UK: Bribery Act Update: The SFO Reviews Its Policies On Facilitation Payments, Business Expenditure And Corporate Self-Reporting

Last Updated: 4 November 2012
Article by Kevin Cooper and Reema Shour

The Serious Fraud Office ("SFO") is the UK's main law enforcement agency responsible for investigating and prosecuting cases of domestic and overseas bribery and corruption. In March 2011, the then Director of the SFO, Richard Alderman, and the Director of Public Prosecutions ("DPP") issued joint guidance for prosecutors on the Bribery Act 2010 (the "Act"), which subsequently came into force on 1 July 2011. The purpose of that guidance was to set out the Directors' approach to deciding whether to bring a prosecution under the Act.

In May 2012, David Green QC took over as the new Director of the SFO and will now oversee implementation of the Act. He has pledged to reinforce the SFO's primary role as a crime-fighting agency, reversing the previous perception that the SFO has been reluctant to prosecute corporates for bribery and corruption and has been tending more towards civil settlements.

Mr Green has also been reported as saying that the SFO was not in the business of issuing guidance on the Act and that, in his opinion, there is already plenty of guidance available. No doubt, Mr Green was referring not only to the joint prosecution guidance referred to above, but also to a Joint Guidance on Corporate Prosecutions, the Ministry of Justice ("MoJ") Guidance to commercial organisations to prevent bribery and Transparency International's Bribery Act Adequate Procedures Guidance (Transparency International is one of the world's leading non-governmental anti-corruption organisations, with a UK chapter).

It should not, therefore, have come as too much of a surprise when, on 9 October 2012, the SFO issued very brief restatements of policy covering facilitation payments, business expenditure and self-reporting by way of an update to the joint prosecution guidance, which was by then over 18 months old. These policy statements took immediate effect and superseded previous SFO policy statements on those three issues. It should be noted, however, that bar one change, the removal of the SFO's former policy on self-reporting, the same guidance continues to apply. In this article, we consider some of the reasons given for the restatement of certain SFO policies and review the changes introduced to the original joint prosecution guidance. We then consider whether and how these impact on the way in which corporates should address their anti-bribery policies and due diligence procedures going forward. We conclude that these restatements do not significantly change the SFO's stance on enforcement under the Act; rather, they emphasise the SFO's prosecutory role and retract any previous policies that may have suggested that the SFO was inclined to take a lenient approach to prosecuting certain breaches of the Act.

The background to the policies

The SFO states on its website that their policies make it clear that there will be no presumption in favour of civil settlements and that it has reviewed its policies in order to:

  1. restate the SFO's primary role as an investigator and prosecutor of serious or complex corruption;
  2. ensure there is consistency with other prosecuting bodies; and
  3. respond to certain Organisation for Economic Co-operation and Development ("OECD") recommendations.

In March of this year, the OECD Working Group on bribery completed a detailed report on the UK's application and implementation of the OECD Anti-Bribery Convention. The Actwas implemented in part to fulfil the UK's obligations under the Convention and this recent report clearly played a significant role in prompting the SFO guidance update. It is, therefore, worth examining some of its more relevant findings.

While the Working Group's report highlighted positive aspects of the UK's efforts to fight foreign bribery and commended the SFO's significant efforts in combating foreign bribery, it also identified some concerns and made a number of recommendations. In particular:

  1. The SFO's budget has progressively decreased since 2008 and budgetary pressures have led to a change in priority from law enforcement and criminal investigations and prosecutions to the greater use of plea negotiations, self-reporting, self-investigations by companies and corporate monitoring. The report recommended that the SFO should maintain its role in criminal foreign bribery investigations and prosecutions as a priority and that other relevant UK government departments should take over from the SFO a greater responsibility for assisting companies to prevent corruption. The SFO was, therefore, being asked to emphasise its role as a prosecutor rather than as a regulator.
  2. The UK authorities have been increasingly using civil recovery orders and settlements to resolve cases of bribery and corruption. These require less judicial oversight and are less transparent than criminal plea agreements. The settlements have often contained confidentiality clauses preventing the disclosure of relevant information. This, according to the report, has prevented the proper assessment of whether the sanctions imposed have been effective, proportionate and dissuasive. The report recommended that the SFO should make public as much information about settlement agreements as possible and avoid entering into confidentiality agreements with defendants that prevent the wider disclosure of information about case resolutions.
  3. The report recommended that the SFO's process of giving advice to companies and accepting self-reports of wrongdoing needs to be more transparent and better defined.
  4. In respect of facilitation payments, the report commented that the UK prosecuting authorities, including the SFO, have not developed firm criteria for assessing whether companies are indeed moving towards "zero tolerance" within a reasonable timeframe and that there is no mechanism to monitor a company's progress towards zero tolerance of these payments. The report recommended that clear criteria should be developed. The report also highlighted inconsistencies across the different prosecuting agencies (including the SFO, Crown Prosecution Service and Scottish Crown Office) in deciding whether or not to prosecute in particular cases, and recommended a more co-ordinated approach. As explained in our previous articles on the Act, all facilitation payments, no matter how small, are prohibited under the Act (and were, in fact, illegal prior to the Act).
  5. On hospitality and promotional expenditure, the report highlighted the difficulty of distinguishing bribes from legitimate hospitality and business expenditure designed to promote products or services and/or to improve client relations. An important factor is whether the expenditure is "reasonable and proportionate". The report concluded that public statements by the UK government and the SFO suggested they have been applying a lenient interpretation to what is "reasonable and proportionate", and recommended that the meaning of "reasonable and proportionate" be clarified with reference to industry norms.

Summary of the restatements of policy

As stated above, the SFO's restated policies apply to facilitation payments, self-reporting and business expenditure. For facilitation payments and business expenditure, very little has changed. Rather, the SFO has taken the opportunity to restate that, in line with the existing Full Code test in the Code for Crown Prosecutors, they will prosecute if there is: (i) sufficient evidence to provide a realistic prospect of conviction; and (ii) it is in the public interest to do so. The SFO has, therefore, adopted a "back to basics" approach. The SFO also indicated that, in appropriate cases, it may use its powers under proceeds of crime legislation (e.g. the Proceeds of Crime Act 2002, which allows asset recovery where these have been obtained by criminal means) as an alternative (or in addition) to prosecution. Despite the renewed emphasis on prosecution, civil recovery orders remain an option open to the SFO.

The actual changes are summarised below:

  1. Facilitation payments. The original guidance made it clear these were illegal before the Act and remain illegal under the Act. It also stated that a prosecution would usually take place unless there were public interest factors tending against prosecution that outweighed those tending in favour. Factors tending against prosecution included: single small payments likely to result in only a nominal penalty; a clear and appropriate policy on facilitation payments within the relevant commercial organisation and evidence that that policy had been correctly followed; and the payment coming to light as a result of a genuinely proactive approach involving self-reporting and remedial action. Factors tending in favour of prosecution included: large or repeated payments that are more likely to attract a significant sentence; payments that are planned for or accepted as part of a standard way of conducting business; and where the commercial organisation's policy and procedures on facilitation payments have not been correctly followed. This guidance was understood by many to mean that the SFO was unlikely to prosecute for small payments, so long as they were addressed through the corporate's internal procedures.

In its restated policy, the SFO has indicated that whether or not it prosecutes will always depend on: (i) whether it is a serious or complex case which falls within the SFO's remit; and (ii) whether the SFO concludes that there is an offender that should be prosecuted. Some flexibility remains, therefore, in relation to prosecuting facilitation payments. Not much appears to have changed, therefore, beyond a reminder that facilitation payments are illegal and should be treated as such. This would appear to be designed to allay the Working Group's concern that facilitation payments were not being treated as seriously as they should be and that corporates might take advantage of this to postpone or avoid implementing a zero tolerance policy.

  1. Business expenditure. The original guidance stated that hospitality or promotional expenditure that is reasonable, proportionate and made in good faith is an established part of doing business and will not be penalised unless it is intended to encourage or reward improper performance or influence an official. The more lavish the hospitality or expenditure, beyond reasonable standards in the particular circumstances, the greater the inference that it is a bribe. There is, however, no further guidance on what will be considered a bribe and what will be considered bona fide hospitality or promotional or other legitimate business expenditure, or any further clarification as to what is "reasonable and proportionate". The restatement of policy does not, therefore, appear to add much beyond re-emphasising the power to prosecute where it is appropriate to do so. However, the SFO has indicated that it will only prosecute if the case is serious or complex and there is an offender to prosecute (similar to facilitation payments). It is suggested that an opportunity has been missed to deal with the Working Group's recommendation that the precise scope of "reasonable and proportionate" business expenditure be defined.
  2. Self-reporting. The changes to the SFO's existing policy on self-reporting are the most significant of the recent policy statements. The SFO will prosecute if there is a realistic prospect of conviction and it is in the public interest. The fact that a corporate has reported itself will be taken into account in terms of whether to prosecute if the self-reporting is part of a genuinely proactive approach adopted by the corporate management team when the offence is brought to their notice. Significantly, however, the SFO states that self-reporting is no guarantee that a prosecution will not follow and each case will turn on its own facts. Self-reporting would appear to have been downgraded, therefore, in terms of its significance in assisting a corporate to avoid prosecution, given that the SFO previously appeared to favour civil recovery and civil settlements over prosecution, where a corporate had self-reported. Furthermore, the SFO's previous guidance on self-reporting concentrated solely on overseas corruption, whereas the new policy statement applies to all allegations of corruption (including domestic).

Some comfort is provided, however, by the statement that, where corporates have relied on previous statements of SFO policy, or where the SFO has entered into an agreement with a corporate based on an earlier policy and the company has complied with the terms of that agreement, the previous policy will continue to be applied in that particular case.

Comment

Contrary to what some commentators have suggested, the new SFO policy statements do not introduce any significant change of attitude or approach on the part of the prosecuting authorities in relation to enforcement under the Act. Rather, they emphasise the prosecutorial role and powers of the SFO over any advisory or regulatory role.

As to what corporates need to do to ensure that they do not fall foul of the Act or any of the published guidelines, including the latest SFO statements of policy, it is important that they continue to do what has been advised all along, namely ensure that they have adequate procedures in place to combat all forms of bribery and corruption within their organisation and perform appropriate risk assessments and due diligence in a timely and regular manner.

Specifically for facilitation payments, we have highlighted in previous articles that these are a particular problem for the shipping industry, where they are often endemic in many parts of the world. Our advice is that corporates, if they have not already done so, ensure that they have appropriate procedures in place to eliminate such payments by their employees and sub-contractors.

As regards self-reporting, the SFO's revised statement of policy is not intended to act as a deterrent to corporates from coming forward about any wrongdoing they identify within their organisation. The SFO has stated that it continues to encourage self-reporting and will always listen to what a corporate has to say about its past conduct. Whilst a self-report might not automatically protect against prosecution, where a corporate demonstrates that it is taking a genuine proactive approach to eliminating bribery and corruption within its organisation, a self-report is likely to work in its favour.

The bottom line? It is not too late to introduce appropriate anti-bribery and corruption procedures within your corporate if you have not already done so. Where you have already put such procedures in place, you should review them regularly to ensure that they remain adequate and revise them as necessary.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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