Criticized for uneven start to UK Bribery Act cases, SFO adopts tougher enforcement stance

Call it a serious about-face from the Serious Fraud Office. Earlier this month, the UK enforcement agency announced new policy changes that are adding afterburners to the 2010 UK Bribery Act, in the form of “guidance,” that presages a tougher enforcement approach and less tolerance for violations.

Released on October 9 with “immediate effect,” the new guidance deviates significantly from the Serious Fraud Office’s past enforcement norms.

Possibly the most worrisome aspect of the SFO pronouncement for corporations that operate across both sides of the Atlantic, is that in many policies it widens the chasm between the UK Bribery Act and its US cousin, the Foreign Corrupt Practices Act (FCPA).

The guidance focuses on the approach the SFO will take on three thorny issues in global anti-corruption compliance programs. It covers how hospitality expenditures for elected officials, such as tickets to sporting events, will be treated under the Bribery Act, and firmly reiterates the law’s blanket ban on “facilitation” payments.

It also strikes a harsher tone on prosecution standards for companies that self-disclose violations of the Bribery Act to regulators. Previous guidance said the SFO “want[s] to settle self-referral cases… civilly wherever possible.” The new guidance provides no such solace.

“The SFO encourages corporate self-reporting, and will always listen to what a corporate body has to say about its past conduct, but the SFO offers no guarantee that a prosecution will not follow any such report,” the agency said.

New guidance is ‘warning shot’ from UK watchdog

The SFO’s policy pivot has sparked debate among attorneys and consultants specializing in FCPA and UK Bribery Act compliance, with some issuing dire warnings and others painting the changes as relatively minor. Most experts, however, agree on one point: that the SFO is trying to put the UK Bribery Act back into the compliance spotlight after a slow inaugural year that saw only one prosecution.

“This is a way for [the SFO] to reassert what’s going with the Bribery Act,” Thomas Gorman, a partner at Dorsey & Whitney, in Washington DC, told ACFCS.org. “I’d take this as a warning shot from the SFO.”

Laura Resnick, a partner at BakerHostetler, in New York, concurs. “This is more messaging around the UK Bribery Act than anything else,” she said to ACFCS.org. “The statute is still relatively new, and they still haven’t brought any significant enforcement actions against companies. This is a way for the SFO to say, ‘we’re coming.’”

UK Bribery Act gives SFO vast enforcement powers

While it borrowed liberally from the architecture and provisions of the FCPA, the UK Bribery Act is far from a clone of the world’s first law that criminalized foreign corrupt payments. Unlike the FCPA, which was enacted in 1977 and covers only individuals or companies that make corrupt payments to foreign officials, the UK Bribery Act makes it a crime to pay and accept bribes. It covers corrupt payments to private sector entities as well as to public officials.

The underpinnings of the UK Bribery Act also diverge from the FCPA by the substantial regulatory guidance it has received since enactment. The SFO first issued guidance in late 2009, before the law took effect, on how companies that self disclosed their violations would be treated. It expanded this guidance in March 2011. Both rounds of guidance and plied that self-reporting would motivate the SFO strongly toward a civil settlement, or “civil recovery order,” as it is called in the UK.

The SFO was criticized for this approach by the Organization for Economic Cooperation and Development (OECD) Working Group on Bribery, the leading international advisory body on anti-corruption laws and government policies. In an April 2012 report on the UK Bribery Act, the OECD found the SFO too lenient on self-reporting entities. It critiqued the SFO for “increasingly relying on civil recovery orders which require less judicial oversight and are less transparent than criminal plea agreements.”

The new policies indicate the SFO took these criticisms to heart. The guidance now also states that “there will be no presumption in favor of civil settlements in any circumstances.” It adds that “each case will turn on its own facts.”

With penalties and reputations at risk, companies face tough self-disclosure choice

This coincides with the approach of the US Department of Justice and Securities and Exchange Commission in their FCPA enforcement. However, it may leave companies with less incentive to report their possible violations.

“The benefits of self-reporting are considerably less clear now,” Eric Kraeutler, a partner at Morgan Lewis, in Philadelphia, told ACFCS.org. While he still views voluntary disclosure of violations as the best option for entities, the new guidance “takes away any certainty” of how they will be treated under the UK Bribery Act.

Much is at stake for companies in deciding whether to self-disclose. The UK Bribery Act carries stiff penalties. Individuals convicted of a violation face prison terms of up to 10 years. Business organizations face the possibility of unlimited fines and confiscation of their assets. Under the UK Company Director Disqualification Act of 1986, executives convicted of UK Bribery Act violations may also be banned from serving as a company director.

In a major break with FCPA, SFO cracks down on ‘facilitation payments’

The new SFO guidance also adopts a much more stringent stance on facilitation payments. Long a slippery issue in FCPA compliance for US entities, facilitation payments are typically small payments to a public official or entity to accelerate completion of “non-discretionary” governmental duties.

These payments are permissible and legal under the FCPA, but the UK Bribery Act bans them entirely. In past guidance, the SFO has professed an understanding that facilitation payments are a routine cost of doing business in many countries and their permissibility would be phased out gradually.

This softer position is absent in the new guidance, which states bluntly: “A facilitation payment is a type of bribe and should be seen as such.”

“This is a stark difference between the [FCPA and UK Bribery Act],” says Resnick. She notes the SFO’s tougher stance on facilitation payments may be an attempt to highlight differences between the two laws in advance in of the US Justice Department’s own FCPA guidance, which is expected before the end of 2012.

It could also be a harbinger of things to come for UK Bribery Act prosecutions. “It may be that the SFO is planning some enforcement actions around [facilitation payments],” Resnick says.

After rocky start, SFO looks to reassert itself

The new SFO guidance comes at the end of an uneventful first year for the UK Bribery Act. To date, the only successful conviction under the Act is that of Munir Patel, a London court clerk. He was sentenced to a prison term of four years for taking bribes to help traffic offenders avoid prosecution. No corporation or other organization has been prosecuted under the 2010 law.

Meanwhile, the SFO has been intensely criticized in the UK for bungling a high-profile investigation of London real estate moguls Robert and Vincent Tchenguiz. The SFO suspected the pair of fraud connected to the collapse of an Icelandic bank in 2008. The probe fell apart last summer after a judge ruled the SFO obtained search warrants improperly and called it “incompetent.” That led the SFO to drop the investigation last week.

The case led some UK commentators question if the SFO had the resources and will to tackle complex UK Bribery Act investigations. The new guidance by the SFO may be a reaction to this criticism. “The SFO is trying to show the business community a different face to demonstrate they’re going to get tough,” says Kraeutler, the Philadelphia lawyer.

Whatever the motivation, companies should treat the new guidance as an opportunity to drive home awareness of the UK Bribery Act to their employees, says Resnick.

“Especially with a new compliance program, there’s always a gap between having a written and educating employees,” she notes. “I think that’s where this guidance comes in.”

View the SFO’s revised policies here