Lessons from the first s7 UK Bribery Act case

The offence: failing to prevent bribery

In 2012, Sweett’s Cypriot subsidiary secured a contract with the Al Ain Ahlia Insurance Company (AAIC) to manage the construction of a hotel in the United Arab Emirates (UAE). Separately, Sweett entered into a second contract with North Property Management (NPM) for associated “hospitality services”. One of AAIC’s officers, Mr Al Badie, was the beneficial owner of NPM. While payments were made to NPM under this second contract, there was no record of Sweett receiving any services from NPM. The contract was summarised by the sentencing judge (HHJ Beddoe) as a vehicle to provide a “bung”.  

On 18 December 2015, Sweett admitted a failure to prevent bribery. Under s7(1) of the Bribery Act 2010 (the Bribery Act), a company is guilty of an offence if a person associated with it bribes another person to obtain business. While under s7(2) there is a statutory defence if a company can show it had in place adequate procedures designed to prevent the bribery occurring, Sweett admitted that it had not.  

Extra-territorial effect  

The actions of a foreign subsidiary, carried on outside the UK, in relation to a UAE contract were caught by the Bribery Act. While Sweett’s Cypriot subsidiary may (as the defence suggested) have been a “gangrenous limb” within the organisation, the systemic failures of Sweett, as the parent company, properly to supervise its subsidiary made Sweett liable.

What can we learn?

Sweett is arguably an extreme case. From what has been stated publicly about Sweett’s dealings with the SFO, the relationship between the two was difficult. The nadir appears to have been reached when the SFO reportedly told Sweett to stop trampling on the evidence. Nonetheless, there are a number of lessons to be drawn.

The importance of prompt self-reporting

A Wall Street Journal article dated 21 June 2013 linked Sweett to Middle Eastern bribery (albeit involving a hospital in Casablanca, rather than the aforementioned hotel), but Sweett only reported the payments to the SFO a week before the article was published. A year later, the SFO formally began its investigation into Sweett. However, it was only in December 2014 that Sweett self-reported certain other connected payments as being potentially suspicious, and it appears that the SFO took a dim view of this late self-reporting.

The dangers of hedging your bets

In March 2015, Sweett sought a letter from AAIC suggesting some of the payments under investigation by the SFO were made under a finder’s fee arrangement – in effect, trying to find a defence for the bribery. Further, for a significant period of the SFO’s investigation, these payments continued to be made. Rather than repudiate the contract under which these payments were being made, Sweett considered placing monies owed in escrow until the SFO investigation had been concluded. At sentencing, HHJ Beddoe referred to this as a cynical attempt by Sweett to hedge its bets.

The SFO’s Joint Head of Bribery and Corruption, Ben Morgan, exhorted those reporting misconduct to “pick your horse and ride it” in a speech late last year. It can be safely assumed that this case influenced those remarks and demonstrates the importance of ensuring that potential misconduct that is the subject of an SFO investigation is not continuing.

Cooperation means full cooperation

Sweett appears to have frustrated the SFO by refusing to hand over its accounts of witness interviews. The issue culminated in November 2014, when Sweett (a company listed on AIM) made an announcement to the market stating that  it was cooperating fully with the SFO investigation. The SFO disagreed. Sweett was forced to retract the announcement and issue a public statement that it was “doing all that it reasonably could to cooperate with the SFO while at the same time exercising its fundamental right to legal professional privilege in fulfilling its corporate and regulatory requirements”.

The fact that the SFO is taking a very strict view on cooperation (and is willing to make its views on the topic publicly known) means that firms need to take particular care in wording any public statements issued, even more so in the case of listed firms, for whom disclosure of SFO investigations frequently cause significant share price movements.

It was suggested at sentencing that the relationship between Sweett’s legal advisers and the SFO had become particularly antagonistic. Sweett had replaced this law firm with its original advisers, but this act and the full cooperation from mid-2015 onwards was evidently not enough for Sweett to obtain a deferred prosecution agreement (DPA) given all that had gone before. HHJ Beddoe also warned that while a company might blame a lack of cooperation on poor legal advice, ultimately the company was responsible for such decisions – not its legal advisers.

Conviction or DPA: a distinction with little difference?

Sweett was not offered a DPA, probably because of its self-reporting and cooperation shortcomings. However, it is interesting to compare the penalty given to Sweett and that agreed between the SFO and Standard Bank in its DPA of 30 November 2015. Sweett was ordered to pay a penalty of GBP 2.25 million, consisting of a GBP 1.4 million fine and GBP 850,000 in confiscation (calculated based on the gross profit from the contract with AAIC).

The fine component of both Sweett’s and Standard Bank’s financial penalties was calculated based on the benefit gained from the bribery. This was multiplied by a percentage to reflect culpability in accordance with Sentencing Guidelines. For Standard Bank, this percentage was assessed at 300%, while for Sweett, it was only 250%.

It can be argued that such a difference in the assessed level of culpability is explained by the fact that Standard Bank had previously received an FCA fine for failings in its money laundering systems and controls. However, Sweett had wilfully ignored multiple auditors’ warnings regarding its subsidiary, permitted bribery payments for 18 months and, as evidenced by the fact that it did not receive a DPA, been at points less cooperative with the SFO. While Sweett serves to illustrate the discretion that judges will have in enforcing the Bribery Act 2010, it is notable that the first corporate criminal conviction for bribery incurred a lower financial penalty (in both absolute and relative terms) than the first deferred prosecution.

COMMENT

Following the Standard Bank DPA last November and the Brand-Rex Scottish civil settlement last September, it appears that the Bribery Act is finally coming of age. The risks of half-hearted cooperation with the SFO have been brought into sharp relief. Taken together, the Standard Bank DPA and the Sweett case provide some guidance as to the extent of cooperation needed to have a chance of securing a DPA. Moreover, if the indications from the SFO are anything to go by, there may well be several more Bribery Act cases to guide us by the end of the year.

Just as the s7 of the Bribery Act offence finally makes its presence felt, it seems set to be joined by another form of corporate criminal liability. A new offence of failure to prevent the facilitation of tax evasion has been proposed, whereby a corporate body commits an offence if a person associated with it (and acting in that capacity) facilitates tax evasion. As with s7 of the Bribery Act, upon which this new offence appears to be modelled, it is a defence for the body to show that it had in place procedures designed to prevent persons associated with it from committing tax evasion facilitation offences, and its procedures were reasonable given all the circumstances. If you would like to discuss this new proposed offence in more detail please contact us. 

Further information

This case summary is part of the Allen & Overy Litigation and Dispute Resolution Review, a monthly publication.  For more information please contact Sarah Garvey sarah.garvey@allenovery.com, or tel +44 20 3088 3710.​​