Fearing the proceeds of crime

THE BRIBERY ACT has received its fair share of column inches over the past year and for good reason: the legislation ushers in a new era of compliance for businesses with a UK interest, particularly those operating in high-risk markets.

Yet one topic that has been largely ignored is the interaction between the Bribery Act and existing legislation, such as the Proceeds of Crime Act (POCA) 2002.

This is an important topic. Richard Alderman, director of the Serious Fraud Office (SFO), has made it very clear that he intends to use POCA in the context of bribery and corruption cases.

The Bribery Act is a simple and short piece of legislation with huge consequential effects on POCA. It provides the SFO with more fire power to use POCA more aggressively in the fight against bribery and corruption.

Both Acts should be considered whenever a bribery issue arises, as the connections between the two are many and complicated. In fact, there is perhaps more for senior company officers to fear in the use of POCA in a bribery situation than there is of the use of the Bribery Act.

Potential penalties under POCA can be up to 14 years imprisonment for individuals including board members and directors, as opposed to 10 years under the Bribery Act. Under Section 14 of the Bribery Act, senior officers, including non-executive directors, will be guilty of an offence if they consent to or connive in bribery. Board members and other senior officers of a company may face criminal prosecution under POCA if they know or suspect a case of bribery but turn a blind eye to it.

POCA has made it very easy for anybody to commit the offence of money laundering. If a company suspects that a bribe has been paid on its behalf, this might require a suspicious activity report (SAR) to be filed with Serious Organised Crime Agency (SOCA) under POCA.

Although the SFO might have access to the SAR, it has made it clear that the filing of a SAR would not be a defence for failure to prevent bribery. It is therefore up to the company to monitor the situation and consider whether to self-report to the SFO or not.

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So why is this relevant to companies? Given the potential difficulties in conducting bribery prosecutions, the SFO may choose to put a greater emphasis on POCA investigations. For example, conducting a cross-border investigation may be a daunting task especially when relying on Mutual Legal Assistance (MLA) agreements to progress an investigation.

MLA is a formal way in which a country requests and provides assistance for the purpose of obtaining evidence to another country to assist in criminal investigations, or proceedings, in an effort to enforce far reaching legislation such as the Bribery Act. They can, however, be difficult and costly to enforce, whereas the use of civil forfeiture under POCA would be an easier and less costly option for the SFO.

The interaction between the two legislations in a bribery situation can be best illustrated as follows:

1. Let’s say a representative of your company makes an agreement with a foreign official to pay a bribe in order to secure a license in an overseas country. In this particular situation, the offence of bribery would be committed before physical exchange of money or other financial advantage because the bribery agreement would have already been made. The company would thus be committing a money laundering offence when the money or the financial advantage is given to the foreign official. This particular scenario draws on the transfer of criminal property provision under section 327 (1)d POCA, an agreement under section 328 and acquisition and use or possession of criminal property under section 328 of POCA.

2. The benefits generated as a result of obtaining the license would be ‘proceeds of crime’, as it derives from an act of bribery. The SFO may use criminal confiscation in Part 2 of POCA, or civil recovery under Part 5 of POCA to pursue senior officials or the company. In a recent SFO prosecution known as the Kellogg Limited Case (MWKL), civil recovery was used and MWKL was fined £7m. MWKL took no part in the criminal activity which generated the funds but part of the proceeds of the crime committed overseas flowed back to the UK as a dividend. The share of the dividend paid was from profits and revenues generated by contracts obtained by bribery and corruption undertaken by MWKL’s parent company and others. In another case, regarding the company Innospec, the organisation pleaded guilty to bribing employees of Pertamina (an Indonesian state-owned refinery) and other government officials in Indonesia, in order to secure sales of a fuel additive. Innospec appointed agents to act on its behalf in seeking to win or continue contracts to supply an anti-knock fuel additive called tetraethyl lead (“TEL”). The SFO used civil recovery under POCA to prosecute Innospec and a fine of the sterling equivalent of U.S $12.7m was imposed by the court.

Civil recovery has been widely used by SOCA but most recently by the SFO in bribery cases. This approach has been used in plea-bargaining situations without the need to go to court. Companies need to seek legal advice and consider the limitation of plea bargaining under our legal system, especially following the remarks made by Lord Justice Thomas in the Innospec Case.

Danny Sanhye is an anti-money laundering and anti-corruption specialist at BDO LLP