Adequate Procedures, Associated persons, Financial Services, Money laundering - Written by on Sunday, June 26, 2011 23:41 - 0 Comments

Corporate social responsibility & the SFO A.K.A money laundering & the impaired investment

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“The fact that an organisation benefits indirectly from a bribe is very unlikely, in itself, to amount to proof of the specific intention required by the offence. Without proof of the required intention, liability will not accrue through simple corporate ownership or investment, or through the payment of dividends or provision of loans by a subsidiary to its parent.”

said the Ministry of Justice guidance in relation to Adequate Procedures to prevent bribery.

Institutional and other investors breathed a sigh of relief.  They would not be liable as an ‘Associated Person’ under the Bribery Act for bribery if they were simply a passive investor.

Contrast this with a statement from the Director of the SFO, Richard Alderman last week to a Private Equity audience:

“[The SFO is interested in] your responsibility if any of the companies that you own pays bribes. You might at first think that this is nothing to do with you as the owners of the company. It might be that as portfolio owners you are not committing an offence of failing to prevent bribery. But it does not end there. First of all we will be looking at money laundering in order to see what money has been laundered as a result of the criminal conduct and to whom it has gone. It may be indeed that the owners have some knowledge of the contract that was obtained through bribery. We will be thinking about money laundering.

We are stressing the responsibility of the owners of companies to ensure proper standards of governance and a proper anti-corruption culture.  Owners should not stand aside and say this is nothing to do with them but is an operational issue for the company. It is not. As owners of companies, private equity (as well as the big institutional shareholders) has a responsibility to society to ensure that the companies in which they have a shareholding operate to the right standards. It may even be that it is a condition of investment by fund managers allocating funds to you to invest that you invest only in companies that are FCPA and Bribery Act compliant. This is something you will need to bear in mind. You may also need to look at your exposure…if you are directors (whether executive or non-executive) in the companies in which you invest.

A feature of the SFO’s work that you may hear about in due course is what happens when something goes wrong and the company gets involved in bribery. The owning company or partners may know nothing about this although they will have received the benefit through dividends or other distribution. We are looking at how we recover the benefit.

This is something I care about very much because I want to ensure that the companies have built a true anti-corruption culture. I am seeing this in many companies at the moment. What I am also seeing is that these companies are ensuring that those who do business with them are also building up that anti-corruption culture. All this is commercially driven and so is likely to be successful. I am very pleased about this. What has not happened yet has been a focus on the owners of the companies and their responsibilities.  This is an area I want to develop over the next year or so.”

Regardless of liability under the Bribery Act (i) contracts obtained through bribery (ii) the revenues flowing from them and (iii) other assets which become tainted by mixing with them together with (iv) any dividends or distributions flowing from the same are at risk under the UK’s “justifiably draconian” money laundering legislation through confiscation and specific money laundering offences.

The SFO has thrown down yet another marker.

The proof of the pudding will be in the eating.

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