Author: Jonathan J. Rusch

On June 28, a Singapore court fined a Singapore-incorporated shipping company, Getax Ocean Trades, SG$80,000 (US$58,711) for paying SG$27,000 in bribes to Ryke Solomon, a Member of Parliament of the Republic of Nauru.  Nauru reportedly derives its main revenue from phosphate mining, and a government corporation, the Republic of Nauru Phosphate Corporation (Corporation), controlled phosphate mining, sales, and exports.  In 2010, according to representations made to the court, Amit Gupta, an executive of phosphate exporter Getax Australia (for which Getax Ocean Trades serves as the logistics arm), emailed Solomon to express Gupta’s interest in advancing his family’s business interests with the Corporation. On February 4, 2010, Solomon responded, requesting at least SG$30,000 to fund his re-election campaign in Nauru.  On February 18, 2010, Gupta asked a Getax Ocean manager to transfer SG$20,000 to Solomon’s bank account in Australia.  The court-imposed fine split the difference between Getax Ocean Trades’ request for a SG$60,000 fine and the prosecutor’s request for a SG$100,000 fine.

Compared to various recent Foreign Corrupt Practices Act resolutions involving eight- and nine-figure penalties and multiyear bribery of foreign officials, such as Credit Suisse and Société Générale, the Getax Ocean Trades resolution is wholly unremarkable.  Compliance officials, however, should regard it as a test case for reviewing their country risk ratings and methodology.  While companies often use Transparency International’s Corruption Perceptions Index (CPI),  which currently covers 180 countries and territories, or the TRACE Bribery Risk Matrix, which covers 200 countries, they need to remember that neither the CPI nor the TRACE Matrix covers all recognized countries and territories (including Nauru).  Thus, companies doing business in smaller countries may need to double-check their risk assessment methodologies to confirm that it covers all of those countries.

In those rare cases in which a country with which a company is doing or seeking to do business is in neither the CPI nor the TRACE Matrix, that company will need to resort to other due-diligence measures to conduct a meaningful risk assessment.  Although the public record does not indicate whether Getax Australia or Getax Ocean Trades conducted any risk-assessment process for its dealings with Nauruan officials in 2010, a mining company conducting a negative-news search today on Nauru, for example, would find multiple indications of corruption risk, such as stories reporting on alleged bribery of the Nauruan President and Justice Minister by Getax and the Australian Federal Police’s investigation of Getax and Nauruan bribery.  The essential point is that companies must ensure that their risk-assessment process, however structured, will timely capture information on bribery and corruption risks pertinent to the companies’ current and projected business in all jurisdictions.

In mid-July, multiple English-language Japanese news sites reported on the guilty plea by Mitsubishi Hitachi Power Systems (MHPS) to violating the Unfair Competition Prevention Act (Act), in connection with a foreign-bribery case relating to transport work under a power plant contract awarded to Mitsubishi Heavy Industries Ltd. in 2013 (and later taken over by MHPS).  Those reports focused primarily on the fact that the plea was the first of its kind under new law allowing plea bargains in cases involving organized crime and bribery, and that there previously had been only four cases in Japan in which companies or individuals have been prosecuted on bribery charges involving foreign public officials since 1998.

Initial reports, however, offered conflicting information about the scope of the alleged bribery.  The Japan Times cited unnamed “sources” in reporting that the case  involved “one of its employees and a civil servant in Thailand,” and further stated that prosecutors won’t indict Mitsubishi Hitachi Power Systems “in exchange for information on the employee involved.”  In contrast, the Asahi Shimbun reported that according to the Special Investigation Unit of the Tokyo District Public Prosecutors Office, MHPS employees overseeing the project “gave Thai public servants a large bribe in connection with the project.”

Although MHPS initially declined to comment on the case or the plea, less than a week later, on July 20 it issued a detailed public statement about both issues.  In particular, it stated that it had been notified that two former MHPS officers – one a Director, Executive Vice President, and Head of MHPS Engineering Headquarters, the other a Senior Vice President and Senior General Manager of MHPS’s Procurement & Sourcing Division — and the former General Manager of the then-existing MHPS Logistics Division had been charged on suspicion of violating the Act, specifically for offering a bribe to a foreign public officer.

The MHPS statement is noteworthy in three respects.  First, it included the most detailed statement of facts yet available concerning the nature and scope of the bribery.  Presumably based on the results of its own internal investigation, MHPS reported that the charges are related

to the construction of a thermal power plant undertaken by MHPS in the Khanom District of Nakhon Si Thammarat Province, Thailand. In February 2015, an employee of MHPS in charge of material transport received word that, when subcontractor carriers of the transport services provider entrusted by MHPS with the marine transport of plant parts attempted to unload the parts at the jetty constructed near the plant construction site, local residents, including what was believed to be a public officer of the local port authority, blocked off the jetty and demanded payment of 20 million Thai baht.

The jetty was blocked off due to the unexpected failure by the transport services provider in undertaking the necessary procedures to acquire authorization to use the jetty. It was expected that any delay in unloading the parts as a result of this blockade would cause delay to the plant construction schedule, and thereby obligate MHPS to incur significant costs and expenses, such as the payment of delay damages. In order to avoid such circumstances, relevant MHPS individuals provided the abovementioned subcontractor carriers with funds in the amount of 20 million Thai baht in response to the demand that had been made, as a result of which the blockade of the jetty was resolved.

MHPS was not able to confirm whether the subcontractor carriers did indeed deliver the 20 million Thai baht to the public official.

The 20 million Thai baht was generated by individuals affiliated with MHPS at that time by way of issuing an additional order to a local contractor for fictitious work.”

Second, it publicly reported that to prevent recurrence of such conduct by MHPS employees, MHPS was currently implementing the following measures:

1. Issuance of top management messages concerning prevention of bribery;
2. Diversification of methods for reporting compliance incidents, including new online and toll-free telephone access points;
3. Requiring more thorough checks to detect bribery risk both before and after the receiving of an order;
4. Strengthening of audits on expenditures made from overseas construction sites;
5. Renewed acquisition of compliance pledges from all managerial personnel; and
6. Training, including those conducted by external instructors concerning prevention of bribery.

Third, it made a public declaration unusual for companies resolving foreign-bribery charges with prosecutors in other countries.  It stated not only that MHPS had taken internal disciplinary action against the individuals involved in making the bribe, but that “in order to clarify responsibility at the managerial level, the [MHPS] President and officers overseeing sales and compliance as of February 2015” returned a portion of their compensation as follows: (1) the President and CEO – 30% of remuneration for 3 months; (2) the Senior Executive Vice President (officer in charge of sales) – 20% of remuneration for 3 months; (3) the Head of Business & Strategic Planning Headquarters (officer in charge of sales) – 20% of remuneration for 3 months; and (4) the Senior General Manager of Management & Administration Division (officer in charge of compliance) – 10% of remuneration, for 3 months.

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.”