The Coming Chaos In Global Enforcement

Anti-corruption laws are breaking out all over.

In a few days, the U.K. Bribery Act will be a reality. Other countries, prodded by the OECD and U.S., are criminalizing overseas public bribery. Spain, the Netherlands, and the Czech Republic are among them. Russia has a new law, so do India and China. Indonesia wants one. In South America, Brazil joins the club, and others are talking about it.

It's good news.

But what happens to a company and its executives if they're prosecuted in three, four, or five jurisdictions for the same bribes? Will the companies pay multiple fines? Will individuals be handed off from one prison to the next?

No one knows how it will work. There's no international superstructure in place to sort it out. And with big money up for grabs, there's sure to be enforcement competition.

Earlier this year, we asked Richard Alderman, head of the U.K.'s Serious Fraud Office, about it. Here's the exchange:

FCPA Blog: When the Bribery Act becomes effective, should global companies fear the prospect of duplicate enforcement actions in both the U.S. and U.K.?

Richard Alderman: The SFO works closely with the DOJ and the SEC. We shall discuss how best to proceed. I do not want to see duplicate actions in each jurisdiction. I want the SFO to be able to agree with our U.S. counterparts on a resolution that we can pursue jointly with the corporate.

FCPA Blog: Isn't the prospect of multiple prosecutions even more disturbing if other countries join the U.S. and U.K. in aggressively pursuing global corruption? Do we need some kind of supra-national enforcement body?

Richard Alderman: It is important that the enforcement authorities liaise closely together so that there can be an overall resolution subject to the decisions of the courts in each jurisdiction. These issues are best left to the authorities in each jurisdiction and the courts.

Good intentions. But as more overseas antibribery laws come on line, will enforcement agencies always cooperate? Or will they sometimes compete?

For starters, the coming uncertainty will make self reporting less attractive. After a voluntary disclosure in Washington, what will happen when prosecutors get a whiff of it in London, Madrid, Prague, Moscow, Beijing, and ten other places?

Yet, with SOX obligations and the new SEC whistleblower rules, can any issuer really make a case against self reporting, even for one-off compliance problems? There are no easy answers.

So, let the chaos begin.

The Future Of British Enforcement

SFO Director Richard Alderman: 'Ethical companies have nothing to fear.'Richard Alderman has been the director of the U.K.'s Serious Fraud Office since 2008. He's a barrister who, before becoming Britain's chief graft buster, headed the civil investigations division for Revenue and Customs, leading a staff of 3,000.

By the end of his first year at the SFO, the agency was working on about 65 cases. In 2009, the number rose to 86 cases. His target is 100 cases a year. 

Alderman, 58, agreed recently to answer questions about the Bribery Act, duplicate enforcement, and global compliance. Here's the exchange:

FCPA Blog: When the Bribery Act becomes effective, should global companies fear the prospect of duplicate enforcement actions in both the U.S. and U.K.?

Richard Alderman: The SFO works closely with the DOJ and the SEC. We shall discuss how best to proceed. I do not want to see duplicate actions in each jurisdiction. I want the SFO to be able to agree with our U.S. counterparts on a resolution that we can pursue jointly with the corporate.

FCPA Blog: Isn't the prospect of multiple prosecutions even more disturbing if other countries join the U.S. and U.K. in aggressively pursuing global corruption? Do we need some kind of supra-national enforcement body?

Richard Alderman: It is important that the enforcement authorities liaise closely together so that there can be an overall resolution subject to the decisions of the courts in each jurisdiction. These issues are best left to the authorities in each jurisdiction and the courts.

FCPA Blog: Does the SFO have adequate authority to deal with companies that self-report offenses  and whistleblowers from inside companies that may seek credit for their cooperation?

Richard Alderman: We are very committed to making self reporting work. It has many advantages for corporates, the public and the SFO. We have to identify the cases where a civil resolution is appropriate and take this to a Judge with civil jurisdiction. Whistleblowers who come to the SFO are motivated by public spirit. They are looking to the SFO to bring about justice. Financial rewards are unnecessary in these cases.

FCPA Blog: There seems to be a lot of loud opposition to the Bribery Act. Do you think the U.K. is ready for the new law or is a cultural shift still some years away?

Richard Alderman: The SFO is a strong supporter of the Bribery Act. Good ethical corporates in the U.K. already have major compliance programmes and a strong anti-corruption culture. They have nothing to fear from the Act. The corporates and individuals who should be fearful are those who want to continue to use corruption to gain a business advantage over those companies that are not prepared to act corruptly.

*     *     *

The FCPA Blog on the road. We'll be speaking in Houston on March 10. Hope to see you there. More details here.

Bribery Act Guidance Released

By Thomas Fox

The U.K. Ministry of Justice has released its “Consultation on guidance about commercial organisations preventing bribery (section 9 of the Bribery Act 2010)." As required by the Act, it provides guidance to “support businesses in determining the sorts of bribery prevention measures they can put in place.”

Businesses covered by the Bribery Act can be convicted of a criminal offense if they fail to prevent bribery on their behalf. However, the Act provides that if the organization can show that it has adequate bribery prevention procedures in place, such “adequate procedures” are a defense to a prosecution.

The Consultation lists “Six Principles for Bribery Prevention." The Ministry of Justice believes the principles are good international practices for such adequate procedures and will assist businesses in determining what bribery prevention procedures they can put in place.

The Six Principles for Bribery Prevention are:

1.    Risk Assessment – this is about knowing and keeping up to date with the bribery risks you face in your sector and market.

2.    Top level commitment – this concerns establishing a culture across the organization in which bribery is unacceptable. If your business is small or medium sized this may not require much sophistication but the theme is making the message clear, unambiguous and regularly made to all staff and business partners.

3.    Due diligence – this is about knowing who you do business with; knowing why, when and to whom you are releasing funds and seeking reciprocal anti-bribery agreements; and being in a position to feel confident that business relationships are transparent and ethical.

4.    Clear, Practical and Accessible Policies and Procedures – this concerns applying them to everyone you employ and business partners under your effective control and covering all relevant risks such as political and charitable contributions, gifts and hospitality, promotional expenses, and responding to demands for facilitation demands or when an allegation of bribery comes to light.

5.    Effective implementation – this is about going beyond "paper compliance" to embedding anti-bribery in your organization’s internal controls, recruitment and remuneration policies, operations, communications and training on practical business issues.

6.    Monitoring and review – this relates to auditing and financial controls that are sensitive to bribery and are transparent, considering how regularly you need to review your policies and procedures, and whether external verification would help.

The Consultation invites interested parties to comment on these Principles. The comment period will last eight weeks. The Consultation is a very useful tool for any company wanting to measure its current compliance and ethics program.

While this Consultation (available for download here) only deals with the U.K. Bribery Act’s requirements, it could also be a valuable tool for companies subject to the Foreign Corrupt Practices Act to measure their FCPA compliance policy as well.

Thomas Fox is an attorney in Houston, Texas, specializing in FCPA compliance, risk management and international transactions. His blog can be found here and he can be reached at tfox@tfoxlaw.com.

The British Question

This week's news that the newly elected U.K. government cracked under pressure from the business lobby and delayed implementing the Bribery Act until April 2011 was a setback for lots of reasons.

Opponents claimed they needed more guidance to help them comply with the new scheme. What will happen to the Bribery Act between now and next April is anyone's guess. Many think the government is likely to water down its provisions if not kill the act altogether.

The new law was supposed to clarify a century-old patchwork of statutes and common law and extend compliance obligations in a way similar to the Foreign Corrupt Practices Act.

All new laws raise questions. "Don't spit on the sidewalk" can induce the same sort of panic as the Bribery Act. What's the definition of spit, do both feet need to be on the sidewalk, what about medically induced spitting, how about unconscious drooling? But very quickly judges, defendents, and lawyers figure out what laws mean, as happened with the FCPA and countless other decrees through the ages, and life and business go on.

The U.K. knee buckling means that 33 years after enactment of the FCPA, the U.S. is still nearly alone in the battle against global graft. But for the battle to be won, and for American companies to ever enjoy a level playing field, the U.S. needs allies. The U.K. was about to become the first full-fledged partner.

Meanwhile, the U.K.'s Serious Fraud Office -- the agency responsible for prosecuting major cases of overseas corruption -- is struggling against its own domestic opposition. The SFO's ability to join the U.S. Justice Department in forging global settlements with global defendants in global anti-corruption prosecutions is up in the air.

In March this year, Britain's second-ranking criminal judge said the $12.7 million fine the SFO agreed with a U.K. division of Innospec Inc. went beyond the SFO's authority. Delaware-based Innospec had reached what it believed was a $40 million global settlement with U.S. prosecutors and the SFO. At Innospec's hearing, however, Lord Justice Thomas, the deputy head of criminal justice in the U.K. courts, said: “I have concluded that the director of the SFO had no power to enter into the arrangements made and no such arrangements should be made again.” 

A few weeks ago, the SFO's director, Richard Alderman, tried to reassure the world that global settlements are still on the table. But he didn't sound too sure himself. He said:

The question here is whether the SFO remains committed to taking part in global resolutions in cases where a corporate is subject to the jurisdiction of the authorities in a number of different countries. The answer to that emphatically is yes. We are very committed to this. Clearly we are feeling our way. Global resolutions in cases of concurrent jurisdiction are new and, until recently, our Judges have not had to consider the issues that arise in these cases. Innospec was our first global resolution and we obtained guidance on some of the issues from the Judge in that case.

As Trace has reported, of 515 outbound, or foreign enforcement actions, more than 75 percent are U.S. matters. The remaining 25 percent are the result of the combined efforts of 21 other nations. The United Kingdom ranks a distant second in the number of outbound bribery cases with 4.3 percent of the total.

Some help is better than none. But without real partners, America's anti-corruption effort won't be effective and over time will look more and more like legal bullying. It's not a one-country fight but a global fight. Whether the U.K. is really part of that fight is now an open question.

Goodbye, Mr. Mendelsohn

As head of the DOJ's Foreign Corrupt Practices Act enforcement unit, Mark Mendelsohn transformed the FCPA from a legal backwater to a headline practice. He's leaving the Justice Department Friday after a dozen years, and leaving behind the most aggressive overseas anti-bribery regime in the world.

In November last year, Mendelsohn's boss, Assistant AG Lanny Breuer, called him an "exceptional public servant and a visionary steward of the FCPA program." In private practice, he's expected to earn between $2.5 and $3 million a year. 

Mendelsohn's view of the FCPA and American anti-corruption policy wasn't complicated. He pushed enforcement against corporations of any size and from any country -- including U.S.-government contractor KBR, German industrial giants Siemens and Daimler AG, British-based BAE Systems, and France's Alcatel-Lucent. Financial penalties ballooned during Mendelsohn's time, topped by Siemens' $800 million payment to the DOJ and SEC in December 2008.

He also led the government's charge against individual FCPA defendants -- among them KBR's Jack Stanley, entrepreneur Frederic Bourke, and the 22 shot-show defendants. 

During his term, no corporations mounted a courtroom defense against FCPA charges; instead all made deals with the DOJ to settle their cases. That gave Mendelsohn extraordinary power -- in the FCPA realm, he and the DOJ became prosecutor, judge, and jury. That's more power than most mortals can handle, but he did just fine. 

Like all top cops, he was criticized from every direction. Some said he was overzealous, that his expansive view of the FCPA went far beyond Congress' original intent. Others complained that corporations enjoyed easy settlements, based not on bribery charges but only related offenses, and never resulting in debarment from U.S. government business. But his fans cheered because nearly all corporate defendants were given second chances.

Above all, Mendelsohn was an honest advocate for compliance, not only at home but abroad. That may be his most important contribution. His steady hand encouraged prosecutors in other countries to fight public sleaze. And his FCPA team partnered with counterparts in England and Germany, Italy and France, Switzerland, Hungary, Costa Rica, Nigeria and elsewhere, forging ties that led to the first real global enforcement actions. Those cases helped change attitudes everywhere.

His boss was right. Mark Mendelsohn was an extraordinary public servant and an FCPA visionary.