18 March 2011
All the companies featured in this section have been hit with hefty fines by regulators on both sides of the Atlantic, but there is another thing that unites them: all have overhauled their legal and compliance functions in recent years
This has largely been a response to the ever-expanding framework of international anti-corruption legislation, the latest example being the UK’s Bribery Act. The UK has long been criticised for being too soft on corruption. In 2008 a working party from the Organisation for Economic Cooperation and Development (OECD) said it was “disappointed and seriously concerned about the UK’s continued failure to address deficiencies in its laws on bribery of foreign public officials and on corporate liability for foreign bribery”.
The UK has responded in some style. Commentators all believe the Bribery Act goes much further than its US equivalent, the Foreign Corrupt Practices Act (FCPA), previously considered one of the most stringent pieces of anti-corruption legislation in the world.
The Bribery Act, for example, applies to both public and private sector corruption, unlike the FCPA. And the offence of failing to prevent corruption will make companies criminally liable for the acts of third parties including employees and joint ventures (JVs), again unlike the FCPA.
Three of the companies profiled here - BAE Systems, Novartis and Shell - have been exposed to the FCPA for years. As such, they already have many of the ’adequate procedures’ required by the Bribery Act in place. Often, this has come in response to Government investigations. In October 2010, for example, Shell paid $10m (£6.3m) in fines in relation to allegations of bribes paid on its behalf by a freight forwarding company to Nigerian government officials, in a case brought under the FCPA.
The Bribery Act will be even stricter in relation to third parties. This is one of the reasons why the company is now scrutinising not only its own panel firms but also any law firm advising third parties involved in JVs, as well as any non-panel law firms it uses.
BAE has also fallen foul of the FCPA. In February 2010 it paid $450m after pleading guilty to producing false statements and accounting practices relating to deals with Saudi Arabia and Tanzania.
As part of its settlement with the US Department of Justice (DoJ), former Herbert Smith senior partner David Gold was brought in as the company’s independent corporate monitor and tasked with overseeing its agreement with the DoJ. But, as Gold himself points out, much of the work was done well before his arrival, thanks to the company’s general counsel Philip Bramwell.
US corruption legislation goes far beyond the FCPA. In October 2010 pharmaceuticals company Novartis was fined $422.5m to settle charges brought by the DoJ under the False Claims Act, relating to the unlawful use of ’off-label’ marketing. The allegations date back more than 10 years and the company’s general counsel and executive committee member Thomas Werlen has since developed one of the most sophisticated whistleblowing set-ups in the industry, extending well beyond financial fraud to encompass all areas of corruption.
Balfour Beatty is another company that has overhauled its whistleblowing procedures. General counsel Chris Vaughan explains how he set up an independent hotline three years ago as part of a wider review of the company’s anti-corruption measures, following a Serious Fraud Office (SFO) investigation in 2008.
It is reasonable to expect more of this kind of action from the SFO. Since the appointment of director Richard Alderman in April 2008 the watchdog has taken an increasingly aggressive stance, and in the case of Balfour Beatty a corporate monitor was also appointed - the Global Infrastructure Anti-Corruption Centre. This was another sign of the increasingly US-style approach taken by the SFO, and explains why many of the companies that have already been exposed to the FCPA are better placed to cope with the demands of the Bribery Act than their UK counterparts.