The FCPA Blog

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.

For the second time in recent months, U.K. judges have warned the Serious Fraud Office not to make plea deals in overseas bribery cases, throwing into doubt the agency's whistleblower program and its partnership with the U.S. Justice Department in resolving global corruption cases.

This week a U.K. appeals court affirmed the suspended sentence agreed between the SFO and a former sales executive who helped bribe Greek doctors and then turned whistleblower. But at the same time, the court said the SFO's U.S.-style approach was unconstitutional.

Robert John Dougall, 45, formerly marketing director of DePuy, pleaded guilty in April to making £4.5 million in corrupt payments to Greek medical professionals within the state-controlled healthcare system. DePuy, acquired by Johnson & Johnson in 1999, makes and sells orthopedic devices. 

The SFO said Dougall was the first "co-operating defendant" in a major SFO corruption investigation. It had recommended leniency in exchange for his guilty plea and help in the case, as typically happens in U.S. white-collar prosecutions. The SFO asked for a suspended sentence; the trial court instead sent Dougall to prison for a year.

The appeals court reversed the sentence but hammered the SFO. It said "agreements between the prosecution and the defense about the sentences to be imposed in fraud and corruption cases were constitutionally forbidden" and solely under the purview of judges, according to reports.

In March, 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, 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.” Although he confirmed the U.K. part of the fine agreed by the SFO, he called the amount "wholly inadequate." See our post here.

The SFO first charged Dougall in November 2009 after a "referral" from the U.S. Justice Department. Two months earlier, DePuy and four other orthopedic device makers -- Biomet, Zimmer, Smith & Nephew and Stryker -- had agreed to pay $310 million to settle charges they paid kickbacks to induce U.S. doctors to buy their products. Since the U.S. settlement, the four companies, along with Medtronic Inc. and Wright Medical Group, have disclosed DOJ and SEC Foreign Corrupt Practices Act investigations. See our post here.

People ask us why there's so much going on with the FCPA and other anti-corruption laws right now? What's changed? they want to know. And what's coming?

Here's what we tell them:

Human rights. Politicians, activists, and citizens everywhere have a better understanding that graft destroys liberty and freedom and replaces it with fear and repression. Those forced to pay bribes for police protection, medical services, electricity, drinking water, and education are less free than those who don't. Clean government is becoming the new norm.

National and global security. The world's a dangerous place. And countries with corrupt governments aren't reliable allies. They have leaky borders, erratic law enforcement agencies, and weak passport controls. Corrupt countries are safe havens for the bad guys so reducing corruption helps protect the rest of us.

Bang for the buck. How much does it cost a government to bring an enforcement action against a big corporation? And how much does a government get back in penalties? In the Siemens case -- the best example -- the U.S and Germany may have spent, say, $10 or $20 million on the prosecution. They got back $1.6 billion. A great return, and a great argument at budget time for more enforcement resources.

Low-hanging fruit. Some enforcement actions -- lots of them these days -- are falling into the lap of the DOJ, SEC, and now the SFO. Public companies are generally required under the U.S. securities laws to self-report potential FCPA violations. Then they're required to conduct an internal investigation and report the results to the law enforcement agencies. Those agencies then propose proportionate penalties. There's some negotiation but in the end all companies must cut a deal. Case closed. How difficult was that for the feds?

The big mo. Like environmental cases 20 years ago, or drug suits, or waves of antitrust actions -- legal trends come into fashion and then fade. When something is hot, everyone wants in -- prosecutors, private firms, politicians, and NGOs. And when the press joins the party, get ready for take off. Right now the legal tilt is toward anti-corruption enforcement. Are we at the apex? Not yet. Let's see what happens over the next few years.

The U.K.'s Serious Fraud Office said this week that a former DePuy executive pleaded guilty to making £4.5 million in corrupt payments to Greek medical professionals within the state-controlled healthcare system. He was sentenced to 12 months in prison.

Robert John Dougall, 45, was DePuy's marketing director. The company, acquired by Johnson & Johnson in 1999, makes and sells orthodpedic devices. The SFO said from 2002 to 2005, Dougall arranged the payment of commissions to surgeons as an inducement to use DePuy's products. The payments were made through agents and offshore accounts.

The SFO said its investigation began "following a referral by the U.S. Department of Justice in October 2007."  Dougall, it said, is the first "co-operating defendant" in a major SFO corruption investigation, which is ongoing.

Dougall was first charged by the SFO in November 2009. In September 2007, DePuy and four other orthopedic device makers -- Biomet, Zimmer, Smith & Nephew and Stryker -- agreed to pay $310 million to settle charges they paid kickbacks to induce U.S. doctors to buy their products. Since the U.S. settlement, the four companies, along with Medtronic Inc. and Wright Medical Group, have disclosed DOJ and SEC Foreign Corrupt Practices Act investigations. See our post here.

A copy of the SFO's April 14, 2010 release can be viewed here.

SFO Director Richard Alderman: Good job, don't do it again. A senior Crown Court judge on Friday warned the head of Britain's Serious Fraud Office (SFO) that he doesn't have the legal authority to settle corruption prosecutions with plea bargains.

The judge's comments raise doubts about the SFO's ability to cooperate with the DOJ and SEC in crafting global settlements for companies that agree to plead guilty. And companies seeking joint settlements may now fear being fined twice for the same offenses.

Lord Justice Thomas, Britain's second-ranking criminal judge, was speaking during a hearing involving the British division of Innospec, Inc., the Delaware-based chemical maker that in mid-March reached a global settlement with U.S. prosecutors and the SFO.

The judge approved the U.K. plea deal and penalty but said the $12.7 million fine the SFO agreed with Innospec was inadequate and went beyond the SFO's authority. In the U.S., Innospec agreed with the DOJ to pay a $14.1 million criminal fine and disgorge $11.2 million in profits to the SEC. It also agreed to pay $2.2 million to the U.S. Office of Foreign Assets Control for violating America's embargo against Cuba.

According to the Independent, the judge, who's the deputy head of criminal justice, 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.”

The Financial Times (registration required) reported Lord Justice Thomas as saying that "while [SFO director] Alderman's 'vigorous prosecution' of Cheshire-based Innospec was praiseworthy, the director had exceeded his powers in the course of striking a joint deal with the U.S. authorities over the total penalty of just over $40 million the company would pay. The judge said he confirmed the U.K. part of the fine 'reluctantly,' as it was 'wholly inadequate' and should have been in the tens of millions for a 'very serious' offence."

The judge said under English law only judges can impose sentences. “This has always been the position under the law of England and Wales. Agreements and submissions of the type put forward in this case can have no effect,” he said, according to the Times.

Judge Thomas' remarks also open the possibility that BAE's settlement with the SFO may come under judicial fire. The company agreed in February to a U.K. penalty of £30 million. At the same time, it agreed with the DOJ to a U.S. criminal fine of $400 million.

In the U.S., plea bargains also need court approval. However, judges usually defer to the DOJ and SEC and accept the terms those agencies agree with defendants.