We commented in a recent litigation blog post on the Court of Appeal's consideration in R v Sale  EWCA Crim 1306 of the relevant test for piercing the corporate veil in a confiscation case. In this e-bulletin we consider other corporate crime aspects of this case, namely the Court of Appeal's consideration of how the criminal property obtained from a corrupt contract should be quantified when the court makes a confiscation order. In the circumstances, the Court of Appeal found that a confiscation order should be made in respect of the profit earned by the company on the contract, rather than the total sum paid to the company under the contract; ordering confiscation of the total turnover of the contract was disproportionate on the facts of the case.
This is significant issue in many corporate corruption cases where bribes are paid to obtain or extend contracts. The case is also an interesting example of a conviction for the provision of gifts and hospitality to the value of £7,000.
In March 2011, Mr Sale pleaded guilty to an offence of corruption contrary to section 1 of the Prevention of Corruption Act 1906 and to fraud by false representation. He was sentenced to twelve months' imprisonment, suspended for two years with a requirement to undertake 200 hours of unpaid work.
The charges arose from a corrupt relationship between Mr Sale and an employee of Network Rail; Mr Sale gave gifts and hospitality worth around £7,000 to the employee and, in return, the employee arranged for Network Rail to award high value contracts to a company in which Mr Sale was the managing director and sole shareholder. Following Mr Sale's conviction, confiscation proceedings were brought against him under the Proceeds of Crime Act 2002 ("POCA").
Having determined (following the reasoning in Prest v Petrodel Resources Limited & others UKSC 34) that Mr Sale was the sole controller of the contracting company, the Court of Appeal decided that it was appropriate to treat the benefit obtained by the company as a benefit obtained by the defendant, Mr Sale.
The court then sought to determine the appropriate value of confiscation order by reference to the benefit obtained from the criminal conduct. The relevant provisions of POCA (sections 76(4) and (5)) state that:
(4) A person benefits from conduct if he obtains property as a result of or in connection with the conduct.
(5) If a person obtains a pecuniary advantage as a result of or in connection with conduct, he is to be taken to obtain as a result of or in connection with the conduct a sum of money equal to the value of the pecuniary advantage.
The Court of Appeal found that a strict application of these provisions would capture the entire contract value of approximately £1.9 million; this was the value of the confiscation order made by the Crown Court. However, the Court of Appeal was bound to follow the Supreme Court's recent judgment in R v Waya UKSC 51 which requires a confiscation order to bear a proportionate relationship to the purpose of POCA, namely to recover the financial benefit which an offender has obtained from his criminal conduct.
In assessing the proportionality of the order, the court had regard to a passage in the Waya judgment noting that it may not be proportionate to confiscate any sum beyond the profit made in the case of "a defendant who, by deception, induces someone else to trade with him in a manner otherwise lawful, and who gives full value for goods or services obtained". In Waya, the Supreme Court indicated that such a case would be analogous to one where the property has been entirely restored to the victim, rendering confiscation inappropriate.
In Sale, the Court of Appeal found that Network Rail was not the only victim of the corrupt conduct since other legitimate contractors were deprived of the opportunity to win National Rail contracts; Mr Sale therefore gained an additional advantage (beyond the profit made on the tainted contracts) in the form of additional market share. Therefore, whilst confiscation of the full contract amount was disproportionate, a proportionate confiscation order would reflect the profit gained under the contracts, together with the value of this additional advantage.
No analysis had been done, however, to determine how the additional advantage of market share might be quantified. The Court of Appeal was therefore restricted to three agreed figures: a) the contract turnover of £1.9 million; b) the company's profit from the tainted contracts (£197,000); or c) Mr Sale's personal benefit (£125,000). In the circumstances, the court therefore made a confiscation order in respect of (b), noting that, in the future, prosecutors should be alert to the need to quantify additional pecuniary advantages.
Although the Court of Appeal's application of the Waya "disproportionate" exemption will offer some comfort that POCA will not necessarily be interpreted so as to render all turnover from a tainted contract subject to confiscation, this is by no means a general rule. Whilst such an order was, on the facts of Sale, disproportionate, there may be other factual scenarios in which this is not the case and a court will be bound to confiscate the full value of tainted contracts. The Supreme Court was keen to stress in Waya that there is no general discretion to depart from the strict wording of section 76 of POCA.
The Sale case also provides an interesting example of a corruption conviction for inappropriate gifts and hospitality, an issue which has received increased focus following the introduction of the Bribery Act 2010 (although Mr Sale's offences were governed by the previous anti-corruption legislation). The £7,000 value is not inconsiderable but, equally, is not beyond the realms of "normal" corporate hospitality. A corruption conviction for the provision of improper gifts and hospitality emphasises the importance for corporates of ensuring that gifts and hospitality offered and received by their employees are appropriate and that they do not exert (or give the impression of exerting) an inappropriate influence on the award of contracts or other business decisions.
Other recent anti-corruption developments: SFO announces its first Bribery Act prosecution
The Serious Fraud Office (the "SFO") announced on 14 August that it had brought its first bribery charges under the Bribery Act 2010 (the "Act"). Three British nationals have been charged with offences of making and accepting a financial advantage contrary to sections 1(1) and 1(2) of the Act in addition to other charges of conspiracy to commit fraud by false representation and conspiracy to furnish false information. The offences are said to relate to an investigation by the SFO into the promotion and selling of bio fuel investment products to UK investors. The SFO have stated that the value of the alleged fraud is approximately £23 million.
Although a small number of individuals have been prosecuted under the Act since it came into force in July 2011, this will be the first prosecution brought by the SFO and the first to deal with complex and high value transactions. The previous prosecutions have related to relatively low-level instances of bribery.