hot topics and enforcement trends in bribery and

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Hot Topics and Enforcement Trends in Bribery and Corruption –UK and US PerspectivesPeter Burrell | Rita Mitchell | Simon Osborn-King29 October 2018

2018: A Challenging, Cross-Border, Landscape

1. FCPA enforcement 2. SFO enforcement 3. SFO corporate investigations4. Privilege in internal investigations after ENRC5. Territorial scope of section 2 notices under scrutiny6. Adequate procedures tested

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Enforcement Actions Initiated Against Companies and Individuals

01020304050607080

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

22 26

47

2311

21 1910

20 2112

1314

26

25

13

139

11

3216

12

DOJ SECYTD

Monetary Sanctions Imposed by the DOJ and the SEC in FCPA-Related Matters Against Companies

0

500

1000

1500

2000

2500

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

150

890

644

1800

509

260

722

1,534

138

2,392

1,453

952

Calendar Year

Fine

Tot

als

(in m

illio

ns)

YTD

FCPA Enforcement Against Corporates: 2018

COMPANY COUNTRY SETTLEMENT AUTHORITY DISPOSITION

Elbit Imaging Ltd. Romania $500,000 SEC Settlement

Transport Logistics International Inc. Russia $2 million DOJ DPA

Kinross Gold Company Mauritania; Ghana $950,000 SEC Settlement

Dun & Bradstreet China $9.2 million SEC Internal Administrative Order

Panasonic Aviation Undisclosed (state-owned airline) $137 million DOJ DPA

Société Générale S.A. Libya $292.8 million DOJ DPA; Guilty Plea

Legg Mason Libya $66.6 DOJ, SEC DPA; Settlement

Beam Suntory, Inc. India $6,183,838 SEC Settlement

Credit Suisse Group AG Hong Kong $29.7 million SEC Settlement

Credit Suisse (Hong Kong) Limited Hong Kong $47 million DOJ DPA

SanofiJordan, Lebanon, Syria, Bahrain, Kuwait, Qatar, Yemen, Oman, UAE

$25.2 million SEC Settlement

United Technologies China, Azerbaijan $13.9 million SEC Settlement

Petróleo Brasiliero S.A.- Petrobras Brazil $1.78 billion DOJ, SEC NPA, Internal Administrative Order

Stryker Corp. India, China, Kuwait $7.8 million SEC Internal Administrative Order

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FCPA Enforcement 2018: Conduct at Issue

Use of Consultants/Third Parties Petrobras: facilitated “massive bid-rigging and bribery schemes”

Petrobras executives deliberately overpaid largest contractors in order to inflate cost of infrastructure projects and, in turn, receive billions in kickbacks, which were then shared with Brazilian politicians and political parties who helped the executives retain their positions

Payments were recorded as funds spent on improving and procuring assets Panasonic: offered a lucrative consulting position to a government official to assist

Panasonic Avionics Corporation in obtaining and retaining business from a state-owned airline. Payments to the government official were made through a third-party vendor that provided

unrelated services to PAC. PAC also paid over $1.76 million to purported consultants (including the government official)

who provided “few if any legitimate consulting services” through a third-party vendor. Société Générale and Legg Mason: paid bribes through a Libyan “broker” in connection

with 14 investments made by Libyan state-owned institutions.

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Use of Consultants/Third Parties, cont’d Beam Suntory, Inc.: Indian subsidiary “used third-party sales promoters and distributors

to make illicit payments to government employees” to “increase sales orders, process license and label registrations, and facilitate the distribution of Beam’s distilled spirit products”. Payments to employees at government controlled depots and retail stores and various

government offices to increase sales orders and get better positioning on store shelves. Payments were demanded by, e.g., an Indian excise official with discretion to issue a

registration. Prior to its acquisition by Beam, the subsidiary had regularly made direct and indirect payments

to Indian government officials. Sanofi: use of distributors as part of a kickback scheme to generate funds to pay bribes

to ensure Sanofi was awarded tenders at public institutions. Kickbacks tracked in internal spreadsheets, coded as “marzipans”. “Pay-to-prescribe” schemes in the Middle East to induce healthcare providers to increase their

prescriptions.

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Addressing Results of Pre- and Post-Acquisition Due Diligence Kinross Gold: acquired African subsidiaries in 2010, aware that they lacked anti-

corruption controls and procedures. Took Kinross almost 3 years to implement adequate controls, despite multiple internal audits

flagging deficiencies. Even after implementing controls, failed to maintain them. (e.g. awarded contracts without

regard to controls and procedures). Dun & Bradstreet: acquired two Chinese subsidiaries that used third-party agents to

make unlawful payments to obtain data vital to D&B’s business. One subsidiary, part of a JV with a Chinese company, acquired non-public financial statement

information on Chinese entities (in violation of Chinese law) by bribing Chinese government officials.

The second subsidiary made payments via third parties to acquire non-public personal data in violation of Chinese law and made payments to obtain “specific business”.

Despite concerns raised during pre-acquisition due diligence, D&B failed to take appropriate action to stop the improper payments or the false entries into the subsidiary’s books and records, which continued for several years post-acquisition.

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Hiring Practices Credit Suisse: allegedly sought to win business by hiring and promoting individuals

connected to government officials as part of a quid pro quo arrangement. Bypassed normal hiring process. Tracking forms/spreadsheets linking hires to business won.

Travel, Gifts, and Entertainment United Technologies: in addition to payments to facilitate sales of equipment and a

kickback scheme to sell elevators in China, allegations of improper trips and gifts to various foreign officials in China, Kuwait, South Korea, Pakistan, Thailand, and Indonesia in order to obtain business . Sponsorship of a golf event for senior executives of Chinese state-owned airlines.

Emails reflect efforts to disguise a golf event as an organized business meeting to get Legal approval. iPads and luggage given as gifts without Legal’s knowledge or approval.

Pure leisure travel for government officials.

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Per Diems Stryker Corp.: Between 2015 and 2017, Kuwaiti distributor allegedly made over $32,000

in improper per diem payments to Kuwaiti health care professionals to attend events, when Stryker had already paid costs of lodging, meals, and local transportation.

False Invoices Transport Logistics International Inc: $1.7 million to offshore bank accounts owned by a

shell company to benefit a Russian government official. False invoices described services that were never provided. Emails used code words for the bribes: “cake”, “lucky figure”, “LF”, “remuneration”,

“commission”. Insurance Corporation of Barbados Limited: Between August 2015-April 2016, senior

employees paid approx. $36,000 in bribes to Barbadian MP/Minister of Industry, International Business, Commerce, and Small Business Development to obtain two government contracts MP was a US legal permanent resident; payments made to him via a US bank account in the

name of a dental company, owned by his friend. Friend helped him transfer the money to a personal bank account in Florida

First DOJ declination with disgorgement under new policy

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SFO Corporate Enforcement 2018

Deferred Prosecution Agreements No new DPAs so far in 2018

Tesco Stores Limited, April 2017 Rolls-Royce PLC and Rolls-Royce Energy Systems Inc, January 2017 XYZ Limited, July 2016 Standard Bank Plc, November 2015

Bribery Act convictions for corporates Sweett Group PLC, February 2016

Civil Recovery Orders Caracal Energy (formerly Griffiths Energy) / Ikram Saleh, March 2018

Raids 30 raids between April 2017 - March 2018

Trials EURIBOR individuals Cansun Guralp and Andrew Bell (Güralp Systems Ltd) Shahid Ullah and Osman Shahenshah (Afren Plc) F.H Bertling Limited and five individuals Christopher Bush and John Scouler (Tesco PLC) John Varley, Roger Jenkins, Tom Kalaris and Richard Boath (Barclays PLC)

“No shortage of work in the pipeline”

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SFO Corporate Investigations 2018

COMPANY (SECTOR) COUNTRY SUMMARY

Alca Fasteners Ltd (IndustrialSupplies) Norway

Alleged corrupt payments made in order to secure Norwegian contracts for a total of $700,000.

SFO working closely with the Norwegian National Authority for Investigation and Prosecution of Economic and Environmental Crime: Conviction of Norwegian businessman Terje Vidar Moe, who pleaded guilty to receiving bribes, in January 2018.

Ultra Electronics Holdings plc (Defence) Algeria Suspected corruption in the conduct of business in Algeria by Ultra, its subsidiaries, employees and associated

persons.Chemring Group PLC and ChemringTechnologySolutions Limited(Defence)

UK, US Alleged bribery, corruption and money laundering arising from the conduct of agents representing CTSL to secure contracts for CTSL.

Eurasian NaturalResources Corporation(Mining)

DemocraticRepublic ofthe Congo,Kazakhstan

Allegations of fraud, bribery and corruption following a whistle-blower report concerning ENRC’s subsidiary in Kazakhstan. In addition, allegations that ENRC made large payments to offshore companies to securemining rights in the Democratic Republic of the Congo at a significant undervalue.

British AmericanTobacco PLC(Tobacco)

UK, East Africa Alleged corrupt payments made by BAT to officials in East Africa.

Formula 1 (Motor Racing) UK

Allegations relate to the 2013 Concorde Implementation Agreement. The Agreement removed the voting rights of certain Formula 1 teams, increased those of the sport’s owner, Liberty Media, and regulator, FédérationInternationale de l'Automobile, and granted the FIA a 1% shareholding. The FIA subsequently sold this shareholding realising a £62 million profit.

Rio Tinto Group(Mining andNaturalResources)

UK, Republic of Guinea

The investigation relates to a $10.5 million payment made in 2011 by Rio Tinto Group to a consultant working on an iron ore deposit in the Republic of Guinea to secure certain claims to the iron ore deposit.

Amec Foster Wheeler PLC(Oil Services) UK Suspected offences of bribery, corruption and related offences.

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SFO Corporate Investigations: 2018

COMPANY (SECTOR) COUNTRY SUMMARY

Airbus Group(Engineering, defence, civil aviation)

China, Turkey, Indonesia, UAE, Kazakstan, Tunisia, Saudi Arabia

On 7 August 2012, the SFO launched an investigation into Airbus’ subsidiary, GPT Special Project Management Ltd. GPT is alleged of making suspicious payments as part of a £2.6 billion contract, where the UK Ministry ofDefence was engaged to modernise the Saudi Arabian National Guard communications system.

In July 2016, the SFO opened an investigation into alleged fraud, bribery and corruption relating to irregularitiesconcerning third-party consultants within the civil aviation business of Airbus. The irregularities reportedly relate to discrepancies in the amount of agents’ fees disclosed in applications for export support and missing names of third parties.

Unaoil Monaco SAM and Unaoil Ltd (Oil)

Includes UK, Iraq and Singapore

Suspected offences of bribery, corruption and money laundering to secure the award of contracts in Iraq.

In November 2017, the SFO charged two individuals (Ziad Akle and Basil Al Jarah) in connection with the Unaoilinvestigation. In December 2017, it arrested two individuals (Paul Bond and Stephen Whiteley) in connection with the Unaoil investigation. In May 2018, additional charges were brought by the SFO against Basil Al Jarah and ZiadAkle.

ABB Limited (Engineering) , KBR Inc(Engineering and Construction) and Petrofac (Oil and Gas)

Various Suspected bribery, corruption and money laundering related to the issues arising out of the Unaoil investigation.

GlaxoSmithKline PLC (Pharmaceuticals)

China, various countries

Opened in 2014, the SFO’s investigation into GSK and its subsidiaries followed investigations initiated by China’s Ministry of Public Security in June 2013, which resulted in a 2014 ruling, finding that GSK China Investment Co. (GSKCI) offered money or property to non-government personnel to obtain improper commercial gains, and GSKCI being found guilty of bribing non-government personnel. Charging decision awaited.

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Privilege in Investigations

ENRC: A Refresher In December 2010, ENRC received a report from an apparent whistleblower containing allegations of bribery and

financial wrongdoing in relation to a subsidiary in Kazakhstan. ENRC then instructed its external lawyers and carried out an internal investigation.

In April 2011, following press reports suggesting that the SFO had been asked to investigate ENRC, ENRC instructed forensic accountants.

In August 2011, the SFO became directly involved. It contacted ENRC, drew its attention to the SFO’s self-reporting guidelines and suggested a meeting. There followed a lengthy period of dialogue between ENRC and the SFO, including a number of meetings in which ENRC updated the SFO on the progress of its internal investigation.

In April 2013, the SFO formally commenced its criminal investigation into allegations of fraud, bribery, and corruption at ENRC.

The SFO sought disclosure of various documents created by ENRC’s lawyers and forensic accountants during the internal investigation.

ENRC refused to comply on the grounds that the documents were created for the purpose of obtaining evidence and then advice on the SFO investigation and were therefore covered by litigation privilege or legal advice privilege.

The SFO sought a declaration from the High Court that the documents were not privileged. In April 2017, the High Court found that an investigation by the SFO does not amount to 'adversarial litigation' and

viewed it as merely the first stage in assessing whether further steps would be taken and so litigation could not have been in reasonable contemplation.

In addition, the Court held that the dominant purpose for which the documents were created was not for constructing a defence in future proceedings, and so even if litigation was in contemplation, they were not covered by litigation privilege.

The Court further found that legal advice privilege would not apply as the majority of the documents demanded by the SFO were not lawyer/client communications, or where they were, they were not given to the "client" and formed part of ongoing communications.

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Legal Professional Privilege

Litigation Privilege Litigation privilege applies to communications between clients or their lawyers and third

parties for the purpose of obtaining information or advice in connection with existing or contemplated litigation when, at the time of the communication in question:

1. litigation is in progress or reasonably in contemplation; 2. the communications are made with the sole or dominant purpose of conducting that litigation

or anticipated litigation; and 3. the litigation is adversarial, not investigative or inquisitorial.

Legal advice privilege Legal advice privilege attaches to confidential communications between a client and its

lawyers, acting in their professional capacity, in connection with the provision of legal advice.

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Eurasian Natural Resources Corporation v Serious Fraud Office [2018] EWCACiv 2006

The Court of Appeal almost entirely overturned the High Court's decision, rejecting the High Court’s position that: Litigation privilege can only be claimed after the SFO has decided to bring criminal proceedings, or

evidence has been uncovered which renders prosecution likely; and The fact that a company intends to provide the SFO with copies of documents created during an

internal investigation prevents those documents from being covered by litigation privilege.

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Description High Court Decision Court of Appeal Decision

1. Interview notes taken by external lawyers of the evidence given to them by individuals (including employees and former employees/officers of ENRC and its subsidiary companies; their suppliers and other third parties).

Not covered by litigation privilege or legal advice privilege.

Litigation privilege applies as were created for the dominant purpose of resisting or avoiding the SFO proceedings.

2. Materials generated by external forensic accountants. Not covered by litigation privilege. Litigation privilege applies, as the dominant purpose test was met.

3. Presentations by external lawyers for the purpose of advising and receiving instructions from the ENRC internal team.

Covered by legal advice privilege.

4. Documents, including correspondence from an internal ENRC executive who was also a Swiss qualified lawyer. Correspondence reports, and documents received from forensic accountants.

Not covered by litigation privilege. Litigation privilege applies, except for the internal ENRC emails, as the dominant purpose test was met.

Does Litigation Privilege Apply?

Criminal proceedings reasonably in contemplation Whether criminal proceedings are reasonably in contemplation is a question of fact. Not “every SFO manifestation of concern would properly be regarded as adversarial

litigation”. Uncertainty does not of itself prevent proceedings being in reasonable contemplation. The fact that a formal criminal investigation has not yet been commenced will be a part of

the factual matrix when determining whether litigation is reasonably in contemplation, but it will not necessarily be determinative.

Documents generated for dominant purpose of resisting or avoiding criminal proceedings The fact that lawyers prepare a document with the ultimate intention of showing it to the

SFO does not automatically deprive the preparatory legal work of litigation privilege. Legal advice for the purpose of heading off, avoiding or settling reasonably contemplated

legal proceedings remains protected by litigation privilege as much as advice on defending or contesting such proceedings would be.

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What About Legal Advice Privilege?

Court of Appeal declined to determine whether the documents were protected by legal advice privilege: No need to do so, given its conclusions on litigation privilege; and In light of previous Court of Appeal authority in Three Rivers District Council v Bank of England

(No. 5) [2004] UKHL 48, any change to the test for legal advice privilege would have to be determined by the Supreme Court.

Expressed a non-binding view on how it would have decided the matter if it could have done so: Three Rivers 5 decided that communications between an employee of a corporation and the

corporation's lawyers could not attract legal advice privilege unless that employee was tasked with seeking and receiving such advice on behalf of the client; and

it would have departed from Three Rivers 5 if it had the choice.

If “a multi-national corporation cannot ask its lawyers to obtain the information it needs to advise that corporation from the corporation’s employees with relevant first-hand knowledge under the protection of legal advice privilege, that corporation will be in a less advantageous position than a smaller entity seeking such advice”.

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Cooperation and Deferred Prosecution Agreements

"… to determine whether a DPA is in the interests of justice, and whether the terms of the particular DPA are fair, reasonable and proportionate, the court must examine the

company’s conduct and the extent to which it cooperated with the SFO. Such an examination will consider whether the company was willing to waive any privilege

attaching to documents produced during internal investigations, so that it could share those documents with the SFO … Had the court been asked to approve a DPA

between ENRC and the SFO, the company’s failure to make good on its promises to be full and frank would undoubtedly have counted against it."

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Scope of Section 2 Powers

R (on the application of KBR Inc.) v Director of the Serious Fraud Office [2018] EWHC 2368 (Admin)

Is a notice issued under section 2(3) of the Criminal Justice Act 1987 lawful if it requests material held outside the UK from a foreign company?

“s2(3) extends extraterritoriality to foreign companies in respect of documents held outside the jurisdiction when there is a sufficient connection between the company and the jurisdiction.”

It is “scarcely credible” that a UK company could resist a section 2 notice simply because, for example, it held the relevant material on an overseas server.

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Failure to Prevent Bribery – Inadequate procedures

R v Skansen Interiors Limited (unreported)

In February 2018, Skansen Interiors Limited was found guilty of failing to prevent bribery under section 7 of the Bribery Act 2010.

First contested trial of this offence since the Bribery Act came into force in 2011. The jury did not accept Skansen’s “adequate procedures” defence. Since the company was dormant and without assets, the court imposed an absolute

discharge. What did we learn?

Sending a message Individual and different Self-reporting and provision of assistance may not mean avoiding prosecution

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Peter Burrell is a partner and heads Willkie’s Litigation,Compliance and Enforcement and White Collar Defence Practicesin the London office.

Mr. Burrell is recognised as one of the U.K.’s leading specialists incorporate crime and compliance matters. His practice includesadvising on compliance issues relating to money laundering,bribery and corruption, sanctions and fraud; conducting complexinternal corporate investigations; and defending companies andindividuals in investigations and enforcement actions by the U.K.’sSerious Fraud Office, Financial Conduct Authority, HM Revenueand Customs, and other law enforcement and regulatory agencies.He also handles complex High Court litigation and arbitrationproceedings in London, with a particular focus on financial fraud,securities disputes and financial reporting issues.

Chambers and Legal 500 cite Mr. Burrell as a leading practitionerin his areas of practice in the U.K. His recent representationsinclude:

Acting for Afren Plc in connection with an investigationconcerning alleged breaches of Listing Rules and ImproperPayments.

Acting in relation to the SFO's failed prosecution of 6 brokersconcerning LIBOR manipulation.

Representing Tony Allen in connection with a US prosecutionfor alleged incorrect LIBOR submissions.

Acting for Mabey and Johnson, the first U.K. company to beconvicted for overseas bribery and corruption and violationsof sanctions laws.

Acting for Virgin and its executives in connection with itsclaim for immunity arising out of the OFT price-fixinginvestigation into fuel surcharges.

Acting for Weir Group Plc in its prosecution for sanctionsbreaches relating to payments to Iraq.

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Willkie Farr Contacts

Simon Osborn-King is a U.K. partner in Willkie’s Litigation andCompliance, Investigations & Enforcement Practices in London.Mr. Osborn-King’s practice is focused on complex regulatory,criminal, and internal investigations – often with dual U.K. and U.S.aspects – and enforcement proceedings facing multinationalcorporations, financial institutions and individuals across a range ofbusiness sectors.

Mr. Osborn-King has advised clients under investigation byregulators and prosecutors in multiple jurisdictions, including theU.K. Financial Conduct Authority and Serious Fraud Office, U.S.Department of Justice, European Commission, Italy PublicProsecutors’ Office, Japan Financial Services Agency and KoreaFair Trade Commission. He also provides advice on complianceissues relating to sanctions, money-laundering, anti-corruption,whistle-blowing, and data protection. In addition, Mr. Osborn-Kingdefends corporate clients in high-stakes litigation and arbitrationproceedings arising out of investigations or regulatorydevelopments.

Mr. Osborn-King played a lead role advising Deutsche Bank onmultiple high-profile global investigations by enforcement agenciesinto LIBOR misconduct, and on the subsequent coordinatedsettlements in the U.S. and U.K. He also represented Olympus inrelation to investigations in several jurisdictions regarding analleged financial fraud. This work included cooperating with anSFO investigation as well as representing Olympus in claimsbrought against it by its former CEO.

Rita D. Mitchell is a U.K. partner in Willkie’s Compliance,Investigations & Enforcement and White Collar Defense Practicesin London. Her practice includes advising and defendingcorporations in a variety of criminal and civil investigation andenforcement matters, conducting complex, worldwide internalinvestigations in relation to bribery, corruption and fraud, advisingon and developing and benchmarking compliance programs,conducting pre-merger and third party due diligence, and providingday-to-day counseling and training on compliance with U.S., U.K.and other anti-corruption laws, including the U.S. Foreign CorruptPractices Act (FCPA) and U.K. Bribery Act 2010 (Bribery Act).

Rita was featured in Global Investigations Review’s Women inInvestigations 2018, which honours 100 investigations specialistsfrom around the world.

Peter BurrellPartnerT: +44 20 3580 4702E: [email protected]

Simon Osborn-KingPartnerT: +44 20 3580 4712E: [email protected]

Rita MitchellPartnerT: +44 20 3580 4726E: [email protected]