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Is the review of UK anti-bribery legislation a sign that the Government’s war on red tape has gone too far?

By Gabriel Colwell on Posted in UK Bribery Act, United Kingdom

Special thanks to Squire Sanders Manchester office and particularly trainee solicitor Philip Bonner for preparing the article below.

If recent press reports are to be believed, in particular those emanating from the Financial Times (“FT”), the British Government is considering whether to relax the current ban on facilitation payments for small and medium-sized enterprises (“SMEs)”.  This as yet unconfirmed review of the Bribery Act 2010, which only came into force on 1 July 2011 and has yet to yield a prosecution of a commercial organisation, has understandably provoked much comment from both champions of the legislation on one side of the debate and the pro-business lobby on the other.

Roads to Success

The Government has yet to make an official comment on the story but it can be assumed the FT has some well-placed (and well informed) sources.  Indeed the FT stated that the paper had seen documentation confirming that the review may be announced as early as this month. What appears to have been the major catalyst for the review, notwithstanding the concerns that have been raised by business groups both before and after the law was enacted two years ago, was a report by the House of Lords’ Select Committee on SMEs in February 2013.

The report in question, somewhat tellingly entitled “Roads to Success: SME Exports”, addressed whether SMEs had been disproportionately affected by the Bribery Act.  The report called for an urgent scrutiny of the legislation, claiming that the application of the Bribery Act had been met with “confusion and uncertainty”. This was based on the concern that SMEs are anxious about the way in which the legislation would be interpreted, are unsure about what adequate procedures need to be put in place in order to avail themselves of the defence under the Bribery Act and (most importantly) that the legislation is restricting the trading opportunities for British businesses, putting them at a disadvantage in a fiercely competitive export market.

The evidence given to the Select Committee was clear in its tenor. A good example is the evidence from the Chairman of Alderley plc Tony Shepherd, who stated that “we are subject to a law that is much more severe than anywhere else in the world” and that the “existing Act is virtually impossible to operate”. On a similar note, the Institute of Directors described the Bribery Act as being a “counterproductive” measure that has a “significant impact” on members trading in the BRIC nations and in developing economies.  There was no shortage of similar evidence from pro-business groups and SMEs, all of which painted the picture of overly burdensome regulation throttling British exports.

This led the Select Committee to note that whilst it “acknowledged the importance of high ethical standards being set” it felt that it was “not satisfactory to wait for elaborate court cases to define the workings of the Bribery Act 2010”.  As a consequence, the report called for the Government to urgently review the legislation in light of its findings and the views of the business community.

The march of the makers

Following the publishing of the report in February of this year, it appears a meeting of the UK Government’s “Star Chamber” was held in March. This group is (amongst other things) tasked with implementing the UK Government’s “red tape challenge”, the aim of which is to decrease the regulatory burden on SMEs in the UK.

The review of the Bribery Act has to be viewed as part of the wider economic and political context.  The UK Government, as part of its plan to boost the stuttering economy, has championed the potential of SMEs to help stimulate economic growth.  In his March 2011 budget announcement, the Chancellor George Osborne painted a picture of Britain “carried aloft by the march of the makers”.  As part of the wider rebalancing of the economy, it wanted the manufacturing industry and SMEs in general to increase British exports and help deliver a timely and much needed boost to UK plc.

This is where the Bribery Act becomes politically sensitive for the Government.  The Government has set great store on removing unnecessary legislation from British business in a variety of areas, as part of its wider blitz on the somewhat vaguely defined (but much maligned) red tape.

How can the UK Government expect SMEs to become willing foot soldiers in George Osborne’s march of the makers if they are being impeded in export markets by the current anti-bribery legislation?  As noted above, the evidence from SMEs and influential industry groups (such as the Confederation of British Industry) to the Select Committee made it clear that the very markets that the Government sees as providing real potential for exports, such as the BRIC nations and the so-called “Next Eleven”, are the markets where corruption is most common.

Grease payments

Whilst the precise scope of the review of the anti-bribery regime has yet to be confirmed, the FT report suggested that the review would focus on the current blanket prohibition on facilitation payments. Under the Bribery Act 2010, there are no exemptions or de minimis levels for making or receiving facilitation payments. An oft-cited contrast to the stance under the Bribery Act is the exemption contained in the US Foreign Corrupt Practices Act, which allows for small payments to be made to foreign officials to expedite or secure routine governmental actions such as issuing visas or allowing goods through customs.

Many British businesses have argued these so-called “grease” payments are a necessary evil and essential for doing business in certain markets.  In light of the risk of prosecution under the Bribery Act, the Confederation of British Industry has claimed that many companies are shunning exporting to nations where corruption is rife and focusing on more developed markets. This has been exacerbated by some SMEs finding it difficult to create proportionate compliance programmes to allow them to rely on the adequate procedures defence under the legislation.

Going soft on corruption?

Unsurprisingly, the news of a potential review of the Bribery Act has attracted the ire of anti-bribery campaigners. They see this review as an attempt to undermine the legislation before it has had a chance to take effect.  The Director of Transparency International Robert Barrington has stated that “a company does not pay a bribe in vacuum”, hinting at an unwillingness on the part of some businesses to alter deep-seated and long-used practices that no longer chime with the new, stricter regime.

Another interesting dynamic to this review is how uncomfortably it sits with the Serious Fraud Office’s (“SFO”) recently updated, unequivocal and uncompromising guidance on facilitation payments. The October 2012 Guidance is straight to the point, with the very first line stating that a “facilitation payment is a type of bribe and should be seen as such”. It goes on to state that facilitation payments were “illegal before the Bribery Act came into force and they are illegal under the Bribery Act, regardless of their size or frequency”. This Guidance also states that the SFO’s decision on whether to prosecute a corporate body will be determined in accordance with (amongst other things) the Bribery Act Prosecution Guidance, which was jointly published by the Director of the SFO and the Director of Public Prosecutions.  The Bribery Act Prosecution Guidance states that whilst the public interest factors for and against prosecution might apply to facilitation payments, a prosecution will usually take place unless the public interest factors against prosecution outweigh those in favour. The SFO have yet to provide any comment on the issue since last week’s reports surfaced but they have reiterated that they have seven ongoing investigations into potential violations of the Bribery Act.

A further twist to the tale is what the Organisation for Economic Co-operation and Development (“OECD”) will make of all of this. A softening of the legislation, however slight, could damage Britain’s international reputation.  It should not be forgotten that the Bribery Act was motivated in part by the stinging criticism of the OECD that the UK was weak on tackling corruption, which was fuelled by the “discontinuing” of the SFO’s probe into BAE Systems arms deal with Saudia Arabia on national security grounds in 2006, after an intervention by the then Attorney General Lord Goldsmith.  The passing of the Bribery Act ensured the UK was fully compliant with the OECD’s Anti-Bribery Convention.

The review’s probable focus on facilitation payments is likely to be particularly jarring to the OECD given the changing of its stance on such payments in November 2009.  Whilst it has always considered facilitation payments (even small ones) “corrosive”, in its November 2009 missive it advised signatories to its 1997 Anti-Bribery Convention to review their policies on facilitation payments to combat the phenomenon and raise awareness of domestic bribery laws with their public officials. With the passing of the Bribery Act, the UK was one of only seven countries that was classed as actively enforcing their legislative prohibition on facilitation payments in Transparency International’s July 2010 Progress Report on the Enforcement of the OECD Convention. Given that anti-corruption legislation commonly has ratchet effect, any softening of UK’s stance on facilitation payments would not go unnoticed.

Likely outcome of review

Given the various political and economic considerations for the UK Government, it will be interesting to see what the outcome of the review on facilitation payments will be. The first challenge the UK Government may face is ignoring the already growing clamour from some to widen the scope of the review and to also reconsider other aspects of the Bribery Act that some commercial organisations find unpalatable. The personal liability of directors for an act of bribery committed by their own company is a particular target.

However, as the report in the FT suggests, it is likely that the UK Government will seek to keep the review tightly focussed on facilitation payments.  In addition, it would be extremely surprising if the ban on facilitation payments was lifted and if any exemptions or a de minimis level of payment was created given the hard line adopted in the SFO’s guidance on the issue or the OECD’s stance on facilitation payments since 2009.

The likely outcome of the review is more detailed guidance on facilitation payments, potentially aimed at SMEs in particular.  This newly drafted guidance may address what compliance programmes are needed to utilise the adequate procedures defence.  Presumably the focus will be on keeping any compliance programmes proportionate, given the UK Government’s agenda with regards to cutting regulation. Whether or not more guidance is required (or will deal with the concerns of SMEs) is another matter entirely.  It should not be forgotten that the Ministry of Justice has already published Guidance on the Bribery Act 2010, rolled out awareness raising programmes and an online Business Anti-Corruption Portal has been created, which is specifically targeted at SMEs and has advice on sixty-two countries.

The precise wording of any new SME-specific guidance on facilitation payments will be interesting to see.  Any guidance that appears to diverge from the SFO’s tough stance will no doubt attract the opprobrium of the OECD.  What may become important is whose criticism the UK Government fears more, the OECD or the pro-business lobby? The exigencies for economic growth and the central role the UK Government wants SMEs to play in increasing exports may mean it is the latter.

 

Oil and Gas Giant Total S.A. Pays Fourth Highest Penalty In FCPA Enforcement History

By Gabriel Colwell on Posted in France, Industry Investigations, Iran, Oil & Gas

On May 29, 2013, Total S.A. (“Total”), the French oil and gas conglomerate, entered into a three-year deferred prosecution agreement (DPA) with the DOJ and a settlement agreement with the SEC to resolve past violations of the FCPA’s anti-bribery, books and records and internal controls provisions.  As part of the agreements, Total will pay $245.2 million in fines to the DOJ and disgorge $153 million in profits to the SEC.  Total also agreed to the appointment of an independent compliance monitor for the three year term of the DPA.  The combined $398 million penalty makes this the fourth largest case in the history of FCPA enforcement.

Conduct

According to the DPA and SEC’s administrative cease and desist order, from 1995 until 2004, Total and others paid approximately $60 million to intermediaries in order to unlawfully induce an Iranian government official, the head of the National Iranian Oil Company (NIOC) and later the head of another NIOC subsidiary, to grant Total access to Iran oil and gas fields.  As a result of the bribes, Total reportedly secured the rights to develop the Sirri A and E oil and gas fields and parts of the South Pars, the world’s largest gas field, in order to earn $150 million in profits.

Per the DPA, Total paid the bribes to the Iranian official through a consulting and services agreement entered into by Total with an intermediary designated by the Iranian official.  According to the SEC, Total also violated the books and records and internal controls provisions of the FCPA, by mischaracterizing the bribes as legitimate consulting fees or business development expenses.

Notes

  • The SEC had jurisdiction to enforce the books and records and internal control provisions of the FCPA against Total because Total trades American Depositary Receipts (ADRs) on the New York Stock Exchange (NYSE).
  • The U.S. jurisdictional nexus for the enforcement of the FCPA’s anti-bribery violations included a 1995 wire transfer of $500,000 from a New York based bank account.
  • Stemming from the same conduct, French prosecutors have recommended Total, Total’s Chairman and CEO, and two additional individuals be referred to the Criminal Court for violations of French law, including France’s foreign bribery law.
  • According to the DOJ, the Total enforcement action is “the first coordinated action by French and U.S. law enforcement [agencies] in a major foreign bribery case.”

The DOJ’s and SEC’s press releases are here and here, respectively.

Monthly China Anti-Bribery Update Report— April 2013

By David Saltzman on Posted in China

The most recent FCPA and anticorruption enforcement developments involving the People’s Republic of China (PRC) are summarized below.  As always, thanks go to Squire Sanders’ Shanghai Office for monitoring these developments.

1.            New law or regulation

State level:  No developments

Local level (Beijing & Shanghai):  No developments

Communist Party Rules:  No developments

2.            Upcoming law or regulation

No developments

3.            Government Action

(1)          On April 3, 2013, Yu Guozhong (“Yu”), the former Deputy Director of Quzhou Transportation Bureau, Zhejiang Province, was sentenced to twelve and a half years in prison by the Intermediate People’s Court of Quzhou City for abuse of power and taking bribes.

During Yu’s term in office from 2001 to 2012, Yu reportedly accepted bribes from various enterprises and individuals amounting to RMB 765,200 (USD 124,120). In 2001, Yu accepted the equity interest of a public transport company without payment of any consideration, and then received bribes in the name of dividends totaling RMB 500,800 (USD 81,232). In return, Yu helped this company evade government administrative fees up to RMB 4.65 million (USD 754,257) from 2002 to 2008.

(2)          On April 3, 2013, Wang Zongyuan (“Wang”), the former Director of the Administrative Committee of Suzhou Economic Development Zone, Anhui Province, was sentenced to 13 years in prison by the Intermediate People’s Court of Wuhu City for taking bribes in the amount of more than RMB 4 million (USD 648,824).

During Wang’s term as the Director of Suzhou’s Construction Committee and the Chief of Suzhou Economic Development Zone Administrative Committee, he abused his power to seek illicit benefits for individuals and enterprises on various projects such as bank loan, real estate development, grants for land use rights, demolition, land usage, applications for Mining Licenses, etc. Reportedly, Wang confessed to his crimes during the investigation and handed over all his illegal gains.

(3)          On April 8, 2013, Luo Mensheng (“Luo”), the former Deputy Party Secretary of Lianzhou City, Guangdong Province, was sentenced to 5 years imprisonment with confiscation of RMB 100,000 (USD 16,220) in personal assets by the Intermediate People’s Court of Shaoguan City for corruption charges.

Reportedly, Luo was found guilty of taking bribes valued at RMB 1,190,000 (USD 193,015) and HKD 200,000 (USD 32,441) during his term as the Deputy Mayor and the Deputy Party Secretary of Lianzhou City. In exchange, Luo helped various companies illegally obtain construction tenders and land use rights. Luo was arrested on May 31, 2012 and confessed to his crimes during the investigation.

(4)          On April 15, Sun Yongfa (“Sun”), the former chairman of state-owned CITIC Guoan Gold Company Limited, was reportedly sentenced to life in prison by the Intermediate People’s Court of Zhangye City, Gansu Province for embezzlement.

Sun was charged with transferring gold mining exploration rights to a private company named Haosheng Construction Materials Company Limited without any approval or authorization for RMB 10 million (USD 1.62 million). He also embezzled RMB 8 million (USD 1.29 million) and deposited it into his personal bank account. Sun denied all the charges during the trial of first instance and appealed the acquittal to higher court after the sentence announced by the Intermediate People’s Court of Zhangye City.

(5)          On April 15, 2013, Liu Yuxin (“Liu”), the former Deputy Director of Construction Market Supervision Department of the Ministry of Housing and Urban-Rural Development, was reportedly sentenced to 12-years in prison with RMB 300,000 (USD 48,661) in personal assets being confiscated by the No. 1 People’s Court of Beijing Municipality for taking bribes.

According to prosecutors, during Liu’s term in Ministry of Housing and Urban-Rural Development from 2000 to 2011, Liu accepted bribes amounting to RMB 288,000 (USD 467,153) in various forms such as equity interest, vehicles, luxury watches, real estate, U.S. dollars, etc. In return, Liu helped certain companies which had provided him with bribes to pass their construction qualification examinations and obtain qualification certificates through the abuse of his position.

(6)          On April 22, 2013, Peng Zaikui (“Peng”), the former Deputy Secretary of People’s Government of Changsha City, Hunan Province, was sentenced to 10 years in prison with personal assets worth RMB 500,000 (USD 81,103 ) confiscated by the People’s Court of Hengshan County.

During Peng’s term in office from September 1997 to October 2011, Peng allegedly took advantage of his position to seek illegal benefits from different real estate developers and contractors totaling more than RMB 3.32 million (USD 538,523), among which, RMB 588, 281 (USD 95,422) was provided to both Peng and Peng’s brother, Peng Bokui, who reportedly commits the crime of co-bribery.

4.            Other

(1)          On April 19, the major online media of China, including People’s Daily Online, Xinhua Net, Sina and Sohu, opened their special webpages to the public for combating corruption and supervision. These webpages are highlighted on the sites’ home pages for easy access to online informant centers where the citizens can report officials involving corruption activities. This indicates that supervision by the public against corruption is playing a more and more important role in China.

(2)          The Chinese government decided to slash 71 administrative approval items in an executive meeting of the State Council, presided over by Premier Li Keqiang (“Li”), on April 14, 2013. Although no details are announced regarding the slashed items, it was reported that the slashed items mainly concern the investment, production and operation projects. This move is believed to be a significant step to speed up the function transformation of government and empower market forces. In March 2013, Li announced that the Chinese government will cut the existing 1,700 administrative approval items by at least one third over the next five years.

5.            China-related FCPA Action

No developments.

Monthly China Anti-Bribery Update Report— March 2013

By David Saltzman on Posted in China

The most recent FCPA and anticorruption enforcement developments involving the People’s Republic of China (PRC) are summarized below. Thanks as always to Squire Sanders’ Shanghai Office for monitoring these enforcement actions.

1.            New law or regulation

State level: No developments

Local level (Beijing & Shanghai): No developments

Communist Party Rules: No developments

2.            Upcoming law or regulation

No developments

3.            Government Action

(1)         On March 1, 2013, Ke Jinrong (“Ke”), the former Deputy Director of the Bidding Management Committee, Wenling City, Zhejiang Province, was sentenced to 16 years in prison with confiscation of his personal assets totaling RMB 130,000 (USD 20,930) by the People’s Court of Wenling City for corruption and taking bribes.

During his term in office from 2005 to 2011, Ke allegedly accepted bribes on many occasions amounting to RMB 472,890 (USD 76,137) from companies bidding for construction projects. In return, Ke abused his position to help those companies seek illegal benefits. Ke was also found guilty of embezzling RMB 105,777 (USD 17,030) in public funds.

(2)         On March 6, 2013, Yi Xin (“Yi”), the former Director, and Xie Yong (“Xie”), the former Deputy Director of the Audit Office of Guangzhou Medial Insurance Service Management Bureau were respectively sentenced to 6 years and 5 years in prison by the People’s Court of Huangpu District, Guangzhou City, Guangdong Province for taking bribes.

According to the prosecutor, Yi and Xie took advantage of their positions to accept bribes aggregating to RMB 710,000 (USD 114,313) from various pharmaceutical companies seeking to get their products approved for local health insurance plans.

(3)         On March 15, 2013, Pan Jia (“Pan”), the former Chief of Jiu’er Village, Rui’an City, Zhejiang Province (a low-level official position in China but one that has historically proved to present opportunities for bribery) was sentenced to 9 years in prison by the People’s Court of Rui’an City for taking bribes.

Reportedly, during his term in office from 2004 to 2009, Pan abused his position as the Chief of Jiu’er Village to receive bribes that were described as “rewards”, “commissions” and “exchanges for equity” during the reconstruction of Jiu’er Village amounting to RMB 6.25 million (USD 1 million). Because Pan had already returned illicit funds worth RMB 3 million (USD 483,015), he was given a reduced sentence.

(4)         On March 19, 2013, Chen Xiaozhong (“Chen”), the former Director of Lanyang Farm, a state-owned farm in Hainan Province, was sentenced to 7 years in prison by the No.2 Intermediate People’s Court of Hainan Province for accepting bribes.

During his term in office from October 2010 to October 2011, Chen allegedly took advantage of his position to seek illegal benefits from many project contractors engaged in employee housing construction projects, state-owned land development, and rural road construction. Chen was accused of taking bribes on twelve occasions totaling RMB 990,000 (USD 159,394). On June 29, 2012, Chen turned himself in to the procuratorate and returned illicit funds in the amount of RMB 600,000 (USD 96,603).

4.            Other

(1)         According to Sun Jungong (“Sun”), a spokesperson for the Supreme People’s Court of China, from 2008 onwards, the number of heavy sentences (i.e., sentences of five years imprisonment or more, including death sentences and suspended death sentences) imposed on persons convicted of corruption, bribery, or dereliction of duty increased from 17.58% in 2007 to 23% in 2012. Sun also stated that the death sentence will be applied only to those few criminal offenders who commit serious crimes.

(2)        On March 17, 2013, Li Keqiang (“Li”), the new Premier of China, vowed in a meeting with journalists to crack down on corruption and to practice frugality in governmental affairs. Li committed to cut the government workforce, halt spending on government offices and hotels, freeze spending on overseas trips and official vehicles, and slash the number of actions that require approvals.

5.            China-related FCPA Action

On February 28, 2013, Keyuan Petrochemicals, Inc. (“Keyuan”), and its former CFO, Aichun Li (“Li”), settled an enforcement action with the U.S. Securities and Exchange Commission (“SEC”) by paying USD 1.025 million in civil penalties for violations of the books and records and internal control provisions of the Foreign Corrupt Practices Act (“FCPA”) and the anti-fraud and reporting provisions of other federal securities laws. This is the first FCPA enforcement action in 2013. Keyuan is a company based in Ningbo in Zhejiang province, and its stock is registered with the SEC.

According to the SEC Complaint, Keyuan operated an off-the-books cash account that was allegedly used to fund gifts to Chinese government officials, including officials from the local government, port, police, and fire departments, as well as providing cash bonuses to officers and technical experts providing consulting services. The account was even partially funded through the use of fictitious reimbursement claims that were submitted by the employees of Keyuan as a means to withdraw cash from Keyuan’s company account for use in the off-books account. Keyuan also allegedly violated other federal securities laws, including failure to disclose material information regarding its related-party transactions between the company and its CEO and the controlling shareholders, entities controlled by or affiliated with such persons and entities controlled by Keyuan’s management or their family members. The related-party transactions took the form of sales of products, purchase of raw materials, loan guarantees, and short term cash transfers as disclosed in the SEC Complaint.

Keyuan and Li entered into a joint settlement agreement with the SEC, agreed to pay USD 1 million and USD 25,000 respectively. Li also agreed to his suspension from practicing as an accountant before the SEC but with the right to apply for reinstatement after two years.

Stricter Legislation On Corruption In Healthcare Looming

By Jost Arnsperger on Posted in Commercial Bribery, Germany, Industry Investigations

For years there has been a public debate in Germany about corruption in the healthcare sector – not least because of the huge economical detriments. Experts estimate that corruption in the health care system causes damages of up to EUR 18 billion, which corresponds to ten percent of the entire healthcare expenditure.

Of particular interest has been the question, whether medical professionals may be liable for criminal sanctions if they accept money or other material benefits from the pharmaceutical industry in exchange for prescribing the “right” drugs and using the “right” materials – a practice apparently commonplace.

In 2012 the German Federal Court of Justice (Bundesgerichtshof, BGH) ruled that German criminal law is currently not applicable to cases in which resident medical professionals accept money from the pharmaceutical industry. The case under dispute concerned a pharmaceutical sales representative, who had paid resident doctors up to EUR 18,000.00 to prescribe certain drugs of her employer. The payments were disguised as royalties for fictitious lectures which actually never took place. The BGH overruled the judgement of the Regional Court that found the pictured practice punishable and convicted a doctor for corruptibility.

The federal judges ruled that panel doctors, who receive benefits from a pharmaceutical company in exchange for the prescription of drugs of this company, are not liable for criminal sanctions of corruption pursuant to Section 332 of the German Criminal Code. Also a criminal offense of bribery in business transactions pursuant to Section 299 paragraph 1 of the German Criminal Code was ruled out. In its reasoning the court stated that the established physician neither acts as a public official within the meaning of Section 11 paragraph 1 No. 2 of the German Criminal Code nor as legal appointee of public health insurance companies – a prerequisite of punishment for corruption.

Accordingly, employees of pharmaceutical companies giving money to physicians cannot be charged with bribery (Section 334 German Criminal Code) or commercial bribery (Section 299 paragraph 2 German Criminal Code).

The decision was widely met by a heated debate and public demands for stricter legislation. Many understood the court’s ruling as a request to the German legislator to act – in particular since many saw the judicial decision as a carte blanche for resident medical professionals and pharmaceutical industry to make further money at the expense of public healthcare system.

Now – almost a year after the controversial BGH ruling – legislative action may be about to be taken. The German Government has now confirmed that new legislation regarding the matter shall be implemented soon.

Monthly China Anticorruption Update Report — February 2013

By Rebecca Worthington on Posted in China enforcement actions

ChinaThe most recent FCPA and anticorruption enforcement developments involving the People’s Republic of China (PRC) are summarized below. Thanks as always to Squire Sanders’ Shanghai Office for monitoring these enforcement actions.

1. New Law or Regulation

State level: No developments

Local level (Beijing & Shanghai): No developments

Communist Party Rules: No developments

2. Upcoming Law or Regulation

No developments

3. Government Action

(1) On February 8, Huang Ping (“Huang”), the former Director of the Transportation Bureau Branch of Humen Town, Dongguan City, Guangdong Province was sentenced to 18 years in prison, fined RMB 20,000 (USD 3,214) with confiscation of RMB 700,000 (USD 112,497) of personal assets by Dongguan City No.1 People’s Court for corruption and rape.

Huang was charged with taking bribes totaling RMB 2,150,000 (USD 345,526), embezzling public funds involving RMB 1,760,000 (USD 282,849) either on his own or together with others, dividing the state owned assets worth RMB 412,000 (USD 66,212), and one count of rape. Eight of Huang’s former subordinates received prison sentences from three to seven years. According to press reports, the case involved the most defendants, the widest scope, and the largest amount of money ever handed by the Dongguan City No.1 People’s Court in a breach of duty case.

(2) On February 16, Liu Baolu (“Liu”), the former Deputy Head of Agricultural Reclamation Social Insurance Office, Gansu Province, was reportedly sentenced to death with two years’ reprieve by the Intermediate People’s Court of Lanzhou City, Gansu Province for embezzlement. This final judgment affirmed the original judgment made on July 25, 2012. A death sentence with a two-year reprieve is typically reduced to life in prison if the convicted person behaves well while serving the term.

Liu was accused of diverting public funds into secret accounts and embezzling large amounts of money by using fake receipts and telegraphic transfer statements involving RMB 28 million (USD 4.5 million) during his term of office from 2002 to 2011. The amount of embezzlement involved is reported to be the largest individual corruption case investigated by Gansu prosecutors to date.

(3) On February 16, Xing Baojiang (“Xing”), the former Deputy Director of the Xinhua Sub-District Administration of Tongzhou District, Beijing Municipality was sentenced to twelve years in prison by Tongzhou District People’s Court for corruption.

During his term in office from 2008 to 2010, Xing abused his position to embezzle the real estate of Yu Mou, an elderly person with no family, obtaining illegal gains worth more than RMB 1,062,200 (USD 170,706), most of which was used by Xing to purchase a house. Xing was also found guilty of instigating others to obtain public funds and privately dividing the funds worth RMB 102,600 (USD 16,488).

(4) On February 19, Liu Zhihe (“Liu”), the former Vice President of the Nanchang Hangkong University (“NCHU”), was sentenced to 15 years in prison and deprived of political rights for two years by Xinyu City Intermediate People’s Court, Jiangxi Province for taking bribes.
Reportedly, during his term as the Vice President of the Nanchang Institute of Aeronautical Engineering (the former NCHU), the general director of the NCHU’s new campus construction project and vice principal of the NCHU, Liu took advantage of his position to receive properties from twelve individuals on forty-one occasions, totaling RMB 2.6 million (USD 417,846). In return, he offered them help in project construction, construction fund payment and job arrangements.

(5) On February 20, Lin Jia (“Lin”), the former Director of the Xiuying Branch of Haikou City Public Security Bureau, Hainan Province was sentenced to eight years in prison with his personal assets confiscated worth RMB 60,000 (USD 9,642) by Haikou City Intermediate People’s Court, Hainan Province for taking bribes.

Lin was charged with abusing his position to accept properties amounting to RMB 1,555,000 (USD 249,904) from nine individuals during his term with Xiuying Branch of Haikou City Public Security Bureau. Lin voluntarily surrendered himself to justice before being investigated. He confessed the facts and his principal crimes after being investigated. This was regarded by the authorities as a voluntary surrender. That coupled with the fact that he handed over bribes worth RMB 1,260,000 (USD 202,494), resulted in Lin receiving reduced punishment under the law.

4. Other

None identified

5. China-Related FCPA Action

None identified

New Guideline on Personal Information Protection Becomes Effective in China

By David Saltzman on Posted in China

The treatment of personal information is a tricky issue when investigating suspected violations of anticorruption laws, as many countries around the world have enacted privacy laws.  As explained in a new Squire Sanders Client Alert, the text of which is reprinted below, China recently enacted new standards of its own regarding the protection of personal information.

New Guideline on Personal Information Protection Becomes Effective

Dan Roules and Victoria Li

Background

On 1 February 2013, a new national standard, Information Security Technology – Guideline for Personal Information Protection Within Information Systems for Public and Commercial Services (the “Guideline”) came into effect in China. The official publication of the Guideline is not yet available; however, Squire Sanders has tried to obtain certain information of the text in the final version.

The current rules protecting privacy and personal information are limited and scattered. They can be found in the “right to reputation” under General Principle of Civil Law, the “right to privacy” under the Tort Law, and the criminal liability applicable to sales of personal information under the Criminal Law.  No comprehensive legal framework, however, has been established. At the end of 2012, the Decision on Strengthening Network Information Protection (the “2012 Decision”) was promulgated, shedding light on the responsibilities of network service providers to protect the personal information that they gather during their business activities. The newly effective Guideline provides a detailed performance standard in a more systematic manner, even though the Guideline serves only as a voluntary national standard and is not mandatory by law.

Definition and Basic Principles

Under the Guideline, personal information has been categorized as “personal sensitive information” and “personal general information”.  Not surprisingly, the personal sensitive information is subject to higher standards of protection and is defined as “information, the disclosure of which will negatively impact the subject of the information”.

The Guideline uses the terms “administrator of personal information” and “receiver of personal information”. The “administrator of personal information” is the entity or organization that determines the purpose and manner for handling personal information, and both controls and processes the information. The “receiver of personal information” is the person, entity, or organization that receives and processes the personal information with the consent of the subject.

The Guideline establishes basic principles for handling personal information including the principle of “Minimum to the Sufficient” (“最少够用”).  This principle requires that the handling of personal information be limited to no more than that which will be sufficient, and that such information should be deleted within the minimum period after the goal is achieved. This principle was not incorporated in the first draft of the Guideline, but has been introduced into the final version.

Protection for Information Collection, Processing, Transfers, and Deletions

The handling of personal information has been divided by the Guideline into four steps, i.e.  collection, processing, transfer, and deletion. The Guideline specifies the following “do’s and don’ts” that should be implemented in those steps to protect personal information:

-          At the collection stage, the subject should be informed of the purpose, the scope of use, the measures to protect privacy, the contact details for the collector, the risk of providing the information or result of failure to provide the information, and the ways to raise complaints etc. Such notification sets the boundary of permissible actions of the administrators and receivers, so that the following processing and transfer should not go beyond the prior notification.

-          The collection of personal sensitive information will require the express consent of the subject, and the collection of personal sensitive information from a minor is forbidden. Though if such collection is necessary, then the minor’s legal custodian must give his/her consent.

-          Personal information should be kept confidential when it is processed. Based on the subject’s reasonable request, the administrator and receiver who hold the information should advise the subject free of charge of the following: whether they hold personal information, what specific information they hold, and the status of the information being processed.

-          In the first draft Guideline, the transfer of personal information to overseas entities is only permitted when such transfer is based on (1) an explicit stipulation by law or regulation, or (2) the consent of the relevant government authorities. In the final version of the Guideline, such export of information is permitted with the express consent of the subject.

-          Personal information must be deleted if the purpose that was stated to the subject is achieved. Then, upon a reasonable request from the subject, the administrator and receiver should promptly delete the subject’s personal information. However, the administrator and receiver must cooperate with the administrative authorities to make back-ups if such deletion would interfere with any investigation by the authorities.

As noted above, the Guidance remains non-compulsory for the business community at this time, and a company might choose to adopt the Guidance in whole or in part. The Guidance was finalized based on some of the comments and suggestions gathered from major market players in China, such as Tencent, Sina, Qihoo 360, and Baidu, so it may reveal the standards that those online service providers have developed for the industry.

With the legalization of Personal Information Protection Law still on the way, this Guideline may indicate how the authorities intend to strengthen the protection of privacy. We recommend that companies closely monitor the development of relevant legislation in this area in order to adjust their business practices and strategies, as well as their internal control and policies for handling personal information of customers, employees, partners and others.

Monthly China Anticorruption Update Report – January 2013

By Rebecca Worthington on Posted in China enforcement actions

The most recent FCPA and anticorruption enforcement developments involving the People’s Republic of China (PRC) are summarized below.  Thanks as always to Squire Sanders’ Shanghai Office for monitoring these enforcement actions.China

1.        New law or regulation

State level:

(1) The Interpretation on Several Issues Concerning the Specific Application of Law in the Trial of Criminal Cases on Offering Bribes.

On December 26, 2012, the Supreme People’s Court and the Supreme People’s Procuratorate jointly issued the Interpretation on Several Issues Concerning the Specific Application of Law in the Trial of Criminal Cases on Offering Bribes (“Interpretation”), which took effect on January 1, 2013.

The Interpretation applies principally to Article 390 of the Criminal Law of the People’s Republic of China, clarifying the conviction and sentencing standards for crimes involving the offering of bribes, and offering more precise definitions of certain terms in the Criminal Law such as “serious circumstances”, “great damage to state interests”, and “extremely serious circumstances”.

The Interpretation also clarifies that, with certain exceptions, the sanctions against a corporate briber-giver may be mitigated or waived if the company “voluntarily confesses” its bribe-giving conduct. Such treatment, however, is not applicable in certain circumstances, such as when bribes have been offered to more than three persons, or when the bribery results in “serious harmful consequences”.

(2) The Interpretation I on Several Issues Concerning the Application of Law in the Trial of Criminal Cases on Dereliction of Duty.

On January 8, 2013, the Supreme People’s Court and the Supreme People’s Procuratorate jointly issued the Interpretation I on Several Issues Concerning the Application of Law in the Trial of Criminal Cases on Dereliction of Duty (“Interpretation”), which took effect on January 9, 2013.

The Interpretation is reportedly intended to encourage government officials to fulfill their duties more diligently. According to the Interpretation, a state functionary who commits the crimes of dereliction of duty and taking a bribe must be punished for both. The subjects for the crime of dereliction of duty may also include staff members of companies, enterprises, and public institutions that are entrusted to exercise state administrative power in accordance with PRC laws.

Local level (Beijing & Shanghai):  No developments.

Communist Party Rules:  No developments.

2.      Upcoming law or regulation

None identified

3.      Government actions

(1) On January 4, Duan Zhenhao (“Duan”), the former Director of the Key Laboratory of the Earth’s Deep Interior under the Chinese Academy of Sciences, was reportedly sentenced to 13 years for embezzlement.

In 2011, Duan was accused by his estranged wife of misusing research funds to support several mistresses and an illegitimate daughter. Duan was also found guilty of claiming reimbursements from the academy with forged receipts amounting more than RMB 1.47 million (USD 236,368). Duan was nominated as a candidate for the Chinese Academy of Sciences before the scandal was revealed.

(2) On January 9, 2013, Lin Jianliang (“Lin”), the former Deputy Director of the Agricultural Bureau of Zhongshan City, Guangdong Province was sentenced to six and a half years in prison with confiscation of personal assets worth RMB 200,000 (USD 32,159) by Zhongshan City No. 2 Intermediate People’s Court for taking bribes.

During Lin’s term as Deputy Director from 2001 to 2011, he received bribes on several occasions, totaling RMB 941,000 (USD 151,308) and HKD 6,000 (USD 773).  In return, Lin helped 16 enterprises, such as grain and oil companies, apply for agricultural funding through abuse of his power.

(3) On January 18, 2013, Yang Chunmei (“Yang”), the former Manager of the Huairou Service Company, a state-owned enterprise, was sentenced to life imprisonment by the Beijing Municipality No.2 Intermediate People’s Court for corruption and embezzlement.

Yang was accused by several former employees after her retirement and was found guilty of illegally obtaining public property worth RMB 12.24 million (USD 1.96 million) during the restructuring process of the Chunguang Mall affiliated with the state-owned enterprise in 2001. During Yang’s term, Yang allegedly used her position to obtain the use right of a parcel of state-owned land with 8271.21 square meters valued at RMB 7.07 million (USD 1.13 million) and transferred such land use right to a company ultimately controlled by herself for free.

(4) On January 20, 2013, Ye Mou (“Ye”), the former Director of the Land and Resources Bureau of Xingzi County, Jiujiang City, Jiangxi Province, was sentenced to twelve and a half years in prison with confiscation of personal assets worth RMB 150, 000 (USD 24,119) by Jiujiang City Xunyang District People’s Court for taking bribes.

Ye allegedly abused his position during his term in the Land and Resources Bureau of Xingzi County to obtain public funds in the amount of RMB 134,490 (USD21, 625) from 2003 to 2008. He was also found guilty of receiving bribes on sixty-eight occasions from twenty persons, aggregating to RMB 922,770 (USD148, 376) by abusing his position as the Director of the Land and Resources Bureau of Xingzi County and the Director of the Land and Resources Bureau Land Reserve Centre of Jiujiang City from 2004 to 2011. In return, Ye helped the bribing individuals seek benefits in land auction projects, real estate development, and construction contracts.

4.       Other

The General Secretary of the Communist Party of China (“CPC”) Central Committee and the Chairman of the Central Military Commission, Xi Jinping has vowed to fight against corruption and “keep power reined within the cage of regulations” at the Second Plenary Session of CPC’s Central Commission for Discipline Inspection (“CCDI”) on January 22, 2013.

General Secretary Xi stressed that the fight is a long-term, complicated, and arduous task and that CPC should crack down on both “tigers” and “flies” at the same time by investigating and punishing officials who conduct illegal activities. “No exception shall be made when it comes to Party disciplines and laws,” Xi said.

5.       China-related FCPA action

None identified

 

First self-report settlement in Scotland

By Louise Roberts on Posted in Uncategorized

The Scottish Civil Recovery Unit is to recover £5.6 million under Proceeds of Crime legislation after a Scottish drilling company, Abbot Group Limited (“Abbot”), admitted it had benefited from corrupt payments made in connection with a contract entered into by one of its overseas subsidiaries and an overseas oil and gas company.

The contract was entered into in 2006 and the payments were made in 2007.  The £5.6 million to be paid by Abbot represents the profit made by the company under the contract, and is to be paid in three stages by 31 March 2015.  Since the corrupt payments were made, the ownership and structure of Abbot has changed significantly.

The corrupt payments had been brought to light in May 2011, following enquiries by an overseas tax authority.  Abbot subsequently employed a firm of solicitors and accountants to investigate, and reported the results of the investigation to the Crown Office and Procurator Fiscal Service (the “Crown”) in July 2012 under the Scottish self-reporting initiative (which runs to June 2013).

The Scottish self-reporting initiative had been approved and introduced by the Crown to mark the commencement of the Bribery Act 2010 (the “Act”). Under the initiative the Crown will accept reports from businesses (meaning bodies corporate or partnerships as referred to in Section 14(1) of the Bribery Act) who wish to report the discovery by them of conduct within their organisation which may amount to an offence under the Act, with a view to consideration being given by the Crown to refraining from prosecuting the business and referring the case to the Civil Recovery Unit (“CRU”) for civil settlement.

Further information on the Scottish self-reporting initiative and guidance on the approach of the Crown to reporting by businesses of bribery offences, is contained at http://www.copfs.gov.uk/Publications/2012/11/Guidance-Approach-Crown-Office-and-Procurator-Service-Reporting-Businesses-Bribery-Offences.

Following a self-report by Abbot to the Crown, the case was referred to the Scottish Civil Recovery Unit with a view to a civil settlement being agreed.

Following the outcome of the case, Ruaraidh Macniven, Head of the Civil Recovery Unit said, “Self-reporting is an important way to ensure that corruption is exposed and that companies put in place effective systems to prevent it”. 

The Abbot settlement is the first reported outcome of the Scottish self-reporting initiative (introduced on the 1 June 2011), and legal commentators have suggested that the case represents another encouraging example of a business taking corruption prevention seriously. 

It is interesting that the self-reporting friendly approach in Scotland, which is of course a separate jurisdiction, now no longer exists in England and Wales; the Government is instead proceeding with its plans to introduce deferred prosecution agreements (discussed in my article of 17 January 2013, below).

Ministry of Justice confirms that Deferred Prosecution Agreements (“DPAs”) will be introduced in England and Wales

By Louise Roberts on Posted in Commercial Bribery, Compliance Program, Corporate Finance/M&A, Courts, UK Bribery Act, United Kingdom

On 23 October 2012, the Ministry of Justice (MoJ) published its response to the consultation paper on DPAs, and confirmed that it will legislate to introduce DPAs in England and Wales.    The Government intends to include an amendment to the Crime and Courts Bill 2012-2013 to introduce DPAs in England and Wales, and it is expected they will become available to the Serious Fraud Office (SFO) and Crown Prosecution Service (CPS) in early 2014. 

A DPA is an agreement between the prosecutor and a company (they do not extend to individuals) that a criminal prosecution for an economic offence (for example bribery, corruption, fraud, or money laundering) will be deferred or postponed if certain conditions are met (for example payment of substantial penalties, making reparation to victims, undertaking reform to prevent such conduct occurring again, and submitting to regular reviews and monitoring). The Government intends to make the legislation retrospective, so DPAs should be available for prior conduct so long as no proceedings have yet commenced.  DPAs are an enforcement tool which have already been adopted and utilised in the US, raising $2.5 billion a year in penalties.

The Government will require the Director of Public Prosecutions (DPP) and the Director of the SFO to produce a Code of Practice for Prosecutors on DPAs. Clearly, this will need to address the circumstances in which a DPA (rather than a full criminal prosecution) will be the preferred enforcement route.  In addition, the Sentencing Council will be asked to produce sentencing guidelines for offences committed by an organisation that are likely to be encompassed by DPAs. 

The DPP or the Director of the SFO must personally exercise the power to enter into a DPA and will be required to hold a preliminary hearing in private before a judge to determine if it would be in the “interests of justice” to agree the DPA and whether the proposed draft conditions of the DPA are “fair, reasonable and proportionate”. If a judge determines that a DPA is appropriate, the terms of the DPA must subsequently be confirmed in open court and must be published, in order to ensure full public transparency of the wrongdoing and agreed sanctions and to meet criticisms – often based on U.S. DPAs – that DPAs allow prosecutors to circumvent the judicial process by reaching an agreement with a defendant out of court and out of the public eye.

Upon the expiry date of a DPA, the prosecutor will publish details of how the DPA has been complied with. If there is a breach of the DPA, this will be publicised and can be contested.  Significant breaches of a DPA will need to be dealt with by a judge.  The options available to a judge on a finding of a breach will be provided for in the legislation. Judicial approval will be required for any proposed variation or termination of a DPA. There will be no right to appeal any judicial ruling in this process.

The implementation of DPAs in the UK is particularly timely, given the relatively recent updates to the SFO’s policy on self-reporting, which set out that self-reporting is no guarantee that a prosecution will not follow.  The Government hope that DPAs will ultimately enable prosecutors to secure tough penalties for wrongdoing and ensure reparation for victims, without the uncertainty, expense, complexity or length of a full criminal trial. Organisations will be encouraged to self-report wrongdoing and be held accountable for their actions but without employees, customers, pensioners, suppliers and investors being unfairly affected and penalised by the impact of a lengthy trial and conviction.  DPAs should also ensure more offenders are held to account as the number of cases that can be prosecuted and pursued to full trial is limited.

An important benefit of a DPA is that, as it is not a criminal offence, it will not trigger mandatory debarment under the EU Public Procurement Regime. The Government has warned, however, that a DPA may still be a “potential factor” in deciding whether to exclude a company from public procurement tenders on a discretionary and case by case basis.

There are however concerns over DPAs, including that there is no certainty that a negotiated DPA will be approved by a judge; the fact that any admissions made during the DPA negotiations could possibly be used against the company in any subsequent criminal proceedings; DPAs will be made public and so reputational damage is likely to be significant; and DPAs can be used against a company or individual in civil proceedings.

Evidently, the Government will have to ensure that the DPA process is sufficiently clear and consistent to encourage companies to self-report, and that the operation of justice is transparent and open to public scrutiny. 

Companies can derive some comfort from the fact that the Government does not intend to require waiver of legal professional privilege as a condition to the DPA nor require an admission of guilt, which are other differences between the UK and US models (in the US commercial entities often find themselves waiving legal privilege in order to demonstrate cooperation with an investigation). However, a UK prosecutor might still invite voluntary disclosure of privileged materials, and admissions can nonetheless be made. Particular care must be therefore taken, and questions of whether to self-report, privilege and confidentiality will need to be closely considered on the facts of each case.