagine that the oil industry is going to show up on Capitol Hill in force and basically make the pitch that this has got to stop, that basically the future of US oil prices are riding on this?”
Peter Guest is editor of This Is Africa.
American-style plea bargains arrive in the UK
In September 2009, UK bridge contractor Mabey and Johnson pleaded guilty to a series of overseas corruption charges, including a breach of the UN sanctions on Iraq and the bribery of public officials in Ghana, Jamaica, Madagascar, Angola, Mozambique and Bangladesh.
In Ghana, the company allegedly paid bribes of between $15,000 and $85,000 to officials including the former roads minister, his deputy, the health minister and the minister of works. In Mozambique, the country’s Serious Fraud Office (SFO) says that one official – Carlos Fragoso, the former head of the directorate of roads and bridges – was paid almost $440,000 in order to help secure contracts.
Mabey and Johnson turned itself in to the UK’s Serious Fraud Office after a management change and agreed a US-style plea bargain, the first of its kind in the UK in such a case. The company was ordered to pay $5.5m in fines, a $1.7m compensation order, $550,000 in prosecution costs and more than $2m in reparations to Ghana, Jamaica and Iraq.
In March of this year Innospec Ltd, a UK chemical company and subsidiary of the US-based Innospec Inc, similarly came to a controversial joint plea bargain with US prosecutors and the UK’s SFO, agreeing to pay $40m, split between the two jurisdictions, after admitting to bribing officials in Indonesia to prevent them from banning a toxic fuel additive – tetraethyl lead – that the company was a major producer of. According to court documents, the UK’s SFO and the US Department of Justice noted that fines could have amounted to more than $400m in the US and $150m in the UK, which was far in excess of the company’s ability to pay.
This bargain was heavily criticised by Justice Thomas, the sentencing judge in the case, because although such deals are routine in the US, UK law does not allow its SFO to agree a penalty – only the court has that power.
The UK Bribery Bill
The Bribery Bill will:
- Offer a legal framework to beat bribery in the public or private sectors.
- Replace the fragmented and complex offences at common law and in the Prevention of Corruption Acts 1889-1916.
- Create two general offences: promising or giving of an advantage; requesting, agreeing to receive or accepting of an advantage.
- Create a discrete offence of bribery of a foreign public official.
- Create a new offence of failure by a commercial organisation to prevent a bribe being paid for or on its behalf.
- Require the UK secretary of state to publish guidance about procedures that organisations can put in place to prevent bribery.
- Combat the threat that bribery presents to global economic progress and development.