Corruption – Protecting Your Business

First UK prosecution for overseas corruption

On 7 August 2009, bridgework supplier Mabey & Johnson pleaded guilty to three charges of corruption and sanctions violation. The case is the first prosecution brought by the Serious Fraud Office (SFO) of a company who voluntarily informed the SFO about the making of corrupt payments overseas.  The prosecution of Mabey & Johnson has important ramifications for companies operating in countries where corruption is a concern.

Mabey & Johnson accepted that it tried to unfairly influence officials in Jamaica and Ghana when bidding for public contracts.  It also paid more than $200,000 (£123,000) to Saddam Hussein's Iraq regime, violating the terms of the UN oil for food programme.  Five of Mabey & Johnson's eight directors have resigned since the allegations came to light.

The prosecution followed the company's voluntary disclosure to the SFO by Mabey & Johnson. SFO Director Richard Alderman stated:

“These are serious offences and it is significant that Mabey & Johnson has co-operated with us to get to this landmark point.  This has enabled this case to be dealt with in just over a year and is a model for other companies who want to self report corruption and have it dealt with quickly and fairly by the SFO.”

The case was certainly dealt with quickly, but why it represents a model for other companies to self-report corruption is not immediately obvious. The company faced ten criminal charges and is likely to be fined a significant amount of money by the courts, albeit reduced by way of mitigation as a result of having come forward voluntarily.

Self-reporting

Depending on the circumstances, companies may have a duty to report concerns of corruption under the Proceeds of Crime Act 2002.  However, companies do not have a duty to report corruption concerns directly to the SFO.

The logic behind self-reporting to the SFO is that self-reporting ensures more lenient treatment than would be the case if the matter came to the SFO's attention through other means.

The Mabey & Johnson case shows that there are risks inherent in self-reporting matters to the SFO.

The difficulty for companies is that the SFO do not yet have a formal policy in place which informs companies of the circumstances in which immunity from prosecution will be given in return for the company's voluntarily disclosure.  This is in sharp contrast, for example, to the Code of Practice 9 procedure operated by H M Revenue & Customs which gives immunity from prosecution and settlement under a civil procedure in cases of suspected serious tax fraud.

Companies should therefore take legal advice before reporting concerns of corruption to the SFO.  In particular, any suspicions should be fully investigated before any approach is made to determine whether or not there is clear evidence of criminality, who was involved and what remedial steps should be taken to prevent recurrence.  Key questions will be whether any reporting obligations arise under the Proceeds of Crime Act 2002, whether or not to report the matter to the SFO and the potential ramifications of doing so.  In certain cases, it may be sensible to approach the SFO on a "no-names basis" so as to gauge its reaction and to obtain an indication of whether it would consider an alternative to prosecuting.

Preventative Measures

Corruption is a real risk for companies who operate overseas.  Companies can unwittingly become involved in corruption, particularly through the use of agents.

A company which uncovers corruption or is caught up in a corruption investigation by the SFO or an overseas authority (for example, the US Department of Justice) is more likely to be treated leniently if it has anti-corruption measures in place to reduce the risk of corrupt payments.

A starting point is to have in place an anti-corruption policy which explains what amounts to corruption and identifies the warning signs of corruption, commonly referred to as "red flags", as well as identifying the company's procedures in relation to payments to agents, commission payments, facilitation payments, gifts and corporate hospitality.

Training should be given in the company's anti-corruption procedures and the measures that are put in place to prevent corruption should be subject to regular internal and external monitoring and scrutiny.

Bribery Bill

From next year, it is likely to be an offence for a company to fail to prevent corruption. The Bribery Bill, published on 25 March 2009, and currently going through Parliament, creates an offence of negligent failure by commercial organisations to prevent bribery.

It will be a defence to such a charge to prove that the defendant organisation had in place adequate procedures to prevent persons performing services for or on behalf of the organisation from committing bribery offences.

All companies therefore need to consider whether they have sufficient anti-corruption controls in place.

How can we help

The Fraud Team at McGrigors advises companies on the preparation and implementation of anti-corruption measures and, if concerns of corruption come to light, to advise them how to respond.

For further information please contact:

Tom Stocker
Director
Tel +44 (0)131 777 7362
Email tom.stocker@mcgrigors.com

James Bullock
Partner
Tel +44 (0)207 054 2726
Email james.bullock@mcgrigors.com