December 7th, 2015

By Eoin O’Shea

Introduction On Monday 30 November, an English court approved a Deferred Prosecution Agreement (DPA) between the Serious Fraud Office and Standard Bank, in connection with payments made in Tanzania. This was the first DPA approved by the courts and the first time the SFO had charged the “failure to prevent bribery” offence under section 7 of the Bribery Act.

There is, already, no shortage of instant comment on the case from lawyers, journalists and ABAC aficionados worldwide. This isn’t surprising since section 7 is the most controversial part of the Bribery Act and DPAs are completely novel, on this side of the Atlantic at least.

A good summary of the case can be found on the SFO’s own website. The process of obtaining a DPA means there are in fact two judgments, with the first going into more detail of the factors considered by the court and the second essentially re-confirming the first. They are both available here.

So what can we learn from the case? The judgment is reasonably extensive and is generally helpful to commercial bodies and their advisers, although I have a few concerns about it which I explore below. To summarise this note:

  • The outcome is broadly supportive of the SFO’s advertised approach to corporate bribery, i.e. that self-reporting is worthwhile.
  • The penalties imposed reflect quite a hard-line approach to corporate crime among the judiciary.
  • Aspects of the judgment should be treated with caution on topics not directly within its purview, such as the nature of the adequate procedures defence.
  • The case exemplifies both the pros and cons of DPAs, plea-bargaining and the like. There are some topics on which the rigour of contested submissions would have improved the analysis and perhaps specific outcomes. However, the fact that the SFO and the court have rewarded the bank’s ethical approach to self-reporting with at least some leniency is a step in the right direction.

Underlying Facts In 2012 the Tanzanian government wanted to raise funds. Standard Bank (based in South Africa) and a Tanzanian-based subsidiary, Stanbic, offered to assist by means of a placement of US$600 million of sovereign debt instruments. The bank’s original fee was 1.4% of funds raised. A further payment of 1% was then offered by Stanbic to a “local partner”, a Tanzanian company whose shareholders included current or former members of the Tanzanian government. There is no evidence that the local partner did anything to earn the payment and the inference is that the 1% (i.e. US$6 million) was intended as an improper inducement to (un-identified) officials to approve the engagement of Standard / Stanbic. Within ten days of the payment to the local partner’s account, most of the $6 million had been withdrawn in cash.

Importantly, the SFO did not allege that anyone at Standard Bank itself knew the 1% payment was for an improper purpose. Just as importantly, once Standard’s headquarters knew of the payment by Stanbic, an investigation was started and a report of its concerns was made to the UK authorities very rapidly, a remarkably ethical response. The UK had jurisdiction because of the considerable business which Standard does in the country.

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March 21st, 2014

By Lawrence S. SherJoseph W. Metro, Erin E. Atkins

  • U.S. District Court for the District of Columbia holds documents related to internal investigations of possible violations of corporate code of conduct not protected from disclosure under either attorney-client privilege or attorney work product doctrine
  • Ruling serves as timely reminder for companies in a wide variety of industries to review internal procedures relating to internal corporate compliance program or code of conduct investigations to maximize the likelihood that appropriate privileges will be honored

On March 6, 2014, the United States District Court for the District of Columbia granted a qui tam relator’s motion to compel the production of documents relating to the defendant Kellogg Brown & Root Services, Inc.’s (“KBR’s”) “Code of Business Conduct (“COBC”) investigations,” holding such documents were not protected from disclosure under either the attorney-client privilege (“ACP”) or the attorney work product doctrine (“AWP”). The court concluded that the company’s investigations were conducted pursuant to “regulatory law and corporate policy,” rather than for the purpose of obtaining legal advice. Accordingly, KBR was ordered to produce some 89 documents that it previously claimed as privileged under the ACP and/or AWP. U.S. ex rel Barko v. Halliburton Company, No. 1:05-CV-1276 (D.D.C., March 6, 2022). The court’s broader statements could have significant implications for companies in regulated industries where corporate compliance programs are commonplace, or even required.

The court’s description of KBR’s internal procedures is relatively sparse. As summarized by the court, COBC investigations usually result from a tip (via an employee to a designated mailbox, email address and/or hotline, or directly to the Law Department) of a potential violation of the company’s COBC. If a formal investigation file is opened, COBC investigators conduct witness interviews, review pertinent documents, and prepare an investigation report. The final COBC investigation report is then transmitted to the company’s Law Department.

The court declined to withhold the documents under the ACP or AWP because it found that the COBC investigations “were undertaken pursuant to regulatory law and corporate policy rather than for the purpose of obtaining legal advice,” citing FAR 203.7001. That regulation generally requires that certain government contractors have in place management controls reflecting the typical elements of an effective corporate compliance program under the U.S. Sentencing Commission Guidelines.1 These elements are also commonly cited by the Department of Health & Human Services Office of Inspector General (“OIG”) in its guidelines for health care entities’ corporate compliance programs. See, e.g., 65 Fed. Reg. 14289 (Mar. 16, 2000). They are also reflected in the OIG’s numerous Corporate Integrity Agreements with health care entities.

The court reasoned that the COBC investigative process “merely implement[s] these regulatory requirements,” because investigations were routinely conducted, rather than following specific consultation with outside counsel concerning whether and how to conduct an investigation. Thus, according to the court, the investigations were not conducted for the primary purpose of seeking legal advice, since they “would have been conducted regardless of whether legal advice [was] sought,” and therefore the court held the ACP protection did not apply. The court also cited the fact that non-attorney COBC investigators conducted the interviews in question, and that written employee disclosures did not specifically reference that the purpose of the interviews was to provide legal advice to the company.

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December 6th, 2013

By Eoin O’Shea, Charles HewetsonRosanne Kay and George Brown

The UK’s Serious Fraud Office has made clear that its anti-bribery investigations are focused on two industries in particular: construction and energy. Construction firms especially are under-prepared for the risks which this new approach will bring, and need to take action quickly.

Making a Clean Sweep

In a recent speech, David Green, Director of the SFO, said that the agency would adopt a “sweep” approach and focus on specific industries. The sweep approach involves seeking out intelligence, including by covert means, to identify businesses which might be breaking the law. Whistleblowers and co-operating witnesses will then be actively encouraged to provide information about their own and competitor companies. The idea is to build up a detailed picture of corrupt practices industry-wide. This inside information will then drive dawn raids, and document production orders, arrests and charges against a large number of individuals and companies.

Most international energy companies will have been exposed to the U.S. Foreign Corrupt Practices Act for some time and will have significant anti-bribery measures in place (though how effective these are is another question). Construction, as a sector, is not as well prepared. It is a particularly juicy target for the SFO because of its historic exposure to government contracting and international markets. Moreover, there is a general view that corruption is rife, with a recent survey indicating that 49% of respondents believe that corruption is “common” within the industry in the UK. You can find the report from the Chartered Institute of Building here.

A similar industry-sweep approach in the United States has seen numerous prosecutions in the pharmaceutical and medical devices sectors, for example, with huge effects on the finances and prospects of some of the biggest names in those industries. (Read more)

October 23rd, 2013

By Francisco Rivero, Kenneth E. Broughton and Pablo Quiñones

On Oct. 17, 2012, Mexico passed the Ley Federal para la Prevención e Identificación de Operaciones con Recursos de Procedencia Ilícita (the “Anti-Money Laundering Law” or “AMLL”). The AMLL represents a major sea change in the way in which cash transactions (even intra-company) are handled in Mexico.

The AMLL and its accompanying regulations impose stringent duties on a broad array of Mexican companies or foreign companies transacting business in Mexico. Companies that effectuate certain cash transactions, engage in real estate ventures, or serve as financial institutions (among others) in Mexico may now be required to meet new identity verification, information gathering, and reporting requirements.

The AMLL’s stated objective is to protect Mexico’s economy and financial system from transactions that potentially involve illegal funds. The AMLL tasks the Secretaría de Hacienda y Crédito Público (the Ministry of Finance) and Mexico’s Attorney General with promulgating and enforcing regulations to assist in the identification, investigation, and prosecution of transactions involving illegal funds. Possible sanctions for failure to comply include:

  • Fines up to 100 percent of a transaction’s underlying value;
  • Revocation of permits; and
  • Potential prison terms of up to 10 years.

(Read more)

About Reed Smith

ANALYSIS: UK Bribery: For Cooperating Companies, Virtue Has At Least Some Rewards

USDOJ: Criminal Division News  
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