Money laundering, US Foreign Corrupt Practices Act & Dodd Frank - Written by on Sunday, June 5, 2011 23:36 - 0 Comments

Bribery Act forecast to result in more prosecutions than FCPA. Really?

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“Oh, people can come up with statistics to prove anything. 14% of people know that.” – Homer…Simpson.

Last week, Roderick Macauley, the civil servant who was largely responsible for preparing the new legislation and the surrounding guidance made the point (almost) [our emphasis] that the Bribery Act was unlikely to result in a huge increase in prosecutions.  He said: “If the SFO engages in one case a year that will be quite a lot…”

Before the Bribery Bill became the Bribery Act the UK Ministry of Justice said they expected the number of prosecutions for Bribery to increase by 1.3 a year when the Bribery Act became law.  At the time it was politically expedient to dumb down the likely impact of the new law in an effort to ensure that it was passed.

The day the guidance on  adequate procedures to prevent bribery was published (after a huge controversy over the scope of the new law) Ken Clarke, Minister of Justice, said:“I do not expect a large number of prosecutions and certainly not for trivial cases.”

So not many then.

MOJ rowing back?

What if we told you that if the Ministry of Justice is right in its prediction (we actually think it could be less) then it would still be significantly more than the under the US Foreign Corrupt Practices Act?

How, when the number of publicly known US investigations numbered was running a nearly seventy earlier this year and the number of FCPA cases with penalties ranging from millions to hundreds of millions of dollars has exploded in the last five years?

It’s possible when you work out what Ken Clarke and Roderick Macauley are actually talking about when they refer to the 1.3.  They are talking about contested cases involving companies.

When Roderick Macauley spoke last week and said “If the SFO engages in one case a year that will be quite a lot…” the rest of his sentence is quite important: he went on to say:  but there will be guilty pleas and other settlements.” [our emphasis] He also referenced the 1.3 cases a year prediction as having created a rod for the Ministry of Justice own back.

In it’s thirty year history the US FCPA has produced only two contested cases by a corporate defendant in FCPA trials. One twenty years ago – Harris Corporation which won and Lindsey Corporation this year which lost.

That’s one case every 15 years in contrast to the MOJ’s 1.3 cases per year.

On the recent corporate conviction Lanny Breuer said: “Lindsey Manufacturing is the first company to be tried and convicted on FCPA violations, but it will not be the last,” Mr. Breuer said, “As this prosecution shows, we are fiercely committed to bringing to justice all the players in these bribery schemes – the executives who conceive of the criminal plans, the people they use to pay the bribes, and the companies that knowingly allow these schemes to flourish.”

Today the reality is that companies simply do not defend FCPA cases.  The downside risks of losing at trial are simply too great.

The Bribery Act is a similarly tough piece of legislation.  When combined with the UK’s draconian money laundering laws its impact is very powerful.

It forces companies to unearth problems through the monitoring and review of their adequate procedures and then imposes strong incentives (a desire not to commit fresh money laundering offences) to self report under the Proceeds of Crime Act.

Like the US the sanctions for companies who contest and lose a Bribery Act case can be terminal – debarment can kill.  As a result the Ministry of Justice is probably correct that companies will seek to settle cases using a civil recovery order and/or plead guilty with a view to obtaining sentencing leniency (which they will customarily receive in such circumstances).

So, the UK’s forecast extra 1.3 contested cases a year under the Bribery Act would be a significant improvement on the US statistics.

In reality we do not expect the Bribery Act to be as prevalent in prosecutions as the FCPA is today.

But we do not expect the SFO to take 30 years to catch up either.

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