Increased Enforcement by the U.K.’s Serious Fraud Office
April 04, 2014
The U.K. Bribery Act (the "Act") came into force in July 2011 and, broadly speaking, states that companies with a presence in the U.K. can face prosecution under the Act for bribery or failing to prevent bribery regardless of where the alleged activity has taken place. In its ongoing effort to fight crime and corruption, the U.K. Ministry of Justice is now aggressively enforcing the Act. Many consider the Act as significantly stronger than the U.S. Foreign Corrupt Practices Act and because of the language incorporated into the Act it is expected to have a global impact on more than just U.K. organizations or citizens. It has the potential to cover many global organizations including U.S. business organizations doing business with U.K. organizations or affiliates.
The Act covers business organizations having either a U.K. subsidiary or selling goods or services into the U.K. or that work in joint ventures and/or partnership with U.K. based organizations. So that means you may be subject to the Act under your business’s or organization’s affiliations with U.K.-based organizations. Suspected violators of the Act can be subject to both civil and criminal action. It is important to note, because of the language of the Act, a company can be responsible for violation carried out by its employees or third-party agents without its knowledge or consent. As a result, companies or their officers can be prosecuted and found guilty of failing to prevent bribery by people working for or on behalf of the business. A major defense against a prosecution and in helping to reduce any penalty is if the company can show that they have "adequate procedures" designed to prevent bribery in place. The definition as to what constitutes “adequate procedures” is vague and the interpretation and enforcement appears to be case and fact specific.
The mission of the U.K.’s Serious Fraud Office (“SFO”), as outlined in their 2012-2013 Annual Report, is: “…(T)o investigate and, where appropriate, to prosecute cases of serious or complex fraud, bribery and corruption and to assist overseas jurisdictions with their investigations into serious or complex fraud and corruption. The SFO will investigate and, where appropriate, prosecute cases of serious or complex fraud, bribery and corruption.”
Since the appointment of David Green as the director of the SFO, there has been an increase in enforcement activity. The SFO is currently working on more than 80 cases. They vary from fraud against individuals to those involving large corporations.
The SFO has had a policy of supporting and encouraging self-reporting by companies who suspected potential wrongdoing. In exchange for self-reporting, the SFO was making it known that they were predisposed to civil remedies as opposed to filing criminal actions against the violators. Under that policy, a number of cases were settled by way of civil remedy. In exchange for this leniency, the violator was to forfeit the proceeds of the criminal activities under a money laundering legislation, instead of full criminal prosecution under the Act.
However, since the appointment of David Green as director in April of 2012, there has been a change in how the SFO approaches violations of the ACT. The SFO is now more aggressive in seeking criminal prosecutorial actions, even despite an organization’s voluntary self-reporting. When he took the reins of the SFO, Mr. Green stated “The SFO … is and will remain a key crime fighting agency targeting top-end fraud, bribery and corruption. As such, the SFO has moved away from its characteristic conciliatory position on self-reporting and has adopted a harder line. It now actively promotes that no guaranteed protection exists against criminal prosecution for a self-reported violation.
What is a suspected violator to do now? There is no clear answer or guidance. However, it is always important that an organization promptly carry out an investigation to determine the extent and severity of suspected violations under the Act. While the use of in-house personnel may be adequate, the use of an outside forensic accountant may be the best course of action. They are generally more unbiased and, the reality is, many times the people with the access to a company’s books and records are the ones involved in an alleged violation. This investigation should be done under the guidance of in-house and outside counsel as they can provide guidance on the assessment of whether and when to self-report a violation under the Act. With the threat of the SFO’s hard line position and threat of a potential criminal prosecution, potential violators need to seriously consider any decision to self-report and understand the related risk of not doing so. It is best to seek guidance from in-house and outside counsel.
Further complicating the decision to self-report is the application of the U.K. money-laundering rules, which place obligations on certain individuals or professional advisors to report suspicious activity to the Serious Organized Crime Agency (“SOCA”). Reports submitted to the SOCA, which are designed to catch "proceeds of crime" stemming from illegal bribery, are now also accessible by the SFO. So if the SFO suspects there is an activity in reports submitted to the SOCA that may involve a violation of the Act, they can now initiate an investigation. The problem is that the voluntary filing of a SOCA report will not be treated as a self-disclosure to the SFO. As a result, the failure to inform both entities at the same time might be treated as failure to cooperate.
Some current matters being investigated by the SFO are as follows:
Gyrus Group Limited and Olympus Corporation
04 September 2013
Criminal proceedings by the Serious Fraud Office have commenced against two companies by written charge. Gyrus Group Ltd, a UK subsidiary of Olympus Corporation, and Olympus have been charged with offences of making a statement to an auditor which was misleading, false or deceptive, contrary to section 501 Companies Act 2006.
Four charged in 'bio fuel' investigation
14 August 2013
Four men connected to Sustainable AgroEnergy plc have today been charged with offences of conspiracy to commit fraud by false representation and conspiracy to furnish false information, contrary to section 1 of the Criminal Law Act 1977, in connection with the investigation by the Serious Fraud Office into the promotion and selling of "bio fuel" investment products to UK investors.
Statement on Data Loss Incident
08 August 2013
A Serious Fraud Office spokesperson said: "The SFO is dealing with an incident of accidental data loss. The data concerned was obtained by the SFO in the course of its closed investigation into BAE Systems. "The SFO has a duty to return material to those who supplied it, upon request, after the close of an investigation.
Brokers charged in LIBOR investigation
15 July 2013
Terry Farr and James Gilmour, former brokers at RP Martin Holdings Limited, have today been charged with offences of conspiracy to defraud in connection with the investigation by the Serious Fraud Office into the manipulation of LIBOR. Terry John Farr (41 years) and James Andrew Gilmour (48 years), of Essex were arrested on 11 December 2012 (along with Tom Hayes) by officers from the SFO and City of London Police.
With the increase in the current enforcement activity it is important to note, when it chooses to prosecute a case, the SFO has a very good track record with an average conviction rate of 74%. In addition, as time has gone on they have more than doubled the average length of the prison sentence for those convicted of a violation of the Act. The average sentence went for 30 months to 71 months.
Key Performance Indicators in 2012-13
The table below provides a summary of performance against key indicators in 2012-13:
|Number of trials||16||19||12|
|Number of civil recovery orders||1||3||2|
|Number of defendants convicted||22||39||14|
|Total number of defendants tried||27||54||20|
|Percentage of defendants convicted||81%||72%||70%|
|Average length of sentence (months)||30.9||50.6||71.3|
|Total sums removed or recovered from persons, entities and defendants associated with criminal or unlawful conduct||£42.7m||£50.2m||£11.4m|
|Average cost of cases (excluding staff)*||£910k||£669k||£839k***|
|Cost of the SFO per person in the UK**||£0. 63||£0. 61||£0.64***|
* The average cost of cases is calculated based on cases which have been at trial in that year and excludes staff costs.
** Cost of SFO per person is based on UK population. 2010-11 and 2011-12 figure restated for consistency.
*** The figures for 2012-13 under the last two headings in the above table reflect the recalibration by the SFO’s take on criteria.
As you can see from the above cases, there are several that involve large global entities who do business in or are affiliated with a U.K.-based entity while their home office resides outside the U.K. Since they are covered under the Act, their corporation, its officers and employees may be implicated in wrongdoing. Since the statistics show the SFO has been successful in its prosecutions and is able to get longer prison sentences for those that they convict, suspected or possible violators need to protect their organizations against possible violations under the Act.
Only time will tell what will happen with the more active and aggressive positions now being taken by the SFO in its enforcement of the Act. What is clear is that the SFO is serious about fighting, deterring, and prosecuting violations of the Act more aggressively than before. This policy is in line with the growing global trend of fighting fraud, bribery and corruption. If you suspect that your organization may be in potential violation the Act, you should contact your corporate counsel and employ the expertise of a forensic accountant for guidance. Therefore, it is important that you ensure that your organization is in compliance if they are or will be potentially covered under the Act. If you are unsure if the Act applies to your organization, please speak to your professional advisors.