Panel Discussion Report Event: Anti-corruption: Recovering Proceeds of Corruption & Dealing with Government Contracts Procured by Bribes Nina Levarska London Centre of International Law Practice (LCILP) Other Publications, 003/2015 Date: 27/01/2015 This paper is downloadable at: http://www.lcilp.org/other-publications/ Nina Levarska. All LCILP publications are for non-commercial research use only. Distribution of publications from our website for material interest, profit-making and or commercial gain is strictly forbidden.
Anti-corruption: Recovering Proceeds of Corruption & Dealing with Government Contracts Procured by Bribes Nina Levarska 1 Brief intro to event On the occasion of United Nations declared International Anti-Corruption Day, the London Centre of International Law Practice (LCILP) together with Edwards Wildman Palmer LLP hosted a panel discussion on Recovering the Proceeds of Corruption and Dealing with Government Contracts Procured by Bribes. The event took place on 9 December, 2014, at the International Institute of Strategic Studies (IISS) in London. The speakers on the panel were representatives from academia, NGOs and law firms. The panel discussion was divided into three sessions. Nagi Idris and Tim Daniel opened the panel discussion by introducing the London Centre of International Law Practice and by mentioning some anti-corruption cases. One of the cases Tim Daniel talked about was Abacha case that involved recouping the assets of a deceased Nigerian dictator. Session 1 The first panel opened with a close examination of the United Kingdom Bribery Act 2010 ( UK Bribery Act ). The speakers on the panel were Peter Alldridge (Professor of Law at Queen Mary, University of London and Former Specialist Advisor to Joint Parliamentary Committees on draft Corruption Bill (2003) & draft Bribery Bill (2009)) and Nick Maxwell (Transparency UK s Research Manager). The session was moderated by James Maton (Partner at Edwards Wildman and the Head of Asset Recovery). In the end of the session, Comments & Perspectives on the discussed issues were provided by Sabah Al Mukthar (Director at Arab Lawyers Association). Commencing the discussion, Nick Maxwell, briefly explained the global structure of Transparency International. He mentioned that working at the UK division is 1 Nina Levarska is Research Coordinator-International Human Rights and Criminal Justice at the London Centre of International Law Practice (LCILP). 2
particularly interesting due to heavy flow of money in and out of the United Kingdom, which makes the UK an ideal test case for an examination of anti-bribery laws. Additionally, the nation is a hotspot for public relations laundering (i.e. the use of public relations specialists to cover-up the illegal conduct of their client companies). Nick Maxwell believes that while in the past anti-bribery law has been an incongruous patchwork, over the last 20 years, public awareness and better legislation have resulted in a UK Bribery Act that is stronger than ever before. Since the adoption of the UN Convention against Corruption, anti-corruption commitment has increased throughout various jurisdictions. Nonetheless, bribery is a unique offence due to the fact that the law is often very strong on paper, but there is lack of enforcement in practice. Regarding the offences that took place before 2011, when the UK Bribery Act was adopted, antiquated pieces of legislation were adhered to, such as the Public Bodies Corrupt Practices Act 1889 or Prevention of Corruption Act of 1906 and 1916. However, the UK Bribery Act is not the only anti-corruption guarantee as Transparency International has found 32 different pieces of legislation and over 160 offences. In addition, there are 54 different specialist and enforcement agencies that in some way play a role in anti-corruption enforcement. The UK Bribery Act covers both active and passive bribery in Sections 1 and 2. While active bribery involves promise to give the bribe, passive bribery means requesting or receiving the bribe. Section 6 effectively implements the UN Convention against Corruption and makes it an offence to bribe a foreign public official. Section 7 is dedicated to corporations that fail to prevent bribery within themselves. The Act itself does not effectively distinguish between the public and private spheres of operation, however, the existence of the divide between the public and private spheres is explained in the guidance that relates to the Act. The UK Bribery Act is applicable in four wide-ranging contexts: any function of a public nature, any conduct connected with business, any activity performed in the course of persons employment, and any activity formed by or on behalf of a body of persons. Distinction between public and private offences is only provided under Section 6. It is important to note that there is a notion of extraterritoriality, which gives the UK legislation power that extends beyond the UK territory. While there is a stipulation for the persons or entities against whom allegations are brought to be connected to the United Kingdom, this is not so narrowly construed as to require physical presence in the country. This means that a very broad range of organisations and individuals can be liable under the UK Bribery Act without being aware of it. 3
Further, the UK Bribery Act also accounts for the potential of bribery through gifts or excessive hospitality under Sections 6 and 7. The applicability of the Act is, however, guided by the principles for application of the UK Bribery Act and proportionality issued by the Ministry of Justice. Moreover, under Section 14, senior officers or a corporate body can be prosecuted as a legal person and the Section 1 and 2 offences can be applied in such cases. A somewhat more controversial element, which often divides practitioners on the continent from those in the UK, is the deferral option contained within Section 7, providing for the possibility of postponing prosecution, subject to the company agreeing to certain terms of action. In its breadth of coverage, the UK Bribery Act also spans issues of money laundering, proceeds of crime, and disqualification of directors. Moreover, the UK Bribery Act succeeded in getting various companies to implement a sophisticated monitoring system, which enables them to prevent corruption within themselves. While the Act is widely perceived as a sufficient guarantee of protection against instances of bribery, Nick Maxwell acknowledged that it had its limitations. An example of a limitation is the lack of any major prosecutions against corporations to date, which has seen severe criticism levelled against the Serious Fraud Office ( SFO ). On one hand, the time consuming nature of evidence and intelligence building activities explain the years it takes to build and bring a prosecution case. Nick pointed out that the UK Bribery Act is often compared to the American Foreign Corrupt Practices Act ( FCPA ) of 1977, under which there is a large number of prosecutions nowadays. FCPA is, however, much older than the UK Bribery Act and since it takes years to build anti-corruption cases, the UK Bribery Act cannot be expected to trigger any major prosecutions 3 years after its adoption. In addition, the work of the SFO has also been severely constrained by a reduction in its budget and due to the funding required to keep up with the increasing crime rates. Needless to say, this often involves political interference with all the bureaucracy that it entails. James Maton commented on Nick Maxwell s presentation by saying that while the UK Bribery Act seems to be a gold standard of anti-bribery legislation, there is a lack of enforcement activity at the moment. Nevertheless, the Act is a very recent piece of legislation and we will be able to judge its success in the next five years. He said that the fact that companies put a compliance system in place to eradicate corruption from their corporate activities is a significant success. Responding to Nick s summary of the UK Bribery Act, Peter Alldridge commenced with a clarification of central themes and concepts, stressing the distinction between corruption and bribery. He explained that while all forms of bribery are corruption, cases of 4
corruption are not limited to bribery alone. He also raised the question of what exactly bribery is as it is disputable whether giving the bribe itself is wrong or if giving the evidence of bribery is the problem. Moreover, he mentioned several limitations of the Act. Firstly, issues such as nepotism, which is dealt with under the United States law, and asynchronous exchanges, defined as favours granted in anticipation of future pay-back, or an unsolicited favour, are not yet covered by English law. Peter Alldridge explained that the reason why it is difficult to convict corporations of bribery is that the Section 7 of the UK Bribery Act only causes them to implement antibribery compliance policy, which might not be followed in practice. Moreover, he said that the availability of deferred prosecution agreements does not make any difference because since it is difficult to convict companies of bribery, there is no plausible threat of conviction and therefore, there is no need to enter into such an agreement. To improve the situation, UK corporate criminal liability law needs to be changed. Although adopting the US criminal corporate liability model would be a step forward, such modification of the law would not be able to solve all the current problems. Furthermore, while there have been some relatively insignificant offences charged as bribery, some other offences that were charged as bribery were wrongly classified. The best example of such an offence is sport fixing, which should be charged as a betting scam or conspiring to commit fraud. He mentioned a cricket case, where there was an element of being disloyal to the employer. However, disloyalty means a breach of employment contract and is not a matter of criminal law. Nonetheless, there have been some positive changes made in terms of economics of bribery since the 70s. They were made in response to the economic rise in countries such as China, the influence of OECD and the creation of the UN Convention against Corruption. Moreover, corporations nowadays deal with bribery as a part of their CSR and the regulatory actions have increased. Apart from the UK Bribery Act, there are other means of combating bribery, such as regulation, more rigorous corporate accounting standards, as part of their CSR, and civil actions by victims and under the Proceeds of Crime Act. According to Professor Alldridge, there is too much focus on tackling money-laundering, which is simply a manifestation of the wider theme of corruption. As a result, not enough attention is paid to understanding and developing mechanisms against the root causes of corruption. Peter Alldridge also pointed out that the Financial Conduct Authority is more effective than the SFO. Therefore, the future of the SFO should be rethought. Either the SFO 5
should become properly resourced and focused, with some principles and institutional culture, or it should be replaced by an economic crime agency with better enforcement powers. Peter Alldridge closed his presentation by saying that unless there is properly focused and resourced enforcement, the UK Bribery Act cannot succeed. James Maton added that in the US, the enforcement of the FCPA has led to many settlements. Moreover, the statements of fact are published on the FCPA website. The asset recovery in the US is simple due to the existence of such material and because of the public acceptance of the crime of corruption. At the end of the session, Sabah Al Mukthar commented on the panel discussion by saying, amongst other things, that the biggest problem is the abuse of the system. For instance, in the case of embezzlement by nation leaders, recovery is often not assisted. He agreed that in corruption, there are many ways the goal can be achieved. He gave an example of funding the election campaign of a president without requesting anything in return, even though there is no doubt that pay-back is expected in the future. In relation to the discussion about the past developments, he mentioned that while there were only 7 bribery cases investigated between 2001 and 2010, in 2011, 15 cases of bribery were investigated. Session 2 The second session dealt with mutual legal assistance in corruption cases and the question of where the money raised from bribery convictions goes. The speakers on the panel were Huw Shepheard (Barrister at Malins Chamber and former Attorney General of the Turks and Caicos Islands) and Tim Daniel (Senior Partner at Edwards Wildman). The panel discussion was moderated by Arvinder Sambei (Joint Head, International Human Rights & Criminal Justice at the London Centre of International Law Practice & Director at Sambei Polaine). Arvinder Sambei started the session by introducing the speakers and making the point that the transnational nature of anti-corruption and asset recovery is underpinned by the international cooperation and mutual legal assistance efforts. She also pointed out that this area is least understood by the practitioners on the ground and frustrating for the countries aiming to obtain evidence, recover or freeze assets. After the introductory speech, Tim Daniel started his presentation by addressing the major question of where the money raised from bribery convictions ends up as it does not benefit the victim of the bribe. Therefore, it seems that it is treasurers of the country that 6
benefit. He said that there are discussions in the US that might lead to introducing a methodology of returning money raised from fines to victims of bribery. 003/2015 According to the judgment in one case, which had proceedings in Switzerland, the money (half a billion dollars) was supposed to be returned to Nigeria. The question was whom specifically the money was supposed to be returned to. Since it was risky to give it to the government, World Bank was appointed as a trustee to oversee the return of the moneys. World Bank produced a report to demonstrate that the money was used for proper purposes. However, it is questionable whether World Bank s report can be trusted. Tim Daniel continued by explaining the difference between addressing bribery under civil law and addressing it under criminal law. The civil law definition of bribery differs from the criminal test as it stresses the element of secrecy rather than dishonesty ( A commission or other inducement given by a third party to an agent,which is secret from his principal ) 2. He gave an example of a case, in which the wrongdoer did not disclose the fact that he charged commission for his services and therefore, the court held that he was not entitled to it. Under civil law, dishonesty is not required and proving undisclosed benefit is sufficient. He also mentioned that in Switzerland, the burden of proof is on the defendants to prove that they acquired their monies legitimately. For instance, in Abacha case, in order to achieve this, Abacha family was declared a criminal enterprise. After this was established, the burden of proof shifted to Abacha family to prove that they obtained the money innocently. As far as states are concerned, the vice of secrecy causes that the bribery is not a problematic issue as long as it is declared because the state is entitled to expect loyalty and no conflicts of interests. In this respect Tim Daniel mentioned a case that concerned a contract between BAE systems and the government of Saudi Arabia, where a member of the royal family was enriching himself and others without dealing straightforwardly with BAE Systems or the government of Saudi Arabia. Another case described a scenario where the government of Kenya entered into a number of contracts for goods that did not exist or were substandard. The question in such cases often arises as to whom the claim should be made against (e.g. supplier of the goods, the recipient or the briber). 2 Anangel Atlas Compania Naviera SA -v- Ishikawajima-Harima Heavy Industries Co Ltd, [1990] 1 Lloyd's Reports 167, at 171. 7
When a state wants to end a contract that is procured by bribery, it can rescind or terminate the contract. Under the former option, the state has to return, or give credit for, the benefits that it has received under the contract. If the contract is terminated, the return of benefits is not required. Governments addressing widespread corruption can decide to continue the contracts in cases where the bribing company refrains from its wrongful conduct. This can happen in the case that ending the contract would cause inconveniences or when the wrongdoing was carried out by particular employees of an otherwise respectable company. Tim Daniel finished his speech by highlighting that the money which is lost is the money bribes have to be paid for and generally spending it means that the price is going to be inflated to cover the cost of the bribe. After Tim Daniel s presentation, Huw Shepheard commenced his speech on the concept of mutual legal assistance in anti-corruption cases. The reason behind the need of mutual legal assistance in such cases is that it is very likely that a person, who has accepted a bribe, hides the money in a foreign country (possibly in an offshore financial centre). In such a case, it is vital that the prosecutor receives relevant information from the country, in which the money is hidden. However, it might be problematic to make the request to the foreign country directly. It is advisable that a specific link to the foreign country is made prior to making a formal request for mutual legal assistance. There are three different bases on which the formal request can be made. The first option is to make the request on the basis of a treaty or a multilateral agreement. This mechanism allows the competent authority in one country to contact a competent authority in another country in order to obtain the information. Moreover, the requested country is obliged under the treaty to perform certain activities. General laws of the country that is requested to assist play an important role. In this respect, UK laws are quite flexible. Crime (International Cooperation) Act 2003, which to some extent superseded Criminal Justice Cooperation Act 1990, enables British investigators to effectively conduct investigation on behalf of the country that is requesting the information. It is important that the requesting party specifies in what form it wants to receive the information. In case there is no treaty in place, it can be adhered to the laws of the country in question. In the case of the UK, the Crime (International Cooperation) Act 2003 lays down a wide range of possibilities. While the standard of the UK laws of mutual legal assistance is high, the British overseas centres might not be as flexible as the British Home Office. This is because the overseas territories either do not have the international cooperation statute or their international cooperation statute is modelled on the Criminal Justice Cooperation Act 1990, which is much more restricted in the scope than the Crime 8
(International Cooperation) Act 2003. For instance, the Criminal Justice (International Cooperation) Act of Bermuda restricts the availability of information in relation to fiscal offences. The last option is that the request for mutual legal assistance can be made in the absence of a treaty between the countries and even without relying on the general laws of the requested country. The request might not be turned down because the requested countries are aware of the fact that their favour will be rewarded in the future. This is, however, problematic as far as relations between the North American and Caribbean jurisdictions are concerned because North America often refuses the request for mutual legal assistance. It is advisable to contact the central authority (e.g. Attorney General or the Director of Prosecutions) to ask what the scope of their powers is before the formal mutual legal assistance is requested. The reason for this is that it would not be very helpful to ask them to perform an activity that is not within their powers. Moreover, maintaining good relations with the countries, with which cooperation is frequently needed, is vital. Huw Shepheard also mentioned that so called fishing expeditions are not effective as there is always a need of an indication that the proceeds of crime have been in the country in question. The formal request for mutual legal assistance must be in the language of the requesting country accompanied by an authenticated translation. In practice, requests for mutual legal assistance are rarely denied. Finally, since it is usually not the case that the conduct is defined as criminal in both countries, it is sufficient that it is considered to be a criminal act in one of them. Session 3 The third panel discussed the advantages and disadvantages of asset recovery mechanisms as well as funding asset recovery cases. The third session panelists were James Maton (Partner at Edwards Wildman and Head of Asset Recovery), Jamie Humphreys (Associate at Edwards Wildman) and the moderator, Arvinder Sambei. After introducing the speakers, Arvinder Sambei explained that the purpose of the last session was to talk about the real aim of the anti-corruption cases, which is asset recovery for the victim states. She said that the speakers would look at the practical issues, discuss the mechanisms that are available to the state, and explain the way these cases are funded as the states that have been looted might not have the necessary support to get their assets recovered. 9
James Maton s presentation highlighted the main differences between the criminal law and civil law methods of asset recovery. He began with describing 4 types of proceeding mechanisms. He said that the traditional method of asset recovery is criminal law method. Domestic criminal conviction is followed by a confiscation order, which can be enforced both overseas and domestically through mutual legal assistance. In the case of domestic civil forfeiture or recovery, enforcement agencies of states are given the statutory power to bring proceedings to recover proceeds of corruption or proceeds of crime in the absence of criminal conviction. Such forfeiture orders can be enforced both domestically and internationally. Another type is foreign criminal or civil forfeiture proceedings, which is typically used in money laundering offences. This kind of proceeding takes place under the circumstances that bribery takes place in one country where there is no realistic prospect of getting the perpetrators convicted. However, if the stolen money is moved to the UK, and dealt with there (e.g. buying properties), the UK authorities can charge the wrongdoers with money laundering and convict them. It is possible to repatriate the money from the country where the conviction took place to the country that the crime was committed. The last type is private civil proceedings, in which the state asks lawyers to bring proceedings to either domestic or overseas civil courts. Generally, there is no best mechanism of asset recovery. The circumstances of the case dictate the most appropriate route. James Maton said that political will is the biggest obstacle to successful asset recovery cases. Another problem is when the state is willing to bring the case but it chooses a wrong mechanism. Selecting the most appropriate method of addressing anticorruption cases is crucial as choosing the less suitable approach can jeopardize the prosecution. Moreover, it is important to note that there is a great public interest in corruption cases. In the cases of serious criminal behaviour, the public wants to see the criminals convicted. In the process of deciding between a criminal and civil law approach, it would be advisable that a number of issues are considered. For example, both the fact that convictions should be realistic and the efficiency and fairness of the court system need to be taken into account. The ability of obtaining evidence should also be considered as private practice lawyers do not have the same capacity as police to gather evidence. Other issues that need to be kept in mind are the fact that law enforcement has a lower threshold for freezing money and that the civil law balance of probabilities standard of proof is more straight-forward than the criminal law beyond reasonable doubt standard. Furthermore, the concept of admissibility of evidence is less common in civil 10
law than in criminal law proceedings. It should be also noted that settling criminal cases is more problematic than settling civil law cases. In terms of the amount recovered, civil law allows claims against third parties, which may lead to recovering more assets. James Maton mentioned a number of methods that could be implemented to improve the overall situation worldwide. For instance, extending the jurisdiction of the International Criminal Court to cover asset recovery cases could, in theory, help the current situation. Another possibility would be to create a specialised International Corruption Court or giving universal jurisdiction to domestic courts. Another way to tackle the issue would be to create freezing mechanisms that are deployed in terrorism cases or to establish mutual legal cooperation in civil law cases. He also mentioned methods such as making public asset declarations or permitting civil society groups to bring claims. Following James Maton s analysis of civil law and criminal law approaches to anticorruption cases, Jamie Humphreys delivered a presentation on funding a civil recovery action. He mentioned that various financial institutions offer funding for all kinds of civil action including asset recovery claims. Nonetheless, such institutions are willing to fund only claims that are likely to succeed. Moreover, some international organisations (e.g. The African Development Bank, the World Bank) also offer asset recovery programmes. In the course of his speech, Jamie Humphreys also touched upon the topic of difference between criminal and civil law in corruption cases. He pointed out that the cost of the criminal law process is different from the cost of civil law process. Apart from the obvious reason why the cost should be taken into account, Jamie Humphreys mentioned that an expensive asset recovery process could negatively affect public opinion. At the end of the session, Nagi Idris added that mutual legal assistance requires that the central government requests assistance. However, in many cases there is no central government to make the request. Moreover, he agreed with James Maton that extending the jurisdiction of the International Criminal Court or establishing a specialised International Corruption Court would be a step forward. He also raised the question of who has the right to bring a corruption case. In the absence of the central government, it could be the people who have some interest in the case that could bring the claim against their ruling leaders or corrupt regime. His last point was that it is not enough to tackle corruption in corporate transactional context for bribery actions. Such system only functions in countries that have mature corporate market, where it is possible to trace a corporate transaction. Q & A 11
The first comment concerned a scenario where the state does not have the political will to pursue corruption claims and there are no individuals who would bring the action. A possible solution to such a situation would be to have an NGO bring the claim on behalf of the victims of corruption. As an example, a case was mentioned in which 3 African dictators were involved. Transparency International took the action in this case and succeeded in recovering the assets. The question was raised as to where the money raised from this successful case went. James Maton answered that a credible NGO in that particular victim country has been appointed to ensure that the money was spent for good purposes. This mechanism is supervised and audited by the Department of Justice to oversee the return of the money to the victims. However, it is questionable how this will work in practice. Another question related to the pressure UK companies are under due to the fact that they are expected to fight their commercial activities in market areas with their hands tied behind their back as they are subjected to the strict anti-corruption measures, while their competitors are not. James Maton said that the answer to that question cannot be to reduce enforcement of the UK and US companies. Moreover, he mentioned that there are some companies that have an increase in sales due to the fact that their country of origin is perceived to be corruption clean. 12