Category: Criminal Law

Highlights of the UK Bribery Act Guidance: What It May Mean For Your Company

Recently posted by Bracewell & Giuliani LLP – a great overview of the recently passed UK Bribery Act:  

On March 30, 2011, the UK Ministry of Justice issued its highly anticipated guidance (Guidance) for the UK Bribery Act (the Act), a criminal anti-corruption statute that will become effective July 1, 2011.1 The Act covers both commercial and official bribery, within and sometimes outside the UK, and a company may be criminally liable for failing to prevent bribes from being offered or paid by its employees, agents or subsidiaries.

Following a brief overview of the new Guidance, in this Update we review:

  • The jurisdictional reach of the Act
  • The impact of extended liability for business organizations
  • Six fundamental principles that can form a full defense for companies
  • Facilitation payments, which are considered illegal bribes under the Act
  • The treatment of hospitality and promotional expenses

Overview

The newly-released Guidance offers some assistance to commercial companies doing business in the UK seeking to implement “adequate procedures” – both to prevent violations and serve as an affirmative defense against liability under the Act. For United States companies doing business in the UK, both the Act and the Foreign Corrupt Practices Act (FCPA) form essential components of a comprehensive global anti-corruption compliance program.

The Guidance sets out six fundamental principles (see below), but one overarching theme is clear:  Companies would be wise to fully evaluate and understand their entire business operations – how and where they do business — assess the differing risks they face and tailor common sense programs to address those specific risks. In pursuing a risk-based approach, companies may be afforded reasonable flexibility (depending on the size, structure, and complexity and the sophistication of their operations) to implement appropriate, and varying, programs.

Jurisdictional Reach Over US and Other Companies

The Act’s jurisdictional reach extends to business organizations that are incorporated or formed in the UK, and also to those that conduct business in the UK (wherever they are incorporated or formed). Whether a business is deemed to “carry on” business, or even part of its business, for the purposes of the Act – and be rendered a “relevant commercial organisation” — will be a fact-sensitive determination, which the Guidance submits will be based on a common-sense approach. Ultimately, the courts will make the final determination based on the particular facts and circumstances of each case. The Guidance provides two examples which in and of themselves will not confer jurisdiction on the company: (1) where the company’s securities are listed and may be traded on the London Stock Exchange; and (2) where it merely has a UK subsidiary (which “may act independently of its parent or other group companies”).

Extended Liability for Business Organizations

A “relevant commercial organization” risks prosecution if the government determines there is sufficient evidence to establish that an “associated person” bribed someone else with the intent to obtain or retain business or an advantage for that business entity. The associated person — someone who merely needs to “perform[] services” for or on behalf of the company — is not required to be prosecuted as a predicate for the company’s prosecution. Nor is the associated person required to have a close connection with the UK. Moreover, the determination of who performs such services is to be based on a broad interpretation. Employees are presumed to perform services, agents and subsidiaries qualify, and contractors and suppliers may also qualify depending on the circumstances. Titles and position are not determinative; far more important are the underlying conduct and the practical realities.

In addition to liability for failing to prevent bribery from occurring, the business organization may also be prosecuted if the government can prove that the bribe giving or receiving (or offering, encouraging or assisting) took place by someone “representing the corporate ‘directing mind.'” JPG.

An Adequate Compliance Program Is A Full Defense: Six Fundamental Principles

The Act creates a full defense for companies that can demonstrate they have implemented “adequate procedures” to prevent associated persons from engaging in bribery (even if a case of bribery has been proved). The affirmative defense is required to be proved by “the balance of probabilities.” In deciding whether to proceed with its case, the government will also consider the adequacy of compliance procedures, which can turn on the case-by-case facts and circumstances, including the level of control exercised over the conduct of the relevant associated persons and the degree of risk for which mitigation is required.

Six core principles have been set out in the Guidance and accompanying commentary to help advise companies in devising and implementing adequate procedures to prevent bribery:

  1. Proportionality of response to the bribery risks that the organization faces and to the nature, scale and complexity of the organization’s activities
  2. Commitment of top-level management to prevent bribery by associated persons (e.g., effectively communicating no tolerance policy from top to bottom)
  3. Risk Assessment (to promote periodic, informed and documented assessment proportionate to the company’s size and structure and to the nature, scale and location of its operations)
  4. Due Diligence: Demanding that companies investigate and are aware of who is acting on their behalf in order to mitigate bribery risks
  5. Communication (and training): Ensure that policies and programs are “embedded and understood” throughout the company through internal and external communication.
  6. Monitoring and Review: Undertake systematic review to assess changed circumstances and new risks and implement improved procedures where deemed appropriate

Facilitation Payments Constitute Illegal Bribes Under the Act

Unlike the FCPA, the Act prohibits facilitation payments – small grease payments to low-level government officials to perform or expedite routine, non-discretionary services (e.g., processing immigrations or customs forms, turning on the electricity, etc.)… Nonetheless, the Guidance makes clear that the UK government appreciates that given the realities in certain global regions and in certain sectors, overnight elimination is not feasible. Moreover, “eradication” of facilitation payments is recognized as a “long-term objective.” However, the JPG identifies factors tending in favor of and against prosecution:

Factors in favor of prosecution: (i) large or repeated payments; (ii) planned or accepted payments that may reflect standard operating procedure; (iii) payments reflective of an official’s corruption; and (iv) the failure to follow the organization’s facilitation payment policies and procedures

Factors against prosecution: (i) a single small payment; (ii) payment identified as part of genuinely proactive approach involving self-reporting and remedial action; (iii) adherence to the organization’s clear and appropriate procedures for facilitation payment requests; and (iv) the particular circumstances placed the payer in a vulnerable position

Hospitality and Promotional Expenses Are Not Prohibited by the Act

Like the promotional expense exception under the FCPA, the Act does not criminalize bona fide hospitality and promotional expenses, as long as there is no improper intent. Specifically, the guidance makes clear that providing tickets to sporting events or taking clients to dinner to promote and continue good relations, or paying for reasonable travel expenses in order to demonstrate your company’s goods or services, if reasonable and proportionate, will not run afoul of the Act. However, where hospitality expenses are made to mask an intent to bribe or improperly induce advantageous business conduct, the authorities can be expected to view the expense payment as an illegal bribe under the Act. The extent of the hospitality and promotional expenses offered, the way in which they were provided and the level of influence the client exercised or could exercise in the business decision will all be examined.

Current Considerations

The next three months, until July 1, when the Act goes into effect, will provide a special opportunity for U.S. and other companies doing business in the UK to re-evaluate their operations and take a fresh look at the effectiveness, or “adequacy,” of their anti-corruption policies and procedures. Conducting a measured, proportionate and risk-based assessment makes eminent good sense in light of the UK Bribery Act, the FCPA and an evolving global propensity for strict anti-corruption enforcement.

The Ministry of Justice Guidance can be found here.

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1Also issued that same day is the Joint Prosecution Guidance of the Director of the Serious Fraud Office and the Director of Public Prosecutions (JPG), which provides some insight into the Directors’ views as to “prosecutorial decision-making” regarding violations of the Act.

© 2011 Bracewell & Giuliani LLP

China Adopts Amendment to the Criminal Law to Outlaw Bribery of Foreign Officials

Recent guest bloggers at the National Law Review from Squire Sanders & Dempsey (US) LLP.…Nicholas Chan, Zijie (Lesley) Li, Amy L. Sommers, and  Laura Wang outline some of the recent changes in Chinese law related to bribery of foreign officials: 

On February 25, 2011 the PRC adopted Amendment No. 8 of the PRC Criminal Law, criminalizing bribery of foreign government officials and “international public organizations” to secure illegitimate business benefits. This amendment goes into effect on May 1, 2011.

The PRC did not have any law addressing cross-border bribery before and this law will be the first law to condemn bribery of foreign officials. This amendment is the PRC’s effort to comply with the United Nations Convention Against Corruption to which the PRC is a signatory.

The amendment was made to Article 164 of the PRC Criminal Law prohibiting entities or individuals from offering bribes to employees of companies and enterprises who are not government officials. With the amendment, it is a criminal act to bribe foreign government officials or international public organizations.

According to this Article 164, if the payor is an individual, depending on the value of the bribes, he or she is subject to imprisonment up to 10 years; if the payor is an entity, criminal penalties will be imposed against the violating entity and the supervisor chiefly responsible and other directly responsible personnel may also face imprisonment of up to 10 years. Penalties may be reduced or waived if the violating individual or entity discloses the crime before being charged. According to the PRC Supreme Procuratorate issued in 2001, individuals offering bribes of more than RMB10,000 and entities offering bribes of more than RMB 200,000 may be prosecuted under Article 164.

Unlike other bribery-related crimes in the PRC, which focus on the receipt by the briber of ”illegitimate benefits,” bribery of foreign officials or international organizations prohibits securing illegitimate business benefits. In advance of the release of judicial interpretation of what may be “illegitimate business benefits,” the current legal understanding of what is “to secure illegitimate benefits” means in other bribery-related crimes may provide a reasonable basis for understanding this amendment.

The law refers to “officials of foreign countries and international public organizations,” but does not define these terms. For example, it is not clear whether international public organization includes foreign non-governmental organizations.

As of this Alert, no judicial interpretation or administrative regulations regarding the implementation of this provision has been promulgated. It is not clear whether foreign companies may also be subject to jurisdiction under the PRC Criminal Law with respect to this new amendment. We will continue to closely monitor future development related to this amendment.

©Squire, Sanders & Dempsey All Rights Reserved 2011

ABA – The Fifth Annual National Institute on Securities Fraud Oct 7 & 8th New Orleans

Looking for a good excuse to head to New Orleans?  The National Law Review would like to remind you that the American Bar Association’s Business Law Section, Criminal Justice Section, Section of Litigation, and the Center for Continuing Legal Education are sponsoring the 5th Annual National Institute on Securities Fraud: 

The aftermath of the global financial crisis continues to cause uncertainty in the areas of securities regulation and enforcement. SEC and DOJ collaboration has increased, with both agencies pursuing aggressive legal theories.  Congress has passed the most sweeping changes to the federal securities laws since they were enacted in the 1930s. And state attorney generals continue to assert a significant role in enforcing state securities laws.

This unprecedented confluence of events raises significant questions for industry participants and publicly traded companies that require a forward-looking and flexible approach to avoiding missteps.

The 2010 program will squarely address the issues and trends that are shaping the direction of securities regulation and enforcement for decades to come, including the status and potential impact of financial reform legislation,  the enforcement trends suggested by recent cases, and the priorities of top enforcers.  The program will provide valuable strategic and tactical insights to navigate this ever-changing terrain, from the perspective of thought leaders of every persuasion, including judges, prosecutors, regulators, compliance officers, and defense counsel.

The Securities Fraud National Institute Planning Committee, in cooperation with the Criminal Justice Section White Collar Crime Committee and the Business Law Section, will provide an educational and professional forum to discuss the legal and ethical issues that arise in securities fraud matters. For More Information – Click Here:

Public Defenders as Effective as Private Attorneys

This week’s featured blogger at the National Law Review is Tom Jacobs of Miller-McCune – who discusses a recent study done comparing the relative effectiveness of public defenders and private attorneys in the Cook County criminal court system. The research team led by Richard Hartley of the University of Texas at San Antonio came up with some interesting and somewhat startling results.  Read on:

Perhaps it’s time for someone to come to the defense of public defenders. A newly published look at Chicago-area courts finds that, when you consider the actual outcomes of judicial hearings, these underpaid and underappreciated attorneys do just as well as their private-sector counterparts.

“This study suggests that there is little difference in the quality of legal defense provided to defendants by private attorneys and public defenders,” a research team led by Richard Hartley of the University of Texas at San Antonio writes in the Journal of Criminal Justice. “The type of attorney representing the defendant was not influential on any of the four decision-making points examined here.”

The researchers examined a random sample of 2,850 offenders convicted of felonies in Cook County Circuit Court, “a large Midwestern jurisdiction which is similar to other large, urban jurisdictions in the country.” They compared cases where the defendant was represented by a private attorney or public defender, focusing on four stages of the judicial process:

  • The decision to grant bail. The researchers looked at whether bail was set rather than whether it was made, since the latter is more a function of ability to pay rather than quality of legal representation.
  • Plea-bargaining decisions. This served as a measure of whether an attorney was successful in getting the initial charge reduced.
  • Whether the defendant, once convicted, served jail time.
  • The length of sentence imposed on those convicts who were incarcerated.

“The overall results of this study generally support the idea that there is no difference between private attorneys and public defenders regarding case outcomes,” the researchers conclude. “The type of attorney representing the defendant was not influential on any of the four decision-making points examined here.”

Two important caveats. The researchers did not look at convictions vs. acquittals. And they found that retaining a private attorney is apparently beneficial “for certain offenders and at certain stages” of the process. Specifically, they noted some interestingly varied outcomes when looking at a defendant’s race.

“White defendants are the only defendants who benefit from having a private attorney at the release decision,” they write. Specifically, they found whites with private attorneys are 2.7 times more likely than whites with public defenders to have bail granted.

For people of color, private attorneys may not help in getting bail, but they do facilitate plea bargains. “Black defendants who retain a private attorney are almost two times more likely to have the primary charge reduced than black defendants who are represented by a public defender,” the researchers write.

Why are public defenders so effective at representing their clients? One theory, according to Hartley, involves the “courtroom workgroup” model of justice, where the public defender, prosecutor and judge work together to dispose of cases.  He notes that when the system functions in this way, “public defenders are in better positions than private attorneys to negotiate favorable plea bargains and to mitigate punishment.”

These findings are not likely to put any law firms out of business. But given the negative media coverage of public defenders offices, they do offer some reassurance that the system is reasonably fair, even for those who can’t afford an attorney.

“This study provides evidence that contradicts the idea that you get what you pay for, at least in Cook County,” Hartley and his colleagues conclude. In Chicago courtrooms, “Public defenders are as effective as private attorneys.”

Miller-McCune © 2010 

About the Author:

Tom Jacobs is a veteran journalist with more than 20 years experience at daily newspapers. He has served as a staff writer for The Los Angeles Daily News and the Santa Barbara News-Press. His work has also appeared in The Los Angeles Times, Chicago Tribune and Ventura County Star.

TheEditor@miller-mccune.com / www.miller-mccune.com / 805-899-8620