Transcript Where to set the bar? The practical reality of 'adequate

Where to set the bar? The practical reality of
'adequate procedures' under the UK Bribery Act
Jeremy Cole, Partner, Hogan Lovells, London
Outline
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UK Bribery Act 2010: current status and enforcement environment.
•
Key elements of the Act.
•
'Adequate procedures': guidance from the authorities?
•
'Adequate procedures' in practice.
Hogan Lovells
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UK Bribery Act 2010: current status and enforcement environment.
3
UK Bribery Act: Current Status
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Passed in April 2010.
•
Official guidance from Ministry of
Justice in March 2011.
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In force from 1 July 2011.
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No retrospective effect.
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No substantive prosecutions to date.
•
Is this a "storm in a teacup"?
Hogan Lovells
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2009-2013: Enforcement activity in the UK
Aon
FSA Penalty
£5.25m
Mabey & Johnson
Criminal Conviction
£6.6m (plus individuals jailed)
AMEC
Civil Recovery Order
£5m
Balfour Beatty
Civil Recovery Order
£2.25m
Innospec
Criminal Conviction
$12.7m (plus $27.5m)
Robert Dougall
Criminal Conviction
12 months (only suspended by Court of Appeal in
view of extensive co-operation)
BAE Systems
UK/US Settlements
£30m (plus $400m)
Julian Messent
Criminal Conviction
21/33 months
Weir Group
Criminal Conviction
£3m (plus £13.95m)
DePuy
Civil Recovery Order
£4.8m
Willis
FSA Penalty
£6.895m
Macmillan
Civil Recovery Order
£11.3m
UK Court Clerk
Criminal Conviction
3 years
Operation Navigator
Criminal Convictions
Four sentenced for up to 5 years
Oxford University Press
Civil Recovery Order
£1.89m
www.hoganlovells.com
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Recent trends in the UK
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Push from the courts that UK fines should match
US fines.
•
Significantly increased communication between
different jurisdictions.
•
SFO looking to recover the proceeds of any
corrupt activity.
•
Possible whistleblowing bounties?
•
Extension of UK Bribery Act to new corporate
offence of failing to prevent fraud?
www.hoganlovells.com
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Self-reporting in the UK?
• Schizophrenic approach by the SFO:
old regime vs. new regime.
• Timing of report.
• No positive obligation to report but:
– Anti money laundering
– Tax
• Exposure to other jurisdictions?
• Impact of Deferred Prosecution
Agreements (introduced February
2014).
www.hoganlovells.com
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Key elements of the UK Bribery Act.
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UK Bribery Act: key features
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Applies to both public officials and purely commercial
bribery.
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Prohibits "facilitation payments".
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No "safe harbor" for promotional expenditures.
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Personal liability for "senior officers".
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No requirement for a dishonest or corrupt state of
mind.
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Lower test for bribery of public officials.
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Imposes strict liability on corporates (subject to a
defence of "adequate procedures").
•
Applies to activities of agents/intermediaries
worldwide.
www.hoganlovells.com
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Long-Arm Jurisdiction
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Any company or partnership "carrying on
business" in the UK is caught (including
in relation to acts outside the UK).
•
The Government guidance proposes "a
common sense approach" based on
whether companies have a
"demonstrable business presence" in the
UK.
•
The Government "would not expect" companies to be treated as "carrying on
business" in the UK simply by virtue of having a subsidiary or listing here, but
this will depend on all the circumstances.
•
For individuals, the Bribery Act applies to conduct which takes place in the UK
and, in the case of UK nationals, anywhere in the world.
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The SFO's View
"Our view is that if a foreign group has
a subsidiary in the UK and in another
country and that bribery occurs in that
other country then that bribery is within
the remit of the SFO."
Richard Alderman, former Director of the Serious Fraud Office, 9 June
2011
"We would argue against any overly
technical interpretation [of the Act's
jurisdiction]…"
David Green QC, Director of the Serious Fraud Office, 26 June 2012
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What does that mean?
Norwegian company with UK branch

Norwegian company with UK subsidiary
?
Norwegian company with UK listing
?
UK company with Norwegian branch

Norwegian subsidiary of UK company
?
Norwegian company with UK investments?
E.g., minority shareholdings in UK companies.
?
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'Adequate procedures': guidance from the authorities?
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Ministry of Justice Guidance: 6 Principles

Top level commitment ("tone at the top")

Risk assessment

Proportionate procedures

Communication (including training)

Due diligence

Monitoring and review
www.hoganlovells.com
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Serious Fraud Office: Emphasis on…
• Proportionate procedures:
– "As for the meaning of adequate in 'adequate procedures'…it cannot
mean procedures which will always prevent bribery, but surely
requires a proportionate approach."
• Importance of senior leadership:
– “We tell Senior Executives that we expect them to set a real lead from
the top on anti-corruption issues so that members of the corporation,
its shareholders, its employees and the public, all see that the board
is committed to a true anti-corruption culture within the corporation.
We say that this requires their personal lead and commitment and that
they must show this in practice."
• Effective implementation:
– not a "veneer of paper procedures."
• View on corporate entertainment?
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Other UK Sources
• UK Financial Conduct
Authority:
– Re-emphasize importance of:
•
•
•
Assessing risks of third-party
relationships
Adequate training
Senior management responsibility
• DPA Code of Practice:
– Effectiveness of compliance
programme a key factor in
consideration of whether DPA is
appropriate.
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Non-UK Sources
• US FCPA Resource Guide:
– Internal controls
– Stress-testing and continuous improvement
– Mergers & acquisitions
• Russia:
– Compulsory compliance programme
• Transparency International:
– Business Principles for Countering Bribery
– Adequate Procedures Guidance
• OECD:
– Good Practice Guidance
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Adequate procedures in practice: the global
context
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Bribery and Corruption – Recent Legislation
Canada – June 2013
Spain – Dec 2010
UK – July 2011
China – May 2011
US – July 2010
(Dodd-Frank)
Brazil – August 2013
www.hoganlovells.com
Russia – Jan 2013
France – May 2011
Italy – November 2012
India - Imminent
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Global Enforcement against Foreign Bribery
United States
58 convictions of individuals
76 settlements with companies
United Kingdom
5 convictions of individuals
11 convictions/settlements
with companies
Germany
73 convictions of individuals
3 companies fined
Japan
6 convictions of
individuals
1 conviction of a company
Level of enforcement
against foreign bribery
(OECD Convention
signatories)
High
Moderate
www.hoganlovells.com
Italy
10 convictions of individuals
3 convictions of companies
China
Rio Tinto – prison sentences for employees
Multiple investigations against pharma
companies
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How do you protect yourself?
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Ever-growing global network of anti-corruption laws.
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Dramatic increase in enforcement by authorities
worldwide: U.S. no longer the "only sheriff in town".
•
Common legal "trip wires" include:
 Extra-territorial effect and long-arm jurisdiction –
companies can be caught in surprising ways
 Corporate liability
 Liability for agents and "associated persons"
 Focus on compliance programmes
•
Best form of protection: a compliance programme
which is fit-for-purpose globally.
•
But specific local issues: Russian (and Chinese)
"political roulette".
www.hoganlovells.com
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Case Study: Morgan Stanley
• US authorities declined to
prosecute Morgan Stanley in
relation to FCPA violations by
an employee.
• Publicly credited Morgan
Stanley's compliance
programme:
–
"…Morgan Stanley constructed and
maintained a system of internal controls,
which provided reasonable assurances that
its employees were not bribing government
officials…" (US Department of Justice)
www.hoganlovells.com
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Aims of Compliance Programmes
• Goal for corporates: one global
programme, not a "patchwork
quilt".
• Where to set the bar? Build a
programme that at least matches
the global high water mark.
• Programme should focus on
practical measures rather than
legal technicalities.
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One global programme…but
• Adjust for local circumstances…
• Russia:
o Novo Nordisk matter
o Unilateral termination of third-party contracts
o Compliance culture – low status
• China:
o Approach via code of ethics?
o Power of General Manager
o Testing intermediaries in light of GSK: window of
opportunity?
• Whistleblowing – cultural resistance (e.g. France,
Russia).
• Local "Champions"
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Starting point of effective compliance program
Due diligence
Third parties
Contractual
provisions
Monitoring
Risk assessment
Policies and
procedures
Employees
Training
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Practical aspects of compliance clauses in thirdparty agreements
• Before entering third-party contracts consider:
o For high risk, conduct detailed due diligence including
face-to-face meetings. Periodic reviews of due diligence
may also be appropriate.
o contractual provisions, including:
 Compliance with local anti-corruption laws
 Obligation to maintain accurate records
 Audit right clauses
 Use of sub-contractors
 Suspension and termination rights
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What should a risk assessment achieve?
• Establish who your associated persons are.
• Establish the risks they pose.
– After Risk Assessment grade each of associated persons
by risk
– Initial categorisation: high, medium, low
– Adopt proportionate measures for each associated person
• Establish most risky business units.
• Root out unwanted business practices.
www.hoganlovells.com
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How to grade risk (1)
• Country risk.
• Sectoral risk.
• Transaction risk.
• Business opportunity risk.
• Business partnership risk.
www.hoganlovells.com
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Corruption Perceptions Index 2013
Source: Transparency International
www.hoganlovells.com
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How to grade risk (2)
• Interaction with public officials?
• Dependence on licences, permits, customs etc?
• Charitable and political donations?
• High value projects?
• Projects involving intermediaries?
www.hoganlovells.com
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Other risk factors
• Recent M&A activity.
• Rapid expansion or recent reorganisation.
• History of suspect payments (e.g. whistle-blowing
reports).
• History of facilitation payments.
• Disaffected employees.
www.hoganlovells.com
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Jeremy Cole, Partner
London
Jeremy Cole has more than 25 years of experience in international commercial litigation, focusing in
particular on a broad range of cases involving bribery, corruption and fraud. He is co-head of the
Investigations, White Collar and Fraud Practice Area. He is based in Hogan Lovells' London office
but has also worked in Hong Kong, New York, Abu Dhabi and the Cayman Islands.
Jeremy was invited (one of just three lawyers to receive such an invite) in 2009 to give both oral and
written evidence to the Joint Parliamentary Committee reviewing the Bribery Bill. Jeremy was also
invited to submit his credentials to stand as joint monitor, along with a partner from Hogan Lovells'
Washington DC office, as one of three firms to be considered for the first joint US-UK FCPA
monitorship to be jointly administered by the US Department of Justice and the UK Serious Fraud
Office. Jeremy is the co-editor of the leading text "International Commercial Fraud" published by
Sweet & Maxwell.
Jeremy Cole
Partner, London
T +44 20 7296 5107
[email protected]
•
Chambers UK 2011 states: International
commercial litigation expert and co-head
of investigations and fraud Jeremy Cole is
a "calm but robust practitioner." He is
considered to be the "star" of the team."
•
According to Legal 500 2011: "Practice
head Jeremy Cole is praised for his
‘meticulous approach’."
•
Jeremy has regularly been ranked by
various legal directories as amongst the
leading commercial litigation solicitors in
London. Chambers UK place Jeremy in
Band 1.
•
Jeremy has been recognised for the last
two years as a "Top Gun" on US
Ethisphere's annual "Attorneys Who
Matter" list.
Representative experience
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Advising numerous major multinationals on the implications of the UK Bribery Act 2010 and
necessary amendments to their compliance procedures
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Advising various clients in connection with investigations by the UK Serious Fraud Office into
suspected overseas corruption.
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Advising various multinationals in relation to internal investigations and the need to disclose to
relevant prosecuting authorities in the UK, China, Middle East and the US
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Acting for BTA Bank (Kazakhstan) on various investigations and claims concerning multi-billion
dollar corruption allegations
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Acting for a Court appointed receiver for a BVI company in connection with the collapse of a joint
venture relating to an energy project in the former Soviet Union. The dispute involved allegations
of corruption relating to the control of a State-owned aluminium smelting plant in Tajikistan
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Acting for HRH Prince Jefri Bolkiah of Brunei in relation to allegations brought by the Brunei
Government for the alleged dishonest misappropriation of US$15 billion. (This work included the
landmark case on Chinese walls)
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Advising on litigation involving allegations of dishonesty and corruption on a series of shipping
and banking transactions entered into with a Russian State-owned company. This has been
described by the London legal press as one of the cases of the decade.
Hogan Lovells
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www.hoganlovells.com
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