Details of the Rolls-Royce DPA emerge

Last week, we published the details of the expected Deferred Prosecution Agreement (DPA) that was yet to be approved by the UK’s High Court on 17 January 2017.

The Serious Fraud Office (“SFO”) has since now confirmed, that the DPA was approved by Sir Brian Leveson, President of the Queen’s Bench Division, and the DPA, Statement of Facts and Judgment have now all been published. The DPA enables Rolls-Royce (Rolls-Royce Plc and Rolls-Royce Energy Systems Inc.) to account for criminal conduct spanning three decades in seven jurisdictions and involving three business sectors.

The allegations against Rolls-Royce arise out of the conduct of its Civil Aerospace business (“Civil”), Defence Aerospace business (“Defence”) and former Energy business (“Energy”) and relate to the sale of aero engines, energy systems and related services. The key components of the bribery involved agreements to make corrupt payments to intermediaries, and the failure by Rolls-Royce to prevent bribery.

Rolls-Royce employs over 40,000 people in more than 50 countries and was described by Sir Brian Leveson as “a jewel in the UK’s industrial crown”.   This is the largest investigation of the SFO to date, spanning over four years, including the arrests of overseas intermediaries, including searches of their premises and interviewing individuals using the SFO’s powers of compulsory interview.

Despite the bribery that has come to light, it is reported in the Statement of Facts, that Rolls-Royce had a number of written policies and committees in place, relevant to the company’s  appointment of intermediaries, and had in fact appointed a ‘Big 4’ accountancy firm in 2009, to complete an Anti-Bribery and Corruption (“ABC”) Compliance review. It appears that Rolls-Royce responded to the recommendations of the 2009 review by issuing a more detailed ABC policy, including the need for proper identification of intermediaries, and risk assessments to be carried out. Rolls-Royce later employed Lord Gold to carry out a further investigation into the company’s approach to bribery and corruption in 2013, and it appears Lord Gold is to continue his work with Rolls-Royce as part of the terms of the DPA (discussed in further detail below).

The UK draft indictment (contained within the Statement of Facts) included 12 counts of alleged bribery, that can be categorised as follows:

  • Conspiracy to Corrupt – Civil Indonesia (1), Civil Thailand (3), Energy Russia (1)
  • False Accounting – Defence India(2)
  • Failure to Prevent Bribery – Energy Indonesia (1), Energy Nigeria (1), Civil Indonesia (1), Civil China (1), Civil Malaysia (1)

The key terms upon which the agreement was approved, and prosecution deferred, were:

(i) The past and future cooperation of Rolls-Royce;

(ii) Rolls-Royce’s disgorgement of profit of £258,170,000;

(iii) Rolls-Royce’s payment of a financial penalty of £239,082,645;

(iv) Rolls-Royce’s payment of costs of £13,000,000 (TBC); and

(v) Rolls-Royce, at its own expense, agreeing to complete the Compliance Program and actions required.

The payments of the disgorgement and financial penalty, have been agreed to be paid in four instalments, the first being £119 million by 30 June 2017, then three further payments in 2019, 2020, and 2021. This will allow Rolls-Royce a ‘year off’ from making any payment in 2018.

Further conditions Rolls-Royce must meet, are to maintain all material gathered as part of its internal investigation and intermediary review for the term of the agreement, it must co-operate fully with any ongoing investigations and/or prosecutions brought by the SFO (which would include the investigations ongoing in relation to individuals), and to comply with a specific Compliance Program.

The Compliance Program is set out in Section F of the DPA, and builds upon the previous involvement and work of Lord Gold. So far, Lord Gold has produced two interim reports.  Rolls-Royce is required to obtain a third and final report by 31 March 2017, and within three months of receipt of this report, Rolls-Royce is to produce an Implementation Plan and provide a copy of  the planto the SFO.

The DPA requests that Rolls-Royce must request specific input from Lord Gold in relation to:

  1. Rolls-Royce’s offer or agreement to provide “concessions” in the form of cash or credits, or through any other means, directly or indirectly to customers;
  2. the geographical distribution, number and professional competence of Rolls-Royce compliance employees;
  3. the tailoring of compliance training to meet jurisdictional risks; and
  4. the effective anti-bribery and corruption policies, procedures and controls of Rolls-Royce Power Systems.

The Implementation Plan must be ‘to the satisfaction of Lord Gold’, and it is identified that the ultimate responsibility for identifying, assessing and addressing risks remains with the Board of Directors of Rolls-Royce.

The DPA is valid for a specific term, up to the 17 January 2022; or a date after 17 January 2021, on which the Serious Fraud Office (SFO), following a reasonable request from Rolls-Royce, confirms in writing that the DPA has concluded and does not provide protection against prosecution for any conduct not disclosed, and the SFO has reported that the investigation into the conduct of individuals will continue.

Given the seriousness of the crimes, and the “egregious criminality over decades”, it has been questioned whether a DPA was appropriate to be granted in these circumstances, and whether Rolls-Royce “got off lightly”. Some commentary has queried whether a prosecution was not brought, due to the the company being ignorant of what was occurring. This was not the case, as Leveson stated in his Judgment, that senior management and the controlling minds of the company were involved, and knew about misconduct in 2010, and failed to report it.   It was made clear however, that none of the current senior management involved were still at the company, after a series of resignations had occurred.

A driving factor in the Court’s approval of the settlement, appears to have included economic concerns over prosecuting the company, including the consequences on individuals employed by the company and the reduction in competition in an already concentrated market. Furthermore, had Rolls-Royce been prosecuted, the criminal conviction might have rendered it ineligible to contract with certain public bodies.

However, despite the enormity of the fines, and the fact that the company has apologised “unreservedly” in the press this week, Rolls-Royce could still be said to have “got[ten] off lightly” in this matter. The company’s share value having increased by almost 4.4% on Tuesday. This reportedly adds almost as much to the company’s market value as the size of the penalty it has to pay.

We anticipate the fall-out from this matter may continue, with the former CEO of Rolls-Royce, Sir John Rose, already being called to lose his knighthood following the announcement, the ongoing investigations by the SFO of individuals, and the impact on long term share value remaining to be seen.

The DPA is considered a huge success for the SFO, and SFO Director David Green, demonstrating the power and ability of the regulatory authority to carry out long term, global investigations.

The US Department of Justice has published its own deferred prosecution agreement with Rolls-Royce concerning the company’s energy division.  The company has agreed to pay the US regulator nearly $170 million, and $25.6m to Brazilian regulators as part of the global resolution of this matter.

If you require further information please contact a member of our team.

Rolls-Royce Set to Avoid Prosecution After Bribery Settlement

Rolls-Royce has agreed to pay £671 million in penalties in response to several long-running bribery and corruption investigations.  Regulators in the UK, the United States and Brazil investigated claims that Rolls-Royce had paid bribes to intermediaries to secure high-value export contracts in a number of overseas markets, including China, Brazil and Indonesia.

In a press announcement, Rolls-Royce stated that it had in principle reached a Deferred Prosecution Agreement (DPA) with the UK Serious Fraud Office (SFO). The proposed DPA is subject to final judicial approval, and the SFO and Rolls-Royce will appear at court on 17 January 2017 to seek this approval.

In addition to the agreement with the SFO, Rolls-Royce has also reached a DPA with the US Department of Justice (DOJ) and a Leniency Agreement with Brazil’s Ministério Público Federal (MPF).

We reported in December 2015 that DPAs were a “sign of things to come” in the UK.  While common in the US, the DPA approach was introduced in the UK in 2014, and until now only two have been agreed, namely, with Standard Bank and a Small Medium Enterprise (SME) that has not yet been named.  The fact that Rolls-Royce has agreed to a DPA of significantly greater value than the first few agreements the SFO struck a year ago is evidence that the DPA is seen as a key weapon in the SFO’s anti-corruption armoury.

The DPA is a voluntary agreement that results in the automatic suspension of a prosecution, provided that negotiated terms including the payment of a financial penalty are fulfilled by the company by the end of the agreement term.  If the conditions are not complied with, then prosecution proceeds.

The financial penalty imposed in the DPA between Rolls-Royce and the SFO amounts to £497.2 million plus interest, payable in accordance with a five-year payment schedule, and costs.  The fine and other terms set out in the agreement with the SFO are subject to examination and approval by Lord Justice Leveson of the Royal Courts of Justice on 17 January 2016.  If approved, this DPA will be, by far, the largest settlement reached by the SFO.  The agreement is also of immense importance to the SFO given Rolls-Royce’s stature as a flagship UK company and a household name.

Rolls-Royce has been praised as “one of the United Kingdom’s great global companies” and “a world leader in the development of advanced technologies… of which the whole country can be proud.”  The allegations of bribery and corruption within Rolls-Royce could have severely damaged the company’s reputation and share price, not least because other companies may choose to steer clear of companies that are under investigation for bribery and corruption.

Nonetheless, it was reported today that Rolls-Royce’s shares were up almost eight percent in the wake of the settlement agreements with the anti-bribery and corruption authorities.  A spokesperson for the company said that “Rolls-Royce has co-operated fully with the authorities and will continue to do so”.  It was also reported that, “[w]ithout admitting any wrongdoing, Rolls-Royce has repeatedly attempted to signal its willingness to reform after the bribery allegations emerged.”

The eye-watering fine against Rolls-Royce sends a clear signal that the UK means business in cracking down on bribery and corruption.  However, it is a positive outcome that Rolls-Royce avoided prosecution, which ultimately will help the company move forward and recover from this issue more quickly.

If you require advice on anti-bribery and corruption, please contact a member of our team.

New French Anti-corruption Law “Sapin II”

At the end of 2016, after having undergone the scrutiny of the French constitutional court, French Law n° 2016-1691 of 9 December 2016, also known as “Sapin II” after the Finance and Economy Minister behind it, was finally enacted. It will, amongst other things, strengthen French anti-corruption regulations and has been hailed as a “game-changer”.

Over the years, France has built quite an extensive set of regulations to fight against corruption and bribery, prohibiting active and passive corruption (including facilitation payments) or influence peddling, both in the public and private sector, whether domestic or foreign. It also has a long list of ancillary offences, such as, for example, favouritism in public procurement procedures or, more generally, unfair representation of a company’s accounts and abuse of corporate assets. Nonetheless, France is not considered to have efficiently enforced this regulation. The law, Sapin II, aims to implement actual compliance programmes and increased reporting (and hopefully sanctioning) of offences.

Continue Reading

Monthly China Anti-Bribery Update Report – November 2016

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 November 4, 2016 that Zhuang Yao (“Zhuang”), the former Chairman of Guangdong Materials Group Co., Ltd. (“GMGC”), a state-owned enterprise, attended his first trial from November 1 to 3 before the Intermediate People’s Court of Maoming City. Zhuang is accused of bribe-taking, embezzlement, and intentional destruction of accounting records. The ill-gotten gains in question amount to more than RMB 570 million (USD 82.7 million).

Zhuang was accused of abusing his position as the General Manager, Deputy Party Secretary, Chairperson, and Party Secretary of GMGC to seek large and improper interests for others from 2002 to 2012. In return, Zhuang accepted bribes amounting to RMB 16.5 million (USD 2.39 million). Zhuang was found guilty, alone or in collusion with others, of illegally embezzling public properties totaling RMB 554 million (USD 80.39 million) from 1999 to 2009. In addition, in violation of law, Zhuang destroyed a real estate company’s accounting books together with others to hide the corruption.

The court will render its judgement on another given date.

(2) On November 11, 2016, Zhao Liping (“Zhao”), the former Deputy Chairman of the Chinese People’s Political Consultative Conference of Inner Mongolia Autonomous Region, was sentenced to death by the Intermediate People’s Court of Taiyuan City, Shanxi Province for deliberate murder, bribery-taking, the illegal possession of a gun and ammunition, and the illegal storage of explosives. Plus, Zhao’s personal properties were also confiscated, amounting to RMB 2 million (USD 290,218).

The court found that Zhao was guilty of shooting to death a victim surnamed Li in Chifeng City, Inner Mongolia. During the on-site investigation by the Public Security Bureau, two guns along with 49 bullets were found and 91 detonators were also seized at Zhao’s office. In addition, from 2008 to 2010, Zhao took advantage of his position as the Head of the Public Security Bureau of Inner Mongolia to seek benefits for others in company operations and promotions. In return, Zhao received properties valued at RMB 23.68 million (USD 3.43 million).

(3) It was reported on November 11, 2016 that Zhu Mingguo (“Zhu”), the former Chairman of the Chinese People’s Political Consultative Conference (“CPPCC”) of Guangdong Province, was sentenced by the Intermediate People’s Court of Liu Zhou City, Guangxi Zhuang Autonomous Region to death with 2 years’ suspension of execution, plus deprivation of political rights for life, and confiscation of all personal properties for taking bribes and holding large amounts of properties from unidentified sources.

The court found that from 2004 to 2014, Zhu, directly, or indirectly via his wife, accepted various kinds of properties amounting to RMB 142 million (USD 20.60 million) for taking advantage of his positions as a Member and as the Deputy Secretary of the Standing Committee of Guangdong Province, Secretary of Committee for Discipline Inspection, Secretary of Political Bureau Standing Committee, and Chair of the CPPCC of Guangdong Province in project contracting, land development and position promotion in consideration for bribes. In addition, Zhu failed to identify any legitimate source for large amounts of properties amounting to RMB 91.04 million (USD 13.2 million).

(4) It was reported on November 21, 2016 that Wang Dengji (“Wang”), the former Head of the Bureau of Land and Resources of Shaanxi Province, had been sentenced by the Intermediate People’s Court of Langfang, Hebei Province to life imprisonment for taking bribes, plus deprivation of his political rights for life and confiscation of his personal property.

Wang was alleged to have taken advantage of his positions as the Mayor of Yulin City and as the Head of Shaanxi Land Bureau to seek benefits for others in the integration of mineral resources, the granting of mineral rights, and construction engineering. In return, Wang accepted bribes amounting to RMB 66.24 million (USD 9.62 million). This case involves the largest amount of ill-gotten gains ever in Shanxi Province.

(5) On November 22, 2016, Chen Tiexin (“Chen”), the former Deputy Chairman of Liaoning People’s Political Consultative Conference, was sentenced by the Intermediate People’s Court of Harbin, Hei Longjiang Province for taking bribes to 13 years plus 9 months imprisonment, plus confiscation of RMB 2 million (around USD 290,218) from his personal properties.

While acting as the Municipal Party Secretary of Chaoyang City from 2008 to 2013, Chen was found guilty of taking advantage of his position to assist others in business development, project construction, financing and loan, job promotion, etc. In return, Chen accepted properties from others valued at RMB 22 million (USD 3.19 million). Chen was given a lighter sentence due to his confession and his cooperation with the investigation authorities.
4. Other

None.

Monthly China Anti-Bribery Update Report — October 2016

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 14, 2016 that Li Jie (“Li”), the former Deputy Mayor of Haikou City, Hainan Province, was sentenced to 11 years in prison for bribery-taking and fined RMB 1.6 million (USD 236,258) by the No.2 Intermediate People’s Court of Hainan Province.

The court found that from 2004 to 2015, Li accepted from 8 companies and 23 individuals various kinds of properties including cash totaling RMB 9 million (USD 1.32 million) and two bars of gold valuing RMB 19,000 (USD 2,805) (as of the valuation date) in exchange for taking advantage of his positions as the Director of the Road Transport Bureau of Haikou City, the Governor of Meilan District, Haikou City, the Secretary of Meilan District, and the Deputy Mayor of Haikou City in engineering projects, tendering and bidding projects, and project management.

(2) On October 14, 2016, Jin Daoming (“Jin”), the former Deputy Director of the Standing Committee of the National People’s Congress of Shanxi Province, was sentenced to life imprisonment by the Intermediate People’s Court of Zhenjiang City, Jiangsu Province for taking bribes, plus deprivation of political rights for life and confiscation of all his personal properties.

From 2007 to 2014, Jin was alleged to seek illegal benefits for others in such matters as coal mine resources integration, position promotion, and disciplinary investigation by taking advantage of his positions as the Member and Deputy Secretary of the Provincial Party Committee as well as the Secretary of the Provincial Discipline Inspection Commission. In return, Jin illegally accepted from others properties valuing RMB 123 million (USD 18.16 million).

(3) On October 17, 2016, Wei Pengyuan (“Wei”), the former Deputy Director of the Coal Division under National Energy Administration, was sentenced by the Intermediate People’s Court of Baoding City, Hebei Province to death with 2 years’ suspension of execution, plus deprivation of political rights for life for taking bribes and holding large amounts of property from unidentified sources. Wei will not be allowed to apply for any commutation of sentence or parole.

Reportedly, during his term in office from 2000 to 2014, Wei took advantage of his positions to seek benefits for others during the review and approval of coal projects, expert reviews, project contracting, collection of payment for goods, and sales promotion of equipment. In return, Wei illegally accepted properties valued around RMB 212 million (USD 31.3 million). Wei also held large amounts of property largely exceeding his legitimate income with no explainable sources.

(4) On October 18, 2016, Feng Zhiming (“Feng”), a former Member and Deputy Director of the Public Security Bureau in Hohhot City, Inner Mongolia Autonomous Region was sentenced by the Intermediate People’s Court of Hohhot City to 18 years in prison and fined RMB 1.1 million (USD 162,427) for bribe-taking, holding large amount of properties from unidentified sources, illegal possession of a gun and/or ammunition, and embezzlement.

Feng was found guilty of taking advantage of his positions to seek illegal benefits for 13 companies or individuals from 2008 to 2014. In addition, Feng, conspired with his wife, purchased real estate at a price significantly lower than the market price, and sold them to others at a price significantly higher than the market price. The value of the bribes accepted by Feng was over RMB 3.89 million (USD 574,402) in total. Feng was given a lighter sentence due to his confession.

(5) On October 21, 2016, Lin Cunde (“Lin”), the former Deputy Director of Organization Department of Guangdong Provincial Party Committee, was sentenced by the Intermediate People’s Court of Dongguan City, Guangdong Province for taking bribes to life imprisonment, plus deprivation of political rights for life, and confiscation of all his personal properties.

The court found that during his term of office in the Organization Department, Lin took advantage of his position and sought benefits for others in position appointment and promotion, project contracting, and arranging for admission to schools despite insufficient qualifications. The amount of bribes accepted by Lin exceeded RMB 24 million (USD 3.54 million).

4. Other

None.

Monthly China Anti-Bribery Update Report — September 2016

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 September 2, 2016, Wei Xinhong (“Wei”), the former Party Secretary of Qinyang Municipal, Henan Province, was sentenced by the Intermediate People’s Court of Jiaozuo Municipal, Henan Province to 13 years in prison and fined RMB 3 million (USD 449,879) for taking bribes. The court determined that Wei received and solicited from others RMB 9.504 million (USD 1.42 million), USD 20,000, and shopping cards valued at RMB 10,000 (USD 1,499) on 74 occasions in return for seeking benefits for them in real estate developments, business operations, land expropriations, position adjustments, etc.

(2) On September 8, 2016, Wu Xilin (“Wu”), the former Director of Department of Outbound Investment and Economic Cooperation of Ministry of Commerce of China, was sentenced by the No. 2 Beijing Intermediate People’s Court to 10-years in prison plus a fine of RMB 500,000 (USD 74,979) for taking bribes. Wu was found guilty of taking advantage of his position to provide assistance for bribe-givers in business operations, awards of contracts, and mitigation of the accident liabilities of enterprises from 2005 to 2009. In exchange, Wu received in the aggregate RMB 3.42 million (USD 512,862) from these enterprises.

(3) On September 9, 2016, Huang Shaoru (“Huang”), the former Director and Deputy Manager of Hainan State Farms Group Co., Ltd., as well as the former General Manager and Chairman of the board of Hainan State Farms South China Investment Co., Ltd., was sentenced by the Intermediate People’s Court of Sanya Municipal, Hainan Province to 13 years in prison for taking bribes and received a fine of RMB 2 million (USD 299,919). The related press release highlighted that Huang was accused of offering help to several individuals in approving project funds, project cooperation, project tendering and bidding, etc. in return for bribes of RMB 14.32 million (USD 2.147 million) and USD 30,000 from the said persons between 2003 and 2013.

(4) It was reported on September 18, 2016 that Zhang Suzhou (“Zhang”), the former President of Anhui Broadcast and TV Station (the “Station”), was sentenced by the Intermediate People’s Court of Huainan Municipal, Anhui Province to 14 years’ imprisonment for bribery and corruption and further subjected to a fine of RMB 2.5 million (USD 374,899). Allegedly, Zhang took advantage of his position to accept bribes in forms of cash, including RMB 11.23 million (USD 1.68 million), USD 47,000, EUR 2,000 (USD 2,237), shopping cards valued at RMB 179,000 (USD 26,842), and gold bars, jade, and watches valued at RMB 1.06 million (USD 158,957) from a number of entities and individuals during his term of office from 2006 to 2014. In addition, Zhang was found to have illegally embezzled public property amounting to RMB 3.39 million (USD 508,364) by means of fabricating bonuses and reimbursements for personal consumption.

Zhao Hongmei (“Zhao”), the Former Vice President of the Station, was sentenced to imprisonment for 12 years and received a fine of RMB 1.6 million (USD 239,935) for the same charges on the same day. Zhao was charged with taking advantage of her position to embezzle public property totaling RMB 1.61 million (USD 241,339) and taking bribes of RMB 5.69 million (USD 852,931).

(5) On September 27, 2016, Ren Jincheng (“Ren”), a former Member of the Standing Committee of the Municipal Committee of Dalian, Liaoning Province and a former Party Secretary of Changxing Island Economic and Technological Development Zone, was sentenced to 13 years in prison by the Intermediate People’s Court of Benxi Municipal, Liaoning Province for taking bribes. Ren also received a fine of RMB 2 million (USD 299,829).

During his term of office from 1998 to 2015, Ren was found to have received bribes on 37 occasions amounting to RMB 22.21 million (USD 3.32 million) in the form of cash, shopping cards, calligraphy, and paintings. In exchange, Ren provided assistance to bribe-givers in bank loan approvals, business operations, the reform of state-owned enterprises, etc.
4. Other

(1) On September 4 and 5, 2016, national leaders attending the G20 Hangzhou Summit unanimously approved and passed the High-level Principles on International Fugitive Repatriation and Asset Recovery (the “High-level Principles”), the 2017-2018 Anti-corruption Action Plan, and establishment of the Research Center on Fugitive Repatriation and Asset Recovery in China.

The High-level Principles, an international anti-corruption document drafted by China following the release of the Beijing Declaration on Fighting Corruption approved by Asia Pacific Economic Cooperation in 2014, provides that the G20 members will create a cooperative mechanism on fugitive repatriation and asset recovery, such as barring the entry of a corrupt individual and establishing a case-by-case investigation assistance system. The High-level Principles also emphasize joint and cooperative investigation and prosecution of corruption and the inter-state collaborative recovery of ill-gotten gains arising from the crime.
5. China-related FCPA Action

(1) It was reported on September 1, 2016 that AstraZeneca, a UK-based drug manufacturer, agreed to pay a fine of USD 5.5 million to settle an investigation instituted by US Department of Justice and US Securities and Exchange Commission (the “SEC”) relating to its violation of Foreign Corrupt Practices Act (the “FCPA”), including disgorgement of USD 4.325 million, prejudgment interest of USD 822,000 and a civil penalty of USD 375,000.

The SEC alleged that for the purpose of promoting and selling AstraZeneca’s drugs, sales and marketing staff of AstraZeneca’ subsidiaries in China and Russia provided gifts, conference support, travel, cash and other benefits to state-employed medical staff since 2005. AstraZeneca’s Chinese subsidiary is also found having bribed local officials for reduction of and exemption from financial sanctions it faced. The abovementioned fees were falsely recorded by AstraZeneca as “bona fide expense.” AstraZeneca was alleged to have turned a blind eye on the above misconducts of its subsidiaries and failed to carry out effective internal audit.

(2) It was reported on September 12, 2016 that Zhang Junping (“Zhang”), former Chairman and CEO of a Chinese subsidiary of Harris Corporation (“Harris”), Hunan CareFx Information Technology Co., Ltd. (“Hunan CareFX”), an information technology company, agreed to pay a penalty of USD 46,000 to settle charges of violating the FCPA.

Zhang, as the supervisor of Hunan CareFX’s sales staff, was alleged to have knowingly permitted or facilitated the sales staff to reimburse fake invoices to generate cash for the purchase of gifts, which would then be offered to government officials of state-owned hospitals and health departments to influence their decisions to buy the products and services of Hunan CareFX. These expenses were improperly recorded as legitimate expense in the book of Hunan CareFX.

Harris will not be charged, due to its prompt self-reporting, active cooperation during the investigation, and its effort to implement its anonymous complaint helpline and integration of Hunan CareFX into its internal accounting controls after acquisition of Hunan CareFX, which led to the discovery of Zhang’s misconduct.

(3) On September 20, 2016, Nu Skin Enterprises Inc. (“Nu Skin”), a Utah-based company, agreed to pay USD 765,688 to settle charges of violating the internal controls and books and records provisions of the FCPA.

In 2013, Nu Skin (China) Daily Use & Health Products Co. Ltd. (“Nu Skin China”), a subsidiary of Nu Skin, was threatened by the local Administration of Industry and Commerce (“AIC”) to be fined RMB 2.8 million (around USD 419,931) for its violation of China laws and regulations on direct selling. Some staff in Nu Skin China then contacted a Party official, to whom the head of the AIC previously reported, to intervene in this matter. In return, Nu Skin China agreed to donate RMB 1 million (USD 149,975) to a charity identified by this official. Nu Skin China received a notice issued by the AIC that it would not be fined or sanctioned for its wrongdoing after the donation. Supporting internal e-mails were found during the investigation, indicating that contacting this official was essential for Nu Skin China to resolve the matter peacefully.

Monthly China Anti-Bribery Update Report — August 2016

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 August 2, 2016, Hu Xuefan (“Hu”), the former Director of Tourism Bureau of Anhui Province, was sentenced by the Intermediate People’s Court of Anqing Municipal, Anhui Province to twelve (12) years in prison for taking bribes, with monetary fines of RMB 4 million (USD 598,784) and confiscation of illegal gains of an additional RMB 4.6 million (USD 688,602).

Hu was found to have taken advantage of his position from 1999 to 2014, seeking illegal benefits for over 20 legal entities and individuals through the allocation of special tourism funds, ratings for scenic spots, job adjustments and promotions, etc., and either accepted or solicited bribes in the forms of cash, shopping cards and gold bars, individually or together with his family, amounting to RMB 4.6 million (USD 688,602).

(2) On August 8, 2016, Jian Rujian (“Jian”), the former Deputy Inspector of the Local Tax Bureau of Guangzhou Municipal, Guangdong Province, was sentenced to 13 years imprisonment for accepting and providing bribes by Guangzhou Intermediate People’s Court, with fines of RMB 3 million (USD 449,088).

Jian was accused of offering help to various enterprises during tax inspection periods from 2005 to 2013, and accepting illegal proceeds including multiple real estate properties, calligraphy and paintings, cash and shopping cards aggregating more than RMB 9.54 million (USD 1.42 million).

(3) It was reported on August 15, 2016 that Zhou Yao (“Zhou”), the former Chief of the Management Commitment of Lu’an Economic & Technological Development Area of Anhui Province, was sentenced by the Intermediate People’s Court of Chuzhou Municipal, Anhu to 11.5 years in prison for taking bribes and abusing power. Zhou was also fined RMB 1.6 million (USD 239,513).

Reportedly, during his term of office from 2003 to 2013 Zhou accepted bribes valued at RMB 5.61 million (USD 839,795) in exchange for seeking illegal benefits in land grant price refunds, compensation for demolition, adjustments of construction planning, etc. Zhou was also charged with abusing his power to refund land grant prices and pay additional demolition compensation to two companies, causing economic losses for the state of up to RMB 15.55 million (USD 2.24 million).

(4) On August 19, 2016, Ma Yong (“Ma”), the former Party Secretary of Yiyang Municipal, Hunan Province, was sentenced by the Intermediate People’s Court of Chenzhou Municipal, Hunan to 12 years in prison for accepting bribes totaling RMB 3.68 million (USD 550,881) and for abuse of power.

Ma’s case drew attention in China due to the publication of reports regarding his alleged interference with the judiciary. Ma allegedly accepted bribes of RMB 100,000 (USD 14,969) and a bar of gold valued at RMB 33,000 (USD 4,939) from Hu Shuangfu (“Hu”) from 2012 to 2013, and helped Hu’s two sons get light sentence for their crimes of intentional assault, which eventually caused the death of the victim, abusing the power of his office. In addition, during his term from 2007 to 2013, Ma was found to have received bribes including RMB 910,000 (USD 136,223), USD 123,000, HKD 380,000 (USD 48,992), ERU 10,000 (USD 11,169), 4.7 kilograms of gold, and three watches.

(5) On August 26, 2016, Liu Guosheng (“Liu”), the former Deputy Mayor of Heze Municipal, Shandong Province, was sentenced by the Intermediate People’s Court of Taian Municipal, Shandong to 8-years in prison for taking bribes. Liu was found guilty of illegally seeking benefits for bribe-givers in land grant formalities, the allocation of supporting funds, contracts for greening projects, and other arrangements on fifty occasions. In exchange, Liu accepted cash and shopping cards aggregating to RMB 2.1 million (USD 314,361). Liu was given a lighter sentenced due to his confession and return of illegitimate gains.

4. Other

No developments.

5. China-related FCPA Action

None

Law 1778, Colombia’s Latest Attempt at Bringing its Anti-bribery Laws into Compliance with the OECD Anti-bribery Convention

Since being elected in 2010, Colombian President Juan Manuel Santos has been trying to have Colombia become a member of the Organization for Economic Co-operation and Development (OECD). As part of this endeavor, in January 2011, Colombia formally applied to become a participant of the Working Group on Bribery in International Business Transactions (the “Working Group”) and accede to the Convention on Combating Bribery of Foreign Public Officials in International Business Transactions (the “Convention”).

Later that year, attempting to have Colombian Law comply with the requirements of the Convention, the Country passed Law 1474, which sought to amend the article of Colombia’s Penal Code that criminalized the bribing of foreign officials (Article 433), by purportedly adding liability for legal persons. Despite the passage of Law 1474, in December 2012, the Working Group in its Phase 1 Report, voiced reservations with regards to Colombia’s legal framework for liability of legal persons and listed other areas of Colombian Law on foreign bribery that could be strengthened. Even so, it found Colombia’s anti-bribery laws generally capable of conforming to the Convention, leading to Colombia officially becoming the 40th Party to the Convention in January 2013.

In its latest 2015 Phase 2 Report, the Working Group noted that while Colombia had made sincere attempts to implement the Convention, it still had not satisfactorily addressed some of the issues and recommendations from the Phase 1 Report. Among the main concerns was Colombia’s failure to properly address issues pertaining to corporate liability. The Working Group stated that the problem was even greater than it had originally thought, noting that under Colombian Law at the time of the Phase 2 Report, financial institutions and the nearly 90 companies listed on the Colombian Stock Exchange were not subject to financial sanctions for foreign bribery. The Phase 2 Report noted, however, that Bill 159, which was before the Colombian Congress at the time, if passed, could rectify most of the concerns raised and bring Colombia’s law more in line with the Convention. Bill 159, which underwent some changes after going through the Colombian Senate, ultimately became Law 1778.

Law 1778 passed on February 2, 2016 and is Colombia’s newest anti-bribery law. It attempts to correct the deficiencies and implement the recommendations of the Working Group. It represents the Country’s latest step in the fight against corruption and bribery and is one which President Santos hopes will result in Colombia being admitted to the Anti-bribery Commission, and eventually, becoming a full member of the OECD.

Law 1778, which shares many similarities with the US Foreign Corrupt Practices Act (FCPA) and other Anti-bribery laws, creates corporate liability for any Colombian company or any of its foreign subsidiaries, as well as for subsidiaries of foreign companies registered to do business in Colombia, when the company, through one or more of its (1) employees, contractors, directors or shareholders (2) gives, offers or promises (3) to a foreign public official (4) directly or indirectly (5) any sum of money, any object of pecuniary value, or any other benefit or gain (6) in exchange for the foreign public official performing, omitting or delaying (7) any act related to the exercise of the foreign public official’s functions and (8) that is related to international business or international transactions.

As recommended by the Working Group in its reports, Law 1778 attempts to address the issues of corporate liability. It also significantly increases the potential financial sanctions for violations. For example, in the 2012 Phase 1 Report, potential sanctions under Colombia’s prior laws was said to range between $157,500.00 and $630,000.00. Under Law 1778, as of 2016, potential sanctions can go all the way up to just over $45 million.

For a Country which, in spite all of the changes in the past few years, ranks 83rd in the 2015 Corruption Perceptions Index, Law 1778 clearly appears to be a step in the right direction and one that Colombian companies and foreign companies registered to do business in Colombia should take notice of.

 

 

 

Monthly China Anti-Bribery Update Report — July 2016

1. New laws or regulations

State level: No developments.

Local level (Beijing & Shanghai): No developments.

Communist Party Rules:

(1) On July 17, 2016, the Central Commission for Discipline Inspection issued the Accountability Regulations of the Communist Party of China (the “Regulations”). The Regulations specify the intra-Party accountability mechanism for the serious consequences caused by mistakes, negligence and even poor work performance or leadership. The possible punishment includes circulating a notice of criticism within certain scope of the Party, admonishing, position adjustment and disciplinary sanction. In addition, relevant officers will be held responsible for life, even after their job adjustment, promotion or retirement. The Regulations were approved by the Political Bureau of Communist Party of China Central Committee on June 28, 2016.

2. Upcoming laws or regulations

No developments.

3. Government Action

(1) On July 8, 2016, Wei Huaizhong (“Wei”), the former Deputy Minister of the Propaganda Department of Haidian District Party Committee, was sentenced to four years’ imprisonment for bribe-taking by Beijing No. 4 Intermediate People’s Court and was fined RMB 300,000 (USD 45,264).

From 2008 to 2011, Wei was responsible for handling local cultural affairs, during which period he took advantage of his position to assist three companies in applying for special funds from Cultural Development of Haidian District. As a consequence, these companies succeeded in obtaining the allocation of special funds of RMB 3.95 million (USD 595,983). In return, Wei accepted bribes amounting to RMB 1.38 million (USD 208,217) in the form of a commercial contract between one of the three company and a company controlled by one of his relatives. Wei was given a lighter sentence due to his repentance and the refund of illegal proceeds.

(2) It was reported on July 12, 2016, that Hou Duanmin (“Hou”), the former Secretary of the Party Committee of Jining Medical College (the “College”), was sentenced by the Intermediate People’s Court of Weifang City to 11 years in prison for bribe-taking, plus a fine of RMB 600,000 (USD 90,529).

The prosecutor accused Hou of being involved in 28 bribery events from 2002 to the end of 2014, during which period Hou accepted illegal proceeds over RMB 3.13 million (USD 472,260) in total. Originally, the amount of accepted bribes remained relatively low, but things changed soon after his assumption of duties at Jining Medical College, where he received a large number of kickbacks from drug sales to the related hospitals affiliated with the College. Together with his wife, the couple took 70% of the profits generated from such drug sales.

(3) On July 12, 2016, Ji Haiyi (“Ji”), the former Secretary of Party Committee of Sunhe County, Chaoyang District, Beijing was sentenced to life imprisonment by Beijing No. 3 Intermediate People’s Court for accepting bribes approaching RMB 60 million (USD 9.05 million).

During Ji’s term of office from 2005 to 2011, he took advantage of his position to assist several companies and individuals in project contracts, company operations, and compensation for demolition and relocation. In exchange, Ji, individually and jointly with others, accepted properties valuing over RMB 59.32 million (USD 8.95 million) in the form of cash and real property from 11 individuals.

(4) It was reported on July 14, 2016, that Liu Qingcheng (“Liu”), the former Principal of Jiangxi East China University of Technology, was sentenced to 15 years imprisonment for taking bribes by the Intermediate People’s Court of Ji’an City, Jiangxi Province, plus a fine of RMB 1 million (USD 150,881).

According to the prosecution, from December 2002 to May 2014, Liu took advantage of his position to seek illegal benefits for others in campus project bidding, project construction, job arrangement, equipment purchase, etc., and cumulatively accepted bribes exceeding RMB 8.7 million (USD 1.31 million). Liu said he would appeal against the judgment.

(5) On July 25, Guo Boxiong (“Guo”), the former Deputy Chairman of Central Military Commission, was sentenced to life in prison for accepting bribes by the Military Court, deprived of political rights for life and the rank of general, and all of his personal property was confiscated.

4. Other

No developments.

5. China-related FCPA Action

None

Serious Fraud Office Publishes New Guidance on the Presence of Lawyers at Section 2 Criminal Interviews

The Serious Fraud Office (SFO) has published new guidance on the presence of lawyers at section 2 interviews in criminal investigations conducted under section 2 of the Criminal Justice Act 1987, typically with potential witnesses.

The SFO guidance follows the decision of R (Lord and Others) v SFO[1], in which it was ruled that the SFO had been entitled to exclude lawyers, acting for a company under investigation, from also representing employees of that company who were not suspects at their section 2 witness interviews.  There is very clearly a fine line between balancing the interests of the employee with those of a company.

The SFO guidance, however, goes a great deal further than this decision.  Under the new guidance, a lawyer is only permitted to attend a section 2 interview if they meet certain ‘ground rules’; that is if the SFO case controller believes that they:

  1. will assist the purpose of the interview and/or investigation; or
  2. provide essential assistance to the interview by way of legal advice or pastoral support.

The right to have a lawyer present in a criminal interview has been a long standing right and is fundamental to a just and fair judicial system.  The SFO guidance goes some way to fetter this right as the discretion is on the part of the SFO to determine what the purpose of the interview and/or investigation is.

What does “essential assistance” mean?  This term is undefined.  The only clarification of “essential assistance” in the SFO guidance is that it does not equate to anything that “undermines the free flow of information” unless for the purposes of “protecting or maintaining the interviewee’s legal professional privilege”, which suggests it will be interpreted restrictively.

Should a lawyer seek to attend a section 2 interview with an interviewee, they must serve on the SFO, in advance of the interview, their reasons why they should be present; written acknowledgment of the SFO guidance ground rules; and a series of written undertakings by the lawyer’s firm, one of which is that the lawyer does not discuss the contents of the interview with any third party, including the company, without the SFO’s prior written consent.

These requirements are overtly prescriptive in light of the fact lawyers are already subject to Rules of Conduct by the Solicitors Regulation Authority and, ultimately, they may mean that lawyers are excluded from attending section 2 interviews, which would give rise to numerous challenges.  Without lawyers being able to interject or intervene at an interview regarding the interview process, or to advise the witness of their legal rights, witnesses are at risk of giving inconsistent and unclear information which does not assist the investigation and, potentially, being lead into criminal liability.  A witness’ lack of valid legal representation (either because their lawyer is excluded from attending or has an almost entirely passive role in exchange for the privilege of attending) could also mean that witnesses are less inclined to cooperate in an interview and/or investigation.

The new guidance seems to create an antagonistic and unhelpful approach with regards to witnesses and their lawyers and is seemingly in conflict with the SFO’s statement at the start of the new guidance that “interviews under section 2 must be conducted with great care to ensure that they are carried out fairly.”

The SFO has shown its teeth recently and made some good improvements, but it could be said that this new guidance is overstepping the mark.  It will be interesting to see the extent to which the guidance is relied on by the SFO in practice or whether the guidance is challenged.

[1] [2005] EWHC 865 (Admin)

LexBlog