The Nature of Compliance

8 Medi, 2015 | Areithiau

 Alun Milford, General Counsel, at the Cambridge Symposium on Economic Crime 2015, Jesus College, Cambridge.

I am grateful for the invitation to speak again at this symposium and for the opportunity to bring a prosecutor’s perspective to the question of compliance.

In response to the development of regulation in the financial services industry many businesses developed roles for staff to ensure they did not fall foul of regulatory rules. Compliance officers and compliance departments were born, and they spent much of their time dealing with regulators as opposed to prosecutors. I think it is fair to say that businesses generally became more concerned about criminal investigators and prosecutors such as the SFO when they started to appreciate the risks they ran in foreign bribery cases. It is on that changed relationship that I would like to concentrate this morning.

The Bribery Act 2010 was passed and then brought into force amidst a substantial and, in some senses surprising, fuss. I say surprising because much of what the Act did was simply to re-cast in straightforward terms our bribery statutes which by then had seen about 100 years-worth of service. Those statutes had made no provision for facilitation payments and in passing the Bribery Act Parliament saw no reason to change that. Similarly, this sort of criminality already had an extra-territorial reach; a position Parliament built on when passing the Act. And of course, corporates were exposed to criminal liability under the old law if the controlling mind test was met just as they are now under the Bribery Act for the offences of bribery and bribery of a foreign public official.

What was new was the creation in section 7 of an offence which a commercial organisation commits if a person associated with it bribes another person intending to obtain or retain business or an advantage in the conduct of business for that organisation. Of course there is a defence where the company shows it had adequate procedures in place to prevent persons associated with it from bribing. We saw in the creation of this offence Parliament taking steps to address the intrinsic weakness in the controlling mind test, namely the way in which the most senior people in a company – those who speak and act for it – are incentivised to distance themselves from the company’s operations. Parliament was sending out a clear message here: bribery remained wrong and commercial organisations, however large and complex, should be held to account for the way in which they did business. Now it was corporate culture, as much as corporate structure, that mattered.

By the same token assistance was offered to companies that needed to change their culture. The Act required the Secretary of State to issue guidance on the adequacy of procedures, which he duly did before the Act came into force. And, of course, any number of professional advisers were and have remained willing and able to offer their services on anti-bribery compliance procedures.

With easy access to guidance and advice, it was then incumbent on companies to reflect on how they did business, and what changes they might need to make to their culture as much as to their processes.

Businesses have, of course, been doing precisely that and it is right that I recognise the Act’s success over the last few years in generating a shift in corporate culture with a new and welcome emphasis on anti-bribery compliance. What does this mean for the SFO?

First, much as we welcome the new compliance culture, we do not consider that it is for us to offer advice or assistance on compliance policies: a stance for which we have in the past been criticised. Our view is that others can and have been doing that work for some time now, often very well. Indeed, the government recently published a report into awareness and impact of the Bribery Act among SMEs, in which it was recorded that of those SMEs who had read the Secretary of State’s guidance, 89% found it useful. Of those SMEs who had sought professional advice on Bribery Act compliance, 96% found it useful and good value for money.

Quite apart from the fact that there is no gap to plug, there is a principled reason for our stance. For us to take on an advisory role would be to assume functions which simply are not in our enabling legislation. We are simply investigators and prosecutors, and it is that capacity that we assess compliance after the event and in light of the particular circumstances of the case.

When we come to investigate a business, we will look at whether bribes were offered or paid, to whom and by whom. We will consider the potential liability both of individuals and the company for the offences of bribery and bribery of a foreign public official. If appropriate, we will also consider whether there is liability for failing to prevent bribery. In looking at this, we are quite unconcerned by kite marks on company note-paper, the page count or weight of the compliance policy manual or the size of the legal and compliance teams when compared to the size of the sales force. We well understand that each company should be free to decide for itself precisely what steps it needs to take to ensure that people associated with it do not bribe. What matters to us is not form but substance.

Secondly whilst is not for us to give advice on anti-bribery compliance, the well-publicised guidance is something that we have in mind when we investigate cases. The guidance has plainly been drafted by people with an understanding of how bribery occurs. It will come as no surprise, therefore, that it gives an indication of some of the lines of enquiry that interest us.

Intermediaries and agents are a classic red flag, particularly where they are purporting to offer assistance in winning business in a country other than the one in which they are based. Only last year the OECD reported following a study of 427 foreign bribery cases from across the world that in the vast majority of such cases the bribery was carried out via an agent or intermediary. Agents or intermediaries are of real interest to us, therefore. Our natural curiosity is piqued further if those agents or intermediaries take the form of companies based in a jurisdiction that permits beneficial ownership to be concealed.

In the context of money laundering, Transparency International recently issued an excellent report on the extent to which the London property market has been affected by such secretive, off-shore companies and made some powerful points about how this, combined with a fractured regulatory landscape, could create an environment in which money laundering can take hold. Similar points about the effect of such companies can also be made in bribery cases: the same secrecy they offer helps shield from view who stands to benefit from payments made. When they come across such companies in their case work, SFO investigators will want to know why an enterprise trying to win a contract in an apparently transparent procurement process would want to do business with such a company. For the same reason, I would suggest that, in accordance with the Secretary of State’s guidance, those running businesses should want to be fully sighted on any proposed relationships with such intermediaries before they are entered into.

Thirdly, when there has been a failure of compliance and we find bribes have been paid, any attempts to justify that failure on the basis that bribery is simply the price of doing business in certain jurisdictions will fall on deaf ears. This is not, as some have suggested, an example of an anti-business stance being taken by the SFO. Rather it is the consequence of an important constitutional principle: Parliament has decided the scope of the criminal law in this area and it is not the SFO’s function to dis-apply any part of it. Of course, unlike some continental legal systems, our criminal justice system requires prosecutors to consider the public interest before determining how to deal with a case. That discretion is not given to us as a means of subverting the will of Parliament. Rather, it has to be exercised in a manner consistent with the statutory scheme and clear, accessible public policy guidance.

Let’s take the price of business argument. Its flawed premise is that the company is the victim, as it has no choice but to pay a bribe if it is to win the business. Nonsense. If you cannot do the business without committing crime, find business opportunities elsewhere as others do. We know from the report on the impact of the Bribery Act that 89% of SMEs who were aware of the Act felt it had no impact at all on their ability or plans to export.

Our law and the policies that flow from it start from the understanding that it is the people of the country whose officials are bribed who are the real victims. We know that the practical reality of such corruption is that costs of bribes are ultimately added to the price of the goods or services the bribe-paying business charges. We will form our view of the seriousness of the conduct under investigation in a manner consistent with this analysis.

This does not mean that companies cannot be victims of corruption, and this brings me to my fourth and final point. If a law abiding company, whose ethos and compliance systems do not allow it to pay bribes, loses out on business to a bribe-paying company, we want to know about it. It may be that we have jurisdiction to investigate that company even if it is not British. If we do not have such jurisdiction, we have good connections with overseas law enforcement authorities who might: 80% of world’s exports are made by the 41 member states of the OECD, all of whom are obliged to criminalise the bribery of foreign public officials.

In short, get your compliance right and carry on winning business. If others don’t adhere to your same high standards, let us know. Thank you for your attention.