* Any views expressed in this article are those of the author and not of Thomson Reuters Foundation.
Governance and regulation
UK Bribery Act — consultation guidance released
On September 14, 2010, the Ministry of Justice launched its consultation on the form and content of proposed guidance about the procedures which commercial organisations can put in place to prevent bribery. The consultation period will end on November 8, 2010 and the government proposes to publish the guidance under Section nine of the Bribery Act 2010 early in the New Year, prior to the Act coming into force in April 2011.
The consultation aims to gather the views of interested parties on the Act to shape the guidance and will be the final opportunity for those outside the government to influence the way in which the Act will affect the business community. Once published, the guidance should go some way to address the justifiable concerns of companies that are exposed to the risk of unlimited liability for failure to prevent bribery, particularly those that operate in industries or countries prone to corruption.
The MoJ states in its consultation paper on the proposed guidance that the new criminal offence of a failure to prevent bribery under Section seven of the Act "reflects a general recognition that there is an important role to be played by business itself in ensuring that commerce is undertaken in an open and transparent manner. The new law will introduce a clear and robust approach and is intended to encourage commercial organisations to take steps to address the risks of bribery."
The government proposes guidance formulated around "Six Principles for Bribery Prevention" which are summarised below. Each principle is followed by commentary designed to be of general applicability across all sectors and for all types and size of business to help commercial organisations decide what bribery prevention procedures should be put in place.
Principle one: risk assessment
To put in place effective controls to prevent bribery, it is essential that organisations have a thorough understanding of the bribery risks that they face. Risk assessment procedures will vary enormously between different organisations.
Principles two to six deal with how the risk assessment will inform the development, implementation and maintenance of effective anti-bribery policies and procedures.
Principle two: top level commitment
Establishing a culture across the organisation in which bribery is unacceptable.
Principle three: due diligence
Knowing the extent of the organisation's business relationships; understanding the risks that a particular business opportunity raises; seeking reciprocal anti-bribery agreements and being in a position to feel confident that business relationships are transparent and ethical.
Principle four: clear, practical and accessible policies and procedures
Ensuring that these are applied to everyone employed by the business as well as business partners under the organisation's effective control. In addition, by ensuring that they cover all relevant risks such as political and charitable contributions, gifts and hospitality, promotional expenses and responding to demands for facilitation payments or an allegation of bribery coming to light.
Principle five: effective implementation
Embedding anti-bribery in the organisation's internal controls, recruitment and remuneration policies, operations, communications and training on practical business issues.
Principle six: monitoring and review
Ensuring effective financial monitoring and auditing with controls that are both sensitive to bribery and transparent and determining how regularly the business needs to review its policies and procedures.
The MoJ points out that the principles do not propose any particular procedures in themselves. Instead, they are intended to be used as a flexible guide to deciding what procedures are right for an organisation.
Further guidance
The guidance to be published under Section nine of the Act is designed to supplement other bribery prevention guidance published by industry or sector representative bodies or by non-governmental organisations. In addition, the director of public prosecutions and director of the Serious Fraud Office are currently drafting joint guidance for prosecutors to encourage a broad consistency of approach to the Act between the police, Crown Prosecution Service and SFO. The MoJ will be publishing a circular on the Act as a whole to assist those seeking further understanding of the other provisions in the Act.
UK Bribery Act — MoJ consultation
The first MoJ public consultation meeting on proposed "adequate procedures" guidance was held at Norton Rose LLP's London office on October 4, 2010. The meeting took the form of a discussion seminar to share views on the proposed guidance to be published under Section nine of the Act. More than 120 private practice practitioners, in-house counsel and members of the business community attended to hear Roderick Macauley of the MoJ discuss the role of the Act, the main offences under the Act and answer questions on the proposed guidance on bribery prevention.
The discussion at the first public consultation focused on including the meaning of an "associated person" under the Act, the level of due diligence necessary in terms of adequate procedures for a one-off corporate deal, the role of the SFO, the impact of the Act on small and medium-sized enterprises and the extent of top-level involvement necessary to ensure compliance with the Act. The slides presented at the first discussion seminar can be made available to those who are interested on request.
World Bank steps up anti-corruption measures
Leonard McCarthy, vice-president for institutional integrity of World Bank, reported to the Financial Times that the World Bank has increased its anti-bribery focus and expects to bring several cases next year. McCarthy's division, INT, opened 194 cases involving World Bank projects in the 2010 fiscal year, 40 per cent more than the year before, and is the division's best annual performance in five years. In 2010 INT substantiated 42 cases.
McCarthy, with reference to the new authority which will allow the World Bank to settle cases that involve countries accused of corrupt practices, would further increase the success in the second half of 2011. The World Bank closed 258 cases last year, 56 per cent more than the year before, with an improved average turnaround time of 14.5 months. World Bank investigators sent 32 referrals to local prosecutors and 45 entities were banned from doing business with the bank for periods of two and six years. The bans took in a range of targets, from individuals and mid-sized companies that were repeat offenders to multinationals.
The World Bank anti-corruption division has also substantially increased its efforts to catch corruption before substantial amounts of money are lost. It published a guide for local officials with red flags they should watch for, including repeated change orders, failure to select the low bidder, multiple contracts just below procurement rule thresholds and very high fees paid to agents. The new 16-person preventive services unit also did pre-reviews on 7,705 contracts worth $9.7bn.
Enforcement against companies and individuals
USA: CB Richard Ellis Group Inc.
On October 5, 2010 the global real estate firm CB Richard Ellis Group Inc. announced, through a filing with the US Securities and Exchange Commission, that it was investigating two instances of potential corruption involving its operations in China.
The first incident involved the payment by employees in China, in violation of company policy, to local governmental officials, including "payments for non-business entertainment and in the form of gifts". Although the payments made were apparently "minor in amount" and "relate to only a few discrete transactions involving immaterial revenues", as they potentially violate the US Foreign Corrupt Practices Act (or other applicable laws), CBRE voluntarily disclosed the events to the US Department of Justice and the SEC on February 27, 2010. Thorough remedial measures have been implemented by CBRE, including the dismissal of six Chinese employees and the strengthening of CBRE's FCPA compliance processes.
The second incident involved a third-party agent in connection with the purchase of an investment property in China for a fund managed by CBRE. CBRE also voluntarily notified both the DoJ and the SEC of this separate internal investigation and has committed to report back to them when more information is forthcoming. CBRE stated that the investigation is limited to just one transaction.
In its annual report filed with the SEC on March 1, 2010, CBRE warned that the first incident had the potential to result in fines, penalties or other costs but that it did not believe that "these consequences [were] reasonably likely to have a material adverse effect on [its] business, results of operations or financial condition".
UK: Fabio De Biase
On September 28, 2010, the Financial Services Authority banned a former cash equities broker from working in the financial services industry and fined him in excess of £250,000 for payment of cash kickbacks over a 19-month period. This case highlights the potential for bribery and corruption in the financial sector.
Fabio De Biase was (until May 2010) a cash equities broker for TFS Derivatives Ltd. A proportion of his remuneration was the commission revenue he generated from trading that was directed to TFS. De Biase made payments of approximately £131,000 in kickbacks to Anjam Ahmad, a hedge fund trader, in return for Ahmad placing trades with TFS.
De Biase and Ahmad agreed "improvements" to the commission rates charged by TFS on 20 specific occasions. The ordinary commission rate paid to TFS was five basis points; however, the average commission rate for the 20 occasions was 46 basis points, representing an overcharge to Ahmad's employer of $739,000.
De Biase received approximately £329,000 of net commission as a result of Ahmad's trading during the relevant period. He made payments to a value of £131,000 to Ahmad largely in cash but also including gold, gift vouchers, flights and hotel bookings. De Biase has been banned from working in the financial services industry on the grounds that he is not a fit and proper person; a financial penalty of £252,239 was also imposed.
UK: Energy sector enforcement
On September 22, 2010 the SFO charged five individuals for offences of conspiracy to corrupt in relation to multi-million pound engineering contracts in the energy sector. The prosecution alleged that employees responsible for procurement of high value engineering projects passed confidential information to intermediaries who then offered it to potential tenderers. This case highlights the focus on private bribery as well as public bribery and follows a two-year investigation into contracts with a total value of £66m.
Australia and UK enforcement cooperation: Securency International
On October 6, 2010 the SFO announced a coordinated search and arrest operation in the UK in support of a multi-jurisdictional investigation in relation to Securency International PTY Ltd, an Australian company. Australian federal police have been investigating allegations about Securency, the polymer banknote-maker half owned by the Reserve Bank of Australia, and alleged bribes and favours used to win contracts in Asia, Africa and Latin America.
The SFO said that 80 members of its office, plus regional police forces, executed search warrants at eight residences and a business in the UK, making two arrests. There were further arrests in Spain and Australia. This case highlights the level of coordination between anti-fraud agencies around the world.
Hong Kong: ICBC investigation
Two senior ICBC (Asia) employees, Derick Chan Po-fui, head of the corporate banking department, and Chan Yick-yiu, former head of real estate and finance, were charged with bribery by Hong Kong's Independent Commission Against Corruption. It is alleged that the ICBC employees received bribes amounting to HK$5.8. A third person, Zeng Wei, not employed by ICBC, was also charged. The case has been adjourned until November 18, 2010 pending further inquires by the ICAC.
Derick Chan is accused of receiving bribes from Zeng for extending repayment dates of outstanding debt owed by Zeng or his companies to ICBC. It is alleged that Chan Yick-yiu accepted money from Zeng for preparing credit proposals for loan applications to ICBC.
The two employees appeared in Eastern Magistracy, Hong Kong without entering pleas. Zeng was granted cash bail of HK$800,000 and the other two defendants were granted bail of HK$500,000 each. They were ordered not to interfere with prosecution witnesses and to surrender their travel documents.
China: Toyota
Chinese authorities have fined Toyota Motor Corp.'s finance unit for giving bribes to car dealers. Toyota disputes the charge. An official at the Jianggan Administration for Industry and Commerce in Hangzhou said the bribes took the form of rebates meant to encourage dealers to use Toyota's in-house finance wing rather than retail banks to finance customer purchases. The official Xinhua News Agency reported that authorities would fine the company 140,000 yuan ($20,650) and have confiscated 426,352 yuan ($65,500) in "illegal earnings" from 49 car sales.
Spain: Marbella corruption
One of the largest corruption trials in Spain involves 95 people, including former mayors and councillors, accused of involvement in a scheme of corruption that left the town carpeted in concrete. The defendants are alleged to have systematically received bribes in relation to building contracts in the town. Between them the defendants are alleged to have taken £569m in bribes and from municipal funds over three years. Juan Antonio Roca, the local defendant, faces fines of some €80m and 35 years in prison.
Former mayors Julián Muñoz and Marisol Yagüe were allegedly bribed for votes to approve planning permits or contracts to run municipal services. Planning laws, as a consequence, were widely flouted with adverse effects on the town's appearance. Evidence for the prosecutor showed details of regular payments to officials in multiples of €6,000, according to court documents. Cash payments were allegedly handed out, holding up to €84,000. The trial is expected to last a year.
Russia: Mayor of Moscow ousted
Dmitry Medvedev, the Russian President, has dismissed Yuri Luzhkov, mayor of Moscow, over charges of corruption. Luzhkov's dismissal followed media reports accusing him of corruption and indifference at a time when much of the country was suffering under the abnormal heatwave conditions, drought and wildfires.
Luzhkov was accused in the Russian media of failing to solve Moscow's traffic problems, as well as his involvement in helping his wife, Yelena Baturina, the world's third richest woman, to amass an estimated fortune of $2.9bn. Luzhkov, Russia's most powerful regional leader, managing Moscow's $320bn economy, challenged Medvedev to fire him, saying he would not resign despite mounting pressure from the Kremlin.
USA: ABB prosecution
Swiss company ABB Ltd reached a settlement on September 29 with the DoJ of criminal FCPA charges and will pay a fine of $19m. In settling civil charges with the SEC, the company will surrender $22.8m and pay a $16.5m civil penalty. This is the seventh biggest fine ever imposed by anti-corruption authorities.
Companies in the ABB Ltd. Group, the world's biggest electricity-networks builder, were charged by the US with conspiracy and violating the FCPA. US prosecutors alleged that ABB Ltd. and its co-conspirators made "concealed, corrupt payments" from 1997 to 2005 to officials at Comision Federal de Electricidad, a state-owned Mexican utility, "in exchange for improper business advantages to ABB Inc. and ABB NM, including the award of contracts". The prosecutors alleged that payments related to an upgrade for Mexico's electrical network in a contract that generated $44m in revenue for an ABB unit.
Separately, US prosecutors alleged another ABB operation, ABB Ltd.-Jordan, paid more than $300,000 in kickbacks to the Iraqi government for $5.9m in purchase orders from regional companies of the Iraqi Electricity Commission as part of the United Nations oil-for-food programme.
France: Jérôme Kerviel convicted
Trader Jérôme Kerviel was found guilty of all charges on October 5 for trading €50bn ($61bn) of Société Générale's funds unhedged without its knowledge. The judge sentenced Kerviel to a five-year sentence but suspended two years of it, which means that he will serve three years in prison. He was also ordered to pay €4.9bn ($6.75bn) in damages to the bank.
Kerviel went on trial in June 2010 on charges of forgery, breach of trust and unauthorised computer use. The banks said the unhedged bets cost it almost $6bn. Kerviel had pleaded guilty to the charge of computer abuse but his lawyer, Olivier Metzner, had asked jurors in his closing arguments to acquit his client of the charges of breach of trust and forgery. Metzner said that Kerviel's behaviour was shaped by the environment at Société Générale. "The banks are the ones to blame for the banking system and the systematic economic crisis, not Jérôme Kerviel," he said.
Kerviel traded European index futures for the bank. He was the only person ever charged in the case, despite claiming he did everything with the knowledge of his superiors. Société Générale, which said that it discovered the losses in January 2008, said that at no time were supervisors aware of Kerviel's alleged unlawful activities.
This article was first published by Complinet. Complinet Group Ltd is a Thomson Reuters business
