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Jazz Omari

The value of due diligence and publicising compliance efforts

By | Multilateral, Multilateral Development Banks, News | No Comments

When meeting a potential new business partner, quite often commercial urgency or excitement at having established a relationship with a high profile company can overtake more sober and practical thoughts of undertaking due diligence, which can often seem like a time-consuming and inconvenient necessity. You and your company will almost certainly not want to be surprised by news that your new joint venture partner’s subsidiary was previously debarred, or that there are clouds hanging over ‘that’ project, which you later learn was an open secret among all its employees…

Should a skeleton prove to have been lurking in the closet, of course it is not enough for the other party to say ‘but you never asked’. However, with an increasingly low threshold to establish administrative and even criminal responsibility following sanctionable practices such as fraud and corruption, the responsibility is essentially on you to show that you conducted all reasonable inquiries before forging a new business relationship. It is important to ask the right questions when conducting due diligence on contract partners, be they individuals or corporate entities, or you could risk reputational damage by association at the very least.

There are many methods of conducting due diligence inquiries into new business partners, but a good place to start is through open source intelligence. It need not be very costly and can often provide insight into a company beyond the official face that it projects to the public. Depending on how a relationship has come about, you may even ask mutual business acquaintances for a second opinion or if there is ‘anything you should know’.

It is becoming increasingly difficult to hide on the internet. Even if web pages are deleted or altered, traces can remain and be picked up by search engines, although this is becoming more complex with the advent of the ‘right to be forgotten’ now emerging in Europe. The proliferation of data via the internet can be a mixed blessing in business: while it can be more difficult for a company to make a clean start after a scandal when items are cached for years after the event, potential business partners are often glad of being provided with the full story behind the glossy corporate image so that the right questions may be asked as to how a company has improved its internal procedures to avoid repetition of such an event in the future. This can go towards establishing how a company reacts following negative experiences and applies lessons learned to adopt a more positive approach moving forward.

An increasingly globalised market means that there is a greater likelihood of trading with partners based overseas. For this reason, the website has effectively become the shop window of international commerce. It is therefore of paramount importance that there is as much information as possible about your company’s anti-corruption policy, integrity compliance program and whistle-blowing mechanisms, as a lack of such information can constitute a red flag in the mind of a prospective business partner, shareholder or other investor. A surprising number of large multinational companies do not feature the name of their compliance officer, or even make reference to having one, which raises the question in the mind of both consumers and potential trading partners as to whether or not one exists. Even where a compliance officer is featured, very often a website will not show a direct means of communicating with them, making it harder for third parties to raise matters of concern that they may have witnessed, such as a rogue employee offering or soliciting a payment. Websites that do not feature sufficient information about a company’s compliance strategy risk selling the company short and undermining confidence in its integrity efforts, thus losing valuable trade potential.

Jazz Omari is a direct-access qualified barrister at Bretton Woods Law. If your company could benefit from an integrity compliance health check, bespoke debarment avoidance training for employees or wishes to conduct an internal anti-corruption investigation, get in touch

Inter-American Development Bank abolishes its Conciliation Committee

By | IAL, International Administrative Law, News | No Comments

Last month, the Inter-American Development Bank (‘IADB’) brought into force a revised version of its Staff Rule PE-323, governing conflict resolution between staff members and the Bank.  The amended provisions have the effect of abolishing the Conciliation Committee, the Bank’s fact-finding tribunal of first instance, in favour of a system of compulsory mediation, after which staff members may proceed directly to the Administrative Tribunal of the IADB.

The reform is controversial for many reasons, not least because it replaces an inquisitorial fact-finding tribunal with a mediator charged with seeking consensus.  Moreover, in the new system the tribunal of first instance becomes the Administrative Tribunal, from which there is no avenue of appeal, contrary to the norms of international administrative law and, indeed, public international law generally.

Loss of an avenue of appeal
The principal consequence of the reform is that the Conciliation Committee has been dissolved, meaning that the fact-finding tribunal has been removed from the conflict resolution system schematic.

The right of appeal is recognised as an ‘essential safeguard in law’ in international organisations by ILOAT, reflected in the case of Bangasser and others v ILO, (1994) judgment 1330, and reiterated in several other ILOAT judgments since.  A ‘right to appeal’, albeit in criminal cases, is also declared in article 8.2(h), the Pact of San Jose, and echoed in article 2 of Protocol 7 of the European Convention of Human Rights.  The fact that it is enshrined in international conventions is indicative of its importance within any justice system, domestic or international.  As an essential legal safeguard, it could certainly be argued that it is a fundamental and essential term of employment for international civil servants.  It would follow that any move to reform or revoke the right would be a regulatory decision which could not be implemented except with the consent of the staff members, meaning that a failure to do so would render the revised Staff Rule PE-323 unlawful.

Aside from the unlawfulness of the revocation of the right of appeal, the Conciliation Committee’s erstwhile mission has been conferred on a body that is accustomed to dealing with appeals.  Many Administrative Tribunals will not interfere with findings of fact unless they are manifestly erroneous or unreasonable, although the IADB Administrative Tribunal does indeed have the power to hear an appeal de novo.  Staff members would hitherto have had two opportunities to have their cases heard.  With the introduction of the new provisions, the Administrative Tribunal has become a ‘one-stop shop’, thus depriving staff members of the possibility of having their cases reopened and re-examined.  Its new mission as a tribunal of first instance will require a considerable adjustment of its present mandate, statute and its philosophy when approaching cases in order to reflect the evolution of its function.

Pitfalls of mediation
Besides the loss of an avenue of appeal, compulsory mediation may transpire to be counter-productive when attempting to resolve staff disputes because of its mandatory nature.  While mediation can be an exceedingly useful tool if both parties are willing to negotiate, its success depends on the parties coming together voluntarily.  The imposition of compulsory mediation is not conducive to amicable settlements and is wholly inappropriate for cases where the issue turns on a purely legal argument, such as the interpretation of a contract term that will apply across the organisation.  It is also inappropriate where the parties are quite evidently unable to reach consensus on any of the issues in the case, particularly where there have already been attempts to negotiate or settle the claim directly between the staff member and the Bank prior to initiating litigation.  In this scenario, mediation will result in the incurring of further costs and unnecessary delay to both parties.  Although a vetting procedure appears to be in place at the IADB, any Mediation Secretary will need to be extremely vigilant in ensuring that the right cases progress to mediation.

Even if there is scope for consensus, the impartiality of the mediator is fundamental.  A mediator’s remit is often misunderstood by staff members.  A common, but erroneous, perception is that mediators actively participate in the formulation of the terms of a settlement.  The opposite is in fact true; mediators cannot suggest settlement terms to the parties and are under no duty to ensure that settlements are fair or just for either party.  The mediator will be under no duty to assist them, as it would conflict with the mediator’s duty of impartiality.  Quite often, staff members are not entitled to legal representation at mediation sessions, and the IADB is no exception.  As the Bank will benefit from unlimited legal advice from its own in-house department, the resulting inequality of arms leaves a staff member exposed to not receiving the fairest possible settlement through the mediation process, uninformed as to his or her rights and afraid to assert them.  Without a lawyer present, it can be highly intimidating for a staff member to come face to face with his or her manager or colleague, especially where a case revolves around harassment.  It can also be disheartening if the person across the table is one who has already refused to grant an administrative remedy to the staff member, such as a Director of Human Resources.

Reforms such as this one have led to the absurd situation whereby a staff member must file a ‘request’ for compulsory conciliation; a contradiction in terms which appears to be lost on the organisations advocating this solution.

A full copy of the revised IADB Staff Rule PE-323 can be found on the IADB website here:

multilateral development banks

World Bank Sanctions Board takes steps to improve transparency

By | Development Banks, International, Multilateral Development Banks, News, Sanctions, Sanctions Board, World Bank | No Comments

In an effort to improve transparency, the World Bank recently took the step of publishing the judgments of its Sanctions Board online

The decision to publish judgments is a positive one in several regards. Firstly, it enables companies to learn of the type of behaviour that can be construed as falling within the provisions prohibiting fraudulent, corrupt or collusive practices arising during the bidding process or the execution of a Bank-financed contract. Secondly, the sanctions process and reasoning behind rulings is made public, permitting parties to gain some insight into what to expect if they are asked to respond to an accusation, as well as the range of penalties such offences attract.

The publication of decisions further ensures that the Bank is compliant with its obligations under international public law. The requirement to publish judgments in a suit at law is specifically referred to in Article 14 of the International Covenant on Civil and Political Rights 1966, to name but one treaty ratified for the protection of human rights, but also falls within the wider fundamental principle of access to justice. Although any World Bank sanction is purely administrative, the Sanctions Board is an organ of an international organisation (itself the product of an international treaty), with a quasi-judicial function. It fulfils the role of upholding the internal laws of the Bank and the contractual obligations incumbent upon participants in the bidding process not to indulge in sanctionable practices. The Sanctions Board is therefore regulated not only by its internal laws but also the fundamental general principles of international law.

This is a development which is certainly to be welcomed and it is hoped that the Sanctions Board will, in time, publish all of its previous decisions as well as those handed down after the change in policy.

If you are concerned that you or your company may have committed a sanctionable practice Bretton Woods Law can investigate the matter on your behalf, advise you in confidence whether you have a defence, such as bona fide mistake or “rogue employee,” and suggest how best to proceed. To contact your nearest office please click here.

The settlement that dare not speak its name?

By | Corruption, Fraud, Multilateral Development Banks, News | No Comments

Recently, the OECD (Organisation for Economic Co-operation and Development) published its Phase Three Report for the UK in which it made various recommendations to the Serious Fraud Office in their continuing fight against bribery and corruption.  One of the OECD’s many recommendations was that the details of civil settlements should be made public instead of being protected by confidentiality provisions contained within settlement agreements.

Based in Paris, the OECD was founded in 1961 to formulate and promote policies that promote economic and social wellbeing worldwide.  Most recently, a key mission has been to enforce the OECD Anti-Bribery Convention, which was transposed into UK domestic legislation in the guise of the Bribery Act 2010.  The OECD is currently undertaking studies to verify each member state’s compliance in implementing the Convention.

Civil Settlements

Civil Recovery Orders have been used increasingly by the SFO to settle cases.  They are a useful tool for companies that discover that corrupt acts have been committed by employees or directors.  Wrongdoing can be reported to the SFO without it leading to criminal sanction.  A consent Civil Recovery Order is negotiated, the terms of which are binding on both parties and usually involves the company having to pay a fine as recompense for the illicit profit gleaned from the wrongdoing.  The settlement is then certified by a High Court Judge, without a hearing.  The terms of the settlement are kept confidential, as is typical of many civil cases in the UK.

There are several advantages to a Civil Recovery Order:-

  • Damage limitation regarding a company’s commercial reputation and the resulting loss of business
  • Resolution without criminal sanction
  • Insurance – some corporate insurance policies allow cover for legal fees in relation to civil litigation, which is not the case for criminal litigation, resulting in a saving for the company
  • A company will have some input as to the outcome of the settlement
  • A company will be certain of the sanction to be imposed, unlike in criminal settlements, as judicial intervention is minimal
  • Confidentiality avoids the setting of ‘precedents’ in formulating settlement packages, meaning each case will be considered solely upon its merits and the resources of each company or the value of the corrupt contract

A situation is less likely to result in criminal sanctions following a prompt self-referral, thus offering a company a valuable incentive to self-report.  This incentive would all but disappear if confidentiality were to be excluded.  There is equally an incentive for SFO to continue with such Civil Recovery Orders as they are a lucrative source of income for the State coffers and fines are sometimes reinvested into the developing world.

Criticism has been levelled at such settlements by practitioners and the judiciary alike.  Some are of the view that where a case does not meet the threshold for criminality, it makes little sense that a company should have to enter into a settlement where the SFO would have difficulty in proving a case against them at trial.  Similarly some critics insinuate that a company may effectively buy their way out of criminal sanction, thus compounding the original wrongdoing.  However, this is not strictly true: there is a certain degree of merit in a company voluntarily advancing evidence of corruption to a prosecutorial authority in an effort to change company ethics.  It would prove illogical and unjust for a company to be punished for coming forward in this way.

The consent Civil Recovery Order is a viable remedy for companies which undergo a change of regime at executive level, whereby the ‘guiding mind and will of the company’ adopts an attitude of introspective self-examination.  Although the OECD is against the confidentiality of the settlements on the basis that one cannot assess whether the penalty has been effective, proportionate and dissuasive, it is nevertheless a cost effective resolution for both parties without suffering the uncertainty and reputational risk of criminal litigation.

What the OECD fail to take into account is that the facts at the heart of any settlement may involve third parties involved in criminality and who may already be the subject of investigation or pending prosecution by the SFO, Department of Justice or multilateral development banks.  By keeping the facts confidential, there is no danger of potential targets being tipped off and, more importantly, no basis for repercussions against a company for being a whistleblower.  The facts may also inadvertently reveal the company’s commercial strategies or internal business practices which would otherwise be kept secret from its competitors.  It so follows that unless the full facts can be disclosed, there is little point in disclosing the terms of the settlement because in any event, the proportionality of the fine cannot properly be assessed.

Criminal Settlements

Civil settlements are not to be confused with criminal settlements incorporating an undertaking to make an ‘ex gratia’ payment.  Such settlements are conditional upon agreeing a basis of plea to a criminal offence.  The settlement is then presented to a Judge for approval.  The argument against confidentiality may be stronger in the case of criminal settlements, bearing in mind that criminal proceedings are conducted for the most part in open Court.

A term of the BAE Systems settlement agreement was that any ex gratia payment to the Government of Tanzania would be less the amount payable in fines imposed by the English Courts.  On one level a condition such as this ties the hands of the Judiciary insofar as a Judge may be reluctant to divert ill-gotten funds from the humanitarian projects for which they were originally destined.  Some may argue that this renders the Judiciary somewhat impotent by fettering their ability to impose the unlimited financial penalties prescribed by Parliament.  Last month, the remaining £29.5m from the BAE Systems settlement was used to fund the purchase of textbooks and other equipment to furnish schools in Tanzania.  This sum can hardly be described as not being dissuasive, especially when the case may open up an avenue for independent and concomitant commercial sanctions such as debarment or even cross-debarment by multilateral development banks, which can lead to disastrous financial consequences.  Such sanctions are not subject to the principle of double jeopardy.

That said, there is also one potential disadvantage to companies in keeping settlements confidential: a company loses a valuable resource in promoting its zero tolerance attitude to corruption.  The publicity of such suits, while initially potentially damaging, is an excellent opportunity for companies to reinforce their clients’ confidence that they will not perpetuate corrupt practices by ordering internal investigations and introducing stringent corporate compliance programmes.

Bretton Woods Law is experienced in negotiating settlements with the SFO on behalf of corporate entities.  Should your company have a matter which may be eligible for self-referral, please get in touch with one of our Counsel for a consultation.  Please click here to find your nearest office.