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Wednesday, 20 June 2012

Combating corruption in a global business environment – Forthcoming HLE panel discussion

For Halsbury's Law Exchange

According to the Ministry of Justice, it was hoped that the Bribery Act 2010 would “provide a more effective legal framework to combat bribery in the public or private sectors” and “help tackle the threat that bribery poses to economic progress and development around the world”.

It is fair to say that the old regime was a fractured state of affairs, and it is also fair to say that it did not achieve very much. In 2007, for example, the US brought 69 cases relating to foreign bribery, Germany 43 and the UK none at all. In fact, no successful prosecution for “foreign” bribery under the previous law was brought until 2008, the authorities preferring instead to settle cases before trial.

At first glance, therefore, the Bribery Act seems like a necessary and valuable step. Nearly a year since it came into force, however, not much progress seems to have been made in terms of convictions of substantial entities for large-scale fraud. The first successful prosecution under the Act concerned a court clerk who accepted bribes of a few hundred pounds to make driving offences disappear – hardly the sort of billion pound international fraud the Act was supposedly aimed at. Nor was it conduct for which a new criminal statute was needed: the same actions would have been better prosecuted under the long established offence of perverting the course of justice.

At second glance, it is perhaps not difficult to see why the Bribery Act has not had much impact. The obstacles to successful policing of bribery in an age of instant communications and sophisticated computer-based, cross-border transactions are formidable. To begin with, one has to define the terms. “Bribery” and “corruption” sound obvious to a lay ear. Yet one person’s corruption may be another’s standard business practice. There are parts of the world in which a “facilitation payment” would be seen as necessary, whereas in the United Kingdom it would be a straightforward bribe.

This problem raises the potential threat that the Bribery Act could render British companies uncompetitive in those jurisdictions with a different concept of corruption. This will do nothing to change the practice of corruption; it will just impoverish the United Kingdom instead.

Even if some greater form of international agreement can be reached on the definition of corruption, global enforcement poses another difficulty. Judgments from friendly and similar jurisdictions such as the United States are not always enforced in this country as a matter of course; judgments from less reputable jurisdictions known for corruption will be enforced even less often.

The additional red tape imposed in Britain by the Act may mean that overseas companies will be reluctant to invest here. An investment bank with thousands of clients undertaking hundreds of trades every day will hardly be in a position to undertake a detailed compliance exercise for every transaction – another way in which British companies may be rendered uncompetitive without any real impact on fraud, especially on a global level.

Leaving aside those preliminary objections, actually prosecuting fraud faces a different set of hurdles. First, there is the question of discovering fraud in the first place. Is there sufficient protection for whistleblowers in this country? If not, then the chances of fraud being discovered will be correspondingly reduced.

Secondly, there is the issue of resources. One of the underlying principles of criminal law is the assumption that the state has far greater resources than the defendant, hence the various forms of protection such as the onerous burden of proof. But this is not the case in substantial cross border frauds: indeed, the larger the fraud, the greater the resources may be on the part of the suspects, which might substantially outweigh those of the Serious Fraud Office.

A wealthy corporation will be able to hire legal advisers well versed in the art of filibustering inquiries. They might disclose a vast amount of irrelevant documentation which the investigators will have to spend disproportionate resources trawling through. Much of the information may be on encrypted electronic storage devices for which the owners might have conveniently forgotten the passwords, leaving the authorities to pay for expensive IT help in trying to hack the encryption.

Next there is the problem of identifying individuals responsible in a large corporation. Criminal liability requires the prosecution to prove that the “directing mind and will” of an organisation was at fault, which may be hard to establish in a large corporation where decision-making is spread thinly.

Let us assume, nevertheless, that the authorities manage to wade through all of the obstructions and mountains of evidence and find a prima facie case of criminal conduct. The well-resourced defendant will then elect trial by jury, and promptly attempt to batter the jurors into a stupor with highly technical evidence and a supporting paper mountain. For all the benefits of the jury system, the idea of twelve lay people chosen at random being able to understand complex financial concepts and transactions, or to sift through vast amounts of documentary evidence, is wishful thinking.

A converse danger is that if a high profile former executive of a failed bank finds him or herself at the end of a criminal prosecution, the jury may be tempted to make an example of him or her.

It may therefore be better to do away with juries in complex fraud trials and replace them with single judges. Alternatively a judge might sit with expert assessors or advisers, as a development of the long-established practice in wet shipping cases for elder brethren of Trinity House to sit with the judge.

If the jury system cannot be replaced, victims of large-scale fraud could instead seek to pursue justice through the Commercial Court or Chancery Division, where cases will be heard before a single judge familiar with the City and experienced in sifting through formidable amounts of evidence. This, however, relies on the victims of fraud being willing and able to bring lengthy and expensive court proceedings. It also means that blatant fraud will not result in a criminal conviction, which will leave a lingering sense that justice has not been done even if the money has been recovered.

Finally, even supposing a conviction is correctly obtained, the difficulties in tracing and recovering funds which have been misappropriated are well known.

Given all these obstacles, another tactic employed by a defendant might be to offer a settlement for substantially less than its actual liability. Settlements were used under the old regime, as noted, and this is the course of action that has occurred in some tax cases too. But while a settlement might result in a rough sort of justice, it is less of a deterrent and less likely to obtain public confidence.

No doubt with the above considerations in mind, on 17 May the Attorney General’s office announced plans for a new tool in combating crime, known as Deferred Prosecution Agreements. According to the press release:

“companies would agree to publically admit wrongdoing, and meet tough conditions such as payment of substantial penalties, undertaking internal reform and submitting to regular review and monitoring.

The whole process would be overseen by a judge and the threat of full prosecution would remain hanging over a company should they fail to comply with the agreement.”

Public submissions are open until 9 August 2012.

In the meantime, the above issues are among those to be discussed at a forthcoming panel discussion to be held by Halsbury’s Law Exchange, in partnership with Eversheds, on 17 July 2012, entitled Combating Corruption in a Global Business Environment.

The panel will be composed of leading experts in the field:

• Khawar Qureshi QC – Barrister at Searle Court

• Peter Binning - Partner at Corker Binning

• Neill Blundell - Partner and Head of Fraud Group at Eversheds

• Susannah Cogman - Partner at Herbert Smith

• John Cooper QC – Barrister at 25 Bedford Row and Consultant Editor, Criminal Law & Justice Weekly

• Felicity Gerry - Barrister at 36 Bedford Row

• Ben Rose - Partner at Hickman and Rose

• Satnam Tumani - Head of Bribery & Corruption and International Assistance at the SFO

Attendance is free but strictly limited, so please RSVP to Sarah Plaka at sarah.plaka@lexisnexis.co.uk at your earliest convenience. Further details may be found at http://www.halsburyslawexchange.co.uk/

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