Global Regulatory Enforcement Law Blog : Global Regulatory Enforcement Lawyers & Attorneys: Reed Smith Law Firm: Government Contracts & Compliance

This post was written by Simon Hart.

The UK’s Serious Fraud Office (SFO) has stepped up its attempts to persuade employees and professional advisors to blow the whistle on fraudulent or corrupt practices within the organisations they serve. The SFO has announced a new “SFO Confidential” service that allows whistleblowers to report concerns either by phone to a dedicated team of SFO operatives, or by using an online service.

The SFO’s Director, Richard Alderman, has said that the SFO operatives are trained in dealing with the anxieties that many whistleblowers have when coming forward to report perceived wrongdoing. The SFO has given assurances that the identities of those who blow the whistle will be protected, and reporting can be done anonymously if desired.

To some degree, the new service is the re-packaging of a service that has always existed. It is not new for the SFO to invite people to call them if they have information relating to fraud or corruption. Whistleblowing has always been one of the main ways that the SFO identifies matters for investigation. However, the current initiative is a clear attempt by the SFO to encourage a greater degree of whistleblowing by recognising the anxieties that whistleblowers may have when picking up the phone.

The strategy of promoting whistleblowing is consistent with the SFO’s attempt over the past 12 months to raise its profile and ram home the anti-corruption message it has developed around the implementation of the Bribery Act 2010. Whether “SFO Confidential” gives rise to more, or more effective, whistleblowing is open to debate. Only the SFO will ever know
 

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This post was written by Simon Hart and Rosanne Kay.

The Director of the Serious Fraud Office (“SFO”) has recently articulated a robust interpretation of the SFO’s jurisdiction under the UK’s Bribery Act 2010, which comes into force on 1 July 2011. In doing so, the Director has challenged the understanding of many companies and their advisors. Whilst the debate may be seen by many as an academic debate for lawyers, the implications could have a significant impact on whether or not particular operations of a global company fall within the reach of the SFO.

The Director made it very clear that, in his view, if a global company had a UK subsidiary, but there was bribery in another part of the global company, the SFO would have jurisdiction under the Bribery Act. This interpretation is in contrast to statements made in the Guidance issued by the Ministry of Justice in March 2011 which indicated that such foreign companies would not themselves be regarded as “carrying on business in the UK” simply by virtue of having a UK subsidiary or a listing on an exchange. (“Carrying on business” is the test for determining whether an entity can be fixed with criminal liability under the corporate offence in the Act.)

Mr Alderman made it plain that the SFO would be adopting a very wide interpretation of the phrase “carrying on business in the UK”. Mr Alderman has said “What I have said to corporates is that it would be very dangerous for them to use a highly technical interpretation of the law to persuade themselves that they are not within the Bribery Act and that it is permissible for them to carry on using bribery. I have said that they could have a very unpleasant shock…”

Mr Alderman went on to explain “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.”

Ultimately, the much-debated jurisdictional provisions of the Act will be determined neither by the SFO nor those that the Act purports to cover, but by the English Courts. However, it is clear that the SFO will be looking to promote an anti-corruption agenda by highlighting the risks of engaging in corrupt activities anywhere in the world if the business has any connection with the UK.

To reinforce the message, Mr Alderman has emphasised that surprise arrests of overseas nationals at UK borders could be a possibility if they have engaged in bribery: “You can’t be sure that you won’t be stopped at the airport. We are not going to say, “if you turn up, you will be arrested”. It may or may not happen”.

Mr Alderman has also signalled that the SFO will be interested in prosecuting cases against foreign corporations where there has been bribery that has disadvantaged ethical UK companies. He has suggested that in such a case, there would be a strong UK public interest in bringing that foreign company before the UK courts. Mr Alderman has said that he is keen to test the new law against foreign companies despite the challenges in investigating, prosecuting and punishing a foreign company.

Despite Mr Alderman’s strong words, it remains to be seen whether the SFO will have the resources or the will to investigate and prosecute foreign corporates. Nevertheless, these recent statements highlight the fact that companies can only draw limited comfort from the commentary on jurisdiction in the Ministry of Justice Guidance.

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The Director of the Serious Fraud Office (SFO), Richard Alderman, gave a speech yesterday about the Bribery Act which touched on many practical issues and further guidance to be issued.

The speech covered:

• Prosecution guidance – this should be issued by Mr Alderman and the UK Director of Public Prosecutions at the same time as the “adequate procedures” guidance. The guidance will set out the public interest factors that prosecutors should take into account in deciding whether to prosecute under the Act and should shed light on facilitation payments and hospitality.
   
• Exclusion from EU public contracts – many have expressed concern about whether the offence of failing to prevent bribery under the Act will result in mandatory exclusion from public works in the EU. Mr Alderman confirmed that this was a point which the UK Government was still considering and he hoped that clarification on this would be given at some point.
   
• Foreign corporates carrying on business in the UK – there is also a question mark about the SFO’s jurisdiction over foreign corporates which carry on business in the UK and whether a London Stock Exchange listing or the presence of a subsidiary are sufficient to bring a corporate within the SFO’s jurisdiction. The SFO takes a wide view of the scope of its jurisdiction but Mr Alderman acknowledged that the UK courts would need to consider the question.
   
• Joint ventures – the SFO draws a distinction between current and new joint ventures. With current joint ventures, the SFO expects corporates to do what they can to establish that their partners are complying with ethical obligations but recognises the practical and legal limits to this. However, the SFO would expect any new joint ventures to address anti-corruption issues. The SFO has already had a number of discussions with companies about their joint ventures.
   
• Hospitality – Mr Alderman was clear that it was not correct that all hospitality or promotional expenditure was illegal under the Act. Sensible, proportionate entertaining or promotional expenditure is lawful.
  
  By way of practical example, he referred to buying breakfast or lunch for a client or flying a group of prospective clients from another part of the world to see the company’s facilities in the UK. This will usually be sensible business. A month long all expenses paid holiday to the company’s private island in the Caribbean would likely be viewed with suspicion.
   
• Sporting events – the SFO is considering giving more guidance on the appropriateness of taking clients to sporting events.
   
• Facilitation payments – Mr Alderman was very clear that these were bribes and illegal. He referred to the respect he has for corporates which have adopted a zero tolerance policy towards facilitation payments. According to him, these corporates find their policy good for business as their employees are not bothered by demands for these payments because their policy is well known. He also referred to the SFO’s sympathetic approach to situations when payment is demanded under extreme duress or in medical emergencies. The prosecution guidance should also provide more clarity on the issue.

Without pre-empting the guidance which is anticipated shortly, the SFO is clearly keen to lay to rest some of the wilder speculation which has recently appeared in the press concerning the impact of the Act, particularly with regard to corporate hospitality. Mr Alderman has sought to leave his audience with the impression that the SFO’s enforcement of the Act will be tough, yet underpinned by common sense. The written guidance should reinforce that message. 

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This post was written by George Brown, Matt Stone, Simon Hart, Sarah Wolff, and Jim Sanders.

The Bribery Act 2010 (the "Act") which recently was passed by Parliament has far-reaching implications for any business which is either registered in the UK or which has any part of its operation in the UK. The breadth and importance of this legislation means that corporates and their senior officers would be well advised to familiarize themselves with the effects of this new law.

 Why is this legislation important to you and your business? The Act includes:

• A new corporate offence of failing to prevent bribery: this is a strict liability offense: a company's guilt can be a result of an attempted or actual bribery on the company's behalf;
• "Senior officers" (including non-board level managers) can individually be held criminally liable for a company's bribery offenses;
• Extensive extra-territorial powers of prosecution similar to those found in the U.S. Foreign Corrupt Practices Act ("FCPA");
• Offenses apply to both public and private sectors (unlike the FCPA);
• No carve-out for facilitating or "grease" payments (unlike the FCPA)
• Conviction could mean debarment from all public sector contracts within the European Union.

This legislation comes at a time of increased international co-operation between regulators not only in matters relating to bribery, including enforcement of the FCPA, but in connection with financial fraud, insider dealing and related activities. The extensive powers provided by the Act will be used by UK enforcement agencies such as the Serious Fraud Office ("SFO") to clamp down on corrupt behavior. The Bill received Royal Assent on 8 April 2010 and its various provisions are likely to be bought into force over the next six months.

To view the entire client alert, please click here.

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