There have been a number of press reports in the last few days about Mabey Engineering (Holdings) Limited (Mabey) agreeing to pay the Serious Fraud Office (SFO) over £130,000 in recognition of sums it received through share dividends derived from unlawful conduct. Mabey is the parent company of Mabey & Johnson (M&J), a bridge building company, which, in connection with the construction of bridges in Iraq, admitted corruption (under the legislation which was in place prior to the Bribery Act 2010) and breaches of UN sanctions at a criminal trial in September 2009. This resulted in M&J having to pay over £6million in fines and penalties. Two M&J executives and an employee were also jailed. The fines may have been larger but for M&J's co-operation.
The final act in the M&J saga took place when the SFO issued proceedings in the High Court under the Proceeds of Crime Act 2002 (POCA) requesting Mabey to pay back dividends paid to them by M&J as a result of the Iraq bridge building contracts. In an agreed settlement, Mabey has stated it will pay just over £130,000 to the SFO - this sum is modest in comparison with the fines already paid by M&J but the principle the case establishes - that dividends can be recovered in this way - is striking. Further, Richard Alderman, the Director of the SFO, has been keen to emphasise the potentially wide reaching implications of this settlement. He issued a statement noting: "First, shareholders who receive the proceeds of the crime can expect civil action against them to recover the money. The SFO will pursue this approach vigorously....The second, broader point is that shareholders who invest in companies are obliged to satisfy themselves with the business practices of the companies they invest in. This is very important and we cannot emphasise this enough. It is particularly so for institutional investors who have the knowledge and expertise to do it. The SFO intends to use the civil recovery process to pursue investors who have benefitted from illegal activity. Where issues arise, we will be much less sympathetic to institutional investors whose due diligence has clearly been lax in this respect."
In this case, the shareholder was the parent of the company which was guilty of impropriety and therefore it is arguable that they had some control over their subsidiary and should have known about its illegal practices. Whilst institutional investors do perform due diligence on the financial performance of companies they invest in, they would not generally have detailed knowledge of any contracts which the companies are parties to and generally they will only have access to publicly available information. As a result of the SFO's stance they should, at the very least, be routinely enquiring about the anti-bribery and corruption policies of any company they seek to invest in. It should, however, be noted that POCA applies to any serious criminal activity - not just bribery and fraud offences.
This case is confirmation of the SFO's approach in recent years to increasingly target corruption (e.g. increased enforcement activity and fines; the implementation of the Bribery Act etc). It remains to be seen whether this power under POCA will be wielded more frequently and in relation to shareholders who do not have direct links to the offending company.
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