The long arm of United States law is longer than one might think, says Duncan Aldred


'The Americans are coming!' Fifteen years ago, that whisper passed around the City's lawyers. It was a twist on Paul Revere's apocryphal warning to his New England comrades in arms who, back in the 18th century, were determined to resist the long arm of British rule.



When the alarm was raised here in the 1990s, New York's biggest law firms were eyeing up London as the next place to make money. They threatened to out-bid us on lawyers' salaries and to steal our clients. That was just business. This time, however, the threat is much worse.



Today, the Americans are out to bring UK business into line or into American jails. There is no doubting their determination and they have the tools to do the job.



We have seen clear evidence of this appetite to police our businessmen. The NatWest Three were ignored by our own authorities but hounded by the US Department of Justice. Having pleaded guilty, they are now serving prison sentences in the US for crimes that had a greater connection with the UK than the US. And in April the High Court highlighted our own government's reluctance to allow the Serious Fraud Office to pursue its investigation into the affairs of BAE Systems while, in the US, the Department of Justice continues to make threatening noises.



As was the case when US firms turned up in the 1990s, we cannot afford to pretend that our world is unaffected. To look after our corporate clients, we need to have the Americans' sense of mission and to understand the weapons they have trained on us and our clients.



The rumblings from the US Department of Justice in the direction of BAE are rooted in a statute that has been part of American law since 1977. The Foreign Corrupt Practices Act (FCPA) contains anti-bribery provisions that provided the fuel for the headlines about BAE and Saudi Arabia. It also placed corporates under an obligation to meet minimum standards on accounting and corporate governance. The worrying thing from our point of view is that the US Department of Justice has this weapon clearly pointed at British corporate giants such as BAE. While it is registered and headquartered here in Britain, BAE has had enough of a business connection with the US to make it just as subject to the FCPA as any US domestic corporation.



Under the FCPA's anti-bribery provisions, it is an offence to pay anything of value to a foreign government official to influence an official act or secure an improper advantage. The US was encouraged to make the most of this statute in its role as world policeman by the findings of a high profile inquiry in October 2005. The Volcker Committee looked into the United Nations oil-for-food programme and concluded that more than 2,000 companies had paid Saddam Hussein's regime more than $1.5 billion in bribes to obtain contracts to sell humanitarian goods to Iraq. Individuals who contravene the FCPA's anti-bribery provisions run the risk of up to five years in prison and a heavy fine; corporates risk a fine of $2 million per offence.



The US Securities and Exchange Commission (SEC) polices the FCPA's accounting and governance provisions. The SEC expects corporates to keep proper books and records so that there are clear trails for all payments they make, plus internal controls so that rogue, unattributed payments cannot be processed.



The US Department of Justice has produced a list of 'red flags' which it says potentially provide notice of corrupt conduct. If we or our clients have sufficient contact with the US, we need to know about the FCPA and we need to be aware of the red flags. If we deal, for example, with a country that has a history of corruption, or with an agent who has a reputation for unethical business practices, we should expect no sympathy from the American authorities.



Even if we and our clients never do business with foreign governments, we need to bear in mind that Americans have their eye on more run-of-the mill business too.



In December 2005, the United States Office of Foreign Assets Control (OFAC) ordered Dutch bank ABN AMRO to make improvements to its global compliance and risk management systems to ensure adequate oversight, effective risk management and full compliance with relevant US laws and regulations. The bank paid a bundle of fines, totalling $80 million, including $40 million to the Federal Reserve Board and OFAC. The bank was found to have failed to identify, analyse and report suspicious activity.



Be prepared


- Be aware if firms or clients have any connection with the US;

- Be extra vigiliant in dealing with 'command' economies (where particularly strong governments influence the granting of contracts);

- Ring the warning bell when dealing in US dollars;

- Familiarise yourself with the workings of OFAC and be prepared to phone the hotline.



OFAC does not only take an interest in the affairs of big banks which set foot in the US. We need to know about OFAC if we or our clients have a US connection - even if the only connection is that a payment is being made in US dollars.



OFAC exists to administer and enforce economic and trade sanctions based on US foreign policy and national security goals. The sanctions programmes fall into the categories of 'anti-terrorism', 'drugs', 'Cuba', and, unhelpfully, 'other'. OFAC also maintains a 'specially designated nationals' list. The list of Specially Designated Nationals (SDN) comprises more than 6,000 corporates and individuals connected with sanctions targets and located throughout the world. Their assets are blocked, so far as OFAC is concerned, and OFAC frowns upon any dealings with them. If we or our clients have ABN-style connections with the US and deal with an SDN name, there is a risk of an ABN-style penalty, or even imprisonment.



Where we and our clients have entirely UK-based businesses with no US footprint, we still have to be alert when we deal with payments in dollars. Dollar payments touch the US banking system, even if payer and payee are outside the US. Where it can, OFAC will seize dollar payments that would breach US sanctions or are intended for an SDN name.



Because OFAC's programmes and the SDN list are constantly changing, it is important that we keep up-to-date about what sanctions are in place and that we check that we are not planning to make a payment to a specially designated national. OFAC wants an interactive relationship: we are urged to call OFAC's hotline if we have reason to believe that proceeding with a transaction might violate its regulations.



Finally, the NatWest Three might have lost our sympathy by the time they pleaded guilty to their crimes, but they still stand as a sobering illustration of the Americans' power to extradite and of their appetite for hunting us down. 'The Americans are coming!' We ignore that warning at our peril.



Duncan Aldred is a partner at CMS Cameron McKenna