Toughening up

Bribery, corruption and the law. The Gateway talks to Michael Roberts from law firm Lovells

Earlier this month the Serious Fraud Office (SFO) announced it was seeking the consent of the Attorney General, Baroness Scotland, to pursue criminal charges against the arms manufacturer BAE Systems. The investigation involves allegations of bribery and relates to the company's operations in South Africa, Tanzania and Eastern Europe. This is not the first time the SFO has looked at BAE. In 2006 an investigation into the al-Yamamah arms deal with Saudi Arabia was controversially dropped after Tony Blair's government intervened. It was thought the investigation could damage national security.

This time the SFO is reported to be seeking £1 billion in damages. This is enough to hurt even a giant like BAE, who last year turned over £18.5 billion. But the significance of the investigation goes beyond the balance sheet of BAE. It signals a fundamental shift in the approach of the UK authorities to the issue of bribery and corruption. The law in this area is changing. And according to Michael Roberts, a senior associate at Lovells, the corporate world is paying attention.

"When you see the SFO threatening BAE with £1 billion in fines and BAE executives being detained by US marshals in Houston, it does get people's attention. These are big numbers with criminal liability, it's big stuff. It is moving up people's list of concerns. The scale of the fines being talked about is unprecedented in this country and would really put the UK's enforcement activity on a par with that of the US."

The muscular approach of the US authorities goes back to 1977 and the introduction of the Foreign Corrupt Practices Act (FCPA). It was designed to promote financial transparency and contained strong penalties for offences relating to the bribery of foreign officials. The impact of this bill reached far beyond America.

"The US courts haven't been shy about asserting jurisdiction over things that have, from a European perspective, relatively little connection with the US. This act applies to foreign companies that have their shares listed in the US. It would equally capture anything that goes through the US. One theory is that if you pay a bribe in US dollars it necessarily clears through a correspondent account in the US - the regulators assert that would be enough for them to claim jurisdiction."

If you were a UK company you would want to keep well away from Uncle Sam.

"The US authorities pursue a very aggressive approach. It's all about plea bargaining - threatening huge penalties to corporations and then doing a deal. These cases don't tend to come to court but you see enormous fines being imposed. In 2008 Siemens were prosecuted both in Germany and the US. The combined fines topped a billion dollars."

By contrast the UK authorities might have been seen as a soft touch. It has not gone unnoticed across the Atlantic.

"In 1997 the OECD, of which the UK is a member, introduced an anti-corruption convention closely modelled on the US FCPA. It was designed to reduce corruption in developing countries. Sanctions were to be imposed on companies involved in bribery. Since then the UK has come in for quite a lot of stick for not enforcing it. Historically, there's been a lot of inertia. It was really the US authorities that UK companies were most afraid of, which is a slightly odd state of affairs. I'm not really sure what the explanation is for this inactivity. Perhaps it's partly a result of the complexities and problems with the UK law in this area. At the moment the British law on bribery is a complete mess. We have a patchwork of different acts, some of which date back to the 1880s. It's outdated and unsatisfactory. For a long time everyone has accepted that this needs to be overhauled. We need a single bill that has clear, new, modern offences of bribery."

A new Bribery Bill is currently going through parliament. It seems to have cross party support and therefore has a good chance of making law. It would create a new corporate offence of bribery. What would this mean in practice?

"If it comes in it will make it much easier for prosecutors to go after companies. At the moment trying to prosecute companies for bribery or corruption is actually quite difficult. You have to show that someone sufficiently senior, almost the 'controlling mind' of the company, had the necessary knowledge or intent. It presents a real bar to prosecutions. Often prosecutors opt for accounting or money laundering offences because they're easier to establish. This legislation will change all that. One possibility is that a company will automatically be liable for any act of bribery by employees or agents unless it can show that it had 'adequate procedures' in place. The big question is what are adequate procedures?"

At Lovells a new international Bribery and Corruption Task Force has been launched to offer clients advice on the answer to this question.

"The work we do falls into two categories. There's the pre-emptive work of looking at an organisation's risk profile and trying to work out where its business is potentially exposed and then trying to put procedures in place. Then there's the other scenario where a law enforcement agency is actually knocking on the door. There's a hotline they can call for immediate advice."

The advice must sometimes involve fiendishly difficult judgements. For example, if a client realises they are potentially exposed do you suggest that they report themselves?

"It is very difficult. The SFO has said in its guidance that when a company reports itself, wherever possible they will try to pursue a civil settlement rather than a criminal prosecution. Avoiding that is extremely important for some clients because it can lead to a mandatory debarment from public procurement tendering under EU law. That could be a huge chunk of your business. But the SFO has said it can't offer a guarantee. So what do you do? It's a very difficult balancing exercise."

And that, in the end, is what you pay the lawyers for.

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