Earlier this week I had the pleasure of speaking on the same conference panel as an American attorney who also specialises in compliance and anti-corruption work. He told me that clients and potential clients had the impression that the UK’s Bribery Act 2010 was not actively enforced, and so that compliance with it is not a major issue for them….
According to the reports which I have seen, the case involved a British company which had a subsidiary in the Middle East. The subsidiary acted as consultants and managers on construction projects.
The subsidiary won a £1.6 million project management and cost consulting contract from a client in the Middle East for work on a luxury hotel development.
In turn, the subsidiary gave a sub-contract to a local company for “hospitality development services”, including “client liaison”. I understand that the value of the sub-contract was £680,000.
Unfortunately the local company which was given the sub-contract, was controlled by a local businessman who also sat on the investment board of the company which awarded the £1.6 million project management and cost consulting contract to the subsidiary.
The case is a very good example of differing perspectives of the same facts. The local businessman who sat on the board of the subsidiary’s customer and also who controlled the local sub-contractor apparently sent a representative to the court hearing of the case in the UK. According to press reports, that representative said that the local businessman strongly denied any wrongdoing and said that he intended to enforce the sub-contract against the subsidiary, since it was a legal and binding agreement under his local law.
The British judge however saw matters differently. He has been quoted as saying that the sub-contract was “so obviously a bribe”, a “fiction and a sham” and a “vehicle to provide a bung” so that the subsidiary would get the £1.6 million project management and cost consulting contract.
The UK parent company was charged with failing to prevent bribery under Section 7 of the Bribery Act 2010. It pleaded guilty and received the following penalties:
- A fine of £1.4 million;
- Confiscation of £851,152.23; and
- Prosecution costs of £95,031.97.
I expect that the fine would have been greater if the UK parent company had denied the charge and been found guilty after a trial, or had not pleaded guilty as soon as it was able to do so.
Costs are not only measured in money. It has been reported that the UK parent company has now closed its operation in the Middle East, with 70 redundancies….
A number of lessons can be drawn from this sorry story:
- It is clear that a parent company is liable in the UK for the actions of a subsidiary somewhere else.
- The ignorance of the parent company of what was happening in the subsidiary company is no defence. The judge said:
“The whole point of section 7 is to impose a duty on those running such companies throughout the world properly to supervise them. Rogue elements can only operate in this way – and operate for so long – because of a failure properly to supervise what they are doing and the way they are doing it.”
As well as subsidiary companies, Section 7 of the Bribery Act 2010 also refers specifically to agents and employees. Do you know what your agents and employees are doing? Do you “properly supervise” what they are doing?
- The only safe standards for local subsidiaries to observe in foreign markets are those which apply in the UK. In this case the UK parent was liable for the actions of its subsidiary in the foreign market – even if the bribe was through what was described as a valid and binding contract under local law.
- Do not ignore warning signs when they do exist. In this latest case concerns were apparently raised by auditors three years before the contracts were signed, which concerns the judge is reported to have said were wilfully ignored by the management. When you are in a hole, stop digging. In the latest case the judge commented that the corrupt payments had continued for 18 months.
- When you know that you have a problem, consider carefully what to do and take appropriate advice. It may be appropriate to make a voluntary self-disclosure and to co-operate with the UK prosecution authorities in the hope of obtaining a deferred prosecution agreement and a reduced penalty (as happened in the previous case involving sister banks in London and in Africa).
Do not delay.
- Telling the prosecution authorities about your problem a week before you hear that it will break in the press is not likely to be regarded as voluntary self-disclosure….
Take compliance seriously and make sure that your procedures to prevent what the UK regards as “bribery” meet the standards prescribed by the UK Ministry of Justice.
Make sure that you have contemporaneous evidence that you are taking your compliance programme seriously.
- If you are wondering what kind of apparently-legitimate contract you can use to provide a legal title to make a payment so someone, stop and consider whether what you are doing is wise – or legal. The fact that the person who you want to pay will actually provide goods or services for the payment does not mean that it is necessarily legal. The same applies to corporate social responsibility (CSR) programmes and payments to charities.
- When you are negotiating a commercial contract, make sure that you make an objective assessment of:
- why you are doing business with the other party;
- whether you have adequate evidence of who the other party is – and who owns or controls the other party;
- whether the commercial terms of the contract are defensible; and
whether there is any risk that other aspects of the contract raise suspicions of bribery (e.g. conflict of interest).
Make contemporaneous notes of these points.
The larger the amount of money involved, the more careful and detailed your considerations and notes should be.
Finally, what should be welcome news for business. In a published speech on 29 March 2016, a senior official in the UK’s Serious Fraud Office said “Finally, good, ethical companies can be victims of corruption, and this brings me to my final point. If a law abiding company, whose ethos and compliance systems do not allow it to pay bribes, loses out on business to a bribe-paying company, we want to know about it.” So if your company is losing out because someone else is not playing by the rules, the UK prosecution authorities want to know who is cheating