Falling flat: a failure of anti-bribery procedures

This article was co-authored by Jonathan Marion, Trainee Solicitor, London.

With the case somewhat flying under the radar, on 14 April 2022, Southwark Crown Court was the venue for the recent sentencing of three corporates, who were all convicted of failing to prevent an associated person from bribing on their behalf under Section 7 of the Bribery Act 2010 (BA).

The case once more brought the issue of errant employees, contractors and third parties and the risks they bring to businesses back into the spotlight. It also saw the sentencing of associated individuals for offences committed contrary to the Prevention of Corruption Act 1906 and Criminal Law Act 1977.

Significantly, the convictions raised the importance of corporates having robust compliance procedures, rather than paying only lip service to them.

Background

This case centred on the conduct of a senior manager (NC) at Coca Cola Enterprises UK Limited (CC), who had the responsibility of subcontracting service work at various CC premises. NC’s role was “pivotal”. The court remarked that he used CC as a “source which could be routinely tapped at will”.

NC not only influenced the tendering process for the service works, but also personally led the charge when identifying appropriate contractors. In this instance, the three contracting companies that were favoured were Boulting Group Limited (BGL, now trading as WABGS), Tritec Systems Limited (TSL) and Electron Systems Limited (ESL).

The scheme would not have been possible without input from individuals at each of the three companies. As part of CC’s internal investigation into the wrongdoing and the police investigation, it was revealed that a former director of TSL (GH) and a former contract manager at BGL (PK) were key to NC’s plans.

As an interesting side note, PK reached a s.73 Serious Organised Crime and Police Act 2005 agreement (s.73 agreement) with the prosecution – one that would have seen him give evidence against an unnamed former co-defendant (a former BGL director and shareholder) whom the prosecution offered no evidence against during the proceedings. Had the prosecution not taken this stance and the matter proceeded to trial, PK would have provided an inside account of the agreement(s) cemented with the former director. Ultimately, this did not happen, but the court noted that the s.73 agreement had “significant power” in GH’s mitigation.

As part of the scheme, NC provided the three companies with sensitive and confidential data over a nine-year period. This was designed to assist each company’s bid for contracts with CC. The consequence of this was that a disadvantaged competitor would have had no idea that their carefully worked proposal was being shared with other bidders, removing any commercial confidentiality.

Such was the level of corruption that on occasions ‘fresh air contracts’ were awarded under NC’s instruction where there was no substance to any of the agreements.

As with schemes of this nature, there is always a kick-back. NC furthered his own personal gain by accepting a myriad of benefits, which included cash, free tickets to sporting events and entertainment events for his efforts. NC’s local football club (where he was president) was also sponsored as part of the benefits that NC received from directing contracts to the three companies. A takeaway point with this aspect of the offending is that, so far as the BA is concerned, a benefit is not one that may be solely reflected by cash and may be attained via other means (in NC’s instant, sponsoring a local football club).

In total, NC obtained an overall benefit of at least £950,000 in bribes from his relationship with BGL and a further £600,000 from his relationship with TSL and ESL. Payments to NC were made via a shell company that he controlled with family members, or to a separate company where he was a partner.

The scheme was exposed in 2013 when BGL accidentally attached a confidential CC document in an email to CC, comparing BGL’s prices to that of a rival. The email was only meant to detail BGL’s travel expenses for CC to reimburse. This errant email led to CC commencing an internal investigation, which was followed up with civil action and the ensuing criminal investigation/prosecution.

Adequate procedures

For their part, BGL, TSL and ESL pleaded guilty to failing to prevent an associated person from bribing on their behalf.

None of the companies could use the adequate procedures defence to demonstrate that there were policies in place that sought to prevent this type of conduct by any of its associated persons (be the employees, contractors, consultants and/or third parties), who, so far as the BA is concerned, were motivated to obtain or retain business or an advantage in the conduct of business for the corporate.

The prosecution did note that BGL had an ethics policy, but that the document, and in particular the section that related to gifts and entertainment, had not been updated for a couple of years. The prosecution added that:

… Whilst the company had policies on its intranet, it only paid lip service to them … it failed to provide training … in relation, for example, to what bribery was and how to recognise it.

BGL attempted to right its previous wrongs when it introduced an e-learning course for its staff on bribery and corruption in 2014. However, all this did was further demonstrate its historic failures in this regard, something that the prosecution was quick to use as part of its case.

As far as TSL and ESL were concerned, the court noted that both had a “culture of disregard” when it came to putting in place effective management systems. Neither company had an ABC (anti-bribery and corruption) policy, with the introduction of the BA having little effect on the thinking of either company in this area.

Sentences

In delivering its sentence, the court applied the Fraud, Bribery and Money Laundering Sentencing Guidelines and sentenced as follows:

  • BGL was fined £500,000 and ordered to pay costs of £10,000.
  • TSL was fined £70,000 and ordered to pay costs of £10,000.
  • ESL was fined £70,000 and ordered to pay costs of £10,000.
  • NC was given a custodial sentence of 20 months, which was suspended for 21 months with a requirement that he undertake 200 hours of unpaid work. He was also ordered to pay costs of £5,000. He was not made subject to a Director Disqualification Order.
  • PS was given a 12-month custodial sentence, which was suspended for 21 months with a requirement that he undertake 200 hours of unpaid work. He was asked to pay costs of £5,000.
  • GH was given a custodial sentence of 21 months, which was suspended for 21 months with a requirement that he undertake 200 hours of unpaid work. He was also ordered to pay costs of £5,000. He was not made subject to a Director Disqualification Order.

With NC settling with CC for £1.737 million less than two weeks after his initial arrest in 2013, there was no claim or award of compensation or confiscation in the criminal court.

No Deferred Prosecution Agreement?

It is not known whether a Deferred Prosecution Agreement (DPA) was in the mind of the CPS in its pursuance of the three companies. The companies’ early guilty pleas suggest that there would have been an acceptance to the conduct complained of had negotiations commenced and/or a DPA offered, however, we will never know whether this matter was ever in the mind of the prosecution, with the judge’s sentencing remarks being silent on the issue.

To date, the CPS has been shy in entering into DPAs, even when the hallmarks for one are present (see R v Skansen Interiors Limited).

Comment

This was the Metropolitan police’s first successful foray into the world of corporate bribery (the other corporate bribery case being investigated by the City of London Police - again, see R v Skansen Interiors Limited). Their investigation (albeit assisted by CC’s own internal findings) led to the prosecution authorising charges against each of the defendants.

The case importantly reaffirmed that companies must be live to the actions of associated persons in the day-to-day running of their affairs, particularly in a climate where all the limbs of the fraud triangle (i.e., pressure, opportunity and rationalisation) are present - something which is all too prevalent globally since the pandemic.

There is no better corporate medicine than prevention, and with that, a corporate must ensure that there are tailor made and business specific policies in place that set the tone internally and externally that the business will not tolerate behaviour of this type.

But they need to go further. A simple statement is insufficient, and neither is placing the police on the intranet. Regular employee training (which should be recorded by HR), risk assessments and benchmarking should all be at the top of a corporate’s mind when assessing internal and external risks that the business could face. A company’s expansion should result in existing policies being reviewed to ascertain whether they remain relevant.

The BA set the tone over ten years ago. Unfortunately, some businesses have been slow to adopt and adapt, with, in some instances, internal threats being routinely ignored.

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