Sweett Group plc will pay £2.25m after it pled guilty to failing to prevent a person associated with it from committing bribery on its behalf (a section 7 offence under the UK Bribery Act). This is the first time a company has been convicted of this offence.
The Sweett sentencing follows the UK’s first deferred prosecution agreement (DPA) in November 2015, which the SFO entered into with ICBC Standard Bank to resolve allegations the bank (prior to ICBC’s takeover) had committed a section 7 offence.
These cases have some common learnings on how to manage bribery risks. However, they also reveal a tale of two very different investigations, one which provides useful lessons for any corporate facing investigation by the SFO and hoping to secure a DPA.
Beware of ‘sham contracts’
The SFO found Sweett had failed to prevent its subsidiary from bribing Mr. Khaled Al Badie, a director of a UAE insurance company (AAAI), to win a construction services contract with AAAI. Sweett’s subsidiary paid the bribes under a ‘sham’ consulting contract with a company called North Property Management (NPM). Mr. Al Badie was the beneficial owner of NPM. The court described the contract with NPM - which was supposed to be for ‘hospitality services’ - as a ‘fiction’.
Similarly, in the ICBC Standard Bank case, the bribe was paid to a third party company (EGMA) which had been inserted into a transaction between the bank and the Tanzanian government by the bank’s then sister company—even though it was unclear what services EGMA was providing. As it turned out, two of the directors and shareholders in EGMA had links to the Tanzanian government.
Both cases demonstrate the need to properly examine consultancy contracts in high-risk jurisdictions to ensure (i) there is a genuine commercial rationale for them, (ii) the payments under the contracts are for work actually undertaken, and (iii) bribery risks in relation to the beneficial ownership of the counterparty are checked (and steps are taken to investigate and mitigate any risks identified).
Approach to self-reporting
ICBC Standard Bank self-reported to the SFO within weeks of the suspicious payment being made, and days after it filed a suspicious activity report with the Serious and Organised Crime Agency (now the National Crime Agency).
In contrast, Sweett reported potential misconduct in certain overseas operations to the SFO after the Wall Street Journal (WSJ) tipped off the company that it was about to publish allegations that the group had engaged in bribery.
As the WSJ effectively forced its hand, Sweett, unlike the bank, was not given any credit for self-reporting. This is notwithstanding the fact Sweett self-reported irregularities with the NPM contract (although this was months after the start of the SFO’s investigation).
The message is clear. For the SFO to give a company credit for self-reporting it must be done in a timely manner in circumstances where the SFO would be unlikely to learn about the alleged wrongdoing from another source.
Attitude to the SFO investigation
Both companies hired external lawyers to carry out lengthy internal investigations. ICBC Standard Bank’s approach was praised for its openness whereas Sweett’s came in for criticism. Indeed, the SFO initially considered Sweett to be uncooperative.
The judge focused on Sweett’s delay in recognising that the contract with NPM was, in his words, ‘so obviously a bribe’. He remarked that, after the start of the SFO investigation, Sweett’s subsidiary did not immediately stop paying NPM but instead contemplated creating an escrow account so it could continue making payments for NPM’s benefit. This was, in the eyes of the judge, ‘a rather cynical commercial decision by the company to hedge its bets: if the SFO problem went away, they could then appease Mr. Al Badie by paying overdue sums from such an account…[and] would then also avoid such litigation in the UAE which they anticipated would follow if the payments should permanently be stopped’.
Sweett also sought a letter from Mr. Al Badie to characterise the payments under the NPM contract as a legal finder’s fee under UAE law (which might mean they did not fall foul of the Bribery Act). The SFO took a dim view of this tactic which the court said was a deliberate attempt to mislead the investigators.
The SFO has long maintained that companies seeking a DPA must show ‘genuine cooperation.’ The Sweett case demonstrates that means more than simply providing information in response to SFO requests. Cooperation will be considered in the round, by reference to the company’s broader attitude to the investigation. Companies that make incorrect or unsubstantiated arguments about the underlying nature of the misconduct (even if such arguments are ultimately viewed as such with the benefit of hindsight) run a real risk of being considered uncooperative.
This reflects the approach taken by US prosecutors. Kara Brockmeyer, the head of the SEC’s FCPA unit, and Patrick Stokes, deputy chief of the DoJ’s Fraud section, have both said any company who, in their view, ‘spins’ the results of an internal investigation, rather than simply presenting the facts, damages its credibility with the authorities. This can impact on a company’s ability to claim cooperation credit.
Plead guilty or go for a DPA? Does it make any difference?
Whilst informal DPA discussions did commence, ultimately Sweett was unable to secure a DPA. As the above illustrates, Sweett’s approach to self-reporting and the investigation did not help. Nor did it help that management ‘wilfully ignored’ KPMG’s concerns over Sweett’s inadequate internal controls.
But looking at the outcomes of both cases, you could ask whether they are really that different.
- Sweett paid a fine calculated as 250% of the gross profit of the contract obtained through bribery. ICBC Standard Bank paid a penalty calculated at 300%.
- Both the fine and the penalty were reduced by one-third given the agreement to plead guilty/enter into a DPA.
- Both companies had the profits from the relevant contracts confiscated, and each of them paid the SFO’s costs.
However, as part of the DPA, ICBC Standard Bank also agreed to:
- pay compensation of $7m (including interest) to the government of Tanzania. (Compensation was not considered appropriate in the Sweett case because no victims were identified.);
- appoint PWC to carry out an independent review of its anti-corruption procedures and controls and take action (including training) to address any gaps identified. The SFO will have some oversight over PWC’s work; and
- cooperate with the SFO (and other agencies) in ongoing investigations into other parties.
These additional conditions imposed on ICBC Standard Bank may simply be the price of getting the SFO to agree to a resolution that avoids the company being prosecuted. Avoiding a criminal conviction can be critical for some businesses. For example, companies may be concerned with being debarred from public contracts for a period following a conviction. However, in the case of a section 7 offence, debarment is not mandatory. So Sweett may not suffer any debarment consequences, particularly if it can demonstrate to public authorities that it has ‘put its house in order’ as the judge suggests. In those circumstances, the outcome of the Sweett case may cause some companies to question the attractiveness of the DPA regime.
When agreeing a financial penalty under a DPA, the SFO is obliged (in accordance with the Crime and Courts Act 2013) to agree an amount that is ‘broadly comparable’ to the fine that a court would have imposed on the company following a guilty plea. The SFO, therefore, has very little discretion to offer a lower financial penalty in order to incentivise a company to enter into a DPA (and accept the other obligations that go with it) rather than plead guilty. If DPA’s really are to be an effective carrot to encourage cooperation and good corporate citizenship, perhaps the SFO needs more leeway to offer a larger discount than is available on a guilty plea.
The future of section 7 offences
Any comparison of the two cases has to take into account one of the key distinguishing features between the two. The underlying wrongdoing Sweett failed to prevent was private bribery. In ICBC Standard Bank’s case, the bank failed to prevent the bribery of an official in a developing nation. The result caused substantial public harm and a loss of $6m in funding for infrastructure projects in a nation in need of development. This may suggest that the courts will, as a matter of policy, adopt a stricter approach to the failure to prevent bribery of public officials than bribery of private individuals.