UK’s fight against corruption hinges on SFO’s future: verdict of the OECD’s Phase 4 foreign bribery report

UK’s fight against corruption hinges on SFO’s future: verdict of the OECD’s Phase 4 foreign bribery report

On Thursday 23rd March, the OECD Working Group on Bribery released its fourth report into how well the UK is implementing the OECD Anti-Bribery Convention. The Working Group highlighted in its press release the important role that the Serious Fraud Office (SFO) has played in the “strong progress” that the UK has made in fighting foreign bribery. It called on the UK to maintain the SFO’s role “as a priority” and ensure it has sufficient resources for the job. It concluded its report stating its concern that “enforcement could be weakened through the continuing questions that remain over the SFO’s existence and [its] role in foreign bribery cases.”

 

The OECD’s report couldn’t come at a more critical time for the SFO. The Cabinet Office is in the process of conducting a review of the UK’s response to economic crime, including its organisational framework. When Theresa May was Home Secretary she tried twice to abolish the SFO. So, it is unsurprising that the SFO has been jittery since May became Prime Minister in July.

 

The OECD’s comments in favour of the SFO have been unprecedentedly strong. Drago Kos, Chair of the OECD Working Group on Bribery, said in an interview ahead of the report’s release with the Wall Street Journal, “The SFO is one of the best law enforcement agencies in the world at fighting foreign bribery. I don’t understand why someone would start questioning or changing a situation that has proven to be a good one.”

 

The UK has indeed finally started to produce results in the fight against bribery and there is no doubt that a lot of that has been achieved under the current directorship of the SFO. According to the OECD report, from 1999 to 2012, the UK had only convicted 2 companies and 3 individuals for foreign bribery (the OECD does not appear to count the various civil settlements that were pursued under Richard Alderman’s leadership of the SFO, including his settlement in 2010 with BAE for false accounting). Between 2012 and 2017, in contrast and mainly under David Green’s directorship, the UK convicted 6 companies and 10 individuals for foreign bribery.

 

By comparison, the OECD found that the National Crime Agency, under whose ‘direction’ it is rumoured Theresa May would like to see the SFO, has no dedicated foreign bribery investigators in its International Corruption Unit, and only one ongoing investigation into money laundering (which has possible foreign bribery implications). Additionally, its funding model restricts its anti-corruption work to developing countries where the Department for International Development (DFID) has a programme.

 

The OECD was not uncritical of the SFO. It characterised increased enforcement rates and 26 ongoing investigations as “solid progress” but noted that the number of cases relative to the size of the UK economy “remains low.” It stated that the SFO could “achieve more in terms of foreign bribery investigations and prosecutions” and queried why “foreign bribery allegations are not always picked up in due time.”

 

However, the OECD urged the UK to:

1. Clarify the SFO’s role in fighting bribery in the new Memorandum of Understanding being drawn up between enforcement agencies and in the forthcoming Anti-Corruption strategy;

2. Ensure that the SFO’s core budget is sufficient (as well as providing adequate resources and training for the NCA’s International Corruption Unit); and

3. Ensure the independence of the SFO from political interference, calling for “visible and demonstrable independence from government: traditional operational independence may not be enough.” In this context, the OECD raised concerns about the SFO’s blockbuster funding model, the ability of the Attorney General to terminate the Director of the SFO’s appointment, and the fact that Article 5 of the Convention which prohibits considerations of national economic interest and relations with other states is still not “clearly binding” on investigators and prosecutors.

 

The SFO wasn’t the only concern of the OECD however. There were several further areas it regarded as critical to the improvement of the UK’s response to bribery.

 

Matters of priority: bribes still effectively tax deductible and Overseas Territories and Crown Dependencies

 

The OECD identified two particular issues which it regarded as a “matter of priority.” These were:

 

1. The role of HMRC in detecting bribery and ensuring that bribes are not tax deductible

 

The OECD expressed concerns that foreign bribes remain in effect tax deductible in the UK due to inaction by the HMRC. The HMRC came in for particularly heavy criticism for failing to re-assess tax returns of taxpayers convicted of bribery. The OECD urged HMRC should “as a matter of priority” engage in “a more proactive approach” in enforcing the Convention’s requirement that bribes should not be tax-deductible. It urged HMRC to collect information systematically on how it implements this. The OECD also raised concerns that HMRC had not detected any foreign bribery cases since the Convention was signed by the UK, and called for “immediate action” to ensure HMRC can provide information and report suspicions of bribery to the SFO.

 

2. Overseas Territories and Crown Dependencies

 

The OECD was particularly critical of the fact that the UK has taken no action to ensure that the UK has jurisdiction over companies as well as individuals in the Crown Dependencies (CDs) and Overseas Territories (OTs) under the Bribery Act. While natural citizens in the CDs and OTs are subject to UK jurisdiction, legal persons are not.  The UK has ruled out doing anything about this, on the basis that it would raise ‘constitutional issues’. But the OECD found that there “is no legal impediment” to extend jurisdiction to legal persons and that this has been done in other areas such as anti-terrorism.  It considered that this should be done “as a matter of priority.

 

The OECD welcomed the fact that the CDs and several OTs (including BVI, Cayman Islands and Gibraltar) participated actively in the OECD review this time, unlike in previous years. It noted that the UK was under-utilising its historical inks to CDs and OTs to get information relating to foreign bribery, particularly as they “represent a great potential for detection”, and it urged the UK to make better use of these links to detect bribery. The OECD recommended that UK ensure that CDs and OTs have appropriate resources, training and expertise to investigation and prosecute foreign bribery. And it said it would follow up on beneficial ownership registers in the OTs.

 

The other weak spots: UK’s anti-money laundering regime, Scotland, UKEF and procurement

 

Additionally, the OECD identified several other areas of weakness. These were:

 

1. The UK’s Anti-Money Laundering regime

 

The OECD found that between 2015-2016, the Financial Intelligence Unit (UKFIU) referred 130 bribery-specific Suspicious Activity Reports (SARs) to the NCA’s International Corruption Unit. They were not able to get information on how many of these were forwarded to the SFO. However, they noted that there was no record of an SFO foreign bribery investigation being generated by the UKFIU. The OECD noted that “the absence of detection of foreign bribery cases by the UKFIU is a source of great concern” and that this demonstrated the “lack of effectiveness” of the suspicious activity reporting regime. It recommended that the UK “adopt further reform of the UKFIU and the reporting regime.”

 

2. UK Export Finance (UKEF)

 

Looking at the role of government departments in detecting bribery, the OECD found that since 2013 the SFO has received 30 reports of bribery and corruption from government agencies, 75% of which came from the Foreign and Commonwealth Office (FCO). While it was critical of the HMRC and the UKFIU for not detecting any foreign bribery, it also noted that another government department UKEF had never detected a foreign bribery case “despite advanced disclosure requirements” (including of agents and commission payments) on companies seeking its support. The OECD questioned how effective UKEF anti-corruption policies are in practice and recommended that UKEF “undertake a comprehensive review” of its policies. It also recommended that UKEF take “a firmer stance” against exporters engaging in corruption.

 

3. Scotland

 

The OECD noted that Scotland’s framework and practices for dealing with foreign bribery should be brought into line with England and Wales. The report observed that Scotland has several industries that operate in industrial sectors prone to corruption, including oil, gas and mining. It is also home to the controversial Limited Partnerships which are “vulnerable to misuse as a vehicle for money laundering and corruption.”  However, Scotland has never used criminal liability against companies for foreign bribery choosing instead to use civil settlements. The OECD recommended that Scotland use “considerable caution” in using such settlements, and consider adopting Deferred Prosecution Agreements instead. It also called for greater coordination between Scottish and English enforcement authorities.

 

4. Procurement

 

The OECD observed that the UK had still not implemented previous recommendations that contracting authorities should be able to easily access information on companies sanctioned for foreign bribery, such as through the creation of a national register. The UK is currently undertaking a pilot programme of engaging in proactive criminal records checks on the Policy National Computer for companies bidding for public contracts. The OECD did not however register concerns that civil society expressed that corporate convictions are not automatically entered into the Police National Computer. It did recommend that the UK needs to provide further training and guidance to procurement officials on excluding companies particularly with regard to section 7 of the Bribery Act.

 

Other bits and bobs requiring attention: Whistleblowing, Mutual Legal Assistance, and SMEs

 

1. Whistleblowing

 

The OECD called on the UK to evaluate implementation of whistleblowing provisions with a view to amending and improving them, in light of “inefficiencies” in the Public Interest Disclosure Act (PIDA) and for law enforcement to “raise public awareness of whistleblower reports and their usefulness… with a view to bolstering confidence of potential whistleblowers in the value of their report.”

 

2. Mutual Legal Assistance (MLA):

 

The OECD found that the SFO had made 70 requests to other countries under mutual legal assistance relating to foreign bribery between 2014 and 2016. It also found that between 2013 and 2015 the UK received 105 MLA requests from other countries relating to bribery, of which it accepted 92, and rejected 13. Interestingly the OECD consulted other working group member countries on their experience of UK international cooperation. Two of the ten countries that responded raised concerns about the length of time it took for the UK to respond and the level of proof required.

 

The OECD found it was hard to assess the UK because of lack of information, and recommended that the UK improve tools to measure performance particularly with regard to timelines for executing MLA requests. It also found that it was hard to get comprehensive information on the ability of CDs and OTs to provide MLA on bribery cases to the UK. It recommended that the UK conduct a review of the ability of CDs and OTs to respond to MLA requests, and to compile relevant statistics.

 

3. SMEs

 

The OECD expressed concern that “SMEs are being left behind” in terms of adopting corporate compliance measures to prevent bribery and recommended further awareness-raising. It also said it would keep an eye on whether SMEs are more prone to being prosecuted than large companies.

 

Concluding thoughts

 

The OECD reviews of whether countries are implementing the OECD Anti-Bribery Convention remain some of the most detailed and vigorous reviews on the international stage. The government is required to account for why it hasn’t implemented recommendations at quarterly meetings before other member states at the OECD headquarters in Paris. The UK would do well to take real heed of the OECD’s recommendations and ensure that it responds promptly.

 

There is also no doubt that the SFO is critical to the success of the UK in fighting corruption. Any attempt to restructure it into the NCA, or bring it under ministerial control is going to cause not only serious condemnation at the OECD, but result in charges of vandalism from the legal community. The government should tread carefully.