Anti-Bribery Newsletter - Autumn 2018

Focus on: Glencore - SFO probe

The world's biggest commodities trader, Glencore, may face a bribery probe over its ties to Israeli billionaire Dan Gertler in the Democratic Republic of Congo (DRC).

The FTSE 100 Anglo-Swiss company regularly moves millions of tonnes of commodities across the globe and links suppliers of raw materials, often in developing countries, to consumers in wealthy and fast-growing economies.

It commands a market capitalisation of about £63 billion and has procured deals across the globe, including agreeing in December 2016 to buy a 20% share in Rosneft from the Russian state – which continues to be subject to Ukraine-related sanctions.

Yet many believe Glencore's approach may soon come to an end following indications that the Serious Fraud Office (SFO) plans to seek formal approval for an investigation into the company's dealings with Dan Gertler, who was placed on a US Sanctions list in December 2017 for "opaque and corrupt mining and oil deals" in the DRC. The US Treasury alleged that Mr Gertler used his friendship with the DRC's president, Joseph Kabila, to act as a middleman for mining asset sales in the DRC.

Significant growth in world-wide demand for cobalt, a key component of electric car batteries, has made Glencore's assets in the DRC - which has half of the world's known reserves of cobalt - all the more valuable.

In addition to the SFO probe in the UK, on 2 July 2018 the US Department of Justice (DoJ) issued a subpoena for Glencore to hand over documents relating to possible corruption and money laundering in Venezuela, Nigeria and the DRC spanning more than a decade.

This could lead to significant fines or criminal prosecutions should the DoJ decide to proceed with the investigation, as well as intrusive and extensive monitoring over a period of years that could restrict Glencore's ability to do business in certain parts of the world.

The subpoena triggered a sharp drop in Glencore's share price, and Glencore has announced plans to repurchase a further $1 billion of its own shares after the company completed an initial buyback of $1 billion shares in July.

In Venezuela, Glencore is part of a group of trading companies recently alleged in a lawsuit to have bribed employees of Venezuela's state owned oil company, PDVSA, to provide inside information.

In light of such pressure from the SFO and the U.S. Department of Justice, some of Glencore's rivals believe it may need to rethink the strategy upon which its success has been built.

Lisa Osofsky appointed head of the Serious Fraud Office

After a protracted process, Lisa Osofsky finally took up the reins as the new Director of the Serious Fraud Office (SFO) on 3 September 2018 for an initial five-year term, during which she has pledged to make Britain an "inhospitable place" for white-collar criminals.

Despite her wealth of experience, including stints at the US Department of Justice, the FBI and, most recently, as EMEA Regional Leader and Head of Investigations at Exiger, Ms Osofsky's appointment has attracted media attention.

Among other things, her previous enthusiasm for Theresa May's ambition to merge the SFO into the National Crime Agency faced widespread opposition in the legal sector (she has since said that she no longer supports this proposal).

A new tone from the top?

The new Director has expressed a desire to concentrate on fostering links with overseas agencies and it is this, coupled with her background at the FBI, that has excited the most speculation about impending change for the SFO.

Closer co-ordination between enforcement agencies in the United Kingdom and overseas counterparts, specifically the United States, has long been viewed as a necessary step towards identifying and prosecuting the most successful international economic criminals. 

Another expected change is an increased focus on Deferred Prosecution Agreements (DPAs).

This is perhaps not surprising given the new Director's background working in the US (which has been negotiating DPAs since the 1990s), the relative attractiveness of DPAs with businesses and the growing number of other jurisdictions where similar settlement options are available – see International Developments below. However, companies who wish to benefit from a DPA will be increasingly expected to offer a "Rolls-Royce" standard of co-operation in any investigations.

All change

The former SFO Director, Sir David Green QC, has since been followed out of the door by his longserving General Counsel Alun Milford (reportedly many people's pick for the top job after Green's departure).

Another high-profile recent departure was John Gibson, the case controller with responsibility for the long-running investigation into Eurasian Natural Resources Corporation (ENRC).

With the creation of new roles such as the Head of Intelligence and the Head of Corporate Services, in theory the senior management team, specifically
the Chief Investigator and incoming GC, should be able to devote their full attention to their core roles. In making these changes, the new Director has explained that the SFO is seeking to expand its capacity "for strategic, proactive and intelligencedriven case development and case challenge".

Ms Osofsky has taken an immediate opportunity to make her mark. Her decision not to pursue an appeal to the Supreme Court on the scope of legal professional privilege in documents relating to the ENRC case has been widely seen as a sign of determination not to be hemmed in by past priorities. However, Ms Osofsky warned that the SFO will continue to assess the merits of privilege claims in the future. The ENRC saga is far from over, though, with a judge-led investigation now under way into allegations (which the SFO denies) of serious misconduct by the SFO in its dealings with ENRC's former lawyer.

Reflections of David Green's tenure at the SFO

When David Green QC entered office as the Director of the SFO in 2012, he faced quite a challenge. His predecessor's time was marked by a tendency towards civil settlements rather than criminal prosecutions and had been marred by reports of a number of scandals, including in relation to three severance packages handed out without Treasury approval.

Dial forward over 6 years and Green has now left the SFO and is embedded in private practice with a major city law firm. The question is, what has he left behind?

In many ways, Green's greatest achievement was to give the SFO back its "mojo" (his words, not ours). By that we mean he returned focus to taking on the most difficult cases (think LIBOR, Euribor, Barclays etc) and on being an investigator and prosecutor first and foremost. That, of course, has to be balanced against the introduction, on Green's watch, of the most notable feature of his tenure: the introduction for the first time, in this jurisdiction, of the Deferred Prosecution Agreement (DPA).

The ability for the SFO to deploy a DPA is gamechanging, enabling it to avoid an expensive criminal trial, obtain a guaranteed "win" and, importantly, recover some serious money from the party being investigated. Of particular note in this regard is the £497 million paid out by Rolls Royce in January 2017, swiftly followed by a further £129 million from Tesco three months later.

Those kind of returns can go a long way to ensuring the long-term survival of the SFO. However, for some, DPAs jeopardise the renewed focus on "prosecution", and the SFO that Green leaves behind will have to monitor that balance carefully. 

While there were some notable successes during his reign (for example, the convictions of former UBS and Citigroup trader Tom Hayes (Yen LIBOR) and ex-Deutsche Bank trader Christian Bittar (Euribor)), there were also some painful moments, such as judicial criticism of the SFO during the judicial review of its investigation into the Tchenguiz brothers and subsequent multi-million pound settlements (another issue leftover from his predecessor); the collapse of the trial into Victor Dahdaleh (during which the SFO was heavily criticised after key SFO witnesses refused to give evidence); and the acquittal in January 2016 of six brokers accused of helping Tom Hayes. Indeed, even the conviction on Tom Hayes remains subject to constant discussion.

In addition, the SFO continues to struggle to retain its top people and, indeed, to safeguard its very independence.

As to the latter, Green appears to have headed off the threat of the SFO being subsumed into the National Crime Agency and his successor, Ms Osofsky, has offered further assurances that the SFO will remain independent.

With an additional, and much needed, increase in budget also secured, the SFO appears to be back on course, for now, and Green can feel proud of his achievements. Only time will tell though whether, now that it is re-established as a credible prosecutor, it really does have its mojo back.

Latest Corruption Perceptions Index from Transparency International

The UK remains close to the top of the latest table of the least corrupt territories in the latest 2017 Corruption Perceptions Index, sitting alongside Canada, Luxembourg and the Netherlands.

However, as noted by the independent watchdog Transparency International, there is no room for complacency and no territory gets close to a perfect score - the UK's score is 82/100 which moves it up to eighth position from tenth position in 2016. 

Two thirds of the countries included in the index score below 50, and indeed, the global average is 43/100, suggesting widespread and endemic public sector corruption. Transparency International notes that activists and media are vital to combatting corruption, and as such has outlined their 'top five
recommendations' to curb corruption, which encourages governments and businesses to do more to encourage independent media, promote laws that focus on access to information and disclose relevant public interest information in open data formats.

Duncan Hames, Director of Policy at Transparency International UK, said:

Effective implementation will continue to be key to improving the UK's ranking.

UK's 2016 Anti-Corruption Summit – progress update

Two years have passed since the UK hosted the 2016 Anti-Corruption Summit in London.

This was attended by over 40 countries who signed up to a set of general principles designed to promote co-operation and information sharing in order to tackle the movement of corrupt money across a wide spectrum of industries.

Country pledges ranged from introducing strong anti-corruption legislation to returning stolen assets and banning secret companies.

As part of its country pledges, the UK committed to working with other countries to create a Global Forum for Asset Recovery (GFAR) and to co-hosting the inaugural meeting with the US, which was held in Washington DC in December 2017 and attended by over 300 participants representing 26 jurisdictions as well as international organisations, civil society and media.

Although such pledges were voluntary, Transparency International has set up a detailed country-by-country system in order to track the status of each country's pledges. 

It notes that the UK is currently falling behind or overdue on six of its 15 commitments, including plans to extend the scope of the criminal offence of a corporate "failing to prevent" beyond bribery and tax evasion to other economic crimes.

Other countries, such as Spain and Indonesia, were praised for having the highest completion rate to date and together are responsible for more than half all completed pledges by the 27 monitored countries.

The Bribery Act 2010: under review

A House of Lords select committee was appointed in May 2018 to review the impact and effectiveness of the Bribery Act 2010 (the Act) and to consider whether it places an unfair burden of compliance on smaller businesses.

Sir Mark Saville, Chairman of the Committee, said that there was "confusion and uncertainty about the Act, amongst [small and medium enterprises] in particular. The inquiry would seek to raise awareness and understanding of the Act”.

The decision to review the Act arose just days after warnings from anti-bribery campaigners that Brexit could make the UK more vulnerable to economic crime as companies seek deals with countries outside the EU with heightened corruption risk.

In August 2018 the City of London Law Society published its response to the Committee's call for evidence, arguing that the Act operates as a deterrent to bribery in the UK and abroad by making companies more aware of the serious criminal consequences of bribery.

The Law Society's response also calls for a better resourced SFO and CPS (both in terms of numbers and of people with specialist knowledge) in order to speed up and ensure more efficient corruption investigations.

It remains to be seen whether the Committee's review will result in a ratcheting up of provisions and guidance under the Act or, as NGOs such as Corruption Watch fear, will instead result in a weakening or watering down of the law.

The Committee's finalised report is due by 31 March 2019.

UK Corruption Watch - the veil of secrecy

In the two years to July 2018, four out of six foreign bribery trials and half of DPAs were subject to reporting restrictions, according to Corruption Watch UK in its report "The Veil of Secrecy".

The report also found that public access to, and media coverage of, UK proceedings involving economic crime are sporadic, delayed and worryingly inadequate. And even when the public or press are able to access hearings, inadequate notifications of court lists and an inability to access case documents on the court file mean that any reporting is either imbalanced or wholly uninformed.

Outsourcing to private companies has meant that obtaining hearing lists of any detail involves hefty subscriptions, rendering them almost inaccessible.

In trying to access documents on the court file, the report states that "it is generally easier for a journalist in the UK to access court documents from any federal court in the US… than from the RCJ (Royal Courts of Justice) in London". The result is that journalists, NGOs and other civil society watchdogs, particularly those with little or restricted funding, have to make choices as to the hearings they attend and the proceedings they report on based on patchy information. 

The report contends that these failings are fundamentally eroding the principle of the rule of law, and are ultimately damaging public confidence in the judiciary.

The report makes a number of recommendations to be considered in the Government's £1 billion revamp of the court system, including online, government-run and publicly-available court lists and document access, alongside compulsory publication of judgments. The report also calls for certain documents referred to or read out in open court, such as opening submissions and the judge's summing up, to be made available to the public as a matter of course.

Following the NCA's damning National Risk Assessment of money laundering and terrorist financing, which found that £90 billion in dirty money is laundered through the UK every year, and which led to several articles dubbing London the money-laundering capital of the world, the UK has a lot of ground to make up.

Fundamental to any attempt to change this will be the prosecution and open scrutiny of bribery and corruption cases.

Increased use of DPA-style settlements, greater international cooperation and a wider scope of corporate liability have been consistent themes in anti-corruption legislation and enforcement in recent years. The last 12 months have seen concerted international efforts on all these fronts.

Rise of the DPA

Enforcement agencies in Australia and Canada are among the latest to join the charge towards DPAs as an alternative to a full-blown criminal prosecution. In France, the past year has seen the conclusion of the first CJIP (translated as Judicial Public Interest Agreement), a DPA-like mechanism introduced under the 2016 Sapin II law which holds out the prospect of criminal charges being suspended or dropped in exchange for cooperation. The first CJIP (agreed in November 2017 with HSBC Private Bank) related to the laundering of the proceeds of tax fraud, but the same procedure is also available in connection with corruption offences. There has been press speculation in recent months that Airbus, which is currently the subject of an investigation into possible corrupt activities by regulators in the UK, US and France, could be a CJIP candidate.

International cooperation

Major multi-jurisdictional investigations such as Airbus, not to mention the Rolls Royce settlement (which involved simultaneous accommodations with regulators in the UK, US and Brazil), have reminded enforcement agencies the world over not only of the merits of international cooperation, but also of its potentially lucrative results.

The SFO, under its new Director, is not the only enforcement agency keen on closer international cooperation. 2018 has not only seen the establishment by China's ruling Communist Party of a National Supervision Commission to further broaden and entrench the country's much-vaunted anti-corruption drive, but also encouraging noises from Beijing about greater cooperation with the DoJ, SFO and other agencies.

Enthusiasm in the United States for cross-border cooperation is not such new news, but may nevertheless have received a shot in the arm from a finding of the Connecticut District Court in Hoskins that defendants cannot be convicted under the Foreign Corrupt Practices Act for conspiracy to commit an offence which that defendant could not have committed itself. The decision could lend renewed momentum to efforts by the DoJ to work more closely with international counterparts and to ensure that defendants are prosecuted in the most appropriate jurisdiction.

Corporate liability

Meanwhile, the trend continues towards imposing liability on a corporate for bribery committed by its "associated persons". In Ireland, the Criminal Justice (Corruption Offences) Act 2018, which came into force from 1 August 2018, means that a corporate could face criminal charges where acts of bribery are undertaken on its behalf (unless the defendant can show that it took "all reasonable steps" to prevent the bribery from happening).

In the past 12 months, more or less similar legislation has been proposed in Malaysia and made it onto the statute book in Thailand, while the theme of corporate criminal liability is also a focus of government initiatives in Australia, Germany and Poland.