Newsletter - September 2009

Welcome to the latest edition of the Anti-Fraud Network newsletter.

The UK Gets Serious About Tackling Corruption

Author: Nick Burkill

Three developments over the summer suggest that the United Kingdom may now be getting down to business in tackling problems of corruption. The UK has been criticised for years by, amongst others, the Organisation for Economic Co-operation and Development (OECD), for its outdated corruption laws and for its poor enforcement record on corruption. The three developments are: progress on the Bribery Bill, the publication of the first Serious Fraud Office (SFO) guidelines on overseas corruption, and the first UK foreign corruption prosecution.

The moves in the UK coincide with the US’ Obama administration signalling a number of developments designed to promote enforcement by the Securities and Exchange Commission (SEC) and the Department of Justice. Corporates exposed to one or both jurisdictions face important challenges to ensure that their houses are in order.

Progress on The Bribery Bill
In July this year, the Parliamentary Joint Committee on the draft Bribery Bill reported on its considerations. The Committee expressed its strong support of the Bill whilst revealing some concern as to whether the Government would find parliamentary time to introduce a bill reflecting the changes proposed by the Committee. Importantly, the Committee obtained commitments to the Bill from both the Attorney-General and the Secretary of State for Justice. The Secretary of State said that he was “determined to secure the Bill’s enactment before the next general election” (which must be held in May 2010 or before). The Attorney-General’s statement that pressure on the legislative timetable is “a challenge to be overcome” provides a warning that enactment is not certain, despite commitments made and despite the fact that enactment of the Bill was on the Prime Minister’s list of actions he wanted to achieve prior to the general election.

The Bribery Bill repeals the existing law on bribery and replaces it with offences of bribing another person; being bribed; bribing a foreign public official; and failure by a commercial organisation to prevent bribery. The bribery offences apply to bribery of public or private persons and where the person has a close connection with the United Kingdom, whether or not the relevant acts of bribing or receiving a bribe took place in the UK. The offence of bribing a foreign official extends to cases where the briber intends to obtain or retain business or an advantage in the conduct of business and excludes only advantages that the public official is permitted or required by local law to accept. That means that the making of facilitation payments (i.e., payments to public officials to perform their functions) is an offence under the Bill.

The Committee considered detailed changes to the basic offences in the Bill and approved the outlawing of facilitation payments. However, the offence of failure by a commercial organisation to prevent bribery attracted the most scrutiny by the Committee.

The corporate offence, which applies to companies carrying on business or part of their business in England, Wales or Northern Ireland, is made out under the Bill where

A person performing services on behalf of a commercial organisation bribes another person.
The bribe was in connection with the business of the commercial organisation.
A responsible person within the commercial organisation was negligent in failing to prevent the bribe.

It is a defence to prove that the commercial organisation had in place adequate procedures designed to prevent the payment of bribes in connection with its business, unless the negligence is that of a senior officer.

Surprisingly, the jurisdictional reach of this offence does not extend to Scotland. This oddity is something that the Committee, unsurprisingly, recommends should be resolved.

The Committee also recommends the removal of the negligence requirement in (3) above: in other words, a commercial organisation would be guilty of an offence where a bribe was paid in connection with its business, subject only to the adequate procedures defence.

The Committee made clear that guidance was required on the “adequate procedures” defence, and this is addressed in the SFO’s guidelines below. As far as “adequate procedures” are concerned, the SFO provides the following examples of matters that it will take into account when assessing a corporate’s culture:

A clear statement of an anti-corruption culture, supported fully and visibly at the highest levels.
A code of ethics.
Principles that are applicable, regardless of local laws or culture.
Individual accountability.
A policy on gifts, hospitality and facilitation payments.
A policy on outside advisers/third parties, including vetting, due diligence and appropriate risk assessments.
A policy concerning political contributions and lobbying activities.
Training to ensure dissemination of the anti-corruption culture to all staff at all levels within the corporate.
Regular checks and auditing in a proportionate manner.
A helpline within the corporate that enables employees to report concerns.
A commitment to making it explicit that the anti-bribery code applies to business partners.
Appropriate and consistent disciplinary processes.
Whether there have been previous cases of corruption within the corporate and, if so, the effect of any remedial action.

These guidelines now provide information important to corporates in assessing their procedures ahead of enactment of the Bribery Bill and the coming into force of a Bribery Act. The Parliamentary Committee is clear in its support for the enactment of the Bill as soon as possible in line with government assurances.

First SFO Guidelines Published on Overseas Corruption
The Serious Fraud Office’s guidelines are intended to promote self-reporting of overseas corruption by corporates. The carrots held out by the SFO are the prospect of a negotiated civil settlement and the opportunity to manage jointly with the SFO the issues and publicity. The civil approach has the benefit within the European Union of avoiding the mandatory debarment provisions under the EU Public Sector Procurement Directive. The sticks held out in the event of a failure to self-report are the prospects of an SFO investigation and of criminal prosecution of the corporate and individuals.

The SFO has set out a number of guidelines on disclosures to it and on its approach to such self-reporting.

There is an acceptance that the timing of self-reporting will be a difficult question for a corporate, striking a balance between reporting too early and too late. The practice of professional advisers seeking initial guidance is accepted by the SFO as playing a useful part in the process. There is a clear statement that the SFO expects to be notified at the same time that any notification is made to the US Department of Justice.
The SFO will of course not give any guarantees on whether or not it will prosecute, but does state that where self-reporting corporates satisfy the SFO’s criteria (see below), then the SFO will want to settle self-referral cases civilly if possible. An exception is identified where board members had engaged personally in the corruption.
The SFO’s criteria for self-reporting corporates to avoid prosecution are
- Is the Board of the corporate genuinely committed to resolving the issue and moving to a better corporate culture?
- Is the corporate prepared to work with the SFO on the scope and handling of any additional investigation the SFO considers to be necessary?
- At the end of the investigation (and assuming acknowledgement of a problem), will the corporate be prepared to discuss resolution of the issue on the basis, for example, of restitution through civil recovery, a programme of training and culture change, appropriate action where necessary against individuals and at least in some cases external monitoring in a proportionate manner?
- Does the corporate understand that any resolution must satisfy the public interest and must be transparent? This will almost invariably involve a public statement although the terms of this will be discussed and agreed by the corporate and the SFO.
- Will the corporate want the SFO, where possible, to work with regulators and criminal enforcement authorities, both in the UK and abroad, in order to reach a global settlement?
Examples of the questions that the SFO would ask when considering whether or not to prosecute an individual are as follows:
- How involved were the individuals in the corruption (whether actively or through failure of oversight)?
- What action has the company taken?
- Did the individuals benefit financially and, if so, do they still enjoy the benefit?
- If they are professionals, should the SFO be working with the appropriate disciplinary bodies?
- Should the SFO be looking for directors’ disqualification orders?
- Should the SFO think about a serious crime prevention order?
The SFO will expect to discuss issues arising out of the investigation of individuals and the multiplicity of proceedings.
Self-reporting to the SFO will not affect a corporate’s liability to report to other bodies in the UK or abroad.
Information provided to the SFO will be treated as protected information subject to the obligation of a corporate to report elsewhere and to the making of statements that the SFO “needs” to make.

The SFO has also set out guidelines on investigations to be carried out following self-reporting. Essentially it will expect the corporate to carry out investigations by its professional advisers at its own expense and having agreed the scope of the investigation. It will expect electronic searches to be carried out and to be involved in update discussions.

Civil settlement by the SFO will involve consideration of the following:

Restitution by way of civil recovery to include the amount of the unlawful property, interest and the SFO’s costs.
In some cases monitoring by an independent, well qualified individual nominated by the corporate and accepted by the SFO. The scope of the monitoring will be agreed with the SFO. The SFO undertakes that if monitoring is going to be needed, it will be proportionate to the issues involved.
A programme of culture change and training agreed with the SFO.
Discussion, where necessary, and to the extent appropriate, about individuals.

The SFO has also indicated in its guidelines that it will assist, if requested, in achieving international settlements and in providing opinions as to future enforcement, particularly in cases where a corporate identifies an issue in a target in the course of takeover due diligence.

First UK Foreign Corruption Prosecution
The third important UK development in the summer was the appearance in court of British bridge building company Mabey & Johnson on charges of corruption and breaching UN sanctions. At the hearing, Mabey & Johnson indicated that it would plead guilty to 10 charges. The corruption charges relate to the bribing of officials in Jamaica and Ghana in the 1990s, and the sanctions charges to payments to Saddam Hussein’s regime between 2001 and 2002.

Mabey & Johnson self-reported and cooperated with the SFO. It is reported to have agreed to be subject to financial penalties to be assessed by the court, to pay reparations and submit its internal compliance programme to an SFO approved independent monitor. The Director of the SFO, Richard Alderman said

These are serious offences and it is significant that Mabey & Johnson has cooperated with us to get to this landmark point. This has enabled this case to be dealt with in just over a year and is a model for other companies who want to self-report corruption and have it dealt with quickly and fairly by the SFO.

Sentencing is expected to take place in September.

Nick Burkill, founder member of the Anti-Fraud Network, is a partner and head of Dorsey’s London Trial department and a member of the Electronic Discovery Practice Group. He specialises in commercial litigation and dispute resolution and has broad experience of domestic and international disputes.

Contact Details:
Tel: +44 020 7826 4583 burkill.nick@dorsey.com

This newsletter is intended for general information purposes only and should not be construed as legal advice or legal opinions on any specific facts or circumstances. An attorney-client relationship is not created or continued by sending and receiving this newsletter. Anti-Fraud Network members from your jurisdiction will be pleased to provide further information regarding the matters discussed in this newsletter. This e-mail may be considered a solicitation for purposes of regulation of commercial electronic mail messages.

The Anti-Fraud Network has made every effort to ensure the accuracy of the information contained herein; however, the Network does not guarantee such accuracy and cannot be held liable for any errors in or any reliance upon such information.

If you wish to unsubscribe from this publication, select reply and put unsubscribe in the subject line.

The Anti-Fraud Network has been Highly Commended by the Financial Times in the 2008 FT Innovative Lawyers Awards Report

Discount on Anti-Fraud Books

Gower Publishing are pleased to offer a special 30% discount on the list price of their anti-fraud book titles. This offer is open to members of the anti-fraud network and recipients of the newsletter. Simply click here and, once you have made your choice, go to the online checkout and enter G8ATZ30 into the field marked "Leaflet Code." Your order will be processed with a 30% discount.

News

Japan Suspends Citigroup for Poor AML Controls
Japan’s Financial Services Agency (FSA) has criticised Citigroup for not having in place suitable anti-money laundering systems. This is the same issue cited by the FSA as the reason for closing Citigroup’s private banking business in 2004. The FSA stated that this second failure showed that Citigroup executives "... lack an understanding of the rules applied in Japan, such as laws and regulations, and an awareness of improvement.”" The bank was ordered to suspend sales activities at its retail business from 15 July to 14 August.

Siemens Settles with World Bank
Siemens AG has reached a settlement with the World Bank over acknowledged misconduct by the German electronics giant’s Russian subsidiary. The World Bank opened an investigation into the company after allegations of bribery involving a Russian project. Siemens has agreed to pay US$100 million to assist with anti-corruption efforts and to forgo bidding on any World Bank projects for two years; the Russian subsidiary has been barred for four years.

UAE Central Bank Claims No Money Laundering in the Region
Abdul Rahim Mohamed Al Awadi, assistant executive director and head of the anti-money laundering and suspicious cases unit at the United Arab Emirates (UAE) Central Bank has stated that the country is free of any signs of money laundering. There has, however, been an increase in the number of fraud cases reported. In a related story, the Bank has announced that tighter controls have been placed on foreign officials and politicians with money banked in the region. The Bank must now be notified of the names of any foreign account holders with political links and new accounts for this group must be approved by the monetary authority.

Hong Kong Launches Public AML Consultation
In response to an FATF report that highlighted the deficiency’s of Hong Kong’s anti-money laundering policies, the territory has launched a public consultation on a new law to strengthen the existing regime. At present, the existing guidelines on customer due diligence and record-keeping do not have statutory backing. Angelina Kwan, acting deputy secretary for Financial Services and the Treasury said the intention was to take "follow-up actions to plug the loophole".

UK Serious Fraud Office Remodelled
Following last year’s review of the UK Serious Fraud Office (SFO) by former New York prosecutor Jessica de Grazia, who found the agency was "demoralised and underperforming," director Richard Alderman has announced sweeping changes. In a statement issued ahead of the SFO’s annual report, Mr Alderman asserted that radical changes were necessary. He promises that the agency will no longer shy away from complex cases and that they will be better managed.

China Accuses Rio Tinto of Bribery
Four Rio Tinto employees, one Australian and three Chinese, have been accused by the Chinese government of spying and, initially, stealing state secrets, causing "huge losses" to the country’s economy. The Australian government is concerned for the welfare of the four employees and Foreign Minister Stephen Smith stated he had asked "politely but firmly" that the case be expedited. The company is standing behind its employees. "We remain fully supportive of our detained employees, and believe that they acted at all times with integrity and in accordance with Rio Tinto's strict and publicly stated code of ethical behaviour," said chief executive, Sam Walsh. Since Mr Smith’s comments, the Chinese government has finally charged executive Stern Hu formally with the crime of criminal commercial activity rather than stealing state secrets. If found guilty, Mr Hu still faces up to seven years imprisonment.

Spanish Bureaus de Change in Money Laundering Crackdown
Ten people have been arrested and 11 properties, nearly €1 million and a fleet of luxury cars have been seized in the culmination of a five month investigation into money laundering on the Spanish Costa del Sol. Nearly €180 million had been allegedly laundered by the Bureaus on behalf of British drug traffickers. Cash was converted into large value euro notes to enable traffickers to pay for drugs coming in from North Africa and to generally launder proceeds back into the financial system.

US Government Asked to Investigate Pfizer Bribery Allegations
Pfizer Philippines is alleged to have attempted to bribe Philippines President Macapagal-Arroyo to soften the country’s Cheaper Medicines Law. The US Government has been asked to investigate the allegations and potential violations of the US Foreign Corrupt Practices Act. Pfizer Philippines is alleged to have offered Health Secretary, Francisco Duque III, five million discount cards, worth around P100 million, in exchange for not implementing the law. In addition, during a Philippine Congress debate on the cheaper medicines legislation, a Pfizer lawyer was ordered to leave the hall for attempting to stall proceedings.

US Rocked by Racketeering Rabbis
Three mayors, two state legislators and five rabbis have been arrested after a New Jersey police investigation into black market kidneys and fake designer hand bags. Investigations focused initially on several millions of US$ laundered through Jewish charities, ending up in Israel. An informant on the case posed as a businessman offering bribes to public officials for New Jersey contracts. This led unexpectedly to 44 arrests for several crimes including those allegedl perpetrated by the rabbis, such as laundering cash from the sale of fake goods and bankruptcy fraud and, in one case, selling a kidney.

Deutsche Bank Overenthusiastic in Monitoring Employees
Deutsche Bank has become the latest German company to be accused of overstepping the mark with its anti-corruption programme. Earlier in 2009, Deutsche Bahn was revealed to have monitored the emails, health records and computer hard drives of 173,000 employees. Later in the year, Deutsche Telekom was alleged to have hired private investigators to examine phone records to try and trace conversations between board members and journalists in an attempt to discover the sources of leaks. Deutsche Bank is alleged to have tailed one board member and approved an investigation into a shareholder involving a “honey trap” with a woman. Commentators are blaming Germany’s outdated data protection laws for the recent spate of misuse of personal information.

Ponzis Increase in Popularity
The UK’s Financial Services Authority (FSA) has announced a 190% increase in the number of investigations into Ponzi schemes since last year. Ponzi is the name given to pyramid schemes in which large investors receive false "dividend" payments from investments placed in the scheme by new clients. It was the fraud of choice of Bernard Madoff who is now in the same jail in which Charles Ponzi was originally imprisoned. Ponzi schemes target individual investors of a variety of financial worth but are also a risk to investment companies.

CCI Pleads Guilty to Charges of Bribery
Control Components Inc (CCI), a Californian subsidiary of UK engineering business IMI, has "announced agreement to a settlement with the US Department of Justice (DoJ) in respect of certain irregular payments". CCI has been fined US$18.2 million for making around 236 illegal payments in 36 countries including Korea, Malaysia and the UAE. The company said the payments, made between 2003 and 2006, paved the way for around £27.6 million in sales.

Canada Fines Businesses for Being Too Open to Money Laundering
The Canadian Financial Transactions and Reports Analysis Centre (FINTRAC) has used new powers to fine AM Exchange (also trading as AM Currency Exchange) and Envimaya for failure to register themselves with the Centre. The ability to levy fines against businesses for non-compliance with obligations under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act came into effect in December 2008, but this is the first time the powers have been used. The companies have been fined CAN $3,940 and CAN$3,560 respectively.

Additional Resources

The AFN site now includes additional articles and items of interested from our worldwide members and readers.

Click here to view available articles. If you would like to contribute to this section or to the newsletter, please contact us at info@antifraudnetwork.com.

Membership

For more information about becoming a Member or an Associate Member, contact us at info@antifraudnetwork.com.

Subscribe Direct

Was this newsletter sent to you by the Anti-Fraud Network direct? If not, you are welcome to subscribe to it, enabling you to receive the newsletter directly in the future. Please complete the details under the subscription section of the website at www.antifraudnetwork.com.

Subscribe to our newsletter

The Anti-Fraud Network has members throughout the world. Go to www.antifraudnetwork.com to see where members are located, view their backgrounds and expertise and see how they can assist you.