On 19 February 2016, the Sweett Group PLC ("Sweett") were sentenced for having committed an offence under section 7(1) of the Bribery Act 2010 ("UKBA") for failing to prevent bribery in connection with securing and retaining a contract with Al Ain Ahlia Insurance Company for the building of a hotel in Dubai, UAE.
In short, section 7 of the UKBA provides that any company covered by the Act is potentially guilty of a criminal offence if its "associated person" bribes another person intending to obtain or retain business for it. Please click here to view our client note for more information. The legislation is designed to be broad in remit making UK companies liable for the acts of their third party service providers even if such acts are not known about let alone consented to.
Although this legislation has been in force since 1 July 2011, Sweett is the first successful conviction under section 7 by the Serious Fraud Office's ("SFO") and it won't be the last. The landmark prosecution was not the only success for the troubled investigative organisation in the last few months. In November 2015, the SFO successfully secured their first deferred prosecution agreement ("DPA") in proceedings against Standard Bank under section 7 for the actions of its African sister company, Stanbic Bank Tanzania Limited. As well as being seminal decisions, these two cases highlight some interesting questions about how the SFO approaches co-operation.
Disclosure versus co-operation – what does it mean?
Within months of each other, Sweett and Standard Bank were two offenders who were treated very differently. Standard Bank was spared a criminal conviction and given a DPA whilst Sweett faced the ignominy of a criminal sentence.
A DPA, a tool long used by the US Department of Justice when settling bribery allegations, is advantageous as it avoids lengthy and costly trials; can lead to a discounted penalty; is concluded under the supervision of a judge and offers transparency within a spectrum of proportionality and fairness and most importantly allows reparations without a criminal conviction – something that can result in an automatic debarment from public procurement (which could bring a company down).
The difference in sentences for these two corporates was not as a result of the level of bribery; in fact the level and extent of corruption in Standard Bank was arguably much higher than in Sweett because it involved bribery of public officials and much bigger sums of money.
For Standard Bank, within days of learning they had a problem, they self-reported to the SFO and began an internal investigation gathering in information from its various businesses. A representative of the SFO described their behaviour as "an object lesson in how to co-operate." Meanwhile, at Sweett the alleged bribes were only notified to the SFO a week before a Wall Street Journal article for alleged offending in a different continent and again later, only months after a formal SFO investigation had started.
Standard Bank granted the SFO access to electronic and documentary evidence and a summary of first drafts of statements of interviewees (although notably not the statements themselves); Sweett, on the other hand, claimed privilege and refused to hand over any witness accounts. The SFO even issued a press release criticising Sweett's "co-operation". Some have argued that the stances were, in fact, not that different but rather there was a substantial difference in how the co-operation was presented and perceived.
The SFO labels co-operation as "prompt reporting, scoping and conducting your own investigation in conjunction with the SFO, taking into account the SFO's interests, providing access to the kind of material the SFO needs to test." The SFO has previously referred to companies who carry out their own enquiries without first reporting issues as "trampling the crime scene" – a quote that has caused considerable consternation among good corporate citizens who regularly use internal investigations as a genuine tool to uncover and correct wrongdoing.
The SFO has also taken an extremely aggressive stance in relation to privilege – much more so that the US Department of Justice. This trend is set to continue with the courts potentially being asked to resolve the scope of privilege in the context of internal investigations.
On the face of it, it would appear nothing short of (full) co-operation would seem to confer the opportunity of being offered a DPA from the SFO. If such a high standard for a DPA is maintained they will probably be very rare - but should it be so coveted?
Analysis: Sweett's conviction versus Standard Bank's DPA? Who came out better?
A section 7 failure to prevent bribery carries discretionary public procurement debarment. Offences under section 1 or section 6 of the UKBA are even more punitive as they carry mandatory public procurement debarment. Both Standard and Sweet avoided debarment but by different methods. The DPA avoids a criminal penalty therefore there was no question of debarment for Standard Bank. However, Sweett also avoided debarment notwithstanding receiving a guilty conviction.
The nature and extent of the bribery in the Standard Bank case was very different to Sweett so it is very difficult to make a clear comparison. Penalties are calculated using multipliers against the "gross profit" derived from the alleged bribe. Standard's multiplier was set at 300% and Sweet's set at 250%. However, because Standard Bank co-operated they received a discount of one-third from US$ 25.2 million to USD$ 16.8 million - this amounted to an effective multiplier of 200% plus a deferred prosecution as against a live criminal conviction.
The prospect of being debarred from public procurement, the possibility of attracting a (significant) discount and avoiding a criminal conviction (which will affect share price and shareholder confidence) may lead some companies to reach the view that co-operation is preferable to running the risk of fighting the SFO when an investigation is initiated.
However, it could be argued the overall impact of the two sentences was not tremendously different. Without further cases to compare Standard Bank and Sweett, it is difficult to evaluate the true benefit of co-operation. Companies are (quite rightly) going to be wary of providing incriminating or privileged information in order to seek a DPA, which may be almost as financially harsh as a guilty conviction. Furthermore, the SFO have admitted DPAs are not standard practice; thus, companies may be lured into divulging important information with the expectation of receiving a DPA, only to find the court and/or SFO feel a prosecution is more just.
The SFO, under the continued leadership of David Green QC, appears to be maintaining its aggressive approach to prosecuting bribery. The decision to self-report acts of bribery has always been a thorny issue but the decision is getting harder; ultimately each case will have to be assessed on its merits.