Investigations and decisions
China: GSK handed record fine by Chinese court for bribery offences
The Chinese subsidiary of GlaxoSmithKlein (“GSK”) has been fined 3 billion yuan ($490 million or £297 million) by the Changsha Intermediate People's Court for bribing "non-government personnel", GSK announced in a statement issued on 19 September 2014. GSK China Investment had been found guilty of offering money "in order to obtain improper commercial gains". The trial is reported to have taken place in private and lasted one day. Mark Reilly, GSK's former head in China, was given a three-year suspended sentence for his part in the misconduct and will be deported back to the UK. Four other former Chinese GSK China executives received suspended sentences of between two and four years.
GSK has issued a formal apology and stated that the criminal activity was a "clear breach" of its internal compliance system. It said it was "deeply" disappointed not to have identified and addressed the misconduct. GSK said it had fully cooperated with the authorities and that changes had been made to its internal policies, such as changes to its incentives for sales representatives and a reduction in "engagement activities" with doctors.
The SFO in the UK announced in May 2014 that it had commenced its own criminal investigation into GSK's conduct, including allegations of corruption by GSK's subsidiaries in Syria, Poland, China, Lebanon, Iraq and Jordan. The US Department of Justice and Securities and Exchange Commission are also reported to be following the GSK investigations.
For the background to the case, see the May 2014 issue of Financial Crime Update.
Germany: Bernie Ecclestone ends bribery trial – for $100 million
Bernie Ecclestone has ended the bribery proceedings against him by agreeing a payment of $100million (£60 million) with the district court in Munich. The payment means that his trial for bribery, which commenced in April this year, has ended with no verdict. Had he been found guilty at trial, Ecclestone could have faced up to 10 years in prison. The payment procedure is permissible under German law and aims to reduce the burden on the court system and deal with cases where reaching a judgment could prove difficult. However, the process is not without its critics as it effectively provides that defendants can "buy" the end to a trial in certain circumstances. In this case, prosecutors accepted that Ecclestone's advanced age and other mitigating circumstances justified accepting the offer.
Bernie Ecclestone was accused of paying a German banker 33m euros (£26m; $44m) to ensure that a company he favoured could buy a stake in F1. The case against him, which he had denied, is set out in the January 2014 issue of Financial Crime Update.
UK: A business can be carried on in UK from abroad – Competition case may have relevance to bribery
In an appeal concerning the interpretation of the concept of "carrying on business in the UK" under section 86(1) Enterprise Act 2002 (“EA”), the Court of Appeal (”CA”) has given guidance on the phrase which may have relevance outside the competition arena, such as in cases brought under section 7 of the Bribery Act 2010 (“BA”).
The CA were dealing with an appeal from a decision of the Competition Appeal Tribunal (“CAT”) to make an enforcement order prohibiting completion of a proposed transaction between Akzo Nobel NV, a Dutch registered company ("Akzo") and Metlac Holding SRL (an Italian company). Pursuant to section 86(1)EA, the CAT may only make enforcement orders where a person's conduct takes place outside the UK if (and only if) he is a UK national or body incorporated in the UK, or "a person carrying on business in the UK". Akzo appealed the CAT's decision on the grounds that the CAT had been wrong to find that Akzo was carrying on a business in the UK within section 86(1)EA based on the fact that the Akzo Nobel group of companies included a number of subsidiary companies incorporated and carrying on business in the UK, since Akzo's involvement with their activities and strategy was "peripheral". On the facts, the CAT had not accepted that Akzo's involvement was peripheral - its management structure showed that its participation in the activities of its subsidiaries, including those in the UK, was extensive and included the approval of operational decisions. On that basis it held that Akzo was carrying on business in the UK even though it was actually based in the Netherlands and it could make a prohibition enforcement order against it.
The CA agreed. It held that it is perfectly possible for a corporation to carry on business in one country even though its management of it takes place entirely from another. It is not necessary for a company to have a physical presence or fixed place of business in the UK in order to be found to be carrying on a business here. Parliament could have specified a presence test if it had wished but it had not and one could not be implied. For that reason, Akzo could be held to be carrying on a business in the UK.
The CA stressed that this did not attribute the activities of Akzo's subsidiaries to Akzo itself. It also confirmed that if a parent of a subsidiary carrying on business in the UK merely exercised its rights as a shareholder in the "traditional fashion", leaving the entire management of the business to the subsidiary's directors, "the parent would not solely on that account be carrying on the business at all".
The CA's findings with regard to "carrying on a business" are set in the context of the EA dealing with competition issues. However, the decision is likely to be seized upon by those seeking guidance on how a similar phrase in the BA will be interpreted. The reach of the section 7 BA offence of failing to prevent bribery extends to those "carrying on a business in the UK". The phrase has not, as yet, been considered by the courts in the bribery context. The Ministry of Justice guidance on section 7 advocates "a common sense approach" to interpretation but does not elaborate on the phrase, other than to suggest that bodies incorporated outside the UK would require a "demonstrable business presence" here to be caught. It reiterates that having a UK subsidiary does not of itself mean a parent company is carrying on business here, since a subsidiary may act independently of its parent or other group companies. Whether there is a difference between "carrying on business" (as in the EA) and "carrying on a business" (as under the BA) will no doubt be argued another day.
The judgment is available here: Akzo Nobel NV v Competition Commission & ors  EWCA Civ 482.
UK: Banker pleads guilty to conspiracy to defraud in LIBOR case
On 7 October 2014 the SFO issued a press release stating that a senior banker from a leading British bank had pleaded guilty at Southwark Crown Court on 3 October 2014, to conspiracy to defraud in connection with manipulating LIBOR. No further details were given, for legal reasons.
This is the first criminal conviction arising from the SFO’s investigation into the alleged manipulation of LIBOR. 11 other individuals have also been charged in connection with the matter and are currently awaiting trial.
UK: Alstom corruption case begins
The first hearing in the UK Alstom bribery case took place on 9 September 2014. Alstom SA's UK subsidiary, Alstom Network UK Ltd, is alleged by the SFO to have paid approximately €6.5 million in bribes to secure transport contracts in Poland, India and Tunisia between 2000 to 2006. The six charges of corruption and conspiracy to corrupt were read out in court and the case adjourned until 6 October 2014, when it was to resume in the Southwark Crown Court for an administrative hearing.
The SFO alleges that Alstom paid about €3.4 million to win contracts relating to train control, signalling and telecommunications for the Delhi Metro. It is also alleged that Alstom paid a further €3.2 million to officials in Tunisia and Poland to secure contracts for the supply of trams and related work in Tunis and Warsaw. It is likely that individuals formerly employed at Alstom will also eventually be charged with corruption – it has been reported that the SFO has already notified six individuals that it intends to charge them in due course.
The progress of the case against Alstom will be closely watched for signs that the company may be the first to enter into a deferred prosecution agreement with the SFO. Alstom SA is already under investigation in the US for alleged misconduct in China and Indonesia and three former executives have already pleaded guilty in a Connecticut district court. In 2011 Alstom SA paid a US$42 million fine to Swiss authorities for failing to prevent bribes to officials in Latvia, Malaysia and Tunisia.
As the alleged UK offences predate the introduction of the Bribery Act 2010, the case is proceeding under the previous legal regime. The SFO will have to show that a "controlling mind" of Alstom was involved in the offence in order for the company itself to be found liable. Amendment of the law in this regard is currently a topic of much debate, with the government looking at possible ways of making it easier to prosecute companies for criminal wrongdoing.
The background to this case can be found in the July 2014 issue of Financial Crime Update.
UK: Innospec directors sentenced to imprisonment
The former directors of Innospec found guilty of conspiracy to commit corruption after bribing state officials in Indonesia and Iraq to continue purchasing the harmful chemical tetraethyl lead, were sentenced on 4 August 2014. Two of the men, Dennis Kerrison and Miltiades Papachristos, were convicted after a trial in June 2014. They were sentenced to four years and 18 months in prison respectively, with Kerrison’s sentence being reduced to three years on appeal. Paul Jennings, who pleaded guilty in Summer 2012, was sentenced to two years in prison while a fourth man, David Turner, who pleaded guilty in January 2012 and subsequently gave evidence for the prosecution, received a 16 month suspended sentence with 300 hours unpaid work.
Turner was ordered to pay £10,000 towards prosecution costs while Jennings was ordered to pay £5000. They have both already also been subject to disgorgement of benefit by the US Securities and Exchange Commission. The claim for costs against Kerrison and Papachristos is still be decided and has been adjourned pending the hearing of confiscation proceedings against them.
The background to this long running investigation was reported in the April 2014 issue of Financial Crime Update.
The SFO's press releases, which give additional information about the sentences and appeals, can be found here.
U.S.: Nine-year Prison Sentence Issued for Insider Trading
On 8 September, 2014, Judge Paul Gardephe of the U.S. District Court for the Southern District of New York ordered Mathew Martoma, a former portfolio manager at an affiliate of SAC Capital Advisors, to serve nine years in federal prison and to forfeit $9.38 million in bonuses, having been found guilty by a federal jury of obtaining and trading on material non-public information about the development of a drug for Alzheimer’s disease. The nine-year sentence is one of the longest prison sentences ever awarded for an insider-trading conviction, and comes in the context of a surge in the U.S. in prosecutions for insider trading that is being led, primarily, by the U.S. Attorneys Office for the Southern District of New York (“SDNY”). Since 2009, the SDNY has charged 89 individuals with insider trading and has secured guilty pleas or convictions -- including that of Galleon Group founder Raj Rajaratnam, who was sentenced in 2011 to 11 years in prison – in 81 of those cases.
U.S.: First-ever Whistleblower Award to Audit and Compliance Professional
On 29 August, 2014, the U.S. Securities and Exchange Commission (“SEC”) announced the issuance of a $300,000 whistleblower award to an employee of a company who performed audit and compliance functions, the first-ever whistleblower award to audit and compliance personnel. The SEC’s press release announcing the award, which did not identify the employee or his or her employer, noted that the employee initially reported concerns regarding alleged wrongdoing to appropriate personnel within the company, but that the company did not take action on the concerns raised. The SEC’s whistleblower program issues awards ranging from 10 – 30 percent of the money collected in a case when the whistleblower provides high-quality, original information that results in an SEC enforcement action with sanctions exceeding $1 million. Employees serving a compliance or similar function must wait 120 days from the date they raised their concerns internally within the company before being eligible to participate in the SEC program, giving the company the opportunity to address the concerns raised.
The SEC’s press release can be found here.