Richard Craig Smith, Alexandre Herman Rene, Kimberly Sullivan Walker, Gloria Salcedo Padula, Lista M. Cannon and Ian Michael Pegram
December 14, 2009
Several high profile enforcement actions initiated by U.S. anti-corruption authorities, including record-breaking settlements and the conviction of a former U.S. Congressman, along with significant anti-corruption efforts by foreign regulators and substantial international cooperation in anti-corruption enforcement mean that businesses cannot afford to ignore recent enforcement developments and guidance issued by prosecuting authorities. To do otherwise risks potentially catastrophic consequences for both businesses and their executives.
With potential civil and criminal fines reaching into billion dollar territory and significant jail time for convicted individuals, businesses must take steps to review, develop and implement effective and comprehensive anti-corruption compliance programs. Businesses should also consider carefully when and how to report violations of anti-corruption laws. Recent guidance and recommendation documents issued by the U.K.'s Serious Fraud Office ("SFO") and the Organisation for Economic Cooperation and Development ("OECD") provide some helpful considerations on both these points.
I. Guidance from the SFO
Until recently, the U.K., and in particular its prosecuting authority the SFO (the lead agency in England, Wales and Northern Ireland responsible for investigating and prosecuting cases of overseas corruption), had been criticized for its lackluster anti-corruption track record. A series of successes for the SFO since October 2008, however, indicated that the SFO was keen to improve the perception that it was soft on bribery and corruption. 
These successes continued throughout 2009, culminating in July when the SFO obtained its first ever successful prosecution of a U.K. company for overseas corruption. In a case in which the company had self-reported the conduct, Mabey & Johnson Ltd, agreed to pay £6.6 million and to submit its compliance program to an independent monitor approved by the SFO. The SFO has not stopped there: in September 2009, the SFO obtained a Civil Recovery Order against a U.K. engineering company under which the company agreed to pay £5.5 million following an internal investigation which revealed a number of irregular payments. A number of other investigations remain ongoing.
In addition to its recently enhanced enforcement activity, the SFO has also issued a paper entitled "Approach of the Serious Fraud Office to Dealing with Overseas Corruption." Among other things, this paper lays out what the SFO considers to be the essential elements for compliance programs, including:
- a clear statement of an anti-corruption culture fully and visibly supported at the highest levels in the company;
- a Code of Ethics;
- core principles that are applicable regardless of local laws or culture;
- individual accountability;
- a policy on gifts and hospitality and facilitation payments;
- a policy on outside advisors/third parties including vetting and due diligence and appropriate risk assessments;
- a policy concerning political contributions and lobbying activities;
- training to ensure dissemination of the anti-corruption culture to all staff at all levels within the company;
- regular compliance checks and audits;
- a company hotline that enables employees to report concerns;
- a commitment to ensuring that the anti-bribery code applies to business partners; and
- appropriate and consistent disciplinary processes.
The SFO guidance also addressed the potential benefits available to companies that self-report violations as well as the general contours of what the SFO expects of a company's internal investigation. Among the potential benefits available is the ability to resolve the case civilly rather than criminally. This benefit is a particularly valuable one, because many governments and government agencies bar companies that are criminally convicted of certain offenses from participating in governmental procurement programs.
The SFO expressly encouraged feedback on its guidance from companies and law firms and clearly contemplated revising its guidance based on that feedback. In fact, the SFO has been proactive in seeking that feedback. Earlier this year, Richard Alderman, Director of the SFO, and Keith McCarthy, Head of the SFO's Anti-Corruption Unit, met with Fulbright attorneys to discuss the SFO's investigative and enforcement practices as well as the SFO's guidance to companies regarding its anti-bribery and anti-corruption enforcement.
Additionally, on December 4, 2009, Mr. Alderman penned a letter addressing several questions that had arisen following the initial publication of the SFO's guidance:
Criminal or civil proceedings to combat bribery and corruption?
Mr. Alderman advises that in deciding whether to pursue criminal or civil proceedings in bribery and corruption cases, the SFO will consider several factors including:
- the severity of the wrongdoing;
- whether it is an isolated incident or whether there have been other examples;
- whether the activity is systematic and part of an established business practice;
- whether continuing board members have profited personally from the activity;
- any previous warnings to the company about inadequate processes;
- whether the company reported the issue within a reasonable time; and
- whether the report was sufficiently detailed and complete.
Interestingly, Mr. Alderman suggests that "many more" future cases will be dealt with by civil proceedings than through criminal courts. This is a marked departure from the SFO's former practice of pursuing almost exclusively criminal prosecutions.
Company advisers should also take note. Mr. Alderman's letter not only indicates that "professional advisers will have a key role in understanding [the SFO's] approach and guiding their clients," but also that the SFO expects to issue further guidance on corporate prosecutions in the future.
Scope of internal investigations required to avoid the need for an SFO investigation?
Mr. Alderman explained that the SFO does not expect investigation reports carried out by a company and its advisers to cover "every issue that could possibly be raised." In this vein, he noted that the SFO does not expect companies to apply a "disproportionate cost" to investigations. But the SFO clearly expects that an investigation report will satisfy it that the relevant issues have been "fully investigated" such that a discussion about remediation is appropriate. The SFO also signals that it expects less in cases of a "one off lapse" compared with incidences of systematic failure to prevent bribery and corruption within a company.
Mr. Alderman also acknowledges the SFO's preference that all alleged bribery and corruption investigative work be carried out by the company and its professional advisors. Nevertheless, the SFO strongly encourages companies to engage it at an "appropriate stage," provide it "regular updates," and allow it "continuing visibility" of an investigation such that any final investigative report generated as a result of an investigation would be the appropriate settlement. Again, Mr. Alderman makes clear that the SFO attributes a "key role" in this process to a company's professional advisers.
The appointment of a compliance monitor?
The SFO does not yet have the legislative power to force the appointment of a compliance monitor as part of a settlement. The appointment of a monitor, however, has been accepted by companies in a number of recent cases, including the Mabey & Johnson prosecution. While Mr. Alderman does not offer an opinion on the burden and cost to companies of the appointment of a compliance monitor, he helpfully suggests that the SFO will endeavor to strike a balance between ensuring corporate commitment to change and a "disproportionate burden". This approach will be:
- If a company and its Board are "genuinely committed" to an anti-corruption culture, a compliance monitor may not be necessary, particularly where the issue is a one-off lapse;
- In cases of more serious lapse, the SFO considers that the public and the market would expect the appointment of a compliance monitor. However, the SFO promotes a "light touch" monitor, appointed in consultation with the Board and not simply imposed;
- Where the issues are international, the SFO will engage with its counterparts in relation to the proposed appointment of a compliance monitor.
While the SFO does not expect to see documents prepared by a company's counsel regarding the counsel's advice on the investigation, types of remediation to be offered, and issues regarding the conduct of settlement negotiations, Mr. Alderman raises an issue in relation to the factual report following an investigation. Simply put, the SFO expects to see a final report and copies of interview notes taken during the course of an investigation. Although Mr. Alderman acknowledges the argument that the final report and notes may be subject to privilege, he sees "no way" that the SFO could enter into negotiations about remediation without them. Accordingly, the SFO suggests that counsel separate factual issues from legal advice when compiling the final report.
Closure of a voluntary disclosure case without action?
Mr. Alderman acknowledges that a "few" recent cases have been terminated following an offer by the company concerned to pay suitable remediation to the country involved and that such cases may arise in the future. These cases, however, involved "special circumstances" and Mr. Alderman expects that this type of resolution would remain "comparatively rare" due to the public appetite for a public settlement and judicial agreement to a civil recovery order. Of course, in circumstances in which the SFO is brought in at an early stage but the report does not support the initial suspicions, the SFO would expect to end its involvement without action.
II. OECD Recommendation
OECD and the Working Group on Bribery
The aim of the OECD is to bring together governments to foster democracy and a market economy around the world by supporting sustainable economic growth, boosting employment, raising living standards and assisting other countries' economic development. Recognizing that bribery and corruption undermine good governance and economic development, the OECD established an Anti-Bribery Convention (the "Convention"). The Convention, which became effective in 1999, set forth legally binding standards regarding the criminalization of bribery of foreign public officials in international business transactions and provided a host of enforcement related measures. Thirty OECD member countries, including the United States, together with eight non-member countries, have adopted the Convention.
As part of its mission to reduce bribery and corruption, the OECD established the Working Group on Bribery in International Business Transactions ("Working Group") to carry out systematic country monitoring of the implementation of the Convention. The Working Group has been particularly forthright in its criticism of the lack of enforcement action taken by certain countries to combat bribery and corruption.
On December 9, 2009, the OECD released the Working Group's recommendations, which promote the implementation of tougher anti-bribery and anti-corruption controls. Most notably, the OECD recommended that member countries encourage companies to "prohibit or discourage the use of small facilitation payments," and if such payments are made, properly account for those payments in companies' books and accounting records.
Facilitation payments, or "grease" payments, are generally defined as payments made to induce foreign officials to perform or expedite routine non-discretionary functions that the officials are already obligated to perform, such as the issuance of licenses or permits. The Convention does not specifically address facilitation payments, and member countries are left to address this issue through their own legislative measures. Some countries, such as the U.K., make it an offense to make facilitation payments. Others, such as the United States, do not. In fact, the U.S. Foreign Corrupt Practices Act ("FCPA"), creates an exception for facilitation payments. Similarly, Australia, Canada, New Zealand and South Korea do not make facilitation payments illegal.
However, a recent survey by anti-bribery due diligence and compliance company, TRACE International, indicates that a number of companies, whether or not situated in a country which makes facilitation payments illegal, either prohibit or strongly discourage such payments. The recent OECD recommendation mirrors this practice and could pave the way for more rigid anti-bribery legislation in Convention countries, such as the United States.
Internal and accounting controls
The Working Group recommends that Convention countries ensure that companies adopt adequate internal controls and maintain accurate books and records as part of the effort to combat bribery and corruption, including the conduct of independent external audits and the completion of annual compliance statements. Convention countries should also consider whether it is appropriate to factor in a company's internal controls, ethics and compliance programs in any governmental decision to grant public advantages including licenses, public contracts or participation in public assistance programs.
Reporting of bribery and corruption
The recommendation emphasized further that Convention countries should ensure that appropriate measures are in place "to protect from discriminatory or disciplinary action public and private sector employees who report in good faith . . . suspected acts of bribery of foreign public officials." The Working Group aims to aid the prosecution of foreign bribery by fostering the protection of individuals who provide information which is useful to the prosecuting authorities. This recommendation is consistent with other OECD guidance regarding "awareness-raising initiatives in the public and private sector for the purpose of detecting foreign bribery."
Other Working Group recommendations
The Working Group also recommends that Convention countries work to ensure that companies found to have bribed foreign officials are suspended from competition for public contracts and receipt of public benefits and assistance. In addition, the Working Group promotes cooperative efforts between anti-bribery and anti-corruption regulators worldwide through the "sharing of information, provision of evidence, extradition, and the identification, freezing, seizure, confiscation and recovery of the proceeds of bribery of foreign public officials." The Working Group hopes that international cooperation, which has been recently demonstrated in a number of FCPA enforcement actions, will become the norm for Convention signatories.
Additionally, the Working Group addresses political influence in bribery and corruption investigations. Specifically, Convention countries should ensure that "investigations and prosecutions of the bribery of foreign public officials in international business transactions are not influenced by considerations of national economic interest [and] the potential effect upon relations with another State[.]"
The recent SFO and OECD developments indicate that the increasingly tough anti-corruption enforcement trend, both legislative and regulatory, shows no sign of stopping. Consequently, companies doing international business must develop comprehensive and effective compliance programs, which at a minimum, demonstrate a commitment to ethical business practices and enable speedy detection and elimination of compliance issues.
This article was prepared by members of Fulbright's White Collar Crime Practice Group and Government Investigations and Enforcement Practice Group in both Washington, D.C. and London.
Richard C. Smith (email@example.com or 202 662 4795), Kimberley S. Walker and Gloria Salcedo Padula are based in the Washington, D.C. office of the firm. Lista M Cannon, partner, (firstname.lastname@example.org or +44 0 20 7832 3601) and Ian Pegram (email@example.com or +44 0 20 7832 3645) practice at Fulbright & Jaworski International LLP in London.
The authors would also like to acknowledge the substantial contributions of John Kelly (firstname.lastname@example.org or 202 662 0256) and Anne Elkins Murray (email@example.com or 202 662 4529), also from Fulbright's White Collar Crime and Government Investigations and Enforcement Practice Groups.
Fulbright's White Collar Crime Practice Group
Fulbright's White Collar Crime Practice Group is experienced in the management of complex federal and state civil and criminal litigation on behalf of U.S. companies, including Fortune 500 corporations, their officers and directors, international corporations and entities, and individuals. Fulbright's White Collar Crime Practice Group also is experienced in the practice of preventative counseling and compliance programs. From a strategic perspective, this is important for reducing the risk of civil and criminal litigation. Our representation includes all phases of governmental investigations and criminal and civil litigation.
 Two Recent Cases Show UK is Active in Enforcement of Foreign Bribery Laws, Fulbright & Jaworski L.L.P. Briefing (Oct. 2008), available at http://www.fulbright.com/index.cfm?fuseaction=publications.detail&pub id=3619&site_id=494&detail=yes.
 See Press Release, Serious Fraud Office (Sept. 25, 2009), available at http://www.sfo.gov.uk/press-room/latest-press-releases/press-releases-2009/mabey--johnson-ltd-sentencing-.aspx.
 See Press Release, Serious Fraud Office (Oct. 26, 2009) available at http://www.sfo.gov.uk/press-room/latest-press-releases/press-releases-2009/sfo-obtains-civil-recovery-order-against-amec-plc.aspx.
 Approach of the Serious Fraud Office to Dealing with Overseas Corruption, Serious Fraud Office (July 21, 2009) available at http://www.sfo.gov.uk/media/28313/approach%20of%20the%20sfo%20to%20dealing%20with%20 overseas%20corruption.pdf. The guidance is examined in the following Fulbrightbriefing: Self Reporting of Overseas Corruption: The SFO Issues New Guidance, Fulbright & Jaworski L.L.P. Briefing (July 28, 2009), available at http://www.fulbright.com/index.cfm?fuseaction=publications.detail&pub_id=4042&site_id=494&detail =yes.
 Id. at ¶ 22. The guidance explains that the document is to be broadly applicable to U.K. corporate entities, including to U.K. companies, groups, and overseas subsidiaries. See id. at pg. 2.
 Id. at ¶¶ 11-25.
 Id. at pg. 1 and ¶¶ 5, 24.
 See, e.g., Directive 2004/18/EC of the European Parliament and of the Council of March 31, 2004 on the coordination of procedures for the award of public works contracts, public supply contracts and public service contracts, available at http://eur-lex.europa.eu/LexUriServe/do?uri=CELEX:32004L0018:EN:NOT (barring companies convicted of corruption offenses from E.U. public procurement contracts); 24 C.F.R. § 24.305 (indicating convicted companies and individuals are barred from U.S. Housing and Urban Development Agency contracts); 10 U.S.C. § 2048 (same for U.S. Department of Defense contracts).
 See supra note 4 at ¶ 27.
 Letter from SFO to Arnold & Porter LLP, New York (Dec. 7, 2009), available at http://www.arnoldporter.com/resources/documents/FINAL_ASNER_LETTER.pdf.
 Recommendation of the Council for Further Combating Bribery of Foreign Public Officials in International Business Transactions (Nov. 26, 2009), section VI, available at http://www.oecd.org/dataoecd/11/40/ 44176910.pdf (hereinafter Recommendation).
 15 U.S.C. §78dd-1(c).
 TRACE Facilitation Payments Benchmarking Survey (Oct. 2009), available at https://secure.traceinternational .org/documents/FacilitationPaymentsSurveyResults.pdf.
 Recommendation at section X.
 Id. at section IX.
 Id. at section III.
 Id. at section XI.
 Id.at section XIII.
 Id. at annex I.
Richard Craig Smith
Alexandre Herman Rene
Kimberly Sullivan Walker
Gloria Salcedo Padula
Lista M. Cannon
Ian Michael Pegram