People, not just companies, must pay for financial crime
A pattern has emerged: Barclays, facing Libor fixing allegations, agreed to a settlement of £290m; Standard Chartered, facing claims it hid Iranian transactions to evade sanctions, agreed a settlement of £340m; HSBC, facing allegations that it laundered Mexican drug money, is seeking to settle with several US agencies as IBA Global Insight goes to press.
Meanwhile, a recent survey by Which? has shown that 78 per cent of people feel that individuals ought to be prosecuted where banks have broken the law.
Ros Wright, chair of the Fraud Advisory Panel and former director of the Serious Fraud Office (SFO), agrees. Prosecuting people rather than companies should be a priority under new SFO director David Green, she believes, as this is a greater deterrent – and fines are not ultimately paid by the guilty parties but by shareholders. ‘The people commit the crimes, not the company,’ she says. ‘Fining companies is a deterrent, but if you send the directors from Barclays to prison, that is an even bigger deterrent.’
Prosecuting a company is also extremely difficult, Wright points out, as you need to prove wrongdoing by the ‘guiding mind’ of that company, which more often than not is the board of directors.
The SFO is currently under pressure to get results more than ever. Under Richard Alderman, who stepped down in April, large, complex cases – such as BAE, doggedly pursued under Robert Wardle’s tenure – were abandoned in preference for quick wins and deals with companies. Under Green there are high hopes it will regain the prestige, expertise and morale it has lost. He has already vowed to ‘rebalance the relationship between prosecution and civil settlement,’ and has announced plans to investigate the Libor scandal – an investigation begun in the US a year ago, but never picked up in the UK – and continue investigating property entrepreneur Robert Tchenguiz. The original case against Tchenguiz and his brother Vincent collapsed after the High Court ruled that search warrants had been obtained on the back of ‘unfair and inaccurate’ information.
One frequently criticised tool in Alderman’s armoury was the civil recovery order, employed to settle cases quickly and cheaply. Both the UK’s judiciary and the OECD voiced concerns with the SFO’s reliance on such orders, believing them to undermine justice and lack transparency. Julian Parker, SFO senior operational investigator from 1996 to 2009, agrees. ‘There is an essential point of public policy here,’ he says. ‘Do we wish to live in a society where well off criminals can buy themselves out of trouble within the criminal justice system […] or should they be pursued, routinely, with the full force of the law?’
With budget cuts of 25 per cent, Green faces an uphill struggle to revolutionise the office and attract experienced staff – a perennial difficulty given the more attractive private sector salaries on offer. Corporate crime remains a low government priority, and fraud squads across the country have slowly disappeared. It is hoped that by repairing the SFO’s credibility, lawyers will be encouraged to cut their teeth as public prosecutors before entering private practice, as is the tradition in the US. Green has also suggested ‘borrowing’ people on secondment from the Financial Services Authority (FSA) and the private sector.
‘A priority should be getting prosecutors with experience,’ says Robert Wardle, director of the SFO from 2003 to 2008. ‘It would be good to get people with commercial experience in the fraud area – maybe ex-revenue or customs investigators. They understand the commercial realities.’
Better cooperation between the FSA and SFO is imperative if both organisations are to work effectively, says Matthew Cowie, corporate investigations counsel at Skadden and former SFO prosecutor. ‘Perhaps until recently there has been a long history of close cooperation,’ he says. ‘However, with proposed reorganisation, regulators are jostling to define their position in the regulatory landscape and justify their existence and remit.’
There is room for both large criminal cases and settlements, Cowie believes. His investigations between 2004 and 2010, which included BAE Systems and Mabey & Johnson, usefully paid for themselves. ‘Corporates can be a great vehicle for change and self-regulation, and effective enforcement action will always have an effect on the target and the watching corporate world. However, most effective regulators know that without going after individuals and pursuing the long, hard cases, you cannot have credible deterrence.’
Richard Alderman could not be reached for comment.
Read the full story at tinyurl.com/FinancialCrime-People.
Russia’s WTO accession brings hope of reform
On 22 August 2012, Russia became the 156th member of the World Trade Organization (WTO). The country has been close to entry several times in the past, but obstacles have always arisen during 18 years of hard-fought negotiations. In December 2011, after a Swiss-brokered deal, Russia’s entry to was finally approved.
Negotiating Russia’s accession to the WTO has by no means been a simple process, notes Salans partner Edward Borovikov, who has been one of the primary lawyers advising the Russian government on joining the WTO since the early 1990s.
‘WTO accession negotiations are a very complex process, where parties intentionally agree on extra liberalisation in one area in exchange for less or no liberalisation in another,’ he comments. ‘I could give you several examples from the Protocol of Accession of China which Russia would never agree upon. And this is logical as the two countries had, and still have, different standing in the trade world, and different economic priorities. Business was consulted and we helped many businesses to understand the consequences of accession, all the pros and cons, and to formulate their position to be delivered to the government.’
Borovikov believes accession will have immediate results. ‘My view is that the benefits will be significant already in the short-run, provided that Russia complies with its commitments and makes sure its business is aware of all advantages of the WTO,’ he comments.
Russia’s accession will be advantageous for both Russian exporters and foreign investors, according to Sergei Lapin, a partner at Nadmitov Ivanov & Partners. ‘Apart from the widely discussed but relatively modest import tariff reductions on various products, it will give Russian exporters, subject to restrictions imposed by Russia’s trading partners, a chance to contest those restrictions both on the domestic and WTO levels,’ he notes.
In Lapin’s opinion, this will also help open up the Russian market to foreign service providers across a range of sectors and duly ‘increase domestic competition; eventually [this] should become beneficial to the consumers,’ he says.
This development does however highlight the delay in the US Congress appealing the Jackson-Vanik accord, a Soviet-era trade sanction whose continued imposition on Russia stops it from enjoying permanent normal trade relations (PNTR) with the US. ‘Russia is now a member of the WTO and it still grants most favoured nation (MFN) tariffs to US goods, but it is true that US companies do not benefit from the other WTO commitments of Russia,’ Borovikov explains. ‘I believe US business should handle these issues in the most expeditious way and leave no space for any worsening of economic relations between the two countries.’
It has long been hoped that Russia’s entry will help improve the rule of law in the country. ‘Firstly, when entering the WTO, Russia gave a number of commitments with respect to transparency of legislation affecting international trade and its privatisation programme,’ comments Lapin. ‘Secondly, as a result of entry negotiations, Russia gave a commitment to enter into negotiations on accession to the WTO Government Procurement Agreement, which has quite strict rules against corrupt practices – one of the major problems in Russia.
‘Finally, among those WTO Agreements which enter into force immediately with respect to Russia are Sanitary and Phytosanitary (SPS) and Technical Barriers to Trade (TBT) Agreements, as well as the Agreement on Customs Valuation, which are also aimed at reducing corruption.’
‘One of Russia’s main goals of accession was to create a business climate attractive to domestic and foreign investors,’ Borokivov notes. ‘Without joining the convention [Russia ratified the OECD convention on combating bribery in January 2012], and most importantly implementing it, Russia will not achieve the goal in question and WTO accession will lose its value. Another important front for improvements in Russia is business law, particularly competition law and practice, which still contain ambiguous provisions that negatively affect domestic and foreign investors’ decision-making to invest into Russia.’
Read the full story at tinyurl.com/RussiaWTO.
Ground-breaking IBA survey on cross-border legal services
Work on the IBA’s survey on cross-border legal services is proceeding well according to IBA President, Akira Kawamura.
The survey, undertaken by the IBA’s International Trade in Legal Services Committee, will begin to fill the knowledge gap in relation to the current status of international legal practice and to create an internet-accessible database of the relevant rules in a variety of jurisdictions, according to Committee Chair, Hans-Jürgen Hellwig.
The Committee received an initial report from the project leader, Alison Hook, at its recent retreat in The Hague. She noted that the results from the detailed survey, covering 42 jurisdictions, told us that there is growing interest in the topic among lawyers in private practice, in addition to governments and the World Trade Organisation.
‘That interest is likely to increase not only with the renewed focus in Geneva on services trade but also due to the growing understanding amongst governments around the world of the role that services, and professional services in particular, play in economic growth,’ Ms Hook said.
As a number of IBA resolutions have recognised, as economies have become more global in outlook, the demand for global cross-border legal services has increased. The IBA has played a leading role in providing guidance for the responsible delivery of cross-border legal services, including through its:
Statement of General Principles for the Establishment and Regulation of Foreign Lawyers (1998) – see tinyurl.com/RegulationForeignLawyers-1998;
Standards and Criteria for Recognition of Qualifications of Lawyers (2001) – tinyurl.com/QualificationsLawyers-2001;
Resolution in Support of System of Terminology for Legal Services (2003) – tinyurl.com/TerminologyLegalServices-2003; and
Transfer of Skills and Liberalization of Trade in Legal Practices (2008) – tinyurl.com/TradeLegalPractices-2008.
The President also welcomed the Committee’s decision to update and re-issue its GATS Handbook (see tinyurl.com/IBAGATSHandbook) – a practical guide for Bars on the requirements of the General Agreement on Trade in Services as it relates to the legal services sector – and Dr Hellwig thanked Professor Laurel Terry for again agreeing to take on that task.
IBA Legalbrief Africa reaches tenth anniversary milestone
This year marks a decade of publication of IBA Legalbrief Africa – the innovative electronic news diary that delivers, free and direct to a subscriber’s inbox, a succinct weekly round-up of news on Africa, reviews of African nations’ draft legislation, and legal judgements passed across the African continent.
The men who made the project possible – Tim Hughes, IBA Deputy Executive Director, and journalist and respected political commentator, William Saunderson-Meyer – explain, in two articles, how and why a newsletter that has become such an important tool for the legal profession and Africa watchers across the world was born. On the Legalbrief Africa website (see tinyurl.com/LegalbriefAfrica), they outline how quickly an idea became a vibrant reality. Mr Hughes describes the product as part of the ‘drive towards stronger rule of justice and law, served by a thriving, connected, thoroughly well-informed community of African – and pro-African – lawyers.’
Under the benign stewardship of publishers Juta and with funding support from the Open Society Initiative of Southern Africa, IBA Legalbrief Africa continues to flourish.
Read the following articles on Legalbrief Africa:
‘An idea was born...’ by William Saunderson-Meyer at tinyurl.com/LegalbriefAfrica10-beginnings.
‘Striving for justice and law’ by Tim Hughes at tinyurl.com/LegalbriefAfrica10-striving.
Discontent spreads: EU relations with Hungary, Romania and Bulgaria strained
Political relations are looking unsettled between the EU and its member states outside the eurozone, particularly with some of the recent joiners, Hungary, Romania and Bulgaria.
Hungary is the subject of infringement proceedings brought by the EU for a range of breaches of EU law (such as the forced early retirement of judges – see Hungary – IBAHRI fact-finding report in Human Rights News, page 11) and the Council of Europe’s constitutional branch, the Venice Commission, has raised a number of concerns over the country’s re-written constitution. In response Prime Minister Viktor Orban addressed a rally in Budapest where he accused the EU of treating it like ‘a colony’ and said he refused to ‘live according to the commands of foreign powers’.
Meanwhile, Romania and Bulgaria are embroiled in an almost permanent stand-off with the EU over gaining Schengen status – permitting free movement between those states. Originally the EU had required them to meet certain technical standards but, once they had, they were still refused entry because there were reservations, mainly from the Dutch, over corruption and organised crime. In retaliation, governments in these countries accused the EU of making up the rules as they went along – and tried to stop the import of tulips.
Heated sentiment is not confined to national leaders. Romania and Bulgaria witnessed widespread protest against EU-driven austerity measures, particularly when the fiscal treaty was signed earlier in the year, unions protested on the streets of Bucharest.
Yet much of this sentiment has more to do with domestic issues than deep-seated antipathy to the EU. In Bulgaria and Romania, there is actually considerable support for the EU: a Eurobarometer survey from December 2011 showed that Bulgarians, more than any other nation, trust the EU, and Romania is the third most trusting.
Instead, leaders use anti-EU rhetoric to cover up the incompetence of their own administrations whilst the protestors reserve their most virulent frustration for their own politicians.
In Romania, where political instability has been the norm (in April, another new government was introduced after the last one only lasted 76 days) successive politicians promised to deliver Schengen by cleaning up the previous administrations’ acts and then failed to do so. Ruben Zaiotti, a blogger for the website www.schengenalia.com and Assistant Professor of Political Science at Dalhousie University in Canada, says: ‘the failure to deliver Schengen to the electorate is a huge embarrassment to politicians and so it is easier to blame the EU than take responsibility.’
Nowhere is this diversionary tactic more used than in Hungary where Orban regularly sounds the populist horn. PéterKöves, senior partner at Budapest-based law firm, Lakatos, Köves és Társai Ügyvédi, and a member of the IBA’s European Regional Forum, explains: ‘Orban once talked about “the peacock dance” that he does with the EU and how the problems that we now have are caused by the crisis and nothing to do with mismanagement on his part.’
The rhetoric denies the fact that these countries need the EU, as a market for their exports and for hand-outs. Many within civil society in these countries are concerned about the deterioration of democracy and human rights since accession to the EU as authoritarian rule re-emerges (such as in Hungary) or as corruption intensifies (according to Transparency International’s rankings, Bulgaria has become more corrupt in recent years). They want the EU to take a tougher stance against recalcitrant member states.
Krasimir Kanev, chair of the human rights organisation, the Bulgarian Helsinki Committee, says: ‘the threat to democracy and human rights has happened since accession to the EU. Pre-accession, these countries had to behave and they were trying to meet certain conditions and were being monitored. Now that we are in, they say, we can go back to our old ways.’
Kanev argues that the moment may have been lost and that there is little that the EU can do now. He may be right – not just because member states are reluctant to interfere on the internal affairs of their neighbours but because the EU has, right now, far bigger and more immediate problems to address.
Read the full story at tinyurl.com/DiscontentEUFringes.