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NOV
18

8 Out of 10 UK Managers Operating Overseas Forced to use Bribery

A 12-year study has found that over 85% of UK managers operating abroad in emerging markets are involved with bribery on a monthly basis.

The study, carried out by Henley Business School, also found that 80% of board level executives are aware of the practice, but that very little can be done to stop it. The inquiry was carried out over a 12 year period, beginning in 2004, and is based on private “intimate” conversations with the executives, ranging from general managers to chief executives, of more than 1000 businesses operating internationally, of which more than 10% were UK based.

Struggling to Combat Bribery

According to Andrew Kakabadse, professor of governance and leadership at Henley Business School, the report originally began as an exercise to help coach and support high-level business individuals struggling with aspects of their employment. “However,” he added, “it quickly became apparent that a key obstacle was dealing with everyday fraud, bribery and corruption.”

The study has drawn from research in Australia, Belgium, China, Finland, Georgia, Germany, India, Ireland, Nigeria, Pakistan, Russia, Saudi Arabia, South Africa, and Sweden. It also found that bribery was costing the organisations in question some 5% of their annual revenue on average.

The report noted that bribery was so institutionalised in some markets that it had been informed of instances where agents would try and ‘out-bid’ each other by asking for lower bribes – usually a percentage of the contract’s value and often up to 10% – to ensure a company would engage them over competitors.

Mr Kakabadse stated that while the stiff penalties contained in laws like the UK’s Bribery Act and the US’s Foreign Corrupt Practices Act “bring fear to boards”, they have also created a class of “fall guys”.

“Many boards are following the act but know bribery is a fact of life lower down the company, the people on the ground,” he added. “It is the managing directors and general managers in country… who are being forced to give bribes to win business. These are good people being forced to do bad things. Boards are doing worse than paying lip service to anti-corruption laws because they are using them to protect themselves while they know bribery is going on.”

The study found no specific sector or area which was particularly susceptible or likely to indulge in bribery and Mr Kakabadse expressed surprise that only 85% of managers had admitted to using bribes. These findings stand in sharp contrast to PwC’s recent global economic crime survey which found that 18% of senior management was involved in crime, including accounting fraud, while 80% of senior executives admitted to having seen such corrupt practices.

Mr Kakabadse reported that many of the managers in question felt that bribery was the only option if they wished to remain competitive in these emerging markets, with the only other option being to withdraw from the market completely. In other words, “if they didn’t pay-up to achieve their organisation’s objectives, then their competitors certainly would.” Working in foreign markets naturally means adopting local practices, and when that country or market is deeply corrupt, the only alternative to corrupt business is no business. It is therefore somewhat unsurprising that many companies have chosen to turn a blind eye, giving tacit permission to their subordinates. Commenting on the report, Michael Littlechild, director of GoodCorporation, the anti-corruption and business ethics advisor, observed that it starkly illuminates the difficulties faced by companies operating in emerging markets. He added: “Many large international organisations give explicit instructions to staff to refuse bribes and some have pulled out of countries where the risk is too great (…) Those that have ignored the law have faced huge fines.”

Severe Penalties

If any of these “fall guys” or the companies who employ them are found guilty of an offence under the Bribery Act 2010 the consequences can be severe. Section 11 of the Act provides for a potentially unlimited fine and up to ten year’s imprisonment for individuals found guilty of serious bribery offences and a similarly unlimited fine for any company or partnership who fail to prevent such bribery from happening.

A criminal conviction also triggers the power to impose a confiscation order under the Proceeds of Crime Act 2002. This order will almost always be applied for after a conviction unless there are compelling reasons not to do so. It is designed to prevent offenders from benefitting from the crime they have committed and forces those convicted of an offence to pay a sum of money equal to the ‘benefit’ they received as a result of the bribe.

If the defendant cannot be brought to trial, has been acquitted, or where there is insufficient evidence to obtain a criminal conviction, a Civil Recovery Order can be applied for. Being a civil claim, the agency bringing the claim (for bribery the Serious Fraud Office) need only establish criminal activity and that the funds it is seeking to recover are the proceeds of that crime. This is a lower standard of proof than in a criminal case. There are clear advantages to using this procedure for both parties as, if they settle (which they typically do), the resulting settlement will be confidential and will not result in a criminal conviction.

It seems likely that the companies in question see the possibility of such measures as par for the course and a worthy price to pay for the opportunity of working in these emerging markets. It also seems to demonstrate an almost foolhardy faith in not getting caught, or in being able to lay the blame squarely at the door of a subordinate and walk away scot free.

Lewis Nedas Financial Crime Lawyers, London

Lewis Nedas Law are London-based solicitors, frequently rated in both Chambers UK and The Legal 500. With over 30 years’ experience as specialist solicitors in central London, UK, we can help you or your business today. on 020 7387 2032 Please contact Jeffrey Lewis or Siobhain Egan on 020 7387 2032 or contact us online.

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AUG
11

UK Sets Up Specialist Anti-Corruption Unit

briberyThe International Development Secretary announced the formation of a specialist unit, the International Corruption Unit (ICU), to deal with this important area of corporate criminal offending.

The unit will draw on the resources from agencies including the Metropolitan Police, City of London Police, and the National Crime Agency. The ICU will be operated by the NCA and, according to the Government, will be “the central point for investigating international corruption in the UK”. It does not say that the unit will be given any additional funding, and it is not immediately clear where the SFO, who have been investigating and prosecuting bribery and corruption to date, will stand as far as this new unit is concerned.

The UK has a poor record in this field, despite the recent focus by the SFO, and with the prospect of a FATF audit looming in spring 2016 something has to be seen to be done.

What is of immediate interest is that this new unit brings back the ownership of these investigations and prosecutions to the Police and the NCA, reaffirming that these offences are criminal offences and not a ‘spinoff’ from civil litigation, which is how most City law practices view this area when advising their corporate clients. The emphasis on criminal investigations is exactly what David Green QC, head of the SFO, has been saying all along.

The Police will use established investigative methods; City of London Police have had a very effective specialist overseas corruption unit in place for a number of years, and the NCA relies primarily upon intelligence gathering, e.g. probe evidence and tapped phones and computers. This will bring into focus criminal disclosure, privilege, conflict issues, criminal interviews by experienced police officers under caution, search and seizure, etc.

The NCA’s approach is aggressive and they have encountered serious recent criticism from senior judiciary concerning their approach to warrants and disclosure, amongst other issues.

The Government press release states that the Department of International Development has “Since 2006 … investigated more than 150 cases of overseas bribery and recovered £200 million of stolen assets as well as successfully prosecuting 27 individuals and one company.” It is difficult to see how that record can be improved upon without any additional funding.

Contact Lewis Nedas Expert Lawyers

Should you or your company find itself the subject of such a bribery and corruption investigation by the ICU or the NCA, you will need to instruct specialist criminal lawyers with extensive, proven experience of successfully defending these investigations/prosecutions, for the reasons alluded to earlier in this piece. Find out more here or contact our specialist lawyers on 0207 387 2032 or complete our online enquiry form here.

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JUL
10

Regulating Corrupt Practices in the UK

costs and damages cases ukThe Guardian recently reported (here) that during the G7 Summit in Germany last month, David Cameron warned that the Fifa scandal highlighted a need for a more concerted effort from world leaders to combat corruption. The prime minister is reported to have been highly critical of the reluctance on the part of many to identify corrupt organisations, noting that: “just as with Fifa, we know the problem is there, but there is something of an international taboo over pointing the finger and stirring up concerns”.

While allegations of corruption often feature on the pages of tabloids, the UK’s framework for combatting corruption is not particularly well understood. In this blog post, the team at Lewis Nedas give an overview of the legislation designed to combat corrupt practices in the UK.

What are ‘corrupt practices’?

The term ‘corrupt practices’ tends to cover a range of activities that are deemed illegal under UK law, including:

Money Laundering

This is where there has been an exchange of money that is the result of illegal activities. These ‘proceeds of crime’ are then exchanged for money that is not tainted by criminal activities.

Bribery

Bribery relates to the providing (and receipt) of an advantage or benefit (either monetary or otherwise), so to entice someone not to fulfil his or her duties as would be expected. The offence of bribery also includes the payment (and receipt) of money or some other kind of payment, to condone questionable or improper conduct.

Fraud

The offence of fraud is multifaceted. It covers a variety of activities including: representing to someone that something known to be false is true; failing to disclose information that someone owes a duty to disclose; and, abusing a position which someone is expected to protect.

How are corrupt practices regulated in the UK?

The different offences listed above are heavily governed by statute. Listed below are the important statutes that deal with each offence and who they apply to.

Money laundering

The rules concerning money laundering are contained within the Money Laundering Regulations 2007.

The Money Laundering Regulations 2007 apply to a variety of organisations, based on their being part of a particular business sector. Under the 2007 Regulations, the following organisations are required to observe their terms: money service businesses – businesses that exchange any currency, transmit money from one place to another or cash cheques; high value dealer – businesses that accept cash payments of €15,000 euros or more in exchange for goods; trust or company service providers – a firm of or individual practitioner(s) who are engaged in, amongst other things, the creation of legal entities, arranging for people to act as a director or secretary of a company or a partner for legal entities, and providing a registered office or business address for an organisation; accountancy service providers – auditors that carry out statutory auditory work, and accountants and tax advisors that provider advice to clients; and estate agency businesses – organisations that are involved in the buying and selling of residential or commercial property for and to customers.

In order to comply with the Money Laundering Regulations, an organisations must design and implement certain procedures to establish an individual’s identity; be aware of where their money is going to and coming from; and keeping individuals activities under constant review in terms of the risk of your business becoming implicated in money laundering.

HM Revenue and Customs (HMRC) is the organisation that has responsibility for ensuring that organisations observe their responsibilities under the 2007 Regulations. Where there is a failure to comply, HMRC is empowered to issue a financial penalty or in more serious cases, pursue criminal prosecutions.

Bribery

The Bribery Act 2010 is the governing piece of legislation in the context of the offence of bribery.

The legislation applies to both organisations and individuals (including the employees of an organisation) and requires that they actively avoid becoming implicated or involved in bribery. It is not uncommon that different parts of the world handle the practice of bribery differently. However, the fact that bribery is deemed illegal in the UK will have dire consequences for UK-based organisations found to have engaged in bribery elsewhere. In order to avoid becoming embroiled into allegations of bribery, organisations are charged with implementing processes and procedures that will guard against, and identify risks of, bribery occurring at the earliest opportunity. In most cases this will come in the form of an ‘anti-bribery’ policy which should outline, amongst other things:

  • The organisation’s position on accepting gifts and corporate hospitality;
  • The approach the organisation takes to reducing risks of bribery; and
  • The rules that should be followed when engaging in business affairs e.g. negotiating contracts.

The responsibility for policing bribery, and enforcing the Bribery Act lies with a host of regulatory agencies. One of the most important of these is the Serious Fraud Office (SFO), which tends to work with other bodies in government and the police to monitor compliance with anti-bribery legislation.

Where there is evidence that bribery has occurred, the consequences for those involved can be severe. In the case of individuals implicated in bribery, there is a penalty of up to 10 years imprisonment alongside an unlimited fine. For companies that are found to have been involved in bribery, there is also an unlimited fine.

Fraud

The crux of the Fraud Act 2006 is to dissuade anyone – either a corporate entity or an individual – from engaging in fraudulent activity. Policing against fraudulent activity is complicated, and tends to involve a number of organisations. In the UK, considering that fraud often tends to involve some kind of financial element, where organisations are regulated by the Financial Conduct Authority (FCA), so too will it investigate their suspected involvement in fraud. It is empowered to fine and issue sanctions against organisations found to have been involved in fraud and, for failing to prevent it from occurring.

Penalties for involvement in fraud will depend on the circumstances. Where an individual is found to have been involved in fraud, the maximum penalty is up to ten years imprisonment. It will also be open to the courts to issue an unlimited fine, if it deems it necessary. Organisations that are found to have been involved in fraud will also likely be issued with an unlimited fine.

Corrupt Practices in the UK

The law in the UK governing corrupt practices is highly sophisticated and difficult to understand. If you are concerned that you or your organisation have been implicated in any of the activities mentioned above, it is important that you take specialist legal advice at the earliest opportunity. Suspected corruption – however defined – can be disastrous for both individuals and organisations in terms of their reputation and prospects for future success.

Contact Lewis Nedas Solicitors in London

At Lewis Nedas, we are experts in dealing with allegations concerning corrupt practices. Our specialist lawyers are routinely sought for their knowledge of the law governing corporate crime, financial crime and fraud. We understand that being faced with allegations of corruption can be an incredibly damaging experience, and that they must be handled delicately by experienced professional advisors. If you need detailed, practical legal advice on how to deal with allegations of being involved in bribery, fraud or money laundering, contact the team at Lewis Nedas now.

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JAN
30

Congratulations to Bill Browder, Author of Red Notice

red noticeMany congratulations to our friend Bill Browder, Human Rights Activist, who has published his first book "Red Notice - How I Became Putin's No. 1 Enemy". The book details Bill's tireless campaign to bring to justice to those responsible for the murder of his lawyer, Sergei Magnitsky, and to expose widespread corruption in Russia. It details how he managed to persuade US legislators to pass the Sergei Magnitsky Rule of Law Accountability Act 2012, which has imposed visa bans and asset freezes on individuals believed to have been involved in the lawyer's death.

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SEP
15

Latest Instructions for Criminal Department

  • lawJeffrey Lewis is instructed in a complex commercial fraud matter.
  • Jeffrey Lewis and Rhys Mardon are instructed in a VAT fraud involving well known fashion retailer.
  • Keith Wood has been instructed in high profile bribery and corruption prosecution.
  • Tony Meisels is instructed in another historic sex abuse prosecution.
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