In an article in New Law Journal, David Corker, partner, Corker Binning, studies the thinking behind the SFO’s new guidance on bribery cases. Read more about the SFO’s shift in policy on corruption and bribery cases.
More stick, less carrot
David Corker studies the events that led up to the SFo’s recent backtrack
In a surprise and unheralded move, the Serious Fraud Office (SFO) last week published new guidance and policy on how it will deal with cases of suspected domestic and overseas bribery. Neither the SFO’s new director, David Green, nor any other spokesperson was available to introduce and explain the thinking behind this announcement. So how this initiative differs from the now redundant July 2009 guidance and to what extent it represents a change of strategy is unclear. Presumably, such uncertainty is something the SFO regards as desirable. To understand what this change might mean, it is necessary to put recent events at the SFO into a wider perspective.
Civilly where possible
During Richard Alderman’s tenure as SFO director between 2008–2012, the aim was to encourage resolution by avoiding litigation. What he emphasised from the outset was the probable reward on offer for self-reporting in the guise
of a non-prosecution outcome. Initially, he went a long way in this direction by agreeing secret non-prosecution deals
with several UK companies implicated in sanctions-busting and the OilFor-Food scandal. But in the face of widespread concern he back-tracked from this approach in favour of a slightly more transparent solution with a semblance of judicial scrutiny, namely civil recovery orders (CROs).
Despite the SFO having had the power to enter into CROs since 2003, it was Alderman who pioneered their usage. Settling bribery investigations with a CRO became his hallmark and between 2009–2012, 22 were resolved in this way. In the same period, there were only a handful of corporate prosecutions, all of which were agreed guilty pleas and in some instances (British Aerospace) were for trifling non-corruption related offences.
In July 2009, Alderman sought to consolidate this strategy by promulgating a bespoke policy concerned with overseas
corruption. This of course underlined what he was already doing. The premise was that the enticement of leniency was
the best agent to achieve cultural change within boardrooms. Moreover, the SFO and the company could work together: a CRO could be followed by, for example, “the opportunity to manage, with us, the issues and any publicity proactively”.
With regard to facilitation payments which the Bribery Act 2010 unequivocally classes as bribes (in contrast to the equivalent statute in the US), Alderman drew up a “six-stage solution” the effect of which was to suggest that they might be tolerated. Referring to this “solution” in its March 2012 report on the UK’s implementation of its anti-bribery convention, the Organisation for Economic Co-operation and Development (OECD) commented acidly that: “Taken together, these factors imply that a company could continue making facilitation payments while avoiding prosecution if certain conditions were met.”
Collision with a judicial iceberg
In March 2010 Lord Justice Thomas, the second most senior criminal judge, was due to sentence Innospec Ltd for its bribery of officials in the Indonesian oil ministry. The judge seized this chance to make a thinly-veiled and stern rebuke of Alderman’s policy. He held: “Principles of transparent and open justice require a court sitting in public itself first to determine by a hearing in open court the extent of the criminal conduct on which the offender has entered the plea and then, on the basis of its determination as to the conduct, the appropriate sentence…those who commit such serious crimes as corruption of senior government officials must not be viewed or treated in any different way to other criminals.”
While his judgment was not binding on the SFO, it made plain that in the view of the judiciary the SFO had ventured too far in its policy of corporate enticement. While there were subsequent CROs, the pace slowed considerably and the last one was with Macmillan Publishing in July 2011 (and a collateral CRO last July).
It is probably not coincidental that the then senior judge at Southwark Crown Court, HHJ Rivlin QC invited Thomas LJ to deliver the above judgment and that soon after his appointment David Green appointed the newly-retired Geoffrey Rivlin to act as his top adviser on investigations.
Whether one characterises the new policy as a rebalancing or a change of emphasis, it appears that Green wants to project three underlying messages. First, that cases of alleged corruption are more likely to be prosecuted than compromised: the SFO will readopt the CPS Code for Crown Prosecutors which the July 2009 guidance had disapplied. This code encourages prosecution for a serious crime like corruption whatever countervailing representations a company may submit.
Second, self-reporting is no longer the virtual “Get Out of Jail Free” card it once was but henceforth only one factor in a basket of others. The era of a company and the SFO enjoying a dialogue over what the outcome of a self-report should be is over. Moreover, with an eye to the controversy surrounding the Macmillan 2011 settlement where whether or not the company did self report was disputed, this policy requires the company to report its concerns almost immediately after its board are made aware of it.
Finally, with regard to facilitation payments, they are bribes and there will be zero-tolerance in relation to them.
To a large extent this initiative reflects the thinking of the OECD which in its aforementioned March 2012 report expressed its unease about the then SFO’s preference for agreeing CROs over a prosecution. Probably it also will be
warmly welcomed by the UK judiciary who were becoming worried about their loss of control over the settlement of
Will it make any difference?
The Bribery Act 2010 was implemented in July 2011 and to date there has only been one trivial prosecution: a hapless magistrates’ court clerk who offered a service of erasing road traffic penalty points for a small fee. Nothing substantial, complex or international yet.
While the SFO can be expected to intimate that such big cases may be in its pipeline, the stark fact is that it suffers from a money and morale problem. Antecedent corruption investigations are generally the most resource-intensive and therefore expensive. Yet the SFO’s budget (the LIBOR investigation aside as it receives special funding) for investigations is shrivelling. In 2008–09 its budget was £53m. It has been cut year-on-year since then and for 2014–15 it will be £31m. At the same time it has haemorrhaged staff with relevant anti-corruption experience to the private sector prompted in part by rumours about the SFO being subsumed into the National Crime Agency.
As Green would acknowledge, this is an endemic problem which undermines the SFO’s credibility. It is essential that this is regained both domestically and also in the eyes of equivalent foreign agencies with whom it must constantly deal. Recent transatlantic settlements have made the SFO seem like an auxiliary to the US Department of Justice where the latter always seems to grab the lion’s share of the company’s fine.
Bearing in mind this credibility problem, it is difficult to gauge what impact this new policy will have. Surely companies need to be, if they ever were, less complacent about assuming that a bribery problem can be resolved outside the criminal courtroom. The waters are now more muddied than previously and so predicting how the SFO would respond to a self-report has become more difficult. But presumably that is exactly what David Green wanted to happen.
David corker, partner, Corker Binning.