In this issue
Welcome
Failure to Prevent Economic Crime to Become An Offence (This Time)
The SFO's Current Direction and Priorities
Market Abuse Regulation: The Key Changes
Clean Hands: Legal Audits
Corporate Criminal Liability: a changing landscape
Terrorism Financing: Institutions be warned!
R v Harvey - An opportunity to challenge historic confiscation orders?
A New Global Forum for Asset Recovery
New Edition of Blackstone's Guide to POCA 2002 published
Clean Hands: Legal Audits
 
Adrian Waterman QC
Adrian Waterman QC

by

Adrian Waterman QC

As Ben Newton has outlined elsewhere in this newsletter, words of serious intent were issued by the representatives of the many governments attending the recent Anti-Corruption Summit. Indeed, the Communique extended to 4071 words of such serious intent. The extent to which this expressed serious intent results in serious action by those various governments of course remains uncertain. What is clear is that the UK  Government has already put in place a very wide offence in section 7 of the Bribery Act 2010. Following the summit, it has resurrected consideration of introducing further offences of failing to prevent economic-related crime. There is to be a consultation. It has also again expressed its clear commitment to transparency, in particular in relation to the awarding of public contracts.

 

The underlying approach of section 7 of the Bribery Act, almost certainly of any future failing to prevent offences and of the expressed commitment to transparency is that commercial organisations (CO) need to be able to demonstrate that they have clean hands. Not surprisingly, perhaps, the UK Government is seeking to place the burden on those COs themselves, rather than on the State. The Communique itself included the following words:

 

"The private sector is at the forefront of the fight against corruption and we encourage them to take steps to avoid any corruption in commercial companies through the implementation of appropriate prevention procedures."

 

The extent of the burden likely to be involved is already apparent from section 7 of the Bribery Act. If a person “associated with” a CO commits one of the substantive Bribery Act offences with intent to obtain or to retain business for the CO, or to obtain or to retain an advantage for the CO in relation to business, section 7 renders the CO guilty of an offence. Since section 8 provides some wide, and even then non-exhaustive, examples of what is meant by a person “associated with” a CO, the offence is very wide. Only if the CO can show that it had put in place adequate procedures designed to prevent the person associated with it from undertaking bribery does it have a defence. The practical, and therefore financial, implications of this are considerable. Any new similar offences are only going to increase the burden. The increasing burden is unavoidable. The UK Government cannot be seen to be anything other than tough on corruption, and it is not likely to change the privatisation habits of a lifetime – the burden will continue to be squarely placed upon COs themselves.

 

Even where a commercial organisation has not put sufficiently adequate procedures in place to enable it to rely on the statutory defence in section 7, if it discovers that associated persons have committed one of the Bribery Act offences, all is not lost. It can now self-report and seek to negotiate a Deferred Prosecution Agreement, pursuant to section 45 and Schedule 17 of the Crime and Courts Act 2013. Indeed, as referred to elsewhere in this newsletter by Rupert Bowers QC, the first such DPA, in November last year, was for the offence of failing to prevent bribery, contrary to section 7: SFO v Standard Bank PLC [2016] Lloyd’s Rep. F.C. 91. Such an agreement has to be agreed by the prosecutorial authority and then to be approved by the Court as being in the “interests of justice”. There is various published guidance relating to bribery, to self-reporting and to how DPA’s are to be approached. It is both self-evident and explicit in some of the relevant guidance that the procedures a CO has put in place and its transparency in relation to them and its actions generally will be important factors in persuading the prosecutorial authority and ultimately the court that it is in the interests of justice to defer prosecution. Once again, this is likely to apply equally to any further failing to prevent offences.

 

For COs themselves, the judgment of what they ought to do in relation the issue of corruption, as in relation to so many other things, will ultimately be a question of managing risk, and the cost-benefit analysis of doing so. Typically, this has been done on an ad hoc basis, if at all:  internal lawyers or external lawyers or both have been asked to examine the particular negotiation, transaction or relationship to check it is sufficiently above-board. It is suggested that this approach will increasingly be inadequate. It is further suggested that there is a an analogy to be drawn with the world of accountancy and audit.

 

All limited companies, unless subject to the small company exemption, are required by law to have audited accounts. The internal accounting mechanisms and procedures in place feed into the legally prescribed independent, annual audit. Although the external auditing of internal legal mechanisms and procedures is not presently expressly required by law, there is real sense in analogous mechanisms and procedures being put in place in terms of bribery and any future offences where a legal duty to prevent is imposed. Internal mechanisms and procedures for assessing and controlling associated persons, adequate record-keeping and, it is suggested perhaps most usefully of all, periodic audit by independent solicitors and/or barristers, followed by a declaration by them of a legally certified bill of health (aka clean hands), is likely to be of real commercial benefit. The benefits can be identified as including at least the following:-

  • Since the information provided to the lawyers and the opinion provided by the lawyers are covered by LPP, the CO retains control of the information and opinions until it decides to waive LPP. Whilst the extent to which the CO is transparent is likely to be very important, and whilst therefore cherry-picking waiver of LPP, though perfectly possible legally, is unlikely to be helpful, it is still the CO’s choice about the extent of and timing of any waiver. This is in stark contrast to accountancy audits and is a significant advantage over them. In other words, apart from the cost, there is no down-side.
  • The bill of health is likely to provide powerful evidence to support any section 7 Bribery Act or similar defence.
  • The bill of health is likely to assist greatly in reaching a DPA.
  • When it comes to bidding for public contracts, if the UK Government is serious about transparency being important in the awarding of such contracts, then it is likely to weigh heavily. 

 

A reputable and thorough legal audit is a sensible and beneficial way of demonstrating a CO’s clean hands. Clearly the scope and detail of any such audit is dependent on the particular context. But, surely on any cost-benefit analysis, prevention is better than cure!

Adrian Waterman QC

 

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