From its conception, the UK Bribery Act 2010 (UKBA), which came into force on 1 July 2011, presented itself as a radical and comprehensive overhaul of UK anti-bribery and corruption law. Its introduction was spearheaded by the UK Ministry of Justice (MoJ) and Serious Fraud Office (SFO) seeking to curb the pernicious impact that bribery and corruption would otherwise have on the UK’s economic development and competitive force in the free market. Initially, the UKBA was warmly received, and heralded as the “gold standard” for bribery legislation. The UKBA was regarded as a robust attempt to curtail bribery and corruption through the simplification and expansion of bribery offences; the facilitation of stricter enforcement of those offences; and the promotion of corporate responsibility through the development of regulatory compliance policies and procedures. This metric has since been replicated by other jurisdictions with similar aims.
Prior to the existence of the UKBA, UK bribery and corruption laws had been dispersed across a complicated patchwork of measures, including archaic legislation and the common law offences of bribery and embracery. The UKBA ambitiously sought to consolidate the previous offences into a single statute, and, in doing so, created several new offences: the offences of (i) bribing another person; (ii) being bribed; (iii) bribery of a foreign public official; and (iv) importantly for corporate entities, a commercial organisation’s failure to prevent bribery by its ‘associated persons’, that is, third parties acting for and/or on its behalf (the Corporate Offence). The scope of the offences extended to active and passive bribery, as well as having application to public and private bribery (in stark contrast to the most prominent anti-bribery legislation at the time, the US Foreign Corrupt Practices Act, which only extended to active bribery of foreign public officials). Further, the UKBA was given extra-territorial reach, which granted the UK courts the jurisdiction to preside over bribery offences committed abroad by individuals and entities with a sufficient connection to the UK.
On the other hand, early critics of the UKBA argued that its expansiveness, and, in particular, the Corporate Offence and its extra-territorial reach would prohibit British companies from competing internationally. So, a decade on, what does the score card look like?
Initial Enforcements
The Crown Prosecution Service (CPS) announced the first prosecution under the UKBA just two months after its implementation. The case involved a Magistrates Court Clerk ‘requesting and receiving a bribe’ through promising to ‘influence’ the criminal proceedings over a motoring offence.
A few years passed before the SFO brought its first prosecution under the UKBA. In 2014, the regulator successfully prosecuted three individuals, West, Whale and Stone, for fraudulently selling investment products in Cambodia, illicitly receiving about £23 million. This case highlighted the ways in which the SFO could use the UKBA to successfully prosecute individuals in cases with complex, and multi-jurisdictional, fact patterns.1
Apart from the Ministry of Justice Guidance on the UKBA, which was limited to 45 pages, with generic examples of good and bad behaviours, corporations had little guidance and certainly none from the courts as to how the UKBA, and the specific Corporate Offence, might be applied in practice. This began to change with the investigation and disposal of the Corporate Offence involving Brand-Rex Limited, a cabling solutions developer. The company implemented an incentives scheme for its UK distributors and installers, offering rewards in response to achieving sales targets. One employee under the scheme would give the travel tickets earned by himself to one of his customer’s employees who had influence over the purchasing decisions of the customer. Brand-Rex, after engaging external solicitors and forensic accountants, self-reported that it benefited from this unlawful conduct under its section 7 UKBA obligations. Brand-Rex and its regulator entered into a civil settlement for £212,800, representing the gross profit made as a result of the unlawful conduct, and agreed to enhance its anti-bribery and corruption policies and training. While Brand-Rex had anti-bribery and corruption policies in place, they were by no means adequate, and the company themselves made no assertion that they were eligible under the section 7 UKBA defence. Brand-Rex was able to avoid criminal prosecution in this case because of its swift and decisive action, promptly investigating and reporting its infraction under a voluntary disclosure scheme available in Scotland at the time. Nevertheless, this case offers insight into the importance of early disclosure and co-operation when dealing with regulators.2
Shortly after this case, we saw the UK’s first successful Deferred Prosecution Agreement (DPA) being agreed between the SFO and Standard Bank plc.3 A DPA is an agreement between a UK prosecuting authority and a company (which must be concluded under the supervision of a Crown Court judge), which would suspend the corporate prosecution of the company, provided that it adhered to certain conditions and fines (a mechanism created by the Crime and Courts Acts 2013). This DPA related to an alleged attempt of a then Tanzanian sister company of the bank to bribe a member of the Tanzanian government USD6 million to secure a private placement on their behalf. The transaction garnered USD8.4 million profit, which was split between Standard Bank and the sister company as part of a joint venture. The bank self-reported this transaction after noticing suspicious cash withdrawals. The terms of the DPA required the bank to pay compensation, disgorge their profits, pay a financial penalty, and engage an independent report regarding the strength of their anti-bribery and corruption policies. This case provides a useful commentary about the nature of ‘associated persons’, and the intention to benefit under section 7 UKBA. Here, as a party to the joint venture, the bank benefited from the actions of the other party which increased the overall pot of profit from which the bank would take. It also provided practitioners with an introduction to the circumstances in which a company will be offered a DPA and a chance to avoid criminal conviction.
Shortly after this DPA came the first conviction under the Corporate Offence of a UK listed company, Sweett Group plc.4 This case was significant as it further illustrated when a corporation would not be afforded a DPA, and instead would receive a criminal conviction. In the case, a Cypriot subsidiary of Sweett Group bribed an officer of a UAE company to secure a £1.6 million hotel-construction project in Dubai. Despite Sweett Group self-reporting to the SFO their suspicions about the circumstances through which this contract was secured, the SFO decided a DPA would be inappropriate and instead sentenced the Group to pay a total of £2.3 million. One speculative factor highlighted as to why the SFO decided not to award the DPA was that the representatives of Sweett Group tried to mislead the SFO investigators. During the course of the investigation, the representatives tried to secure letters which would legitimise the bribe transaction. This case is also illustrative of a UK parent company being held liable for the actions of its foreign subsidiary acting abroad. Parent companies should be aware that their responsibilities do not end with the diverting corporate structure.
Learning points:
- The SFO has consistently reported that the level of co-operation shown by the company under investigation will be a decisive factor in determining whether a DPA is granted.5 This is a recurring message that consistently appears throughout the relevant caselaw. Companies can get up to and beyond 50% credit for exceptional co-operation during the investigation. The converse is that companies who do not co-operate will likely face criminal prosecutions and substantial penalties.
- The investigations and subsequent prosecutions brought under the UKBA show the effects of not having adequate anti-bribery procedures in place, preventing such companies from being able to rely on the ‘adequate procedures’ defence to the Corporate Offence, which will reflect poorly on the company as a whole. More than merely having an anti-bribery policy in place, a company will need to review, update and train employees on their policy to ensure its efficiency and efficacy.
- These cases also illustrate the value of early disclosure and the acceptance of responsibility for the conduct of employees which on the surface might seem tangential to the company. The circumstances in which liability can span are wide, matching the generous interpretation given to the UKBA itself.
Stunted Momentum?
Along with these initial cases, the SFO has found some continued success when prosecuting individuals using the UKBA. In fact, a freedom of information request has revealed that by 2020, only 2 / 99 convictions under the UKBA were secured against a corporation under the Corporate Offence.6 However, perhaps this says more about the UKBA’s utility as a device for prosecuting corporations, than it does for prosecuting individuals. The extent to which this should be perceived as a systematic failure of the UKBA may be mitigated by a reconceptualization of the legislation’s purpose. Rather than directly seeking to prosecute corporations, perhaps it serves better as a stick with which to encourage the DPA process, which itself promotes corporations to co-operate with their regulators, and the development and keeping of effective anti-bribery policies.
Indeed, we can attribute the general improvement and continued scrutiny of the effectiveness of a company’s internal anti-bribery and corruption procedures to the provisions of the UKBA. In 2018, a review of the legislation by the House of Lords’ Select Committee concluded that, almost 10 years on, it is still “…particularly effective, enabling those in a position to influence a company’s manner of conducting business to ensure that it is ethical.”7
However, recent criticisms throw doubt on the fairness of the DPA process. The advantages of a DPA include avoiding prosecution, and the associated cost, time and reputational impact. The company must agree to a statement of facts proposed by the SFO, recognise their own corporate criminal liability (not an express admission of guilt), and pay financial penalties. The judge must be satisfied that there is sufficient evidence to support a realistic prospect of conviction were this a prosecution. On its surface, it is clear why this presents such an attractive option for corporations. Similarly, the DPA is an attractive option for the SFO, as corporates are encouraged to self-report potential criminal wrongdoing and co-operate. This enables the SFO to recoup ill-gotten gains, impose substantial financial penalties, and necessitate changes to corporate ethics, all while avoiding lengthy trials. In fact, the SFO has agreed several successful, high-profile DPAs which enforce corporate criminality. Recent aviation sector DPAs have resulted in combined financial penalties of almost EUR4 billion and involved the cooperation of regulators across various different jurisdictions. In each of these cases, the SFO commented positively on the company’s co-operation; the regulator will be more favourable to companies the more they co-operate.
However, this success has been marred by the SFO’s subsequent failures to prosecute individuals on the back of DPAs. Serco Group PLC, a FTSE 250 outsourcing company, was being investigated in 2013 for alleged fraud and false accounting by its subsidiaries’ (SGL and SL) employees in connection to contracts entered between SL and the MoJ. These contracts included a mechanism which fed SL’s profits over an agreed margin back to the MoJ. The SFO alleged that this mechanism was being manipulated to artificially reduce SL’s profitability and thereby reduce the amount payable to the MoJ.. Serco agreed to enter into a £19.2 million DPA with the SFO, and recognised SGL’s corporate liability created through the criminal actions of two of its former directors. A fraud trial against these two SGL directors commenced in March 2021; however, by April the case collapsed dramatically. The SFO applied to adjourn the case for lack of evidence; however, the judge directed the jury to return ‘not guilty’ verdicts for the defendants because “the trial cannot safely and fairly proceed… [given the] real concerns in relation to the nature of the prosecution case.”
Serco entered into the DPA, believing that it would otherwise be held liable for the criminality of those directors. However, the directors’ escape from conviction creates seemingly contradictory outcomes based on the same evidence. Consequently, it is imperative that companies considering entering into a DPA ensure that they take independent professional legal advice, examine the SFO’s evidence, and consider the likelihood of a successful defence at trial, as a trial may end up cheaper and more attractive than the terms and conditions of a DPA.
Ten-year Takeaways
Overall, ten years on, the UKBA has been a powerful tool in the hands of UK regulators. More than just clarifying existing law, it was an ambitious embarkment to redo UK anti-bribery and corruption laws from the ground up, ensuring a comprehensive span of protection, offences, and penalties. It has also paved the way for increased collaboration between UK and international prosecutors and regulators. Whilst the paucity of convictions of corporations under the UKBA, and the mixed bag of results against individuals, might suggest that it is an ineffective piece of legislation, this should be considered alongside the comparatively large number of lucrative DPAs agreed with corporate offenders. On this measure, quality matters far more than quantity.
The road ahead
- Companies should monitor, review and refresh their anti-fraud, bribery and corruption policies, as well as their AML systems and controls, to ensure compliance with their regulator.
- Companies should also conduct periodic refresher training for management, staff, business partners and third parties who will be acting for and/or on behalf of the company.
- This is of increasing importance given the trajectory of future regulatory policy. The Financial Conduct Authority, HM Revenue & Customs, and the CPS, are exhibiting a renewed focus on criminal enforcement. This can be evidenced by the new CPS Economic Crime Strategy, which seeks to combat fraud, tax and COVID-19 related offences in the UK stemming from the increased reliance on technology during this period.
- These factors together will combine to present a far-reaching, systematic approach to preserving the integrity of the UK economy and financial regulatory system.
- However, as the world evolves with time, laws should be constantly reviewed, evaluated and updated to match the realities of their application. The operation of DPAs may need revising to ensure fairness of treatment between individuals and corporations. Considered holistically, their very existence should be welcomed as a useful weapon to tackle complex cases of corporate crime in conjunction with the UKBA.
Credit: Source link
