The increasing global response to bribery and corruption

Its impact on the way to do

business worldwide 27 February 2014

Emma Gordon Partner, Fraud &

Investigations Group Eversheds

UK Bribery Act

No prosecutions of companies to date but:

• Currently around 15 ongoing investigations by the SFO (re Bribery Act and pre Bribery Act legislation) against companies

• SFO working with FCA, US DOJ and US SEC as well as other agencies to share intelligence and investigate

• Director of SFO, David Green QC – strict direction is evident

• SFO brought charges against 4 individuals (including 3 directors) at Sustainable AgroEnergy under Bribery Act in August 2013

• SFO been given special “blockbuster” funding on 20 January 2014 to pursue bribery case

• Deferred prosecutions agreements – now in effect

First SFO charges under the Bribery Act

Sustainable AgroEnergy

• August 2013 – SFO charged three former directors and an affiliated financial advisor

• Alleged ponzi scheme in which defendants allegedly tricked UK investors into purchasing shares in biofuel-related investments in Cambodia

• All four defendants face charges of conspiracy to commit fraud and conspiracy to furnish false information to investors

• Three defendants also face charges of “making and accepting a financial advantage” under the UKBA

• Cambodian government is also pursuing a number of criminal charges based on the same transactions

Blockbuster funding

Is the SFO under resourced?

• UK Treasury gave extra funding to SFO to pursue

investigation into alleged bribery in Indonesia and China

• Third time only that such funding has been granted

• According to one widely-reported claim, in the early 1990s the company gave Tommy Suharto, son of Indonesia’s former president, a car and $20m in the hope they would help prompt Garuda, the country’s airline, to buy its Trent 700 engine

• US DOJ also involved and sending requests for information

Deferred prosecution agreements coming to the UK in 2014

The basics

• A written agreement between the prosecutor and the defendant company

• Prosecution is deferred, and eventually dismissed, if the company complies with set conditions

• Conditions are likely to include:

– Financial penalty

– Reparation to victims

– Repayment of profits from unlawful conduct;

– Appointment of an independent monitor (in more serious cases)

– Measures to prevent future offending.

• Used in the US for many years

UK enforcement: the companies (under pre UKBA laws)

Company Industry Date Penalty

Abbott Group Oil and Gas Nov 2012 £5.6million (civil settlement). First company to have met strict criteria of self reporting initiative.

Oxford University Press

Publishing

July 2012

£1.9 million (civil recovery order). Debarment from World Bank funded tenders for three years.

Mabey & Johnson Ltd Engineering January 2012 £130,000 (shareholder recovery)

Macmillan Publishers Ltd Publishing July 2011 £11 million (civil recovery order). Debarment from World Bank funded tenders for three years. Compliance monitor.

De Puy International Limited

Healthcare April 2011 £4.8 million (civil recovery order)

MW Kellogg Limited Engineering February 2011 £7 million (confiscation of funds received from unlawful conduct)

BAE Systems Plc Defence/Aerospace

December 2010 £500,000 million (part of £30m global agreement)

Innospec Ltd Energy March 2010 £8 million (part of US$40m global settlement). 3 year US/UK compliance monitor

AMEC plc Engineering October 2009 £5 million (civil recovery order)

Mabey & Johnson Ltd Engineering September 2009 £6.6 million. Compliance monitor

UK enforcement: the individuals (under pre UKBA laws and UKBA)

Company Individual Date Offence/Penalty

Sustainable AgroEnergy plc

Gary West, James Whale, Stuart Stone, Fung Wong

August 2013

Charged with conspiracy to commit fraud by false representation and conspiracy to furnish false information. West, Stone and Wong were also charged with offences of making and accepting a financial advantage contrary to s1(1) and 2(1) of the UKBA 2010

Smith & Ouzman Limited

Chris Smith, Nick Smith, Tim Forrester, Abdirahman Omar

October 2013

Charged with offences of corruptly agreeing to make payments totalling nearly half a million pounds, contrary to section 1 Prevention of Corruption Act 1906

Innospec Ltd Paul Jennings, former CEO July 2012 Pleaded guilty to charges of conspiracy to corrupt

Innospec Ltd Mr Miltos Papachristos, Regional Sales Director for Asia-Pacific Region and Mr Dennis Kerrison, former CEO

June 2012 Entered not guilty pleas in response to charges of conspiracy to corrupt

Innospec Ltd Dr David Turner, former Sales and Marketing director

January 2012

Pleaded guilty to charges of conspiracy to corrupt

Mabey & Johnson Ltd

Richard Charles Edward Forsyth, former MD

February 2011

21 months imprisonment, disqualified from acting as a company director for five years and ordered to pay prosecution costs of £75,000

Mabey & Johnson Ltd

David Mabey, former sales director

February 2011

Eight months imprisonment, disqualified from acting as a company director for two years and ordered to pay prosecution costs of £125,000

Mabey & Johnson Ltd

Richard Gledhill, former sales manager

February 2011

Eight months imprisonment, suspended for two years

The US threat – why?

• Long arm reach of the US FCPA even for non US companies

• Working closely with foreign counterparts including SFO - a proactive approach

• More multi jurisdictional cases (Siemens)

• Reorganisation of the SEC enforcement division with a specialised FCPA unit

• Increased focus on individual liability – often groups of individuals from the same company and the same industry

• Dodd-Frank Act

US enforcement: companies

Company Industry Place of bribe Settlement Date

Alcoa Aluminium Bahrain $384 million 9 February 2014

Archer-Daniels-Midland Co.

Food Ukraine $36 million 20 December 2013

Weatherford International

Oil Middle East and Africa

$240 million 26 November 2013

Stryker Corporation (SEC only)

Medical technology

Argentina, Greece, Mexico, Poland, and Romania

$13.2 million 24 October 2013

Diebold Bank security China and Indonesia

$48 million 22 October 2013

Bilfinger (DOJ only)

Energy Nigeria $32 million 10 December 2013

Total S.A Oil Iran $398million 29 May 2013

Ralph Lauren Corporation

Luxury clothing and products

Argentina Non-prosecution agreement, disgorge $700,000 illicit profits

22 April 2013

Koninklijke Phillips Electronics (SEC only)

Healthcare Poland $4.5 million

5 April 2013

The US threat – current example

• DOJ investigating whether Walmart paid bribes ($24m) in Mexico to

obtain permits to open new stores there

• Further allegations that senior executives covered up an internal inquiry into the payments

• DOJ now also looking at possible misconduct in China, Brazil and India

• Reported that the company is funding separate legal representation for 30 executives

• 3 separate law firms instructed for the company – leading the probe – outside counsel to audit committee – outside counsel for the worldwide compliance review

• Spent over $300m to date defending the allegations

Globalisation of US enforcement

Country Investigation Date Country Investigation Date

Australia Alcoa 9 January 2014 Italy Immuncor, Siemens November 2008 15 December 2008

China Siemens Morgan Stanley

15 December 2008 April 2012

Korea IBM March 2011

Costa Rica Alcatel Lucent 27 December 2010 Liechtenstein Siemens, Alcoa 15 December 2008

France Halliburton Total SA Alcatel Lucent

25 July 2013 29 May 2013 27 December 2010

Nigeria Halliburton, Siemens February 2011 15 December 2008

Germany Bristol Meyers Daimler Siemens Magyar Telekom Plc

28 September 2007 1 April 2010 15 December 2008 29 December 2011

Norway Siemens, Alcoa 15 December 2008

Greece Siemens 15 December 2008 Poland Johnson & Johnson 8 April 2011

Hungary Siemens Magyar Telekom Plc

15 December 2008 December 2011

Russia Siemens 15 December 2008

India Dow Chem 2007 Switzerland Siemens, Alcoa 15 December 2008

Israel Siemens 15 December 2008 UK BAE, AON Smith & Nephew Parker Drilling Co Alcoa

February 2010 20 December 2011 6 February 2012 16 April 2013 9 January 2014

• Co-ordination between US and foreign counterparts has increased dramatically

• FCPA investigations where local law enforcement have also investigated include:

Transparency International

Level of Enforcement Countries

Active Enforcement (adequate deterrent to foreign bribery)

Germany, Switzerland, UK, US

Moderate Enforcement (stages of progress in enforcement but inadequate deterrence)

Australia, Austria, Finland, Italy

Limited Enforcement (stages of progress in enforcement but inadequate deterrence)

Argentina, Bulgaria, Canada, Denmark, France, Hungary, Norway, Portugal, South Africa, Sweden

Little or No Enforcement (no deterrent whatsoever or very little deterrence)

Belgium, Brazil, Chile, Czech Republic, Estonia, Greece, Ireland, Israel, Japan, Luxembourg, Mexico, Netherlands, New Zealand, Poland, Russia, Slovak Republic, Slovenia, South Korea, Spain, Turkey

Country Enforcement of the OECD Anti-Bribery

Convention, Progress Report 2013

Foreign bribery enforcement

Total points relating to number of cases concluded and the level

of associated sanctions*

Country Total Points 2009 - 2012

United States 1117

Germany 464

United Kingdom 251

Switzerland 93

Italy 65

France 48

*TI’s Exporting Corruption Progress Report 2013: Assessing enforcement of the OECD Anti-Bribery Convention on

combating foreign bribery

Bribery in Asia Transparency International Corruption Perceptions Index 2013

Rank Country Score (0=highly corrupt 100 = very clean)

Rank Country Score (0=highly corrupt 100 = very clean)

5 Singapore 86 83 Mongolia 38

14 United Kingdom 76 94 India 36

15 Hong Kong 75 94 Philippines 36

18 Japan 74 102 Thailand 35

19 United States 73 114 Indonesia 32

36 Taiwan 61 116 Vietnam 31

38 Brunei 60 160 Cambodia 20

46 South Korea 55 157 Myanmar 21

53 Malaysia 50 175 North Korea 8

80 China 40

• Most Asian countries have anti-corruption laws

• However in many Asian countries, there is a culture of corruption and non-compliance with the domestic rules

• This culture puts MNOs with obligations under the FCPA and UK Bribery Act in a difficult position when doing business there

• Be prepared

Bribery in Asia

One country – two systems

Hong Kong ranked 15th

• Statutory Prohibitions

• Rule of Law

• Active Free Press

• An Active Robust Enforcement Authority (ICAC)

Mainland PRC ranked 80th

• Statutory Prohibitions

• Rule by law

• Press Censorship

• Communist Party Influence

Hong Kong

• Has its own robust domestic laws against bribery and corruption

• Compliance with the FCPA and UK Bribery Act is taken very seriously. Many MNOs with operations in Hong Kong and many major Hong Kong companies have substantial links with US and UK

• No one is above the law:

Prosecution of directors of Sun Hung Kai Properties, the largest property developers in Hong Kong (the Kwok Brothers), and former No. 2 in Hong Kong Government, Rafael Hui, for alleged wrongful payments and loans to Mr Hui to obtain land grants

• Any type of corruption taken very seriously

PRC – a very different story

There are strict laws for those operating in the PRC

• Domestic laws: against both

a. commercial corruption (Article 8 of Anti Unfair Competition Law and Article 163 of the PRC Criminal Law)

b. corruption of public officials (Articles 389-95 of the PRC Criminal Law)

• International laws:

a. FCPA

b. UK Bribery Act

The corruption culture

• MNO’s operating in the PRC have to face a business culture which tolerates petty corruption in commerce if it is discreet

• In addition, there is corruption involving PRC state officials. Regarded as a real embarrassment for the ruling Communist Party and is generally addressed secretly by the Communist Party’s internal procedures

The FCPA and state owned enterprises

• Arguably almost anyone employed by substantial domestic businesses in the PRC is a “foreign official”

• Real risk of FCPA being engaged if corruption of employees of state owned enterprises

Practical issues if you are an MNO operating in the PRC and you discover irregularities

• There are real practical difficulties in conducting independent inquiries into individuals and PRC companies

• Recently the PRC Government effectively banned private investigators from conducting investigations

• Transparency International unable to undertake its survey

• Publicly available records of PRC companies provide minimal information on ownership and directors

• Legal privilege is not a concept which is recognised in the PRC; it is recognised in Hong Kong

China has its own FCPA (s.164 PRC Criminal Law)

• Crime of offering bribes to officials of foreign countries and international organisations to secure illegitimate business benefits

• Aimed at Chinese Nationals but theoretically could cover a foreign national working for a local PRC business entity partly or wholly owned by a MNO

New administration, new culture?

• Targeting Western companies

• GSK (China) case

– pledge to crack-down on corruption

– targeting commercial sector bribery

• Ensure foreign and domestic bribery law compliance

The Law

• The Prevention of Corruption Act 1988

• Attempt to strengthen law in 2008 failed

• Amendments approved 1 May 2013

• Upper House of India’s parliament passed new anti-corruption bill December 2013

The changes

1. The definition of bribery amended to cover those cases involving public servants where money and favours have been exchanged through 3rd party intermediaries

2. Change in focus away from the receiver of corrupt advantages to the supply side. Provisions in the Act will be tightened to ensure that those who give bribes are also subject to criminal prosecution. Until now, the Act had conceived of the bribe giver as an “abettor” and not the primary offender

The changes

3. New provisions will allow for the confiscation of property acquired by government officials through corruption

4. Corporations will be explicitly brought within the ambit of the Act

Update

• New Anti-Bribery Law came into effect on 1 January 2014

• Covers bribery of domestic officials and foreign officials

• Outlaws facilitation payments

• Strict liability corporate offence

New law also prohibits

• Bid rigging

• Fraud in Public Contracts & Public Procurement

• Engaging others to participate in illegal acts against the Brazilian government

Penalties

• Breach of new law can lead to companies being fined up to 20% of gross turnover in year before investigation

• Law allows for disgorgement of profits, suspension of activities and even dissolution of company

Company officers/directors liability

• Criminal liability on those who participate

• Civil liability on those who aid an offence (wilful blindness?)

Self reporting

• Leniency programme

• “Adequate Procedures”

Questions

Eversheds contact:

Emma Gordon, Partner

emmagordon@eversheds.com

+44 (0)20 7919 4931