Monthly China Anti-Bribery Update Report — March 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 March 4, 2016 that Haikou Intermediate People’s Court had affirmed the sentence of Liao Yongyu (“Liao”), the former Office Director of Education Department of Xiuying District, Haikou City, at 10 years in prison for taking bribes.
The court found that from December 2009, Liao had been responsible for the construction of elementary schools in Xiuying District and that during his term in office Liao had sought illegal benefits for various construction companies in project management, payment collection, and construction inspection and acceptance, and had taken bribes totaling RMB 132,000 (USD 20,403) in exchange.

(2) On March 7, 2016, Yang Chenglin (“Yang”), the former Chairman of Bank of Inner Mongolia, was tried for suspected bribe-taking, embezzlement, and misappropriation of public funds by the Intermediate People’s Court of Baotou City, Inner Mongolia Autonomous Region. Yang’s son and mistress were also tried with him.

Yang was charged with seeking illegal benefits from bribe-givers by abusing the powers of his office, together with his son and mistress, in exchange of bribes amounting to RMB 307 million (USD 47.43 million). Yang was also found guilty of embezzling RMB 6. 28 million (USD 970,318) from Bank of Inner Mongolia, and misappropriating RMB 292 million (USD 45.11 million) from Hohhot City Commercial Bank and Bank of Inner Mongolia for profitable activities. Yang will be sentenced at a later date.

(3) It was reported on March 10, 2016 that Li Zhong (“Li”), the former Director of Government Office of Fangshan District, Beijing, was sentenced by the Intermediate People’s Court of Hengshui City, Hebei Province to 11 years’ imprisonment for taking bribes. His personal property in the amount of RMB 110,000 (USD 16,984), as well as previously detained property in the amount of RMB 1.5 million (USD 231,742), was confiscated.

The court found that from 2009 to 2012, by taking advantage of his position as the Secretary of Party Committee, Li had provided illegally settled payment obligations of one real estate development company and one construction company and accepted and solicited bribes aggregating to RMB 6 million (USD 926,970) in return.

(4) On March 30, 2016, Ji Wenlin (“Ji”), the former Deputy Governor of Hainan Province, was sentenced by the No. 1 Intermediate People’s Court of Tianjin to 12 years’ imprisonment for taking bribes, and personal property valued at RMB 1 million (USD 154,527) was confiscated.

Ji was found guilty of taking advantage of his position from 2000 to January 2013, providing assistance in connection with a national enterprise technology center, arranging job opportunities, and other benefits for several companies and individuals. In exchange, Ji was found to have accepted bribes exceeding RMB 20.46 million (USD 3.16 million). Ji was given a lighter sentence due to his confession.
4. Other

No developments.

Bribery in Scotland – Civil Settlement Under Bribery Act and the Scottish Crown Office

On September 25 2015, Brand-Rex Limited, a Scottish network cabling company, entered into a civil settlement with the Scottish Crown Office, admitting that the company had failed to prevent bribery and had received an improper benefit in violation of Section 7 of the Bribery Act 2010, which applies to the whole of the United Kingdom.

This was the first settlement for a Section 7 infringement of the Bribery Act and the third corporate self-report and civil settlement in Scotland.

The Scottish Crown office implements its own self-reporting regime, separate from that operated by the Serious Fraud Office (SFO) in England and Wales. The Scottish initiative was introduced on 1 July 2011, at which time guidance was issued by the Crown Office and Procurator Fiscal Service on how it would operate. Civil settlements in Scotland were to be operated by the Serious and Organised Crime Division of the Scottish Crown Office in co-operation with Scottish Civil Recovery Unit.

An incentive initiative known as “Brand Breaks” was undertaken by Brand-Rex from 2008 to 2012. The initiative was aimed at distributors and installers connected to the cabling company and upon meeting or surpassing sales targets, installers and distributors qualified for a range of rewards, including holiday travel tickets.

Although the Brand Breaks initiative was not in itself unlawful, an agent of Brand-Rex was found to have exceeded the terms of the scheme between 2012 and 2013. In this instance, the agent was an independent installer of Brand-Rex products that gave travel tickets acquired through the scheme to an employee of one of the agent’s customers. The customer who indirectly received the tickets was a user of Brand-Rex products. Furthermore, the customer, an individual, was in a position to influence purchasing decisions related to cable supplies.

An extensive investigation was launched following Brand-Rex’s discovery of this issue following an internal review. In June 2015, the solicitors acting for Brand-Rex self-reported the violation to the Scottish Crown Office and accepted that Brand-Rex had failed to prevent the infringing activity when the company was in a position to do so, accepting accountability for a contravention of Section 7 of the Bribery Act 2010.

Because Brand-Rex self-reported, the case was considered suitable for a civil recovery settlement rather than a criminal prosecution.  In making the decision to forego prosecution, the Crown Office guidance explains that the Crown considers a number of factors, including:

  • The nature and seriousness of the offence and the extent of harm caused
  • The extent of wrongdoing within the company, including whether or not senior management consented or connived
  • Early action taken by senior management upon discovery of the offence
  • The company’s previous record for bribery conduct
  • The disciplinary action, if any, taken against the wrongdoers
  • Whether the company has engaged fully and meaningfully with the Crown
  • Whether the company has anti-bribery systems in place
  • The impact of prosecution on the company’s employees and stakeholders

Essentially, the civil settlement model operated by the Scottish Crown Office is similar to the model adopted by the SFO prior to the SFO’s introduction of formal Deferred Prosecution Agreements, the first of which was agreed only a month later, in November 2015 with Standard Bank plc.

On 25 September 2015, the civil settlement with Brand-Rex Limited was announced by the Scottish Crown Office. Under the settlement order, Brand-Rex agreed to pay £212,800—the amount of Brand-Rex’s gross profit from the unlawful activity.

Despite the initial commotion and interest surrounding the Bribery Act 2010, little enforcement or prosecution activity took place following the Act’s introduction, despite the powers designated under the Act. During the last six months, however, there has been a marked increase in enforcement activity (as set out in our previous blogs), and the Scottish system is now also clearly demonstrating that it has the necessary bite to encourage self-reporting by companies and that settlements are being progressed in a reasonable timescale.

Fighting Corruption and Fraud- the ICU and SFO

The United Kingdom’s regime against bribery, corruption and fraud is operating in a new landscape following the introduction in August 2015 of the International Corruption Unit (ICU), a new governmental agency created under the auspices of the Department for International Development (DFID).

The latest step in the clampdown on nefarious business practices came as the Serious Fraud Office (SFO) gained more impact with a series of successes. In this climate, businesses need to beware of the tightening of anti-corruption enforcement in the United Kingdom.

A stronger SFO, bolstered by the new ICU and with the backing of wide-ranging legislation such as the Bribery Act 2010, together create very serious potential pitfalls for companies which fail in their anti-corruption diligence.

The Role of the ICU

The ICU was established last year by the DFID to investigate cases of international corruption in developing countries. The ICU unified other existing investigation units in the United Kingdom and was launched in line with the UK Anti-corruption Plan.  The ICU is intended to serve as the central point for investigating international corruption (replacing the Metropolitan Police Service Proceeds of Crime Unit and the City of London Police Overseas Anti-corruption Unit). The DFID pledged £21 million in funding to the ICU until 2020.

Upon launching the new unit, UK International Development Secretary Justine Greening said, “Corruption is not only picking the pockets of the poor, it is an enemy of prosperity and a brake on a country’s development. Through the International Corruption Unit, the best of British law enforcement will step up our aid work combating corruption head on across the developing world.”

In practice, the ICU will target corruption by:

  • tracing and recovering the proceeds of international corruption;
  • supporting foreign law enforcement agencies with international anti-corruption investigations;
  • engaging with government and business to reduce the UK’s exposure to the proceeds of corruption; and
  • working with business to support increased compliance with the Bribery Act 2010.

The ICU began to exercise its powers in 2015 by making arrests of five unnamed individuals in October, as part of an investigation that had commenced in 2013 into “suspected bribery and money laundering offences.”

Increased Enforcement

Despite speculation about plans to abolish the SFO, the SFO has chalked up some notable successes recently. For example, it secured the first Deferred Prosecution Agreement (DPA) with ICBC Standard Bank (formerly Standard Bank Plc) in December 2015 and the first successful conviction of a company for a Section 7 offence under the Bribery Act 2010 in November 2015.

The DPA with ICBC Standard Bank was granted in return for full self-reporting and compliance by the bank, which had paid US$6 million in bribes to government officials in Tanzania via an agent. Through the introduction of DPAs, companies are encouraged to self-report and these agreements effectively introduce another, less adversarial level of enforcement within the UK’s anti-corruption regime. The DPA is designed to increase the impact of the SFO on UK companies, particularly those operating overseas.

The prosecution of Sweett Group PLC for violation of Section 7 of the Bribery Act 2010 also demonstrates success for the SFO. The company, the UK’s only listed quantity surveyor, was fined £2.25 million for failing to prevent the company’s associates from attempting to organise bribes to officials in the Middle East. Section 7 introduced a potentially onerous burden on companies in that they can be held liable for the activities of associated parties, even if they do not knowingly commit acts of corruption. Failure to prevent the corruption made on behalf of a company is enough to constitute the offence.

While companies can protect themselves against Bribery Act prosecutions by ensuring they have “adequate procedures” in place to prevent bribery, the SFO’s first prosecution is likely to be the start of a series of prosecutions. So although Theresa May mooted abolishing the SFO in 2014, events since then indicate that the agency is gaining momentum.

Differences between the SFO and ICU

The mandates of these two agencies overlap in many respects.  Both target bribery, corruption and fraud, and both emphasise the importance of enforcing the Bribery Act 2010. Their powers are also similar; both enforce anti-corruption legislation and can prosecute UK companies for their activities overseas.

However, there are significant differences between the SFO and ICU, particularly when it comes to their purposes. While the SFO aims to primarily tackle domestic and overseas fraud, the ICU is predominantly international in focus and expects to do much of its work in the world’s poorer countries. Jon Benton, Joint Head of the ICU, has said, “The message to individuals and companies who see developing countries as fair game is that the UK has zero tolerance for overseas bribery and corruption.”

The ICU was created to strengthen an apparent weakness in the UK’s enforcement of anti-corruption measures on an international level. An example of an apparent weakness was the SFO’s decision in 2014 to drop its case against Victor Dahdaleh, the British-Canadian billionaire accused of paying more than £35 million in bribes to a sheikh in Bahrain in return for aluminium contracts worth $3 billion. Between 2006 and 2015, more than 150 cases of overseas bribery and corruption were investigated, with just 27 individuals and one company prosecuted.

The ICU aims to deliver a significant increase in the prosecution of overseas money laundering and bribery cases, with a particular focus on tackling corruption in DFID-priority countries (currently 28 countries identified by DFID as being most in need of economic development across Africa, Asia and the Middle East). At present it is unclear how the creation of the ICU will impact the SFO and the SFO’s caseload in those areas where the agencies’ mandates overlap. However the SFO and ICU interact in practice, it is highly likely that the enforcement of anti-corruption measures will now increase in the UK.

We recommend that all anti-corruption practitioners and businesses with an interest in anti-corruption keep an eye on the development of the ICU and on the increasing activity of the SFO. In the current enforcement climate, it is vital for companies to ensure they are vigilant in implementing robust anti-bribery and anti-corruption compliance programmes.

DOJ’s Criminal Division Launches new FCPA Pilot Program

In an effort to enhance its ability to investigate and prosecute Foreign Corrupt Practices Act (FCPA) cases, the Department of Justice’s (DOJ) Criminal Division has launched a new one-year FCPA pilot program effective April 5, 2016.

The program has three main goals:

  • Motivate companies to voluntarily self-disclose FCPA-related misconduct
  • Motivate companies to fully cooperate with the Fraud Section, and
  • Remediate flaws in companies’ controls and compliance programs, where appropriate.

DOJ appears willing to exchange reduced sanctions during the next year in order to obtain improved opportunity to prosecute individuals.

If successful, the Fraud Unit’s Chief Andrew Weissmann says, “the pilot program will serve to further deter individuals and companies from engaging in FCPA violations in the first place, encourage companies to implement strong anti-corruption compliance programs to prevent and detect FCPA violations, and, consistent with the memorandum of the Deputy Attorney General dated September 9, 2015, increase the Fraud Section’s ability to prosecute individual wrongdoers whose conduct might otherwise have gone undiscovered or been impossible to prove.”

Advantages to a company of the new FCPA Enforcement Plan and Guidance Memo include  eligibility for the full range of potential mitigation credit.  For example, if criminal resolution is warranted, the Fraud Section may grant a reduction of up to 50 percent below the low end of the applicable U.S. Sentencing Guidelines fine range, and generally will not require appointment of a monitor. In addition, where those same conditions are met, the Fraud Section’s FCPA Unit will consider a declination of prosecution. On the other hand, if a company chooses not to voluntarily disclose its FCPA misconduct, it may receive limited credit if it later fully cooperates and timely and appropriately remediates – but any such credit will be markedly less than that afforded to companies that do self-disclose wrongdoing.

The pilot program applies only to FCPA matters brought by the Criminal Division’s Fraud Section and no other agency or part of the DOJ. At the end of the one-year pilot period, the Fraud Section will determine whether to extend or modify the program. Additional information about the DOJ’s Criminal Division, Fraud Section and its enforcement efforts, can be found at www.justice.gov/criminal/fraud.

Proposed New Corporate Offence Dropped: Failure to Prevent Economic Crime

The UK Anti Corruption Plan, which was published in December 2014 under the 2010 to 2015 Conservative and Liberal Democrat coalition government  brings together, for the first time, all of the United Kingdom’s activity against corruption in one place.  It sets out the actions that government will take to: make it harder for criminals in the UK to use corruption to carry out their crimes; strengthen the integrity of institutions across the public and private sectors; stamp out bribery and corruption and raise global standards.  Within the Plan, the Ministry of Justice examined whether a new crime of “corporate failure to prevent economic crime” might be warranted.  In connection therewith, the Ministry also stated that it would undertake a review of the rules on establishing corporate criminal liability more widely.  The plan was considered “ground breaking” by international anti-corruption bodies, and the United Kingdom was commended for recognising the threat corruption poses to the UK’s economy and society and that corruption is not an issue that occurs only overseas.

However, on the 28 September 2015 (prior to the Ministry’s entry into a Deferred Prosecution Agreement with Standard Bank plc and the successful conviction of the Sweet Group plc), UK Justice Minister Andrew Selous announced that “the UK has corporate criminal liability and commercial organisations can be, and are, prosecuted for wrongdoing…. Ministers have decided not to carry out further work at this stage as there have been no prosecutions under the model Bribery Act offence and there is little evidence of corporate economic wrongdoing going unpunished.”

Prosecutors have always had difficulties attributing guilt to corporate bodies under UK law.  The application of the “identification principle” in establishing corporate liability in the United Kingdom means that a company can be convicted of any criminal offences only if the prosecution can show that the wrongdoer was also the “controlling mind” of the company.  This is a significant hurdle with large companies and is not a requirement in other countries, such as the United States.  However, the recent conviction of the Sweett Group for a section 7 offence bears out the Justice Minister’s assertion that companies can be and are prosecuted.

The proposed new offence would arm regulators with a specific offence for which they could prosecute companies that fail to implement adequate procedures that would prevent economic crime and fraud from being carried out by their employees and agents.   Attorney-General Jeremy Wright QC confirmed that “the evolving nature of economic crime means we need to continue to find and develop new ways to expose and combat it.”  The Ministry of Justice said that it wanted to assess whether more pressure should be put on businesses to go further in implementing changes to their policies and procedures to target offences other than bribery.  The new offence would complement the existing offence under section 7 of the Bribery Act 2010 of failing to prevent bribery.

Economic crime has been at the centre of increased governmental and judicial focus in the United Kingdom in recent years.  In October 2014, the sentencing guidelines for corporate bodies found guilty of offences of fraud, bribery and money laundering came into force.  The guidelines provide courts with the opportunity to impose much higher fines than had been previously levied in the United Kingdom.  In 2014, Deferred Prosecution Agreements (DPAs) also became available to certain prosecutors, thereby encouraging companies to self-report crimes under the Bribery Act 2010 and avoid a criminal conviction.  The first successful DPA was entered into with Standard Bank plc in November 2015.   The first successful prosecution for a section 7 offence occurred in December 2015, with the Sweet Group plc entering a guilty plea for the company’s failure to prevent bribery.  The sentencing took place in February 2016, and the Sweet Group plc was ordered to pay £2.2m in fines.

In light of the way in which prosecutions are moving under the Bribery Act 2010, the recent DPA and successful prosecution under section 7, it is unclear whether further consideration will be given to the potential offence of failure to prevent economic crime. David Green, Director of the Serious Fraud Office (SFO), has said that he believes further work is required.  He said in January 2016 that “existing legislation makes it difficult to prove criminal liability at the top of big companies… and the lack of corporate charges since the financial crash of 2008 is undermining public confidence.”  In the meantime, it appears that the SFO and the National Crime Agency will continue to exercise their powers under the Proceeds of Crime Act and the Bribery Act, although given the increasing number of corporate scandals, it may be that the Ministry of Justice that will revisit these proposals at some point in the future.

Monthly China Anti-Bribery Update Report – February 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 February 17, 2016, Zhou Peifang (“Zhou”), the former Director of Beijing Haidian District Municipal Garden Service Center and Haidian District Municipal Commission of City Administration and Environment, was sentenced to life imprisonment for taking bribes totaling RMB 17 million (USD 2.59 million) by the Beijing Higher People’s Court, with all his personal property confiscated as well as illegal gains disgorged.

The court found that during Zhou’s term in office from February 2004 to 2009, he illegally aided three companies in winning construction projects as well as settling project payments and accepting bribes while offering to help them by taking advantage of his position. The bribes were mostly given under the guise of lending. Zhou was sentenced to life sentence during his first trial in 2015, and Beijing Higher People’s Court affirmed that original judgment.

(2) It was reported on February 19, 2016 that Ding Yong (“Ding”), the former Deputy Inspector of Zhejiang National Development and Reform Commission, was sentenced to 12 years’ imprisonment for accepting bribes including RMB 9.938 million (USD 1.517 million), USD 40,000 and HKD 70,000 (USD 9,006) by the Intermediate People’s Court of Shaoxing City, Zhejiang Province, with all his personal property valued at RMB 1 million (USD 152,649) confiscated.

The court has found that during his service term from 2002 and 2014, Ding illegally sought personal gains while approving projects for the underwriting and issuance of corporate bonds by taking advantage of his position. He was given a lighter sentence due to his voluntary confession and refund of illegal gains.

(3) It was reported that on February 21, 2016 Song Jianguo (“Song”), the former Director of the Public Security and Traffic Management Bureau of Beijing, was sentenced to life imprisonment for taking bribes by Beijing Higher People’s court, with all his personal property confiscated and his political rights deprived. The original sentence was made by Beijing No. 1 Intermediate People’s Court in November 2015.

Song was found guilty of offering legal representatives and other persons in charge of several companies help in applying for vehicle plates by taking advantage of his position and accepting bribes totaling about RMB 23.9 million (USD 3.64 million). His two drivers, one secretary, and his son also sought illegal benefits in vehicle plates and project awards under his cover, and they have been sentenced separately. In addition, Song bought two apartments in Beijing for his mistress, each with a purchase price below market value, which was deemed manifestly unreasonable, and also accepted two shops valued at RMB 4.86 million (USD 741,877). Lastly, he received kickbacks amounting to RMB 15.3 million (USD 2.33 million) from a gallery after introducing customers to them.

(4) On February 26, 2016, Xu Long (“Xu”), the former Chairman of China Mobile Group Guangdong Company Limited, a state-owned company, was sentenced to life in prison for taking bribes by the Intermediate People’s Court of Guangzhou City, Guangdong Province, with his personal property valued RMB 7 million (USD 1.06 million) confiscated.

Xu was found guilty of accepting bribes including RMB 13.49 million (USD 2.05 million), HKD 2 million (USD 257,315), USD 30,000 and GBP 10,000 (USD 13,856). In exchange, Xu sought illegal benefits for bribe-givers in job promotion, equipment purchase, etc. Xu said that he would appeal to a higher court.

4. Others

None.

5. China-related FCPA Action

(1) On February 4, SciClone Pharmaceuticals (“SciClone”), a pharmaceutical company based in California, agreed to pay over USD 12 million fined by the Securities and Exchange Commission (“SEC”) to settle charges of its violation of the Foreign Corrupt Practices Act (“FCPA”) in relation to anti-bribery, internal controls, and books-and-records provisions including USD 9.426 million in disgorgement of profits, USD 900,000 in prejudgment interest and USD 2.5 million of penalty, and agreed to provide status reports to the SEC in the following three years regarding its remediation and implementation of anti-corruption compliance measures.
China is the major market of SciClone. According to an investigation by the SEC, while engaging distributors in China, SciClone markets and sells its products in China through its international subsidiaries. Employees of SciClone provided money, gifts and other things of value to healthcare professionals hired by state-owned hospitals in China to promote the sales of SciClone’s products, which were all known to the management of SciClone. SciClone also incorrectly recorded such payment as legitimate business expenses, such as sponsorships, conferences, etc., and failed to maintain a sufficient internal accounting control system.

(2) On February 16, 2016, PTC Incorporated, a Massachusetts-based technology company (“PTC”), and its Chinese subsidiaries agreed to pay more than USD 28 million in fines to settle the charges by the SEC to settle parallel civil and criminal actions involving violations of the FCPA of internal controls as well as books and records provisions, among which PTC will pay USD 11.858 million in disgorgement and USD 1.764 million in prejudgment interest to the SEC, while its Chinese subsidiaries will pay USD 14. 54 million fines to the Department of Justice.

The SEC found that from at least 2006 to 2011, two Chinese subsidiaries of PTC provided improper payments such as travel, gifts and entertainment to Chinese government officials of state-owned entities that were PTC customers and the total payment was up to USD 1.5 million, from which PRC gained profits of USD 11.8 million. PTC was also found have disguised such payment as legitimate business expenses or commissions.

The SEC also announced its first deferred prosecution agreement (DPA) with an individual in an FCPA case, Yu Kai Yuan, a former employee of one of PTC’s Chinese subsidiaries, as he has provided significant cooperation during investigation.

Sweett Group plc ordered to pay £2.2m in Bribery case

In last month’s article about the first Deferred Prosecution Agreement secured by the SFO, we referred to another prosecution the outcome of which was awaited.   Following the entry of a guilty plea to an offence under s.7(1)(b) of the Bribery Act 2010 in December 2015, the Sweett Group plc was sentenced at Southwark Crown Court on 19 February 2016.

The Sweet Group plc is an AIM-listed surveyor in the UK, with offices located around the world.  The SFO commenced an investigation into the Sweett Group plc on 14 July 2014, and determined that a Dubai-based former employee of its subsidiary company, Cyril Sweett International Limited, had made corrupt payments.  The payments were made to Khaled Al Badie, the Vice Chairman of the Board and Chairman of the Real Estate and Investment Committee of Al Ain Ahlia Insurance Company (AAAI), to secure a contract with AAAI for the building of the Rotana Hotel in Abu Dhabi.

The Sweet Group plc was ordered to pay a £1.4m fine, a £851,152 confiscation amount and £95,000 in prosecution costs.

This case marks the first successful conviction of a s.7 offence in the UK.  Essentially, s.7 is the corporate offence of a failure to prevent bribery in the course of business.  The Sweett case highlights the important implications the Bribery Act has for companies that are incorporated in the United Kingdom (or are registered as a partnership in the UK) and carry out, or have subsidiaries that carry out, transactions with entities outside the UK.  (The scope of s.7 of the Bribery Act could also extend to a non-UK company carrying out any part of its business in the UK).

A company’s only statutory defence to an alleged violation of s.7 is to prove the company had adequate procedures, systems and controls to prevent bribery.  In the case of the Sweett Group plc, Judge Beddoe said that the defendant had willfully ignored two KPMG reports in 2011 and 2014 flagging up weaknesses in the company’s systems and controls.

Judge Beddoe also remarked that the Sweett Group had not always been cooperative with the SFO in the SFO’s investigation, and initially there was no admission by the Sweet Group plc that bribes had been paid or that the company had tried to divert prosecutors’ attention away from certain parts of the company’s business.  At one point the Sweett Group had contacted the Abu Dhabi company, seeking a letter clarifying that past payments had been finder’s fees rather than criminal bribes. Judge Beddoe said this was a deliberate attempt to mislead the SFO and perhaps highlights why the SFO was not prepared to offer the Sweet Group a Deferred Prosecution Agreement as was done with Smith and Ouzman Ltd late last year.

The SFO commented that “this conviction and punishment, the SFO’s first under section 7 of the Bribery Act, sends a strong message that UK companies must take full responsibility for the actions of their employees and in their commercial activities act in accordance with the law.”

The Sweett Group’s CEO stated, “Sweett Group’s Middle East legacy issue is closed and this marks an important step in the delivery of the company’s new strategy. Over the last year, the company has been transformed with the appointment of a new leadership team, which has successfully addressed key issues facing the business. We have strengthened our internal systems, controls and risk procedures, and refined our strategy, focusing on profitability and cash flow.”

As the SFO begins to take more aggressive action under the Bribery Act, companies should ensure they have robust anti-bribery procedures in place as previously set out in our previous blog.  These procedures must be documented, and companies must implement the relevant training, due diligence, monitoring and disciplinary action.

Judge Beddoe’s comments also bring back into focus the question of whether companies should self-report. Companies should consider the difference in the approach taken by the SFO with regards to Smith and Ouzman (which was offered a Deferred Prosecution Agreement) and the Sweet Group plc, which was prosecuted and successfully convicted.  Co-operation with the SFO may benefit a guilty party, not only based upon the outcome of the potential fine (which in the Sweet Group’s case was of a similar amount to that levied against Smith and Ouzman, which was fined £1.3 million), but for the potential negative impact a conviction and sentencing remarks may have on the reputation of the company.   Concerns held by shareholders with regards to the ethics, transparency and legality of the work being carried out by a company can only be bad for business.

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.

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