Before the SFO’s new approach was publicized, a company’s corruption investigations would focus on ensuring that all the SFO’s pointers to a civil settlement were met before self-reporting. All bets are now off. The change in the SFO’s approach will have a significant impact on how companies handle corruption investigations. Under the new approach, an investigation will not simply be aimed at establishing the truth and at self-reporting. Rather, investigations will be aimed at meeting the new requirements of the Act. There will be a greater focus, for example, on ensuring that a company can satisfy the “adequate procedures” defense under section 7(2) of the Act when a rogue employee has bypassed procedures and measures put in place to prevent bribery.
This article will consider practical steps a company can take when commencing and carrying out an investigation and will explore how the new SFO guidance and the changing regulatory landscape will dictate how an investigation is to be conducted.
Commencing an Investigation: A Rapid Response
Once a company becomes aware of possible evidence of corruption, it must act quickly. Indeed, its response should be dictated by a written policy that is already in place. The necessity for speed is perhaps now driven primarily by the “whistleblower” factor.
Many U.K. companies have a U.S. footprint; in such circumstances, they are likely to need to consider the U.S. Foreign Corrupt Practices Act (the FCPA). However, the recently enacted Dodd-Frank Act (Dodd-Frank) is what is currently causing equal, if not greater, consternation among companies that do business in the United States. Dodd-Frank affirms that whistleblowers who bring violations of securities law, commodities law, or the FCPA to the attention of the proper government authorities in the United States, namely the Securities and Exchange Commission (SEC), the Department of Justice, or the Commodities Futures Trading Commission, are entitled to 10–30 percent of any government recovery in excess of $1 million. A recent example emerged this year when GlaxoSmithKline agreed to pay $2 billion to U.S. regulators for illegal marketing of drugs and bribing of doctors. More than $150 million of the fine is expected to be paid to four former GlaxoSmithKline executives who reported the company to the U.S. authorities. Once corruption is identified, there may well be a period of time between discovery and self-reporting that may provide a whistleblower a window in which to try to capitalize.
Even if the company and the alleged wrongdoing have absolutely no connection to the United States, the whistleblower factor is still relevant to a U.K. company. This is because, if the SFO hears of corruption before a company self-reports, even if that company intended to self-report eventually, the SFO will work under the assumption that the company elected not to self-report (unless proven otherwise). In the wake of the SFO revisions, a company will not want to find the SFO knocking on its door, since that will be a factor indicating a prosecution is appropriate. Therefore, at an early stage, consideration must be given to whether to file a report with the SFO on an anonymous basis through an external lawyer in order to have on the record that the company was investigating the matter, rather than reacting to SFO contact.
Once the clock starts to tick, the following matters should be considered immediately.
Who Should Conduct the Investigation?
The individuals who will manage and oversee the investigation should be identified at the start and their roles clearly delineated. It is vital that no members of the “Investigations Committee” be connected to the underlying matters being investigated and that they are seen as independent. Terms of reference should be drawn up by the Investigations Committee setting out its role and powers. Communications on the subject matter should be handled through the Investigations Committee, which will then assist in avoiding the dissemination of information outside the team and help preserve legal privilege and confidentiality.
Who Are the Potential Witnesses?
It will be important to identify witnesses and prepare a list of questions. Interviewers should be selected from the Investigations Committee, but, in order to maintain independence, they must not be closely connected to the interviewee. It must be remembered that once individuals are interviewed, the chance of an information leak increases. A careful decision needs to be taken as to whether to suspend an employee suspected of wrongdoing.
Where Are the Documents?
Relevant documents, hardcopy and electronic, should be identified and secured. A record log needs to be created and maintained to identify which documents are collected and from which custodians, and which materials have been reviewed, thereby creating an investigative paper trail. When collecting evidence, tipping off suspects or alerting employees of the existence of the investigation must be avoided if possible
Is There an Insurance Policy?
A company should identify and review any relevant insurance policies and consider whether to notify its insurers. It may be that the costs of the investigation can be recovered from the insurers.
Use of External Third Parties
It may be appropriate for the Investigations Committee to employ external consultants in the form of auditors and lawyers. They may be necessary to have on board because a company might lack the necessary resources; this approach may also minimize disruption to business. External consultants can provide specific expertise that may be lacking within the company, or in the case of lawyers, they may ensure legal privilege is preserved in the investigation, especially for documents created during the investigation.
There is a specific caution that all companies must bear in mind when employing the services of an external auditor. The regulated sector has its own reporting obligations under the U.K.’s Proceeds of Crime Act of 2002, which makes the failure to report a suspicion of money laundering (which ultimately may lead to discovery of bribes) a criminal offense. This places external auditors in a very difficult position in that they may have to report the suspicion of money laundering on an anonymous basis and yet be working as part of an Investigations Committee that has decided to not self-report.
Employing in-house lawyers and external lawyers as part of an investigation will assist in asserting legal privilege over documents that are created. Privilege may become increasingly important in an environment where the SFO may prosecute even if a company self-reports. It may be sensible to ensure that reports, interim and final, are created by external lawyers to maximize any claim for privilege and in order to shield the documents from the SFO if that is necessary. In circumstances where a company may not be able to rely on the evidence of self-reporting alone to avoid a criminal prosecution but instead must invoke the defense of adequate procedures under section 7 of the Act, there is likely to be a greater need to request and obtain advice in a confidential and privileged environment.
Once the interview stage of the investigation commences, it is important to take all possible steps to contain the dissemination of details of the investigation outside the confines of the Investigations Committee. It may be sensible to try to assert privilege over the interview by having an external lawyer conduct it. The downside of having an external lawyer lead the interview is that the interviewee may be reluctant to be as open. An interviewee may demand his lawyer be present; a company should think carefully before complying with such a request. There is no requirement that companies do so. Furthermore, Dodd-Frank and the U.S. False Claims Act have led to a new legal field in the United States, with lawyers keen to represent whistleblower employees because of the significant financial rewards that may be available for those employees. While this phenomenon is not yet likely to cross the Atlantic, any U.K. company with U.S. interests must be aware of the growing risk.
To Report or Not to Self-Report?
An investigation must ultimately end with a decision as to whether there is evidence of wrongdoing, and, if so, what to do about it. The culmination of an investigation is likely to result in all the evidence being compiled in a considered report usually prepared by either external or internal lawyers for the purpose of providing legal advice to the Investigations Committee and ultimately the board of directors.
Whereas the previous SFO stance most certainly encouraged self-reporting and may have resulted in many self-reports where a company did not necessarily accept liability on its part, the new framework will cause companies to have greater concerns about the consequences and impact of doing so. Plea bargaining is not yet available in the U.K. It is worth bearing in mind that all decisions on prosecutions will now be based on published guidance, including the Guidance on Corporate Prosecutions. “A genuinely proactive approach adopted by the corporate management team when the offending is brought to their notice, involving self-reporting and remedial actions, including the compensation of victims” is one factor that will be taken into account when deciding whether to undertake a prosecution. Other factors, such as whether the company has a history of similar conduct, whether the conduct was part of the established business practices of the company or an isolated action, and whether a corporate compliance program exists will also be relevant. Those items must be addressed as part of any self-reporting.
Before the new SFO revisions took effect, a company, when self-reporting, would be likely to indicate which steps it had taken to ensure the problem would be eradicated in the future. Now, a company is much more likely to strive to point to all the existing measures it has in place to prevent the type of wrongdoing at issue in order to satisfy the adequate procedures defense.
There has been no substantial prosecution under the Act to date. That is not an indication that the Act has not had a significant impact on the way companies do business in the United Kingdom. Notably, when the FCPA was first launched, there was no explosion of prosecutions in its initial years; it is reasonable to assume the Bribery Act will follow a similar path.
It is likely that, within the next few years, the U.K. will introduce plea bargaining, which has been used to a great extent in the United States. The U.K. Ministry of Justice has confirmed earlier this year that it is developing proposals for deferred prosecution agreements to tackle corporate crime more effectively. Its consultation on the proposed new law expired in August of this year. Having considered the responses to the consultation, the government remains committed to the introduction of deferred prosecution agreements, and it intends to include an amendment to the Crime and Courts Bill currently before Parliament that could come into effect as early as Spring 2013 if approved. Until then, any company that may be implicated or involved in corruption in the U.K. will have a period of uncertainty as to whether it will be able to escape criminal sanctions. The way an investigation is conducted and the manner of self-reporting corruption will be critical in order to avoid prosecution.