First use of DPA legislation and of s.7 Bribery Act 2010.
1 Rhagfyr, 2015 | Areithiau
Ben Morgan, joint head of Bribery and Corruption at the Managing Risk and Mitigating Litigation Conference 2015
I am conscious that members of the Serious Fraud Office are asked to speak at events on a regular basis. It is something we welcome, as long as people continue to find it useful, and something that allows us to consistently explain key messages about us, our work and important events affecting those two things. But today is slightly different, for two reasons. First, you are a particularly well-informed audience when it comes to understanding the Serious Fraud Office and the legal and political framework we exist in. As senior in-house counsel, you are responsible for quality legal services in sophisticated businesses. I am sure that in performing that role you take great care in understanding the regulatory and law enforcement environment you operate in. For example, I imagine everyone in this room knows what the Roskill model is, and why it works. Most of you, I suspect, appreciate the importance of the UK having an agency using the model of both investigating and prosecuting criminal offences. And you are probably aware of why it matters that that agency is both independent – demonstrably so, given the nature of some of our work – and has as its sole priority the tackling of serious fraud, bribery and corruption. I can assure you that we at the SFO are committed to doing that work. You will all also be familiar in some form or another with the type of work the SFO does, and some of the specific examples of it that are currently in the public domain. On the fraud side, for example, our ongoing investigation into the Libor scandal which continues at pace, with some early convictions already secured as you will have seen. There are the major investor frauds, like our ongoing investigation into Solar Energy Savings Limited. That concerns a wide-spread alleged fraud on ordinary people wanting to ease their domestic energy bills by investing in what they believed would be valuable renewable energy schemes. The convictions in the Sustainable Agro Energy fraud earlier in the year are another example of that kind of work. Where we can, we clamp down on those who would simply steal from people trying to get some sort of a return on the savings they’ve built up. And then there are the corruption cases, like the convictions of senior executives in Innospec for foreign bribery, the recent conviction of a corporate for foreign bribery and our numerous ongoing investigations into similar matters, many of which you will know about. You know all of this, so I won’t labour it. The second reason that speaking to you today is slightly different is because of developments yesterday in this last category of our work, corporate foreign bribery. From a legal perspective those developments are significant, and entirely new. Yesterday at the Royal Courts of Justice the President of the Queen’s Bench Division Lord Justice Leveson approved the UK’s first ever Deferred Prosecution Agreement. Further, it was one in which the subject matter of the indictment was, for the first time, the section 7 corporate offence under the Bribery Act. The implications of this are significant for all sorts of different stakeholders, not least honest businesses wanting to trade legally, and I know that the documents associated with the DPA will be studied closely and become the subject of much analysis and comment. I am going to use this opportunity to share three early thoughts from our perspective at the SFO: The case itself / what we’ve learned about using DPAs / and the significance of the first section 7 charge under the Bribery Act. First, the case itself. I don’t really want to say much about this at all in terms of the specific facts or parties involved. The conduct in question has been dealt with appropriately, and I have no wish to advertise it any further than that. It is done, and we are busy looking at other comparable cases. But there are a couple of points of general applicability that do bear consideration for a moment. First, the decision of the bank in question to participate in DPA negotiations at all. It is maybe strange for a prosecutor to say – but credit to the parties involved for the way they have dealt with a corruption incident once it has surfaced. The bank, certain of its employees and its advisers (Jones Day and Herbert Smith Freehills) have had the courage to innovate where others will now follow. They have participated in a criminal justice process that arguably has resulted in a better outcome for all involved, including the bank itself but also the people of Tanzania who will have over $7m of their money returned to them, and UK taxpayers. For my part, that process has been an example of what I had hoped would become commonplace: In the right circumstances, it is possible for the SFO to work constructively with responsible companies and advisers who engage genuinely with us. That was certainly the case in this matter. Lord Justice Leveson has commented in detail on this first use of the DPA legislation. His judgments will be of enormous assistance to the business and legal communities for some time and I will refer to it several times today. But on this point he is very clear: “I add only this. It is obviously in the interests of justice that the SFO has been able to investigate the circumstances in which a UK registered bank acquiesced in an arrangement (however unwittingly) which had many hallmarks of bribery on a large scale and which both could and should have been prevented. Neither should it be thought that, in the hope of getting away with it, [the bank] would have been better served by taking a course which did not involve self-report, investigation and provisional agreement to a DPA with the substantial compliance requirements and financial implications that follow. For my part, I have no doubt that [the bank] has far better served its shareholders, its customers and its employees (as well as all those with whom it deals) by demonstrating its recognition of its serious failings and its determination in the future to adhere to the highest standards of banking. Such an approach can itself go a long way to repairing and, ultimately, enhancing its reputation and, in consequence, its business.” This is a conference about managing litigation risk. Once you’ve looked at it more closely, I think you will agree that there are aspects of this resolution that make very good commercial sense indeed. The second general point is just to explain the nature of the suspended indictment, to set the scene. As I have said, the charge is a section 7 Bribery Act offence – the first charged, as it happens – in which the bank has taken responsibility for failing to prevent alleged bribery by persons associated with it in another jurisdiction. Those persons made payments to a local third party, and as Lord Justice Leveson notes in his judgment, the “only inference” is that in doing so they intended the payment to induce government officials to show favour to the commercial proposal the group had, which was to take a mandate to raise funds on behalf of the government. Each case will be specific of course, but we now know that this kind of arrangement is at least conceptually one that the court will consider capable of being dealt with by a DPA. There are lots of other features that were relevant to this particular case, as I will come on to, but I think it is helpful that we have this example. The model of a company appointing local agents is a common one and while there can be good honest reasons for doing so I am certain we will see many more examples where the model has, at the very least, raised a strong inference of corruption. That is capable of creating potential liability for corporates connected to this jurisdiction, and that potential liability is at least capable of being resolved by a Deferred Prosecution Agreement. OK, so that’s a couple of observations on the case itself. What have we learned about using DPAs? Several important things. Significantly, that the court will quite rightly analyse in detail the first question it has to tackle which is, whatever the proposed terms, is the case generally one that it is likely to be in the interests of justice to resolve by way of a DPA? From this case, Lord Justice Leveson identifies four relevant features in this respect; the seriousness of the conduct, the way in which the organisation behaved once it became aware of it, any history of previous similar conduct, and, in this case, the extent to which the current corporate entity has changed from the one at the relevant time. It seems to me that the second of these – the way in which the organisation behaved once it became aware of the conduct – is particularly worth noting at a conference on managing risk, for this reason: it is something that even after the problem has occurred and the harm is done, it is still possible to influence in a positive way. Companies and their advisers would do well to reflect on those things that Lord Justice Leveson identifies as having influenced the court’s assessment of the public interests of justice under this head: As the judge says: “The second feature to which considerable weight must be attached is the fact that [the Bank] immediately reported itself to the authorities and adopted a genuinely proactive approach to the matter…In this case the disclosure was within days of the suspicions coming to the Bank’s attention, and before its solicitors had commenced (let alone completed) their own investigation.” He goes on to highlight certain features of what happened next – there was an investigation by the Bank’s advisers sanctioned by the SFO; the Bank fully cooperated with the SFO from the earliest possible date by, among other things, providing a summary of first accounts of interviewees, facilitating the interviews of current employees, providing timely and complete responses to requests for information and material and providing access to its document review platform. We have been saying for some time that we thought the bar on cooperation would be a high one if it is to satisfy the court that a DPA is in the interests of justice, and, in this case at least, that appears to have been right. As I have previously said, from our position we observe two schools of practice emerging in the corporate and legal markets: those who choose to take that approach and genuinely engage with us; and those who are stuck in the past, either pretending to do so and trying to game the system, or outright rejecting it. In the past, we used to see internal investigations that were kept from us right until the end, and culminated in a “whitewash” document, intended to put the matter to bed before we had even looked at it. I think people have realised they are a waste of money, and we don’t see them so often any more. They are virtually extinct. These days we are more likely to see investigations led by law firms taking place in parallel with ours. They will litter their correspondence with pledges of cooperation, but in fact seek to hinder, delay and generally disrupt what we are doing: we see these efforts for what they are, too, “pseudo-cooperation”. There is no magic language that can be sprinkled over lawyers’ correspondence that changes our assessment of the substance of the cooperation a company has actually offered. And when it comes to a DPA, that assessment is crucial. We will only invite a company into DPA negotiations if our Director is persuaded that they have offered genuine cooperation. And this is because we have now had confirmed what we thought all along, namely that the court will be asking the same question. We are not prepared to risk compromise to the DPA process or our credibility as a user of it by putting forward cases to the court that are anything less than 100% appropriate. What will happen then to the so-called “pseudo-cooperation” investigations? They are not yet extinct, but investigations of this nature are on the ‘endangered species’ list. People are starting to understand that they, too, are a waste of money. Every law firm we deal with tells us their corporate client is going to cooperate fully with our investigation. Only a percentage of them actually do, in our assessment. So, the message for you is, if your instructions to your external lawyers are to cooperate with us, make sure they are really doing that. Others are. And that means – prompt reporting, scoping and conducting your own investigation in conjunction with us, taking into account our interests in doing so and providing access to the kind of material we need to test the quality of evidence gathered and your own conclusions on it. You should also remember that we will have at the forefront of our mind – and so you should too – the justice of the case as it concerns other parties, in this jurisdiction or others. Hopefully, after all that is said, actually not much of this is news to you. Finally – what, from the SFO’s perspective is the significance of the first section 7 offence under the Bribery Act. It is twofold – first in relation to identifying the offence itself, and second in relation to adequate procedures. For me, this case should act as a wake-up call for those of you who are aware of similar situations, in any sector. I think it is quite easy to over-analyse circumstances surrounding the predicate bribery offence that an organisation may have failed to prevent. It is maybe tempting to lend weight to competing theories about what the role of a third party was; what a payment was really for; what the intention of making it was; why there doesn’t seem to be much evidence of work done for the payment and so on. Something that struck me from this case is how simple it can be to spot corruption. That the underlying arrangements were corrupt was, the judge found, “the only inference”. For my part, I think juries too would find it straightforward to see the corruption in arrangements like the one in this case. The trite line from investigation reports that “there is no evidence to conclude that X took place…” can come across as rather disingenuous where there are very strong inferences that X took place, and those inferences are ones that people objectively assessing a situation might be quite comfortable drawing. So whether you work for a company or are an adviser, if you know about similar conduct, you are on notice that yes – that is what bribery looks like and, yes, if you failed to prevent it that is a criminal offence. It might be worth taking a step back from the layers of analysis and advice, and seeing what’s staring you in the face. And that leaves us with adequate procedures. Is there a legitimate defence if a section 7 offence has taken place? I expect there will be cases where the defence is actually contested at trial from which we will perhaps all learn more, but again part of me wonders whether this is an area that suffers from too much navel-gazing. Where the risks and red flags are prevalent, it seems to me no amount of just sticking to a policy is going to be adequate, in the final reckoning. What is really needed is a culture in which people are able to spot what is in front of them, and react to it. The question people exposed to high risk situations need to ask themselves shouldn’t be, “Have I got a policy in place that makes this ok?”, but rather, “Is this, in fact, ok?”. The observations Lord Justice Leveson makes in his judgment tend to support this. I acknowledge it is not intended to be an exposition on this eagerly anticipated point, and nor in the circumstances could it have been. But it seems to me that the effectiveness of an organisation’s procedures should be judged by how things manifest themselves in a particular transactional context, not in the abstract. The quality of an organisation’s compliance culture isn’t defined by how much money it has spent on trying to implement it, or how earnestly people at the top talk about it, but rather by how people at the coal face actually live it. So those were my three observations: on the case itself; on the use of DPAs; and on the section 7 offence. I’d like to close with a final thought. For many reasons the advent of the use of DPA legislation is a positive thing for our justice system, and at this particular moment it is something you will probably continue to hear us talk about and that will receive plenty of coverage – both positive and negative no doubt – from other quarters. The reason we will keep explaining our take on the process is that we want it to work. Parliament created it, and we along with colleagues at the CPS have the responsibility to deliver it. But please don’t mistake our willingness to go down this route on this case for a desire to force a DPA onto every corporate case that we take on. In some, quite specific situations they will be appropriate, and we will always have in mind their possible use, but they are not the answer to everything. It is a high bar, for a DPA to be suitable, and where it is not met we have the appetite, stamina and resources to prosecute in the ordinary way. Thank you for listening.