By Patricia Lee
Despite much fanfare surrounding the promulgation of the UK Bribery Act 2010 (the UK Act) nearly a year ago, there have so far been no prosecution either of corporates or individuals under the law. While the Act itself seems to have been something of an anti-climax, lawyers have told Thomson Reuters that there has been a shift in mindset among multinational corporations towards greater compliance, particularly on anti-corruption.
Twelve months ago, when the UK Act finally came into being, its extra-territorial reach topped the list of concerns among multinational corporations of both UK and non-UK origin, as well as among Asian companies which had dealings with UK organisations. Lawyers had invariably advised that companies’ only defence under the UK Act, should they become embroiled in graft, was to ensure that they had put in place adequate procedures.
While the UK Act has been touted as a far more aggressive piece of legislation than the U.S.’s Foreign Corrupt Practices Act (FPCA), lawyers have said that, if an actual prosecution is actually to make it to court, there might be quite a few considerations to be taken into account.
Strong case or lose credibility
Andrew Martin, a corporate and commercial partner at Baker & McKenzie.Wong & Leow in Singapore, said that recent difficulties in the English courts concerning other white collar crime investigations may serve to discourage the UK Serious Fraud Office (SFO) from taking aggressive enforcement action unless it is comfortable that it has a very strong case to put before the court.
“We understand that the Serious Fraud Office is working on a number of cases under the Bribery Act. Indeed, the recent OECD Working Group on Bribery report on the UK indicated that it had 11 active bribery cases and a further 18 under consideration as of January 31, 2012. We believe that at least some of these include investigations under the new law which ‘hopefully’ may result in actions under the strict liability corporate offence which has generated so much discussion. However, for the SFO to bring its first significant case to court, they would either want a guilty plea upfront or be very confident that they are going to win at trial if necessary. Any initial failure will inevitably result in them losing a degree of credibility,” he told Thomson Reuters.
Martin said the success or failure of a bribery case that goes to trial would be at the mercy of the court, which may not necessarily end up finding in the SFO’s favour. “The danger for any enforcement agency, especially for any new law, is that the court may have a different interpretation of the law from how the enforcement agencies would wish to see it applied. You can never be sure how the judge is going to apply the law in any given case, in particular a criminal case in a new field. Naturally, enforcement agencies are seen as taking aggressive positions on the enforcement of criminal law, but the courts may take a different approach as recent cases in the U.S. have suggested in relation to the FCPA,” he said.
Martin pointed out that corporate settlements in the U.S. had shown that enforcement agencies as well as companies ensnared in acts of bribery often preferred to avoid the uncertain outcome of going to court. “This was not so easy in the UK, where plea agreements involving submissions on specific sentences for criminal offences were frowned upon by the courts for usurping judicial discretion. However, there were other weapons in the SFO’s armoury including civil recovery orders that force defendants to forfeit property obtained through unlawful conduct. These orders are successful if the SFO can show on the balance of probabilities that the relevant property was obtained through criminal conduct. The burden of proof is ‘beyond reasonable doubt’ for criminal charges which, all other things being equal, significantly raises the risk of failure for the prosecutor,” he said.
Those challenges, Martin said, explained why many graft cases in the U.S. tended to get settled out of court rather than proceed to trial, which were helped by an established and accepted plea settlement process. He said in many U.S. cases, companies guilty of bribery would agree to certain fines imposed by the regulators, while some cases would involve additional financial penalty such as disgorgement of the profits particularly where the company involved had secured contracts and made profits out of bribery. “Bear in mind that for corporate prosecutions, there is no one to serve jail time unless the authorities were also pursuing officers and employees, so corruption cases tend to get settled,” he said.
Shift in thinking
Maurice Burke, partner at Herbert Smith in Singapore, said there had been limited guidance on how the SFO would pursue corruption cases, particularly outside the UK. The legislation, he said, had certainly focused people’s minds on compliance efforts. “Compliance needs to be an engaged, intensive and ongoing process. We have seen much more anti-corruption compliance efforts. The UK Bribery Act has been a useful catalyst for that thinking, although this could be the coming together of a number of influences,” he told Thomson Reuters.
Burke, who heads up the firm’s dispute resolution practice in Southeast Asia, said the UK Act came at a time when the world has become a much more regulated place, and when enforcement agencies have been taking increasingly aggressive stance. “The broader impact of the UK Bribery Act is that it has come at a time when people are more concerned about issues of corruption, and they are now much less inclined to turn a blind eye to such issues in jurisdictions where there are known corruption problems,” he added.
The changing business environment, coupled with an increasing amount of regulation, has also forced companies to ask themselves how they can be competitive and compliant at the same time. “Companies are asking themselves how they can continue to do business in markets against competitors with less strict compliance systems,” Burke told Thomson Reuters.
Burke said the more sophisticated Western companies such as those in the mining industry have been looking to corporate social responsibility (CSR) as a means to maintain their competitive edge in difficult market conditions. “That [CSR] is very compelling but not always easy or possible, which is why transparency is important,” he added.
Burke said the increasing awareness of compliance on anti-corruption issues would entail re-educating employees. He pointed out that some companies were being probed for graft because their employees were trying to do the right thing for the companies such as in securing contracts. What has become a concern in the process, he said, is that some companies seemed to have given their employees the idea that they would never penalise them for paying a bribe. “Companies are now telling their employees very clearly that they will not be penalised for failing to secure contracts, even if they do not pay bribes,” he said.
To this end, Burke emphasised the importance of re-educating the concept of whistle-blowing and self-reporting regardless of the origin and national culture of companies. Lawyers have noted that the U.S regulators have been very successful in educating companies on self-reporting.
Legislation to regulate behaviour
The challenge for Asia, Burke said, lies in the patchy domestic regulatory framework in different jurisdictions, with various levels of enforcement and not much concept of self-reporting. “If you look at Southeast Asia, there are countries that unfortunately have an environment where corruption is a reality. Corruption cases, when reported, can be driven by competitors or ex-employees of a company,” he said.
Burke pointed out that anti-corruption legislation from foreign companies’ home jurisdictions can “follow” those companies to Asia. “Companies from outside of Asia can find themselves exposed to prosecution both at home and in Asia in relation to the same corruption issues,” he said.
Martin added: “Legislation is to regulate behaviour. Enforcement agencies are there to investigate and prosecute. The [UK Bribery] Act has a deterrent effect on corruption. Without penalty at law, nobody will ever want to settle. Just how big a stick remains to be seen. As the Act turns one year old on July 1, we await our first big case.”