Mabey: Too Much Heat, Too Little Considered Observation?

By Bill Waite

The U.K. Serious Fraud Office issued a news release on Friday 13th January stating that it has reached a civil settlement with the shareholders of Mabey Engineering (Holdings) Ltd to pay over £130,000 it received in dividends from Mabey & Johnson Ltd, its wholly owned subsidiary. This has occasioned the latest round of excitement in the media regarding the Serious Fraud Office and its mandate to enforce anti-bribery legislation.

The order, which appears to have been made by consent, was granted under Part 5 of the Proceeds of Crime Act 2002. This Act “enables the enforcement authority to recover, in civil proceedings before the High Court, property which is, or represents, property obtained through unlawful conduct”. “Unlawful conduct” is any conduct which is unlawful under the criminal law of the United Kingdom or, if the conduct is undertaken outside the United Kingdom, is unlawful either under local law, or if the same conduct was undertaken in the United Kingdom, would have been unlawful.

For a Court to make such an order it must be satisfied on a balance of probabilities that any matters alleged to constitute unlawful conduct have occurred.

Here, that evidential burden was easy to overcome. The subsidiary and two of its directors had pleaded guilty to bribery offences and, in the individuals’ case, been sentenced to terms of imprisonment.

In publishing the order, Richard Alderman said:

There are two key messages I would like to highlight. First, shareholders who receive the proceeds of crime can expect civil action against them to recover the money. The SFO will pursue this approach vigorously…

The second, broader point is that shareholders and investors in companies are obliged to satisfy themselves with the business practices of the companies they invest in. This is very important and we cannot emphasise it enough. It is particularly so for institutional investors who have the knowledge and expertise to do it. The SFO intends to use the civil recovery process to pursue investors who have benefitted from illegal activity. Where issues arise, we will be much less sympathetic to institutional investors whose due diligence has clearly been lax in this respect.

His statements have, of course, been given the widest possible interpretation and, in the case of his first message, the fact base against which it was delivered has been largely ignored.

In Mabey, there was as clear a causal chain as it is possible to envisage between the corrupt activity, profit in the subsidiary and the dividend. Hence the prosecution and the civil action.

His second message has been widely interpreted as imposing on all institutional investors, including pension funds, an obligation to conduct rigorous due diligence before they invest, or risk losing dividend payments as a consequence. I very much doubt that this was what he intended.

Section 7 of the Bribery Act creates a specific adequate procedures defence. The Ministry of Justice’s guidance on this section makes it clear that companies are required to take necessary and proportionate steps to mitigate the bribery risks that their businesses face. They are not required to take all possible steps to mitigate any possible risk. This interpretation has been endorsed many times by the Lord Chancellor.

It would therefore be erroneous if the obligations under the primary anti-bribery statute imposed a lesser burden on the corporate to conduct due diligence than the application of the Proceeds of Crime Act. Indeed, it is difficult to see on what predicate offence such an order might be based.

Aside from this mere legal technicality, there are public interest issues and ultimately judicial control mechanisms which make an over-zealous application of the Proceeds of Crime Act unlikely.

I would suggest that what Richard Alderman was alluding to in his remarks had a great deal more to do with merger and acquisition activity, joint ventures, private equity financing and institutional FDI, and not whether a pension fund takes a short, medium or long term position in an international business listed on a major exchange.

In many cases, companies are very well aware of their obligations to conduct proper and effective due diligence prior to investment. They have had “adequate procedures” or compliance controls for the last ten years or more – not only because of compliance risk - but because it makes eminently good business sense to understand who you are doing business with.

I suggest Mr Alderman’s remarks were a reminder to those who have not yet taken this step.

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Bill Waite is a founder of The Risk Advisory Group (a sponsor of the FCPA Blog) and an expert on anti-bribery and corruption legislation. He formerly practiced as a criminal barrister before joining the Serious Fraud Office in 1991 as a prosecutor. He can be contacted here.

Giving A Voice To Compliance Professionals

By Benjamin Kessler

Roy Snell, left, CEO of the Society of Corporate Compliance and Ethics, helps set the standards for the compliance profession.

According to its mission statement, SCCE “is dedicated to improving the quality of corporate governance, compliance and ethics.” The Minneapolis-based nonprofit provides educational resources and networking opportunities to more than 2,500 members.

Prior to joining SCCE in 2001, Snell served as Corporate Compliance Officer for the University of Wisconsin Hospital and Clinics and the University of Wisconsin Medical Foundation in Madison.

He very kindly answered a few questions about what's changing in the world of corporate compliance:

Q: How do you see your field evolving in the next five to ten years?

A: Corporate compliance will continue to get more authority, responsibility, and independence. Consolidation will occur as compliance-related functions currently scattered around the company, such as privacy, safety, etc., are moved into the compliance department.

Q: How can compliance officers and teams become more proactive?

A: We need to focus less on passive compliance tools and more on active compliance tools. Compliance professionals who constantly focus on education, policy writing, telling people to do the right thing, and continually editing and re-editing their code of conduct are going to end up reacting to problems. Compliance and ethics professionals who take the fight to the high-risk areas with auditing, investigating, interviewing, discipline, and responding to hotline calls are going to get ahead of the curve.

Q: Where will you be directing the efforts of SCCE in 2012?

A: We have a little problem at the moment related to people who have never worked in the profession trying to define our profession. Legal thinks it's all about the law, Risk thinks it's all about risk, and Audit thinks it's all about audit. Some have a vested interest, are concerned about their turf, or truly think they understand our job.

The problem is that few of them do understand it enough to define the profession. Few people who have never held a compliance job understand compliance. This is probably because it was never taught in school and the job is so new. We are trying to get a voice. One of the things we can do is gain new members.  … If we can continue the rapid growth we are currently experiencing, we should be able to get to the point where we can speak for ourselves.

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Benjamin Kessler is an editor and writer for Ethics 360. He can be contacted here.

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[Editor's note: This post is part of our series profiling global compliance leaders. Most appear on our sponsor Ethisphere’s annual list of the 100 Most Influential People in Business Ethics.]

With Compliance, More Isn't Always Better

By Benjamin Kessler

Alexandra Wrage, left, is the founder and president of TRACE International, a non-profit anti-corruption organization.

TRACE (which stands for Transparent Agents and Contracting Entities) offers member companies access to an online anti-bribery program and the annual TRACE Forum in Washington, D.C., among many other resources.

Wrage started TRACE in 2001, during her tenure as senior counsel for Northrop Grumman.

She was kind enough to answer a few questions about her anti-corruption efforts:

Q: Why did you make the leap from in-house counsel to head of an anti-corruption organization?

A: I enjoyed my time in-house, but in the anti-bribery space cooperation across companies is important. If a company is being extorted by a government official, that official will often say that the company’s competitors are willing to pay. If companies are speaking to each other, this tactic fails. I was also horrified at the amounts of money companies were spending to reach the same results.

Q: What was the most hopeful development you noticed in 2011? The most disappointing development?

A: We watched far more companies begin to take compliance seriously in 2011. It was encouraging to see many start with nothing and finish the year with a credible, functioning anti-bribery program.

On the other hand, it has been disappointing to watch some companies equate “more” with “better.” We routinely hear compliance officers asking what more they can be doing.

At some point, especially in this economy, the question is going to have to be: where do we need to pay more attention…and where can we prudently pay less?

Q: Can a multinational with an effective anti-bribery compliance program continue to do business in countries with a culture of entrenched corruption? If so, how?

A: First, I resist the expression “culture of corruption.” No culture celebrates theft and the citizens of the countries with the highest levels of corruption suffer most. … I do believe it’s possible for a company to do business anywhere without paying bribes. The business will be slower and less profitable.

Companies should build in the additional time and budget it will take to get things done when a quick pay-off isn’t an option. They will also need to plan for greater compliance resources on the ground for training and more frequent audits.

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Benjamin Kessler is an editor and writer for Ethics 360. He can be contacted here.

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[Editor's note: This post is part of our series profiling global compliance leaders. Most appear on our sponsor Ethisphere’s annual list of the 100 Most Influential People in Business Ethics. Readers are also welcome to suggest others they'd like to see profiled in this series.]

Due Diligence To Prevent Touting

By David Elesinmogun, Obumneme Egwuatu, & Marcus R. Cohen

To the untrained eye, they often appear as scrubby derelict vagabonds, haunting the steps of administrative offices throughout the developing world. Yet, this unassuming guise belies their predatory importance as quasi-official intermediaries – serving as both roadblocks and essential intercessors. They are “touts” and if your company has ever obtained official documents in West Africa, touts have likely paid cash to government officials on your behalf. And with or without your knowledge, touts may have caused your company to violate the FCPA.

To date, the preponderance of FCPA prosecutions have been related to corrupt payments to Nigerian government officials. Most of these cases involved the classic suitcase of cash given to a high-ranking dignitary. However, garden variety bribes in violation of the FCPA are paid by U.S. companies on a daily basis to middling Nigerian civil servants, and almost always by touts.

In Nigeria, the vast majority of touts linger patiently outside the Corporate Affairs Commission, the Nigerian Ports Authority, Federal Airports Authority, Motor Vehicle Administration, police headquarters, courts, as well as federal and state tax offices, seeking out “customers” in need of operational licenses, government certificates, records, or any number of other bureaucratically-blessed documents crucial to conducting legitimate commercial transactions.

More sophisticated and influential touts are seen driving Italian sports cars and hobnobbing with the official elites in Abuja and Victoria Island. These three-piece-suit touts have honed their craft and cultivated relationships with authorities farther up the official food chain. But whether they don Prada or sandals, all touts serve as shadowy middle-men, circumventing official regulatory processes by paying cash to secure administrative actions while shielding government officials from direct interaction with the bribes’ beneficiaries.

When touts serve as an agents’ agent, they often pay bribes without a company’s actual knowledge. While piercing the local agent/tout veil can be difficult, ensuring that no bribes are paid on your company’s behalf is essential. While the FCPA is not a strict liability statute, there have been convictions based on conscious avoidance of knowledge of a “substantial probability” that money would be used by a third party to make bribes. Farther down the slippery slope, the UK Bribery Act imposes strict liability on corporations that fail to prevent bribes by those acting on their behalf.  Simply trusting agents not to employ touts is a business strategy fraught with peril.

As touts and corrupt agents thrive on corporate ignorance, non-native companies doing business in the Nigerian market should consider arming themselves with local counsel, who are well-versed in local law and required procedures. Although local agents often offer assistance with corporate registration, preparation of contract bids, as well as a host of other issues, Nigerian attorneys are considerably better suited to provide such assistance. Additionally, companies doing business in Nigeria are well advised to adopt heightened due diligence practices to prevent touts from infiltrating their operations. Often the best procedures to avoid the involvement of touts and the inevitable bribes associated with them are also the most straightforward.

The Nigerian government, for its part, has recognized the economic scourge that touts represent and have moved to eradicate touting at the federal, state, and local levels. The Nigerian government recently initiated laws, instituted policies, and revamped existing systems in an effort to curb the contrivances of touts. Notwithstanding these anti-touting initiatives, the problem persists. Touting presents a unique challenge for multinational corporations conducting business in Nigeria and companies should adopt proactive strategies to avoid violating the FCPA.

Basic Recommended Tout-Prevention Measures: Ask local agents if they use touts; Verify the reputation of the local agents in the business community; Ensure that local agents deal directly with government officials and do not employ additional intermediaries; Scrutinize invoices from local agents and request official government receipts; Review official government websites to understand the applicable fees and appropriate procedural time frames; and Contact a Nigerian Foreign Mission or the Nigerian Embassy to inquire about various regulatory processes.

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Marcus Cohen is of Counsel to Sandler, Travis & Rosenberg in Washington DC, where he advises clients on compliance with U.S. and international anti-corruption measures and export controls and sanctions laws. He can be reached at mcohen@strtrade.com. 

David Elesinmogun and Obumneme Egwuatu are founding partners of Elesinmogun & Egwuatu, with offices in Lagos, Nigeria, and Washington DC. Elesinmogun's practice focuses on advising both Nigerian and international corporations in cross-border commercial ventures, banking, criminal law, securities regulation, environmental law and immigration. Egwuatu concentrates his practice on advising multinational corporations on investing in Nigeria and Africa and compliance with both Nigerian and U.S. law. They can be reached, respectively, at de@eandelawyers.com and oe@eandelawyers.com.

A version of this post first appeared in the October 3, 2011 edition of Corporate Counsel at www.Law.com.  All rights reserved by © 2011 ALM Media Properties.

Respecting Human Rights Through Due Diligence

The UN's top expert on business and human rights, Harvard Professor John Ruggie. Photo courtesy of the European ParliamentBy John Ruggie

I’d like to elaborate on Jeff Kaplan’s post on March 31, which discussed the role of Compliance and Ethics Officers in enabling their companies to respect human rights.

As custodians of the values that animate the best and most sustainable business conduct, they may find parallels and support for their work in human rights due diligence, a robust human rights risk management process for business that has been developed under my UN mandate as Special Representative to the Secretary-General for Business and Human Rights. Let me explain.

In March, I released the Guiding Principles for Business and Human Rights. They provide the first authoritative global standard for preventing and addressing the risk of adverse human rights impacts linked to business activity. The UN Human Rights Council will consider formal endorsement in June 2011.

The Guiding Principles are the product of six years of research and extensive consultations involving governments, companies, business associations, civil society, affected individuals and groups, investors and others. They outline how States and businesses should implement the UN “Protect, Respect and Remedy” Framework in order to better manage business and human rights challenges. That Framework, which I proposed in 2008, was unanimously welcomed by the Council at the time, and has since enjoyed extensive global uptake by all stakeholder groups and other international initiatives, including ISO 26000.

The Principles are organized under the UN Framework’s three pillars:

• The State Duty to Protect against human rights abuses by third parties, including business enterprises, through appropriate policies, regulation, and adjudication.

• The Corporate Responsibility to Respect human rights, which means that business enterprises should act with due diligence to avoid infringing on the rights of others and address adverse impacts with which they are involved.

• The need for greater Access to Remedy for victims of business-related abuse, both judicial and non-judicial.

The scope of a company’s responsibility to respect human rights—the Framework’s second pillar --includes avoiding adverse human rights impacts through the company’s direct operations and relationships. The due diligence necessary to meet that responsibility has the hallmarks of other business risk management systems with which the readers of this blog may be familiar; such as safety, environment, and anticorruption.

What is unique about the due diligence needed to respect human rights is its perspective. It is about respecting the dignity and value of all people. It asks companies to focus on adverse impacts not just on the company’s bottom line, but also on individuals and society. This approach resonates with the codes of conduct of the best-run global companies.

Respecting human rights requires engagement and dialogue. Therefore, the third pillar of the Framework—the need for greater access to remedy—includes a call for companies to supplement familiar whistleblower systems with grievance mechanisms that encourage employees, communities, and other affected stakeholders to raise any concerns they have in order to resolve them early and effectively through direct discussion with the company--before they accumulate, concretize, and erupt into litigation and public campaigns.

As companies worldwide begin to manage their human rights risks through due diligence, the expertise and experience of those in companies who already manage systems to prevent and mitigate harmful business impacts will become a very important resource for companies.

John Ruggie, the Berthold Beitz Professor in Human Rights and International Affairs at the Kennedy School of Government at Harvard University and an Affiliated Professor in International Legal Studies at Harvard Law School, is the Special Representative for the UN Secretary General on Business and Human Rights.