The Serious Fraud Office and other U.K. regulators have been ratcheting up the rhetoric about coming down hard on companies that commit bribery and corruption. But with puny enforcement budgets and still no major charges against any companies for violating the U.K. Bribery Act, some are wondering if it is mostly just talk.
One of the most critical challenges for U.K. enforcement agencies is the resources dedicated to the job. According to the SFO's Annual Report and Accounts 2012-2013, its total spending for 2013 to 2014 will be less than £32 million ($55 million). That's down from about £53 million ($90 million) in 2008 to 2009. Even so, SFO director David Green has maintained that he has sufficient funds to meet the agency's needs.
Others aren't so sure. “It's quite pathetic,” says Adam Greaves, a partner at law firm McGuireWoods in London. “Very large companies can easily outspend them just on one investigation.” While the SFO is able to request additional funding for “blockbuster cases,” and has done so several times, the relatively meager investment still presents significant difficulties, Greaves adds.
In the four years since the U.K. Bribery Act passed, for example, the SFO has yet to file charges against any companies, although a number of convictions against individuals have been secured.
The SFO has indicated that it is actively investigating a number of cases against various firms, including Rolls Royce and French conglomerate Alstom, and expects to file charges in due course, says Robert Amaee, a London-based partner with Covington & Burling.
Moreover, outsiders can be overly optimistic about the time required to bring complex fraud and corruption cases through the legal system, John Smart, head of fraud investigations with EY, says. He notes that in the United States most large prosecutions didn't occur until about twenty years after the Foreign Corrupt Practices Act was passed in 1977.
Yet given the mixed results from the SFO so far, perhaps it's not surprising that signs are appearing of potential changes in the way in which bribery and corruption are investigated and prosecuted in the United Kingdom.
One of the first changes occurred in 2013, when the National Crime Agency (NCA) became operational. Its mission includes investigating and pursuing serious and organized crime, and fighting fraud and cyber-crime. The NCA's establishment prompts the question: How will the SFO and the NCA co-exist and share the responsibility of pursuing bribery and corruption cases?
In February of this year, the SFO began allowing deferred-prosecution agreements, which offer companies the opportunity for negotiated resolutions to corporate crime convictions in some cases, rather than criminal prosecutions to deal with corporate criminality.
The ability to use DPAs provides prosecutors and companies with more options to resolve issues and raises the prospect of greater enforcement, as well as additional incentive to self report and cooperate with the SFO, says Patrick Rappo, London-based partner at the law firm of Steptoe & Johnson. So far, the SFO has yet to secure a DPA.
More recently, the Financial Times stated that a cross-departmental group, including representatives from the Prime Minister's office and others, will examine the U.K.'s ability to pursue bribery cases. And at the C5 Anti-Corruption Conference in June, the U.K. solicitor general, Oliver Heald, announced the upcoming publication of the United Kingdom's first anti-corruption plan. The plan follows a commitment made last October as part of the Open Government Partnership.
As these events show, the U.K. government has been intensifying its attention to bribery. “Bribery and corruption enforcement in the U.K. has historically been minimal, but has been kick-started over the past five years,” Rappo says.
For starters, the difficulties U.K. regulators have encountered in successfully prosecuting companies under the Bribery Act mean few “are quite scared enough of the SFO,” says Robert Barrington, executive director with Transparency International U.K., a non-governmental organization that monitors political and corporate corruption. More prosecutions—which might require a bigger budget—would be the most effective way to change their attitude, Barrington adds.
The small budget sends the wrong signal, says David Kirk, also a London-based partner with McGuireWoods. “It doesn't give the message that the government is fully behind its claims,” he says. Instead, it appears to be rather grudgingly tackling them, Kirk adds.
Barrington identifies several explanations for the budget. One is simply the economic environment, which makes it difficult to request funding for any investment.
The concern about the NCA is that corruption is not anyone’s top priority.
Robert Barrington, Executive Director, Transparency International UK
Another is ambivalence on the part of lawmakers when it comes to the SFO's existence in the first place. “It's no secret that there are plenty of people who would like to see the organization folded into a larger crime-fighting agency,” Amaee says, adding that “it would be a mistake to dilute the focus on combating fraud and corruption.”
Barrington says the evidence strongly supports maintaining a separate institution with experts dedicated to fighting fraud, bribery, and corruption, given the complexity of most cases. In addition, the model used to prosecute these crimes can differ significantly from the model used in other types of crimes, where the investigative teams operate more independently from those handling the prosecution.
Conversely, the likelihood of successfully prosecuting white-collar cases often increases when the two teams work together, Barrington says. Again, the complexity of the cases comes into play. Investigators often have so many leads to consider that they need guidance from the prosecuting team in assessing which are worth following. “The concern about the NCA is that corruption is not anyone's top priority,” Barrington says. (He adds that this isn't to suggest that the SFO can't improve its operations or learn from or coordinate with the NCA.)
At the same time, splitting limited resources between various agencies may not make financial sense, Smart notes.
The question of jurisdiction also comes into play. “The United Kingdom has always had a fairly fractured fraud enforcement landscape and patchy history of successfully prosecuting serious cases and corporates,” Rappo notes.
Another challenge comes from the information sharing agreements the SFO has inked with the United States and other countries. On a macro level, such agreements can help the SFO capture criminals by providing it with information it otherwise would have a difficult time obtaining. When companies self-report potential wrongdoing by an employee, however, they often don't want the information they're going to release provided to other governments, Greaves says. “It's a Catch-22 situation.”
U.K. SFO Key Performance Indicators
The table below from the SFO provides a summary of performance against key indicators in 2012-13:
*The average cost of cases is calculated based on cases which have been at trial in that year and excludes staff costs.
**Cost of SFO per person is based on UK population. 2010-11 and 2011-12 figure restated for consistency.
Source: Serious Fraud Office.
At this point, it's unclear how the fraud-fighting organizations might evolve long term, given the mixed signals coming from the current government, as well as the fact that parliamentary elections will occur in less than a year, Barrington points out. “One unknown is the attitude of the new government,” he says.
Despite the very real challenges, the U.K.'s ability to fight white-collar crime, including bribery and fraud, continues to strengthen, Rappo says. One reason is David Green, director of the SFO, who has “reasserted the SFO's role as an investigator and prosecutor and set up a stronger intelligence unit within the SFO,” Rappo says.
In addition, Green has indicated that his organization will cooperate more with other agencies to facilitate the sharing of intelligence and evidence. During a 2012 speech at the 6th Annual European Forum on Anti-Corruption, he said the SFO would “play a full part in that new cooperative landscape by … undertaking those cases which call for our specialist skills and capabilities and by acting in concert with others, where appropriate.”
Two New Laws
Two proposed laws could help enforcement agencies better fight corruption. The first would create a list of the real beneficial owners of corporations. In an April 2014 report, “Transparency & Trust,” the U.K.'s Department for Business Innovation and Skills, discussed the United Kingdom's plan to “implement a central registry of company beneficial ownership information, to make it easier to identify and tackle the misuse of companies.”
The second proposal would hold such professionals as lawyers and accountants liable for aiding bribery and corruption, Trust.org reported in early June. “This arises from the correct perception that a lot of the people in the background who advise serious criminals add a veneer of respectability, and therefore facilitate their corrupt and criminal activities,” Kirk says.
Indeed, the increase in awareness and enforcement of bribery and corruption appears here to stay. “We continue to see enhancements to laws and regulations in various jurisdictions around the world,” says Bill Pollard, partner in the FCPA consulting practice for Deloitte Financial Advisory Services. “The issue and risk aren't going away.”
The U.K. could play a greater role in fighting these crimes. “The Bribery Act, U.K. DPAs, and potential criminalization of ‘corporate failure to prevent fraud' are game changers. The time is fast approaching were the United Kingdom could also be a force to be reckoned with,” Rappo says. “Much will depend on whether Green is able to deliver a corporate scalp with one hand, and soften his rhetoric and offer real incentives to self-report with the other.”