Two developments involving major European companies illustrate both the challenges and uncertain progress of global efforts to combat corruption.
First, on July 29, 2008, Siemens announced (here) that its Supervisory Board has resolved to claim damages from ten former members of the company’s Managing Board executive committee, including two former CEOs and a former CFO. The claims are “based on breaches of their organizational and supervisory duties in view of the accusations of illegal business practices and extensive bribery that occurred in the course of international business transactions and the resulting financial burdens to the company.”
The former executives will be “invited to respond to the claims before legal action is taken.” A July 30, 2008 Financial Times article describing the Siemens board action can be found here.
Second, in a July 30, 2008 opinion (here), the U.K. House of Lords overturned the April 10, 2008 ruling of the Queen’s Bench Divisional Court that the decision of the Serious Frauds Office Director to discontinue the investigation of possible corrupt activity involving BAE Systems was unlawful. (My prior post discussing the April 10 decision at length can be found here.)
The discontinued SFO investigation involved possible bribery in connection with the Al Yamamah arms contract between BAE Systems and the Saudi government. As detailed in the House of Lords opinion, the investigation proceeded despite Saudi resistance until investigators’ attempt to subpoena certain Saudi account information from Swiss banks led to direct threats that the Saudis would withhold cooperation with British antiterrorism efforts. Among other things, the threats included the explicit possibility that “British lives on British streets were at risk.”
In reaching its conclusion that the SFO director properly exercised his discretion to discontinue the investigation, the senior law lord, Lord Bingham of Cornhill, wrote:
The Director was confronted by an ugly and obviously unwelcome threat. He had to decide what, if anything, he should do….The issue in these proceedings is not whether the decision was right or wrong, nor whether the Divisional Court or the House agrees with it, but whether it was a decision which the Director was lawfully entitled to make….In the opinion of the House the Director’s decision was one he was lawfully entitled to make. It may be doubted whether a responsible decision-maker would, on the facts before the Director, have decided otherwise.
Baroness Hale of Richmond added in a concurring opinion that “it is extremely distasteful that an independent public official should feel himself obliged to give way to threats of any sort….Although I wish the world were a better place where honest and conscientious public servants were not put in impossible situations such as this, I agree that his decision was lawful.”
A July 30, 2008 article in The Guardian (here) describing the House of Lords opinion quotes counsel for the SFO as saying that “the SFO director was convinced that Saudi Arabia wasn’t bluffing.”
These significant developments have important implications both for companies and for continuing efforts to enforce anticorruption provisions.
First, the decision of the Siemens Supervisory board to pursue claims against the company’s former officials underscores the growing threat, which I have discussed at length in prior posts (most recently here), of follow-on civil litigation arising out of anticorruption enforcement activity. Although Siemens officials already are the target of a shareholders’ derivative lawsuit in the U.S., the Supervisory Board’s decision to take up claims against the former officials highlights the potential seriousness of the civil litigation threat.
The House of Lords decision also has great significance and represents an outcome that can only be regretted. To be sure, if it is assumed that the Saudi threats were serious (that is, if they were in fact not bluffing) then the threat to British lives justifies the decision to discontinue the investigation as well as the House of Lords opinion. Nevertheless, the capitulation to a threat of this kind represents a subordination of the rule of law to forces of a kind and character that should have no role in free societies.
The BAE Systems case clearly tested the limits of what any government might be willing to risk in resisting corruption. The implication of the decision to terminate the investigation is that if corrupt forces are sufficiently rich and powerful, they have nothing to fear from the force of law, and that anticorruption laws are enforceable only against those too weak or powerless to resist.
In its June 2008 Progress Report (which I discuss here), Transparency International noted that antibribery enforcement is “critical in draining the supply of bribe money that distorts public decision making in some of the world’s poorest states, with disastrous consequences for the decision making.” The outcome of the BAE Systems case suggests that it is not only in the world’s poorest countries that corrupt activity disrupts the processes of an ordered society.
The FCPA Blog has a post discussing the House of Lords opinion here. The FCPA Blog notes that the U.S authorities are continuing their investigation of the BAE Systems sales to Saudi Arabia.
Finally, and to bring this discussion full circle, the BAE Systems investigation is also the subject of follow on civil litigation, as discussed at greater length here.