Following formal approval of the UK’s first Deferred Prosecution Agreement (DPA) in the Standard Bank case (see our Update on that case here), there have been two further cases providing long-awaited insight into the interpretation and enforcement of UK anti-bribery legislation.
The sentencing of Sweett Group plc (SG) in February 2016 represents the first case in which a company has been convicted and sentenced for the section 7 offence of failing to prevent bribery by an associated person (the Corporate Offence) under the UK Bribery Act 2010 (the Bribery Act). The Sweett Group case addresses the circumstances in which a company will not be offered a DPA, as well as shedding further light on certain aspects of the Bribery Act and the likely penalties for the Corporate Offence.
The second recent case is the conviction in January 2016 of Smith and Ouzman Ltd (S&O) in respect of a pre-Bribery Act offence. The Smith and Ouzman case represents the first UK Serious Fraud Office (SFO) trial resulting in a conviction of a corporate for foreign bribery and is the culmination of an investigation that commenced in 2010.
Sweett Group Case
SG is a UK listed company that provides services for the construction and management of buildings and infrastructure projects. Cyril Sweett International Limited (CSIL) – a wholly-owned subsidiary of SG based in Cyprus – secured a contract in relation to the construction of a hotel in Dubai with a company within a group in the UAE known as the Al Badie Group. The contract was worth £1.6 million, which represented a gross profit to CSIL of around £851,000. On the same day as entering into the contract with the Al Badie Group entity, CSIL entered a contract (Contract X) with a company beneficially owned by a prominent officer within the Al Badie Group. Contract X was ostensibly for the provision of hospitality services to CSIL in respect of the Dubai hotel project and required the payment by CSIL of installments amounting to around £680,000. However, in essence, Contract X was the vehicle by which CSIL bribed the prominent officer within the Al Badie Group to secure the £1.6 million contract in respect of the hotel project in Dubai.
The SFO commenced an investigation in July 2014 and, in December 2014, SG self-reported that it had suspicions regarding the contracts entered into in respect of the hotel project in Dubai. The SFO eventually concluded that the case was not one that was appropriate to be dealt with by way of a DPA and, in November 2015, SG pleaded guilty to the draft charge provided by the SFO. SG was sentenced in February 2016 and ordered to pay a sum totaling over £2.3 million (a confiscation order for £851,152.23, a fine of £1.4 million, and costs to be paid to the SFO of £95,031.97).
The key insights that the Sweett Group case provides in respect of anti-bribery enforcement are:
- Although the sentencing remarks do not specifically address why the SFO considered a DPA unavailable in this case, the judge was highly critical of the conduct of SG after the SFO had commenced its investigation. The judge noted that representatives of SG had tried to mislead the SFO by attempting to secure a letter from the Al Badie Group to the effect that Contract X was actually for a legitimate purpose when that clearly was not the case. The judge also referred to SG’s decision to investigate the option of placing funds due under Contract X into an escrow account during the SFO investigation rather than cancelling Contract X immediately. SG did eventually terminate its contracts with the Al Badie Group and closed down all its operations in the Middle East region. However, the judge concluded that this decision had as much to do with commercial considerations as anything else. If the level of cooperation provided during the investigation was a factor in the decision whether to offer a DPA, this would be consistent with the DPA Code of Practice1 and public statements made by senior individuals at the SFO.2
- The judge also noted that SG had failed to act on recommendations made by KPMG in 2011 and 2014 in relation to the group’s financial controls. A report by KPMG in 2011 had been highly critical of CSIL, and similar issues were identified in 2014 but clearly not acted on by SG. This could be another reason why a DPA was not offered to SG by the SFO.
- The failure to act on the critical reports also explains why SG admitted in a letter to the SFO in July 2015 that it had not put in place adequate procedures designed to prevent bribery by persons associated with it (i.e., that it would not be able to rely on the Bribery Act’s “adequate procedures” defence). This touches on one of the issues raised by the Standard Bank case in that it is simply not enough for companies to create a policy: there needs to be a proactive approach and a culture within the organization which encourages anti-bribery compliance and deals with any issues promptly and effectively.
- The Sweett Group case confirms that a subsidiary (e.g., CSIL) can be an “associated person” of its parent company (e.g., SG) and, therefore, the parent company can be liable under the Corporate Offence for bribes paid by the subsidiary. In this case, there was a great deal of control exerted over the subsidiary by the parent company both in terms of the shareholding and the way in which the subsidiary was operated by the parent company. It will be interesting to see in future cases the degree of autonomy a subsidiary must have before it is not considered to be an “associated person.”
- The process used by the judge in the Sweett Group case to establish the size of the fine is the same as used in the Standard Bank case in that the judge applied the relevant Sentencing Council Guidelines. This involves a multiplier based on the level of culpability being applied to the gross profit obtained from the wrongdoing. In this case, a 250 percent multiplier was applied whereas the Standard Bank case involved a 300 percent multiplier. Pursuant to the DPA in the Standard Bank case, the relevant entity was also required to pay compensation and to engage an independent report at its own expense regarding its anti-bribery policies and procedures. This suggests the penalties handed down pursuant to a DPA are more onerous than if a company had pleaded guilty and was convicted and sentenced. The additional penalties are, in essence, the price paid by a corporation for avoiding a conviction and sentencing.
Smith and Ouzman Case
S&O is an English printing company found guilty in December 2014 – along with two of its directors – of paying bribes totaling around £400,000 to secure contracts in Kenya and Mauritania. The conduct took place prior to the introduction of the Bribery Act and, therefore, the convictions were under the old legislation, specifically the offence of corruptly agreeing to make a payment contrary to section 1 of the Prevention of Corruption Act 1906.
S&O was sentenced in January 2016 to pay a fine of around £1.3 million, a confiscation order of just under £900,000 and costs to the SFO of £25,000. This follows on from the sentences handed down in February 2015 to two of the directors at S&O: the chairman was sentenced to 18 months’ imprisonment and suspended for two years, and the sales and marketing director was sentenced to three years’ imprisonment.
The Smith and Ouzman case is a reminder that companies can be convicted under pre-Bribery Act legislation (i.e., in respect of conduct prior to July 1, 2011) and that, in such cases, a court will apply the same Sentencing Council Guidelines as in Bribery Act cases (a 300 percent multiplier was applied). The difficulty with convicting a corporate under the pre-Bribery Act legislation is that it is necessary to show that the “directing mind” of the corporate was involved in the relevant conduct. In the Smith and Ouzman case, two senior individuals at S&O were involved and, given that the company was not particularly large, this made it easier for the SFO to convict the company in addition to convicting the individuals.
The Sweett Group case shows that enforcement of the Bribery Act is progressing and provides corporates with some guidance on how the Bribery Act will be interpreted and what is expected of them during investigations. There is still some way to go, however, as key aspects of the Bribery Act (e.g., the jurisdictional scope of the Corporate Offence) have yet to be considered by a court.