• Uncategorized

Is the SFO Getting Ready to Flex its Muscles?

With the UK Bribery Act becoming effective in less than 24 hours, companies are holding their breath.  Will the SFO seek to make a splash by arresting individuals with perp walks on camera?  Or will the SFO quietly but methodically build its caseload, and assert is enforcement position as a major player in the anti-corruption area?

Part of the problem in answering these basic questions is the political twists and turns which have taken place over the Ministry of Justice Guidance, the SFO’s continued viability as a separate enforcement entity and the resources which will be available to the SFO to carry out its mission.  But don’t kid yourself, the US’ enforcement history with respect to the FCPA is anything but consistent.  Consider the fact that the total number of civil and criminal cases enforced by the Justice Department and SEC increased by 1500 percent (5 to 74) from 2004 to 2010. 

Richard Alderman

Richard Alderman has given us some clues about where he intends to lead the SFO.  He may have enough international and domestic political support to withstand in-fighting from the Ministry of Justice.  In a recent speech before private equity managers in the UK, Alderman outlined a fairly aggressive enforcement approach to difficult issues facing the private equity industry, which is such a significant actor in the UK economy.

1.  With respect to companies in which private equity companies invest, Alderman noted that the private equity companies may be held liable for such companies that commit bribery as “associated persons” under the UK Bribery Act.  He recognized that liability will turn on the size of the investment, the relationship to the company (passive versus active investor or manager), and the seniority of the official in the company involved in bribery.

2. Alderman explained that with respect to commercial bribery, the SFO will examine payments made between companies and the surrounding intent — i.e. whether the payment is made to induce someone to perform their duties improperly such as incentive payments made to officers of companies which are acquired by private equity companies.   

3.  Just like the FCPA, the SFO will have to determine who is a foreign public official in companies which are state-owned or controlled.  This issue arises in a different context but is nonetheless critical because it divides interactions between commercial and public bribery regulatory schemes.  I would expect the SFO to resolve this issue in a similar fashion to the US DOJ formulation.

4.  Like the Justice Department, Alderman outlined an aggressive position with respect to due diligence before or after an acquisition.  He urged companies to informally consult as to specific issues which may arise.  Alderman suggested that even when companies go forward and acquire a company without resolving or even identifying potential bribery issues, the companies come in to the SFO and informally resolve the issue by agreeing to identify compliance issues and improve the compliance efforts at the target company.

5.  As to the hospitality issue which has become a lightening rod, especially during the ongoing Wimbledon series, Alderman offered some consolation to companies and rejected any hysterical enforcement approach.  Instead, he urged companies to draw a reasonable line between expenditures which are embarrassing in size and scope and those that can be easily justified as serving relevant business needs. 

He noted that what is “sensible and proportionate will need to be judged by reference to who” officials are talking about and “what is generally regarded as acceptable and safe practice.”  When entertaining a manager of a pension fund or Sovereign Wealth Funds then one would expect not to put them up at very modest hotels after travelling economy. It is not how it is done in the industry.  however, Alderman stressed that he would not expect the individual should come for a month or a couple of months to stay at the most expensive hotel in London together with members of their family and for all of them to be given large amounts of spending money to be used while in London.

6.  Finally, Alderman noted the problem of incentive payments which give incentives to placement agents.  He brushed aside any concerns by noting that such payments need to be transparent and are not being used to bribe placement agents. 

We will soon know whether Alderman’s approach will rule or his wings will be clipped.  He is navigating in very treacherous waters but he seems to be doing so carefully and deliberately.  Only time will tell.

You may also like...