UK: New SFO Bribery Case: Can't Pay? That Might Be Okay…

  • SFO obtains second Deferred Prosecution Agreement since legislation introduced
  • Un-named SME paid bribes to customers via agents for eight years
  • Company must disgorge £6m in profits but only a small extra fine
  • Penalty reduced to reflect cooperation, own investigation costs and financial circumstances

The UK Serious Fraud Office has entered its second deferred prosecution agreement (DPA) with a company accused of bribery. Links to the SFO press release, and the detailed preliminary and final judgments of the court are provided here for your reference.

The name of the defendant company remains embargoed apparently to protect ongoing proceedings/investigations into individuals. The company is referred to in the judgment as "XYZ".

The judgments are worth reading in detail and we may comment further later. However, one point which emerges strongly is the flexibility of the SFO in accepting a low financial penalty in the circumstances of this case. This was because XYZ, despite having a wealthy parent company, was described as a "small to medium-sized enterprise" which was in a parlous financial situation. A heavier fine might have pushed it into insolvency.

The Agreed Facts

The agreed facts were that XYZ relied on local agents in various overseas territories. The agents offered bribes to representatives of XYZ's customers and won orders as a result. This went on over eight years. Twenty-eight separate contracts were tainted by bribery. The revenue earned on the business won as a result of the bribery was of the order of £17.24 million, about 16% of XYZ's turnover in the relevant period. The tainted contracts earned XYZ profits of £6.5 million.

In 2011, the parent company put ABAC procedures in place which led to the discovery of suspicious facts in August 2012. External lawyers were immediately hired to investigate, which investigation led to discovery of the bribery and a self-report, complete with the investigation report and supporting documents, to the SFO. A detailed (though apparently not final) report was made to the SFO in January 2013. Further investigation by the external lawyers and the SFO led to the discovery of further issues and the making of further self-reports by the company.

Culpability

The offending was accepted by the SFO and the court as being very serious. It was systematic. It was part of the company's established conduct. It extended back in time at least eight years, that is, prior to the coming into effect of the Bribery Act in 2011.

The SFO alleged it could establish conspiracy by the company to pay bribes under the 1906 Prevention of Corruption Act which applied at that time. This conspiracy was to be taken into account alongside the Bribery Act offence of failure by a commercial organisation to prevent bribery1 which applied to more recent events.

Up to Standard?

SFO, and the judge, accepted a figure of £6,201,085 as disgorgement of profits earned from the bribery but, surprisingly, only imposed an additional penalty of £352,000. The court also made no order for costs. This was despite the fact that the likely offending was more serious than in the first DPA case, that of Standard Bank (discussed in our note here).

Although each case differs according to its facts, a comparison to the Standard Bank outcome is inevitable. This case reveals just how fact-sensitive these DPA exercises are going to be. In Standard, the terms of the agreement were:

  • A financial penalty of $16.8 million (reduced by a third from the likely sentence on conviction after a trial, so about 66% of the starting point)
  • Compensation to the victim, the government of Tanzania, of $6 million plus more than $1 million in interest
  • Disgorgement of profit by the bank of the fees earned, coming to $8.4 million
  • Prosecution costs of £330,000 (about $500,000)

In this case, XYZ's terms were:

  • A financial penalty of £350,000 (reduced from the likely sentence on conviction after trial of £16.4 million, i.e., about 2% of the starting point)
  • No compensation to victims as no specific victim could be identified
  • Disgorgement of profit of £6,201,085
  • No payment of costs

The court also recognised that XYZ and/or its parent company had paid about £3.8 million in professional fees in connection with investigating the bribery and reporting to the SFO.

The Quality of Mercy

Obviously the two outcomes are very different. Why? The main reason seems to have been that the SFO and the judge accepted that XYZ was in such a bad condition financially that any larger penalty would push it into insolvency, or at least into a position whereby it would have to depend on further transfers from its parent company. Cooperation and self-reporting were also important, although the conduct of the company does not seem any more cooperative than that of Standard Bank. It's notable that the (solvent) parent company was not implicated in the bribery scheme, and the judge praised the parent as having acted entirely properly when it discovered the facts.

Should the penalty imposed depend so heavily on the effects it may have on the ongoing solvency of the offending company? The judge said:

"It might be thought that the outcome of this case has been only to remove from XYZ the gross profits which flow from its criminality and that little can be achieved by way of deterrence by not imposing a much more substantial penalty for such egregious criminality. In this case, which can be considered exceptional, the critical question was whether XYZ should be forced into insolvency bearing in mind the self-reports, the sterling assistance provided by ABC (whose conduct has been exemplary in these very difficult circumstances and which should be seen by its customers, shareholders and employees as revealing the highest standards of corporate integrity), the compliance mechanisms now put in place and the fact that all those facing prosecution no longer work for XYZ and that the company is operating effectively and in the public good.

"Once it was decided that it was in the public interest that XYZ should not be forced into insolvency, what was fair, reasonable and proportionate fell to be considered in the context of the work put into the company to ensure that it was viable and operated in accordance with the law, the expense incurred and whether sufficient financial assistance could be sought to ensure that the criminality had not led to profit. By disgorging or paying by way of financial penalty the total of gross (as opposed to net) profit and by doing so by incurring long term liability to ABC (save for ABC's reimbursement of the dividends it received), I believe that the conclusion is fair, reasonable and proportionate. This is not least because it provides an example of the value of self-report and co-operation along with the introduction of appropriate compliance mechanisms, all of which can only improve corporate attitudes to bribery and corruption."

Pragmatism and a Paradox

One can see the arguments for this outcome, in particular the argument for incentivising cooperation. In this case, the work done by the company and law firm in question seems to have been particularly thorough and helpful to the SFO. I also suspect that the widespread view that the sentence in Standard was too harsh may have had something to do with the SFO's much gentler approach in XYZ. As a strong endorsement of "doing the right thing", and of pragmatism in corporate sentencing, the result is to be welcomed.

But looking at the Standard and XYZ cases side-by-side, one cannot but be struck by the obvious paradox. A less culpable firm, which happened to be solvent, has ended up with a much heavier sentence than a more culpable firm, which happened to be in financial trouble. An economist might recognise this as a species of moral hazard. The case highlights some deeper legal, economic and even philosophical issues which underlie the whole concept of corporate criminal liability. I will try to explore these a little further on another occasion.

Footnote

1  Bribery Act 2010 s.7

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.