The UK Bribery Act – 2019 round-up

February 2020  |  SPECIAL REPORT: CORPORATE FRAUD & CORRUPTION

Financier Worldwide Magazine

February 2020 Issue

Bribery and corruption continue to be front and centre for prosecutors and enforcers around the world. 2019 was a key year of development for the UK’s Bribery Act (UKBA) and its chief enforcement agency, the Serious Fraud Office (SFO). New guidance has provided some welcome clarity regarding the SFO’s expectations in terms of ‘genuine cooperation’, but the SFO’s public image has struggled with a record of failures in significant cases. Nonetheless, its management’s efforts to improve its performance continue apace and may well bear fruit in 2020 and beyond.

Offences under the Bribery Act 2010 – a reminder

The UKBA consolidated the complicated pre-existing law and established the following criminal offences: (i) giving a bribe; (ii) receiving a bribe; (iii) bribing a foreign public official (FPO); and (iv) failure of a commercial organisation to prevent bribery.

The first two prohibit a person from offering, promising or giving a bribe; or from requesting, agreeing to receive or accepting a bribe. The UKBA defines a bribe as a “financial or other advantage”, which captures a broad range of inducements. An essential element of both offences is that the bribe must be connected to “improper performance” of a function or activity: the bribe must be intended to actually secure, or amount to the improper performance of, a function or activity by the recipient.

The third offence, bribing an FPO, is committed by offering, promising or giving an advantage to an FPO, or to another person at the FPO’s request, in circumstances where the giver of the bribe intends to influence the official in his or her capacity as an FPO, and to obtain or retain business or a business advantage. This is a more targeted offence designed to be easier to prove, with no requirement for “improper performance” to be shown for the offence to be committed. However, the offence does not apply where the advantage to the FPO is permitted or required by the written law applicable to that FPO.

In accordance with the UK’s involvement in international efforts to combat bribery and corruption, these offences have extraterritorial effect (meaning that the offences cover activity which takes place outside the UK), provided that the act or omission would have amounted to an offence had it occurred in the UK and the person who took some part in committing the offence has a close connection with the UK, for example British citizens and entities incorporated under UK law.

A company may be convicted of the first three offences, but this is difficult in practice. The prosecutor would need to prove that a very senior person in the organisation committed the offence, so as to hold the corporate liable (the ‘directing mind’ test). For this reason, the corporate offence of failure to prevent bribery was introduced by section 7 of the UKBA. A commercial organisation may commit this offence when a person associated with it, such as an employee, agent or contractor, bribes another person, with the intention of obtaining or retaining business or a business advantage for that organisation. It is irrelevant that the organisation was unaware of the bribery and so it is, in effect, a strict liability offence. However, the organisation has a defence if it had put in place ‘adequate’ procedures to prevent bribery.

‘Adequate procedures’ are not defined in the UKBA, but government guidance accompanying it offers some assistance. For the most part, it is left to the organisation to conduct its own risk assessment and take a view on what constitutes ‘adequate’ measures.

The corporate offence also has extraterritorial scope: it covers bribery in the UK and abroad and applies to organisations incorporated in the UK or that carry out business in the UK.

The SFO in 2019

The SFO has primary responsibility for prosecuting serious bribery and corruption offences in the UK. Since the UKBA came into force in 2011, its approach toward prosecution has developed with changes in leadership and the introduction of enforcement tools, including deferred prosecution agreements (DPA) which, in effect, allow the SFO to reach US-style plea bargain deals with corporates.

While former SFO director Richard Alderman favoured a more business-friendly approach and encouraged self-reporting and cooperation, Sir David Green, who took over in 2012, took a harder line, making it clear that the SFO was first and foremost a prosecutor.

In August 2018, Lisa Osofsky began her five-year term as director. Having clearly set out her priorities for the SFO, we began to see those in action in 2019.

Prosecuting individuals remains a priority for the SFO, but 2019 was further illustration of the challenges it faces in doing so. In particular, it confirmed that securing convictions remains difficult, despite the corporate having agreed to a DPA in which it admits that its employees have behaved unethically.

The year started badly with the Tesco case. In December 2018 and January 2019, the trials of three Tesco executives accused of accounting fraud collapsed for lack of evidence, calling into question the fairness of the 2017 DPA under which Tesco paid a £129m fine in respect of the conduct, and which still stands, although its terms identified the three executives (now acquitted) as responsible.

In February 2019, the SFO came under fire for its decision not to prosecute individuals at Rolls-Royce implicated in systematic bribery reaching back as far as 1989. The decision was made on the grounds of a lack of evidence or it not being in the public interest to prosecute, despite Rolls Royce having entered into a DPA in 2017 under which it paid a fine of £497m.

In July, the trial of the three employees allegedly responsible for the conduct that was the subject of a DPA with XYZ in 2016 (now known to be Sarclad Ltd) ended in their acquittal.

The year ended as it began, with the SFO’s announcement on 20 December 2019 that three individuals had been acquitted of conspiracy to make corrupt payments in relation to payments made to a South Korean public official between 2002 and 2015. These charges meant that the reporting restrictions were lifted on the DPA approved in October 2019 with Güralp Systems Ltd.

This recent record of failure to secure individual convictions post-DPA has attracted criticism: it produces a position where a company admits wrongdoing on a large scale and yet no individual is convicted; and it may mean that companies under investigation are disincentivised to cooperate with the SFO and enter into a DPA in the knowledge that the evidence the SFO can produce at trial is often too weak to result in a conviction.

That said, prosecuting individuals remains a priority for the SFO. This was made clear in the ‘Corporate Co-operation Guidance’, published in August 2019, and the December announcement that the SFO has now charged two individuals for conduct that was the subject of the SFO’s most recent DPA with Serco Geografix Ltd, approved in July 2019. We will be watching with interest to see how this one plays out.

While the abandonment of the Rolls Royce investigation attracted criticism, it is in line with Ms Osofsky’s strategy of clearing the decks of cases which are unlikely to succeed or where challenges to the prosecution impact prospects of success. On becoming director, Ms Osofsky made it clear that under her leadership, the SFO would focus on fewer, but larger and more complex cases which are better resourced. The new funding arrangements implemented in the 2018/19 fiscal year have led to a substantial increase in the SFO’s core budget, reducing its reliance on the system of ad hoc ‘blockbuster’ funding for unexpectedly large cases which was criticised for inefficiency.

Operationally the SFO has set three key goals: progressing cases at pace, working collaboratively with partners such as other law enforcement agencies and making full use of the new tools available, and adopting modern technology to assist with the investigation of prosecution of fraud. The abandonment of weak cases has freed up the SFO to initiate new investigations, such as its probe into allegations of bribery by Glencore, the world’s largest commodities trader, commenced in December 2019.

Another key priority for Ms Osofsky was greater cooperation from the private sector. To date, however, the SFO has been criticised for its failure to provide formal guidance as to the level of cooperation it expects in an investigation.

That changed this summer when Ms Osofsky delivered on her promise and published ‘Corporate Co-operation Guidance’ – a five-page document that sets out what the SFO expects in terms of “genuine co-operation”. The guidance makes it clear that the bar is set high: “Co-operation means providing assistance to the SFO that goes above and beyond what the law requires”. This involves full and frank disclosure at the earliest possible stage. Cooperation extends to providing full disclosure and assistance with regard to any implicated individuals.

Although the guidance does not tell us much that is new, the list of steps that the SFO expects corporates to take will be helpful to any corporate conducting an investigation where the corporate wants to ensure that the DPA route remains open to it.

However, it is questionable as to whether this will incentivise self-reporting. The high bar set and the absence of any assurance as to the credit which will be secured ensures that decisions on self-reporting and full disclosure will remain difficult. There is also the cost involved. Rolls Royce is reported to have spent £123m on its internal investigation and cooperation with the SFO. That, and the difficulties the SFO has had in securing convictions against individuals in cases where the corporates fully cooperated, raises questions as to whether the guidance will incentivise corporates to fully cooperate as intended.

Key points for financial institutions

There are a few significant takeaways for financial institutions.

First, institutions should be aware of the compliance threat posed by reliance on third parties such as introducers and agents. These third-party actors feature in most of the cases which have been brought under the UKBA, and companies should ensure that they have adequate procedures in place to handle the risk of misconduct by these third parties as well as their own employees.

Second, anti-bribery and corruption risk and compliance must be viewed through an international lens. For businesses in the regulated sector, bribery and corruption are a focus for regulators across the globe, and notwithstanding the extraterritorial scope of the UKBA, the threat of enforcement overseas is sometimes greater than from a UK prosecutor.

Third, the focus on systems and procedures to prevent corruption is key. This is underpinned by a robust and tailored risk assessment, to understand the threats posed and put in place procedures designed to meet business and jurisdictional risk. Monitoring and adjusting procedures on a regular basis is critical to providing up to date and effective protection against bribery and corruption.

Ruby Hamid is a partner at Ashurst. She can be contacted on +44 (0)20 7859 3922 or by email: ruby.hamid@ashurst.com.

© Financier Worldwide

BY

Ruby Hamid

Ashurst

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