The first test of an "adequate procedures" defence under section 7 of the UK Bribery Act raises points on adequate procedures for smaller businesses and the benefits of self-reporting.
On 21 February 2018 Skansen Interior Limited (SIL) was found guilty of failing to prevent bribery under section 7 of the UK Bribery Act after the jury were unconvinced that the company had adequate procedures in place to prevent bribery. The former managing director of SIL, Stephen Banks paid around £10,000 in two payments to the then project manager of DTZ Debenham Tie Leung, Graham Deakin, to secure £6m of contracts to refurbish offices. An additional payment of £29,000 was attempted, but not paid, after a new CEO at SIL raised questions.
SIL is a small subsidiary within the Skansen Group, which employed 30 people and occupied an office smaller than the courtroom the case was tried in. SIL has been dormant since 2014.
SIL sought to rely on the statutory defence to a section 7 charge that it had adequate procedures in place to prevent bribery, arguing that the acts of a rogue individual so senior in the company could not have been prevented by any further reasonable steps. In particular SIL argued that:
- the scale of the business meant no specific anti-bribery or compliance programme was required
- staff did not need to be told specifically not to commit bribery, as everyone knows it is a crime
- there were policies and procedures in place covering transparency and integrity, including a laminated sign put up on the walls to remind employees to act ethically
- the company used standard clauses within contracts which prohibited bribery and provided the right of termination
- it had financial controls so that any significant transaction had to be approved by multiple people within SIL, and
- SIL prevented the third and largest bribe from being paid, indicating that the policies put in place by the newly arrived CEO were effective.
However, the lack of any policy that mentioned bribery by name and the lack of any staff training were relied upon by the CPS to argue that SIL did not have adequate procedures to prevent bribery. The fact that the final payment had been stopped was two-edged, as it tended to show that prior to the arrival of the new CEO, procedures had not been adequate.
As SIL has been dormant since 2014, the judge concluded that the only appropriate sentence was an absolute discharge. Accordingly, no penalty was imposed and, as the conviction is deemed to be spent under the Rehabilitation of Offenders Act 1974, there will be no conviction registered on the company’s record.
Banks and Deakin both pleaded guilty to offences under sections 1 and 2 of the Bribery Act respectively. A sentencing date is yet to be set.
What can be learnt from the case?
Proportionality of procedures: While the size of an organisation is a factor in determining what procedures will be adequate, this does not mean that smaller companies do not need to address bribery risk specifically. No matter how many employees a business has, the steps taken to combat bribery or corruption must be in line with the risk profile of the business based on sector (construction has a high risk profile for corruption), customers, geography of operations and business practices. Given the sparsity of SIL’s anti-bribery procedures, this case tells us little more about what might satisfy the “adequate procedures” threshold.
Self-reporting: This case came to the attention of the authorities only because the new CEO reported his discoveries. As a general rule, self-reporting is the most powerful mitigation a company can have and has been cited as a reason for cases to be resolved other than by prosecution (most recently by Deferred Prosecution Agreements) in several cases run by the SFO.
Some have asked whether this marks a difference of approach to self-reporting between the CPS, which prosecuted this case, and the SFO. However, the SFO under David Green QC has often stated that the mere act of self-reporting would not guarantee that a corporate would not be prosecuted.The SFO obtained a guilty plea by Sweett Group in 2016 for conduct the corporate had brought to the SFO’s attention.
DPAs: It appears that the rationale for not offering a DPA in this case was that the company was dormant and therefore unable to fulfil any requirements of a DPA, including paying a financial penalty. That might appear to equally undermine the rationale for a prosecution, but that decision may have been taken in order to send a strong message to smaller companies that anti-bribery controls are needed.
We anticipate that UK enforcement agencies may comment on this case in the coming months, and in particular on the issues of self-reporting and the availability of DPAs. They will be keen that smaller companies take away the message that they need to consider specific anti-bribery procedures, and not that they should avoid reporting any wrongdoing they discover.