corporate
crime and the criminal justice system
Last week we dealt with organisations which exist for no other purpose than criminal activities and the resources they have to disrupt the criminal justice system. Legitimate business organisations - large corporations, small companies, banks and other commercial organisations may commit a variety of crimes usually in furtherance of profits. What type of crime they commit and against whom depends very much on the environment in which they are operating. Large multi-national corporations operating in poor countries where law enforcement is weak may ignore issues of health and safety and minimum wage levels irrespective of the local laws. They may even hire their own private security forces, or enter into alliance with those of the local state, for the suppression of political dissent which conflicts with their interests. They may commit all manner of environmental crimes such as the dumping of toxic waste and inflicting serious damage to the health of local populations.
But in the industrialised countries of the global north (North America, UK and the EU) the state and criminal justice system is sufficiently strong to prevent many of the more blatant criminal activities particularly those involving armed violence. Business crime usually involves matters such as financial fraud, ignoring health and safety regulations, paying below the legal minimum wage, deploying illegal methods to gain a competitive advantage and such like.
The business corporation when it, or its leading executives,
commit criminal offences is a very powerful offender and the
investigation and prosecution of business crime presents a number
of obstacles to the criminal justice agencies. We shall take some
examples of cases drawn from the US and UK over the last decades
to illustrate some of these obstacles. As we have said, legal
businesses rarely resort to the type of tactics of witness
intimidation or police corruption that we studied in the previous
session though these are not unknown - indeed the intimidation of
whistleblowers was an example we referred to and as we shall see a
degree of what might be called 'soft' corruption has been
allegedly a feature of one recent case. But that said, the main
types of obstacles presented by business crime to the criminal
justice system derives from other characteristics. Those we shall
discuss here are:
the status of the offender: rather like the rapist asserting that he thought he was behaving quite normally and assumed that consent to sex was given, the business offender accused of, say fraudulent trading, or false accounting, will assert that he was, he thought, behaving quite normally and assumed that he was helping to bring prosperity and employment to the country and, if any law has been violated in the process, this must have been an oversight. If his social status is that of a wealthy and eminently respectable businessman or banker well known throughout the business community then this may pre-dispose the courts to believe him or may well be an obstacle to getting the offence in court at all.
the complexity of the offence:
the court trial in a case of fraud involving banks and
multi-national companies may well be a complex and long drawn out
affair and focus on whether something actually happened (complex
readings of balance sheets and accounts may be presented to the
jury in a corporate fraud case) or that if something happened
(e.g. unsafe products were marketed or a process failed e.g. in a
rail crash ) then this was indeed a case of negligence for which
someone can be held responsible and if so who actually is it.
Often it is very difficult in a large organisation to determine
the who is actually responsible for committing the crime.
the political context of the
offence. If the offence occurred in the course of, and as
part of a desire to pursue, what are regarded as positive goals
(business success, exports, bringing jobs to Britain etc..) then
there may well be a feeling that in reality a prosecution is not
the best way to have proceeded and a quiet chat, an apology or a
settlement out of court may be the best way to proceed.
soft corruption: rather than an attempt to
deliberately bribe police officers or prosecutors to 'look the
other way' there may be varieties of accommodation between top
businessmen, bankers, lawyers derived from their inhabiting the
same social world. Police officers, detectives in particular, may
develop close relationships with journalists working on the crime
reporting. Occasionally, as we shall see, this may overstep the
mark and become a form of direct bribery
We begin with a couple of cases from the US. The American criminal justice agencies particularly tough, more so than the UK, on corporate offenders and in both the following cases successful prosecutions resulted despite the high status of the offenders
1. the high status corporate
offender I. Enron 2001
Enron
was the epitome of US business success. For five years running it
had been dubbed the 'most innovative company' by Business Week
It was the world's largest energy trading company (and the seventh
largest US corporation) (Energy trading = buying and selling gas
and electricity rather than producing it)
Enron had close relations with the Bush administration in the US.
Bush had allegedly received donations to his political funds of
around $572,000, Enron executives played a leading role in
advising Bush on his energy policy It was Enron CEO (Chief
Executive Officer) Kenneth Lay, who recommended the person that
President Bush appointed the head of the Federal Energy Regulatory
Commission, the principal regulatory agency for gas and
electricity
In 2001 - 2 it all began to unravel. Suddenly Enron announced a
$600m loss
Rumours began circulating that turned out to be true that company
executives had created secret partnerships (i.e. separate
companies) and over 2,800 phony subsidiaries in off-shore
locations. These were called 'special purpose entities' and
amazingly they didn't have to feature in the accounts of the
parent company. So basically they had been making a loss and were
shunting it off into this maze of smaller companies so the
shareholders and investors didn't know about it.
The loss which suddenly appeared was due to one of these
'partnerships' coming unstuck and $35m of losses being revealed
Investors massively sold shares, the price collapsed, and within
weeks, $60 billion dollars of Enron share values had gone up in
smoke
What was really vicious was that executives, while they had been
manoeuvring to keep share prices up before the crash, had been
massively selling their own shares while encouraging employees to
buy more shares (so as to keep the price up) and had blocked
employees selling their own shares in their pension fund even when
the share price started falling rapidly
Lay and other senior executives were allegedly secretly selling
their own shares, knowing that the true state of the company
finances would sooner of later become known. Senior executives of
the company Kenneth Lay CEO and Jeffrey Skilling were
convicted for securities fraud. Lay faced a total of 46 years in
prison but died in July 2006
The US courts are pretty strict now on corporate offenders and its
getting better in the UK. The recent (2009-10) banking scandal and
the issue of bankers bonuses has probably contributed to a public
atmosphere in which a tougher stance on corporate offending,
particularly in the financial sector would have large scale public
support.
Read more
about the Enron affair here
Bernie Madoff's Ponzi Scheme
In
December 2008, Bernard Madoff was charged with securities fraud
after admitting that he carried out a $65 billion Ponzi scheme
through his company Bernard L. Madoff Investments Securities.
Madoff convinced investors that they were receiving interest on
their investments but in fact this was taken out of the money
from new investors. Investors received false and fraudulent
account statements. (see Baldwin 2010)
A notable feature
of Madoffs fraud was how he cynically used the trust of the
Jewish community.
The Madoff case is somewhat reminiscent of an
earlier case in the UK that of Barlow Clowes. Between October 1983
and May 1988 about 11,000, mainly elderly, small investors
entrusted their money to a company called Barlow Clowes
International, the vast majority of whom were persuaded to
do so by misrepresentation that their funds would be securely
invested in gilts (government bonds). In fact, very little, if
any, of that money was invested in gilts. Investors’ moneys were
stolen and used to buy houses, farms, yachts, cars, antique
furniture, a vineyard and shares in private and public companies,
all for the benefit of Barlow and Clowes. In 1992, after a trial
lasting 112 days Peter Clowes got 10 years in prison. This case is
still relevant in that it was only in 2011 (7 February 2011) that
the case was finally declared closed when HM Treasury announced it
had finally recovered £125 million of the £150 million defrauded
from investors
So far so good...
The high status corporate
offender II. The Maxwell pension funds scandal
The scandal began with the media magnate Robert Maxwell
allegedly committing suicide by jumping off his yacht in November
1991. His 
business
empire collapsed shortly afterwards as it emerged that its debts
vastly outweighed its assets. But what also emerged was that over
£400m was missing from the company pension funds at one of his
biggest holdings Daily Mirror newspapers. Maxwell has stolen it.
The essence of Maxwell's crime was this. He presided over an
empire of some 400 companies where he owned 50-70 per cent of the
capital and whose shares were publicly quoted on the stock
exchange; the employees of these companies subscribed to a company
pension fund. But he also had private companies and frequently
channelled money between companies. What he had been allegedly
doing was siphoning off cash and assets from the public companies
and from their pension funds into the private ones.
When companies run into trouble their employee pension funds are a
tempting source of funds to bale out the company. After the
Maxwell scam the law was tightened up (the 1995 Pensions Act) to
make pension fund administration more independent of the company
itself and beyond the reach of its directors.
His sons Kevin and Ian and another city financier were prosecuted
by the Serious Fraud Office but at the first trial in 1996 all
were acquitted. The SFO (the special prosecutor for complex frauds
set up in 1987) was widely criticised for incompetence and wasting
time and public money. In fact it was no doubt the complexity of
the issue that defeated the SFO
But what is interesting is that after the first trial, a second
one was planned. The issues were so complex that the SFO had quite
rightly split it into two trials. The second trial never took
place. The following article
from the Independent newspaper throws and interesting light
on this. It effectively suggests that the judge was allegedly
influenced by the personal intervention of a member of the
defendants family - Kevin Maxwell's wife
Pandora Maxwell, a resolute and determined woman who impressed a High Court judge with her account of living under the shadow of lengthy criminal trials, yesterday emerged as one of the chief reasons why charges against her husband Kevin were dropped.
She had told Mr Justice Buckley in private pre-trial hearings how her family had been affected by the scandal of the collapse of the pounds 2bn Maxwell empire, the subsequent trial of her husband and the threat of a second trial, which was finally lifted yesterday.
The judge said: "Mrs Maxwell's bewilderment and anger at the decision to proceed to another trial were not feigned. I cannot be over-influenced by such matters but no one could have been unmoved by her evidence."
He added: "Her obvious distress was, I am convinced, entirely genuine. She described the agony of the trial and the days waiting for the verdict with the prospect of significant prison sentence in the balance.
I have reached a very clear view that these proceedings serve no further public interest. To pursue them in the face of the jury's unanimous verdict in the first trial would test both the public's confidence and the integrity of the system."
Independent 20 September 1996
Can you imagine such things happening in the case of a bank
robber?
2. the complex offence: the
problem of finding a controlling or directing mind
Some of the worst deaths both of employees, customers and indeed
on occasion the surrounding population have been the result of
criminal negligence by companies. Various train crashes in which
it transpired that inspection regimes were lax
In
the notorious case of the Herald
of Free Enterprise ferry disaster 193 passengers and crew
were killed when the ship overturned in Zeebrugge harbour in 1987.
The company alleged it was an accident but the coroners jury
returned a verdict of unlawful killing: the ship left the port
with the bow doors open and while no one individual was to blame,
the speed of the turnaround at Zeebrugge and the lack of checking
procedures amounted, in the opinion of the jury, to criminal
negligence.
The criminal law and the courts deal overwhelmingly with
individuals and their responsibilities. Where a crime has been
committed arising from the activities of an organisation then the
English legal tradition always looks for a 'controlling mind' :
some key individual whose decisions can be construed as having led
the crime. The coroners jury returned a verdict of unlawful
killing (i.e. it wasn't an 'accident') but criminal prosecution of
P&O Ferries - the ferry company, failed because the DPP failed
to nail any one particular individual for recklessness. This led
to debate about the law on corporate manslaughter which despite a
new offence of 'corporate killing' hasn't actually been resolved
to the satisfaction of all parties. Similar problems of finding
individuals to blame - when an event is the outcome of the
functioning of the organisation rather than actions by a few
individuals, occur in rail disasters.
The outcome was the enactment of the Corporate Manslaughter and Corporate Homicide Act 2007 For many this is a landmark in British law. For the first time, companies and organisations can be found guilty of corporate manslaughter as a result of serious management failures resulting in a gross breach of a duty of care. Basically, the court no longer has to find a single 'controlling mind' and it is sufficient to show that senior management should have been aware of the dangers such as health and safety issues.
The complex offence: the role of the jury in fraud trials
Another aspect of the complex nature of many business crimes is
the issue of whether the jury should be removed from complex and
lengthy fraud trials. The arguments are simple: those in favour
say the issues at stake in such trials are just too complex for
'ordinary' people on a jury to understand. Masses of data from
company accounts and balance sheets will be presented in court by
both defence and prosecution to try and prove or disprove the
charges. In order to make the issues more simple trails a complex
fraud case is often broken down into two or more separate trials.
This increases the length and the cost of such trials. Therefore
the jury should be replaced by 'experts' trained in accountancy,
finance and commercial law because only such individuals will
really be able to understand what is going on and to make a
reasoned judgement as to guilt 'beyond reasonable doubt'.
Those in favour of the retention of the jury in complex fraud
trials generally produce two arguments. Firstly, that what is at
stake in even the most complex of fraud cases is basically that
someone is accused of stealing something. However complex the
matters of banking and finance involved, unless the prosecution
can prove to a jury of ordinary sensible people that this has
happened then they have not proved their case beyond reasonable
doubt. Secondly, the abolition of the jury in fraud trials will
set a dangerous precendent. The jury is
one of the most cherished institutions of our criminal justice
system and regarded as the most valuable check on the
arrogance of the state. Governments often attempt to restrict it
and in recent years have had some success.
The debate on this issue in the UK has been a long one. In 1985 the judge, Lord Roskill chaired the Fraud Trials Committee to deal with what were seen as shortcomings in the investigation, prosecution and trial of serious and complex fraud. One result was the establishment, in 1987, of the Serious Fraud Office to investigate and prosecute serious financial fraud. In it's majority report the committee did advocate the abolition of the jury in serious fraud trials largely on the grounds that such trials were becoming too complex for 'ordinary' jurors to understand. However one member of the Committee, Walter Merricks argued that
“To entrust this judgement to experts I find dangerous. There is the problem that currently, as a matter of law, the standards to be applied in assessing honesty are those of ordinary people. Experts are by definition not ordinary people and they may find it difficult, not to say impossible, to envisage that the standards by which they must judge the accused are not those they would normally apply to themselves or their colleagues”
The argument continued for many years and another major report on the English criminal justice system by Lord Justice Auld, many of whose recommendations were enacted in the Criminal Justice Act of 2003, repeated the complexity argument:
‘for replacing trial by judge and jury
with some other form of tribunal in serious and complex fraud
cases are the more persuasive. Indeed, they have become more
pressing since the Committee reported, given the ever lengthening
and complexity of fraud trials and their increasingly specialised
nature and international ramifications.' (read my lecture on
the criminal trial process which
discusses the jury and has a link to the Auld Report)
The Criminal Justice Act 2003 does in fact allow for trial
without jury in cases where there is a substantial risk of jury
tampering - i.e. intimidation or bribery of jurors usually
by organised crime - and in fraud cases that are extremely
technical and complex. The provisions concerning jury tampering
came into force in 2007, and were used for the first time in 2009
(see the lecture on organised crime
in this series).
However the enacting of the sections of the Act dealing with
fraud cases required a separate vote in both houses of parliament,
which the government lost in 2005. In the same year a major fraud
trial collapsed. The trial concerned allegations of fraud in the
construction of the Jubilee line extension to the London
Underground. Six individuals were accused of allegedly passing
inside information to help companies to secure lucrative
construction contracts. No money was lost. All 6 were cleared. By
the time of the collapse the trial had run for two years and among
the recriminations were that the trial had gone on so long because
of the necessity to explain everything to the jury which had
become confused and disoriented. But defenders of the jury
responded that this was just an excuse for the fact that the
prosecution had completely botched the case and had
not prepared it properly.
The government response was to introduce the Fraud (Trials
without Jury) Bill in 2006, but this was also defeated in
parliament. There the matter has rested. The intentions of the
Coalition government elected in May 2010 towards these issues is
not yet clear. I will re-write this section when the position
becomes clearer
3. The political context of the
offence: the BAE
bribery saga
Bribery of (or paying of 'commissions' to) customers by a company
in order to secure the sale of its products has, since 2001 been a
criminal offence in British criminal law. The example we shall
focus on is the alleged paying of bribes to Saudi Arabian
officials by a major British armaments company, British Aerospace
Systems (BAE Systems) to secure a contract for aircraft sales and
the circumstances in which the government allegedly pressured a
criminal investigation to stop because it was contrary to the
interests of national security. The main reading for this is Tim
Webb's pamplet 'Bribing
for Britain' Before going any further it should be made
absolutely clear that British Aerospace systems has from the
outset denied any wrongdoing in the matter. BAE is, incidentally,
the fourth largest arms producer in the world and Britain's only
arms manufacturer.
The issue we are concerned with here is not the issue of bribery
per se, but the fact that the British government officials
allegedly pressured the SFO to abandon investigation and
prosecution because BAE and the Saudi Arabian connection were so
vital to British interests.
the pressure to sell
Some types of businesses are more exposed to the temptation to
pay bribes than others. Where the marketing of a product depends
upon government approval and licensing, as with medical drugs then
there may be some unscrupulous companies which may attempt to
bribe government scientists to falsify or ignore negative results
in the testing laboratories. John Braithwaite in his, still
famous, study Corporate Crime in the Pharmaceutical Industry,
found many examples regarding the drug Thalidomide which was
eventually marketed with such disastrous results
There are other industries where the nature of the produce or
service being sold dictates that either a large number of products
will be sold or none at all. The aircraft industry is one such
example. No airline wants a fleet of about six or seven different
types of aircraft - a few Boeing 747s here, a few Airbuses there
etc. Spares would have to be kept for different aircraft,
separate training for mechanics and pilots working with
the different aircraft would have to be maintained.
All this would increase costs. Far better to decide
between the competing aircraft manufacturers and equip your whole
fleet with one type. Then you are carrying one system of
spares, maintenance, pilot and mechanic training. So from the
standpoint of the competiting aircraft manufacturers, keeping
customers 'sweet' so that when the time to renew their fleet of
aircraft comes, they buy a fleet of yours and not those of you
competitors.
Not surprising therefore that we find some examples of bribing
customers in this area. From a strictly economic standpoint the
paying of a bribe simply lowers the price at which the product is
sold. But the bribe is more than a price reduction, it is more
like a personal payment to members of the purchasing company. It
may take the form of products for their personal use - a paid
holiday for example. In the commercial aircraft industry one of
the most famous bribe scandals goes back to the period 1970-75
when allegedly the Lockheed Aircraft Corporation. paid $22 million
to foreign governments, officials and political parties to secure
sales contracts. Among those allegedly on the payroll were the
then Japanese prime minister, the Dutch Royal Family and various
Italian politicians. Further revelations in 1976 showed that many
of Lockheed's competitors had been doing the same thing.
In the field of military equipment, including aircraft, similar
considerations apply. No government wants its armed forces to have
a variety of different tanks, aircraft, missiles, rifles etc. each
with their own specific munitions, training and maintenance
requirements. Governments will normally decide between the
competition and then go for one, or at least a very few, suppliers
for specific types of armament.
Tim Webb notes two other factors in the course of his discussion:
-
In the UK armaments industry cost overheads are high due to relatively short production runs and thus the need recoup costs by selling as much as possible overseas.
-
Many of the products of the UK arms industry face declining markets. The aircraft in question here, the Typhoon Eurofighter was designed for an epoch when the main potential enemy was high flying Soviet bombers. That threat has long since passed. A cursory glance at the major armed conflicts around the world today - the Congo, Afghanistan - will show that the emphasis is on ground troops, infantry weapons, light armoured vehicles. The enemies being fought do not have high flying bombers but are for the main part poorly equipped but highly skilful irregular or guerillas volunteers. Who needs the Eurofighter in such circumstances? And if any potential customers present themselves the temptation to pay bribes to keep them 'on board' is considerable
The next interesting thing that Tim Webb shows is that from the
mid 1960s onwards British governments accepted the normality of
bribing customers as part of the arms export drive. Webb quotes an
internal document from 1999 from the British government's Defence
Export Services Organisation (DESO) . The document
said "In certain parts of the world it has become
commonplace for special commissions to be paid. This is a matter
for DESO, to whom all requests for special commissions should be
referred." Special commissions' is of course a polite word for
bribes.
It is crucial to understand that at this time bribery of foreign
officials (such as officials in the Defence Ministry of a
potential purchaser government) may have been frowned upon but it
was not a criminal offence, unlike bribery of domestic government
officials, until very recently -2001 to be precise. We are
dealing, in other words, with a regulatory offence of the type we
have already discussed. In the US and many other countries such
bribery is a criminal offence and the US and other countries were
putting pressure on the UK government to criminalise such
activity. It was brought into UK law as part of anti-terrorist
legislation. The 2001 Anti-Terrorism,
Crime and Security Act, section 12 extended the
traditional crime of bribery of public officials to include
individuals where "functions of the person who receives or is
offered a reward have no connection with the United Kingdom and
are carried out in a country or territory outside the United
Kingdom".
BAE systems and the Saudi connection
Meanwhile the Saudi Arabian connection had become very important
for the British armaments industry since the 1960s and Tim Webb
gives an account of the continually close relations between the
ruling Saudi royal family and the British government. Our
case study begins in 2005 when the Saudis agreed, for whatever
reason, to buy 72 Eurofighter Typhoon aircraft (of which BAE
is the British manufacturer) under conditions in which other
countries were considering cancelling contracts, usually for the
reasons we have mentioned above. BAE would of course be the main
British beneficiary from this contract. It was conjectured that
the paying of commissions may have been important in securing this
contract because there was no obvious military reason why the
Saudis needed a fleet of these aircraft. (see the article by Campaign
Against Arms Trade)
The SFO gets interested
As we have mentioned, the paying of bribes or commissions became
a criminal offence in 2001. The
Serious Fraud Office (SFO) which we have already mentioned,
began to get interested in the BAE-Saudi relationship. There was,
by the mid - 2000s allegedly evidence of permanent 'slush fund'
from which various payments could be made to Saudi officials. The
main ways of transmitting funds, it was alleged, besides direct
payment from this fund to the Swiss bank account of a Saudi
intermediary also included:
-
various types of 'offset arrangements' such as for example a Saudi company providing infrastructure services to a British run facility in Saudi Arabia would over-charge for its services and pocket the difference
-
barter arrangements: arms for oil. Some of the armaments were exchanged directly for Saudi oil (rather than money) but some of the oil included in the deal would not actually be delivered but rather sold off by the Saudi officials who then pocket the money
alongside this, there were, it was alleged, all sorts of
hospitality arrangements provided in the UK free to Saudi visiting
officials, pilots on training courses for the new aircraft etc.
By 2004 the SFO investigation was gathering pace and by 2005 the
investigators were making requests to the Swiss banks which
allegedly held accounts through which the bribery payments were
allegedly passing
A leading Saudi prince (Prince Bandhar) who was concerned with
the aircraft contract got wind of what was happening and called in
the British Ambassador to request that the investigation be
halted. The head of the SFO, Robert Wardle at first resisted
pressure from the Prime Minister (Tony Blair), the Attornery
General (Lord Goldsmith) and allegedly BAE itself
In September 2006 the SFO obtained the consent of the relevant Swiss banks to view the accounts of the agent of Prince Bandhar
On the 14th December 2006 the inquiry was dropped just as Swiss
banks were about to wire the documents to the SFO.
Criminalisation vs national security?
Robert Wardle, the head of the SFO claimed that calling off the investigation was his decision. It was said that he called it off because it wasn't making sufficient progress. But this seems unlikely perhaps in view of the fact that the SFO was about the recieve important documents. Meanwhile both the Prime Minister and the Attorney General made public comments which could be construed as suggesting that they had been instrumental in pressuring Wardle to discontinue the investigation. The Attorney General, Lord Goldsmith said: "It has been necessary to balance the rule of law against the wider public interest." While Tony Blair said "Our relationship with Saudi Arabia is vitally important for our country... that strategic interest comes first"
What was meant by 'the wider public interest' and how could it
conceivably clash with the principle of the rule of law which is
fundamental to our criminal justice system? Blair referred
to 'national security' It was then said that Saudi Arabia was a
vital source of information to the British Security Services about
terrorist activity directed at the UK and that the Saudis might
end this if the SFO investigation continued. There seemed to be a
shortage of facts to support this position and one response was
that in any case the Saudis were equally dependent on information
given to them by the UK government regarding the activities of
Saudi dissidents based in the UK.
Meanwhile the US and numerous other countries were furious with
the UK decision. The decision did not go unchallenged in the
courts. The pressure group Campaign
Against Arms Trade took
the
matter to the High Court which in April 2008 ruled that the
Director of the SFO had acted unlawfully in stopping the
investigation. The court noted:
"No-one,
whether
within this country or outside, is entitled to interfere with
the course of our justice. It is the failure of Government and
the defendant [the Director of the Serious Fraud Office] to bear
that essential principle in mind that justifies the intervention
of this court."
However in july 2008 this was overturned
by the House of Lords (the highest appeal court in the UK)
on the grounds that the Director of the SFO had a right to make
such a decision.
Meanwhile BAE itself had set up a committee in 2007 under former
Lord Chief Justice Lord Woolf, to review its ethical business
practices. You can read the report here
The key issues in the Saudi case:
The overwhelmingly central issue is the right of the government
to stop a major criminal investigation and thereby undermine the
rule of law. The doctrine of the rule of law is central to modern
conceptions of legality in an open, democratic society. It
implies, among other things, that the law will be enforced
impartially, against any person or institution that violates
it. In the 17th and 18th centuries a key issue was to stop
the King intervening in the legal system by stopping the
prosecution of people who were his friends or under his patronage.
Even the King must be subject to the law. Now in 2008 the issue
seems to have reared its head again.
Britain has subsequently been repeatedly condemned for its
failure to enforce the international OECD anti-bribery convention,
and for the apparent political interference that took place on
behalf of BAE.
The SFO gets back on its feet
Nor did the SFO give up. Robert Wardle left the SFO in 2008 and
was succeeded by Richard Alderman who, together with the US
Department of Justice, was keen to continue to pursue other
aspects of BAE
BAE sells arms around the world and a number of SFO investigations
with regard to bribery continued. So in fact the SFO continued to
close in on BAE. Alderman stepped up investigation of BAEs
activity in Tanzania, South Africa, Romania and the Czech Republic
Tanzania: In 2001 This
relatively poor African state was persuaded to buy an expensive
military air traffic control system (cost £28 million) that they
didn't need, given they hardly had an airforce!
It is alleged that Prime Minister Tony Blair championed the sale
against opposition from other Cabinet members such as Clair Short
MP.
It seemed that Tony Blair had been a prime mover in this case too,
as in the Saudi contracts
Cabinet ministers Claire Short and Robin Cook had apparently tried
to stop the sale of the hugely expensive radar to the poverty-
stricken Tanzanians. But, as prime minister, he overruled them and
insisted that the deal had to go through.
The World Bank and the International Civil Aviation Organisation
judged that the 2001 purchase was unnecessary and overpriced.
But then the SFO discovered that around one third of the £28m deal
had been diverted into secret offshore bank accounts.
The SFO believed that this money was used to pay bribes to
Tanzanian politicians and officials. One of whom was found to have
had more than £500,000 in a Jersey bank account he controlled. He
denied the money had come from BAE.
South Africa: In December
2008 evidence emerged suggesting that BAE paid £100million to
'financially incentivise' various South African purchasing
officials with regard to the purchase of BAE Hawk and Gripen
aircraft to the tune of £1.5bn
The plea bargain
Alderman adopted the US style of offering BAE a plea bargain
under which the company would admit guilt and pay fine of around
£300m. BAE stalled so Alderman very publically threatened a
criminal prosecution and stepped up the pressure by in March 2009
having Count Alfons Mensdorff-Pouilly, who acted as an agent for
BAE (i.e. he ran various intermediary companies) arrested in
Austria in connection with bribery in relation to Hungarian and
Czech military aircraft sales. So in February 2010 BAE gave in and
paid the fine
No-one went to prison, £300m is small fry for a company the size
of BAE
Prosecution of minor offences
Finally, in December 2010 the SFO succeeded in a minor
prosecution of a middleman who allegedly had been handling some of
the bribery payments in the Tanzania case. The judge declared
himself amazed at the suggestion that BAE had not acted
corruptly and fined BAE £500,000
The phone-hacking scandal, News International and the Metropolitan Police
So
far we have looked at a number of scandals in which, even if
prosecution eventually took place, the complexity or invisibility
of the offence, the social status or the political and economic
importance of the offender. The recent saga involving computer
hacking by journalists into the mobile phone voicemail systems of
various celebrities and others - including a murder victim - not
only brought about the closure of a major newspaper (The News
of the World), seriously damaged the reputation and
standing of Rupert Murdoch, one of the world most powerful
newspaper and media owners, but forced the resignation of two very
senior UK police officers, Sir Paul Stephenson, Commissioner of
the Metropolitan Police and Assistant Commissioner John Yates, his
deputy.
Since this is very much an ongoing situation let me make it clear
that there are no suggestions being made by me of any illegal or
inappropriate action by any person named here other than those
that have resulted in conviction in the courts or which have been
admitted in public statements by the participants. These
unprecedented developments illustrate the fact that, while there
is no suggestion of corruption in the sense of monetary payments
or other bribes between these senior police officers and business
leaders, a close relationship between powerful corporate entities
and senior law enforcement officials may have outcomes that are in
some ways similar in the sense of putting a brake on criminal
investigation.
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In terms of the background details of this long running saga you can find a very good 'timeline' from the Telegraph and also a Guardian website full of reports and resources. These will give you what you need in terms of factual background |
From our point of view the issue we are concerned with is the relationship between the Metropolitan police and News International (the UK subsiduary of News Corporation, often referred to as NewsCorp - owned by the media magnate Rupert Murdoch and run by his son James ), which owned the News of the World newspaper and which currently owns The Sun. It should be made clear that there is no suggestion of wrongdoing on the part of either Rupert or James Murdoch.
There have been allegations relating to
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police protecting (knowingly or otherwise) News International by initially playing down the extent of the phone-hacking when they had evidence that indicated otherwise and, in effect, giving rise to untruths.
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hospitality to senior officers from New International and the hiring of the a former executive from the latter as a consultant to the Metropolitan Police caused the resignation of the most senior police officer in the UK
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a close relationship between the police and journalists working on newspapers owned by News International to the extent of payments to police officers by journalists in return for information
allegedly playing down the extent of hacking
The phone hacking scandal began with a couple of journalists hacking into the voicemail messages of various Royals. In January 2007 The News of the World's royal affairs editor Clive Goodman was jailed for four months and Glenn Mulcaire, a private investigator, for six months. Goodman and Mulcaire admitted conspiring to intercept communications while Mulcaire also pleaded guilty to five other charges of intercepting voicemail messages. The initial scenario was that it was simply a matter of these two 'rogue reporters' and that neither the editor of the News of the World yet alone the head of News International had any knowledge of the matter.
Over the next two years it became clear that the extent of hacking was far wider than this and that it involved the routine hacking of a wide range of celebrities and politicians. There were claims by high status victims - including former Deputy Prime Minister John Prescott - that their phones had been hacked. Meanwhile News International was paying large sums in private settlements in the case of some victims. One effect of this were that the cases were less likely to come to the criminal courts and reveal evidence of widespread hacking by News of the World journalists.
Yet, and this is the puzzle, in 2009 the police refused to re-open their inquiry in the context of new evidence and claims by a much larger group of victims than the original Royals. John Yates, an experienced officer, now very senior in the Metropolitan Police was associated with this decision not to re-open the investigation. By contrast, the Crown Prosecution Service announced it was urgently having another look at the evidence the police had given to it in 2006 which formed the basis for the original convictions of Goodman and Mulcaire.
Critics argued, rightly or wrongly, that the effect of Yates inaction could be construed as giving support to News International's attempts to restrict the extent of the phone hacking scandal and to maintain that senior exectives in the organisation were unaware of the actions of a couple of rogue reporters. When several celebrities and public figures, including Prescott, claimed they had been victims of hacking - a claim based on the discovery of documents seized by the police themselves listing thousands of victims - the police simply 'sat on the documents' and evaded questions from people who believed that they were victims of hacking. A court order was necessary to get the police to reveal the documents.
In February 2010 The House of Commons Culture, Media and
Sports Committee which had been having its own hearings on
the matter and summoning witnesses announced in a report that it
was "inconceivable" that managers at the News
of the World were ignorant of what was going on,
given that phone hacking was now known to be far more widespread
than the paper had admitted.
The range of alleged victims of hacking continuously widened (it could be as high as 4,000) but was not restricted to high profile celebrities. It transpired (last year 2011) that murder victim Millie Dowler (murdered in 2002) had her voicemail hacked while she was missing. This incident certainly hardened public opinion against the phone hackers.
Yates, in July 2011 was summoned to appear before the House of
Commons Home Affairs Committee and said he had no plans
to resign. But later the same month resigned. He was, it is
alleged, being threatened in any case with suspension by the Independent
Police Complaints Commission in connection with his
relationship with Neil Wallis, a former editor of News of the
World who was being employed as a consultant by the
Metropolitan Police. But the key issue was his alleged failure to
re-open the investigation after it became clear that the extent of
the phone-hacking was much wider than at first thought
In September 2011 some senior victims of phone hacking (including John Prescott) took the matter to court with a claim for Judicial Review (i.e. they ask the court to review the actions of a public body) of the Metropolitan police conduct in relation to the phone hacking investigation. In February 2012 the court ruled that the Metropolitan Police had breached the rights of the claimants under the Human Rights Act by not informing them that they were the victims of phone hacking by journalists associated with the News of the World. The Metropolitan Police admitted that they had acted illegally. John Yates expressed regret at his 2009 decision not to reopen the phone-hacking investigation. Following the court ruling a press statement by the solicitors for the claimants said:
"at the time of the first
investigation into phone-hacking, instead of warning the
hundreds or thousands of victims of voicemail interceptions, the
police made misleading statements which gave comfort to News
International and permitted the cover-up to continue. If
the police had complied with their obligations under the Human
Rights Act in the first place, the history of the phone-hacking
scandal would have been very different”.
The police of course have subsequently re-opened their
investigations and are proceeding in a number of directions (see
below)
hospitality and hiring consultants
Shortly before Yates resigned his boss, the most senior police
officer in the UK, the Commissioner of the Metropolitan Police,
Sir Paul Stephenson, found his position impossible. He resigned in
July 2011 after strong criticism for having hired as a consultant
a former News of the World editor Neil Wallis. Stephenson, it is
alleged, also had free access to a luxury health spa owned by a
company for which Wallis worked. It is probably unlikely that this
would have been an issue if the phone-hacking scandal had not
reached such proportions
bribes to police
The third dimension of this sorry saga which is of interest to criminologists concerns the relationship between police and journalists. Investigative journalists, particularly crime reporters, have similar skills and interests to detectives. Of course only police officers can break down doors and make arrests but journalists can uncover information crucial to police investigation. Police detectives therefore have every incentive to cultivate good relations with leading journalists. This relationship has traditionally been an informal one involving a few pints of beer in a pub or bar frequented by both groups. There has to be something in it for both parties. Police may pass some information regarding ongoing investigations in return for information gained from journalist's own inquiries.
However, financial payments to police in return for information
are another thing. The investigations into phone-hacking have
yielded information relating to 'inappropriate payments' to police
officers by journalists for inside information. This was confirmed
by Sir Paul Stephenson just prior to his resignation. It
currently (February 2012) forms the basis of the Metropolitan
Police investigation known as 'Operation
Elvenden' There are at least two other operations underway.
A renewed and reinvigorated investigation into phone-hacking is
known as Operation
Weeting (where do they get these names!) and a spin-off
investigation into computer hacking (some victims were having not
only their mobile phone voicemails but their computers hacked into
as well!) is known as Operation
Tuleta
watch this space....