Corporate crime update

The US parent company was one of four corporate entities which formed a joint venture to bid for contracts on a liquefied natural gas project in Nigeria. The joint venture created three special purpose vehicles to bid for, and subsequently run, the contracts. Three of the four contracts won by the joint venture were obtained through promises to pay or payments of bribes. The US parent company, Kellogg Brown and Root LLC and its predecessors (KBR) has been subject to a criminal and civil investigation in the US. The criminal investigation, which was conducted by the Department of Justice (DOJ), related to KBR and a number of other corporate and individual parties.  KBR has acknowledged, in its plea agreement with the DoJ, that it owned the special purpose vehicle created for the Nigerian project, through MWKL in order to distance itself from the corruption and avoid the consequences of the Foreign Corrupt Practices Act 1977. KBR had resolved all matters with the US authorities, including a civil settlement with the Securities and Exchange Commission, by February 2009.

The agreement also ensured that MWKL overhauled its procedures to enable it to satisfy the SFO that its compliance systems are in accordance with UK law. MWKL has also agreed to pay the costs of the investigation.

See SFO press release

• The SFO have recognised that inevitably corporates (however well run) will, from time to time, discover difficulties. Mr Alderman's view was that, although no guarantees can be given, there will be a number of these cases where it is appropriate to deal with them otherwise than through conventional criminal investigation and prosecution. The guide published in July 2009 sets out the procedures for doing that and the benefits to corporates if they adopt this approach. It was modelled on the DOJ approach although there are a number of refinements that the SFO have made in order to adjust this to the English system. The SFO's view is that there will be a number of cases where the corporate can be left to carry out an investigation themselves once they have reported what has happened and then, at the conclusion of that investigation, the SFO will discuss with the corporate and its advisers the appropriate response. This may well involve a civil resolution through a civil recovery order or indeed some outcome other than a criminal prosecution.

• The SFO hope that the Directors' Guidance will be published on the same day as the Ministry of Justice guidance. It will be guidance that will be issued by the Director of Public Prosecutions (Keir Starmer QC) and Mr Alderman . This guidance will discuss the detail of various offences and what needs to be proved. It will also set out the public interest factors that prosecutors will need to take into account in deciding whether to prosecute. It is hoped that this guidance will shed a lot of light on some of the issues concerning facilitation payments and hospitality that have been raised. When it comes to a prosecution under the Bribery Act, consent to the prosecution has to be given by the Director or an appointed Deputy. Prosecutions cannot be authorised at lower levels.

• There are misconceptions with the Bribery Act -some people have said that the fact that bribery occurs means that the compliance procedures by definition were not adequate. Mr Alderman does not agree with this. His view is that it is perfectly possible for a corporate to have adequate procedures and yet to find that there is a problem about bribery somewhere in its globalised operations. No offence is committed by the corporate in these circumstances.

• Another issue that has been raised by business is whether the offence of failing to prevent bribery will bring about mandatory exclusion from public works in the EU. Clearly, this is a very important consideration. This is something that the Government is considering and he hopes that advice on this will be given in due course.

• A number of questions have been raised as to whether and how the Act applies to foreign corporates. As a result of the the failure to prevent bribery offence, foreign corporates which carry on their business or part of their business in the UK will be within the reach of the SFO if they commit bribery anywhere else in the world. Mr Alderman syas of this provision that this is a very important provision. According to the SFO this will allow them to support an ethical UK business that finds that it has been disadvantaged by a foreign company which uses corruption to obtain a commercial advantage provided that some part of that corporate's business takes place in the UK. There has been a lot of discussion about what is needed in order to satisfy the test (carries on business in the UK). Ultimately, the courts will need to decide this. Questions have been raised about whether the raising of loan finance is sufficient and whether supplying services over the internet is sufficient. The courts will need to decide although Mr Alderman said you "must not be surprised when the SFO takes a wide view of the scope of this jurisdiction." Mr Alderman asks for d ethical corporations that feel that they have been disadvantaged through corruption to come and tell the SFO about it and to provide evidence.

• Mr Alderman considered the position of joint ventures.  According to recent podcasts by the SFO the SFO draws a distinction between current and new joint ventures. Existing joint ventures will be locked into very complex contractual documentation. "There may or may not be transparency about what your partners get up to. There may or may not be auditing provisions. We are sympathetic to this. We expect you to see what you can do to establish that your partners are complying with their ethical anti-corruption obligations but we recognise that there may come a practical and legal limit to this. We are sympathetic." However, as regards new joint ventures business is expected to address this issue and to build in what is needed to satisfy itself about the level of visibility of JV partners and the ethical standards that they operate.

• As regards hospitality or promotional expenditure -sensible proportionate entertaining or promotional expenditure is perfectly lawful. "What this means is that if you buy breakfast or lunch for a client, there is no problem. If you fly a group of prospective clients from another part of the world to see your facilities ... in Aberdeen or in the North Sea, then again there is no problem. All of this is sensible business. On the other hand, if you add on to this visit a month long all expenses paid holiday at your company's private island in the Caribbean, then you will not be surprised if the SFO takes an interest. ......I know as well that there is concern about sporting events and whether or not it is appropriate to take clients to these events. I know that a number of corporates simply refuse to do this. Others though regard it as a perfectly normal part of their business. This is an area where we are considering giving more guidance and indeed providing guidance publicly on our website before major sporting events."

• As regards facilitation payments "a number of good ethical corporates have adopted a policy of zero tolerance towards facilitation payments. .......... They tell me that they believe that they have achieved zero tolerance. What they also tell me is something that I find fascinating. They tell me that in fact their zero tolerance approach is good for their business. What they are finding in practice is that their employees are not bothered by demands for these payments because it is known in other countries that the corporate approach is not to pay them. They are therefore not delayed or hassled by people demanding these payments.....Of course not every corporate has reached that stage. This does not trouble me provided that the corporate is genuinely committed to achieving zero tolerance. We are sympathetic to this and ready to talk to the corporate about their programme so that we can be reassured that there is a meaningful commitment within a reasonable timeframe."