All you need to know about self reporting, Construction, Extractive (incl. oil & gas), Financial Services, Manufacturing, Medical (incl. medical device & pharma), MENA (Middle East & North Africa) - Written by on Sunday, September 12, 2010 2:30 - 0 Comments

Our top 5 enforcement trends

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The first domino to fall

Richard Nixon has a lot to be thanked for. Anti-bribery and corruption enforcement as we know it today started with Watergate. In answer to it the US Foreign Corrupt Practices Act (FCPA) was born in 1977 and originally just covered US businesses and issuers.

The FCPA was a critical catalyst for what follows.

Trend 1: Globalisation of law and enforcement

Law

Corporate America complained it could not compete on the world stage against the corrupt practices of foreign companies. In answer 1998 Uncle Sam extended the FCPA to catch foreign nationals and foreign businesses with a US connection.

This followed the OECD anti bribery convention which had been signed the prior year. There are 38 countries including the UK signed up to the OECD convention which requires countries to put in place harmonised law combating bribery of foreign public officials in international business transactions.

Enforcement

Law enforcement agencies are also adopting a joined up approach.

In each of the convictions for bribery in the UK within the last twelve months the SFO has co-operated extensively with the US Department of Justice. Cooperations ranges from receipt of tip-offs from the DoJ through to extensive sharing of evidence and witness testimony for use in ongoing US and UK investigations.

Richard Alderman head of the the SFO is on record saying that if any company approaches him to self report he shall ask what that company is doing in relation to any FCPA exposure and that the DoJ will take the same approach.

Trend 2: More cases

The last two years has seen more activity than ever before. From a starting point of practically zero we have seen two civil settlements reached with AMEC (£5 million) and Balfour Beatty (£2.25 million) and convictions in the case of Mr. Dougall (a middle manager who received 12 months in prison), Mabey & Johnson (£6.6 million) and Innospec (£8.5 million).

The Financial Services Authority got in on the act too with its enforcement action against Aon for failings in its anti-bribery and corruption systems and controls (£5.25 million).

This against a backdrop of pre-bribery act law under which it is extremely hard to obtain a conviction because of problems in meeting the legal standard of intent.

When the new Bribery Act enters into force with the strict liability offence of Failure to Prevent Bribery it is anticipated that enforcement will increase.

This mirrors a sharp increase in enforcement activity in the United States which has seen a reported threefold increase in cases since 2005.

Trend 3: Sector Investigations

In 2007 the US kicked off a trend of sector investigations. Known sector investigations include investigations of pharmaceutical companies, oil and gas services firms, and orthopedic device makers. While the SFO is not, so far as we are aware, presently involved in a sector investigation the prosecution and conviction of Mr. Dougall is likely a direct consequence of this.

The UK’s Financial Services Authority has conducted a sector wide investigation into the practices of the insurance industry after it fined Aon. The conclusion of the investigation? In a 50+ page report in May 2010 the FSA concluded that the insurance broking industry is not prepared to be compliant for the new UK Bribery Act.

Trend 4: Bigger fines

The US FCPA has generated some eye watering fines of late including two in the range of US$ several hundreds of millions.  Siemens paid US$ 1.6 billion in total to US and German enforcement agencies. While many fines for FCPA violations can be smaller the fines above dwarf the UK fines. While there has been some criticism that fines as large as these may even discourage companies from coming clean and self reporting. However, the UK courts have given the strongest possible signal that UK fines must increase to match US levels.

Trend 5: More Self Reporting

The US DoJ and the UK SFO both actively encourage Self Reporting of FCPA and Bribery violations with the carrot of more lenient treatment for those that come clean versus those that don’t.

In the UK the self reporting regime is a new concept. There are only two reported civil settlements (Balfour Beatty and AMEC) and not much is known about the detail of them.

In the US there is more of a history and there is even some commentary that suggests that Self Reporting FCPA violations does not translate to more lenient treatment at all.

Of course, its difficult to form comparitive judgments. If a company does agree a civil settlement the likely court imposed sentence is not known.

Notwithstanding the criticisms though Self Reporting is still likely to increase.

In addition to monetary penalties companies also need to consider the possible debarment from US and EU contracts following a court imposed sentence instead of an agreed civil deal.

On top of this, in the UK officers, who uncover bribery through systems and controls put in place to benefit from the Adequate Procedures defence, may be unwilling to personally commit additional money laundering offences by sweeping the violations under the carpet. In other words, directors in the UK may take a different position on disclosure than the US. This, of itself may drive additional disclosure in the US.

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