Mark H Tuohey and Mark Beardsworth of Brown Rudnick LLP discuss the impact of the growing trend for collaboration between international authorities on the business crime defence market.
“The trend for many businesses to have a large footprint lacking in depth puts them at risk of transgression. As international government authorities increase their cooperation, so should international defence lawyers, to best serve their clients.”
The ubiquity of wireless communications has made it easier to conduct business remotely. One need not be in the office, or even in the same country, to participate in business decisions. It is routine for businesses and their employees to operate on a multinational level, and the ease of international transport and communications has simplified the process of expanding into emerging and frontier markets. The innovations in technology, however, while beneficial to transacting business throughout the world, introduce risks inherent with the needs of expanding businesses to understand and adapt to local customs while also complying with the laws of each country in which they operate. A modern and expanding business, susceptible to management stretch, may be at risk of committing or suffering from fraud.
When there are accusations of improprieties in international business dealings, investigations typically involve authorities in the countries where the dealings occurred. However, the ease by which people, documents, and money can be so readily moved between nations tends to necessitate simultaneous investigations by authorities in numerous jurisdictions. Some of the world’s largest alleged frauds are international, and where evidence and information is spread around the globe, foreign authorities work with one another when conducting their investigations.
Cross-border cooperation, while not new, is increasingly common and there has been a concerted international move to eradicate bribery and corruption in international business transactions over recent years. As of March this year, no less than 39 countries, including the US and the UK, had become signatories to the OECD Anti-Bribery Convention.
The US Department of Justice (DOJ) and the US Securities and Exchange Commission (SEC) have frequently cooperated with foreign authorities when investigating allegations of violations of the Foreign Corrupt Practices Act of 1977 (FCPA). The FCPA prohibits US persons and certain foreign issuers of securities on US exchanges from making payments to a foreign official to obtain or retain business and requires companies whose securities are listed in the US to maintain accurate books and records to fairly reflect transactions. Cross-border collaboration has occurred in a number of FCPA investigations, some of the most notable being Siemens, BAE, Innospec and Johnson & Johnson.
In December 2008, when Siemens paid US$1.6 billion in penalties to settle charges of criminal FCPA anti-bribery and books and records violations, it was the largest monetary penalty imposed for FCPA violations since the act was passed in 1977. During the investigation, the SEC, DOJ and the Munich Prosecutor’s Office worked closely together, sharing evidence and information. In its announcement about the settlement, the DOJ stated that “the coordinated efforts of US and German law enforcement authorities set the standard for multi-national cooperation in the fight against corrupt business practices.”
During the course of the investigation into BAE Systems, the UK’s largest manufacturer, which took several years, the US and UK authorities cooperated in securing a guilty plea from the company in 2010. This was believed to have been the first time the US and UK authorities collaborated in obtaining a plea bargain. BAE’s agreement with the UK’s Serious Fraud Office (SFO) included a guilty plea for a breach of duty to keep accounting records in connection with payments made under a £25.2 million contract to supply a radar system to Tanzania. BAE’s deal with the DOJ included a guilty plea for making improper payments to third parties knowing that there was a high probability that the monies would be passed to foreign officials to influence them in their decisions on awarding defence contracts. Additionally, BAE pleaded guilty to conspiring to make false statements to the US government by failing to put anti-bribery measures in place despite telling the US government that it had. As with Siemens, it appeared again that it was the US authorities who had primacy in the investigation.
Also in 2010, Innospec, a specialty fuel and chemical manufacturer with principal offices in the US and the UK, paid US$40.2 million in a global corruption settlement to resolve claims by the DOJ, the SEC, the Office of Foreign Assets Control (OFAC) and the SFO. Although each agency ultimately initiated its own action against Innospec, the cooperation between the agencies was extensive. For instance, it was during the DOJ’s 2007 investigation into FCPA violations that the DOJ referred the matter to the SFO, which subsequently launched its own investigation. The SFO’s investigation revealed improper payments in Iraq, but the investigation and prosecutions of those violations were handled by the SEC and DOJ.
In April 2011, Johnson & Johnson agreed to pay US$70 million to settle charges brought by the SEC, the DOJ and the SFO. Johnson & Johnson had begun an internal investigation into activities at one of its subsidiaries in 2006. Approximately a year later, the matter was passed to the DOJ, and the DOJ informed the SFO of issues within its jurisdiction
Finally, in connection with the News of the World allegations of bribery, the DOJ has contacted the SFO, presumably as part of the effort to determine whether to launch an investigation into violations of the FCPA.
With the more recent enactment of the UK Bribery Act 2010, which came into force on 1 July 2011, the US and UK will likely continue the growing trend of collaboration. The Bribery Act has formalised the law in the UK and was touted as a serious declaration of intent by the government to prosecute corrupt business practices. It was viewed with trepidation by corporations, who struggled to define its practical effect. The introduction of a corporate offence where bribery is committed and “adequate procedures” are not in place to prevent it, gave the Act a formidable amount of coverage and a place on every board room agenda. While that offence has yet to be tested in the courts, the Bribery Act is wider in potential application than the FCPA: it covers bribery at a private as well as a public level; prohibits not only the giving but also the taking of a bribe; and does not require any “corrupt” or “improper” intent on the part of the person offering a bribe in relation to the bribery of a foreign public official. The Bribery Act would also appear to have greater extra territorial reach, applying to bribes paid by anyone associated with a UK company to anyone, anywhere in the world. The penalties facing individuals and companies prosecuted under the Bribery Act are also more draconian than those that can be imposed under the FCPA. The Bribery Act has now had its “bedding in” time and we all wait with bated breath for the first meaningful prosecution. 2012 saw a toughening of the SFO’s stance and some high-profile appointments including that of Geoffrey Rivlin QC, formerly presiding judge at Southwark Crown Court. It is anticipated that over the next 12 months the Bribery Act will be put at the forefront of the agenda at the SFO and companies should brace themselves.
The significant examples of cross-border cooperation, and the anticipated increase in collaboration between the UK’s SFO and its international counterparts, illustrate the necessity for business crime defence lawyers to understand when they are dealing with international authorities outside their practice area. Advisers should identify and monitor parallel proceedings in foreign countries, be aware of the stages of each foreign investigation and understand how information sharing amongst prosecutors may affect clients’ interests. This may include establishing relationships with local counsel in relevant jurisdictions to have a better understanding of local customs and laws. For individual clients, counsel must be vigilant about the progress of investigations in all countries with jurisdiction, as the limitation periods and the pace of the investigations for the same offences may vary widely.
When the client is a corporation, cross-border cooperation can lead to additional considerations when it comes to potential settlement with governments. Counsel should also address the possibility of a deferred prosecution agreement (DPA) or non-prosecution agreement (NPA), agreements which are common for settling investigations in the US. Under a DPA, a corporation pays a fine and agrees to meet conditions (such as disgorgement, financial penalties, monitorship and implementing compliance or training programmes) in exchange for postponement. If the company complies with the terms, this can result in the ultimate dismissal of proceedings. The DPA may be adopted in the UK. As more countries consider utilising DPAs, this may assist in global settlements of cross-border investigations. However, prosecutions of companies are arguably more challenging in countries such as the UK – where it is more difficult to attribute the wrongdoing of employees to the company as a whole – a company may prefer to roll the dice and go to trial rather than settle. It remains to be seen whether global settlements with multinational authorities will become commonplace.
Counsel must also be familiar with the varying rules on discovery, privacy and privilege in different jurisdictions when conducting investigations. For instance, the collection and transfer of information that would be perfectly legal under US law may violate EU data privacy laws. The discovery laws in the US vary greatly from those of European and Asian countries. An understanding of these laws and any applicable safe harbours is a necessity when reviewing and collecting data worldwide.
With technological advances easing expansion, companies have been moving into emerging and frontier markets. Additional business opportunities open companies to risk and a greater need to understand overseas compliance in the context of their business. The trend for many businesses to have a large footprint lacking in depth puts them at risk of transgression. As international government authorities increase their cooperation, so should international defence lawyers, to best serve their clients.