When Britain's Bribery Act went into effect in July 2011, it struck fear into the hearts of businesses and executives with operations in the United Kingdom. Yet more than a year and a half later, it's yet to deliver a significant scalp.
To date, no companies have been prosecuted, let alone convicted, under the Act. The only successful cases involve two unconnected individuals, convicted of behavior that is a long way from the kind of corruption the Act was supposed to tackle.
One case involved a man who offered a small bribe to a government official after he failed a taxi driving test. He received a two-month prison sentence. The other related to a court clerk jailed for four years after he took bribes to alter a database of driving offenses.
While no significant cases have been prosecuted, more companies are self-reporting corruption offenses. According to the Serious Fraud Office the number of companies reporting their own misdeeds nearly doubled from 7 to 12 in 2012. In December Rolls-Royce told the SFO it had found bribery and corruption at its intermediaries in China and Indonesia. A month earlier Scottish oil and gas company Abbot Group agreed to a £5.6 million ($8.7 million) civil settlement after telling prosecutors about corrupt payments made by an overseas subsidiary.
The rise in self-reporting could be short-lived. Lawyers say policy changes on self-reporting announced by the SFO since then could discourage companies thinking of turning themselves in.
Meanwhile, the SFO knows it needs a grandstand prosecution, if only to prove it has the muscle to enforce the Act. “No one would be keener than I would to see a good, solid Bribery Act prosecution,” David Green, SFO director, told a House of Commons committee on bribery in November. “We are working on it.”
True, the SFO has potential cases in its pipeline. In November there were six in what Green calls “project phase,” meaning the agency can use enhanced powers to gather evidence before deciding whether to launch a full-blown investigation. But doubts remain about whether the SFO has the budget—just £30 million ($47 million) a year—and staff to enforce the Act.
“David Green has been trying to ‘talk tough,' and to re-establish the SFO's reputation and credibility as an investigation and prosecution agency, but it remains to be seen whether he will be able to follow this through in practice,” says Michael Roberts of law firm Hogan Lovells.
The SFO's record has indeed been poor. Most recently, it abandoned an investigation of the Tchenguiz brothers and their connection to the collapse of the Icelandic bank, Kaupthing. The Tchenguiz affair was a “fiasco” for the SFO, says Roberts.
At one hearing, a judge said the prosecutor's handling of the case showed “sheer incompetence.” Even the SFO's director at the time said it was “a wholesale challenge to the SFO's competence and the good faith of its staff."
“David Green has been trying to ‘talk tough,' and to re-establish the SFO's reputation and credibility as an investigation and prosecution agency, but it remains to be seen whether he will be able to follow this through in practice.”
One development that should strengthen the SFO's hand is the long-awaited introduction of deferred prosecution agreements (DPAs). The government is putting legislation in place to make DPAs available to the SFO from early next year.
Modeled on U.S. practice, a DPA would allow the prosecutor and a company to agree to deferment of a case if conditions are met. These include paying a penalty, refunding victims, strengthening compliance, and agreeing to independent monitoring. A DPA would only apply to financial crimes such as bribery, corruption, fraud, or money laundering. And they are only open to companies, not individuals.
Unlike the U.S. system, a British DPA would not require a company to waive legal privilege. And a judge would need to decide, at a private hearing, that a DPA was in the “interests of justice” and its conditions were “fair, reasonable, and proportionate.”
Those conditions would then have to be confirmed in open court which, says Louise Roberts of law firm Squire Sanders, “will ensure full public transparency of the wrongdoing and agreed sanctions, answering criticism—often based on U.S. DPAs—that they allow prosecutors to circumvent the judicial process by reaching an agreement with a defendant out of court and out of the public eye.”
Below is an excerpt from the Crown Office and Procurator Fiscal Service Announcement of Abbot Group's settlement.
In accordance with the published guidance on self-reporting, the following criteria were considered in the decision to refer this case to the Civil Recovery Unit for an extra-judicial settlement:
- the nature and seriousness of the offense and the extent of the harm caused;
- the extent of the wrongdoing within the business, including whether the conduct was authorized by, or connived in, by senior management, or restricted to a small number of lower-ranking individuals;
- whether it is clear that the business is taking action as soon as the matter comes to the attention of senior management (as opposed to taking no action until it becomes aware that there is a risk that the conduct is going to come to light);
- whether the business (or the individuals involved in the matter reported) has any previous record for this type of conduct. This would go beyond a previous criminal conviction, and would include any regulatory enforcement action or warning;
- whether the individuals involved in the wrongdoing have left the business and, where decisions were taken at Board level, whether there is a new Board in place, and in both cases the timing and reasons for the departure of these individuals;
- whether the business has honored its commitment to engage with the Crown meaningfully and in particular to disclose the full extent of the wrongdoing;
- whether the business had in place adequate anti-bribery systems at the time of the criminal conduct and whether it has further addressed this following the conduct;
- whether there are particular considerations which may weigh against prosecution, such as the consequences of prosecution for the company's employees and stakeholders.
The SFO has been lobbying the government to allow DPAs for years. It has tried other ways of doing deals with offending companies, but they've ended in failure and incurred the wrath of the judiciary. “DPAs will finally give them a clear jurisdictional basis on which to strike deals in cases of corporate corruption,” says Roberts.
But DPAs are no silver bullet. There are plenty of reasons why a company might refuse to sign, taking their chances instead on the SFO's shaky ability to prosecute.
Squire Saunders lists four: a company might agree to a deal only to see a judge throw it out; facts they concede while negotiating might be used against them in a prosecution; any deal would be public, so their reputation would be trashed regardless; and even a favorable DPA could expose them to civil claims.
DPAs are just “another tool in the toolkit” rather than a game-changer, says Barry Vitou of law firm Pinsent Masons. “If a company sees no benefit in self-reporting because experience shows it will likely get prosecuted anyway, they just won't self-report and there won't be any DPAs,” he says. “It depends on what precedent the prosecutor sets.”
The government's plan is to make the legislation needed to create DPAs retroactive, so companies can strike agreements to resolve prior allegations, but a DPA would only be available if no legal proceedings have started.
The potential for DPAs might actually prolong the wait for a significant Bribery Act case. With the possibility of a DPA next year, companies might find the idea of self-reporting this year less attractive. Likewise, the SFO could be tempted to keep its powder dry, not taking cases too far until it has the option of offering a DPA. As Vitou says, “It may be that we have to wait until next year before we see significant Bribery Act enforcement.”