On 5 April 2016, The Scottish Crown Office and Procurator Fiscal Service ("COPFS") announced the latest resolution of a Bribery Act enforcement action against the Glasgow-based logistics company, Braid Logistics (UK) Limited. Braid agreed to pay £2.2 million pursuant to a Civil Recovery Order and accepted responsibility for contravention of sections 1 and 7 of the Bribery Act 2010 (section 7 being the so-called 'corporate offence' of 'failure to prevent' bribery).
This is the latest development in an exciting few months in anti-corruption enforcement. Earlier this year, in two eagerly anticipated judgments, the Court applied for the first time in a contested corporate case the Sentencing Council's 2014 Definitive Guideline: Fraud, Bribery and Money Laundering Offences (the "Guideline"), and sentenced a company following a successful prosecution under section 7 of the Bribery Act. These two cases, Smith & Ouzman Limited and Sweett Group Plc, represent the first steps in building a body of much-needed experience of the Court's approach to the Guideline, following the first DPA last year. We provide below an overview of the Braid, Smith & Ouzman and Sweett Group cases, and explain how the penalties imposed on the companies were determined.
The Braid case follows a number of similar disposals of Scottish investigations into bribery offences by companies. Scottish companies, like English companies, are subject to the Bribery Act 2010, but enforcement in Scotland has trodden a different path to that taken by the Serious Fraud Office ("SFO") under its current Director, David Green.
Braid Group (Holdings) Limited is a parent holding company for various subsidiaries, including Braid Logistics (UK) Limited ("Braid Logistics"). Braid became aware of potentially dishonest activities in two Braid Logistics freight forwarding contracts in 2012. The company initiated an investigation, and in due course voluntarily self-reported itself to the authorities. The investigation had identified that:
a Braid Logistics employee had incurred unauthorised expenses – including personal travel, holidays, gifts, hotels, car hire and cash – for an employee of a customer. This was funded by dishonestly inflating invoices provided by the customer; and
- a profit sharing arrangement had been agreed with a director of a second customer, whereby the profit achieved on services provided to the customer was split, in return for orders being placed with Braid Logistics.
It appears that relevant individuals will be prosecuted in due course, and as a result (presumably to avoid prejudice to that process) no further detail of the conduct has been provided. Braid is said to have subsequently taken steps to implement new procedures and training (adequate anti-bribery procedures are a defence to a section 7 offence, and it is unclear whether it had pre-existing procedures which were inadequate, or no procedures at all).
As noted above, the case was disposed of by way of a Civil Recovery Order under the Proceeds of Crime Act 2002. This does not involve a criminal prosecution, and the 'penalty' imposed is not a fine. Instead, this is a mechanism by which a civil Court can make an order to recover the proceeds of criminal conduct – the "criminal conduct" in this case being offences under section 1 (active bribery) and section 7 (failure to prevent bribery) of the Bribery Act.
The COPFS previously took this approach in resolving an investigation into Brand-Rex Limited in September 2015 (our briefing on this case is available here and it is in line with the COPFS guidance on self-reporting, which specifically contemplates referral for a civil settlement as the 'reward' for self-reporting in appropriate cases).
By contrast, in England and Wales, whilst Civil Recovery Orders are available to the SFO, the emphasis of the SFO has been on its power to enter into Deferred Prosecution Agreements ("DPAs") as a means of addressing criminal conduct by cooperating corporates. In a recent article, Ben Morgan, the Joint Head of Bribery and Corruption at the SFO, suggested that "if [a company’s] representations to us are genuine and there are no surprises when we test them it is unlikely to be in the public interest to prosecute…a DPA will be firmly in our minds as potentially the most appropriate disposal of conduct meeting the relevant evidential threshold…". This is of course a more punitive outcome than a Civil Recovery Order.
As in the Brand-Rex case, the £2.2million paid by Braid was based on the gross profit of the company made on the relevant contracts. This follows from the scheme of the legislation – i.e. the nature of a Civil Recovery Order is that the amount to be paid under the Order is based on the benefit to the company, as it is not a 'punishment' in the same way as a fine.
Accordingly, whilst it is an interesting case to add to the roster of examples of enforcement for anti-corruption training purposes, Braid tells us very little about the interpretation of the Bribery Act, adequate procedures, the approach to enforcement of the Act outside Scotland, or the sentencing of bribery offences. The following two cases, however, do have a bearing on this last issue.
Smith & Ouzman Limited
Smith & Ouzman Limited ("Smith & Ouzman") an Eastbourne-based security printing company, was sentenced by the English court in January 2016 to pay £2,222,957 for making payments totalling £395,074 to public officials to obtain business contracts for printing ballot papers, examination papers and certificates in Kenya and Mauritania. This sum consists of a confiscation order of £881,158, a fine of £1,316,799 and costs of £25,000. The case was known as "chickengate" as "chicken" was used as a codeword for bribe in the company's emails; the company was alleged to have used inflated commissions to overseas agents to mask the "chicken" that was passed onto the officials.
The bribes were paid between November 2006 and December 2010 (and so were prosecuted under the Prevention of Corruption Act 1906, as the Bribery Act 2010 had not yet taken effect). However, the Guideline was applied to the sentences, as it has retrospective effect.
Two of the company's employees were also convicted and sentenced for the same offence. Christopher Smith, the company's chairman, was served with an 18 month suspended sentence and 250 hours of unpaid work. His son, Nicholas Smith, the sales and marketing director, was served with 3 years' imprisonment. They were both served with individual confiscation and costs orders.
Sweett Group Plc
Sweett Group Plc ("Sweett Group") became the first company to be convicted under the UK Bribery Act 2010 when it pleaded guilty to an offence under section 7(1) of failing to prevent bribery by an associated person.
The SFO initially commenced its investigation into Sweett Group in July 2014 in relation to its activities in the Middle East. Later, following an internal investigation, Sweett Group identified two contracts within the Middle East, which were unrelated to the original allegations, and reported these to the SFO.
The subsequent investigation revealed that a subsidiary of Sweett Group, Cyril Sweett International Limited ("CSIL"), had made corrupt payments to the chairman of a client ("AAAI"), to secure and retain the award of a £1.6m consultancy contract with the AAAI in relation to the construction of a hotel in Abu Dhabi. Sweet Group was sentenced in February 2016 to pay £2,346,152, comprising a confiscation order of £851,152, a fine of £1.4 million and costs of £95,000.
The SFO has stated that an investigation into individuals in relation to this matter is ongoing.
How were the fines calculated?
To determine the appropriate penalty in each case, the court used the ten step approach provided by the Guideline.
Steps 1 and 2: Compensation and Confiscation Orders
Steps one and two of the Guideline concern the imposition of compensation and/or confiscation orders (the value of which is determined in accordance with the relevant legislative regime (under the Powers of Criminal Courts (Sentencing) Act 2000 and the Proceeds of Crime Act 2002 respectively)).
No compensation order was made against Smith & Ouzman or Sweett Group. Although the judge in Smith & Ouzman acknowledged that the people of Kenya and Mauritania were the victims of the crime, he noted that attempts to liaise with their governments had not provided satisfactory evidence that compensation would be delivered into the 'right hands', and that there had been no formal request for compensation from either Kenya or Mauritania.
In Smith & Ouzman, a confiscation order of £881,158 was made against the company, the amount representing (after indexing) the gross profit made on the contracts obtained through bribery (£438,933) and the amount of the bribes paid (£395,074), on the analysis that these had been added to the price of the contracts and had thus effectively been paid for by the contracting counterparties.
A similar gross profit approach was adopted by the court in Sweett Group. Here the confiscation order of £851,152 was calculated by determining the gross fees of £1,212,222.29 received by CSIL minus project costs of £361,070, which included labour, travel and subsistence. This figure had been pre-agreed between the SFO and Sweett Group prior to the hearing and was subsequently approved by the judge.
Steps 3 – 5: Quantum (Harm & Culpability)
Steps three to five of the Guideline deal with deciding the appropriate quantum of fine, and were particularly controversial when the Guideline was consulted on in 2014. The fine quantum is determined by applying a multiplier representing a Defendant's 'culpability' to a financial figure representing 'harm', and adjusting the resulting figure as necessary. The steps are set out as follows:
The Guideline provides that the culpability of a company might fall into level A, B or C (A being the highest). In both of the Smith & Ouzman and Sweett Group decisions, the culpability was deemed to fall into level A.
- In Smith & Ouzman, the factors taken into account included that the offence involved the bribery of public officials over a sustained period; that the company had a dominant position in the market; and that the company had paid the bribes with a motive of financial gain.
- In Sweett Group, the judge again noted that the offending took place over a sustained period, with the payments continuing for a period of 18 months, and that no real effort had been made to avoid such acts from occurring. Moreover, he noted that the payments were so obviously a bribe that such behaviour was clearly deemed acceptable by at least some part of CSIL's management.
Harm is a financial figure representing the amount obtained or the loss avoided through the criminal conduct (similar to the 'benefit' figure used to determine the value of confiscation orders). In relation to bribery offences, the Guideline suggests that the starting point is the "gross profit" from the contract obtained, retained or sought as a result of the offending. Thus, the harm figures for Smith & Ouzman and Sweett Group were £438,933 and £851,152 respectively.
At step four, the chosen culpability level is used to determinate the appropriate percentage by which the harm figure should be multiplied.
- In Smith & Ouzman, the sentencing judge elected a starting point of 350%, within the range for level 'A' culpability. Due to mitigating factors including the significant remedial action the company had taken; its contribution to the local community, and the high regard it was held in there; and its good record as an employer, he then reduced this to 300%. It is worth noting here that these specific mitigating factors are not included in the examples given by the Guideline, demonstrating that the Courts have flexibility in this regard.
- In contrast, the starting multiplier in Sweett Group was set at 300% and was subsequently reduced to 250% by the Judge, taking into consideration the absence of previous convictions, the fact that Sweett Group's cooperation improved as the investigation progressed and that since mid-2015 the company had taken steps to deal with the issues raised by the investigation and improve its compliance procedures.
Step five of the Guideline requires the court to consider whether any further adjustment to the fine would be appropriate, thus re-introducing an element of very significant judicial discretion into what appears on its face to be a 'scientific' approach to the calculation. This is the Court's opportunity to 'step back' and consider whether the penalty achieves the necessary objectives of the sentence; is proportionate; and has real economic impact. In fact, in Smith & Ouzman and Sweett Group (and in the previous DPA) no adjustment was made, albeit that the judge in Sweett Group staggered the fine into two instalments in light of the company's financial position.
Steps 6 – 10: Further Procedural Steps
The Guideline then provides for five further procedural steps to complete the sentencing process: reductions made for assistance provided to the prosecution; reductions for guilty pleas; ancillary orders; a requirement for the judge to consider and the totality of the sentences given; and a reminder of the obligation to state the reasons for, and the effect of, the sentence.
One particular point of interest in the Sweett Group case is the question of corporate cooperation and its impact on DPA availability and penalty levels. Sweett Group had self-reported itself to the SFO only a week before a Wall Street Journal article was published, linking it to bribery allegations (according to the SFO's counsel, in anticipation of that article being published), and continued to make some relevant payments even after the investigation had commenced. It appears that there were disputes as to the provision of witness evidence to the SFO and, in a somewhat embarrassing incident in 2014, the company was forced to clarify in a public announcement (it is AIM-listed) that it was "doing all that it reasonably can to cooperate with the SFO investigation while at the same time exercising its fundamental right to legal professional privilege in fulfilling its corporate and regulatory requirements" after the SFO objected to a previous statement that it was "continuing to cooperate". The SFO had at one stage held open the possibility of DPA negotiations, which seems to have coincided with a change in the company's approach to the investigation; as noted above, Sweett Group's cooperation was acknowledged by HHJ Beddoe to have improved from 2015. Ultimately, however, a DPA was not offered to the company.
The multiplier adopted by the Court in the Sweett Group case was 250%, in the Smith & Ouzman case (where the company pleaded not guilty) was 300%, and in the SFO's previous DPA, a case of "exemplary" cooperation, a 300% multiplier was adopted. A number of factors feed into the multiplier, of course, and it seems that, whilst cooperation may be critical to the availability of a DPA (hence, perhaps its ultimate unavailability to the Sweet Group), its impact on fine levels may be more limited.
Otherwise, these cases are the just the start of a body of knowledge as to how the Guideline will be applied, which will need to be developed over time in the event of the SFO obtaining further convictions, and deployed in DPA negotiations. The SFO has a number of significant corporate bribery investigations and prosecutions under way; one of the 'next up' is Alstom Network UK Limited, in a case which is scheduled for June 2016 relating to alleged corruption in India, Poland and Tunisia. Interested readers should continue to "watch this space" closely.