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Bribery Act starts to bite: Deferred Prosecution Agreements

Agreement and Magnifying Glass Print publication

15/12/2015

When the Bribery Act 2010 (the Act) became law it was against a background of warnings that the legislation was one of the most, if not the most, draconian pieces of anti-bribery legislation ever introduced worldwide. For many organisations, possibly the most far-reaching aspect of the Act is the offence set out in section 7, namely the failure of a commercial organisation to prevent bribery by an associated person. This so called “corporate offence” as it is widely known, has a global reach, and as it is a strict liability offence it was thought that it would be much easier for corporate offenders to be brought to account for corrupt conduct, through persons connected with them.

Lack of Prosecution Activity

However, despite the initial fanfare, there has been a noticeable dearth of prosecution activity under the Act. It has been suggested by many commentators that this has led to complacency in some corporate circles, with concerns being expressed that the Act is over-hyped, ineffective and that prosecuting agencies such as the Serious Fraud Office (SFO) do not have either the manpower or the appetite to take on a multi-national offender. However, it is worth remembering that the Act does not have retrospective effect and therefore only applies to bribery after 1 July 2011. The recent OECD Foreign Bribery Report calculated that the average time to discover, investigate and prosecute cases of bribery involving foreign officials (concluded in 2013) was 7.3 years. Therefore while there may not necessarily be a deluge, we should expect that there will be a significant increase in prosecution activity over the next two to three years.

Are the Winds of Change Blowing?

However, it could now be said that the perceived prosecution inertia is coming to an end as demonstrated by two recent reported cases, both of which shed some light on the application of the Section 7 offence, in the context of the scope for a Deferred Prosecution Agreement (DPA).

DPAs were introduced by Schedule 17 of the Crime and Courts Act 2013 and provide prosecutors with an alternative method of disposing of a case without a full prosecution. They are only available for commercial organisations and can only be used in economic crime cases such as fraud and bribery. Under a DPA the prosecutor charges a company with a criminal offence but then proceedings are automatically suspended. The company reaches an agreement as to the application of a number of conditions which may include payment of a financial penalty, compensation, co-operation in future prosecutions and monitoring. If the company fails to honour the terms of the DPA, the prosecution resumes. If they comply, they avoid a conviction.

Firstly, in September 2015, a Glenrothes cabling company, Brand-Rex Limited (Brand-Rex), agreed a settlement with the Crown Office of Scotland’s Civil Recovery Unit in the sum of £212,800 for its failure to prevent bribery by one of its distributors.

Brand-Rex had operated an incentive scheme called “Brand Breaks” for its UK distributors and installers. In return for meeting or exceeding sales targets, installers and distributors became eligible for varying degrees of rewards, including foreign holidays. The Brand Breaks scheme was not itself unlawful.

An independent installer of Brand-Rex products offered his company’s travel tickets to an employee of one of his customers. The customer was an end-user of the Brand-Rex products rather than an installer or distributor. The individual who ultimately received the tickets was in a position to influence decisions as to the company from which cabling was purchased. Staff from this company and persons connected with them used the tickets to enjoy foreign holidays in 2012 and 2013.

When Brand-Rex became aware of what was happening it launched a thorough investigation, involving external solicitors and forensic accountants. When it was satisfied that it understood what had happened, the company submitted a self-report to the authorities, accepting that it had contravened section 7 of the Act. Because it self-reported, the case was considered to be suitable for a civil recovery settlement as opposed to a criminal prosecution. This is similar to the model adopted by the SFO prior to the introduction of formal DPAs.

Brand-Rex has since implemented policies and training to safeguard against any future breaches of the Act.

In the second case, reported at the end of November 2015, the SFO agreed the UK’s first DPA with Standard Bank Plc (now known as ICBC Standard Bank Plc) (the Bank). The DPA between the SFO and the Bank was endorsed by Lord Justice Leveson at Southwark Crown Court.

Under the first UK DPA, the Bank is required to pay financial orders of US$ 25.2 million and must pay the Government of Tanzania a further US$ 7 million in compensation. The Bank has also agreed to pay the SFO’s reasonable costs in relation to the investigation and subsequent resolution of the DPA, totalling £330,000. The charge against the Bank has been suspended for three years, subject to the Bank’s compliance with the terms of the DPA.

The suspended criminal charge concerns a payment in March 2014 of US$ 6 million by a former sister company of the Bank, Stanbic Bank Tanzania, to a local partner in Tanzania. The SFO’s contention was that the payment was made with the intention of inducing members of the Government of Tanzania to show favour to Stanbic Bank Tanzania and the Bank’s proposal for a US$ 600 million private placement to be carried out on behalf of the Government of Tanzania. The Bank’s solicitors self-reported the matter on behalf of the Bank to the Serious and Organised Crime Agency, who in turn reported it to the SFO.

The SFO worked with the US Department of Justice and Securities and Exchange Commission (SEC) on the matter and the Bank has reportedly agreed a penalty of US $4.2 million with the SEC.

Commentary

The above cases serve as a reminder of a number of points in respect of the Act and how it is applied and enforced:

  • Companies based in the UK can be liable for acts committed by associated companies or agents (often based overseas) acting on their behalf. Indeed, the example of an overseas subsidiary making payments to government officials in a distant jurisdiction is a text book example of a potential section 7 offence.
  • Both of the recent cases highlight the importance of self-reporting in avoiding a prosecution. Self-reporting does not guarantee protection, as explained by SFO’s published guidelines, but a full and open approach to the SFO will be a significant consideration as to whether a DPA is appropriate.
  • As for the timing of any self-report, the cases have delivered slightly conflicting messages. On the one hand in the Brand-Rex matter, the self-report was made at the conclusion of an internal investigation. In the Bank case, a report was made immediately (within days of the conduct coming to the Bank’s attention) and prior to its solicitors investigation. We will have to see how this develops, but the importance of early investigation and legal advice should not be underestimated in deciding whether and when to self-report.
  • Robust anti-bribery policies, procedures and training are essential for any organisation. It is too late implementing these after the enforcing authorities have knocked on your door. With the potential for unlimited fines, up to ten years imprisonment for individuals and associated reputational and commercial damage, even a simple cost benefit analysis makes the case for pro-active implementation.
  • The time for familiarisation with the Act through training, advice and guidance from the regulators is no more. We are now in an era of enforcement. As if further evidence was needed to reinforce the point, a further SFO press release on 2 December 2015 indicates that Sweett Group plc, a London headquartered construction and infrastructure services provider, has admitted a section 7 offence under the Act relating to two contract deals in the UAE. We will have to wait and see whether this will be the SFO’s first corporate prosecution under the Act.

How we can help

Businesses need to keep under review how they obtain business, engage with suppliers, promote sales to customers, appoint agents and distributers, undertake business acquisitions and structure joint ventures to avoid the potential risks of being engaged directly or indirectly in acts of bribery.

At Walker Morris we have a specialist and dedicated Anti-Bribery & Corruption Team (which includes former regulators from the SFO and FCA) with experience in advising both UK-based and overseas organisations on all aspects of the increasing challenges currently faced by them in relation to risk assessment, policy drafting, compliance, day-to-day operational support, audits, strategic transactional support, crisis management, investigations, prosecutions, compensation claims and training.

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