Monthly China Anti-Bribery Update Report — January 2016

1. New laws or regulations

State level: No developments.

Local level (Beijing & Shanghai): No developments.

Communist Party Rules:

(1) On January 1, 2016, the Guidelines of Integrity and Self-discipline of the Communist Party of China and the Regulations of the Disciplinary Sanctions of the Communist Party of China (the “Regulations”) promulgated by Central Committee of the Communist Party of China on October 21, 2015 went into effect. These are the most important rules for all Party members to observe. The Regulations provide a detailed “negative list” of violations with respect to political, organizational, and anti-corruption discipline, and will involve strict monitoring of the behavior of Party members and organizations by establishing higher standards.

2. Upcoming laws or regulations

No developments.

3. Government Action

(1) On January 7, 2016, Tan Qiwei (“Tan”), the former Vice Chairman of Chongqing Standing Committee of People’s Congress, was sentenced by the Intermediate People’s Court of Hengshui City, Hebei Province to 12 years’ imprisonment for taking bribes, and his personal property in the amount of RMB 1 million (USD 152,129) was confiscated.

The court found that during his term of office from 1998 to 2014, Tan had accepted cash or other properties amounting to RMB 11.43 million (USD 1.73 million) either directly or indirectly through his wife, for providing illegal benefits to others in contracting projects, acquiring rights to publish advertisements, reducing land grant fees for developing real estate projects, etc. Tan was given a lighter sentence due to his confession and voluntary disgorgement of illegal gains.
(2) On January 12, 2016, Li Dongsheng (“Li”), the former Deputy Party Secretary and former Deputy Minister of China’s Ministry of Public Security, was sentenced to 15 years in prison by Tianjin No.2 Intermediate People’s Court for accepting bribes. His personal property in the amount of RMB 1 million (USD 152,129) was also confiscated.
Li was found to have abused his position by assisting others to gain promotions and to transfer household registrations (hukou), among other actions. Li also secured illegal benefits for certain individuals through his authority over other State officials. In exchange for such favors, Li solicited or directly accepted RMB 4.82 million (USD 733,263) in bribes. In addition, he accepted through his brother Li Fusheng RMB 17.16 million (USD 2.61 million), totaling RMB 21.98 million (USD 3.34 million) from 2008 to 2013. Li was given a lighter sentence due to his confession and voluntary disgorgement of illegal gains.
(3) It was reported on January 14, 2016 that Lu Haijun (“Lu”), the former Chairman of Beijing Energy Investment Holding Company (“Beijing Energy”), a state-owned enterprise, was sentenced to 11 years in prison for accepting bribes by Beijing No. 4 Intermediate People’s Court, with the confiscation of his personal property, which was valued at RMB 500,000 (USD 76,056).
Reportedly, during his term of office from 2010 to 2014, Lu was found to have sought illegal benefits for the Place Investment (Beijing) Co., Ltd. (“Place”) during the cooperation between Place and Beijing Energy. Lu has also accepted bribes amounting to RMB 10.66 million (USD 1.62 million) in the forms of cash and project payment though a third party company. Lu was given a lighter sentence due to his confession.

(4) On January 20, 2016, Yang Gang (“Yang”), the former Vice Chairman of the Committee of Economy of China People’s Political Consultative Conference, was sentenced by Beijing No.3 Intermediate People’s Court to 12 years in prison for taking bribes. Yang’s personal property valued at RMB 1 million (USD 152,129) was confiscated.

Yang was found during his term in office from 1998 to 2012 to have provided illegal assistance to individuals seeking illegitimate gain from distributing products, acquiring development projects, securing promotion, etc. In return, Yang has directly accepted bribes, directly or through his immediate relatives, exceeding RMB 13.79 million (USD 2.09 million) from 2008 to 2012. Yang was given a lighter sentence due to his confession and voluntary disgorgement of illegal gains.
4. Other

No developments.

5. China-related FCPA Action

No developments.

First Company Convicted of Bribing Foreign Officials Ordered to pay £2.2 million

Smith and Ouzman Ltd and two of its directors, were convicted by a Jury under the Prevention of Corruption Act 1906 (POCA) in December 2014, although the company was finally sentenced on 8 January 2016. The company was convicted under the previous legislation because the offences pre-dated the Bribery Act 2010.

The small family run printing firm based in Eastbourne, which specialised in security documents such as ballot papers and certificates, was convicted of three counts of corruptly agreeing to make payments, contrary to section 1(1) of POCA.

The company had made corrupt payments of £400,000 to public officials in Kenya and Mauritania in order to secure contracts. They were ordered to pay a fine of £1,316,799, a confiscation order in the amount of £881,158 and costs of £25,000, totaling around £2.2 million.  The penalty was intended to mirror the estimated value of the advantage gained by the company through payment of these bribes.  Confiscation and costs orders were also imposed on the two directors in February 2015. The SFO have reported the sentences on their website.

The sentencing of the company marks the closure of a four year investigation and a significant milestone for the SFO, as it was the first successful conviction of a company by a jury for bribing foreign officials.  The case provides a valuable insight for practitioners in respect of a Court’s approach to sentencing a corporate offender regarding bribery and corruption.  However, the SFO’s success in obtaining the conviction and in establishing corporate guilt was considered in part due to the business being a small, family owned business which enabled a “directing mind” of the company much easier to identify.

The two convicted directors of the company were sentenced last February 2015, with the Chairman, Christopher John Smith, sentenced to 18 months’ imprisonment, suspended for two years, and ordered to carry out 250 hours of unpaid work. His son Nicholas, the sales and marketing director, was sentenced to a three year jail sentence. Both were also disqualified from being company directors for six years.

Passing sentence at Southwark Crown Court, Recorder Andrew Mitchell said: “Corruption of foreign officials is damaging to the country in which the corruption occurs, is damaging to the reputation of UK business, and of course in the market in which a business operates. It is anti-competitive.”

Through this case the SFO has sent a clear message that it is willing to prosecute companies under English anti-bribery and corruption law, however its hands may be tied in future matters by the difficulties in securing successful convictions against companies. Owing to the tough laws surrounding corporate criminal guilt and the difficulties in identifying a directing mind within a company, the attribution of criminal liability to a corporate entity may be a hard sell to a jury.

With the SFO securing its first Deferred Prosecution Agreement with ICBC Standard Bank plc late last year (see our previous blog) and the recent admission of guilt to an offence under s.7 of the Bribery Act 2010 by the Sweett Group plc (who will be sentenced in February 2016), it may be that prosecution of corporate entities will be the exception rather than the rule.  However, to avoid the risk of a potentially very significant penalty, organisations may wish to review the procedures they have in place to prevent bribery and corruption.

Under the Bribery Act 2010 (which came into force on 1 July 2011), a ‘relevant commercial organisation’ is guilty of an offence if a person, who is associated with it, bribes another person intending to obtain or retain business/an advantage in the conduct of business (for the commercial organisation). However, a defence is available where the organisation can show that it has “adequate procedures” in place to prevent such bribery being committed. Procedures to be introduced or reviewed, depending on the nature of the organisation, could include:

  1. Board Training;
  2. Bribery and Corruption Policy/Code of Conduct (and implementation of the Policy/ Code);
  3. Assessment of the risks to the day-to-day business of bribery and corruption;
  4. Appointment of Compliance Officer / Manager responsible for compliance;
  5. Employment procedures, including: vetting of new employees; declarations of interest for new and existing employees; and disciplinary and whistleblowing policies;
  6. Policy for gifts and hospitality;
  7. Due Diligence on agents, business partners, parties to whom payments for services are made and possibly also other parties in the supply chain;
  8. Communication of anti-bribery policies and Codes of Conduct to employees, agents, business partners, and all other parties in the supply chain;
  9. Financial Controls in relation to accounting procedures and payments to third parties;
  10. Procurement standards;
  11. Audits, internal and external, covering projects, payments and systems; and
  12. Documented records of compliance program, steps taken to comply, training, due diligence, issues and investigations, the conflict register, high risk countries and disciplinary action.

Whilst there may be a relatively small number of prosecutions under the Act, the fine and other costs payable in the Smith and Ouzman case underlines that the risks of non-compliance are significant and the adequacy of procedures to prevent anti-bribery and corruption are important.

Monthly China Anti-Bribery Update Report — December 2015

1. New laws or regulations

State level: No developments.

Local level (Beijing & Shanghai): No developments.

Communist Party Rules: No developments.

2. Upcoming laws or regulations

No developments.

3. Government Action

(1) On December 3, 2015, Sheng Peiping (“Shen”), the former Deputy Governor of Yunnan Province, was sentenced to 12 years’ imprisonment by the Beijing No.1 Intermediate People’s Court for taking bribes, and his personal property in the amount of RMB 2 million (USD 308,118) was confiscated.

The court found that while holding office as Party Secretary at Teng Chong County and as Mayor of Si Mao City from 2000 to 2012, Shen provided illegal assistance in company mergers and acquisitions, sales of iron ore, the development of a copper mine, and the handling of collective conflicts in the mining area to several companies, abusing his position, and accepting cash and properties from the legal representatives of such companies totaling RMB 16.15 million (USD 2.48 million). Shen was given a lighter sentence due to his confession and his providing significant clues for other major cases.
(2) On December 9, 2015, Guo Youming (“Guo”), the former Deputy Governor of Hubei Province, was sentenced to 15 years in prison by the Intermediate People’s Court of Nanyang City, Henan Province for accepting bribes, and his personal property in the amount of RMB 2 million (USD 308,118 ) was confiscated. All the illegal gains have been retrieved.

Guo was found guilty of taking bribes, either directly or through his immediate relatives, amounting to RMB 23.79 million (USD 3.66 million) from several local companies during his term of office from 2001 to 2013. In exchange, Guo provided various favors for enterprise restructuring, alteration of land usage, and the refund of land grant payments. Guo was given a lighter sentence due to his confession.

(3) On December 18, 2015, Yao Mugen (“Yao”), the former Deputy Governor of Jiang Xi Province, was sentenced to 13 years’ imprisonment by Intermediate People’s Court of Xiamen City, Fujian Province for accepting bribes. Yao’s personal property valued at RMB 3 million (USD 462,178) was confiscated.

Allegedly, during his term of office from 1998 to early 2013, Yao accepted bribes aggregating more than RMB 23 million (USD 3.54 million) from several companies and individuals and abused his official position by providing illegal benefits in the form of project approvals, the award of construction project contracts, etc. to the bribe-givers. Yao was given a lighter sentence due to his confession and his return of illegal gains.

(4) It was reported on December 28, 2015 that Wang Zhumou (“Wang”), the former President of No. 2 Medical School of Hainan Province was sentenced to 10 years and 6 months’ imprisonment by the Intermediate People’s Court of Haikou City, Hainan Province for accepting bribes.

From March of 2010 to 2014, Wang illegally assisted others in seeking improper benefits, and accepted bribes amounting to RMB 1.54 million (USD 237,251) in return.

(5) On December 29, 2015 Zhou Wenbin (“Zhou”), the former President of Nanchang University was sentenced to life imprisonment by the Intermediate People’s Court of Nan Chang City, Jiang Xi Province for taking bribes and misappropriating of public funds, with all his personal properties confiscated.

Zhou was found guilty of abusing his position in construction project contracts, education project cooperation, sourcing, job promotion, and arrangements for contractors, partners, and certain college staff during his years in office from 2002 to 2013. The bribes given in exchange for the above favors included RMB 21.11 million (USD 3.25 million), HKD 300,000 (USD 38,708), USD 10,000, KRW 900,000 (USD 765), shopping cards worth RMB 24,000 (USD 3,697), and a Cartier watch worth RMB 38,600 (USD 5,946). In addition, Zhou embezzled the public funds of Nanchang University totaling RMB 58.75 million (USD 9.05 million) for profitable activities.
4. Other

No developments.

5. China-related FCPA Action

No developments.

Monthly China Anti-Bribery Update Report — November 2015

1. New laws or regulations

State level: No developments.

Local level (Beijing & Shanghai): No developments.

Communist Party Rules: No developments.

2. Upcoming laws or regulations

No developments.

3. Government Action

(1) On November 3, 2015, Li Chongxi (“Li”), the former Chairman of Sichuan Provincial Committee of Chinese People’s Political Consultative Conference (“CPPCC”), was sentenced by the Intermediate People’s Court of Nanchang City, Jiangxi Province to 12 years’ imprisonment with confiscation of personal property of 1 million RMB (USD 156,200) for taking bribes.

The court found that while holding office, Li provided illegal assistance to entities and individuals such as Chengdu Construction Engineering Group Corporation and Sichuan Gardener Real Estate Development Co., Ltd. etc. by abusing his power. He and his wife accepted cash in Renminbi and US dollar from the mentioned bribe-givers at an aggregate amount exceeding RMB 11 million (USD 1.71million). For those pecuniary gains, Li unlawfully secured various benefits including granting the state-owned land development rights, facilitating the election of member of Sichuan CPPCC standing committee, etc. Li was given a lighter sentence due to his confession and return of illegal gains.

(2) On November 6, 2015, Beijing First Intermediate People’s Court issued a court verdict, sentencing Song Jian’guo (“Song”), the former Chief of Traffic Management Department of Beijing Municipal Public Security Bureau to life imprisonment.

Song, during his term of office from 2004 to 2014, exploiting his power as the chief of Tongzhou Branch of Beijing Municipal Public Security Bureau and the Traffic Management Department of Beijing Municipal Public Security Bureau, solicited and accepted bribes amounting to RMB 23.9 million (USD 3.73 million), from the legal representatives or responsible persons of Beijing Crescent United Motors Corporation, Beijing Maqiao Dragon Real Estate Co., Ltd and Beijing Pangu Investment Co., Ltd. etc. In return, Song secured various favors such as the granting of Beijing motor vehicle license plates and a license to operate a driving school.

(3) On November 13, 2015, Luo Weiguo (“Luo”), the former head of Discipline Inspection Group of the Land Recourse Department of Guangxi Province was sentenced to 15 years in prison by Guilin Intermediate People’s Court of Guangxi Province.

During his term of office from 2005 to March 2011, Luo was found to have abused his position in favor of Nanning Fangte Engineering Equipment Co., Ltd and certain individuals in exchange for bribes in the amount of RMB 7.07 million (USD 1.1 million) individually or collectively with others. Even after retirement, Luo was found to have continued procuring unlawful benefits in land development and consolidation projects by using his established influence and relationships, individually and collectively with others, accepting bribes totaling RMB 7.92 million( USD 1.23 million).

(4) On November 15, 2015, Jiang Ming (“Jiang”), the former Secretary of Party Committee of Lishui District, Nanjing City was sentenced to 9 years and 3 months in prison by the Intermediate People’s Court of Huaian City, Jiangsu Province for taking bribes, as well as for bigamy. Jiang’s personal property valued at RMB 800,000 (USD 124,960) was confiscated.

Allegedly, Jiang abused his power by providing illegal benefits to a wide range of third parties. In return, Jiang solicited and accepted bribes exceeding 3.68 million RMB (USD 574,816), all of which have been turned over to the state treasury. Also, Jiang was found to have lived as a husband with and fathered a daughter with a woman despite an existing marriage. Jiang was given a lighter sentence due to his confession.
.
(5) On November 19, 2015, Zhu Zuoli (“Zhu”), the former Vice-Chairman of CPPCC of Shanxi Province was sentenced by the Intermediate People’s Court of Langfang City, Hebei Province to 11 years in prison, with confiscation of his personal property of RMB 500,000 (USD 78,100) for accepting bribes.

Zhu was found guilty of procuring for various individuals and entities favors and unlawful pecuniary interests related to governmental financial subsidies, approvals of projects, job promotions, etc. The bribes that he accepted amounted to nearly RMB 8.54 million (USD 1.33 million) during his term of office from 2006 to 2013.
4. Other

No developments.
5. China-related FCPA Action

No developments.

Deferred Prosecution Agreements: The Sign of Things to Come?

In a landmark decision, the first Deferred Prosecution Agreement (“DPA”) was approved  on Monday at the Royal Courts of Justice, by Lord Justice Leveson.  The DPA was introduced as a means of alternative disposal following a criminal investigation into a corporate organisation back in February 2014, under the Crime and Courts Act 2013[1]. It is only available to the Directors of the Crown Prosecution Service and the Serious Fraud Office (“SFO”).

Under a DPA, proceedings are automatically suspended following charge, on the agreement that negotiated terms (which must be approved by the court) will be performed by the company. If the conditions are not complied with, then prosecution proceedings may be commenced. In order to enter a DPA the prosecutor must be satisfied that both the evidential test and the public interest test, as set out in the SFO DPA Code of Practice has been met.

The SFO have reported that the DPA approved yesterday related to an SFO prosecution against Standard Bank Plc in relation to the alleged bribery of Tanzanian Government Members.  Standard Bank Plc were indicted under section 7 of the Bribery Act 2010, for alleged failures to prevent bribery.  This was the first use of section 7 by any prosecutor and pursuant to an application by the SFO to defer the prosecution in the interests of justice, the indictment was suspended on 30 November 2015.

As part of the DPA, Standard Bank will pay US$25.2 million in financial orders and US$7 million in compensation to the Government of Tanzania. The bank has also agreed to pay the SFO’s reasonable costs of £330,000 in relation to the investigation and subsequent resolution of the DPA. The bank’s fines were reduced by a third, because it brought the matter to regulators, and the agreement requires the continued cooperation of Standard Bank Plc with the SFO.  They will be subject to an independent review of its existing anti-bribery and corruption controls, policies and procedures regarding compliance with the Bribery Act 2010 and other applicable anti-corruption laws.

This landmark DPA will serve as a template for future agreements,” said SFO director David Green. The SFO contends that this was not a private plea “deal” or “bargain” between the prosecutor and the defendant company. The agreement offers a way in which a company can account for its alleged criminality to a criminal court.  It has no effect until a judge confirms in open court that the DPA is in the interests of justice and that its terms are fair, reasonable and proportionate. DPA’s are intended only to be used in exceptional circumstances and allow investigators and prosecutors to focus resources on those cases where a prosecution is required.

David Green confirmed the transparent approach of Standard Bank Plc had likely garnered the favourable outcome in seeking the DPA rather than prosecution, “I applaud Standard Bank for their frankness with the SFO and their prompt and early engagement with us.

The Bank’s solicitors reported Standard Bank Plc to the Serious and Organised Crime agency on 18 April 2013 and the SFO on 24 April 2013.

As reported in our previous blog, the Bribery Act requires adequate procedures to be put in place to mitigate the risks of bribery. All companies should be aware of the implications of the Act and what steps they need to take. If you require advice on the steps required for your business, or have any specific queries, please free to contact a member of our team.

[1] Crime and Courts Act 2013, section 45 and Schedule 17.

UK Government makes U-turn on the reform of corporate criminal liability

In September 2014, the new Attorney General, Jeremy Wright, revealed that the government was considering introducing a new offence of corporate failure to prevent economic crime, such as fraud and money laundering, similar to the corporate offence in the UK Bribery Act 2010 of an organisation failing to prevent bribery.

In its UK Anti-Corruption Plan, published in December 2014, the government undertook to examine the introduction of this new offence by June 2015. Their reasoning being that ‘in addition to bribery, there are likely to be other forms of economic crime for which it is appropriate to ensure that senior corporate actors are sufficiently accountable.’

In their 2015 election manifesto, the Conservatives pledged to make it illegal for ‘companies to fail to put in place measures to stop economic crime such as tax evasion in their organisations’ and to ensure that penalties were large enough to punish and deter.

Why were the reforms necessary?

These reforms were supported by Serious Fraud Office’s (“SFO”) director, David Green QC, who said that these changes would make it easier for the SFO to effectively bring charges against companies. David Green QC has frequently cited the inadequacy of the English Law on corporate criminal liability. He attributes this to the identification principle (the need to attribute guilty knowledge to the directing mind of a company to secure a conviction) and advocates a move closer to vicarious liability, as in the USA.

David Green QC also argued that this change would complement the new Deferred Prosecution Agreement (“DPA”) provisions, as at the moment companies are likely to conclude that whilst the prosecution of a company is so difficult under UK law, there is no advantage in self-reporting and agreeing to a DPA.

What is the development?

On 28 September 2015, in an answer to a written question submitted by conservative MP Byron Davies, Andrew Selous, Parliamentary Under-Secretary of the Ministry of Justice, announced plans to stop work on creating a new offence for failing to prevent economic crime. Selous cited two main reasons for the decision:

1) There have been no prosecutions under the model Bribery Act offence; and

2) There is little evidence of corporate economic wrongdoing going unpunished.

This indicates that the government does not consider there to be a problem, and that the introduction of new laws and the widening of the current ones would be surplus to requirement. This is surprising as the government have previously expressed grave concerns about the damaging effect of corporate economic crime on the economy and the lack of options for dealing with companies that offend.

What is the effect of the decision on companies?

For the time being at least, there seems to be no prospect of a change in the law on corporate liability for economic crime. Companies should however remain vigilant to the corporate offence under the Bribery Act and ensure they have adequate anti-bribery and corruption systems in place as the SFO and Financial Conduct Authority (FCA) will continue to use the current model of corporate criminal liability in order to try and prosecute companies.

If there continues to be a lack of prosecutions under the current provisions and the new DPA system fails to take off, it is possible that the SFO will press for the threshold for corporate liability to be lowered and a widening of the provisions may well be considered again in the not too distant future.

Companies should also be aware that a government consultation on a potential new corporate criminal offence of failure to prevent the facilitation of tax evasion closed on 8 October 2015. The consultation indicates that this new offence will apply to both corporations with a presence in the UK and non-UK based corporations whose agents criminally facilitate the evasion of UK taxes in other jurisdictions. As with the bribery offences, there is likely to be a due diligence defence to ensure that corporations who have taken reasonable steps to put in place adequate compliance procedures are not prosecuted.

Monthly China Anti-Bribery Update Report — October 2015

1. New laws or regulations

State level: No developments.

Local level (Beijing & Shanghai): No developments.

Communist Party Rules: No developments.

2. Upcoming laws or regulations

No developments.

3. Government Action

(1) It was reported on October 6, 2015 that Wang Xizhong (“Wang”), the former Deputy General Secretary of the People’s Government of Luoyang City, Henan Province, had been sentenced by the Neiyang County People’s Court of Nanyang City, Henan Province to 8 years’ imprisonment for taking bribes. All of his illegal gains have been recovered.

The court found that while holding office, Wang unlawfully accepted cash in Renminbi and US dollars, as well as shopping cards and a camera, valued at nearly RMB 1.58 million (USD 248,850) in total. For those pecuniary gains, Wang unlawfully secured various benefits for third parties in the granting and facilitating of projects.

(2) On October 12, 2015, Xianning Intermediate People’s Court of Hubei Province issued a court verdict, sentencing Li Chuncheng (“Li”), the former Vice-Secretary of the Sichuan Province to 13 years imprisonment, with confiscation of personal property in the amount of RMB 1 million (USD 157,600).

Li, a member of the CPC, was found guilty of taking a significant number of bribes from 1999 to 2012 and breaching the ethical rules of the Chinese Communist Party. During his term of office, Li accepted bribes amounting to RMB 39.79 million (USD 6.27 million), and sought illegal benefits for bribe-givers, causing the losses of public funds exceeding RMB 3 million (USD 472,500). Li was the first provincial level officer who was put under investigation since the 18th CPC National Congress. Li was given a lighter sentence because of his confession and his return of illegal gains.

(3) On October 12, 2015, Jiang Jiemin (“Jiang”), the former Chief of State Owned Asset Supervision and Management Commission of the State Council, was sentenced to 16 years’ imprisonment by Hanjiang Intermediate People’s Court of Hubei Province, and his personal property valued at RMB 1 million (USD USD 157,600) was confiscated for taking bribes, abuse of power, and for possessing a large amount of assets from unidentified sources.

During his term of office from 2004 through 2013, Jiang had been appointed, successively, as the Vice-General Manager, General Manager, Director, Chairman of the board, and Party Secretary of Petro China Company Limited, a state-owned enterprise. While in office, Jiang was found to have received, for himself and for his close family members, unlawful benefits in the aggregate amount of RMB 14 million (USD 2.2 million). In return, Jiang was found to have procured favors, unlawful pecuniary interests, and job promotions for various third parties, and the court found that the amount of personal assets of Jiang and his family members was largely disproportionate to Jiang’s earnings throughout the alleged period. Jiang and his family members were unable to provide a rational basis for the wealth. Jiang was given a lighter sentence due to his confession and return of illegal gains.

(4) On October 13, 2015, Wang Yongchun (“Wang”), the former Deputy General Manager of China National Petroleum Corporation, was sentenced to 20 years in prison for taking bribes, possessing a large amount of assets from unidentified sources and abuse of power by the Intermediate People’s Court of Xiangyang City, Hubei Province, with confiscation of personal property worth RMB 2 million (USD 315,000).

Wang was found guilty of seeking illegal benefits in oilfield development, project contracts, job promotion, position adjustment, business operation, etc. for third parties in exchange of bribes of RMB 42.45 million (USD 6.68 million) received from 67 entities and individuals. Wang was given a lighter sentence due to his confession and the return of illegal gains.

(5) It was reported on October 27, 2015 that Zhang Xiaopu (“Zhang”), the former Party Secretary and Deputy Chief of Liaoning Development and Reform Commission and former Deputy Chief of the Provincial Committee of Population, Resources and Environment, was sentenced to 15 years in prison for embezzlement and accepting bribes by the Intermediate People’s Court of Benxi City, Liaoning Province.

Zhang was found guilty of taking bribes, individually or together with others, in an amount up to nearly RMB 10 million (USD 1.575 million) during his term of office from 2011 to 2014. In return, he assisted bribe-givers in obtaining governmental subsidies, winning governmental tenders, etc. The court also made the judgement to confiscate personal property in the amount of RMB 2.4 million (USD 378,000).

4. Other

No developments.
5. China-related FCPA Action

No developments.

Fair Go vs First Amendment in Australia: bans to political donations by property developers survive constitutional challenge

If you’ve ever been to Australia, or are familiar with Australian politics, there is a good chance that you have heard the catch cry of the ‘fair go.’ For our non-Australian audience, this can be roughly translated to ‘equality of opportunity for all Australians’. As we all know, in the United States freedom of speech sits at the apex of the US Constitution. Although they are both admirable values, the circumstances of McCloy v New South Wales[1] tasked the High Court to answer the question: what is the right balance between equality and liberty?

Background

The case involved a challenge to the Election, Funding and Disclosure Act 1981 (NSW) (‘the Act’) by the plaintiff, Jeff McCloy, former Mayor of Newcastle and property developer. The plaintiff had been investigated by the New South Wales Independent Corruption and Crime Commission (ICAC) regarding political donations made to the NSW Liberal Party. These investigations led to the resignation of several of his party colleagues in the area.

The Act prohibits donations by property developers and alcohol and tobacco companies to NSW political parties at a local or state level[2] (’prohibited donations’). It also caps any donations to NSW state politicians at $5,000[3] (‘caps’). The rationale behind these provisions (which were introduced by the former NSW Labor government in the wake of its own corruption scandal) is to provide for equal and access to politicians for everyone, regardless of how deep their pockets.

There is no First Amendment equivalent found in the Australian Constitution. Instead, the plaintiff alleged that the provisions in the Act which prohibited donations and imposed caps were invalid because they impermissibly infringed on the freedom of political communication on government and political matters which has been implied into the Constitution by the High Court (‘the freedom’).

The Test

The majority of the High Court used a 3-stage process[4] to test whether the impugned law infringed the freedom.[5] The test can be summarised as follows:

If a law is shown to burden the freedom in its terms, operation or effect then, to be valid, the law must:

  • be compatible to the maintenance of the constitutionally prescribed system of representative government; and
  • be proportionate (in the sense of being reasonably appropriate and adapted to advance the legitimate object of that law).

The proportionality question involves a consideration of the suitability, necessity and adequacy of balance of the law.

All seven High Court Justices found that the freedom was burdened. However using this test, the majority (French CJ, Kiefel, Bell and Keane JJ in a joint judgment, Gageler J and Gordon J) rejected the plaintiff’s contentions and held that none of the provisions were invalid. Nettle J held that prohibited donations sections were invalid.

A distinctly Australian approach

The majority of the High Court rejected the plaintiff’s attempt to assert an individual, First Amendment-style right. They opined that the plaintiff’s argument “mistakenly equate[d] the freedom under our Constitution with an individual rights such as is conferred by the First Amendment of the United States Constitution, which operates in the field of political donations and is in the nature of both a right of political expression and a right of political association.”[6]

Instead of framing the legitimacy of a law based on individual rights, the High Court followed the egalitarian approach established in the Australian Capital Television Case[7] which struck down legislation that did not give equality of access to television and radio to all candidates of political parties. [8]

It wasn’t open to the plaintiff to seriously argue against the legitimacy the Act, since a challenge to the Act had been previously rejected by the High Court in Unions NSW[9]  where it was found that the Act served a legitimate anti-corruption purpose.

Instead, the plaintiff attempted to draw on United States’ jurisprudence to narrow the meaning of corruption and argue the law was invalid on the compatibility and proportionality grounds. However, in this case the High Court distanced itself from the United States Supreme Court which recently confined the meaning of ‘corruption’ to quid pro quo corruption in the context of political donations. [10]  The High Court did not agree that buying influence through donations did not amount to corruption.[11]

Far from agreeing with the plaintiff, the High Court said that the purpose of the caps on donations imposed by the Act “are not only compatible with the system of representative government; they enhance and preserve it.”[12]

NSW property developers beware

Although other States and Territories have experimented with caps in the past, bans on political donations by property developers are unique to NSW.[13] It does not appear that other Australian jurisdictions are likely to follow NSW and ban donations from property developers in the near future. Such provisions in the Act were made to respond to the incidence of property developers in NSW who sought to influence their self-interest, in the wake of eight adverse ICAC reports concerning land development applications in the last two decades.[14]

Now that the High Court has confirmed the validity of those laws banning property developer donations in NSW, it is likely that they are here to stay. Since the vast majority of planning decisions are made at the local government level, it is expected that the caps on political donations will be expanded down the chain to restrict donations made to local government elections and local government candidates.[15]

[1] McCloy v New South Wales [2015] HCA 34.

[2] Election, Funding and Disclosure Act 1981 (NSW), ss.96GA-GB

[3] Election, Funding and Disclosure Act 1981 (NSW), Div. 2A.

[4] Established by Lange v Australian Broadcasting Corporation [1997] HCA 25 and refined by Coleman v Power [2004] HCA 39

[5] [2015] HCA 34, [2].

[6] [2015] HCA 34, [30]

[7] Australian Capital Television Pty Ltd v The Commonwealth (1992) 177 CLR 106.

[8] [2015] HCA 34, [43]; Australian Capital Television Pty Ltd v The Commonwealth [1975] HCA 53.

[9] Unions NSW v New South Wales (2013) 252 CLR 530.

[10] McCutcheon v Federal Election Commission, 575 US (2014) (US Supreme Court, No 12-536, 2 April 2014)

[11] [2015] HCA 34, [35]-[43].

[12] [2015] HCA 34, [47].

[13] [2015] HCA 34, [49].

[14] [2015] HCA 34, [49], [51].

[15] Law Report, ‘Property developer loses HC challenge to rules on political donations’, 13 October 2015.

Cooperation is Key – Scottish Company receives civil penalty for contravention of Bribery Act

Brand-Rex Limited, a Scottish company specialising in developing cabling solutions for network infrastructure and industrial applications, has become the first UK Company to be penalised for contravention of Section 7 of the Bribery Act 2010.

The company avoided criminal prosecution and was instead ordered to pay £212,800 by way of a civil recovery order after self-disclosing an instance of failing to prevent bribery by a third party associated with the company.

What did Brand-Rex do wrong?

The company  had been operating a system called ‘Brand Breaks’ between 2008 and 2012, in which UK distributors and installers were eligible for varying degrees of rewards (including foreign holidays) for meeting or exceeding sales targets.

The scheme itself was wholly legitimate. The problem arose when an independent installer of Brand-Rex products (“an associated person” for the purposes of Section 7) offered tickets earned by him under the scheme to an employee of one of his customers. This went beyond the intended terms of the scheme, as this customer was an end user of Brand-Rex products, not an installer or distributor.  The individual who received the tickets was in a position to influence decisions as to where his company purchased cabling from, meaning Brand-Rex were in breach of Section 7 of the Bribery Act even though they did not intend this individual to receive any tickets.

Why did Brand-Rex receive a civil sanction for a criminal offence?

As soon as Brand-Rex became aware of the issue, and their potential liability under the Bribery Act, they engaged external solicitors and forensic accountants to investigate. In June 2015, they self-reported the matter to the Scottish Crown Office and Procurator Fiscal Service (COPFS), accepting responsibility for their failure to prevent bribery by an associated person under section 7 of the Bribery Act.

Due to this self-reporting and extensive co-operation with the authorities, the COPFS were lenient and agreed to a civil recovery order. The civil settlement was calculated based on the gross profit made by Brand-Rex resulting from the misuse of the incentive scheme.

Brand-Rex also agreed to ensure the implementation of its anti-bribery and corruption (ABC) policies, procedures and training programmes. Brand-Rex had ABC policies and procedures in place while the Brand Breaks scheme was operating, however they did not attempt to assert that they were adequate, which would have constituted a complete defence under Section 7(2) of the Bribery Act.

Would the result have been a different in England?

Brand-Rex took advantage of a specific voluntary disclosure programme in Scotland, which meant that their self-reporting and co-operation with the authorities worked heavily in their favour.  There is no such scheme operating at present in England.

It is possible that had the case been dealt with in England by the Serious Fraud Office (SFO), the company would have been given the option of entering into a Deferred Prosecution Agreement (DPA) as an alternative to a criminal prosecution. DPAs allow for the suspension of a prosecution for a fixed period of time, but only if the organisation agrees to stringent conditions, which may include fines, orders to pay compensation and other remedial measures.

The SFO has stressed that it wants to encourage genuine cooperation from corporate bodies, and hopes that offering DPAs as an alternative to criminal prosecutions will encourage companies to self-report. However, the SFO have said that whilst self-reporting is a factor that will be considered when deciding whether to prosecute an offender, it is only one factor and there is no guarantee that they will offer a DPA following a self-report and therefore, a reporting company may still be the subject of a criminal prosecution in respect of a contravention of the Bribery Act. Any evidence provided to the authorities from their self-reporting could in fact be used against the reporting company if criminal proceedings are taken.

What does this mean for UK businesses?

Most importantly, the case highlights the significance of formulating and enforcing adequate ABC procedures to prevent bribery by associated persons. Organisations can be liable for the acts of third-party agents and this is an area which is often overlooked. Adequate procedures should be in place to combat this risk. This may include compliance training to third parties and on-going monitoring of their business.  If adequate ABC procedures are in place, a company should have a complete defence to any criminal prosecution.

The Brand-Rex case also shows the importance of undertaking a full internal investigation into alleged wrongdoing at the earliest opportunity and, if a self-report is to be made, that this is done promptly.

It is unclear how the SFO would have approached this case in England, although a DPA would have been a high possibility. Companies should keep up to date with any developments regarding DPAs and look out for the publication of the first UK agreement, which according to some, is to be expected in late 2015/early 2016.

Australian Sports Coalition Makes Submission to Foreign Bribery Senate Inquiry

Australian Sports Coalition Makes Submission to Foreign Bribery Senate Inquiry

The Coalition of Major Professional and Participation Sports Inc. (COMPPS) has made a submission to the Senate Inquiry into Foreign Bribery, calling for a federal legislative response to tackle the threat of local and cross-border match fixing in Australia.

As sports betting in legal and illegal markets continues to grow, and with an ever-rising incidence of match-fixing across sport globally, COMPPS warns of “the potential for the threat of match fixing to strike at the core of sport’s integrity and the perception of sport’s integrity in Australia”.

COMPPS is comprised of the governing bodies of major professional sports in Australia: the Australian Football League (AFL); Australian Rugby Union (ARU); Cricket Australia (CA); Football Federation Australia (FFA); National Rugby League (NRL); Netball Australia; and Tennis Australia.

Keeping Sport Clean: Australian Initiatives

In the Coalition’s submission, dated 8 September 2015, Malcolm Speed, Executive Director of COMPPS, and former International Cricket Council CEO, acknowledged the “serious and concerted” efforts undertaken to address the serious threat that match fixing poses.

In June 2011, federal, state and territory sports ministers endorsed a National Policy on Match-Fixing in Sport, under which governments agreed to pursue measures including nationally consistent legislative arrangements to tackle and deter match fixing, and information-sharing arrangements between governments, major sports organisations, betting operators and law enforcers.

In line with the Policy, the federal government has established the National Integrity of Sport Unit (NISU) to provide national oversight, monitoring and coordination in respect of the threats posed by doping, match fixing and other forms of corruption.

Measures have also been taken by sporting bodies themselves. Working in concert with betting operators and players’ associations, COMPPS initiated an Anti-Corruption Working Party in 2011 to make recommendations for reform and formulate robust codes of conduct for COMPSS members.

COMPPS’ Integrity Committee (CIC) continues to coordinate joint activities amongst the members. “A key element of the work … undertaken by CIC is with the objective of ensuring to the greatest extent possible, consistency amongst the sports in combatting match-fixing,” Mr Speed said.

Dropping the Ball?

It is consistency which is still sorely lacking in the Australian anti-match fixing legislative framework, COMPPS cautions.

The task of tackling match fixing has fallen to be dealt with by local police forces and patchwork state and territory legislation, leading to a general lack of harmonisation in legislative and enforcement approaches across Australia. The promotion of legislative uniformity has been met with varying levels of enthusiasm. To date, not all states have created match fixing offences, and the laws, where implemented, are not all consistent.

These laws have, in places, been put to use. In September 2013, reports emerged of a syndicate conducting multi-million dollar match fixing activities involving Victoria’s Premier League soccer division. Six people were subsequently charged under new Victorian criminal offences introduced pursuant to the National Policy, including the coach, four players (all from the United Kingdom) and a Malaysian national.

COMPPS’ submission presses for greater uniformity to prevent offenders avoiding prosecution by “forum shopping” in jurisdictions which have not adopted the Policy.

Tackling Cross-Border Match Fixing

COMPPS also has transnational corruption in its sights. It suggests that certain forms of cross-border match fixing might be captured and deterred by extending the federal legislative framework on foreign bribery to cover sporting officials. Against the backdrop of the on-going Fifa corruption inquiry, COMPSS submitted that the conduct of officials in international sporting bodies could also fall within the reach of Commonwealth legislative reforms.

Samantha Bricknell, Research Manager at the Australian Institute of Criminology, suggests that corruption in Australia “has been predominantly homegrown”, and the extent to which it will become “a transnational phenomenon remains to be discovered”. Law enforcement and sporting bodies warn, however, of the inevitable infiltration of international syndicates into Australian sport and Australian-hosted sporting events.

Tellingly, ahead of the 2015 Cricket World Cup, the International Cricket Council (ICC) lobbied the Australian and New Zealand host governments to strengthen anti-corruption legislation. With elite cricket rocked in recent years by a series of corruption scandals, the ICC has sought to ramp up monitoring and regulation efforts to stem the perceived rot.

The threat is not so confined, however. COMPPS stresses that match fixing is “sport neutral”, with risks to one sport easily translating into risks to others.

“The extent of time and resources invested in this area and the level of formal and informal cooperation between these stakeholders is indicative of the seriousness with which the threat is perceived and the significant damage that could ensue to all sport if the scourge of match fixing were to increasingly infiltrate Australian sport,” Mr Speed said. It remains, COMPPS suggests, for federal reforms to “increas[e] the armoury available” to address the problem.

How We Can Help

Squire Patton Boggs has specific and extensive experience in:

  • advising on legal, commercial and regulatory issues affecting the sports industry
  • advising on domestic and global Anti-Bribery and Corruption legislative frameworks
  • providing comprehensive training for executive and staff on anti-corruption and bribery laws
  • advising on risk management and due diligence for Boards

Contact: Margie Tannock

LexBlog