The SFO has exercised its powers to seek civil recovery of the proceeds of crime once again, resulting in an Order against Oxford Publishing Limited (OPL) to pay almost £1.9 million. The SFO is increasingly using its powers to strip parent companies of dividends representing unlawful conduct by their subsidiaries.
The UK Serious Fraud Office (SFO) has exercised its civil recovery powers again, resulting in an Order from the English Court requiring Oxford Publishing Limited (OPL) to pay almost £1.9 million, representing sums it received that were generated through unlawful conduct (bribery and/or corruption) in its subsidiaries’ East African operations.
These proceedings continue a pattern of behaviour by the SFO to exercise its powers to seek civil recovery of the proceeds of crime, and not a criminal prosecution. In particular, the SFO is increasingly using these powers to strip parent companies of dividends representing unlawful conduct by their subsidiaries. These powers are attractive to prosecutors: they require proof only to a civil standard, and do not require proof that the defendant was aware of the bribery. However, they contain no punitive elements, and the courts have made it clear that they are no substitute for prosecuting offences directly.
In any case, the existence of these powers presents a significant indirect bribery and corruption risk to companies looking to acquire other businesses. Such companies should consider ensuring that they conduct ethical due diligence on potential targets and their subsidiaries.
Oxford University Press Tanzania (OUPT) and Oxford University Press East Africa (OUPEA) are both wholly owned subsidiaries of OPL, itself a wholly owned subsidiary of publishing giant Oxford University Press (OUP), and are both part of the International Division of OUP. The International Division focuses on the school text book market, including participating in public tenders for contracts to supply governments with educational materials.
In 2011, OUP became concerned about the possibility of irregular practices in the tender process and instructed independent professionals to launch an investigation. Following the investigation, in November 2011 OUP voluntarily reported its concerns to the SFO in relation to contracts entered into by OUPEA and OUPT, and also voluntarily reported its concerns to the World Bank (who had funded two of the tenders).
A thorough investigation, the costs of which were met by OUP, was carried out and its results presented to the SFO and the World Bank. The results led the SFO and the World Bank to believe that both OUPEA and OUPT had “offered and made payments, directly and through agents, intended to induce the recipients to award competitive tenders and/or publishing contracts for schoolbooks to OUPEA and OUPT”.
Civil Recovery Orders
Part 5 of the Proceeds of Crime Act 2002 (POCA 2002) provides for the exercise of powers to seek recovery, through civil proceedings, of property obtained through unlawful conduct.
“Unlawful conduct” is defined as conduct that is unlawful under the criminal law of the country in which it occurs and, if it occurs outside the UK, would be unlawful if it were to occur in the UK (s.241 POCA 2002). A person obtains property through unlawful conduct (either their own, or that of another) if they obtain it by or in return for the conduct (s.242 POCA 2002).
The Court will decide whether unlawful conduct has occurred on the balance of probabilities (i.e., a civil standard of proof).
Recovery Against OPL
OUPEA and OUPT paid dividends and fees to OPL. On this basis, the SFO issued proceedings and sought recovery from OPL of revenue representing property derived from unlawful conduct. The SFO and OPL consented to an Order made by the High Court under Part 5 of POCA 2002 in the sum of £1,895,435, plus costs of £12,500.
Since the occurrence of the unlawful conduct, OUP has introduced improved compliance procedures intended to reduce the risk of such conduct happening again within OUP and its subsidiaries. These procedures are subject to ongoing review by an independent third party monitor who will report to both the SFO and the World Bank.
Previous SFO civil recoveries
The SFO has used its powers under POCA a number of times, and has stated that it will continue to use them alongside or in place of other weapons in their arsenal. Previous High Court Orders made under Part 5 of POCA include:
MW Kellogg Ltd (February 2011)
- MW Kellogg was ordered to pay more than £7 million in recognition of monies it was due to receive, which had been generated by contracts obtained by unlawful conduct carried out by MW Kellogg’s parent company and others
- As the company had not itself taken part in the bribery and corruption which led to the contracts being awarded in Nigeria, the SFO, along with the US Department of Justice, agreed that the best approach would be to remove the funds generated by the unlawful conduct
Macmillan Publishers Ltd (July 2011)
- Macmillan Publishers was ordered to pay more than £11 million in recognition of monies it received which derived from unlawful conduct during the tender process in the company’s Education Division in East and West Africa
- Macmillan was commended for approaching the SFO in the first instance and co-operating with the investigations
Mabey and Johnson (January 2012)
- Mabey Engineering (Holdings) Ltd was ordered to pay more than £130,000 in recognition of monies it received through dividends, which derived from contracts in Iraq won through unlawful conduct by its subsidiary Mabey and Johnson Ltd
- This was the first time the SFO used its powers to target dividends paid in the UK to recover the proceeds of crime
An Alternative to Prosecution?
The SFO has made clear that shareholders and parent companies who receive the proceeds of crime, for example through dividends, can expect civil action to be brought against them by the SFO in order to recover the money. However, it would be dangerous to assume that the prospect of prosecution is no longer a risk. Civil Recovery Orders are limited to stripping the defendant of criminal gains, and there is no punitive element. The English Court has made its view clear that
“it will... rarely be appropriate for criminal conduct by a company to be dealt with by means of a civil recovery order; the criminal courts can take account of co-operation and the provision of evidence against others by reducing the fine otherwise payable. It is of the greatest public interest that the serious criminality of any, including companies, who engage in the corruption of foreign governments, is made patent for all to see by the imposition of criminal and not civil sanctions.” (R. v. Innospec Limited, Sentencing Remarks of Lord Justice Thomas).
In addition, prosecutions may also be higher on the SFO’s agenda if Deferred Prosecution Agreements (proposals for which are currently in consultation) come into law, bringing with them increased, if potentially more controllable, risks in respect of bribery and other corrupt activity.
In any case, parent companies, shareholders and investors should ensure that they are aware of the practices of the companies they hold, and monitor activities carefully.
In addition, companies looking to acquire a business should consider ensuring that ethical due diligence is carried out on the target and its subsidiaries in order to minimise the risk of becoming the subject of a civil recovery order.