Bribery Act & Proceeds of Crime - Written by Barry & Richard on Wednesday, August 17, 2011 2:22 - 0 Comments
Obtaining evidence of bribery – SFO powers – what you need to know
The SFO takes on relatively few serious fraud and corruption investigations every year. Vetting is crucial and in the current economic climate even more critical.
Section 2A of the Criminal Justice Act 1987 is available to the SFO to vet corruption cases before the Director makes a decision to launch a formal investigation.
What was Section 2A designed to achieve?
It arose from a Catch 22 that was identified for the SFO when taking on international corruption cases previously. To commence an investigation in to a suspected offence the Director would need to be satisfied on reasonable grounds that it involved serious or complex fraud (the statutory test under section 1 of the 1987 Act). This initial step unlocks access to the armoury and the SFO can proceed, for instance, to use its compulsory evidence gathering powers under section 2 of 1987 Act.
The problem, it was argued in cases of international corruption, was that there may not have been enough initial evidence for the Director to make a decision to start an investigation. On the flip side gathering more evidence, to make such a decision, would be difficult without the powers to compel production of documents, or require answers to questions, or search premises that general section 2 powers could later provide.
The solution came in to force on 14 July 2008 – with the Criminal Justice and Immigration Act 2008 inserting section 2A of the Criminal Justice Act 1987. To mark its three (and a bit) year anniversary we thought we’d take a look at what this additional power allows the SFO to do and how it may be used in Bribery Act investigations.
Section 2A, what it can and cannot do
The section will apply going forward to corruption cases under sections 1, 2 or 6 of the new Act (mirroring similar application under previous laws). It is designed to allow the SFO to undertake some pre-investigation work or vetting of these cases by using powers under section 2 of the 1987 Act to gather evidence under compulsion – so refusals by recipients to cooperate can be lead to separate offences.
Section 2A does not apply to vetting for the new corporate offence of failure to prevent bribery.
On the one hand the omission seems to have little practical significance – because to prove a section 7 offence, a regulator would want to start by looking for evidence of a bribe being paid by an associated person. Section 2A could therefore be used for this initial enquiry.
However, when framing a notice under section 2A, there is some practical significance. The SFO may be prevented from compelling production of material that is strictly compliance-related because section 2A can only be used to enable the Director to make a determination on investigating a substantive offence. How would the content of a company’s Expenses Policy or its training records or documents that record its risk assessment help this decision?
Looking in the compliance cupboards at this stage may therefore be a no go.
Any attempt by the SFO to try to gather evidence using section 2A of a company’s policies, procedures and other compliance records may be subject to challenge.
This limitation is fair given the draconian nature of the power generally – and section 7 makes clear it is for a commercial organisation to decide whether it wishes to avail itself of adequate procedures.
It is not an offence not to have them and the scope of section 2A follows this logic. So we do not expect section 2A to be used by the SFO to perform a pre-investigation review of adequate procedures.
There are three other features of section 2A worth noting.
First, the hurdle for using section 2A is otherwise low. The Director can deploy the power “where it appears to him that conduct [amounting to a section 1, 2 or 6 offence] may have taken place“.
Various cases have considered the Director’s wide remit to select cases within his statutory powers to investigate. The same broad discretion is true of section 2A and corruption cases. Clearly, however, it is not intended to give a carte blanche to speculative fishing expeditions and the Director will need some basis for considering that actual corruption may have occurred. A report passed on from SOCA may be a good example here.
Secondly, the use of the power under section 2A must be proportionate. The Director must be satisfied it is “expedient” to use compulsory powers for the limited purpose of determining whether to open an investigation. When the Director has sufficient evidence to make the determination, evidence gathering under s2A should cease.
Third, commentary on section 2A usually refers to it applying to all cases of corruption and the SFO Operational Handbook also does not make a distinction between its use in overseas and domestic contexts.
Given the principal purpose for enacting the power was to help the SFO to gather evidence in cases of possible overseas corruption, we will watch closely whether the new Bribery Act leads to the remit of section 2A being construed more narrowly in terms of its jurisdictional scope. A party may very well query why this special power is needed for determining cases of domestic corruption? There is scope for debate here given the way the legislation is drafted.
Finally, like other section 2 powers, section 2A also includes separate criminal liabilities for those who fail to comply and for those who interfere with evidence. In relation to the latter, where a party knows or suspects that the SFO is using section 2A to help it decide whether to open an investigation, the party will commit a criminal offence if it falsifies or conceals evidence relevant to that decision.
The actual use of section 2A will be an interesting barometer of the SFO’s enforcement approach in months to come. In some previous Annual Reports, the SFO provided general statistics for its use of section 2 powers more generally – and split out figures that were bank-related, where the powers were exercised to assist overseas authorities, and where the powers involved interviews as well as production of documents.
In order to trigger the vetting procedure it simply needs to appear to the SFO that bribery may have taken place – this is a low bar in contrast to the test which the SFO must normally apply, broadly that it has reasonable grounds for suspecting serious or complex fraud.
A good reason to keep records in apple pie order.