Why anti-corruption legislation in commercial law has yet to succeed fully.
Modern-day corruption exists at unacceptable levels across the globe, with many corrupt law firms going unpunished for providing services to criminal parties. Concerted worldwide efforts at solving the issue of corruption, such as the Foreign Corrupt Practices Act and the Organisation for Economic Co-operation’s Convention, have not had their desired impact. This article will focus on the United Kingdom’s current anti-corruption legislation, recent examples of UK law firms aiding corrupt parties with specific reference to Transparency International’s 2019 publication “At Your Service” and why corruption in law firms continues despite new domestic legislation.
In 2010 the International Bar Association (IBA), the Organisation for Economic Co-operation and Development (OECD) and the United Nations Office on Drugs and Crime (UNODC) co-operated to create a survey on the risks and threats of corruption in the legal profession. Fee-earners from around the world were asked a range of questions, one of which was: “Do you know of any legal professionals in your jurisdiction who have been involved in international corruption offences?”. 63% of the Commonwealth of Independent States (CIS) respondents, the highest of all parties, knew of a corrupt legal professional, with Australasia being the lowest at 11%. The European Union came in at a below-average position, with 22% knowing a professional involved in corruption offences. For these results, it is important to note that the only available answers were “yes” or “no”. With almost one in every four legal professionals in the European Union knowing a corrupt professional, it is crucial to analyse how efficient existing anti-corruption laws are.
The Bribery Act 2010 came into force on July 1st 2011, replacing three anti-corruption statutory instruments: the Public Bodies Corrupt Act 1889; Prevention of Corruption Act 1906 and Prevention of Corruption Act 1916. As part of this replacement, the Bribery Act introduced the strict liability offence of a corporation failing to prevent bribery by an “associated” party (s.7). To understand the importance of the Bribery Act it is beneficial to have a basic understanding of the background of UK anti-corruption law as a whole.
The first global commitment to an anti-corruption stance was the US’s Foreign Corrupt Practices Act 1977. Originally this was only domestic legislation; however, following lobbying efforts, the OECD created their eponymous convention to show a worldwide stance against corruption. When understanding the convention it is important to note the key tenet that “enterprises should be expected not to render improper benefits to the holders of public office”. The reason this is important is that it limits international transparency to public officers only, something that the Bribery Act addressed with its outlawing of commercial bribery. Previously, commercial bribery would only be illegal by way of domestic laws, but with the Bribery Act, the UK raised global standards of transparency.
In measuring the efficacy of anti-corruption legislation, it is essential to consider recent examples of the Bribery Act in action. In 2015 the Sweett Group became the first company to plead guilty to a s.7 offence. Since then, another company has been found guilty, and three more are engaged in deferred prosecution agreements for similar offences. While this might project the appearance of overall success, the fact that there have been no prosecutions of corrupt commercial law firms, indicates the contrary. Transparency International’s research over the past 30 years identified 81 law firms providing services to individuals involved in corrupt transactions. Of these 81, 56 of them were involved with suspicious parties in transactions worth a total of £3.2 billion. Even top UK firms like Clifford Chance, who once advised Teodoro Obiang Jr, the corrupt son of the Equatorial Guinea dictator, and Clyde and Co, who were allegedly involved in the equally infamous Laundromat scheme, are implicated in fraudulent activity. Clifford Chance has stated that their legal advice was on an access to justice basis; however, they have since performed a U-turn, saying that they would “not now act for the likes of Obiang even on an access to justice case”.
Even top
UK firms like Clifford Chance, who once advised Teodoro Obiang Jr, the corrupt son of the Equatorial Guinea dictator, and Clyde and Co, who were allegedly involved in the equally infamous Laundromat scheme, are implicated in fraudulent activity.
The answer to why the corruption levels are the way they are partly lies within s7 (2) of the Bribery Act. This subsection is an example of one of the benefits of soft law: the general normative principle of the transparency of commerce kickstarts firms’ compliance with legislation. A defence for s7 is that firms are not guilty if they have “adequate procedures” in place to prevent the undertaking of bribery. As this is a full defence, firms willing to get ahead and stay ahead would start looking to develop these procedures. However, the act has only been in effect for nine years, meaning that these procedures will not yet be fully developed. Training and a culture shift will undoubtedly lead to a future reduction in corruption levels - time is the only limiting factor.
The rest of the explanation of the corruption levels comes via the Serious Fraud Office (SFO). An estimated £100 billion in illicit funds circulates through the UK economy annually. The SFO, tasked with tackling the top level of serious fraud, bribery and corruption have a budget of £60 million as of 2018-19. To put this into perspective, the SFO budget is approximately 1600 times smaller than the amount of money they are meant to locate and prevent impacting the economy. On the SFO website, they explicitly state that they go after a small number of significant cases. The aforementioned £3.2 billion over 30 years just is not large enough to warrant a look in by the SFO.
The coronavirus pandemic certainly will not aid the problem of corruption. In a recession, firms of all sizes will feel the pain, with many already cutting NQ salaries. For cash strapped legal corporations, is it that hard to believe that they will be less eager to perform due diligence checks and submit suspicious activity reports (SARs)? In a world where those who chase the bad guys have to do so under budget, it is understandable that they will only pursue the cases that can have the largest impact. Compared to other corrupt schemes, the effect of individual law firms on the flow of illicit funds just is not worth the time of the SFO. Ultimately, it is not the legislation that is preventing the purging of the corrupt, but something much more straightforward - money.