The Serious Fraud Office (“SFO”) brought fraud related charges against three directors and one employee of Sustainable AgroEnergy plc (“SAE”), a subsidiary of Sustainable Growth Group (“SSG”) on 14 August 2013, as part of a wider investigation into an alleged £23 million “bio fuel” investment fraud.
Three of the individuals have also been charged under the Bribery Act 2010 (the “Act”). These are the first charges under the Act that the SFO has brought and the charges include both giving and receiving a financial advantage (section 1 and section 2 of the Act respectively).
Three key questions for companies and senior executives will arise following this development:
1. Why has it taken so long for the SFO to bring its first charges under the Act?
2. Why was SAE not charged with the strict liability corporate offence under the Act?
3. Does this development impact the resources that a company should devote to compliance and adequate procedures?
Why has it taken so long for the SFO to bring its first charges under the Act?
The Bribery Act entered into force on 1 July 2011. The lead prosecution agencies regarding the Act were intended to be the SFO and the Crown Prosecution Service (“CPS”). On 14 October 2011, the CPS secured its first conviction under the Act. The CPS has since secured further convictions under the Act.
Recently the SFO had faced criticism in the media regarding a perceived failure to bring charges under the Act. However, the criticism needs to be put in context. The SFO has a mandate to investigate and prosecute serious and complex fraud or corruption. These investigations and prosecutions rely on the review of thousands of documents (including emails and corporate and finance documents), interviews of large amounts of witnesses and suspects and often the use of mutual legal assistance requests to obtain information from other jurisdictions. Evidence in complex fraud and corruption trials will run to thousands of pages. Collecting and reviewing this evidence takes time. A trial regarding complex issues will last for months.
In contrast, the CPS cases reported in the media relate to a court clerk, a taxi licence and an attempt to bribe a tutor regarding an exam. Such cases do not compare to a complex corruption trial. The evidence in these cases will not have been overly document heavy and is likely to have relied on the key testimony of a small number of witnesses.
Additionally, the Act covers only conduct that occurred on or after 1 July 2011. As might be expected, evidence gathering in complex cases takes time and practitioners who specialise in this area suspected that the SFO would not bring charges against individuals or a company for until at least 18 months after the Act entered into force.
Why was SAE not charged with the strict liability corporate offence under the Act?
The Act contained a new offence which was intended to make it easier for the SFO to successfully prosecute companies for corruption offences.
Section 7 of the Act created a strict liability corporate offence which is committed by a relevant commercial organisation (“RCO”) if a person associated with the RCO bribes another person, with the intention of obtaining or retaining business or an advantage in the conduct of business for the RCO. An associated person can be an employee, agent or anyone performing services on behalf of the RCO. There is only one possible defence to a section 7 prosecution—that the RCO had “adequate procedures” in place to prevent bribery.
SAE was not charged with a corporate offence. In deciding whether to prosecute a company the SFO will have regard to the Code for Crown Prosecutors (the “Code”). The Code is a two stage test:
1. Is the prosecutor satisfied that there is sufficient evidence to provide a realistic prospect of conviction against each suspect on each charge?
2. If so, is a prosecution required in the public interest?
Further guidance on the SFO approach to corporate prosecutions can be found within the document “Guidance on Corporate Prosecutions” available on the SFO website (the “Guidance”). The Guidance deals with the public interest limb of the Code in depth.
One of the factors that the SFO will have regard to in deciding if it is in the public interest to proceed is whether a company is being wound up. The SFO may have concluded that given SSG was placed into administration in March 2012, following the appointment of a management receiver and restraint proceedings initiated by the SFO, a prosecution was not in the public interest.
Does this development impact the resources that a company should devote to compliance and adequate procedures?
Further enforcement action by the SFO is a certainty. In addition, the City of London Police Overseas Anti-Corruption Unit will continue to investigate corruption and the CPS will continue to bring cases to trial.
Should the SFO uncover bribery issues involving an associated person of an RCO, the SFO will first apply the Code in deciding whether to prosecute a company under the Act. The Guidance gives examples of factors in favour of prosecution and against prosecution. Factors against prosecution would include the existence of a “genuinely proactive and effective corporate compliance programme.”
Should the SFO decide to initiate a prosecution against a corporate under section 7 of the Act, then absent related legal challenges, the company will essentially have to decide whether to rely on a defence of adequate procedures or whether to plead guilty. If resources have not been effectively devoted to establishing adequate procedures, then such a defence will not be made out. A corporate found guilty under section 7 will face an unlimited fine, the draconian confiscation regime, potential debarment from public contracts and damaging publicity.
Adequate procedures will vary depending on what type of business a company conducts and what jurisdictions it operates in. A company should have regard to the six principles set out in the Ministry of Justice guidance that was issued in compliance with section 9 of the Act. The six principles are:
1. Proportionate procedures
2. Top-level commitment
3. Risk assessment
4. Due diligence
5. Communication (including training)
6. Monitoring and review
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The principles make clear that adequate procedures are an issue which requires ongoing attention and resources. It is important for a company to review its procedures on an ongoing basis. This review should not be limited to procedures already in place but should apply to training also. In our experience, the people most dangerous to an organization in the anti-corruption context are those who lack a proper understanding of the issue but nonetheless believe themselves to be well-informed. We have therefore developed a tool, based on our experiences in conducting multi-jurisdictional investigations, to test an employee’s understanding in this area.
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