In the first of a new series of audio interviews, Amos Wittenberg speaks to Viv Jones of Eversheds Sutherland solicitors about international anti-bribery regimes. Viv wrote recently for KYC360 on Kenya’s latest piece of anti-bribery legislation.

Transcript

(note this transcript was created automatically. Any transcription errors are regretted)

[00:00:00] Amos Wittenberg – Today KYC360 is speaking to Viv Jones, senior associate in the corporate crime and investigations practice at Eversheds Sutherland Solicitors, about anti bribery regimes around the world. Viv primarily advises multinational corporations on bribery corruption and fraud matters. He has a particular focus on developing markets and has recently advised on matters relating to Tanzania Russia Turkey and Nigeria among others.

We’re coming at today’s topic by way of the 2016 Bribery Act in Kenya. A remarkably stringent piece of legislation which reflects the increasing potency of bribery as a political issue in the country. Viv recently co-authored an article for KYC360 about the Act. Viv, could you start by explaining the legislation and the political context in which it was drawn up?

[00:00:52] Viv Jones – The legislation was passed in late 2016 by the Kenyan parliament and came into effect January 2017 and in one respect it’s kind of conventional in the theme of updating and modernising anti bribery laws that we see worldwide that trend that’s been happening over the last 10 years and in fact it’s very clear that key elements of the Kenyan Bribery Act 2016 were modelled on the UK Bribery Act of 2010. So, you have for example an abolition of the old distinctions between public sector bribery and private sector bribery, they’re now all under the same offence, there’s an extension of corporate criminal liability to the conduct of associated persons of a business. And again, that’s superseding the principals around the controlling minds and will. And you have the introduction of an obligation to create anti bribery systems and controls within large organisations. So, to the extent that those are pretty similar, pretty heavily influenced by developments in France, Spain the U.K. the U.S. and so on.

None of that is particularly remarkable. What you do have is several elements that go far above and beyond the kind of the existing high watermarks for anti-bribery systems and controls. So, we said for example just now that there’s an obligation to have adequate or appropriate as they call them systems and controls to prevent bribery.

Now obviously, that’s different to what happens in the U.K. where there’s no obligation to have very systems and controls in place. It’s just if you want to leverage the statutory defence that exists in Section 7 which provides for corporate criminal liability for corrupt conduct committed by associated persons then you better have those pretty good systems and controls in place to show that you’re doing everything that was reasonable to do to stop those associated persons engaging in misconduct.

Equally there’s a huge difference in respects of the obligation to self-report awareness or suspicion of instances of corruption. Now again the general principle in the UK and in most other jurisdictions for which I think most KYC360 subscribers will be familiar is that there’s no overriding obligation to self-report criminal conduct within your own organisation.

Under the new Kenyan Bribery Act there is now an obligation to self-report which anyone in a position of authority in a private or a public-sector organisation has. And what’s more not only do they have to self-report it they have to make that self-report within 24 hours of becoming aware of or entertaining suspicions about instances of corruption. That’s a pretty heavy obligation. And it’s also worth saying that the instance of corruption about which a person might have a suspicion or knowledge doesn’t necessarily have to relate to their position of authority. So, we could as far as we know by reading the act on its face, a bank manager who becomes aware through his personal life through non-professional obligations of an instance of corruption is obliged to report that even though it doesn’t relate to the position of authority that he or she holds.

[00:04:43] AW – That kind of extra stringency compared to the UK Bribery Act, do you think that reflects the likelihood of encountering bribery or corruption on the ground as opposed to if you’re a business you may be more likely to encounter bribery if you’re operating in particular jurisdictions in Kenya perhaps you’re more likely to encounter it day to day. Or is that unfair?

[00:05:09] VJ – It’s hard to see what was inside the minds of the legislators on this one. On one hand, you know there’s obviously a sort of overriding sense that people who know about corruption should not be allowed to turn a blind eye or to let it go unchecked. On the other hand, there are at least two tensions.

The first is that it goes against a general principle that people have a right not self-incriminate. It goes against the ideas of privilege. If we look at a general counsel of a Kenyan company that becomes aware of a suspicion of corrupt conduct within their organisation but they become aware of that in the course of providing legal advice which legal principle takes precedence? Is it the principle that that communication is privileged? Or is it the principle that exists under the law that they’re required to self-report. I mean that’s a question of Kenyan law.

The other question is about whether the agency that is identified as having responsibility for accepting these self-reports is actually adequately resourced to receive monitor and investigate these self-reports. So, the Ethics and Anti-Corruption Commission of Kenya that should receive these reports. Now they do have an anonymous encrypted online form that could be used for self-reports but there’s no guidance yet on what form those self-reports should be, how they should be submitted and what kind of detail they should go into as well. Is it enough for the hypothetical bank manager to say I think there is a systematic practice of bribery within my organisation. It is a one sentence report adequate for discharging their obligation to self-report? Not really sure yet.

[00:07:11] AW – Is that organisation quick do you think to investigate and bring cases?

[00:07:17] VJ – It’s going to be a really difficult for them because unlike the Serious Fraud Office for example that’s got a specific mandate to investigate high value bribery fraud and corruption, the EACC has a mandate to investigate and respond to corruption at every level of government and now in the private sector as well. We’re talking about 48 million people in Kenya and we’re talking about a really serious problem with bribery and corruption. I’m not sure if there’s any government agency that would be well-equipped to take on an increase workload in a given year.

[00:07:59] AW– Is there any provision in the act to extend jurisdiction extraterritorially?

[00:08:05] VJ – Yes there is in principle. Section 15 says the citizens of Kenya and private or public entities constituted in Kenya will commit an offence if they engage in misconduct outside Kenya if the same conduct was an offence inside Kenya. So that’s the same principle that you have in the UK Bribery Act which just abolishes that distinction in many respects between foreign bribery and domestic bribery.

The difficulty there is that there is an apparent drafting error or at least there’s this question mark within the law. So that Section 15 makes references to conduct by a private entity under Section 11 and Section 12. Section 11 actually gives the definition of meaning of an associated person which I guess could make sense if the point there is to explain that services provided to a Kenyan entity outside Kenya will also be covered although it’s a little bit clunky and ambiguous. And then Section 12 is actually the obligation on the cabinet secretary to publish guidance on compliance with the Kenyan Bribery Act. So, it’s not entirely clear to me how a private entity a Kenyan private entity could commit that Section 12 offence outside Kenya considering it’s not under an obligation to do anything.

[00:09:41] AW – I wonder also if you think that there is more interest here in going after international firms than Kenyan firms?

[00:09:51] VJ – It’s possible. And I think there’s a specific dynamic that applies to Kenya which is because it is such a hub of financial activity in East Africa and because it is also a major shipping transhipment location a lot of international businesses are managed regionally from Nairobi. Now. I don’t know and I don’t want to speculate on whether the intention when drafting this law was to target international companies specifically and I suspect that goes back to my original question about you know what does the Kenyan government want to get out of this.

However, when it comes to the practical implementation enforcing law against domestic influential companies and domestic political influential people might prove to be relatively tricky and involve burning through a lot of political capital. What might be an easier way in, would be prosecuting non-Kenyan firms for their conduct outside Kenya. The barrier there in practical terms is going to be that will require a cooperation between the Kenyan ethics and anti-corruption commission for example and law enforcement and anti-corruption counterparts in neighbouring countries. It’s just not clear how developed that network is even for example between the U.K. and the U.S. or the U.S. and Switzerland. Getting that relationship up and running has been the product of many years work. Again, we don’t know the extent to which that relationship exists in practical terms between for example Kenyan and Tanzania.

[00:11:38] AW – Before we move on to looking more detail your advice for companies operating in Kenya could you talk about the political context in which the legislation was drawn up?

[00:11:50] VJ – Yes. So, the political context is really important and possibly critical to understand where we go next. We have got the act on the books. What happens next with enforcement. Presidential elections are coming up in August 2017. Uhuru Kenyatta is obviously keen to stay in office and there’s a rising awareness and dissatisfaction with levels of corruption in the country.

There were a couple of key events that really kicked off not just a concern amongst the NGO community, the compliance community but actually public awareness and the first of those events was there was a building collapse that took place in a Huruma Estate on the edge of Nairobi and the issue there was the building was unsafe it never should have been built it wasn’t properly inspected to ensure that its structure was suitable for living in and immediately after the collapse the governor and the political leadership of Kenya blamed corrupt city hall officials.

Now I think that was very important because it underscored to ordinary people that bribery and corruption is not just something that exists out in the ether but it has a direct impact on everyday people’s lives and people die in certain situations when bribes are given and received. You do have relatively low level city clerks being arrested for taking bribes of $4000 or $5000 dollars, which is a significant amount in a Kenyan context but you certainly don’t have that level of enforcement taking place at the top end of town you know on these really high level high value schemes where large amounts of government money disappears or is unavailable without a good explanation.

[00:13:58] AW – What is interesting in light of that though that the primary focus of this legislation seems to be the private sector. Do you think that the government really is turning its gaze upon itself or do you think it’s trying to look like it’s acting on these issues without really tackling endemic government corruption?

[00:14:18] VJ – I don’t know is the short answer to that we’ll see in the next two months. Elections are scheduled for August and then it’s really a question of what we’ve seen in September October November what the government’s real objective in passing this legislation is. Is it to appear to be doing something in the scope of just political manoeuvrings or is it genuinely to clean up the private sector to eradicate corruption from the public sector and attack the underlying issue as it relates to underdevelopment which is the negative effect that systemic bribery and corruption has on GDP growth, on investment, on job creation, on the improvement of living standards for ordinary people. We will find out soon enough.

[00:15:06] AW – I mean your comments earlier in our discussion before we started recording on the rise in political potency of corruption with growth in access to the Internet. I wondered if you could talk more about that.

[00:15:18] VJ – There’s a very interesting combination of factors in Kenya in comparison to some of the other countries that have hit the headlines on bribery and corruption issues over the last year. So, if we look at Guatemala Brazil Russia Romania and Kenya all of them have seen growing awareness and in different sizes demonstrations and political objections from ordinary people about the perceived level of bribery corruption in the public sector and the private sector.

Now in a couple of those cases that’s very clearly inspired or caused by the low level of economic growth in the economy. So, in Russia you’ve got a growth of 1% or 2%. In Brazil, you’ve got rising unemployment and a relatively low GDP. You have something very different in Kenya. The Kenyan economy is growing about 5% or 6% a year and that trend is predicted to continue over the next three four years according to the World Bank which is a pretty reasonable rate of growth and there’s certainly been no downturn.

What I think this does is speak to two factors in Kenya. The first is that the distribution of that wealth is still very uneven. So, despite the fact that you have 6% growth you also have 17% of youths unemployed which is a huge proportion. And you have about one third of the country living in serious poverty which is $1.60 or less a day. At the same time, simultaneously with that you have a very high rate of Internet access penetration.

So, Kenya is one of the hotspots in the world for fin-tech and mobile payments precisely because it does have such great access to the internet on mobile devices and I saw one statistic this morning that suggested that 77% of the population has internet connectivity which is a huge proportion. It has 5.5 million users of Facebook out of a population of 48 million again which speaks to a large population that has access to social media which picks up mainstream media reports of bribery corruption, collapsed buildings, payments that are diverted so what we could be seeing is a rise in awareness of bribery and corruption as a conceptual issue as it relates to people’s everyday lives that is resulting in government’s trying to respond as best they can to the issues.

In Romania which is another example of a country that has 5% growth which is reasonably high certainly by European Union standards moment and in which you had real popular resentment at perceived efforts by the government to scale down corruption enforcement by decriminalising low level corruption offences and that resulted in a genuinely popular movement that seems to have been at least temporarily successful.

Again, in Guatemala you had street demonstrations that were triggered by bribery and corruption scams around the sale of pharmaceuticals and provision of kidney dialysis in which again people died because of corruption. Now it’s the luxury of extended discourse on the effects of anti-corruption Legislation is probably something that you know is restricted to our colleagues in anti-compliance but you don’t have to have that much awareness to the extremely annoyed when your health care system kills you because of corruption and that is the kind of issue that captures the popular imagination.

[00:19:24] AW – How can corporations doing business in Kenya or professionals advising those corporations respond to the act?

[00:19:32] VJ – The first area for response is going to be the same in several which is to really critically examine the anti-bribery systems and controls that we have in place and typically most people who are more sophisticated operators will have a suite of policies and procedures in place.

What I would suggest is more important than dusting off the anti-bribery policy and re-benchmarking it again is to actually see how effective it is in practice. And sometimes that involves very uncomfortable conversations but it means going out and speaking to the people in the business units that are supposed to apply these policy issues in their everyday lives and asking open ended questions. Does this policy make your life more difficult? Is it practical? Are there things that were missing in Kenya for example? What other stories that you’ve heard on the market about the way other actors are behaving? Do you think we’re losing business to more aggressive competitors that are happy to engage in non-compliant behaviour?

It can be quite a withering experience for people like us in the field because if you get a business development manager in the right frame of mind and they’re communicating freely with you sometimes they will turn around and tell you that the policies of your client are complete rubbish and a waste of time. Sometimes they’re right and sometimes they haven’t understood the greater implications of corrupt conduct for the business as a whole so that you know yes perhaps it’s making their lives a little more difficult because they can’t take public officials out for lunch three times a week but it’s protecting the company from a huge legal and reputational liability in the long term.

[00:21:31] AW – To broaden the focus a bit and look at bribery legislation around the world are there examples of other developing countries enacting such strict rules?

[00:21:41] VJ – Yes there are. In Brazil for example we have the clean companies law. We have a restatement a couple of years ago now in China over the way a foreign bribery would be treated under Chinese law. Russia, Uzbekistan and a handful of other jurisdictions have all tightened their anti-bribery laws. Bermuda and Ireland as well not developing countries of course but they’re also considering legislative reform.

What is not clear yet is whether those legislative changes will translate in to a new reality. I think what we do see is sporadic enforcement of anti-bribery laws in developing countries. And when cases do make it to court I think the penalties can be quite severe. I think there’s an interesting example in Tanzania as a result of Standard Bank DPA that took place the UK Standard Bank as a corporate entity was able to resolve the potential criminal liability in the UK but the individuals the Tanzanian employees in Tanzania that were responsible for the same conduct are currently charged and they will be prosecuted on bribery corruption charges under Tanzanian law in Tanzania.

That is something that will have pretty spectacular implications for those three people if they are convicted and it’s also worth noting there that bribery charges are non bailable in Tanzania. So those people have not yet gone to trial but they’re on remand awaiting trial which is you know a different position again from most other jurisdictions in which we operate.

[00:23:46] AW – I know that also in Thailand in the wake of the Rolls Royce scandal and wanting to answer some very tough talk about how the criminal system would deal with people suspected of bribery as well.

[00:23:57] VJ – I think there’s a there is an increasing level of concern as well that these mega settlements and mega prosecutions that have taken place in the U.K. in the U.S. and perhaps in France and Germany occasionally as well, they tend to lead to enforcement and resolution in developed markets when the underlying conduct took place in developing markets.

If you look at you know the Zeeman’s enforcement of a few years ago now we were talking about a number of Latin American countries, Montenegro, Russia, Serbia I believe as well. And none of the enforcement actions took place in those countries I believe. And none of the disgorgements or penalties that were paid in the U.S. went to benefit those countries.

[00:24:51] AW – This is a striking claim with which in which you close your article which is that lack of assets recovery is a major motivator for developing countries to create legislation that’s even more stringent than that in the developed world and I think that’s right.

[00:25:07] VJ – It’s striking that, for example if we look at the Standard Bank deferred prosecution agreement that was one of the first instances where the UK has tried to compensate or make restitution to the government in the country in which the corrupt conduct took place. So, in that case there was a six-million-dollar bribe. There was a seven-million-dollar restitution order made in the UK for the benefit of the Tanzanian government and there was an additional million dollars in interest payments roughly.

In that case the funds were not remitted directly to the Tanzanian government. They were I think effectively held in quasi trust and we’re going to be dispersed according to the recommendations of guidelines of DFID of the Department for International Development of the UK and that whether and how to return the funds from mostly the U.S. and the U.K. to the developing countries in which corrupt conduct of place is one of the dilemmas that’s not fully been resolved so far.

It’s an area in which lawyers do very well to learn from colleagues in the development sector because you’ve got a good 50 years of experience working out how to transfer capital, money, and knowledge from developed countries to developing countries without the same sort of leakage that got these companies into the mess that they experienced in the first place. We shouldn’t reinvent the wheel and we should really be turning to our counterparts to get their guidance on this.

[00:27:00] AW – Picking up on that point, there’s a broader scepticism as I understand it particularly in Africa that anti-corruption anti bribery legislation in the West has something kind of imperialistic about it. That not only do assets rarely make their way back to the countries where the where the damage was incurred but strict anti-corruption regimes are a way of giving Western businesses a competitive advantage potentially in developing markets.

[00:27:37] VJ – I’ve heard this argument before and I think there are a couple of good reasons why it doesn’t necessarily hold water in the way that the people making it would say. The first is that the compliance burden and that’s loaded up on international businesses is not a competitive advantage necessarily. It’s an additional compliance cost and you certainly have some voices in for example the U.S. Chamber of Commerce who see it as a disadvantage for U.S. businesses trying to compete on global markets in comparison with more aggressive competitors from China, India and so on, jurisdictions in which historically there’s been very little enforcement of foreign bribery laws.

The other aspect is that the victims of this conduct are usually or almost invariably ordinary people, ordinary citizens in developing markets. So, when you have five million dollars that’s diverted from a bond issue then that’s five million dollars that could be spent on health care, clean water systems, education, or any of those things. So, the people that suffer are ordinary people in developing countries and I don’t necessarily see the direct benefit to Western countries of passing that legislation in the first place. What I do understand and I agree with at least in a personal capacity is the criticism of how restitution is paid or is failed to be paid.

If we look at the Rolls Royce DPA that was an instance where Rolls Royce agreed to resolve all charges in the UK, Brazil and U.S. They agreed to pay four hundred ninety-seven million pounds to the UK, twenty-five million dollars to Brazil, and I think about 170 million dollars to the U.S. Now we know because the SFO is transparent about it that their costs in that matter were about 13 million pounds the most expensive SFO investigation to date or that’s publicly known at least. As a result of that enforcement action, there was 484 million net benefit to the UK government and UK taxpayers. But the underlying conduct consisted of bribery of mostly with foreign public officials in Indonesia, Thailand, India, Russia, Nigeria, China, Malaysia who have recovered precisely zero dollars under that agreement.

In that context you can understand why, as you mentioned earlier on, some people in Thailand are agitating for prosecution of the individuals even where a purported global settlement has been reached in the UK or the U.S. That’s a problem for people who are trying to negotiate a DPA or a negotiated settlement in U.S. because it means your global settlement isn’t necessarily global anymore.

One of the key reasons for reaching a negotiated settlement is to have certainty and security, predictability of the legal consequences in the future and if we see a position in which developing countries are essentially one re-litigate and prosecute as a result of the same underlying conduct that might leave a lot of corporations back up in the same position of uncertainty that they started in and make them less likely to suffer in the future.

[00:31:23] AW – Is there a double jeopardy concern that association?

[00:31:26] VJ – Not directly but it depends how you skin the cat. You do normally have a principle of double jeopardy or “non bis in idem” across different markets. What could happen is exactly what happened in Standard Bank for example. The corporation resolves its corporate criminal liability in one market but in another jurisdiction another prosecutor targets the individuals or frames the conduct in a different way.

In France you had oil companies that resolved criminal charges under New York State law in relation to the U.N. Oil for Food payments in the 90s and are now being prosecuted by French prosecutors where it’s substantially the same underlying conduct in Iraq and Jordan but it is slightly different legal persons slightly different natural persons and slightly different offences that are being prosecuted. But in reality, it’s the same underlying issues.

[00:32:35] AW – To finish just to come back to the UK briefly; There was a recent OECD report which suggested that Brexit might affect the UK’s enforcement of bribery laws. I wonder what your thoughts were on that.

[00:32:51] VJ – We should probably preface this by saying very little is clear as to what will happen with Brexit generally and particularly in the sphere of corporate criminal law. We don’t anticipate immediately any legislative changes. The bribery act was entirely a domestic legal creation. It’s not implementation of EU regulations as happens in the money laundering sphere or anything like that. So, it’s not directly tied to the European Union obligations. We certainly don’t have the same business lobby in the UK as we do in the U.S. that is actively agitating for the legislation to be weakened or repealed and partly that is because UK businesses are much more outward focussed.

So again, if we take the example of Kenya if bribery and corruption in Kenya were legal under the UK bribery act it would still be illegal under Kenyan domestic legislation. So in reality there’s not a huge difference in the way that a UK based company would change its compliance program. Now obviously if something were to happen you’d have a lot of effort put into showing that Conduct X, even if it were an offence under Kenyan law it would not be an offence under UK law but for the purposes of designing compliance systems and training and setting corporate values there’s not a huge difference between two.

The second big reason why I don’t think you’d see any dramatic change is because I think more and more businesses have accepted the business case for anti-bribery. We’ve always had the anecdotal experience that it tends to be low performing companies and business units or individual teams that engage in systematic bribery and corruption or fraudulent conduct. There’s now a wealth of academic research to back that up. That’s come out of the school of Oriental and African Studies in London, it’s come out of Harvard Business School, and without getting tied up in the details the essence is that engaging in a systematic corrupt conduct doesn’t actually for most mainstream businesses result in higher profits, higher return on equity, or even quicker execution of projects and contracts.

[00:35:26] AW – To close as a final question. Do you think overall the Kenyan Bribery Act is primarily political do you think it’s a genuine step in the right direction?

[00:35:40] VJ – The motivations might be political and I think it’s natural that any government is going to be looking ahead to elections and wanting to be serving the people. There’s no overt political lobby for bribery and corruption. What the difficulty will be is how the law is enforced in a practical matter. If the EACC is able to prosecute a number of corporations or private individuals, really influential people are not low level town hall clerks for example and potentially to bring in significant settlements, that would be a huge success and that will be something that would be not just politically popular but actually pretty constructive.

If on the other hand the commission gets bogged down just in the volume of complaints or if simply no complaints are filed at all then it will achieve a modest success in raising awareness. And to the extent that businesses and individuals respond by upgrading their anti-bribery systems and controls that is a good thing. But ultimately the job of the criminal law is not just to deter but also to prosecute. And if you don’t have convictions arising and you don’t have a change in the level of offending then that will not be a success.

[00:37:12] AW – Viv Jones, senior associate in the corporate crime and investigations practice at Eversheds Sutherland, thank you so much for sharing your time and expertise. I am Amos Wittenberg.

For more insight and advice from leading compliance practitioners, take a look at the webinar library on KYC360. You’ll find interviews there with among others Joe Pistone a.k.a. Donnie Brasco who spent several years as an undercover agent in the New York mob, Elise Bean of the U.S. Permanent Subcommittee on Investigations, and Professor Nic Ryder of the University of the West of England.

Viv, Thanks again. Thank you all so much for listening. Good bye.