First Convictions for Corporate Bribery Target Construction and Property

by Katten Muchin Rosenman LLP
Contact

After seven years of being in force, the UK Bribery Act is starting to make its presence felt. Three companies have entered into negotiated settlements with prosecutors for bribery in the last few years, but only two have actually been prosecuted and convicted. Both companies have been in the construction and property sectors.

This week, public attention has been drawn to the 21 February 2018 conviction of Skansen Interiors Limited (Skansen), which was tried at Southwark Crown Court after being charged by the Crown Prosecution Service (CPS) with failing to prevent bribery. Skansen, a refurbishment contractor which employed just 30 people and was dormant since 2014, was found guilty of failing to prevent bribes being paid to secure two contracts for office refurbishments.

According to the prosecution case, Skansen was invited by a company (ABC), to tender for two office refurbishment contracts in London worth £6m, which it won.

The CPS alleged that a project manager employed by ABC had passed information to Skansen during the tender process and that this information had given Skansen a competitive advantage in its bid. The CPS told the jury that the project manager had passed the information following offers made by Skansen's managing director to pay him a bribe.

Following Skansen's successful bid for the two contracts with ABC, two payments were made to the project manager for a total of £10,000. A third payment of just under £30,000 was offered but unpaid. Invoices were sent to Skansen by a third-party company, linked to the project manager and his son, for services including "site surveys/drawings and final construction consultancy including CAD drawings", in order to make the transactions appear genuine.

Skansen's conviction was the first time any company has defended itself at trial against a charge under the Bribery Act's corporate offence. This followed the 2015 conviction of Sweett Group Plc (Sweett Group), a construction and professional services company employing more than 1,000 people, which pleaded guilty to corporate bribery over arrangements in the United Arab Emirates. The company accepted that bribes had been paid to retain a contract with Al Ain Insurance Company (AAAI) and was fined £2.25 million.

The Corporate Offence of Bribery

The Bribery Act creates four offences:

  • paying a bribe (section 1);
  • receiving a bribe (section 2);
  • bribing a foreign public official (section 6); and
  • failing to prevent bribery in an organisation (section 7).

Section 7 provides that a corporate is guilty of an offence if a person—usually an employee, contractor, sub-contractor, agent or supplier—associated with it bribes another person intending:

  1. to obtain or retain business for the corporate; or
  2. to obtain or retain an advantage in the conduct of business for the corporate.

Section 7 also provides that is a defence for a corporate to demonstrate that it had in place "adequate procedures" designed to prevent the person from paying bribes. Neither Sweett Group nor Skansen could demonstrate that their anti-bribery policies were "adequate."

Sweett Group Plc

In 2012, Sweett Group's Cypriot subsidiary entered into a contract with AAAI to manage the construction of a hotel in the UAE. Sweett Group also entered into a contract with North Property Management (NPM), purportedly for associated hospitality services. A director of AAAI—Mr. Al Badie—also was the beneficial owner of NPM. Payments were made to NPM under the contract, but no services were provided in return. When sentencing Sweett Group, Judge Beddoe described the process as a vehicle to provide a "bung."

On 18 December 2015, Sweett Group pleaded guilty to the Section 7 offence, admitting that it had failed to prevent a person associated with it—a subsidiary—from paying bribes, and did not have adequate procedures from preventing such conduct from occurring.

Skansen Interiors Limited

In contrast to Sweett Group, Skansen Interiors Limited (Skansen) was a small company trading as a refurbishment contractor with a workforce of approximately 30 individuals based at a single site.

As in the Sweett case, no services were actually provided by the third-party company to which payments were made. Skansen's senior management had not only approved the invoices, but when questions arose about whether or not they were valid, took steps to ensure the accounts team still caused them to be paid.

In January 2014, Skansen appointed a new CEO, who commenced an internal investigation into the payments. Having found that no anti-bribery policy was in place, the CEO implemented a new policy—just a few days before an attempted third payment of £29,000 to a company owned by the project manager employed by ABC. As a result of the investigation, Skansen's managing director was dismissed and reports were made to the National Crime Agency, City of London Police and Action Fraud requesting they conduct further investigations.

Skansen assisted the police in their investigation—even disclosing confidential and legally privileged material it would have been entitled to retain. The company's defence was largely grounded on the basis that its controls and procedures were proportionate to its size and localised work, but the jury was not persuaded that such procedures were "adequate."

This is a bitter pill for a company to swallow. Having discovered criminality, and reported it to law enforcement, Skansen has ended up being prosecuted for the very misconduct identified through its own internal investigation.

To Defer or Not—the Absence of DPAs

It is remarkable in both cases—Skansen and Sweett—that a deferred prosecution agreement (DPA) was not offered to either defendant. A DPA is an agreement reached—under the supervision of the court—between a prosecutor and company which could be prosecuted. The agreement suspends a prosecution for a defined period of time in order for the company to meet certain conditions—usually remedying defects in controls, paying a significant financial penalty and compensating victims. Since 2015, three companies have entered into DPAs with law enforcement for corporate bribery—Standard Bank, Rolls Royce and an as yet unnamed company whose former executives are still being prosecuted.

UK prosecutors have made clear a DPA will only be offered to a company which has fully cooperated with the criminal investigation, usually including a full self-report to the relevant prosecutor or law enforcement agency. Uncomfortably for corporate boards trying to decide on the best course of action, both Sweett and Skansen made self-reports, but did not get a DPA, while Rolls Royce did not self-report and did get a DPA.

The issue is decided, according to the Serious Fraud Office (SFO), on the extent of the co-operation by the corporate, whether or not it makes a self-report. As SFO General Counsel Alun Milford has said, "the absence of a self-report meant that [Rolls Royce] started at a disadvantage, but for a number of years thereafter it had provided us with a consistently high degree of co-operation, involving bringing to our attention wrong-doing we had hitherto been unaware of, including wrong-doing in bits of its business wholly unconnected to those business areas we had initially asked for the company for information about it." Mr. Milford has dismissed those companies that feign co-operation, but then withhold critical information they do not want released, or, as he puts it, have "a Damascene conversion to the merits of cooperation as we approach a charging decision."

For Sweett Group, however, much the company felt it had co-operated fully, but the SFO was not satisfied, particularly with the fact that it did not disclose accounts of witness interviews compiled in its internal investigation.

Skansen, however, appears to have handed over anything and everything the CPS asked for, but this decision was made on a different basis: Skansen was a dormant company, and had no assets to pay a penalty under a DPA. This has led some to question whether only companies with sufficient assets like Tesco (which paid £129 million under a DPA) or Rolls Royce (which paid £497 million) will be able to avoid prosecution.

Lessons for Property Companies

The Skansen judgment is a stark reminder that self-reporting bribery—or even asking law enforcement to investigate—needs to be approached with caution. The only defence available to a corporate when identifying bribery in its operations is to ensure that it has in place adequate anti-bribery procedures. And as Skansen discovered, procedures are not adequate if they are limited to an anti-bribery policy written after the bribery is identified. Taking action after the event will not be sufficient to avoid conviction.

There are a number of steps internal risks and compliance teams can take now to ensure the adequacy of their anti-bribery procedures, including:

  1. Policies and procedures—the Skansen case demonstrates that historic offending can lead to evidential challenges. Companies should not only implement procedures, but should carefully document the implementation.
  2. Communication—adequate procedures mean having appropriate policies in place and ensuring they are communicated to staff. Skansen could offer no evidence of training and a bribery policy was only introduced in 2014 with the arrival of a new CEO.
  3. Reporting—companies should ensure they have policies and a culture which encourages internal reporting of any concerns or suspicions about potentially criminal conduct. This will include documenting reporting lines and having a clear whistleblowing policy.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Katten Muchin Rosenman LLP | Attorney Advertising

Written by:

Katten Muchin Rosenman LLP
Contact
more
less

Katten Muchin Rosenman LLP on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):
hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.