UK: Avoiding Prosecution For Overseas Corruption: SFO´s New Self-Reporting Regime

Last Updated: 23 July 2009
Article by Omar Qureshi

On 21 July 2009, the Serious Fraud Office ("SFO"), issued guidance on its approach to dealing with overseas corruption (the "Guide"). In a welcome response to requests from businesses and professional advisers, the SFO has set out its policies designed to encourage businesses to self-report overseas corruption in return for civil settlements, without criminal sanctions being imposed and avoiding debarment from public contracts.

While the SFO has been talking about taking such an approach for some time, and even adopted something similar in reaching a settlement with a major engineering and construction company in October last year, this is the first time that it has formalised how the approach will work in practice.

This moves the SFO a step closer to the US approach in dealing with foreign corruption, which encourages self-reporting of discoveries and provides for negotiated settlements. The US approach has proved very successful in exposing corruption and in enabling the US authorities to conclude high profile and very high-value settlements with corporations, avoiding the substantial time, cost and risk of pursuing criminal prosecutions.

Self-reporting

The Guide sets out a process for self-reporting to the authorities, which offers the potential benefit of a civil rather than criminal outcome and, importantly, the ability to work with the SFO to manage any negative publicity arising. Additionally, the corporation will not automatically be debarred from involvement in public and utilities contracts, which would be the result of a conviction for a corruption based offence.

The Guide is intended to provoke comment and to be developed and clarified through experience, so that improvements can be made where necessary. Its stated purpose is that, by creating a system of effective and proportionate sanctions, it will bring about a behavioural change within business and a corporate culture that does not tolerate corruption.

Self-reporting may not be appropriate in every case and, in light of some of the limitations of the process set out in the document, corporations may not always want to run the risk of self-reporting. However, a failure to report will be regarded as a negative factor should the SFO later discover the wrongdoing by other means and then consider bringing a criminal prosecution, which could lead to imprisonment, unlimited fines and confiscation orders, among other penalties.

Where a case falls within the jurisdiction of the US Foreign Corrupt Practices Act ("FCPA") as well as UK bribery law, the SFO will expect to be notified at the same time as the US Department of Justice.

Approach towards corporations

The Guide aims to be flexible and pragmatic. It acknowledges the possibility of making early informal contact with the SFO in the first instance to obtain an indication of the SFO's likely approach to a given issue if a report were made.

Once a report has been made, the SFO will want to establish, among other things:

  • Whether the Board is genuinely committed to improving the corporate culture
  • Whether the corporation is willing to work with the SFO in any further investigations
  • Whether the corporation will be willing to resolve the matter transparently and in the public interest through civil penalties, training and, possibly (in a move similar to the approach by US authorities), external monitoring

Assuming the SFO is satisfied with the corporation's approach to these issues, it will discuss with the corporation and its advisers what further investigation may be required. The Guide says that the SFO undertakes to look at this in a manner that is proportionate to the amount involved and seriousness of the issue and with a view to the likely cost and impact on the corporation's business.

The results of the investigation (which would be carried out at the corporation's expense with regular updates on progress to the SFO) will be discussed with the SFO to enable settlement discussions to take place, if appropriate. The remedies that will be considered include:

  • Civil recovery, to include the amount of the unlawful property, plus interest and costs
  • Independent monitoring (with an agreed and proportionate scope) by an appropriately qualified individual nominated by the corporation and agreed by the SFO
  • An agreed programme of culture change and training within the corporation
  • Dealing with individuals involved in the wrongdoing
  • Possible assistance from the SFO in settling with authorities in other relevant jurisdictions

A public statement agreed between the SFO and the corporation will always be required to ensure adequate transparency.

A key concern raised by the Guide is that the SFO cannot give an unconditional guarantee that a self-report will not lead to criminal prosecution. However, it states that the SFO will want to settle self-referral cases "wherever possible". While this means that a corporation who self-reported an offence could still find itself subject to criminal prosecution, we would expect that the SFO will want to apply the self-reporting procedure to encourage its use as much as possible. The way this will work in practice will no doubt become clearer over time.

The other major concern is that the Guide makes clear that civil settlements will not be available where Board members were personally involved in the corrupt acts, particularly if they personally benefited from them. In those cases, a criminal investigation is likely, although the Guide notes that the SFO would be prepared to enter into plea negotiations.

Approach towards individuals

The Guide does not relate to individuals (including employees of corporations) and there are no guarantees as to the SFO's approach towards them. However, the Guide notes that the SFO would consider, among other things, and by way of example only:

  • How involved the individuals were in the corruption and whether they personally benefited (and continue to benefit) from it
  • What action the company has taken against the individual

Opinion procedure

The Guide also heralds the creation of an opinion procedure similar to that provided by the Department of Justice concerning FCPA issues in the US, whereby the SFO may give assurances that no sanction will follow in respect of pre-reported transactions. The full extent of situations where this will apply will become clearer once the provisions become established, but it will certainly be available in connection with M&A transactions where corruption in the target is discovered during due diligence. The assurances that the opinion procedure may provide will depend on the nature of the discovery, but it is possible that the SFO will confirm that no action would be taken provided the proposed purchaser takes appropriate remedial action following the takeover.

Proposed new corporate negligence offence in the Bribery Bill

The Bribery Bill currently working its way through Parliament will create a new corporate offence of negligently failing to prevent bribery. (For further details on this offence and the proposed legislation in general, see our previous Law-Now here.) There has been significant criticism of this new proposed offence, mainly around its lack of clarity and what would fulfil the requirements of the defence that a company had "adequate procedures" to prevent bribery.

The Guide confirms that the SFO will look at the adequacy of any procedures "in mitigating [the] risk" of corruption. They will also look at the corporate culture to see whether the processes really reflect what is happening in the organisation. The Guide contains a lengthy list of examples of the sorts of things they will look for, including:

  • A clear statement of an anti-corruption culture fully and visibly supported by management
  • A Code of Ethics
  • Policies on gifts, hospitality, facilitation payments, vetting outside agents/advisers, lobbying and political contributions
  • Training across the business to ensure the widest dissemination of the anti-corruption culture
  • A helpline to enable whistleblowers to report concerns
  • Appropriate and consistent disciplinary processes
  • Regular auditing of compliance
  • Whether there has historically been corruption in the business and the remedial actions taken

This further guidance on the SFO's likely approach to the corporate offence is obviously welcome. However, it still leaves many issues unresolved, including the extent to which these expectations may be modified depending on the nature and size of the business being investigated.

If the US example is anything to go by, the Guide and the new approach it establishes, should help the SFO to achieve much greater success in exposing and dealing with corruption. The SFO will no doubt be hoping that this will help improve its reputation in the wake of the collapse of the investigation into BAE Systems in December 2006. Once the guidance has been shown to be robust and applied by the SFO "wherever possible" in preference to prosecutions, it should help to improve the SFO's record in this area at minimal cost, as companies are likely to police themselves and self-report findings of overseas corruption.

A copy of the guidance note can be found here.

This article was written for Law-Now, CMS Cameron McKenna's free online information service. To register for Law-Now, please go to www.law-now.com/law-now/mondaq

Law-Now information is for general purposes and guidance only. The information and opinions expressed in all Law-Now articles are not necessarily comprehensive and do not purport to give professional or legal advice. All Law-Now information relates to circumstances prevailing at the date of its original publication and may not have been updated to reflect subsequent developments.

The original publication date for this article was 22/07/2009.

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