It is not difficult to imagine that the UK Serious Fraud Office looks with some envy at its counter-parts in the US, the Department of Justice and SEC. In 2013, the DOJ collected $3.8bn in fines and settlements from corporates for breaches of the FCPA and related legislation. It expects 2014 to be even more lucrative. For every $1 the DOJ spends prosecuting these offences, it’s getting $16 back. Not a bad ROI. As a result, it no longer shows much appetite for locking up executives; rather the money is the prize. It must make the poorly funded SFO, with, as yet, no UK Bribery Act (UKBA) scalp in its belt, “green”.
But SFO head, David Green CB QC, has been fighting back. He has called for a “very slight modification” to the UKBA. Could this change, like the flap of a butterfly’s wings that causes the typhoon, raise significantly the SFO’s chances of successful corporate prosecutions bringing with them mouth-watering fines and settlements?
First, what is the change? At present, a company can be prosecuted under UKBA for failing to prevent bribery by its employees. This is a “strict liability” offence which means that the prosecution does not have to prove any criminal intent by the company. The result is a significant advantage for the SFO, in that it avoids the difficulty of proving that the company’s “controlling mind” (eg: the Board) knew about the bribery and condoned it. The company can defend itself against the offence if it can show that it had adequate procedures in place to prevent bribery. Logically, if there has been bribery it is questionable whether the procedures were adequate but the company can at least argue the point.
Mr Green, who now has the support of the Labour party and some in the government, would like “bribery” extended to all financial crime by employees, agents, business partners and relevant third parties. This is a significant broadening of the reach of the UKBA. It could catch, for example, LIBOR fixing, gold price fixing, money laundering, fraud, theft etc. The defence of adequate procedures will remain.
Why would this change make it easier for the SFO to prosecute? Once the SFO has proved the financial crime has occurred, the company will be guilty unless the adequate procedures defence is available.
What could this mean for businesses? Put simply, more compliance to stay safe. Businesses will need to extend their “adequate procedures” to cover all financial crime, not just bribery and/or receiving bribes. It may be that for existing, well designed anti-bribery programmes this will not be too onerous. For businesses that have yet to implement such initiatives, now would be a good time to start. SME’s may take some comfort from the fact that they are likely to sit below the SFO’s radar for quite some time.
There is no certainty yet that this change will happen or, if it does, what the detail will be. Most advisors are happy to wait and see. But were this change to occur and if companies then started more regularly to self-report and seek to enter deferred prosecution agreements (similar to those used routinely in the States) the SFO might at last be “in the money”. An attractive prospect no doubt, notwithstanding Mr Green’s professional opinion that it is the stigma of prosecution and the message that this sends to the market that is more important than simply the money return on his efforts.