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Corporate Crime & Corruption Informer: Anti-Corruption snowball gathers momentum

Tony Lewis
29/12/2014

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United Kingdom

Yesterday marked a number of significant anti-corruption developments for businesses.

Anti-Corruption snowball gathers momentum

This alerter was first sent on the 23rd December 2014. 

Yesterday marked a number of significant anti-corruption developments for businesses:
   
First, in the UK the Serious Fraud Office ("SFO") obtained its   first conviction against a corporation for bribing foreign officials.  A   jury at Southwark crown court in London found Smith & Ouzman Ltd guilty   of making £500,000 of corrupt payments to secure contracts in Kenya and   Mauritania. Smith and Ouzman Ltd, a printing firm based in England, which  specialises in security documents such as ballot papers and certificates, was  convicted of three counts of corruptly agreeing to make payments, contrary to   section 1(1) of the Prevention of Corruption Act 1906.The company will be  sentenced, along with two former directors, in February 2015.
   
Secondly, in the US, French company Alstom SA pleaded guilty to bribing   officials in Indonesia, Saudi Arabia, Egypt, and the Bahamas. The Department  of Justice ("DoJ") had charged the company with violating the Foreign Corrupt Practices Act by falsifying its books and records and failing  to implement adequate internal controls. In addition, Alstom Network Schweiz AG, a Swiss subsidiary, pleaded guilty to a criminal information charging it with conspiracy to violate the anti-bribery provisions of the FCPA. Two U.S. subsidiaries, Alstom Power Inc. and Alstom Grid Inc., entered  into deferred prosecution agreements with the DOJ. "In total," the  DOJ said, "Alstom paid more than $75 million to secure $4 billion in  projects around the world, with a profit to the company of approximately $300 million."  It will pay $772 million in criminal penalties to settle the charges.
   
Thirdly, back in the UK, the SFO also charged an English subsidiary of Alstom SA, Alstom Power Ltd, and two employees with bribing officials at a  state-controlled Lithuanian energy company. Yesterday's charges relate to a  project Alstom was involved in at the Elektrenai Power Plant in Lithuania. A preliminary hearing is scheduled in January 2015 at Southwark crown court in London. Alstom Power Ltd is the second Alstom business to face bribery charges in the UK. The SFO charged Alstom Network UK in July 2014 with six offences of corruption. The SFO said Alstom Network paid US$8.5 million in bribes between 2000 and 2006 for work on the Delhi Metro and tram and infrastructure projects in Warsaw and Tunis. (see Fieldfisher alerter 25 July 2014).

Commentary

Yesterday's developments are significant, and may mark the start of a more aggressive corruption enforcement environment. In the US, the Alstom penalty is the largest ever by the DoJ for foreign bribery. In the UK, Smith & Ouzman marks the first SFO conviction of a corporate for bribery of foreign public officials. The Smith & Ouzman conviction follows hard on the heels of the SFO's first convictions against individuals under the Bribery Act legislation earlier this month (see Fieldfisher alerter 10 December 2014).  Also, last week the Scottish prosecutor, the Crown Office, reported that oil services firm International Tubular Services had admitted making corrupt payments to secure contracts in Kazakhstan, and the Crown Office civil recovery unit had seized monies under proceeds of crime laws.  

It is notable that these corruption developments relate to businesses. In the UK the Smith & Ouzman and Alstom corporate charges are under the old corruption law because the offences are alleged to have taken place prior to the implementation of the Bribery Act 2010. This means that a prosecutor needs to prove beyond reasonable doubt that the actions and intent required to commit the offences were those of a directing mind and will of the business. Historically prosecutors have found it difficult to prove that a 'directing mind and will' of the corporate had the requisite knowledge. By contrast, there is no such requirement under the Bribery Act under which a company can be held liable for a bribe paid on its behalf even if nobody within the company knew about the bribe. For this reason it will be far easier in future cases for prosecutors to secure a conviction of a corporate under the new law which applies to behaviour that took place after 1 July 2011.  

It is also notable that these developments relate to overseas corruption; Kenya and Mauritania (Smith & Ouzman), Indonesia, Saudi Arabia, Egypt, and the Bahamas (Alstom SA), Lithuania (Alstom Power Ltd), India, Poland and Tunisia (Alstom Network UK), and Kazakhstan (ITS).  Both the UK bribery legislation, and the US Foreign Corrupt Practices Act, have extra-territorial application, and it appears that prosecutors are increasingly willing to invoke that jurisdictional reach in prosecutions against companies. For the UK Bribery Act, if an entity "carries on a business or part of a business" in the UK, then it can be liable for a bribe paid anywhere in the world by itself or any person "performing services" for it.  

Finally, it is notable that the developments in the UK come days after the publication of the UK government's Anti-Corruption Plan. The Plan, which arises from a six-month review of the roles of the various UK bodies involved in the investigation and prosecution of economic crimes, sets out over 60 recommendations to be taken forward by the government and its partners. Those recommendations include consideration of what more can be done to incentivise and support whistleblowers in cases of bribery of corruption. In the US financial incentives for whistleblowers are already in place, and the Plan says that these "should not be ruled out" in the UK. Also, the Plan reveals that the UK Ministry of Justice will be examining the case for a new criminal offence of corporate failure to prevent economic crime, and the rules on establishing corporate criminal liability more widely. The new criminal offence has been in gestation for some time, and is likely to be modelled on section 7 of the Bribery Act 2010 (strict liability for businesses, subject to a defence of "adequate procedures"). (see Fieldfisher alerter 17 June 2013). If implemented it is clear that the recommendations in the Plan will result in increased financial crime enforcement action by prosecutors against companies in the UK.

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