Bribery Act & Proceeds of Crime - Written by on Wednesday, August 1, 2012 15:17 - 3 Comments

With the greatest respect. We disagree with Mike.

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Mike Koehler recently published an open letter to the UK Ministry of Justice on its DPA consultation.  We like Mike.  But as Howard Sklar would say:  “Reasonable people can disagree.”

When compared to the current UK system a DPA regime would, we believe, “support an existing culture of self-reporting of serious economic crimes.”

That is not to say that suddenly everyone will be beating a path to the doors of the SFO to shop themselves.  But it will certainly be a better system than the one we’ve got.

Mike argues that DPA’s in the UK will lower the bar for enforcement agencies in terms of successful enforcement resolutions.  In one sense that is what the MOJ hopes will be the case.

However, it is an over simplistic analysis.

Part of the reason for the SFO’s failures is that the SFO frequently has to fight its corner in court.  Sometimes it loses.

In the US, until very recently, it was accepted wisdom that an FCPA investigation would result in a corporate settlement.  The DOJ simply did not have to test its legal theories in court.

Statistically in the US corporates and their counsel often fold in the face of a DOJ investigation.

In the UK this is not so.

Is this because US lawyers are less tenacious than their UK counterparts?  We’d like to think so…

However, over the last twelve months the DOJ has focussed on prosecution of individuals.  The result.  The DOJ has had its nose bloodied.

We agree that anecdotal evidence suggests a high percentage of corporate conduct that could implicate criminal laws is not reported to the enforcement agencies.

Mike says that “one factor driving [the lack of self reporting in the US] is that companies and its counsel have come to realize that the enforcement agency will not be diligent and complete in its application of law to facts and its consideration of mitigating facts because the enforcement agency will never have to prove its enforcement theory to anyone other than itself.”

We suspect that the reason is less cerebral.

All this though is a prelude to Mike’s real objection to DPA’s in the UK.

Mike argues that the U.S. principle of respondeat superior a business organization can face criminal liability based on the acts of any employee or agent to the extent the individual’s conduct drives settlement.

Mike states that criminal liability under U.K. law is very difficult to prove and “depends on establishing that the ‘directing mind and will’ of an organization was at fault.” As a result, Mike argues, U.S. adoption of DPAs was largely a function of general circumstances not present under U.K. law.

This ignores the Section 7 offence of failure to prevent bribery where there is no intent requirement or requirement to establish the directing mind and will.

Mike concludes “I pose the following questions the MoJ should consider during its consultation process. Why does a law with an adequate procedures defense require the third option of a deferred prosecution agreement (the first two options being prosecute vs. not prosecute)? If a corporate has adequate procedures, but an isolated act of bribery nevertheless occurs within its organization, the corporate presumably would not face prosecution under the Bribery Act. This seems like a just and reasonable result and there is no need for a third option in such a case. On the other hand, if a corporate does not have adequate procedures (thus demonstrating a lack of commitment to anti-bribery compliance) and an act of bribery occurs within its organization, it presumably would face prosecution under the Bribery Act. This seems like a just and reasonable result. Does a third option really need to be created for corporates who do not implement adequate procedures? I submit the answer is no and urge the MoJ to reject use of DPAs in the Bribery Act context.”

In theory this all sounds very nice.  The trouble is that it ignores the joined up world we live in.

In a world where the US accounts for nearly two thirds of overseas anti-corruption enforcement it is inevitable that the UK enforcement efforts and the US enforcement efforts will collide.

Sadly, as it stands, the UK enforcement agencies do not have equality of arms when it comes to their enforcement toolkit.  Put another way the DOJ can end run UK enforcement agencies because it does have the potential to enter into DPA’s.

This reason alone is justification enough for putting in place a system which delivers a similar result to the US system.

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Bruce W. Bean
Aug 2, 2012 4:53

It is good of you to acknowledge that reasonable people may differ. I consider myself a reasonable professor who has spent 30 years in practice and the past 18 months dealing with the Bribery Act

But what is reasonable about the strict liability crime of section 7?

Do any “part” of your business in the UK or list your shares in London or borrow from a syndicate of banks that includes a London bank and the business is automatically guilty under Bribery Act for hospitality and facilitation payments.

Parliament and the Serious Fraud Office accept that facilitation payments occur as a regular part of business in certain nations. So a corporate starts out guilty and must satisfy the burden of proving its anti- bribery procedures are “adequate” to prevent what is a regular part of their business. That will be a challenge!

A principal reason for DPAs in the US is (1) to avoid litigating with the government (a very uneconomic decision) and (2) to be able to settle quickly using shareholder money rather than risking personal responsibility. The SFO needs to show it is, in fact, serious. It will bring high profile prosecutions this year and their claims will seek to push the boundaries of the Bribery Act. A rational response will be not to litigate but to accept a DPA. This pattern is precisely the way the boundaries of the FCPA have been distorted by the DoJ for the past six years at least.

Without the DPA, at the margin, being in their view “inadequately funded,” they will not be able to bring actions that must be litigated against some “offenders.” With the DPA, they will by fully capable of extending the grasp of the Bribery Act without judicial oversight, just as their counterparts in the DoJ have done so successfully.

Barry & Richard
Aug 2, 2012 13:04

Bruce thank you. We love a nice debate.

We certainly agree the SFO needs to show it is ‘serious’. We have made no secret of that fact (i.e. we have told the SFO to its face) that the proof of the pudding in all this will be in the eating.

The lack of visible action versus the torrent of words has resulted in many forming the view that the SFO is ‘all hat and no cows’.

On the application of the Bribery Act, in our view some of the concerns, which have been widely voiced, about the Bribery Act are just plain wrong.

To pick up on one point though – the UK DPA regime will include judicial oversight (a judge will be involved in the negotiation in reaching the agreement).

Friday Roundup « FCPA Professor
Aug 3, 2012 2:08

[…] (a site that has lead discussion of the issue) the authors disagree with me (see here).  That’s all fine and dandy and healthy to the discussion, but the substance of the retort […]

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