U.K. ruling expands scope of anti-corruption enforcement

The Criminal Division of the U.K. Court of Appeal issued a first-of-its-kind ruling this month that marks a notable victory for the Serious Fraud Office in its escalating battle against bribery and corruption.

In the case R v. AIL, GH, and RH, the Court of Appeal last month in overturning a lower court judgment ruled that bribery of foreign officials was, indeed, illegal prior to 2002. Such conduct, as a result, can be prosecuted by the SFO under the 1906 Prevention of Corruption Act, which broadly prohibits corruption in both the public and private sectors.

The closely watched case is an important one for companies and individuals that face bribery allegations in the United Kingdom that pre-date 2002. In particular, it may have consequences for a number of the SFO’s other pending corruption cases, legal experts say.

The SFO has taken the position for quite some time now that the 1906 Act makes it an offense to bribe foreign government officials, even in a case where the alleged offense took place within the territorial jurisdiction of the United Kingdom. Before this case, no court had ever clarified the territorial reach of the law in this regard.

The Court of Appeal’s decision followed allegations made by the SFO that, between June 2000 and November 2006, French engineering giant Alstom and two of its executives paid bribes from an English bank account to officials or other agents of three foreign organizations in India, Poland, and Tunisia to secure various transport contracts. As a result, the SFO charged the defendants with offenses under the 1906 Act.

“Anybody thinking that prosecution under these pre-Bribery Act statutes were quickly going to become a thing of the past may have to revise that view after this judgment."

Patrick Doris, Partner, Gibson Dunn

In a preliminary hearing before the Crown Court, Alstom and its executives noted that the Anti-Terrorism Crime and Security Act of 2001 expressly incorporated foreign principals and foreign public bodies within the scope of U.K. anti-corruption law. Prior to that law taking effect in February 2002, they argued, it was not illegal to bribe foreign principals, even if all the relevant parties were present in England and all the conduct took place there.

In a November 2015 judgment, Judge Jeffrey Pegden QC of the Southwark Crown Court agreed with the defendants. In his ruling, Pegden found that if Parliament had intended to make bribery of foreign principals a crime, it would have done so, and that enactment of the Anti-Terrorism Crime and Security Act expressly extended the legislation to cover foreign bribery, indicating the need to incorporate this change in the law.

In its Jan. 15 decision, the court of appeal disagreed, finding in favor of the SFO. In reaching its decision, the court analyzed three 19th Century anti-bribery laws: the 1889 Public Bodies Corrupt Practices Act, the 1906 Prevention of Corruption Act, and the 1916 Prevention of Corruption Act.

“In our judgment, the key point in this appeal is that the two statutes of 1889 and 1906 provide for two species of corruption offense, which exist in parallel,” the court said. “The 1889 Act addresses corruption connected with ‘public bodies.’ The 1906 Act addresses corruption connected with ‘agents’ and ‘principals.’ The footprint of the two species overlap to some extent, but they remain separate and distinct offenses which are capable of being separately charged.”

U.K. COURT OF APPEAL DECISION

Below is an excerpt from the Criminal Division's U.K. Court of Appeal decision in the case R v. AIL, GH, and RH.
The short, but critically important, question raised by this appeal is whether, prior to 2001, it was a criminal offence in the UK to corrupt the agent of a foreign principal. On 10 November 2015, in the Crown Court at Southwark, during the course of a preparatory hearing conducted under [Section] 7 of the Criminal Justice Act 1987, His Honour Judge Pegden Q.C. was invited to rule upon that issue identified in the following terms: Prior to the coming into force of the Anti-Terrorism, Crime and Security Act 2001, did the Prevention of Corruption Act 1906 make it an offense to corrupt an agent of a foreign principal or a foreign body even if the actus reus of the offense took place within this jurisdiction?
Judge Pegden answered the question in the negative. He held that, prior to the coming into force of the 2001 Act on 14 February 2002, it was not an offence under the 1906 Act to corrupt an agent of a foreign principal or foreign public body, even in a case where the actus reus of the alleged offence took place within the territorial jurisdiction of England and Wales.
With the leave of the judge, the prosecution now appeal that decision pursuant to s. 9(11) of the 1987 Act; s. 9(14) of the 1987 Act provides that this court may confirm, reverse or vary the ruling which is the subject of the appeal. The provisions of s.11 of the 1987 Act also apply so that reporting of these proceedings is restricted: to that end, we have summarized the alleged facts somewhat obliquely and anonymized the names of the respondents and the organizations said to have been involved.
…
We turn first to the 1906 Act which created an entirely new statutory offense of corruption. The offense was framed in terms of ‘principal’ and ‘agent.’ Its matrix was very different from the 1889 Act. The 1906 Act does not use the term "public body" and that expression appears nowhere in the 1906 Act; furthermore, the term ‘agent’ does not appear anywhere in the 1889 Act.
The key element of the 1906 Act offense is corrupt conduct of an ‘agent’ in connection with the affairs of his ‘principal.’ Unlike the 1889 Act, the 1906 Act covered corruption in public and private sectors. Section 1(1) created three ‘agent’ offenses: the first concerning the ‘agent’ himself; the second concerning the person engaged in a corrupt transaction with the ‘agent;’ and the third concerning any deception of the ‘principal’ by his ‘agent.’
Against that background, the starting point is to consider the plain, ordinary, natural meaning of the words ‘agent’ and ‘principal’ in the 1906 Act. In our judgment, the meaning of these words is clear: absent other indications, the words include both foreign and domestic persons or organizations. In that regard, the expressions ‘agent’ and ‘principal’ are well understood and have long been in common usage.
…
In our judgment, the key point in this appeal is that the two statutes of 1889 and 1906 provide for two species of corruption offence which exist in parallel. The 1889 Act addresses corruption connected with ‘public bodies.’ The 1906 Act addresses corruption connected with ‘agents’ and ‘principals.’ The footprint of the two species overlap to some extent, but they remain separate and distinct offences which are capable of being separately charged.
Thus, the fundamental problem facing the respondents is that, unlike the 1889 Act which expressly limits the meaning of ‘public body’ to U.K. public bodies, the 1906 Act contains no similar wording which limits the meaning of ‘agent’ or ‘principal’ to U.K. persons.
Source: U.K. Court of Appeal

“The fundamental problem facing the respondents is that, unlike the 1889 Act which expressly limits the meaning of ‘public body’ to U.K. public bodies, the 1906 Act contains no similar wording which limits the meaning of ‘agent’ or ‘principal’ to U.K. persons,” the court continued. “If Parliament had intended to exclude foreign principals from the scope of the 1906 Act, it would have done so.”

Broader implications

The court described the ruling as settling a “critically important” question, effectively clarifying that the 1906 Act unequivocally applies to foreign officials. The ruling is concerning for all companies and individuals that still face bribery and corruption allegations in the United Kingdom that pre-date 2002.

“Anybody thinking that prosecution under these pre-Bribery statutes laws were going to quickly become a thing of the past may have to revise that view after this judgment,” says

Patrick Doris, a partner in the London office of Gibson Dunn. “It’s hard to imagine that the SFO would have pursued this case all the way to the Court of Appeal if they didn’t see the pre-2001 impact of the 1906 Act being something that they might conceivably want to rely on in the future.”

Other anti-corruption experts are quick to point out that, with the passage of time, the SFO will bring fewer cases under the 1906 Act, effectively limiting the scope of the court’s ruling. “It’s a significant decision, but it has a short shelf life,” says Jo Rickards, a partner in the London office of law firm Kingsley Napley. “Any conduct that took place after 2011 are fairly and squarely covered by the Bribery Act.”

Nonetheless, the decision effectively means the SFO is not limited by what historical corruption it can now investigate and prosecute. “It removes any remaining constraints on SFO investigating historic corruption,” says Doris.

The court of appeal ruling in favor of the SFO is all the more important following a “significant uptick” since the entry into force of the Bribery Act in criminal enforcement actions in the United Kingdom, says Doris, the vast majority of which have been brought not under the Bribery Act, but rather under the 19th Century anti-bribery statutes. “These older statutes are, and have been for the last number of years, critical elements in the SFO’s armory for anti-corruption enforcement,” he says. “We have to remember that often the most serious instances of corruption take many years to come to light, be investigated and lead to prosecutions.”

In one recent example, the Southwark Crown Court in January ordered U.K. printing company Smith and Ouzman to pay a total of £2.2 million for making corrupt payments, following a four-year investigation by the SFO. In that case, a jury in December 2014 convicted father and son executives from Smith and Ouzman for violations under the 1906 Prevention of Corruption Act for making corrupt payments totaling £395,074 from 2006 to 2010 to public officials in Kenya and Mauritania in exchange for business contracts, according to the SFO.

The Smith and Ouzman case marked the SFO’s first corporate conviction for foreign bribery. In a statement announcing the settlement, SFO Director David Green warned that the SFO “will pursue such criminal behavior at both the corporate and individual level.”

The overall significance of the court of appeal’s ruling in the case still leaves plenty of room for debate, with many predicting that it may well find its way to the Supreme Court.