This post was written by Omar Qureshi, Amy Wilkinson and Iskander Fernandez from CMS Cameron McKenna Nabarro Olswang LLP’s Corporate Crime & Investigations Team, who assisted Skansen Interiors Ltd. following charge.
Last month, the UK courts decided the first contested prosecution of a corporate for failing to prevent bribery under section 7 of the Bribery Act 2010. This was the first time that the so-called ‘adequate procedures’ defence was tested in court.
The defendant (Skansen Interiors Ltd or SIL) was a small, London-based office fit-out company that became dormant in 2014 following financial difficulties. SIL was prosecuted for failing to prevent its former managing director (Stephen Banks) from paying two bribes in 2013 (and offering a third) to a project director (Graham Deakin) of SIL’s customer, DTZ, for the successful award of two office refurbishment contracts in London. The bribes were paid pursuant to fictitious invoices raised by a company (GPS) owned and managed by Mr Deakin’s son. DTZ ultimately contracted with SIL for the projects. When the new CEO discovered the matter in early 2014, he took action and reported the wrongdoing to the authorities, cooperating with their investigation. Banks, Deakin and SIL were due to be tried together, but both Mr Banks and Mr Deakin pleaded guilty to the bribery offences before SIL’s trial.
As a result, it was taken as read that Banks had offered or paid the bribes to win business for SIL and that he was its “associated person” (i.e. a person performing services for or on its behalf), given he was its managing director. The trial therefore focused on whether SIL could prove it had adequate procedures designed to prevent bribery, which would have provided it with a defence to the corporate offence. The jury was unconvinced and SIL was found guilty, but because SIL was a dormant company with no assets, the judge ordered an absolute discharge, meaning no fine or criminal record for SIL.
So why did the authorities pursue the prosecution and what can we learn from the case about the requirements of “adequate procedures”?
The arguments regarding SIL’s controls give some insight into how the prosecution may approach, and how a jury may view, the adequate procedures defence in future cases:
Policies should be targeted and explicit in respect of bribery – at the time the two bribes were paid, SIL had a number of ethics and quality policies requiring employees to comply with the law, act with integrity in their dealings with third parties and even regarding gifts, hospitality and avoiding conflicts of interest. Some of those were pinned to the walls as posters in SIL’s single, open-plan office for all of its 30-odd employees to see each day. However, it did not have a specific anti-bribery policy that was implemented after the introduction of the Bribery Act. This was a fact heavily relied on by the prosecution. A new, ‘gold standard’ anti-bribery policy was implemented by SIL’s new CEO before the third payment could be made – and that payment was stopped. The prosecution argued that before the introduction of that new policy, SIL’s more general ethical policies were insufficient to mitigate their bribery risk.
All compliance efforts should be recorded – the case highlighted the importance of recording all decisions made and steps taken in respect of a corporate compliance programme, and keeping those records together and safe. Because SIL had become dormant in 2014, there was no corporate memory that could be relied on to provide evidence and limited remaining contemporaneous data available, so SIL was unable to point to records or other evidence that its historic ethics policies had been communicated to or accessed by its employees. Nor could it show when those policies had been updated. This could have been explained by the fact that SIL’s employees worked in a small, open-plan office where discussions would likely have happened face-to-face, rather than recorded in email. But the prosecution relied on the lack of a paper trail to argue the procedures were not adequate.
Communication and reactiveness are key – the prosecution argued that SIL’s policies had not been effectively communicated, nor were there any discussions to which SIL could point to show they responded to the introduction of the Bribery Act in July 2011. While SIL’s policies were available to all staff on its server, the prosecution argued that SIL should have ensured they were communicated and SIL could not demonstrate it had done this. The prosecution contrasted this with the approach taken when the new anti-bribery policy was introduced in 2014 (i.e. it was sent to all employees who had to confirm they had agreed to be bound by it), which they suggested was good practice.
This case may be seen as unusual in a number of respects. The authorities only learned of the issues because the company, through its new CEO, proactively reported the matter to the police and provided extensive cooperation to their investigation at their request. Yet all that good behaviour did not help the company in this case when it came to the decision whether to prosecute. This is despite SIL acting exactly how a different prosecutor, the Serious Fraud Office, has said it expects businesses to behave in similar circumstances, who wish to receive a more benign outcome.
It was a prosecution of a dormant company where there was no hope of any meaningful penalty even if convicted. So how was a prosecution justified as being in the public interest (a key requirement for any prosecution)? The justification rested on ‘sending a message’ to corporates who may not have sufficient preventative controls in place. However, one might wonder whether another message sent to corporates by this case is that they should be cautious about reporting wrongdoing if it could expose them to liability under the section 7 offence, particularly for those without the economic importance of a Rolls-Royce plc or similar global business. This prosecution and its rationale sits uneasily with the approach taken in the deferred prosecution agreement (DPA) cases recently concluded in the UK by the Serious Fraud Office. However, SIL was in the unfortunate position of being dormant and so the authorities decided that a DPA was not a practical option here.
At some point, a more complex case involving a larger business, perhaps with overseas offices and more detailed anti-bribery controls, will be defended on “adequate procedures” grounds. However, to date, the cases suggest that, for good reasons, many corporates would prefer a negotiated outcome through the DPA process. For that reason, it may be some time before we see more detailed judicial guidance on the requirements of an adequate compliance programme.
Until that time, it would be prudent for even the smallest companies to revisit their compliance programmes to consider if they are doing enough to protect themselves against bribery risks, and for all businesses to consider whether they are properly and thoroughly documenting their efforts to do so, to help them substantiate a defence if needed.
For additional reading on the SIL matter, see here.
FCPA Institute - Seattle (August 13-14, 2018)
A unique two-day learning experience ideal for a diverse group of professionals seeking to elevate their FCPA knowledge and practical skills through active active. Learn more, spend less. CLE credit is available.