In Southwark Crown Court this morning, three individuals prosecuted by the Serious Fraud Office for fraud and corruption offences, including offences under the Bribery Act 2010, were sentenced. They were each given long custodial sentences, ranging from 6 to 13 years’ imprisonment.
The individuals were found to have been involved in a fraud scheme concerning investments products relating to Sustainable Agroenergy Plc (“SAE”), which individuals invested in as part of their pension investments. The scheme related to investments in land SAE claimed to have acquired in Cambodia and which was being used to grow an environmentally friendly biofuel. Those who invested were promised high returns of between 8 and 25% and were also promised that the investments were safe as they were backed-up by an insurance policy in case things went wrong.
The claims were untrue, no crops were ever produced, and funds from new investors were used to pay pre-existing investors in the manner of a Ponzi scheme. By the middle of 2011, the company was effectively insolvent. The key period with which the case was concerned was July 2011 to February 2012 (when the SFO sent in management receivers to take over the business), which was when the majority of the policies were sold and during which time investors were said to have lost around £23 million.
Gary West (Chief Commercial Officer of SAE), James Whale (CEO and Chairman of SAE’s parent company) and Stuart Stone (Director of SJ Stone Ltd, who with a team of sales agent was responsible for selling the unregulated financial products), were convicted of various fraud offences. West and Whale were convicted of conspiracy to commit fraud and to furnish false information (relating to the misleading investment products), as well as fraudulent trading once the business was insolvent. Both were sentenced to 9 years’ imprisonment for these offences. West and Stone were convicted of offences under the Bribery Act. Another individual said to be in charge of the SAE Group, Mr Gregg Fryett, was not able to be prosecuted as he had been arrested in Cambodia and was facing trial there for his involvement in these matters (although the SFO had sought his extradition). Because the offending related in part to the period after the Bribery Act came into force (1 July 2011), the SFO was able to bring charges under that Act.
As well as the offences relating to the fictitious assets and investments being sold, West and Stone were also found guilty of conspiring to furnish false information - i.e. invoices from a company owned by Stone (Liquid Financial Ltd) to companies in SAE’s group (Sustainable Wealth Investments Ltd and Luxuria Ltd) - which falsely indicated services had been provided in order to secure the release of monies from the recipient company for the benefit of Stone. Through this additional scheme, Stone submitted some 76 invoices for which his company received over £3 million. The same sales had also been billed through another company owned by Stone (Stuart Stone Ltd), so he was paid twice for the same thing.
West was paid over £189,000 by Stone in bribes to induce West to approve the invoices and West accepted the payments as an inducement to approve the invoices for payment by the various recipient companies in the SAE group.
In respect of West and Stone, the judge sentenced Stone to 6 years’ imprisonment for bribery and furnishing false invoices and West was ordered to serve an additional 4 year sentence, to run consecutively to his 9 year sentence.
In addition, all three were subject to director disqualification orders (West and Whale for the maximum of 15 years, Stone for 10 years) and Serious Crime Prevention Orders, restricting their future activities upon their release from prison.
A fourth individual, Fung Fong Wong (a financial controller at SAE) was acquitted of accepting bribes of £7,500 from West to arrange for the payments of the invoices (and West was similarly acquitted of bribing Wong to do so).
There was little argument as to the facts and the key issues turned on the knowledge and beliefs of the individuals involved - i.e. whether they were acting honestly or not. In the case of Mr Wong, it appears the jury was satisfied that he had not realised the payment was intended as a bribe; he believed it was a bonus payment previously promised to him and he had not realised that the payment had come from West’s personal bank account.
While there have been three previous successful prosecutions of individuals for bribery under the Bribery Act, those were all for what could be described as “low-level” offending by individuals seeking to obtain a minor advantage - in one case, to pass a driving test, in another to get a better grade for a university dissertation. All three were convictions under the section 1 offence of offering, promising or paying a bribe.
This latest case brought by the SFO is the first Bribery Act case in relation to more complex financial fraud. The amounts involved were substantial, with the value of the frauds in the region of £23 million and the judge, in reaching his sentencing decision, gave weight to the fact that the individual investors who were defrauded, in most cases, lost life-changing amounts of money. Both the offeror and recipient of the bribes were convicted - this is the first case involving a conviction under the section 2 offence of requesting or accepting a bribe as an improper inducement.
This is an important success for the SFO and for the Bribery Act.
It follows the recent first successful contested prosecution of individuals for overseas corruption under the old bribery laws (the former management of Innospec) and precedes the outcome of the first contested prosecution for overseas corruption under the old bribery laws of a company (Smith & Ouzman).
While it is not the judgment that corporates and practitioners are waiting for - that is, a case interpreting the more complex and controversial offences involving companies - the SFO has taken an important step forward in demonstrating its ability to police the Bribery Act and in showing that the offences under the Act can be used successfully to pursue those who set up complex frauds to hide their wrongdoing. The SFO should be commended for that, and for bringing the matter to court quickly. Charges were brought within 18 months of the offending taking place and convictions secured just over a year later.