Any Russian business with a UK subsidiary or listing potentially places its worldwide business conduct under the SFO microscope Richard Alderman, SFO Director, told delegates to the US-Russia Business Council at their 2011 Legal Seminar in London.

The speech contained a number of thinly veiled warnings.

The presentation followed on from a week Richard Alderman spent in Russia in March earlier this year when he traveled to Moscow and St Petersburg and met many Russian companies or foreign companies doing business in Russia.

The visit made a lasting impression on him.

The challenges faced by those operating in Russia are significant.

Anna Goldin, Vice President and Head of the Legal Department of Sistema JSFC was recently interviewed about the UK Bribery Act in Russian Law Online .  Sistema has just under 1/5 of its shares trading in the form of global depositary receipts (GDRs) on the London Stock Exchange.  Ms. Goldin said: “You just have to read the statements of the President of the Russian Federation, who can judge the problem better than we can. President Medvedev has said that the level of corruption is extremely high. I don’t think he is so far off the mark.”

The comments are consistent with surveys conducted by Transparency International formally and informally and general perception.

Against this back drop we know that irrespective of whether they have securities listed in London Russian groups, who often have large worldwide corporate structures incorporating offshore and on shore elements, are extremely keen to understand if these structures are vulnerable to the Bribery Act.

Application of Bribery Act to overseas groups

During his speech Richard Alderman spelled out very clearly the SFO’s approach and its view of the long arm jurisdiction that it will have after July 1st under the Bribery Act against Russian (and other foreign) companies. He said:

“A foreign company that carries on business or any part of its business within the UK is within the scope of the Bribery Act in respect of any of its activities anywhere in the world.

The phrase “carrying on business” is a very general one and the SFO is adopting a very wide interpretation of these words.

The words need to be seen in the context of international groups with complex business structures sometimes based on very different systems.

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.” [our emphasis]

The last point is critical.

Many have assumed (especially after the publication of the UK government guidance which cast doubt over whether a UK subsidiary or listing would sweep non-UK businesses into the Bribery Act net) that the activity of a sister company paying bribes in another country would not trigger Bribery Act liability for a foreign parent (or its UK subsidiary) and that as a result the SFO would be powerless to act.

However it is clear that the SFO take a different view.  Acknowledging that there are potential legal hurdles to get over under the new law Richard Alderman said:

“There is argument about the relevance of a subsidiary in the UK and also about whether mere listing in the UK is sufficient to constitute carrying on business here. The Ministry of Justice guidance has said that these will be issues for the Court. 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…”

What will be an appropriate case? Where is the UK public interest?

Richard Alderman conveyed his clear enthusiasm for investigating and prosecuting Russian businesses to us in appropriate cases and told us then that it is a very high priority for the SFO.  He confirmed this again at the US-Russia Business Council at their 2011 Legal Seminar saying:

“The sort of case that we will be interested in is one where the bribe paid disadvantages an ethical UK corporation. In such a case there is a strong UK public interest in bringing that foreign group before the UK Courts.  This will be a high priority for us.”

“…we owe it to ethical companies to be very robust in dealing with those companies and individuals who want to continue to use bribery to carry on business. I want to bring those people before UK criminal courts. I believe that there is a strong public interest in doing this and that we will have the support of the ethical UK business community in doing this. This is something I wish to see.”

SFO signals an aggressive approach

Underscoring the warnings Richard Alderman the FT reported that Mr Alderman emphasised that surprise arrests of overseas nationals at UK borders could be on the cards.

“You can’t be sure that you won’t be stopped at the airport,” he said. “We are not going to write to say, ‘if you turn up, you will be arrested’. It may or may not happen.”

Asserting Bribery Act jurisdiction will not be easy

In our view there are significant hurdles for the SFO in investigating and prosecuting Russian Companies and nationals.

At a recent meeting with the SFO we highlighted the challenges in investigating, prosecuting and punishing a Russian group.  However, it is clear that in spite of these difficulties Richard Alderman is keen to test the new law.

The SFO has signaled that it is looking to investigate and prosecute Russian companies and senior officers where appropriate if, say, a Russian business subsidiary in CIS bribes another (whether directly to win business or by way facilitation payments to carry on business) and a UK business does not and is disadvantaged as a result.

Examples of disadvantage which have been given include (a) direct disadvantage e.g. a UK business not winning a contract or (b) indirect disadvantage e.g. a UK business being unable to move goods or access an electricity supply etc. as a result of an ethical stance in refusing to pay facilitation payments.

The only real question is, assuming the SFO is as good as its word, how long it will take until the SFO act.

With the legal and practical difficulties we have highlighted and some of which the SFO have acknowledged: the stage is set for an legal interesting battle.

PS: We will be in Moscow & St. Petersburg in July for various meetings – we have a busy schedule but please contact us if you would like to meet – we will try!