As part of our occasional series of conversations with compliance executives and others influential in the corporate governance world, Compliance Week caught up with Richard Alderman, director of the United Kingdom's Serious Fraud Office, to talk about the new Bribery Act coming into effect in April, the broad new powers it provides to U.K. prosecutors, and what he wants all companies to know about the law. In particular, Alderman spoke with Compliance Week about some of the misconceptions he's heard about what is and isn't permissible under the Act, what it means to have adequate anti-corruption policies and procedures, and how his agency wants to work with companies to help them comply with the new law.

As the lead agency responsible for investigating and prosecuting corruption in Britain, what are the top corporate misconduct cases the Serious Fraud Office is looking at right now?

We're looking at cases of bribery and corruption, and cases of fraud involving major institutions. We're very interested in what's happened as a result of the financial crisis and any cases that come to us as a result of that. Our other main priority is what we call mass-marketed fraud: things like share ramping and residential property fraud, where you've got fraud that's aimed at a very large number of people.

DETAILS

Richard Alderman is a barrister. Before joining the SFO he was director of National Teams and Special Civil Investigations in HM Revenue and Customs where he was responsible for 3000 staff carrying out specialized tax investigations. This role (and previous roles in the Inland Revenue) gave him extensive experience of complex financial investigations. As director of the Revenue's Special Compliance Office from 2003 to 2005, he was responsible for all of the criminal investigations carried out by the Inland Revenue. These included very complex cases that are similar in weight and complexity to the workload of the SFO.

Before becoming director of Special Compliance Office, Alderman had been the senior lawyer in the Revenue's Solicitor's Office where he was responsible for the conduct of criminal prosecutions. These roles have given him experience in both the investigation as well as in the prosecution of complex fraud.

Alderman has also carried out other key roles in the Government Legal Service. In 2002, he was invited by the attorney general and the treasury solicitor to work with the home office to set up the Assets Recovery Agency and subsequently became its first legal director. Alderman was also seconded to the legal secretariat to the law officers between 1991 and 1993 and worked closely with the law officers in that role.

COMPANY BASICS

Company:

Serious Fraud

Office

Headquarters:

London,

England

Website:

www.sfo.gov.uk/

What resources do you have to carry out your mission?

We're a comparatively small organization. We have about 300 people, consisting of lawyers, investigators, IT specialists, and support staff. Our budget for this year is about $52.3 million.

Can you talk about the new powers the SFO will have when the Bribery Act comes into force?

There are three areas I'd single out. First, there's the new offense at the corporate level for failing to prevent bribery; the defense to that is adequate procedures. Some people got alarmed and thought, “If corruption happened, there can't be adequate procedures in place and the company must've committed the offense.” That's something I don't agree with. I recognize that sometimes corruption can happen, but that doesn't mean there weren't adequate procedures in place. What it does mean is that there's a great focus on what the procedures were and whether they were adequate. If not, clearly there's no defense. If they were adequate, then the corporation has a complete defense. It's not a matter of mitigation. That's slightly different from the position in the United States.

The second area is the wide reach the SFO will have under the Bribery Act in respect to foreign corporations. If a foreign corporation is conducting any part of its business in the United Kingdom, I shall have jurisdiction [over] any corruption that it carries out anywhere else in the world. That's pretty far-reaching. It means I can support good, ethical U.K. corporations who tell me they're being undercut by the activities of foreign corporations elsewhere. It's a high priority for me to identify foreign corporations that are putting U.K. companies at a disadvantage and do something about it.

The third area is at the individual level. The Act creates an offense in respect to senior members of corporations who consent to or connive in bribery. We'll be very interested in looking at the role of board members in corporations in order to see what they know about the bribery. Did they consent to it or connive in it? If so, they're likely to be targets of an investigation and prosecution.

We have to balance these powers against another part of the SFO approach, which is to engage with corporations. We want to help them get themselves in order for the Bribery Act and build up their anticorruption culture and procedures. That's something I'm very interested in doing.

You've mentioned corporate hospitality as one concern. Can you talk about the guidance you've given companies on that issue?

People thought the Act outlawed any promotional or entertaining expenditure. That's not our understanding. To begin with, we said, prosecutorial discretion will deal with that. I don't think that was a complete answer to what corporations wanted to know. They don't want to know whether they'll be prosecuted, they want to know whether they're committing an offense in the first place—to know what's lawful and what's unlawful so they can stay on the lawful side of the line.

Our attorney general gave more guidance in a September speech, which I followed up. Our approach is that sensible and proportionate entertaining expenditure is perfectly lawful. Clearly, there are judgment calls to be made about whether or not a certain item is an expenditure of sensible proportion.

So what would cross the line from hospitality into a bribe?

Let's say a corporation has a manufacturing facility in the United States and it wants to show prospective clients in the Far East what it can do, so it flies a number of them to the manufacturing facility in the U.S. to show them. If the corporation puts them up at sensible hotels, at a sensible expenditure, that's no problem. If they tacked on a month-long all-expenses paid holiday at a private island just before the signing of the contract, then the corporation should not be surprised if we think they've gone beyond the line of sensible, proportionate entertaining.

What we've been looking for in terms of offenses is whether the hospitality is such that the corporation wants to influence the recipient … to agree to a contract. Just buying somebody a sensible lunch or breakfast, clearly that's not the intention. We would expect corporations to have some rules about this in their guidebooks so that people have a clear understanding themselves of what's permissible and what's not.

The Bribery Act criminalizes “failure to prevent a bribe,” but gives companies a defense if they have “adequate procedures” to prevent a bribe. Can you define that for us more clearly?

The first question we ask, and the most important one for us, is, “What is the top-level commitment from the board to an anti-corruption culture? Are the people at the top of the organization genuinely committed to an anti-corruption culture?” If not, the rest of it is just words.

We're also asking about procedures and monitoring. We find sometimes a company has all sorts of procedures, but doesn't monitor them. So we're interested in how they do that, how they assess their risks, how they know where to start looking, and how much they understand the various risks in their business. We look at their statements concerning facilitation payments … and what they're saying about hospitality. We've made an offer to corporations to come talk to us to about their procedures. We'll listen and we'll offer any thoughts we've got, not with a view to catching them, but simply to give them some help… Corporations find that very helpful and it's something we're very interested in doing.

Tell us more about how the SFO collaborates with the Justice Department and Securities and Exchange Commission here in the United States.

Every day somebody in the SFO is talking, emailing, or telephoning somebody in the DoJ or SEC. They are our closest colleagues in dealing with bribery and corruption. We talk to them about cases, about areas of risks and priorities, how we work together, and how to produce the results we both want to see, bearing in mind the differences in our respective legal systems. It's a very good and close relationship. Personally, I believe we couldn't achieve the results we are achieving without that sort of collaboration.

It's also a collaboration I think the corporations want to see. Because when they are subject to the jurisdiction of the SFO and DOJ and SEC … they want a resolution that's trans-Atlantic. So the fact that we've got a good relationship with the DoJ and SEC and the fact that we can produce global resolutions is very significant.

Britain is also planning to overhaul its prosecution of corporate crime, in the form of a new Economic Crime Agency. How does the SFO fit into that?

The U.K. government announced that they're committed to attacking white-collar crime and showing that it should be treated in the same way as any other type of crime. They plan to set up an Economic Crime Agency that would be formed of the Serious Fraud Office, together with some other units. My view is that the SFO has got a great deal to offer the Economic Crime Agency. Clearly, we need to wait for decisions on this, but I think it has the capacity to make a big difference.

I've also said that it's important to look at the tools a new Economic Crime Agency will need in order to make it fully effective. No great surprise, the sorts of things I'm interested in are whether the Economic Crime Agency should have the power to enter into deferred-prosecution agreements. I'm also interested in the multilateral settlements, such as BAE and Innospec, and what we've learned from those. Do we need some new legislation in this area? My view is that these issues need to be looked at in conjunction with setting up the agency, so the agency has the right powers.

What do you view as your biggest challenge during the coming year?

We have a very heavy program of cases this year that should be going to court and others that are reaching critical stages in the investigations, where we need to make some decisions. We've got three cases starting in January, two very large ones. Clearly we have to be able to do these to the standards that the court system requires. It's a big challenge for us to be able to do that.

I'm also very anxious that we show more results so we can show how credible we are as a prosecutor. Our results have been very good for the last two years. We've got to maintain that. I also want to be able to see greater recognition of the fact that the Serious Fraud Office is not just an investigator and prosecutor, but on the bribery side, it also is looking at the real needs of the corporate sector in order to help ethical people and ethical corporates do what is right. That's coming through, but I'd like to see more emphasis on that and a much greater recognition that there's an offering from the SFO to ethical companies … to help them add real value to their businesses.

Thanks, Richard.

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