Richard Furlong asks why there have been so few successful prosecutions of multinational corporations for bribery and corruption offences.
Shortly before Christmas 2018, Nicholas Reynolds, former Global Sales Director at the Boiler Retrofits unit of Alstom Power, was convicted by a jury at Blackfriars Crown Court of one count of conspiracy to corrupt. The SFO hailed the last in a series of convictions following its Alstom investigation into bribery and corruption in India, Tunisia, Poland, Hungary and Lithuania in relation to an alleged total of €325 million of contracts.
The conviction of Reynolds and the other defendants, including Alstom Power which pleaded guilty back in 2016, and Alstom Network UK which was convicted in April 2018 have been something of an exceptional win for the SFO in a series of corruption investigations into large corporates which have either hit the buffers or become bogged down in procedural problems.
Pre-Bribery Act investigations
Whilst the Bribery Act 2010 was hailed as a game-changer, the Alstom convictions were based on the common law and earlier statutes.
The Court of Appeal bent over backwards to interpret the Prevention of Corruption Act 1906 in a way favourable to the SFO, holding that the Act had always made it an offence (even prior to the coming into force of the Anti-Terrorism, Crime and Security Act 2001) to corrupt an agent of a foreign principal or a foreign body even if the actus reus of the offence took place within this jurisdiction. See R v AIL & others  EWCA Crim 2. In the earlier case of R v J, B, V and S  EWCA Crim 2287, the Court of Appeal took a similarly generous approach to the requirement on the prosecution to prove the absence of the consent of the principal in relation to the payment of secret commissions, holding that it was not necessary.
The Bribery Act
The Bribery Act 2010 was and is hailed as setting a global standard for anti-corruption legislation. In particular, the “failure to prevent” offence under section 7 was seen as a substantial departure for UK criminal law in terms of creating corporate liability, and the section 6 offence relating to bribing foreign public officials was seen as expanding and globalising the UK’s part in the fight against the scourge of corruption.
As the House of Lords made clear in their post-legislative scrutiny report on the Bribery Act 2010 published on 14 March 2019, however, no prosecutions have been brought under section 6 of the Act, relating to bribing foreign public officials, and so far as the MoJ is aware, no investigations commenced either. The NGO Corruption Watch observed that this may be because other sections of the Act are sufficient to criminalise offending. That may be right, but given the public interest in registering convictions under the particular new types of offence, it is perhaps surprising that none have been achieved.
Who is investigating?
The House of Lords report noted that overseas corruption would be likely to be handled by the SFO in large and complex cases, or otherwise by the International Corruption Unit of the NCA. The City of London Police’s Overseas Anti-Corruption Unit, set up in 2006 with funding from the Department for International Development, secured eight convictions for overseas corruption offences during the course of its existence, more than one-third of the individual foreign bribery convictions in the UK since 1999. None of the City of London Police’s investigators transferred across to the new unit at the NCA, established in 2015.
The problems facing the Serious Fraud Office itself were set out at some length in the House of Lords post-legislative scrutiny report. The principal concerns were the delays and the lack of resources; two inter-related factors. Significant resources have been spent on investigating and prosecuting individuals and smaller companies, but investigations into the larger targets have been less fruitful.
What are the problems?
The size of the larger investigations has been a problem. As Lisa Osofsky, Director of the SFO, noted in her evidence to the Lords’ Committee, the volume of documents in the Rolls Royce investigation was in excess of 30 million. There has been a considerable amount of publicity in relation to the introduction of an AI document review facility by the SFO in April 2018, which was brought in to analyse documents in the Rolls Royce investigation at a rate of over half a million a day, scanning them for legal professional privilege, and recognising patterns, grouping information by subject, organising timelines and removing duplicates.
The SFO have said on record that identification principles have hampered investigations into large corporates. The SFO is not the only body pressing for an extension of the rules in relation to corporate criminal liability and/or vicarious liability. The only successful contested prosecution for the section 7 “failure to prevent” offence, was of course the Skansen Interiors case, but the 30-person refurbishment contractor was nobody’s ‘large corporate’.
Deferred prosecution agreements: important compromise or unsatisfactory cop-out?
The first DPA, with Standard Bank plc in November 2015, concerned corruption in Tanzania. A subsidiary of the group paid a secret commission of 1% of the funds raised by the bank on behalf of the government of Tanzania to a company associated with the Commissioner of the Tanzanian Revenue Authority and the former CEO of the Tanzanian Capital Markets and Securities Authority. There were no prosecutions of individuals in the UK.
Although in the English judgment there was no suggestion that Standard Bank or any of its employees knew of or participated in the offence, and the agreement was reached on the basis that the bank could not relay on the “adequate procedures” defence, the Tanzanian authorities it appears are seeking to prosecute inter alia the former chief executive of the Tanzanian subsidiary of Standard Bank in relation to the same allegation.
Two more recent headline SFO investigations were those into Rolls-Royce PLC and GlaxoSmithKline PLC. The DPA accepted by Rolls-Royce was the third and largest application to a court for approval of a DPA and concerned the conduct of two group companies in Nigeria, Indonesia and Russia, and Rolls-Royce PLC alone in Thailand, India, China and Malaysia. There were agreements to make corrupt payments, and failure to prevent bribery by employees and intermediaries. The value of the DPA, £497.25m, was plainly immense in the context of UK criminal litigation.
The judge, Sir Brian Leveson, observed that the conduct revealed “the most serious breaches of the criminal law in the areas of bribery and corruption”, and that some of this “implicated senior management and, on the face of it, controlling minds of the company.” Furthermore, the DPA did not begin with the company self-reporting but came from the SFO seeking information from Rolls-Royce about online reports which came to the SFO’s attention early in 2012. Rolls-Royce then began an internal investigation which was still ongoing at the time of the judgment, but supplied information to the SFO, waived LPP and acted with was Sir Edward Garnier QC, counsel for the SFO, described as “extraordinary co-operation”.
Following those observations, therefore, it came as some surprise to outside observers that the SFO announced no further action against individuals involved in the Rolls-Royce corruption. Corruption Watch complained that the DPA itself represented a failure of nerve, notably in the light of Sir Brian Leveson’s comments that the offending represented “egregious criminality over decades”, and that if Rolls-Royce was not to be prosecuted, “it was difficult to see when any company would be prosecuted.
The SFO opened an investigation into GlaxoSmithKline in May 2014 concerning what it described as commercial practices at the group, its subsidiaries and associated persons. This investigation was dropped in February 2019, in circumstances where the Chinese authorities have charged the former head of GSK’s Chinese business, Mark Reilly, and two Chinese executives with corruption offences relating to allegations of bribery of Chinese medical professionals and institutions. GSK was previously subject to a financial penalty of the equivalent of nearly £2 bn in the United States for offences of corruption and mis-selling. Press reports of the investigation suggested that the SFO were looking into suggestions that GSK was involved in similar misconduct in various other jurisdictions including Poland and the Middle East.
Whilst the House of Lords review concluded that the DPA regime had been “an excellent way of handling corporate bribery, providing an incentive for self-reporting and for co-operating with the authorities”, the anti-corruption NGO’s have been less sanguine, observing that in particular the Rolls Royce DPA sets a precedent that a company can fail to disclose – in fact deliberately decide not to disclose information about wrongdoing – but if it then cooperates with the SFO it will still be eligible for a DPA. The NGO’s consider that the DPA regime as it now stands allows global corporates to safely take the risk of not disclosing wrongdoing to the SFO, but still receive all the advantages of a DPA if they do get caught as long as they then play ball.
Ongoing investigations and their problems
The SFO has charged various individuals in respect of its investigation into international corruption at the Monaco-based petroleum consultancy group Unaoil, but this has not been uneventful: press reports in August 2018 suggested the SFO had suspended a senior investigator over allegations of gross misconduct.
Similar allegations have dogged the corruption investigation into the Kazakh natural resources group ENRC. The group has lodged a very substantial claim against the SFO alleging misconduct involving investigators within the SFO and individuals working for its own former lawyers, Dechert LLP. Lurid allegations have been published by the satirical magazine Private Eye, but whatever the outcome of the various investigations and the litigation, a successful prosecution of the group or individuals working there looks less than inevitable.
Conclusions: what does the balance sheet look like?
Overall, the MoJ has recorded that 22 charges under section 1 of the Bribery Act 2010 were raised between 2011 and the end of 2017, resulting in 14 convictions; and 13 charges under section 2, with 14 convictions – the discrepancy arises for individuals who were charged with one offence and either pleaded guilty or were found guilty of another.
Whilst in the US, reports by Syracuse University researchers into DoJ data suggest that federal corruption prosecutions are down to a total of about 370 in the 2018 budget year (compared to 906 in 1998 under President Clinton), total FCPA monetary resolutions have been above $1bn for the last 3 years, and were above $2bn in 2016. This is some way above levels achieved in the UK, pace the Rolls Royce DPA. That aside, the second largest was the BAE resolution of just over £30m.
The DOJ’s projected criminal division budget for 2019 is in the region of $187m. This compares with an SFO budget in the region of £52m. Given the comparative sizes of the UK and US, the SFO might in the medium term be expected to increase fairly substantially its hit rate if it is to compete with the DOJ in terms of reputation.