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The Denning Law Journal 2017 Vol 29 pp 109-130
LEGAL COMMENTARY
‘HOW WELL ARE WE DOING?’ THE UNITED
KINGDOM AND ITS IMPLEMENTATION OF THE
OECD ANTI-BRIBERY CONVENTION
John Hatchard*
1. INTRODUCTION
The Organisation for Economic Cooperation and Development
(OECD) Convention on Combating Bribery of Foreign Public Officials in
International Business Transactions (the OECD Convention) entered into
force on 15 February 1999. As at 31 May 2017, there were 41 State Parties
(the Parties) comprising the thirty-five OECD member countries and six
non-member countries. 1 The United Kingdom (UK) ratified the
Convention in 1998. The OECD Convention is supplemented by the
Revised Recommendations of the Council of the OECD on Combating
Bribery in International Business Transactions (the 2009
Recommendations),2 Annex I of which contains “Good Practice Guidance
on Implementing Specific Articles of the Convention.”
In March 2017, the OECD Working Group on Bribery in International
Business Transactions (the WGB) published its Phase 4 Report on the
United Kingdom’s implementation of the OECD Convention (Phase 4
Report).3 Having provided a short background section on the scope of the
OECD Convention and the role of the WGB, the following section will
review some of the key recommendations contained in the Phase 4 Report.
In the final section, an assessment is made as to how well the UK is doing
with regard to the implementation of its OECD Convention obligations.
* Barrister, Professor of Law, Buckingham Law School; Co-Director, University
of Buckingham Centre for Extractive Energy Studies.
1 Argentina, Brazil, Bulgaria, Colombia, the Russian Federation and South Africa.
These countries are home to 95 of the largest 100 non-financial multinational
enterprises and all the top 50 financial multinationals. Together they cover 64% of
global outbound flows of foreign direct investment and over 50% of the world’s
exports: OECD Fighting the Crime of Foreign Bribery (OECD, Paris 2015) 3.
2 Adopted by the Council on 26 November 2009.
3 OECD, Implementing the OECD Anti-Bribery Convention: Phase 4 Report,
United Kingdom (OECD, Paris 2017) <https://www.oecd.org/daf/anti-
bribery/unitedkingdom-oecdanti-briberyconvention.htm> accessed 10 June 2017.
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2. THE SCOPE OF THE OECD CONVENTION AND THE
ROLE OF THE WGB
The OECD Convention is wholly concerned with bribery on the supply
side. Thus Article 1 requires Parties to establish that it is a criminal offence
for:
…any person intentionally to offer, promise or give any undue
pecuniary advantage or other benefit … to a foreign public official
… in order to obtain or retain business or other improper advantage
in the conduct of international business.4
As regards enforcement, Article 5 of the Convention states that:
Investigation and prosecution of the bribery of a foreign public
official … shall not be influenced by considerations of national
economic interest, the potential effect upon relations with another
State or the identity of the natural or legal persons concerned.
Article 3 provides that sanctions are to be “effective, proportionate and
dissuasive.”
Given the transnational nature of the offence, Parties to the OECD
Convention are required to provide “to the fullest extent possible” prompt
and effective mutual legal assistance.5 Article 12 provides for a systemic
monitoring and follow-up procedure. The purpose of monitoring is to:
Ensure compliance with the Convention and implementation of the
2009 Recommendations. Monitoring also provides an opportunity
to consult on difficulties in implementation and to learn from the
experiences of other countries.
In order to enhance its effectiveness, “Monitoring must be systematic
and provide a coherent assessment of whether a participant has
implemented the Convention and 2009 Recommendations.”6
4 In addition, Parties are required to introduce a series of accounting offences
(Article 8) and to make the bribery of a foreign public official a predicate offence
for the purpose of the application of its money laundering legislation (Article 7).
5 Article 9.
6 OECD, Monitoring Implementation of the OECD Anti-Bribery Convention:
Phase 4 Evaluation Procedures (OECD, Paris 2016) para 5.
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The monitoring is carried out by representatives of the Parties. The
WGB publishes all its country reports and a Party has no right to veto the
final report or the WGB recommendations.
The monitoring/review process has been divided into a series of
“Phases” and all Parties have been subject to three rounds of review. Phase
4 was launched in 2016.7 Phase 1 and Phase 2 reviews concentrated on
assessing compliance by Parties with their responsibilities to have in place
appropriate anti-corruption measures and legislation. The focus of the
Phase 3 review included assessing progress made by Parties on addressing
weaknesses identified in Phase 2 and enforcement efforts and results.
Following each review of the UK, the WGB made a series of
recommendations for improving the implementation of the Convention.
However, not all of these have been complied with satisfactorily. For
example, the Phase 3 evaluation in 2012 made 35 recommendations. The
level of implementation was then evaluated in 2014 and it was found that
18 recommendations had been implemented. However, 7 had been partially
implemented and there had been no implementation of 9 other
recommendations.8 These were re-visited in the Phase 4 review.
The Phase 4 Review focuses the progress made by Parties on
weaknesses identified in previous evaluations; enforcement efforts and
results; and any issues raised by changes in the domestic legislation or
institutional framework of the Parties.9 The UK is one of the first countries
to be reviewed. The review itself was undertaken by WGB lead examiners
from Norway and South Africa. They met with government officials,
representatives from law enforcement agencies, including the Serious
Fraud Office as well as representatives from a range of leading civil society
organisations, the media and private sector organisations.
3. THE PHASE 4 REPORT
The following analysis of the Phase 4 Report focuses on seven key areas:
1. The independence of the Serious Fraud Office
2. Extension of the foreign bribery offence in the Crown
Dependencies and Overseas Territories
3. Detection of foreign bribery offences
4. Identifying the beneficial ownership of companies
5. Multiple prosecutions in foreign bribery cases
6. The Bribery Act 2010 and the Ministry of Justice Guidance
7 This is scheduled to take place between 2016 and 2024.
8 For details see Phase 4 Report, Annex 1.
9 See (n 6) 5.
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7. The potential impact of Brexit.
1. The Independence of the Serious Fraud Office
The importance of maintaining the independence of specialised
agencies involved in the investigation and prosecution of bribery cases is
widely recognised and is a requirement in the United Nations Convention
Against Corruption (UNCAC).10
In this regard, the Serious Fraud Office (SFO) is the leading UK law
enforcement agency in the investigation and prosecution of foreign bribery
cases.11 Established in 1987, it has had a somewhat chequered history albeit
in recent years it has obtained some notable successes12 with the WGB lead
examiners stating that “the SFO’s record testifies to its independence and
capacity to seriously investigate and prosecute foreign bribery
allegations.”13 The independence and work of the SFO was thus a key area
for consideration by the WGB lead examiners who raised several areas of
concern.
i) SFO Funding
The general position regarding funding of such agencies is set out in
Annex 1, paragraph D) to the 2009 Recommendations. This states that:
Member countries should provide adequate resources to law
enforcement authorities so as to permit effective investigation and
10 Article 36 of the UNCAC provides that such a specialised agency “shall be
granted the necessary independence … to be able to carry out its functions
effectively and without undue influence.” The UK became a party to the UNCAC
in 2006. Paragraph 6 of the Annex to the 1999 Revised Recommendation states
that “…public prosecutors should exercise their discretion independently, based on
professional motives.” Curiously, this was omitted in the 2009 Recommendation.
11 As the Phase 4 report puts it: “A plethora of law enforcement agencies with
potential competence in foreign bribery cases, but one essential actor: the SFO”
28.
12 For example, in 2017 it secured the two largest criminal settlements in English
legal history: £497,250,000 plus £13 million in costs from Rolls-Royce and
£128,992,500 plus costs from Tesco: see, Bill Waite, ‘Bill Waite: The SFO ain’t
Broke, so don’t fix it…’ (The FCPA Blog, 31 May 2017)
<www.fcpablog.com/blog/2017/3/31/bill-waite-the-sfo-aint-broke-so-dont-fix-
it.html#sthash.i7bOvSmt.dpuf> accessed 15 June 2017.
13 Phase 4 Report, Commentary, 42.
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prosecution of bribery of foreign public officials in international
business transactions.
However, in several previous reports the WGB had drawn attention to
the lack of adequate funding of the SFO and this issue is highlighted once
again in the Phase 4 Report. The issue concerning “blockbuster funding” is
of particular concern. This is additional funding which the SFO may seek
to obtain from HM Treasury on an annual basis for the purposes of
investigating large or complex cases. The WGB lead reviewers noted that
according to the Crown Prosecution Service Inspectorate:
whilst the blockbuster funding model draws criticism that there is a
perceived lack of independence from Government, it found no
evidence whatsoever that funding would be withheld because of
political interference.14
This is hardly the point for any such ad hoc arrangement is liable to be
subject to (or run the risk of being perceived as subject to) political
interference. As a Transparency International report asserts:
…the Serious Fraud office’s budget remains a significant concern
as it continues to be under-funded, and approval of supplementary
funding needed for its functioning gives the UK government,
effectively, a power of veto regarding which cases the office can
take on, compromising its independence.15
The need to provide adequate and secure financial resources for the
SFO without the need for it to go cap in hand to the Government for
additional funding is reflected in the relevant recommendation in the Phase
4 Report:
…the lead examiners consider that the rules that govern the
financing of the SFO cause concerns in the context of Article 5 of
the Convention. They note that for many commentators, including
in the judiciary sphere, the reliance of the SFO on blockbuster
funding represents a risk of political interference, and could, at the
very least, result in an unfortunate perception of influence of the
14 Phase 4 Report, para 100.
15 Transparency International, Exporting Corruption Progress Report 2015:
Assessing Enforcement of the OECD Convention on Combating Foreign Bribery
(Transparency International, London 2015) 7.
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executive over law enforcement. The lead examiners believe that
this risk exists and should be addressed.16
This is certainly an area that the WGB will need to keep under review.
ii) Tenure of the SFO Director
The independence of such agencies is further enhanced by providing
senior officials with security of tenure. Yet in the case of the SFO the
Director’s contract can be of any duration and can be terminated by the
Attorney General at any time. This was the subject of criticism by the WGB
in its Phase 2 bis report in 2008 although it noted that draft legislation was
pending to amend the conditions under which the Attorney-General may
appoint and remove the Director of the SFO. Not surprisingly, in the WGB
lead examiners expressed concern that such legislation was still awaited.17
The response of the UK to such concern was that it was ‘inconceivable
in practice’ that an Attorney-General would dismiss the Director following
a disagreement about the investigation of a case.18 The lead examiners
rightly did not accept this view and considered that:
…the rules for the appointment and removal of the SFO Director
should be designed to reinforce his/her independence, and that the
SFO’s independence could be further improved by ensuring
appropriate safeguards are in place regarding appointment and
dismissal of its Director.19
This criticism is welcome. The SFO only investigates the most serious
cases involving allegations of foreign bribery and these will often involve
matters of the most sensitive political and economic nature. The effective
enforcement of the Convention is dependent upon States adhering strictly
to their obligation under Article 5 of the Convention.
Not surprisingly the lead examiners recommend that this is an issue that
the WGB should continue to follow up on.20
iii) The Future of the SFO
It is disappointing that the UK continually fails to address the valid
criticisms of the WGB concerning the SFO. The independence of
16 Phase 4 Report, Commentary, 42.
17 Ibid para 98.
18 Ibid.
19 Ibid Commentary, 42.
20 Ibid para 133.
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investigators and prosecutors can only be assured if they demonstrably have
the right to exercise their discretion independently and enjoy adequate ring-
fenced resources. The current ad hoc approach is unacceptable.
However, of greater concern is the future of the SFO itself. The WGB
lead examiners recommended that the UK maintain the SFO’s role in
criminal foreign bribery-related investigations and prosecutions pointing
out that the integrated approach (the so-called “Roskill model”) which
brings together prosecutors, investigators and other specialists “constitutes
a positive achievement which has proven very effective in bringing foreign
bribery cases forward.”21 It remains to be seen whether the pre-General
Election pledge in May 2017 by the Prime Minister to merge the SFO with
the National Crime Agency (NCA) will be carried out. This is a matter that
raises very serious concerns not least because the NCA is directly
responsible to the Secretary of State for Home Affairs and accordingly the
prospect of potential or actual political interference in the investigation and
prosecution of foreign bribery cases. No doubt the WGB will take a very
active interest in what is a clear threat to the effective implementation of
the Convention, and Article 5 in particular.
2. Extension of the Foreign Bribery Offence in the Crown
Dependencies and Overseas Territories
Since the Phase 1 review in 1999, the WGB has consistently
recommended that the UK extend the OECD Convention to the Crown
Dependencies (CDs) and Overseas Territories (OTs). This recommendation
was reviewed by the WGB lead examiners during their on-site visit.
The CDs comprise the Isle of Man, Jersey and Guernsey whilst there
are 14 OTs including the key off-shore jurisdictions of the British Virgin
Islands, Cayman Islands and Gibraltar. The financial services industry in
each is the main contributor to their economies.22 As emphasised in the
Phase 4 Report the:
21 Ibid Commentary, 33.
22 It is noted in para 49 of the Phase 4 Report that “HM Treasury recognises tha t
the financial services industry is one of the main contributors to the economies of
Bermuda, the Cayman Islands, the British Virgin Islands and Gibraltar and, to a
lesser extent Anguilla, the Turks and Caicos Islands and Montserrat. Six OTs
(Anguilla, Bermuda, the British Virgin Islands, the Cayman Islands, Gibraltar and
the Turks and Caicos Islands) are considered offshore financial centres that take a
significant part in global financial flows.”
LEGAL COMMENTARY
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…attractiveness of [the United Kingdom’s] financial sector,
combined with close links to off-shore centres [i.e. the CDs and
OTs], expose the UK to significant risks of corruption and foreign
bribery-related money laundering.23
Further, that the “misuse of corporate vehicles, trusts and foundations
registered in the [CDs and OTs] is seen as a significant barrier to tackling
money laundering, corruption and asset recovery.”24
The constitutional relationship between the UK and the CDs/OTs is
curious. The UK remains responsible for their defence and foreign
relations. However, they are not part of the United Kingdom, have the
power to enact local legislation and are each responsible for executing
mutual legal assistance and extradition requests within their own
jurisdictions. Whilst the UK has the power to ratify international
conventions on their behalf, in practice, the CDs and OTs are able to decide
as to which treaties they wish to become a Party.25
In this regard, the WGB lead examiners highlight several areas of
progress:
Firstly, the Convention has been ratified in the three CDs and three key
OTs (British Virgin Islands, Cayman Islands and Gibraltar) with work
continuing in another four territories;
Secondly, for the first time, representatives of the CDs, the British
Virgin Islands, Cayman Islands and Gibraltar actively participated in
the on-site visit;
Thirdly, that the UK was monitoring the implementation of the
Convention in the CDs and OTs in law and, in practice, is providing
assistance to assist them in strengthening their capacity to investigate
and prosecute foreign bribery.
It has taken the UK a number of years to reach this position but the
recommendation of the WGB lead examiners that the Convention is to be
extended to all the OTs is realistic and ever more likely.26
3. Detection of Foreign Bribery Offences
23 Phase 4 Report, 9.
24 Ibid.
25 Ibid para 54.
26 See below as regards the sharing of beneficial ownership information between
the UK and the CDs/OTs.
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The Phase 4 Report highlights the significant progress made by the UK
in the development of more effective mechanisms for the detection of
foreign bribery offences.
i) Self-reporting by Companies
The introduction of deferred prosecution agreements (DPAs) has
provided an opportunity for companies to self-report their involvement in
foreign bribery cases.27 Indeed according to the UK authorities, this has
become a major source of detection of foreign bribery. 28 DPAs were
introduced by section 45 and Schedule 17 of the Crime and Courts Act 2013
(CCA 2013). A DPA enables a body corporate, a partnership or an
unincorporated association to avoid prosecution for a bribery-related case
by entering into an agreement on negotiated terms with a prosecutor. A
court is then required to approve the DPA in an open hearing giving a
reasoned judgment. 29 The SFO has issued the Deferred Prosecution
Agreements Code of Practice (the SFO Code of Practice) which states that
the failure of a company to “notify prosecutors within a reasonable time of
the offending conduct coming to light” is seen as a factor in favour of
prosecution rather than the entering into a DPA.30 Further, “considerable
weight may be given to a genuinely proactive approach adopted by the
[company’s] management team when the offending is brought to their
notice.”31 The element of self-reporting by the company is therefore central
to the DPA mechanism and, as the Phase 4 Report puts it, “a suspect
corporate must generally provide significant cooperation with law
enforcement, including proactive self-reporting, to be entitled to seek a
DPA…”32
The issue of self-reporting is explored in some detail in the Phase 4
Review through a consideration of the first DPA cases. The first DPA was
entered into with Standard Bank in November 2015. Here the case arose as
27 See John Hatchard, ‘Combating the Bribery of Foreign Public Officials and the
‘Art of Persuasion’: The Case of Alstom and the Energy Sector’ (2016) 28 Denning
Law Journal 109.
28 Phase 4 Report, para 21.
29 For a detailed discussion on DPAs see C Nicholls, T Daniel, A Bacarese, J Maton
and J Hatchard, Corruption and Misuse of Public Office (3rd edn, OUP 2017) para
8.44 et seq (hereafter Nicholls et al).
30 SFO Code of Practice, para 2.8.1.
31 Ibid para 2.8.2.
32 Phase 4 Report, 16.
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118
the result of a report made by Standard Bank’s solicitors to the Serious and
Organized Crime Agency. Having determined that there was sufficient
evidence to charge Standard Bank with failing to prevent bribery contrary
to section 7 of the Bribery Act 2010, the SFO determined that the public
interest was likely to be met by a DPA and in SFO v Standard Bank PLC
this was approved in the Crown Court by Sir Brian Leveson P.33
However, the approval of a DPA by Sir Brian Leveson P in the Crown
Court in January 2017 in the case of Rolls-Royce plc and Rolls-Royce
Energy Systems Inc caused the WGB lead examiners considerable concern.
The case is controversial in that there were significant reasons for not
agreeing to a DPA. In particular the WGB lead reviewers noted that the
company had not self-reported but that the SFO had been alerted because
of a public internet posting and only then had Rolls-Royce then supplied
additional information to the SFO.34 In addition, the criminality took place
over several decades; vast bribes were paid to obtain business around the
world; and vast profits obtained.35 This raises the crucial question: if the
SFO did not prosecute a company in such circumstances, when would it do
so?
An attempt at answering this question was made by a senior SFO
official who argued that:
…one of the most fundamental features of the DPA regime … is
the requirement that companies are frank about what has happened,
and when it comes to putting it right, cooperate fully with the SFO’s
investigation” and that “this was exactly what Rolls-Royce had
done.36
33 The judgment is available at <https://www.judiciary.gov.uk/wp-
content/uploads/2015/11/sfo-v-standard-bank_Final_1.pdf>. Similarly in the case
of XYZ Ltd, a DPA was approved by Sir Brian Leveson in the Crown Court with,
once again, a key factor being the fact that company had self-reported to the SFO
and had provided ongoing assistance: see SFO v XYZ Ltd. The judgment is
available at <https://www.sfo.gov.uk/2016/07/08/sfo-secures-second-dpa/>
accessed 15 June 2017.
34 Phase 4 Report, para 2.
35 According to the Phase 4 Report, the misconduct generated gross profits of
£258,000,000 thus making it by far the largest foreign bribery case in UK history:
see 12.
36 See speech by Ben Morgan, Joint Head of Bribery and Corruption, SFO entitled
“The Future of Deferred Prosecution Agreements after Rolls-Royce” dated 8
March 2017, <https://www.sfo.gov.uk/2017/03/08/the-future-of-deferred-
prosecution-agreements-after-rolls-royce/> accessed 19 June 2017.
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119
This reflects the view of Sir Brian Leveson P in approving the Rolls-Royce
DPA: 37
The fact that an investigation was not triggered by a self-report
would usually be highly relevant in the balance but the nature and
extent of the co-operation provided by Rolls-Royce in this case has
persuaded the SFO not only to use the word ‘extraordinary’ to
describe it but also to advance the argument that, in the particular
circumstances of this case, I should not distinguish between its
assistance and that of those who have self-reported from the
outset.38
Sir Brian Leveson P also noted the significant weight paid by the
company to eliminating corrupt practices as well as the far-reaching
consequences on the company’s ability to trade. As a result of its
cooperation, a significant reduction of 50% in its sentence was applied.
Understandably, the case led to a critical response from the WGB lead
examiners who were concerned that the case provided a precedent for a
company to obtain a DPA without self-reporting and, in addition, still able
to obtain a substantial reduction in its sentence despite its failure to do so.39
The concern is well-placed for these are the two key factors that are likely
to persuade a company to seek a DPA.
“Persuading” companies to self-report their bribery activities to the law
enforcement agencies represents a major breakthrough in combating
foreign bribery and giving effect to the OECD Convention. Certainly the
Rolls-Royce case should not overshadow the general view of the WGB lead
examiners that the use of DPAs is an “interesting and effective feature for
sanctioning legal persons in foreign bribery cases.”40 However, their further
recommendations are very pertinent. Firstly, that the WGB follow up on
the use of DPAs in foreign bribery cases:
…to evaluate in particular the effective, proportionate and
dissuasive character of sanctions [as required by Article 3 of the
37 See Serious Fraud Office v Rolls-Royce plc and Rolls-Royce Energy Systems Inc
<https://www.judiciary.gov.uk/judgments/serious-fraud-office-v-rolls-royce/>
accessed 19 June 2017.
38 Ibid para 22.
39 The WGB lead examiners also point out that “this generous reduction contrasts
with the 25 per cent reduction offered by the US Department of Justice in the
context of its separate DPA”: Ibid, para 22.
40 Phase 4 Report, para 59.
LEGAL COMMENTARY
120
OECD Convention] imposed in that context, notably the reductions
granted in the absence of self-reporting.41
Secondly, that the WGB follow up to ensure Rolls-Royce (and other
companies) did not escape liability for any additional foreign bribery not
covered by the DPA. This is important as it pressurises companies to
“reveal all” about their involvement in foreign bribery.
ii) Whistleblowing
Whilst the issue of whistleblowing is not specifically addressed in the
OECD Convention, it is now widely recognised that this is a key weapon
in uncovering foreign bribery. The internet postings that led to the
investigation into Rolls-Royce neatly illustrate the point 42 as does the
impact of the “super-whistleblower” in the Panama Papers leaks in 2016.
Its importance is reflected in the Phase 4 Report which notes the view of
the SFO that whistleblower reports are a “valuable source of information
relating to foreign bribery”43 and that a “significant number of ongoing
foreign bribery investigations and prosecutions also originated from
whistleblower reports.”44
Providing effective protection for whistleblowers remains a key issue.
In the UK, the Public Interest Disclosure Act 1998 (PIDA) protects
employees from detrimental treatment for disclosing wrongdoing. This
includes corruption and any cover-up of such an offence.45 As the WGB
lead examiners noted, this legislation put the UK “at the forefront of
developing model whistleblower legislation in the 1990s.”46 They also
recognised that a “notable and positive amendment” introduced by the
Enterprise and Regulatory Reform Act 2013 had improved the protection
for whistleblowers.47 However they noted the ongoing concerns raised by
civil society groups which included the fact that the PIDA contains no
direct civil or criminal penalties to stop, prevent or discourage bullying,
victimisation or harassment of whistleblowers.48 The WGB lead examiners
41 Ibid.
42 In 2012, the “SFO sought information from Rolls-Royce in respect of concerns
regarding the operation of Rolls-Royce’s civil business in China and Indonesia
raised by certain internet postings”: see SFO v Rolls-Royce (above) para 16.
43 Phase 4 Report, para 24.
44 Ibid para 25.
45 For an analysis of the Act see Nicholls et al, para 7.119 et seq.
46 Phase 4 Report, Commentary, 20
47 Phase 4 Report, para 29. For details see Nicholls et al, para 7.139
48 Ibid para 30.
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also highlighted that at the time of the Phase 3 review, the PIDA did not
protect many expatriate workers of UK companies who are based abroad
and that this position remains the same. They noted that the UK
Government had “so far resisted calls for reform of the law in this area” but
that it would look at the matter again in the context of the Anti-Corruption
Strategy to be published in 2017.49
In essence, the Phase 4 Report highlights important messages for both
the UK and other Parties to the Convention. Firstly, the general point that
it is vital for States to keep all relevant anti-corruption related legislation
under regular review in order to ensure it remains fit for the purpose.
Secondly, more specifically, there is a need to provide effective protection
in practice for whistleblowers. As a Council of Europe Parliamentary
Resolution has put it:
Relevant legislation must first and foremost provide a safe
alternative to silence, and not offer potential whistle-blowers a
‘cardboard shield’ which would entrap them by giving them a false
sense of security.50
Thirdly, there is a need to consider adopting approaches being utilised
successfully in other countries. For example, consideration might be given
to following the lead of the United States where legislation provides that
whistleblowers can receive significant financial benefits for having
provided original information to the Securities Exchange Commission
concerning corporate wrongdoing.51
iii) Detection of Foreign Bribery through Anti-Money Laundering
Mechanisms
The Financial Action Task Force (FATF) was established in 1989 with
the UK being a founding member. The FATF is “an inter-governmental
body” with a mandate that includes setting standards and promoting
effective implementation of legal and other measures for combating money
49 Ibid para 33.
50 Council of Europe Parliamentary Assembly Resolution 1729 (2010) “The
Protection of Whistleblowers” para 5. The Resolution also contains a detailed list
of “good practice” in the protection of whistleblowers. See also the Council of
Europe Parliamentary Resolution 2060 (2015) on “Improving the Protection of
Whistleblowers.”
51 See section 21F(b)(1) of the Securities Exchange Act 1934 as amended.
LEGAL COMMENTARY
122
laundering.52 These standards are set out in the FATF Recommendations,
the first set of which were drawn up in 1990.
In 2012 the FATF issued a new set of Recommendations 53 with
Recommendation 20 being of particularly significance here. It states:
If a financial institution suspects or has reasonable grounds to
suspect that funds are the proceeds of a criminal activity, or are
related to terrorist financing, it should be required, by law, to report
promptly its suspicions to the financial intelligence unit (FIU).
This reporting obligation extends to “designated non-financial
businesses and professions” (DNFBPs), including real estate agents,
dealers in precious metals and precious stones, lawyers; accountants and
trust and company service providers.54
In the case of the UK, the relevant law implementing the FATF
Recommendations is found in the Proceeds of Crime Act 2002 55 with
financial institutions and DNFBPs being required to make suspicious
activity reports (SARs) to the UK Financial Intelligence Unit (UKFIU). As
the SFO confirmed to the WGB lead examiners, such reports are potentially
an invaluable source of information about the movement of the proceeds of
crime and “may uncover underlying predicate offences such as foreign
bribery and trigger investigations.”56
Between June 2015 and October 2016, the UKFIU referred 130 bribery-
specific SARS to the National Crime Agency.57 Even so, in the Phase 4
Report the WGB lead examiners highlight the concerns of both law
enforcement agencies and civil society organisations about the
effectiveness of the SARs regime in practice, particularly with respect to
the lack of reports from key non-financial sectors.58 This point is starkly
highlighted in the 2015 Transparency International (TI) report entitled
Don’t Look, Won’t Find (TI Don’t Look Report) which found that the
current regulatory system for financial services, accountancy, legal
services, luxury goods, property and trust and company service providers
52 The FATF Recommendations: International Standards on Combating Money
Laundering and the Financing of Terrorism and Proliferation, (FATF, 2012) 7.
53 Ibid.
54 Ibid, see Recommendations 22 and 23.
55 These provisions reflect similar requirements to Recommendation 20 contained
in an earlier set of FATF Recommendations.
56 Phase 4 Report, para 39.
57 Ibid para 40.
58 In this context the “designated non-financial businesses and professions.”
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“relies on a patchwork of 22 different supervisors – mostly private sector
institutions – to ensure that firms abide by the rules. It is this system that is
structurally unsound.”59
This point is taken up by the WGB lead examiners who note that “the
absence of detection of foreign bribery cases by the UKFIU is of great
concern, considering the money laundering and bribery risks in the UK”
and that this is a “further demonstration of the lack of effectiveness of the
reporting regime as it stands.”60
Reflecting the recommendations in the TI Don’t Look Report, the WGB
lead examiners called upon the UK to “respond to the concerns voiced on
the effectiveness of the SARs regime…” 61 In this regard, a key
recommendation in the TI Don’t Look Report is particularly helpful:
The UK Government should review the arrangements for
supervision in the UK and evaluate options for consolidating the
number of anti-money laundering supervisors. The review should
examine the merits of replacing the existing patchwork and
inconsistent structure of multiple supervisors with a single, well-
resourced ‘super’ supervisor.62
This is yet another area where the WGB is likely to carry out a follow-up
study.
4. Identifying the Beneficial Ownership of Companies
In 2015, Transparency International published a report entitled
Corruption on Your Doorstep63 (TI Doorstep Report). Its key findings
highlighted the significance of property holdings by companies registered
in off-shore jurisdictions, and particularly in the CDs/OTs:
• 40,725 London property titles were held by foreign companies.
• 89 per cent of these titles were held by companies incorporated in
secrecy jurisdictions, covering approximately 2.25 square miles of
London property.
59 Transparency International, Don’t Look, Won’t Find: Weaknesses in the
supervision of the UK’s anti-money laundering rules (Transparency International,
London 2015) 2.
60 Phase 4 Report, Commentary, p 22.
61 Ibid.
62 Transparency International (n 59) 6
63 Transparency International, Corruption on Your Doorstep: How Corrupt Capital
is Used to Buy Property in the UK (Transparency International, London 2015)
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• More than one third of all foreign companies holding London
property were incorporated in the British Virgin Islands (13,831
properties), this was followed by Jersey with 14 per cent (5,960
properties), the Isle of Man with 8.5 per cent (3,472 properties) and
Guernsey with 8 per cent (3,280 properties).
• Almost one in ten properties in the City of Westminster (9.3 per
cent), 7.3 per cent of properties in Kensington & Chelsea and 4.5
per cent in the City of London were owned by a company registered
in an offshore secrecy jurisdiction.64
Whilst it is perfectly lawful for an off-shore company to be the
registered owner of real estate in the UK, it was argued in the TI Doorstep
Report that:
[T]he prevalence of UK property holdings by companies
incorporated in secrecy jurisdictions is a major barrier to law
enforcement investigations of grand corruption and effectively
prevents estate agents’ due diligence checks for money laundering
and their compliance with international sanctions.65
The crucial challenge here is seeking to identify the beneficial
ownership of companies incorporated in the off-shore secrecy jurisdictions.
This is emphasised in Phase 4 Report, where the WGB lead examiners
highlighted the views of UK law enforcement agencies that the “opacity of
current beneficial ownership arrangements is a significant barrier to
tackling money laundering, bribery and corruption and to successfully
recovering stolen assets.”66 In this respect, the WGB lead examiners noted
two “welcome developments.”
Firstly, the Small Business, Enterprise and Employment Act 2015
provides for the establishment of a public register of “persons with
significant control” which is designed to identify the ultimate beneficial
owner(s) and controllers of most UK companies and limited liability
partnerships (LLPs).67 As from 30 June 2016, this information must be
declared in the annual return or “confirmation statement” of such
64 Ibid 3.
65 Ibid 4.
66 Phase 4 Report, para 116. The WGB lead examiners quote the Metropolitan
Police Service as estimating that “in cases where hidden beneficial ownership is an
issue, 30-50% of an investigation can be spent in identifying the beneficial owners
through a chain of ownership ‘layers’”: see Phase 4 Report, para 92.
67 Incorporated as Part 21A of the Companies Act 2006.
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companies and LLPs. Whilst not commenting on the point, the WGB lead
examiners also noted that the views of several civil society organisations of
the need to further regulate beneficial ownership of land and real estate.68
This reflects the helpful recommendation in the TI Doorstep Report that
any foreign company intending to hold a property title in the UK should be
held to the same standards of transparency required of UK registered
companies.69 A recommendation to the UK from the WGB to implement
this approach would have been helpful.
Secondly, in 2016 a series of Exchange of Notes (EN) was signed
between the UK and each individual CD and several OTs in respect of the
sharing of beneficial ownership information. Each CD and OT (referred to
as a ‘participant’ in each EN) agrees to:
[E]stablish a central database of beneficial ownership which will
contain adequate, accurate and current beneficial ownership
information on corporate and legal entities.
In addition, each participant is to establish a “designated point of contact”
to receive and respond to requests for beneficial ownership information.
Unless otherwise agreed, such information must be provided within twenty-
four hours of receiving the request or within an hour if the matter is urgent.70
Whilst there is currently no move for CDs and OTs to introduce a public
register of beneficial ownership (however desirable this will be), this is a
major step forward towards assisting law enforcement agencies to
investigate allegations of foreign bribery and money laundering through
facilitating the identification of the beneficial ownership of off-shore
companies and trusts.
These are major achievements which were rightly welcomed by the
WGB lead examiners. However, the effectiveness of the arrangements in
practice remains to be seen and the recommendation that the WGB follow-
up on the implementation of the information exchange is entirely
appropriate.
5. Multiple Prosecutions in Foreign Bribery Cases
Investigating the bribery of foreign public officials inevitably requires
cooperation between several jurisdictions. This emphasises the importance
68 Phase 4 Report, para 118.
69 Transparency International (n 63) 4.
70 See, for example, the Exchange of Notes between the Government of the United
Kingdom and the Government of Jersey which came into force on 4 April 2016,
paras 4 and 7.
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of effective mutual legal assistance arrangements between States. It also
raises the question as to which is the most appropriate jurisdiction for
prosecuting (or agreeing settlements with) those corporate entities allegedly
involved in paying the foreign bribes. This is particularly relevant in the
case of the UK Bribery Act 2010 and the United States Foreign Corrupt
Practices Act 1977 (FCPA), both of which contain wide jurisdictional
provisions.71
In cases where a number of States have the right to prosecute a
corporate entity, Article 4(3) of the OECD Convention provides that the
“Parties involved shall, at the request of one of them, consult with a view
to determining the most appropriate jurisdiction for prosecution.” There is
no obligation to consult and the provision does not apply to non-Parties.
This raises the possibility of a corporate entity facing “carbon copy
prosecutions” (or other enforcement action) in multiple States, including
the State or States most affected by the bribe payments with the prospect of
the company facing significant multiple financial penalties.72
This risk was duly noted by the WGB lead examiners who emphasised
that there was a need for active collaboration between jurisdictions to agree
a global settlement. However, they took the view that the issues and
challenges were beyond the scope of the evaluation and was a matter for
the Parties to the Convention to address. This is a curious approach
particularly because the issue is directly connected to Article 4(3) of the
Convention. It is certainly one that is likely to raise concerns for corporate
legal advisers when advising their corporate clients on whether or not to
self-report.
6. The Bribery Act 2010 and the Ministry of Justice Guidance
In line with the requirements of Article 1 of the OECD Convention,
section 6 of the Bribery Act 2010 (BA 2010) creates a discrete offence of
bribing a foreign official. Section 7 makes it an offence for a commercial
organisation to fail to prevent bribery by a person associated with it. This
is subject to the defence that the commercial organisation had adequate
71 For a full discussion see Nicholls et al, Ch 3, paras 3.17 et seq and Ch 20, paras
20.21 et seq.
72 Indeed this may have a chilling effect on self-reporting of foreign bribery by
companies in circumstances where they are required to reveal full details of their
bribe-paying activities and may then face the prospect of the information being
used against them in other States affected by their criminal activities: see further
Hatchard (n 27) 131 where examples of the issue are discussed. See generally,
Andrew S Boutros and T Markus Frank, “‘Carbon Copy’ Prosecutions: A Growing
Anti-Corruption Phenomenon in a Shrinking World” [2012] University of Chicago
Legal Forum 259.
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procedures in place to prevent bribery. Section 9 requires the Secretary of
State to publish “Guidance” about procedures that commercial
organisations can put in place to prevent bribery. In March 2011 2011 the
Ministry of Justice published its Guidance to Commercial Organisations
(MOJ Guidance) with a view to the Act coming into effect on 1 July 2011.73
In its Phase 3 Report on the UK, the WGB had made a series of
recommendations concerning two aspects of the MOJ Guidance.74 These
recommendations were re-visited in the Phase 4 Report. The first addressed
issues relating to the treatment of hospitality and promotional expenditures
with a recommendation that the UK clarify problematic hypothetical
examples in the MOJ Guidance. Here the WGB lead examiners noted that
the MOJ Guidance had not been amended in line with the Phase 3
recommendation.
The second recommendation concerned the need for a consistent
definition of facilitation payments. Here they noted that in response to the
Phase 3 recommendation, in 2012 the SFO had issued new guidance
regarding facilitation payments75 and that the UK continues to provide no
exception for facilitation payments. However, they expressed concern that
the UK had not amended the different definitions of facilitation payments
found in other documents such as the MOJ Guidance. They therefore
considered the WGB recommendation to be partially implemented.
On a more positive note, the WGB lead examiners note that section 7
BA 2010 has been the basis for criminal liability in four cases, with three
companies entering into DPAs and a fourth pleading guilty. Perhaps more
significantly, they recognise that the section appeared to have had a positive
influence with UK companies adopting “sophisticated compliance
measures to prevent bribery.”76 This is encouraging as it highlights the
crucial importance of having anti-bribery measures in place that are
sufficiently persuasive that even the most economically powerful
73 Ministry of Justice, The Bribery Act 2010: Guidance about procedures which
commercial Organisations can put into place to prevent persons associated with
them from bribing (section 9 of the Bribery Act 2010).
<https://www.justice.gov.uk/downloads/legislation/bribery-act-2010-
guidance.pdf> accessed 19 June 2017.
74 OECD Phase 3 Report on Implementing the OECD Anti-Bribery Convention in
the United Kingdom (OECD, Paris 2012) paras 20-26.
<http://www.oecd.org/daf/anti-bribery/UnitedKingdomphase3reportEN.pdf>
accessed 19 June 2017.
75 SFO Bribery Act Guidance 2012.
Available at <https://www.sfo.gov.uk/publications/guidance-policy-and-
protocols/bribery-act-guidance/> accessed 19 June 2017.
76 Phase 4 Report, Commentary, 80.
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companies are prepared to introduce and maintain effective corporate
compliance regimes.
7. The Potential Impact of Brexit
The UK is closely involved with the European Union policies on law
enforcement. For example, the UK is part of networks such as Europol and
Eurojust whilst in May 2017 the European Investigation Order came into
force which promises to enhance the effectiveness of mutual legal
assistance between EU States.77 There is no doubt that such cooperation has
greatly assisted in the investigation of foreign bribery and money
laundering cases.
Given this background, it is not surprising that the potential impact of
Brexit on the ability of the UK to carry out its OECD Convention
obligations was viewed by the WGB lead examiners with great concern.
They emphasised that the “UK’s participation in EU criminal and policing
arrangements and networks has contributed to boost enforcement in the UK
in the foreign bribery arena (and beyond).” In particular they noted that
“Overall, commentators agree that Brexit is likely to lead to a reduction in
cooperation in criminal and policing matters between the UK and the
EU.”78
More generally, it might be added that there is a clear danger that in
order to find new business, UK companies may be forced to move into new
markets and countries which carry with them a greater risk of foreign
bribery.
Only time will tell as to the extent of the impact of Brexit and in view
of this, the WGB lead examiners recommended that the WGB “follow up
on the developments in this area to review their possible impact on the UK’s
foreign bribery enforcement, and recommend that the UK report on
developments in this respect”79
4. “HOW WELL ARE WE DOING?”: THE VERDICT
Transparency International has rightly stated that the WGB review
process is “the ‘gold standard’ of monitoring and evaluation to ensure that
governments stick to their commitments to enforce anti-corruption
77 For details see European Commission press release 22 May 2017.
78 Phase 4 Report, para 198.
79 Ibid Commentary, 74.
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legislation.”80 This view is reinforced in the WGB Phase 4 review of the
UK. Just as with the previous WGB reviews on the UK, the Phase 4 Report
is an impressive document providing a detailed analysis of the position
regarding the UK’s compliance with its OECD Convention obligations, as
well as providing a critical review on its response to earlier WGB
recommendations.
Overall, the Phase 4 Report demonstrates that the UK continues to
make progress in implementing the Convention. This echoes the response
of the UK to the Phase 4 questionnaire that the 2017 UK Anti-Corruption
Strategy will “reaffirm the UK’s commitment to the OECD Anti-Bribery
Convention and will explore the scope to address any areas of concern in
relation to domestic implementation.” Further, that the “strategy is likely to
maintain the UK’s strong commitment to encouraging new countries to join
the Convention and existing members to fully implement the
Convention.”81
A recurring feature of the Phase 4 Report is its recognition of the
importance and increasing effectiveness of the SFO in tackling foreign
bribery and the laundering of the proceeds of corruption as well as the fact
that it receives widespread support from the legal profession and civil
society organisations. As a result, some of the most significant
recommendations in the Phase 4 Report are designed to protect the
independence of the SFO and to further enhance its effectiveness. It is to
be hoped that the UK will not tarnish its commitment to the OECD
Convention by rejecting these views and proceeding to incorporate the SFO
into the NCA.
The development of mechanisms to facilitate the detection of foreign
bribery offences is also highlighted in the Phase 4 Report. Of particular note
here is the self-reporting of wrongdoing by companies and the use of DPAs;
the introduction of a public register of beneficial ownership of UK based
companies; and the taking of steps to ensure the CDs and OTs are more
actively involved in tackling foreign bribery and money laundering. These
are dramatic and very positive developments which promise both to deter,
and to facilitate the detection of, foreign bribery. Even so, questions remain
as to how and when DPAs will be approved.
The failure of the UK to address fully some previous WGB
recommendations continues to cause concern. In one way, this
demonstrates the weakness of the entire review process i.e. the fact that the
WGB cannot require Parties to implement its recommendations. However,
80 Referred to in the OECD Working Group on Bribery, Annual Report 2006,
(OECD, 2007) 2.
81 Phase 4 Report, para 12.
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the on-going follow-up process at least ensures that pressure is maintained
on the UK to take the necessary steps to implement the recommendations.
During the on-site visit to the UK, the WGB lead examiners met with a
wide range of civil society organisations. 82 Indeed frequent reference is
made in the Phase 4 Report to their views with their role in investigating
and exposing foreign bribery being warmly praised.83 This highlights the
vital contribution that such organisations can make not only towards a
transparent and effective review process but also to keeping the UK’s
commitment to the Convention under constant scrutiny. This point takes on
a wider significance in that there is a continued reluctance on the part of
some States Parties to the United Nations Convention Against Corruption
to enable civil society organisations to play a full part in the work of the
Conference of the States Parties (CoSP) 84 and the convention review
process known as the Implementation Review Mechanism (IRM). This is
particularly disappointing especially in that the IRM is a far less intrusive
exercise than that undertaken by the WGB. Indeed the positive contribution
of such organisations to individual country reviews is also a feature of other
regional anti-corruption review mechanisms. 85 Hopefully, this will
encourage all State Parties to the UNCAC to strengthen the IRM by
enabling civil society organisations to play an effective role in the
operation, oversight and implementation of the Convention.
So, in answer to the question “How well are we doing”, the response is
that the UK has made some encouraging progress since the Phase 3 review.
However, the WGB is not going to go away and the UK is now required to
submit a written report to it in two years on the implementation of all the
recommendations in the Phase 4 Report as well as its enforcement efforts.
It would be good to report in 2019 that the UK has fully implemented all
the WGB recommendations.
82 Annex 2 to the Phase 4 Report contains a list of participants in the on-site visit.
These include a wide range of private sector organisations; business associations,
civil society organisations, the media and academics.
83 See, for example, para 50.
84 The CoSP was established under Article 63 of the UNCAC to “improve the
capacity of and cooperation between States Parties to achieve the objectives set
forth in the Convention and to promote and review its implementation”: see further
Nicholls et al, Chapter 16, para 16.178 et seq.
85 Civil Society Organisations are deeply involved in the MESICIC monitoring
process of the Inter-American Convention against Corruption and the monitoring
of the Council of Europe anti-corruption conventions by Group of States Against
Corruption (GRECO): see further Nicholls et al Chapter 24, para 24.30.