Background

The company

Prior to becoming dormant in 2014, SIL was actively trading as a fit-out refurbishment contractor in the South-East of England, primarily in London. Its workforce comprised approximately 30 individuals, operating in an open-plan office based in one room at a single site.

The contracts

SIL was one of a number of contractors invited by a company (“DTZ”) to tender for two office refurbishment contracts in London worth a combined £6m. SIL won the tenders in 2013.

The bribes

The prosecution alleged that Mr GD, a project manager at DTZ, had acted improperly during the tender process by passing SIL information that could have provided it with an advantage over its bidding rivals and/or sought to influence the award of the contracts by expressing a preference to his colleagues that SIL be selected. The prosecution alleged that this was on the basis of offers/requests for bribes made to SIL’s managing director, Mr SB.

After SIL won the two contracts, it made two payments to GD totalling £10,000, and while a third payment of £29,000 was offered and requested, it was never paid, as explained below.

A number of steps were taken to conceal the nature of these payments and to make them appear genuine. Invoices for the three payments were sent to SIL by a separate company (“GPS”) that had been set up for GD and/or his son to receive them. The invoices referred to the provision of “services in respect of final site surveys/drawings and final construction consultancy including CAD drawings and health and safety all as agreed”. However, no services were ever provided by GPS. Members of SIL’s senior management involved in the offending not only approved the invoices, but when their allocation to the projects was questioned, instructed the accounts team to reallocate the invoices to an unrelated internal cost code (as overheads under an overseas subsistence code).

The internal investigation

SIL appointed a new CEO (Mr IP) in January 2014. SB informed IP about the arrangement with GPS, falsely explaining that it was legitimate and that the payments were for genuine services rendered. He explained that a further payment of £29,000 was due on completion of the works under the two fit-out contracts.

Concerned with the explanation that had been provided, IP initiated an internal investigation. He also put in place an anti-bribery and corruption (ABC) policy, having found none in the company’s existing policies. However, despite agreeing to abide by the new ABC policy, only a few days later SB attempted to approve and make the third payment of £29,000 to GPS. That payment was stopped before it was made.

Following the internal investigation, SB and SIL’s commercial director (who was not charged by the police) were summarily dismissed. SIL submitted a suspicious activity report to the National Crime Agency and also reported the matter to the City of London Police (COLP) and Action Fraud asking them to investigate further.

COLP’s investigation

During the police investigation, SIL provided extensive assistance and cooperation, voluntarily furnishing company documents, including confidential and legally privileged reports and advice. Some 20 months later, SIL was invited to be interviewed under caution and was subsequently charged under section 7 of the Bribery Act 2010 (the “BA”). SIL then instructed legal advisers to advise and assist it in defending the prosecution. SB and GD were charged with and pleaded guilty to the primary offences under sections 1 and 2 of the BA.

The trial

SIL defended the prosecution on the basis that, through its various policies and other controls in the company, it had adequate procedures in place to prevent bribery by an associated person. The defence relied on evidence that:

  • SIL was a very small business operating out of a single open-plan office that was smaller than the courtroom in which the trial took place – a company of that kind did not require substantial and sophisticated controls to prevent bribery for them to be adequate.
  • Similarly, SIL’s business area was very localised; they were not dealing with operations in multiple cities or countries with the cultural and oversight issues that that may entail – again indicating limited need for detailed controls.
  • It was common sense that one should not pay bribes and staff did not need a detailed, gold-standard policy to tell them that.
  • The ethos of the company, as exemplified by the junior finance clerk who gave evidence, was that everyone should behave with honesty and integrity, and it was reasonable for her to assume that the senior management of the company would do so.
  • Prior to its adoption of the ABC policy, SIL had a number of separate policies that had been in place for many years and which referenced the need for employees to approach their dealings with third parties in an ethical, open and honest manner. These were sufficient – a separate ABC policy was not needed.
  • One such policy was printed on A3 laminated card and stuck to the walls of the office as a reminder to staff.
  • The financial controls, with its system of checks and balances that SIL had in place when approving and settling invoices were a procedure designed to ensure multiple approval levels before they could be posted on the company’s ledgers and/or paid.
  • There were clauses in the contracts to which the bribes related (based on standard JCT contract terms) that prohibited bribery and provided a right of termination of the contract where bribery occurred – therefore senior management were aware of the need to avoid committing bribery offences.
  • SB was specifically familiar with the need to avoid bribery and there was email evidence to demonstrate this.
  • SIL had stopped the largest of the bribe payments before it was paid, which indicated its procedures were in fact effective.

However, the jury were not persuaded that these controls were sufficient to meet the adequate procedures defence under the BA. They returned a guilty verdict. As SIL was dormant and without assets, the only sentence available to the court was to impose an absolute discharge, which under the provisions of the Rehabilitation of Offenders Act 1974 became immediately spent.

How will prosecutors assess the adequacy of procedures?

This case illustrates the difficulties that small companies can face when seeking to implement controls for the prevention of bribery. The verdict suggests that simply having a non-specific policy and normal accounting controls without incurring some cost and management time, or introducing some bureaucracy into day-to-day operations, will be insufficient to afford even the smallest company the adequate procedures defence.

While there was no judicial comment on what might constitute adequate procedures and why SIL’s procedures may have fallen short, the prosecutor’s submissions provide some insight into the way in which they may assess and argue the matter and highlight some questions that small (and larger) companies should ask themselves when assessing if their anti-bribery controls are sufficient:

  • Are all compliance efforts recorded? Historic offending can bring with it evidentiary challenges – relevant staff may have left the business, people may not remember events in sufficient detail or documents may have been deleted by the time a prosecution is brought. This can leave the company with a gap in knowledge and evidence of what policies and procedures were in place at the time of the offending. In this case, the prosecutor identified that there were few contemporaneous records of SIL’s efforts to inculcate a compliance culture or respond to the new offences in the BA. It is therefore crucial to create and retain records of all compliance-related discussions and activities. Even when it may be easier to have a conversation about such issues, it is advisable to follow up in writing (even in an informal note or email) or to document the fact those conversations occurred by recording them in calendar entries with sufficiently detailed descriptions to identify their purpose.
  • Have the company’s policies and procedures been properly communicated? The prosecution noted that while SIL’s various non-specific policies were available to all staff on its servers, SIL had not monitored or ensured that all staff had accessed or even read the policies, still less reminded themselves of the requirements over time. There was no evidence of active communication or training on the policies. The prosecution contrasted that approach with the way IP introduced the ABC policy in 2014 – sending it to all staff by email and requiring them to use voting buttons to confirm their agreement to comply with it (and keeping those responses on staff HR records). Companies should ensure that policies are effectively communicated to all staff and there is a paper trail evidencing that communication and training.
  • Is someone within the business responsible for compliance? The prosecution highlighted SIL’s lack of any explicit designation of an individual with responsibility for anti-bribery compliance at the time of the offending. Small companies without resource for a specialist compliance or legal function should ensure that there is someone within the business at a senior level tasked with ensuring the company’s anti-bribery controls are embedded within the business and complied with, even if it is not feasible to have a compliance specialist in this role. Some record should be kept of that appointment and the appointee should keep records of his activities in that regard.
  • Is the company reactive to changes in the law or circumstances? The prosecution noted that SIL had failed to react to the introduction of the BA by putting in place a specific policy referencing the change in law or any other related processes. Nor was the opportunity taken to circulate reminders to staff about the company’s expectations in respect of compliance. Nor did the company provide any specific indicators or training on the sort of issues or “red flags” that staff should be alive to in their day-to-day activities. Companies should use changes in law or circumstances (such as entering new territories or introducing new products) to revisit their existing compliance controls and satisfy themselves that they are still fit for purpose. These reviews should be fully documented in case there is any later need to rely on and prove them.
  • Are reporting and approval lines appropriate? Staff must feel they are able to raise concerns when red flags are identified. Where the issues relate to the actions of senior members of staff (as they did in this case), this can create a great deal of pressure on more junior staff members either to rely on assurances given by those who may be responsible for the unethical conduct or raise the matter with someone else within the business where that could increase the risk of them being identified as a whistleblower and retaliated against. While not a point heavily relied on by the prosecution, SIL did not have a documented reporting channel that bypassed senior management when concerns may relate to them. Small companies may wish to ensure the availability and communication of a channel for independent reporting of concerns to non-executive directors, who may be less likely to be involved in approving red flag transactions.

Other points of interest

This case is interesting, not only because it is the first contested case under section 7 BA, but also because of the CPS’s decision to prosecute the case at all:

  • In response to queries raised (including by the Judge in an earlier abuse of process hearing), the prosecution justified its use of public resources to charge and prosecute a dormant company with no assets on the basis that a successful conviction would ‘send a message’ to others in the industry about the importance of having adequate procedures in place. No other public interest justification was provided for pursuing the prosecution.
  • However, an equally powerful message that may result from this prosecution, given that these matters were only discovered by the authorities because SIL itself reported them, is that companies who do the right thing by reporting criminality and assist the authorities in the prosecution of culpable individuals through the voluntary provision of evidence, may themselves be prosecuted rather than offered an alternative means of disposal. Indeed, this may be a more likely outcome for smaller companies who are not ‘too big to prosecute’ and who cannot rely on wider negative public impact arguments (such as job losses and concerns for the wider economy) to avoid a prosecution which would otherwise be justified. This may have a negative impact on encouraging companies to self-report economic crime, something that the Serious Fraud Office in particular has sought to encourage since the introduction of deferred prosecution agreements (DPAs) in 2014. Indeed, this case may suggest that the CPS and SFO may take different approaches when assessing the public interest in prosecuting.
  • The CPS had determined that a DPA was not available in this case, as SIL was dormant and so there could be no ongoing benefit that could accrue from a DPA.
  • Despite the involvement of senior management (who were statutory directors of the company), the prosecution did not pursue the company under section 1 of the BA by arguing that the “directing mind and will” of the company was complicit in the bribery. Unlike the section 7 offence, there is no defence to a section 1 offence. This perhaps shows that the authorities are actively looking to challenge corporates on their adequate procedures (or lack thereof), making it even more important for companies, even small businesses, to ensure their compliance programmes are sufficiently robust to persuade a jury that they are adequate.

* CMS Cameron McKenna Nabarro Olswang LLP acted in these proceedings – R v Skansen Interiors Limited.