The settlement that dare not speak its name?

By 10th April 2012 January 9th, 2017 Corruption, Fraud, Multilateral Development Banks, News

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.

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