Submission to the House of Lords Select Committee on the Bribery Act 2010

For those who follow developments regarding the United Kingdom Bribery Act 2010, on May 17, 2018, the United Kingdom House of Lords appointed an ad hoc Select Committee on the Bribery Act 2010.   According to the Chair of the Committee, the Committee’s remit is “to examine the effectiveness of the Act, whether there has been stricter prosecution of corrupt conduct, a higher conviction rate, and a reduction in such conduct, . . . [and] . . . to seek to raise awareness and understanding of the Act.”  The Committee’s inquiry also focuses on the impact of the Act on small and medium enterprises (SMEs) and Deferred Prosecution Agreements in relation to bribery

On June 20, the Committee issued a call for evidence in its inquiry, and set a deadline of July 31 for submissions.  The following is the text of my submission to the Committee:

“To the Chairman and Members of the Committee:

I.                 Background

(1)   This submission is based on my experience and knowledge as (1) a former Deputy Chief for Strategy and Policy in the Fraud Section of the Criminal Division of the United States Department of Justice (DOJ) (retired 2015); (2) a recently retired Senior Vice President and Head of Anti-Bribery & Corruption Governance with Wells Fargo & Company (2015-2018); and (3) Adjunct Professor at Georgetown University Law Center in Washington, DC.  The views herein are solely my own, and do not necessarily reflect those of the DOJ, Wells Fargo, or Georgetown University.  Further details regarding my background and experience, including links to my article and blog post on section 7 of the Bribery Act 2010, are available on LinkedIn.

II.               Questions 1-4 and 6-7 and Responses

Deterrence

1.      Is the Bribery Act 2010 deterring bribery in the UK and abroad?  (2)   From my experience in my former company and frequent interactions with anti-corruption compliance leaders in U.S. and UK corporate entities, I am confident – with one qualification — that the Act is deterring bribery.  In general, anti-corruption compliance officers in large companies here and in the United Kingdom are well aware of the severity of the Act’s sanctions for violations of sections 1, 2, 6, 7, and 14, and have taken significant steps to establish and maintain effective global anti-corruption programs.

(3)   The qualification is simply that it would be difficult to establish the extent to which that deterrence can be ascribed solely to the Bribery Act 2010.  In recent years, as the Committee undoubtedly has seen already, the SFO, the DOJ, and the U.S. Securities and Exchange Commission (SEC) have provided extensive cooperation to each other, and received cooperation from still more nations, in bribery and corruption investigations.  That cooperation has achieved notable results in corporate resolutions such as Standard Bank (2015, US$36.6 million in penalties, compensation, disgorgement, and costs), Rolls-Royce (2017, US $800 million in penalties), Société Générale S.A. (2018, US $585 million in penalties), Legg Mason Inc. (2018, $64.2 million in penalties), and in individual prosecutions for corruption-related offenses.  But as general and trade media report on more countries actively enforcing their own anti-corruption offenses and cooperating with other countries in anti-corruption investigations, the more difficult it is to ascribe specific deterrent effects to the efforts of any single jurisdiction.

Enforcement

2.      Is the Bribery Act 2010 being adequately enforced? If not, how could enforcement be improved? Do the Serious Fraud Office and the Crown Prosecution Service have the right approach and the resources they need to investigate and prosecute bribery offences effectively?

(4)   The first question as worded is difficult to answer, for there is no ex ante definition of “adequacy” against which the accomplishments of the Serious Fraud Office (SFO) and the Crown Prosecution Service can be fairly measured.  As a former federal prosecutor in the United States who was lead counsel in significant fraud and public corruption prosecutions, I recommend that performance of a prosecutor’s office with regard to enforcement of a particular category of criminal offense should first be measured with reference to the available number of prosecutors, agents, and support staff for investigations of that criminal offense.  The SFO has recently reported that it has more than 500 lawyers, investigators, forensic accountants, digital specialists, and others on its staff.  That aggregate total, however, does not identify what proportion of staff are specifically devoted to enforcement of the Bribery Act 2010 and cooperation with other countries’ anti-corruption enforcement efforts.

(5)   Moreover, every Bribery Act 2010 investigation will likely differ in duration from every other investigation, depending on a host of factors such as (1) the nature and duration of the alleged corrupt conduct, (2) the complexity of the corrupt scheme (e.g., the number of intracorporate layers, lines of business, and geographic locations involved in establishing and maintaining the scheme); (3) the number and seniority of corporate officials allegedly involved in the relevant Act offenses; and (4) the time needed to obtain admissible evidence from jurisdictions outside the United Kingdom.  In other words, some investigations can be timely pursued with fairly lean staffing, while others may require larger teams of lawyers, forensic accountants, and others with relevant skill sets.  The fact that some cases can only be resolved after one, two, or more years does not mean that the staffing for those cases was necessarily “adequate” or “inadequate.”  If the Committee is to pursue these questions, it may be more relevant to see whether SFO leaders believe that certain cases might have been successfully investigated and resolved sooner had more human, fiscal, or information resources been available at the time.

(6)   With regard to the third question, I note with concern public reports that the SFO’s budget had been dramatically reduced over multiple years, from £52 million in 2008 to £35.7 million in 2016.  Although the SFO undoubtedly has benefited from the availability of special funding from HM Treasury for so-called “blockbuster” cases, continuation of overall budget reductions for the SFO would be harmful to the SFO’s ability to plan for the sustained pursuit of investigations that may take more than one or two years to bring to fruition.  Unless the SFO knows early on that a particular investigation is likely to meet the criteria for “blockbuster” funding, it may be deterred from pursuing that investigation if it cannot be reasonably assured of having the necessary funding to support it.

(7)   In addition, the current funding structure may have a further unintended knock-on effect.  If executives at companies that can be considered small and medium enterprises (SMEs) perceive that the SFO’s funding and public support limit it to concentrating on only “blockbuster” cases, those executives may come to believe, absent an improvement in the SFO’s funding structure and levels, that the SFO is unlikely to pay attention to bribery and corruption allegations at smaller companies and that the risk of detection and enforcement action, should they engage in bribery to further their companies’ interests, has become vanishingly low.  While the SFO’s and CPS’s recent history of Bribery Act 2010 enforcement include a very few instances of prosecuting SMEs and SME executives and managers, the threat of enforcement under the Act is likely to lose credibility if those agencies lack the resources to pursue any cases other than “blockbuster” cases.

Guidance

3.      Is the statutory guidance on the Bribery Act 2010 sufficient, clear and well-understood by the companies and individuals who have to deal with it? Should alternative approaches be considered?

(8)   My answer to the first question is no.  As I argue at greater length in the article I mentioned above, the text of the section 7 offense and the “adequate procedures” defense, even if read in pari materia with the Ministry of Justice Guidance that the Act requires, are so vague and amorphous that they fail to give fair warning and therefore pose a risk of arbitrary enforcement by prosecutors.

(9)   One step that the Committee may wish to consider is replacing the words “adequate procedures” in subsection 7(2) of the Act with language that refers to “reasonable procedures”, as Parliament has already chose to do in establishing an affirmative defense for the “failure to prevent facilitation of tax-evasion offenses” in subsections 45(2) and 46(3) of the Criminal Finances Act.  The word “adequate” in this context has a defect comparable to the one discussed above: i.e., that there is no ex ante or objective standard by which “adequacy” of compliance procedures can be determined by triers of fact.

(10) Even if the Committee is disinclined to revise the text of section 7 to reduce that inherent vagueness, it should at least urge the Ministry of Justice to amend its Guidance to state more specifically the importance of a company’s providing sufficient resources to make its anti-bribery compliance program effective.  It is not enough to say, as did the Secretary of State for Justice stated in the Guidance (p. 2), that the Government want “to ensure the [Bribery] Act is implemented in a workable way – especially for small firms that have limited resources.”  As a point of comparison, the DOJ-SEC FCPA Resource Guide (p. 58) states that senior compliance executives must have “sufficient resources to ensure that the company’s compliance program is implemented effectively,” and that “[i]n assessing whether a company has reasonable internal controls, DOJ and SEC typically consider whether the company devoted adequate staffing and resources to the compliance program given the size, structure, and risk profile of the business.”

Challenges

4.      How have businesses sought to implement compliance programmes which address the six principles set out in the Ministry of Justice’s guidance on the Bribery Act 2010? What challenges have businesses faced in seeking to implement their compliance programmes? Are there any areas which have been particularly difficult to address?

(11) In my experience, companies with both U.S. and UK operations devise and implement the structure and content of their anti-bribery and corruption policies and programs with reference not only to the Bribery Act 2010’s text and Guidance, but also to the text of the Foreign Corrupt Practices Act (FCPA) and the DOJ and SEC FCPA Resource Guide.  In some cases, companies also will seek to benchmark their policies and procedures against more detailed non-governmental guidance, such as the Transparency International UK Adequate Procedures Guidance, ISO 37001, and the Wolfsberg Group Anti-Bribery and Corruption (ABC) Compliance Programme Guidance.

(12) The most specific challenge that companies face in anti-bribery and corruption compliance is that the “failure to prevent” language of section 7 continues to create uncertainty about whether their procedures will be considered “adequate” in the eyes of a judge or jury if, despite their best efforts, an executive or manager engages in a single act of bribery.  The Ministry of Justice Guidance does state (p. 15) that “the commercial organisation will have a full defence if it can show that despite a particular case of bribery it nevertheless had adequate procedures in place to prevent persons associated with it from bribing.”  The fact remains, as the Standard Bank resolution shows, that even a single case of bribery is sufficient to lay the ground for a section 7 prosecution.  Companies therefore remain concerned that if a single act of bribery slips through their compliance procedures, no matter how elaborate and well-supported by senior management they may be, a jury will conclude that by definition the procedures were “inadequate” and reject the company’s affirmative defense.

(13) A further challenge that some companies face in anti-bribery and corruption compliance is that there is an unintentional tension between official and non-governmental sources of guidance.  While government agencies are reluctant to provide more specific guidance on key compliance-program elements, companies have no assurance that the more detailed guidance from non-governmental organizations, even if apparently reasonable on its face, will be acceptable to government agencies reviewing the effectiveness of corporate compliance programs.

Deferred Prosecution Agreements

6.      Has the introduction of Deferred Prosecution Agreements (DPAs) been a positive development in relation to offences under the Bribery Act 2010? Have DPAs been used appropriately and consistently? Has their use reduced the likelihood that culpable individuals will be prosecuted for offences under the Act?

(14) My answer to the first and second questions is yes.  While I believe that DPAs can be satisfactorily concluded without prior judicial approval, as is the case in the United States, the UK prior-judicial-approval process to date has provided a high degree of transparency in the terms and conditions of bribery-related DPAs, as well as an additional measure of confidence that judicial supervision appears to be providing.

(15) As for the third question, I have seen no evidence that culpable individuals are less likely to be prosecuted for Bribery Act 2010 offenses merely because the SFO has concluded DPAs with corporate entities.

International aspects

7.      How does the Bribery Act 2010 compare with anti-corruption legislation in other countries? Are there lessons which could be learned from other countries?

(16) One specific aspect of the DOJ’s administration of the FCPA that might be considered is the FCPA Opinion procedure.  Under this procedure, companies may formally request from the DOJ an opinion about “whether certain specified, prospective–not hypothetical–conduct conforms with the Department’s present enforcement policy regarding the antibribery provisions of the [FCPA]       . . . .”  Although the preparation and approval of specific FCPA opinions may take some time, depending on the complexity of the proposed action and the underlying facts, companies that do receive FCPA opinions can have greater confidence that their proposed course of action is lawful.”

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