The Criminal Accountability of Companies and Their Boardrooms

14 May 2009 Shula de Jersey

With companies facing increased criminal accountability, the UK is following the US in the fight against fraud, cartels and corruption. As solicitor Shula de Jersey tells CEO, organisations and their senior management are increasingly at risk of criminal and regulatory sanctions.

The Anti-Terrorism Crime and Security Act 2001 (ATCSA) came into force in the UK on 14 February 2002. The Act ratified the Organisation for Economic Co-operation and Development (OECD) Convention on Combating Bribery of Foreign Public Officials in International Business Transactions. Under the ATCSA, companies can be prosecuted for bribery and corruption committed abroad by their employees, with the prospect of an unlimited fine.

The UK Government has been under renewed pressure from the OECD to improve anti-corruption legislation. As a result, the Law Commission published a report - Reforming Bribery - in November 2008, and in March this year the Ministry of Justice published its draft Bribery Bill. The Bill will shortly undergo pre-legislative scrutiny by a Committee. Besides replacing all of the UK’s current corruption laws, the proposed Bill will:

  • Create two general criminal offences of bribery which can be committed either at home or abroad: (a) to give, promise or offer a bribe and (b) to request or agree to receive or accept a bribe
  • Create a specific offence for bribery of foreign officials
  • Introduce a new corporate offence of negligent failure to prevent bribery by persons working on behalf of a business
  • Increase the maximum penalty for bribery from seven to ten years imprisonment, with an unlimited fine

The proposed corporate offence is likely to be the subject of much debate. As currently drafted, the offence only requires negligence on the part of a company, which is not a concept generally associated with the criminal law. It is clearly a lower threshold than the intent normally required to establish criminality.

The US Foreign Corrupt Practices Act (FCPA) prohibits the bribery of foreign officials or political parties in an attempt to obtain or retain business. Individuals convicted of such an offence face imprisonment of up to five years. Both individuals and companies also face large fines. The FCPA has wide-reaching jurisdiction; the US authorities can prosecute an FCPA violation against any foreign company that is traded or raises capital in the US or if part of the act occurs in the US. This could include, for example, an electronic transfer made through a US bank.

In recent times the US Department of Justice (DOJ) and the Securities and Exchange Commission (SEC) have been extremely active in prosecuting companies under the FCPA. In 2007 Baker Hughes paid a $44m settlement and in 2008 Siemens reached a record $1.6bn agreement to settle a long-standing corruption investigation. Most recently the DOJ and SEC reached a settlement with Halliburton and KBR under which KBR paid a criminal fine of $402m, and KBR/Halliburton jointly disgorged $177m to the SEC.

Turning tide

"The time is ripe for organisations to implement effective controls to mitigate the risk of corporate misconduct."

The UK’s record on prosecuting corruption is poor in comparison: there has only been one prosecution for foreign corruption in the last 12 years. The proposed Bribery Bill shows that the tide is beginning to turn. Richard Alderman, the director of the Serious Fraud Office (SFO) has made plain his commitment to tackling bribery and corruption by increasing the number of investigators and recruiting a new head of anti-corruption.

It is not, however, just corruption and bribery that is high on law enforcement agendas. There is a clear commitment to combat corporate misconduct from not only the SFO but also the Financial Services Authority (FSA) and the Office of Fair Trading (OFT).

On 8 January the FSA announced it had imposed a £5.25m fine on AON for its failure to "properly assess the risks involved in its dealings with overseas firms". The OFT fined British Airways £121.5m for price-fixing passenger fuel surcharges on long-haul flights. As part of the same enquiry in August last year, the OFT brought criminal charges in relation to cartel offences under the Enterprise Act 2002 against four current and former British Airways Executives.

Last year also saw Balfour Beatty enter into a ground-breaking Civil Recovery Order with the SFO. The Order related to certain payments in relation to the execution of Balfour Beatty’s joint venture contract to build the Bibliotheca Library in Egypt. Following its own internal investigation, the company self-reported to the SFO, whose investigation ultimately determined that there was a failure to keep accurate records within a subsidiary of Balfour Beatty in respect of the contract. Under the Order, Balfour Beatty agreed to pay £2.25m and voluntarily agreed to introduce certain compliance systems and to submit these systems to external monitoring for an agreed period of time.

The time is ripe for organisations to implement effective controls to mitigate the risk of corporate misconduct. UK legislation does not require companies to put in place such procedures although some regulators, such as the FSA, do. The existence of such compliance measures will be treated by law enforcement agencies as a substantial mitigating factor. Indeed, the draft Bribery Bill provides a defence to the corporate offence if a company can show that it generally has good systems in place to prevent bribery.

Any compliance programme will be dependent on how at risk an organisation is to corporate misconduct and will therefore vary from company to company. An effective policy should be actively implemented and promoted at all levels of an organisation and should contain the following key features:

  • The support and commitment of senior management
  • Appropriate policies and procedures for example by ensuring the company’s payment procedures require adequate levels of due diligence
  • Provision of clear guidance and regular training of employees
  • Regular evaluation and assessment

Companies cannot afford to ignore the fact that the UK is beginning to get tough on corporate misconduct. The cost and damage to reputation that an investigation can cause should not be under-estimated. A proper and effective compliance policy will go a long way to minimise the risk of corporate misconduct.