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

This post was written by Rosanne M. Kay.

Word on the street is that the UK's Serious Fraud Office ("SFO") has a number of active investigations into potential offences under the Bribery Act 2010. So far, the Bribery Act has only been used in a reasonably minor prosecution of a court clerk who took bribes to erase motoring offences from court records.

Despite rumours about active Bribery Act investigations, there are persistent question marks about the SFO's ability to take on such investigations and prosecutions. The SFO has suffered significant cutbacks and, apparently, only has £2million in its war chest to enforce the Act.

However, the public are highlighting potential issues to the SFO. Apparently, its hotline is receiving around 500 calls a month and the whistle-blowing section of its website has had 200 hits.

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This post was written by Rosanne Kay and Emma Osborne.

The first person to be charged under the new UK Bribery Act, a magistrates court clerk, was convicted by Southwark Crown Court on Friday, 14 October 2011.

The court clerk, 22 year old Mr Munir Yakub Patel, was convicted under Section 2 of the Bribery Act for requesting and receiving a bribe intending to improperly perform his functions. The court heard that Mr Patel agreed to use his position at Redbridge magistrates court to prevent a traffic penalty from being entered onto a court database in exchange for £500.

Mr Patel was bailed until 11 November 2011, when he will be sentenced.

The case was brought by the Crown Prosecution Service (‘CPS’) which, like the Serious Fraud Office (‘SFO’), can bring prosecutions under the Bribery Act. It is anticipated that the CPS will focus on more domestic prosecutions whilst the SFO will focus on the more complex overseas corruption cases.

Although this is a minor conviction, it marks the start of the jurisprudence under the new Act. However, it will have little bearing on how complex overseas bribery cases will be dealt with or on how contentious parts of the Act relating to jurisdiction and “associated person” will be interpreted. The Act is not retrospective and will only apply to offences committed since it came into force on 1 July 2011. It may therefore take some time before we see the first SFO prosecution under the Act.
 

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This post was written by Fionnuala Lynch and Rosanne M. Kay.

Earlier this month, Richard Alderman, Director of the SFO, was speaking at an international symposium on economic crime in Cambridge and made an interesting point which has been picked up by many UK newspapers.

He referred to the fact that 20 years ago, it was possible for UK companies to get deductions for tax purposes in respect of bribes. Clearly this is no longer the case and, now that the new Bribery Act is in force, may lead to potential prosecutions.

Mr. Alderman was however suggesting that companies should have information to ensure that they are not claiming tax deductions in respect of bribes and the SFO has therefore started to require companies to disclose relevant parts of their tax calculations in the hope that these might provide evidence of bribes and the fact that companies are identifying them.

The SFO is seeking to persuade companies to self-report their own breaches of the Act.

There are several potential situations where companies’ tax calculations may reveal unlawful practices under the Bribery Act:

• Where companies offer or hold offshore accounts – Various tax authorities worldwide are trying to unravel the secrecy surrounding offshore banking. This process involves the exchange of information between worldwide tax authorities on the tax affairs of multinational companies and offshore account holders. This could result in previously undetected bribes coming to light.
• The Act’s impact upon existing disclosure requirements – Section 6 of the Bribery Act (the foreign public official offence), in contrast with Sections 1 and 2, does not require any intention to procure “improper” conduct from the official. The briber need only intend to “influence” the official to act to the briber’s business advantage. The British Bankers’ Association (BBA) has, in the past, expressed concerns that what would normally be considered legitimate promotional expenditure, could now be caught by the Act. This uncertainty over what constitutes an offence under Section 6, may result in banks and financial institutions making more frequent Suspicious Activity Reports (SARs) to the Serious Organised Crime Agency (SOCA). The institutions’ tax calculations are likely to be disclosed and inspected as part of this process, which may expose bribes.
• More stringent monitoring roles for companies relating to bribes – Companies should use internal monitoring to look into all policies and procedures that may shed light on potential bribes. In particular, financial monitoring may well include ensuring that books and records relating to tax are properly kept and will pick up irregularities which indicate that bribes are being paid.

Despite the hype, the likelihood that companies’ tax calculations will reveal bribes seems remote. In particular, it seems unlikely that those preparing tax calculations will be made aware that bribes have been paid. For example, payment of a bribe is usually supported by an invoice for consulting services.

Mr. Alderman was previously the Director of National Teams and Special Civil Investigations in HMRC, where he conducted specialised tax investigations. In his speech, Mr. Alderman explained that, if a tax deduction was sought in the context of a bribe where the expense had not been identified properly, this would create another ‘books and records’ offence and a separate line of prosecution for HMRC, rather than the SFO.
 

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This post was written by Rosanne M. Kay.

The first person to be charged under the new Bribery Act will be a magistrates court clerk who allegedly accepted £500 for fixing a motoring offence.

The Crown Prosecution Service (“CPS”) has decided to prosecute Munir Yakub Patel who faces a charge under Section 2 of the Bribery Act for allegedly requesting and receiving a bribe intending to improperly perform his functions. Mr Patel is due to appear before Southwark Crown Court on 14 October 2011. According to press reports, he is currently being held in custody.

Proceedings for offences under the Bribery Act require the consent of either the Director of Public Prosecutions or the Director of the Serious Fraud Office (“SFO”). The SFO is the lead agency in England and Wales for investigating and prosecuting cases of overseas corruptions whereas the CPS prosecutes bribery offences investigated by the police committed either overseas or in England and Wales (although it is anticipated that the CPS will focus more on domestic cases).

Whilst this may only be a small case which will not touch on key concerns relating to jurisdiction and hospitality, it marks the start of jurisprudence on the Bribery Act. It will also put the SFO under increased pressure to start its own action under the Bribery Act.

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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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This post was written by Simon D. Hart.

After months of speculation, and rumoured turf wars within the UK government, it has today been confirmed that the UK’s Serious Fraud Office (“SFO”) will not be broken up and will remain independent of the new National Crime Agency (“NCA”). The SFO will retain both its investigative and prosecution powers in relation to major economic fraud and corruption. Crucially for the SFO, this means it retains control of investigations and prosecutions under the new Bribery Act 2010 which comes into force on 1 July.

There had been considerable speculation that the SFO would be broken up with its investigative powers being folded into the new NCA and its prosecution powers being passed to the existing Crown Prosecution Service. Richard Alderman, the director of the SFO, had been arguing strongly that the way to tackle serious fraud and advance the anti-corruption agenda was for there to continue to be a single, specialised unit which had both investigative and prosecution powers. He appears to have won that battle – but perhaps not the war. The sting in the tail of today’s announcement is that the government has left open the prospect of the future of the SFO being reviewed one year after the NCA becomes operational in 2013.

The recent uncertainty over the future of the SFO has given rise to the departures of a significant number of senior personnel from the organisation. Whilst today’s announcement means the SFO will survive in its current form for now, the fact that it may only be a stay of execution is unlikely to assist the SFO in recruiting the investigators and prosecutors it now needs to deal with complex and high value fraud and corruption.
 

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This post was written by Rosanne M. Kay and Tom Webley.

The waiting is over! At last the UK Ministry of Justice has published guidance about procedures which commercial organisations can put into place to prevent persons associated with them from bribing. The Act will now come into force on 1 July 2011.

The guidance offers non-prescriptive procedures and commentary on the scope of the Act. As the Lord Chancellor and Secretary of State for Justice, Kenneth Clarke, said this morning in his statement on the publication of the guidance "These are quite tough rules. But what the guidance I am also publishing today underlines – after helpful consultation with businesses, and NGOs – is that combating bribery is about common sense, not bureaucracy."

At the core of the guidance are proportionality and risk assessment which should give comfort to those small and medium sized enterprises worried at the prospect of having to spend a fortune on putting in place complex, burdensome polices and procedures. Of limited comfort is the Secretary of State's indication that there will not be a large number of prosecutions and certainly not for trivial cases but these decisions are not his to make and will be decided by the Director of Public Prosecutions or the Director of the Serious Fraud Office. 

Click here for more information about the guidance.

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This post was written by George Brown and Tom Webley.

Two former directors of engineering firm Mabey & Johnson received custodial sentences today, having been found guilty earlier this month of inflating the prices paid under humanitarian contracts to provide steel bridges to ensure that kickbacks of over Euros 420,000 could be paid to Saddam Hussein’s government.

The directors, Charles Forsyth and David Mabey, who were respectively the Managing Director and Sales Director of the firm, were found guilty of making the illegal payments in 2001 and 2002. Another employee, Richard Gledhill, had pleaded guilty to offences relating to breaching United Nations sanctions and subsequently gave evidence for the prosecution. 

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