Words’ worth
Date: 09 October 2009
Authors: Alex Rene & Sarah Thomas
Issue: Vol 159, Issue 7388
Categories: Features, Procedure & practice
In the wake of the Bribery Bill published earlier this year, the UK enforcement authorities, and in particular the Serious Fraud Office (SFO), are demonstrating that enforcement against individuals and companies involved in corrupt activity is high on their list of priorities.
The most recent example of this focus is the SFO’s announcement earlier this month that it intends to seek the attorney general’s consent to prosecute BAE Systems for corruption offences relating to government contracts in Tanzania, South Africa, Romania and the Czech Republic.
This announcement builds on a year of successes for the SFO and on greater co-operation from British forces. In October 2008, Nigel Heath, a former solicitor, was sentenced to six months in prison after pleading guilty to conspiring with three others to offer US government law enforcement officers a bribe of $500,000.
The money was found to have been offered in the hope of securing the discharge of a number of freezing orders over bank accounts. The freezing orders had been obtained by the US Department of Justice as part of its prosecution of an alleged Ponzi fraud scheme called the “Vavasseur Programme”, run by an American named Terry Dowdell, in which the defendants had participated.
Mr Heath, along with his co-conspirators, two British accountants named Alan White and Shinder Gangar, was found to have persuaded clients to hand over more than $100m as part of the Vavasseur Programme. Inevitably, the Ponzi scheme collapsed and Mr Dowdell was investigated by the US authorities. In the process of this investigation the Securities and Exchange Commission obtained freezing orders over assets in the US which prevented Mr Heath, Mr White and Mr Gangar making interest payments to their clients.
In the criminal proceedings, the prosecution alleged that Mr Dowdell had persuaded Mr Heath, Mr Gangar and Mr White to hand over $250,000 to him to enable him to offer a bribe to an unnamed US government official. No monies were found to have been paid to a government official, and it is unclear whether Mr Dowdell had ever intended to use the money to offer a bribe. Nevertheless, after pleading guilty to corruption, Mr Heath was sentenced to six months in prison for conspiracy to corrupt, while Mr Gangar and Mr White were sentenced to 18 months in prison.
The conviction was a particular achievement for the SFO, of whom Mr Justice Langstaff commented in court: “It has struck me throughout as having been comprehensively, carefully and meticulously prepared.” The case is another example of the continually developing co-operation which is beginning to take effect between the UK and US enforcement bodies.
SFO prosecutes construction firm
On 10 July this year, it was reported that Mabey & Johnson Ltd (a supplier of steel bridging) appeared at Westminster Magistrates’ Court and indicated that it would plead guilty to charges of corruption. The case is the first prosecution in the UK against a company in respect of activities taking place overseas, and is an indication of how cases are likely to proceed once more tailored offences relating to overseas corruption under the Bribery Bill become law.
The prosecution of Mabey & Johnson Ltd arose from a voluntary disclosure to the SFO by its parent company. Ten charges of corruption and related offences were brought against their firm, including in relation to its attempts to influence those responsible for awarding public contracts in Jamaica and Ghana in the 1990s. Since self-reporting, five of Mabey & Johnson Ltd’s eight directors have stood down and the parent company has taken steps to retrain staff in an effort to make a “fresh start”.
The SFO has refused to be drawn in the press on whether criminal charges will be brought against any individuals. However, on 25 September a hearing at Southwark Crown Court determined that the company would pay a total of £6.6m in fines and reparations. SFO director Richard Alderman described the conviction as a “landmark outcome”.
SFO’s new guidance
The Mabey & Johnson case coincides with the publication of SFO’s new guidance on how it will deal with overseas corruption (the guidance). The guidance is designed to encourage self-reporting by UK businesses and to clarify how an SFO investigation in such cases is likely to proceed.
The guidance signals a key change in focus from the SFO, towards prosecuting bribery occurring overseas, in anticipation of the new Bribery Bill becoming law. It borrows themes and methodologies from the guidance of US regulators and offers a number of benefits which may be available to UK businesses who use the self reporting process.
Those benefits include: the availability of a civil sanction rather than a criminal prosecution; the opportunity to work with the SFO to minimize negative publicity; and the avoidance of an automatic bar from involvement in public and private utilities contracts.
By contrast, the SFO indicates in the guidance that it will regard an active decision not to self-report as a negative factor likely to increase the prospect of criminal sanctions against a UK business.
The guidance also envisages that in many cases the business that has self-reported to the SFO will remain involved in any investigation, with the business’s own professional advisors conducting an investigation at the business’s own expense.
Where a business fails to self-report, SFO envisages that there may be a more intrusive criminal investigation followed by prosecution and a confiscation order. In another practice borrowed from the US, the SFO guidance identifies the imposition of an independent corporate monitor as a possible sanction following self-reporting, and this monitoring sanction has already been imposed on Mabey & Johnson.
The guidance is welcome as a clarification of existing processes and for introducing new practices. The information it provides will enable businesses to understand better the benefits of self-reporting to the SFO and in taking a proactive stance towards internal concerns over compliance with bribery legislation.
“Corrupt” employee pursued
On 21 July 2009 judgment was handed down in the High Court in a claim by the National Grid Electricity Transmission Plc against employee Andrew McKenzie.
Mr McKenzie was a project engineer responsible for a number of maintenance projects across 4,500 miles of overhead electricity lines carried on towers. His role included identifying the scope of projects which needed to be undertaken; liaising with tenders received, and working with team leaders to award contracts.
Mr McKenzie was found by the court to have dishonestly accepted payments in return for engaging or recommending certain companies in projects for National Grid and for supporting their tenders for work. The activity over which National Grid claimed compensation carried on for four years between 2002 and 2006. The alleged acts of bribery in which Mr McKenzie engaged were many and complicated.
It is unclear at the present time whether any criminal prosecutions will be brought in connection with the case.
The ferocity of National Grid’s pursuit of its former employees is emphasised by the fact that it claimed a sum of £5.26m plus costs, which the judge found to be far in excess of what the defendants were alleged to have received from their dishonest activities.
The judge viewed National Grid’s pursuit of Mr McKenzie and an accomplice, Mr Read, as more about “the relentless pursuit [of the defendants and] the vindication of National Grid’s management team than it was about the recovery of compensation for alleged wrongs”. National Grid’s approach to this claim is perhaps demonstrative of its wish to distance itself from its employees’ activities and send a clear signal to employees and regulators that it does not in any way condone such activities.
Comment
After years of the British government suffering criticism from international organisations such as the Organisation for Economic Co-operation and Development and Transparency International for its lack of enforcement activity in the area of overseas bribery, it appears that a real and tangible momentum is gathering pace behind the new Bribery Bill. The Bill has started its march onto the statute books and a Joint Parliamentary Committee has been established to consider the draft.
The Joint Committee published its first report of the Bill on 28 July this year. The report broadly supports the draft Bill, but among a small number of recommended changes is a proposed tightening of the legislation in the area of corporate liability. The report recommends that the offence of a company failing to prevent bribery by persons acting on a company’s behalf should be one of strict liability, with the removal of the need to prove negligence under cl 5(1)(c).
There has been press comment that wider political issues may result in the Bill’s progress being delayed and left to the next government to enact. Even if such a delay does occur, it seems unlikely that the SFO and other regulators will waste this momentum in enforcement activity.
Alex H. Rene is a partner in the White Collar Crime Practice Group at Fulbright & Jaworski International LLP. in London (and a former trial attorney in the Department of Justice’s Criminal Division, Fraud Section). E-mail: arene@fulbright.com. Sarah Thomas is an associate in the global disputes practice at Fulbright & Jaworski International LLP in London.
E-mail: scthomas@fulbright.com
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