Earlier this year, the UK’s parliament established a so-called ad-hoc post-legislative scrutiny committee to evaluate the Bribery Act 2010. The work of this committee represents the first formal review of the law. The introduction of the Bribery Act in 2010 represented a sea change for businesses in the UK and beyond, as the section 7 offense of “failure to prevent bribery” was introduced. Businesses scrambled to ensure they limited their liability to this new offense which was yet to be tested in the courts.
A number of interesting hearings spanning a wide variety of topics involving very senior figures have taken place over the past couple of months. The committee is to formally report on its findings by the end of March 2019. Let’s explore some of the most interesting developments.
Expansion of the "Failure to Prevent" Offense Beyond Bribery
On November 13, 2018, the committee heard testimony from the new Serious Fraud Office (SFO) director Lisa Osofsky and President of the Queen's Bench Division and Head of Criminal Justice, Sir Brian Leveson.
The most concerning aspect was the possible expansion of corporate criminal liability in the UK. During the questioning, Osofsky was asked about her thoughts on the possible introduction of US-style vicarious liability (as an alternative to a general failure to prevent offense). Under a regime of vicarious liability, a corporation can be held liable for the actions of its employees, in contrast to the current practice in the UK where it first has to be established that “controlling minds” in the company were involved in the commissioning of a crime in order to invoke corporate liability.
The SFO had complained previously about the difficulty of establishing the “controlling minds” in large and complex organizations. The agency argues this severely limits its ability to prosecute criminal activity in larger corporations while at the same time it penalizes small and mid-size enterprises (SMEs) since it is much easier to identify who is calling the shots in SMEs.
Osofsky spoke favorably of the system of vicarious liability, noting that companies only act at the direction of humans and being able to hold corporations accountable for the actions of their employees would help the SFO prosecute corporate crime. The director said that “an extension of the rules of corporate criminal liability might find us not as hamstrung.” She further added, colloquially speaking: “If I couldn’t get vicarious liability I would be happy having a failure to prevent offence that I could use across the whole arena of economic crime.”
Sir Brian Leveson, the sole UK judge to approve the four deferred prosecution agreements (DPAs) granted under the Bribery Act so far, was also asked about his views on a general “failure to prevent” offense for economic crime. Sir Leveson spoke in favor of such an offense and noted that “[...]looking at wider position, extending this to other offences of fraud would be something I think would be in public interest.”
These comments are sure to stoke further interest in the legal and compliance communities, as many are eagerly awaiting the results of last year’s Public Consultation on Corporate Liability for Economic Crime held by the UK’s Ministry of Justice. An expansion of the failure to prevent offense to other types of economic crime would be sure to increase the compliance burden for many organizations. The building momentum in favor of such a provision means that compliance officials should consider making a preliminary assessment of whether their compliance program is equipped to deal with the possible expansion.
Rolls-Royce & BAE Systems Praise the Bribery Act
A significant number of private parties, ranging from multinational businesses to small and medium-sized enterprises, have been given an opportunity to make their voice heard in the hearings.
General Counsel from Rolls-Royce and BAE Systems answered questions about their experience complying with the requirements of the Bribery Act. Rolls-Royce agreed to pay penalties totaling USD 817 million to resolve wide-ranging Bribery Act offenses in early 2017. BAE Systems separately paid over USD 450 million to US authorities in 2010 over widespread bribery predating the passage of the Bribery Act 2010.
Despite their well-documented past troubles with bribery, both companies expressed general satisfaction with the statute. Philip Bramwell, General Counsel for BAE Systems, called the law “very carefully thought through” and a “practitioners’ statute” as he indicates it sets “very clear and unequivocial standards”.
Interestingly, neither company indicated it believed that the Bribery Act reduced its ability to compete with companies from jurisdictions with less stringent anti-bribery legislation. Mark Gregory, General Counsel for Rolls-Royce, indicated that he could not think of an example where Rolls-Royce had suffered as a consequence of the stringent requirements of the Act.
While this positive stance may seem surprising, it is worth noting that both corporations have had a unique opportunity to publicly show the world that their businesses had changed as they were resolving their bribery charges. The public enhancements of their compliance programs and the stringent requirements imposed by the Bribery Act have further provided them with cover to refuse demands for bribes in international commerce.
Counsel for Smaller & Medium-Sized Enterprises Point to Inequities
In contrast to the sentiments expressed by the two multinationals, lawyers from two laws firms Kingsley Napley and Reed Smith pointed to ‘a sense of unfairness’ in the enforcement of the Bribery Act against small and medium-sized enterprises. Lord Hodgson noted that “[i]t seems potentially very unsatisfactory that, every now and again, a small person is taken out and hanged in front of everybody, while the big guys carry on, pay their money and off they go.”
What causes this “sense of unfairness”? Among the factors mentioned during the hearings are the relative ease with which the “controlling minds” of a smaller business can be identified, the lower likelihood of being eligible for a DPA, and the smaller amount of resources available to a small business to defend itself.
The inequity was illustrated earlier this year by the conviction of Skansen Interiors, a small UK interior refurbishment company, for the section 7 offense of failing to have “adequate procedures” in place to prevent bribery. The company argued that considering its limited size and resources, it did not need sophisticated anti-bribery policies as its resources and geographic reach were limited and it should have been able to rely on the integrity of its employees. The jury was left unconvinced by the arguments and returned a guilty verdict. The Skansen case illustrates how little guidance there is on what may constitute “adequate procedures” for a small company.
The SFO Has Enough Resources and is Taking an Active Stance
Serious Fraud Office Director Lisa Osofsky confirmed in her testimony that the SFO now has sufficient funding to handle the agency’s current caseload (roughly sixty active investigations) following an increase of funding made available earlier this year. Osofsky further noted the SFO is currently able to obtain the qualified candidates that it seeks.
Osofsky was further asked about her views on introducing a procedure similar to the Foreign Corrupt Practices Act (FCPA)’s Opinion Procedure, where corporations can approach the U.S. Department of Justice (DOJ) for advice on whether contemplated business conduct would violate the FCPA. Osofsky indicated that she would not be in favor of such a procedure as it would strain the SFO’s budget and included that the U.S. DOJ is moving away from the procedure as well. Hannah von Dadelszen, the SFO’s Head of Fraud, further added that it is not part of the agency’s task to provide “essentially an insurance policy for companies who want a rubber stamp on their compliance program.”
Lastly, Osofsky, referring to herself as an “avaricious” prosecutor, clearly indicated that her focus is on increasing self-reporting among companies, working together across sectors and jurisdictions, and taking on cases with the biggest firms.
While Osofsky has only been heading the SFO for a few months now, her advocacy in favor of an expansion of a general “failure to prevent” offense to all economic crime as well as her aggressive posturing on corporate crime during the hearings, make it clear that compliance officers should expect her to build on the substantial legacy of her predecessor. Whether a general “failure to prevent” offense will be introduced may remain unclear for some time, but the looming threat of such a significant expansion of corporate liability makes the value of a strong compliance program readily apparent.