Britain's Serious Fraud Office announced tough-talking new policies earlier this month on how it will enforce its new Bribery Act. The agency says it is now taking a harder line on facilitation payments and corporate hospitality, and providing fewer leniencies for self-reporting.
Mostly the changes are a matter of tone rather than substance, lawyers say. But the shift in tone is important nonetheless, they add. Companies will need to review whatever controls they have in place to ensure Bribery Act compliance. And those thinking about making voluntary disclosures to the SFO will have less certainty about how they might be treated.
The U.K. Bribery Act took effect in 2010 after years of delay. It hardened British law on corrupt corporate behavior and made it an offense for companies to fail to prevent bribery. To date, however, the law has hardly been the cudgel some feared it would be. The SFO has yet to bring a case under the legislation, and a recent survey by consulting firm FTI found that 27 percent of British senior managers said they thought they would never be prosecuted for paying bribes.
In fact, some executives are dismissive of the law's powers to act as a deterrent. A quarter of the board-level staff in the same survey said they would breach the Bribery Act to win business. Although that sentiment is ill-advised, say U.K. legal experts. That statistic is “brazen, stupid, and pretty horrific,” says Barry Vitou, a partner at London law firm Pinsent Masons.
Yet it's perhaps understandable. The SFO has threatened wrongdoers with tough action since well before the Bribery Act became law, but the office has limited resources and hasn't yet brought a big case under the legislation.
Moreover, lawyers say few companies have responded to its invitation to self-report offenses. That's partly because the SFO's efforts to negotiate penalties have angered judges. The SFO started to rethink its approach in April, when Richard Alderman stood down as its director and David Green took charge, promising to “rebalance” the SFO more clearly toward prosecuting.
The first tangible evidence of this new direction came on Oct. 9, when the SFO scrapped guidance issued last year that explained how it would decide whether offenses under two controversial parts of the Bribery Act warranted prosecution. These relate to facilitation payments—relatively small amounts paid to grease the sticky wheels of bureaucracy—and corporate hospitality.
Facilitation payments—technically legal under the Foreign Corrupt Practices Act—are treated as a bribe under U.K. law, even though they are part of everyday business life in many countries. Under Alderman, the SFO had suggested companies wouldn't be prosecuted for minor offenses, if they followed good internal control practice. Its new policy offers no such comfort: “A facilitation payment is a type of bribe and should be seen as such,” it says.
“There is no substantive change in what the SFO is now saying. I don't think it means there are more likely to be prosecutions for any hospitality or facilitation payments.”
—Ali Sallaway,
Partner,
Freshfields Bruckhaus Deringer
Some companies interpreted the SFO's previous statements as putting “a zone of tolerance around facilitation payments,” says Ali Sallaway, a partner at law firm Freshfields Bruckhaus Deringer. The new guidance simply restates the fact that they are illegal, she says. “There is no substantive change in what the SFO is now saying. I don't think it means there are more likely to be prosecutions for any hospitality or facilitation payments.”
On the hospitality front, the Bribery Act makes it an offense for companies to indulge in corporate entertaining or other sweeteners that it regards as tantamount to bribes. The SFO's old guidance explained the factors it would consider when deciding whether to prosecute, such as whether a company has policies on entertaining, how much it spent, and what records it kept. That's all gone.
The prosecutor's new policy says hospitality and promotional spending can sometimes be legitimate, but if the SFO believes such expenditures are corrupt, it will prosecute. The factors it will take into account are whether there is a realistic prospect of conviction and a prosecution is in the public interest.
This isn't much of a change, either, says Vitou. When the SFO applies its public interest test it is likely to consider the same factors that were in its old guidance, he argues. “And if you think about what those factors were—such as have a policy and set limits within the policy—all that stuff is motherhood and apple pie,” he says.
Fewer Incentives to Self-Report
SFO Q&A
Below are some questions and answers from the Serious Fraud Office in regard to its Bribery Act guidance:
What about companies that have already acted on the old guidance?
Each case will be reviewed and assessed according to its own circumstances. If there has been reliance on a previous statement of policy or practice the SFO will consider such reliance in the context of the Full Code Test. If before the publication of the revised policy statements the SFO entered into an agreement with a corporate body based on an earlier SFO statement of policy or practice, and the corporate body has fully complied with the terms of that agreement, then the previous statement of policy or practice will continue to apply.
Is there now no flexibility in relation to facilitation payments?
It would be wrong to say there is no flexibility. Facilitation payments were illegal before the Bribery Act 2010 came into force and they remain illegal under the Act. Whether or not the SFO prosecutes in relation to facilitation payments will always depend on (a) whether it is a serious or complex case which falls within the SFO's remit and, if so, (b) whether the SFO concludes, applying the Full Code Test in the Code for Crown Prosecutors, that there is an offender that should be prosecuted.
If the requirements of the Full Code Test are not established, the SFO may consider civil recovery as an alternative to a prosecution.
Should companies now be more nervous about corporate hospitality?
No. The new statement of policy expressly reaffirms the important point that bona fide hospitality or promotional or other legitimate business expenditure is recognized as an established and important part of doing business.
The SFO will prosecute offenders who disguise bribes as business expenditure (hospitality and the like), but only if (a) the case is a serious or complex one that falls within the SFO's remit and (b) the SFO concludes, applying the Full Code Test, that there is an alleged offender that should be prosecuted.
If the requirements of the Full Code Test are not established, the SFO may consider civil recovery as an alternative to a prosecution.
Why is there a revised approach to self-reporting?
As explained above, the revisions have been made to:
1.restate the SFO's primary role as an investigator and prosecutor of serious and/or complex fraud, including corruption;
2.ensure there is consistency with the approach of other prosecuting bodies; and
3.take forward certain OECD recommendations.
The revised statement of policy explains in clear terms that that any decision to prosecute unlawful activity will be governed by the Full Code Test in the Code for Crown Prosecutors and the applicable joint prosecution guidance.
The revised statement of policy is not limited to allegations involving overseas bribery and corruption.
If the requirements of the Full Code Test are not established, the SFO may consider civil recovery as an alternative to a prosecution.
Source: Serious Fraud Office.
The shift in tone is most apparent in the SFO's new policy on self-reporting. Alderman had been trying to introduce a U.S.-style approach to financial crime, encouraging companies to turn themselves in if they discovered wrongdoing. As an incentive, it said it would seek civil rather than criminal remedies against them and would use compliance monitoring to help companies put things right.
Its new policy says that if a company does self-report compliance problems that would be “a relevant consideration” when the SFO decides whether to prosecute. It adds, however, “If on the evidence there is a realistic prospect of conviction, the SFO will prosecute if it is in the public interest to do so.”
The new line will make it even harder for companies to decide whether to self-report or not, lawyers say. “It's not the same here as it is in the United States, where corporates are so used to a well-developed set of self-reporting incentives and a lawyer advising them can have a good idea of what is going to happen,” says Sallaway. “For lawyers in the U.K., it's very difficult to advise what would happen if you did self-report. There is a lot to weigh in the balance.”
Michael Roberts, a partner at law firm Hogan Lovells, adds: “One of the supposed advantages of self-reporting is that you expose yourself in exchange for a degree of certainty as to what the outcome will be and that it will be manageable from a cost and reputation perspective. I think we've got to the stage where a lot of companies have decided that they can't see what's in it for them to self-report.”
The SFO's new director wants to make a clear break with “the slightly more cozy tone set by his predecessor,” says Roberts. “He wants to get across the message that the SFO is a prosecutor. They investigate crime and they prosecute crime. They are not there to have a cup of tea and chat about what they think of your compliance program.”
Fighting talk aside, the SFO doesn't have enough people or other resources to prosecute every case that comes across its desk. It needs companies to self-report. But until the SFO brings a big case under the Bribery Act, its approach is all carrot and no stick, say corporate attorneys. “The fact that the SFO is toughening up now is no real surprise,” says Vitou. “At some point, unless you start to execute on the threats and promises, people will see you as the boy who cried wolf. Actions speak louder than words.”
For now, companies should review their internal controls related to Bribery Act compliance, says Vitou, if only to ensure that they don't reference SFO policy statements that have now been withdrawn. “The SFO stance is hardening, and companies are complacent at their peril,” he says.
No comments yet