Upcoming event

MMS is hosting a seminar at its Glasgow office organised by the Scottish Competition Law Forum on 28 February from 4.30pm. The topic is Competition Law and the Individual. It promises to be an extremely interesting event with three motivating speakers.

Philip Collins, Chairman of the OFT, will focus on what companies can do to achieve compliance, providing tips to directors on how to bring about a compliance culture and the consequences of failure to adhere to the laws. Keith Packer will provide personal insights into consequences for individuals of breaching the law. Our third speaker, Professor Mark Furse, will outline his own misgivings about the viability of the UK's criminal cartel offence.

All businesses, and the individuals who work for them, can be affected by competition law. Indeed, as market mechanisms enter the public sector more and more, they too can be caught by competition law. This is a unique opportunity for businesses and individuals within them to understand the risks and help inform their own compliance procedures.

To register for this event, please email sclf@oft.gsi.gov.uk.

How much is enough?

The risk of being held liable for unlimited fines has led many businesses to implement procedures to prevent bribery. To provide a defence, these procedures must be 'adequate'. But when will procedures, despite having intended to prevent the particular instance of bribery, be accepted as 'adequate'? This is crucial because only if the procedures were adequate will the company have a defence.

This concept of 'adequate procedures' is not defined within the legislation, although the Ministry of Justice has published guidance which sets out six guiding principles to be used when developing anti-bribery policies and procedures.

Further guidance has recently been provided by the British Banker's Association, which is aimed particularly at banks and also considers the links with other requirements such as Financial Services Authority regulations. Similarly, a new British Standard (BS10500:2011) establishes a specification for an anti-bribery management system. This guidance provides important benchmarks for organisations to demonstrate their policies and procedures are adequate in accordance with the requirements of the Bribery Act.

Many of the standards established in the new guidance reflect the framework that we previously suggested in our March 2011 Update. You should review your existing anti-bribery policies and procedures against the frameworks established by this new guidance to ensure that, if required, you are able to demonstrate that your policies and procedures are adequate.

For further guidance on the implementation of robust anti-bribery compliance policies and procedures or to obtain a free, no-obligation demonstration of our MMS Smart-Insite online anti-bribery compliance training programme please contact Catriona Munro or Dawn Demellweek.

Click here for more information on the guidance issued by the British Bankers Association.

Click here for more information on BS10500:2011.

Click here for more information on the guidance published by the Ministry of Justice.

Deferred Prosecution Agreements: Getting the framework right

For an anti-bribery enforcement regime to be truly effective, it is important to get the balance right. There must be enough of an incentive for organisations to want to comply as well as a reasonable throughput of cases to provide sufficient deterrence to those who are sufficiently foolhardy to take the risk. In many ways the US Foreign Corrupt Practices Act regime provides a strong framework, against which to build a robust UK enforcement regime.

Recent announcements from the Attorney General's Office indicate that the Government is actively considering the introduction of deferred prosecution agreements ("DPAs") in the UK. DPAs are commonly used in the US in relation to investigations involving foreign corruption. In effect, a DPA is a voluntary alternative to prosecution by the authorities. The benefit of DPAs for the authorities is that cases can be brought to a conclusion quickly and cost effectively. Similarly, for businesses this means that investigations can be concluded quickly, thus minimising the costs and management time involved in the investigation. DPAs will bring more certainty about the outcome and the company will avoid a criminal conviction. However, the downside is that legal issues rarely get tested in the court, potentially giving the authorities a wide margin of discretion in the interpretation of the legislation.

A DPA will often mean that the business will be required to agree a monetary penalty; it will be required to fully cooperate with the investigation and provide an undertaking that the company will not commit any further criminal acts and will strengthen its compliance policies and procedures.

The sentencing framework in the UK does not currently facilitate the use of DPAs as there is no leeway for the prosecution and the defender to negotiate a sentence. Legislation would be required to provide the Serious Fraud Office with the power to agree settlements with the offending organisation.

The major concern with the adoption of DPAs by the authorities is that no protection is afforded to individuals. The company will benefit as it will avoid a criminal conviction if it agrees to cooperate fully with the investigation. However, such cooperation requires individual employees to provide potentially self-incriminating information, which could subsequently lead to a criminal prosecution against that individual. Whilst the provision of incriminating information by individuals is beneficial to companies, perhaps a more balanced approach would be to create a framework in which DPAs can be entered into with both the relevant organisation and the relevant individuals in order to protect all parties at risk in return for full cooperation in the investigation

It is unclear at this stage how the Government intends to structure the proposed DPA framework. However, proposals are on the table and it is anticipated that they will be published for consultation later this year.

SFO subject to probe

The Serious Fraud Office ("SFO") has found itself on the receiving end of an investigation as the Attorney General last week called for an inspection into the operations of the SFO. The investigation will be undertaken by the Crown Prosecution Service Inspectorate and will focus on the way in which the SFO builds cases and selects files to investigate. It is hoped that the probe will lead to improved processes within the SFO in order to avoid similar issues to those faced by the agency last year when it was forced to admit that defective warrants had been used in a dawn raid of an individual's property.

US provides lucrative windfall for UK whistleblowers

The US Securities and Exchange Commission ("SEC") is one of the authorities tasked with enforcement of the US Foreign Corrupt Practices Act. In July 2011, it introduced a new whistleblowing programme aimed at encouraging individuals to blow the whistle on their employers. Whilst recognising the benefits of the programme for the authorities, many commentators have voiced concerns about the skewed incentives offered by the programme.

The major incentive for employees is that they may be rewarded with a bounty of up to 30% of the penalties collected by the SEC if the information provided by the whistleblower leads to successful enforcement action by the SEC and a monetary sanction in excess of $1 million is imposed against the organisation concerned. With sanctions frequently exceeding $20 million you can quickly see the attraction for employees to blow the whistle externally rather utilising internal whistleblowing hotlines.

A recent SEC report indicates that in the first six months of its implementation 28% of reports logged via the whistleblower programme came from the UK. This provides a stark warning to UK businesses of the risks of being caught out by the bribery and corruption legislation on both sides of the Atlantic. Even if the SEC decides not to act on a report from a whistleblower itself, it may nevertheless share the information received with the UK authorities. Businesses therefore need to be ahead of the game and be confident that their policies and procedures are sufficiently robust to ensure any irregular payments are detected internally before an aggrieved employee blows the whistle.

Leniency for journalists in the UK

As more journalists, police officers and other public officials have been arrested in relation to the inquiry into the alleged payment of bribes to police and other officials, the extent of the issues faced by News International continues to grow. In a surprising announcement last week, Keir Starmer, the Director of Public Prosecutions, announced the publication of an interim policy, which will be issued for consultation in the next few weeks. The policy will set out the factors that prosecutors will take into account when considering whether or not to prosecute journalists for alleged offences including bribery.

Early indications suggest that the guidance will provide a lifeline to journalists, with prosecutions less likely to be considered to be in the public interest if a journalist had uncovered a crime, a failure to fulfil legal duties or a miscarriage of justice. However, the prosecutorial discretion is unlikely to be exercised if the harm caused by the journalist outweighs the importance of the story, if the journalist had threatened or intimidated his or her source or if the story could have been obtained by legal means.

Whilst the guidance may provide comfort to journalists, there is no suggestion of providing any protection for their sources. This means that those receiving bribes in return for information could still be subject to prosecution under the Bribery Act.

Medical devices sector is dissected by the US authorities

In the last week the US authorities have confirmed two successful cases against organisations operating in the medical devices sector. The first involved the London based medical device company Smith & Nephew PLC, which was charged by the SEC with violations of the US Foreign Corrupt Practices Act as a result of alleged payments made by its US and German subsidiaries to doctors in Greece to secure contracts. Smith & Nephew cooperated with the US authorities and have agreed to pay more than $22 million as part of a Deferred Prosecution Agreement agreed with the US authorities. The alleged violation arose as a result of funds paid to a distributor, which were used as slush funds to make payments to the doctors. The payments were allegedly recorded in the accounts as payment for marketing services, although it appears that no marketing services were actually provided.

In a similar investigation, a US orthopaedic products manufacturer, Orthofix International, reached an agreement in principle with the US Department of Justice in relation to improper payments made by an employee of a Mexican subsidiary to a Mexican Government healthcare entity. The extent of the issues and the amount of the settlement are not yet known. However, Orthofix has indicated in its accounts that $7.5 million has been set aside in connection with the investigation.

The SEC has made it clear that it will "continue to hold companies liable as we investigate the medical device industry for this type of illegal behaviour". Businesses operating in the medical device sector should therefore take extra care to ensure their policies and procedures are robust and that no skeletons are hiding in the closet.

Eight Siemens executives charged

Following the plea agreement in which Siemens agreed to pay $1.6bn to the US and German authorities to resolve charges of corruption in Argentina, the US authorities have now charged 8 former executives and agents of Siemens AG and its subsidiaries for their alleged involvement in the payments of bribes to senior Argentine government officials. The charges follow the disclosure by Siemens of potential FCPA violations that were uncovered by Siemens and its audit committee as part of an ongoing exercise to restructure Siemens AG and implement a sophisticated compliance programme across the organisation

It is alleged that bribes were paid by the executives and agents in order to secure a $1billion contract with the Argentine Government to produce national identity cards. The Siemens executives allegedly paid more than $100million in bribes to high level Argentine officials in order to win the contract using complex payment arrangements that were set up in order to disguise the payments as fake consulting contracts.

The plea agreement with Siemens remains the highest penalty imposed to date in relation to corruption. If the prosecution against the individuals is successful, the former executives could face significant prison sentences for their involvement in the activities. The case again highlights the authorities' commitment to prosecute both the company and the individuals involved in corrupt activities and that even if the company itself avoids criminal conviction, the individuals involved may not be out of the line of fire.

Prison sentences for disclosure of confidential procurement information

Prison sentences ranging from 12 months to 5 years have been handed down by the English courts against individuals who received corrupt payments in return for passing on confidential procurement information to bidding suppliers. The tenders were for a series of high-value oil and gas engineering projects in Iran, Egypt, Russia, Singapore and Abu Dhabi. The court also disqualified two of the individuals from acting as company directors for 10 years and confiscation orders are also being pursued to recover money obtained by the individuals as a result of the criminal activities.

The individuals involved were either employed by the company appointed to undertake the procurement for the projects or were agents of the procurement companies. The individuals approached those companies bidding for the contracts indicating that information could be made available if the bidders agreed to pay for it. The payments were recorded as consultancy services and the illicit payments were distributed amongst the co-conspirators.

The case highlights the risks inherent in procurement exercises and the risks to which organisations can be exposed as a result of the actions of third parties performing services on their behalf. These actions were pursued under the old legislation. However, had they been pursued under the Bribery Act, the companies themselves could have also found themselves liable for the payments made by the individuals acting on behalf of the bidding companies in order to obtain the confidential information. Unless of course, the company could otherwise demonstrate that it had adequate procedures in place across the business to prevent bribery.

Printing money is a risky business

The Austrian Central Bank ("OeNB") is currently under investigation by the Austrian authorities in relation to allegations of irregular payments made by one of its subsidiaries to foreign governments to secure the lucrative business of printing money. The allegations relate to payments made to Syrian and Azerbaijani officials to secure contracts for the printing of bank notes. So far criminal prosecutions have been initiated against six directors of the OeNB, who are alleged to have known about the payments made to the foreign public officials to win the contracts. The allegations appear to have stemmed from statements made by aggrieved employees.

The investigation highlights the risks posed to directors if they fail to question or turn a blind eye to suspicious payments. Failing to make adequate enquiries over payments can result in directors being in the direct line of fire.

Contact us

For further information, please contact:

Catriona Munro
Partner
EU, Competition & Regulatory
0131 228 7121
catriona.munro@mms.co.uk

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