Investigations and decisions
China: Investigation into GlaxoSmithKline for alleged bribery still ongoing
In summer 2013, the Public Security Bureau in Changsha, Shanghai and Zhengzhou reportedly investigated GlaxoSmithKline (“GSK”) in connection with allegations of bribery and tax fraud. Certain GSK employees were accused of bribing government officials, pharmaceutical trade associations, hospitals and doctors with cash and gifts in return for favouring GSK products and using travel agencies and consultancies as intermediaries. The payments involved reportedly amount to RMB3 billion (approximately USD490 million). Four senior executives at GSK China (a legal counsel and head of compliance, a vice-president in charge of operations, a general manager in charge of commercial development, and a human resources director) have been detained and a fifth executive was temporarily banned from leaving China.
In September, it was further reported that in 2012 GSK had allegedly bribed an official at Beijing Chaoyang Administration for Industry and Commerce in return for mitigating penalties and covering up violations of law by GSK.
In response to the scandals, GSK announced in December 2013 a new evaluation and incentive compensation system for all GSK sales employees who interact with prescribing healthcare professionals (including sales representatives and sales managers) which became effective in January 2014. Under the new system, sales professionals will no longer be evaluated based on individual achievement of sales targets, but rather according to their technical knowledge, quality of service, and adherence to the company values of transparency, integrity, respect and focus on patients.
To date, no Chinese authority has made any official announcement on whether the investigation has been concluded and the investigation is understood to be still ongoing.
Germany: Bernie Ecclestone to face bribery trial
Bernie Ecclestone, the chief executive of Formula One Management ("FOM"), will stand trial in Germany on charges of bribery and aiding and abetting a breach of trust. The statement from the Munich court confirming the decision also said that the trial was likely to begin at the end of April 2014.
The case will examine allegations that Mr Ecclestone bribed Gerhard Gribkowsky, a BayernLB banker, to ensure that FOM was sold to Mr Ecclestone's preferred bidder, CVC Capital Partners, in 2006.
As well as facing a criminal trial in Germany later this year, Mr Ecclestone is also awaiting the outcome of a civil case heard in the English High Court in late-2012 relating to the incident. The claimant in the case, Constantin Medien, claim that the allegedly corrupt deal agreed between Mr Gribkowsky and Mr Ecclestone caused them to miss out on a payment they would have otherwise received. Constantin sold its 16.7% stake in FOM to BayernLB in 2003 on the condition that it would receive a 10% share of any proceeds if BayernLB's shares were sold for more than $1.1 billion. CVC paid $814 million to BayernLB - meaning that Constantin did not receive a payment.
Even after the conclusion of Constantin civil case and the German criminal trial, it is likely that Mr Ecclestone will face further legal action regarding the incident. A $650 million lawsuit filed in New York by Bluewaters Communications remains pending and BayernLB has publicly stated that it intends to bring a $400m claim against Mr Ecclestone.
Many commentators expect that the developments will force Mr Ecclestone to stand down as a board director of FOM but that he will continue in his role as Chief Executive.
UK: SFO launches investigation into allegations of corruption at Rolls Royce
The SFO confirmed in a short statement issued on 23 December 2013, that it has opened a criminal investigation into alleged corruption and bribery at Rolls-Royce’s (“RR”) activities in Indonesia and China. RR commenced an internal investigation in January 2013 following allegations by an ex-employee that improper payments had been made to Tommy Suharto, the son of a former Indonesian president, to encourage the placing of orders for aircraft engines with RR in the early 1990s. Mr Suharto has denied ever receiving monies or other gifts from RR and refuted allegations that he recommended that RR engines be bought as a result.
The SFO has secured additional “blockbuster” funding from the Treasury to enable it to pursue its investigation. It is not known how much by way of additional resource has been obtained but it is reported to be “in the low millions”. The SFO is able to approach the Treasury for extra funding when an investigation is expected to cost more than 5% of its annual budget (which was £32 million in the year 2013-14).
The US Department of Justice is also showing an interest in the RR allegations and reportedly sent another request for information to RR at the end of last year. RR has said that it is cooperating with the SFO investigation and does not tolerate any improper business conduct.
UK: Insurance company fined for failings in implementation of ABC policies, despite no finding of corruption occurring
JLT Specialty Limited (“JLTSL”), the specialist insurance broking arm of Jardine Lloyd Thompson, has been fined £1.8 million by the FCA for a breach of Principle 3 (risk management systems and controls) in relation to the operation of certain of its anti-bribery and corruption ("ABC") procedures in the three years up to May 2012. The fine included a 30% discount for early settlement. While JLTSL had ABC procedures and systems in place for countering the risks of bribery and corruption associated with making payments to overseas third parties who introduced business to JLTSL (“Overseas Introducers”), the FCA considered that JLTSL did not take reasonable care to ensure that they operated effectively. The FCA also found that JLTSL had failed to conduct adequate due diligence before entering into relationships with Overseas Introducers. As a result, the FCA said there was an unacceptable risk that payments made by JLTSL to an Overseas Introducer could be used subsequently for corrupt purposes. However, the FCA found no evidence that JLTSL had in fact permitted any illicit payment or inducement to be made and there was no suggestion that it had intended to do so.
U.S.: Continuing its LIBOR investigation, U.S. charges three ex-Rabobank traders
On January 13, 2014, the U.S. Department of Justice (“DOJ”) charged three former Rabobank traders with fraud, alleging the men conspired to manipulate Yen LIBOR to benefit their own trading books. The U.K.’s Paul Robson worked as a senior trader at Rabobank’s London Money Markets and Short Term Forwards desk; Australia’s Paul Thompson headed its Northeast Asia Money Market and Derivatives Trading in Singapore; and Japan’s Tetsuya Motomora was a senior trader in Tokyo. Each was charged with wire fraud and conspiracy to commit wire fraud and bank fraud, which could result in up to 30 years’ imprisonment.
While none of the men is in U.S. custody, it is unclear whether the U.S. will seek their extradition. The U.S. is particularly unlikely to seek extradition of U.K. resident Robson, who is currently being investigated by the U.K.’s Serious Fraud Office. Under U.K. double-jeopardy laws, someone cannot be extradited to faces charges that are similar to charges they’ve already been tried on in a British court.
Since June 2012, five companies, including Rabobank, have paid a total of $5.8 billion to authorities around the globe. To date, as many as 20 financial institutions have been investigated by at least 10 different global regulators. And while the DOJ had been criticized for not charging individual employees tied to financial crimes, as of January 14, 2014, its LIBOR manipulation investigation has resulted in criminal charges against eight individuals.