Two cases under the Bribery Act: Guilty plea or Deferred Prosecution Agreement?

Within three months the English courts have heard their first two cases concerning the offence of failing to prevent bribery by an associated person, pursuant to section 7 of the Bribery Act 2010 (the “section 7 offence”). Although both cases concern the same offence, the approach adopted by each company differed significantly, as did the outcome.

ICBC Standard Bank reported its suspicions of bribery within days of being alerted to it, allowing the Serious Fraud Office (SFO) to then direct the investigation into the matter, conducted by external lawyers at the bank’s cost. In contrast, the SFO first became aware of suspected bribery by a subsidiary of Sweett Group plc (Sweett) only when these were about to be revealed in press reports. As the matter unfolded, Sweett insisted on continuing its internal inquiry alongside the SFO investigation, despite apparent pressure from the SFO to abandon it. Later, following a change of management and of external counsel, Sweett co-operated more fully.

While ICBC Standard Bank entered into a Deferred Prosecution Agreement (DPA) (see our article), Sweett’s co-operation came too late and despite clearly hoping to be offered a DPA, it was ultimately prosecuted and pleaded guilty to the section 7 offence. For companies considering whether to self-report any wrongdoing they discover early in the hope of being offered a DPA, the key question from this case is what are the real advantages of doing so?

Sweett Group plc

On 14 July 2014 the SFO announced that it had opened an investigation into the activities of Sweett Group, following allegations of bribery relating to the firm’s Middle East division reported in the Wall Street Journal in June 2013. Sweett’s insistence on conducting its own internal inquiry into the allegations, alongside the SFO investigation, led the SFO to conclude, in November 2014, that Sweett was not co-operating. As a consequence, Sweett was forced to retract a statement to the market indicating that it was co-operating with the SFO.

Nonetheless, it was Sweett’s own inquiry into the matter which uncovered bribery quite separate from that alleged by the Wall Street Journal. A subsidiary, Cyril Sweett International Limited, entered into a contract with Al Ain Ahlia Insurance Company for project management and cost consulting services in relation to the building of a hotel in Dubai, under which it ultimately received £1.6m. Simultaneously, it entered a “Hospitality Development Consulting Services” agreement with North Property Management (NPM), a company owned by Khaled Al Badie, vice chairman of the board of Al Ain Ahlia. No services were performed under this agreement, but £680,000 was paid to NPM.

The sentence

Sweett Group entered a formal plea of guilty to the section 7 offence and on 19 February 2016, was sentenced as follows, using the Sentencing Council’s Guideline for sentencing companies convicted of fraud, bribery and money laundering:

• A confiscation order was made in the amount of £851,152.23, representing the gross profit from the contract with Al Ain Ahlia, with this amount to be paid within three months.
• A fine of £1.4m was imposed. This reflects a reduction by a third, in recognition of the early guilty plea entered by Sweett Group. It will be payable over two years.
• The company was ordered to pay the SFO’s costs in the amount of £95,000.
• No compensation payment was ordered.

It is notable that the fine was increased because Sweett’s culpability was found to be high. This was due to the fact that the offending was committed over a prolonged period - the bribery was under a single agreement, but the payments were made over more than a year. Sweett’s handling of the matter also contributed to the increased penalty being applied; an attempt to get Al Ain Ahlia’s board to send a letter “confirming” its knowledge of the NPM consulting agreement was construed as an attempt to throw the SFO off the trail. Steps taken towards establishing an escrow account into which payments due to NPM could be made while the investigation was ongoing also attracted criticism as an attempt by Sweett to “hedge its bets”, even though the plan was never carried out.

The judge made clear that Sweett’s belated co-operation with the SFO only reduced the fine a little, simply being too late to erase the history of antagonism between Sweett and the SFO. Sweett attempted to lay the blame for this at the door of its previous external counsel, but the judge said that no evidence had been provided to support this, and that ultimately the decision to co-operate with the SFO was the company’s responsibility.

How valuable is a DPA?

The key question for companies considering how to react to any suspicions of corruption is whether trying to get a DPA should be its strategic aim. It has been made clear by the SFO, and by the court in the only DPA approved so far, that early and full co-operation with the SFO is the best way to increase the chances of being offered a DPA. This means that early decisions as to self-reporting and co-operation will be critical. But how valuable is a DPA?

ICBC Standard Bank entered into the first DPA with the SFO in relation to a charge of failure to prevent bribery. (For further information, see our article). As part of the DPA, ICBC Standard Bank was ordered to pay a total financial penalty of over $30m, comprising $6m in compensation to the government of Tanzania (plus $1.046m in interest); $8.4m in disgorgement of profits, and a fine of $16.8m.

The fine and confiscation order was calculated using the same guidance as in the Sweett case and the amounts were determined by the values of the corrupt transactions and factors affecting the culpability of the companies and the seriousness of the offending. ICBC Standard Bank’s fine was reduced by a third, the maximum allowed under a DPA, to reflect its early self-reporting and co-operation with the authorities. This is the same reduction that was afforded to Sweett Group, in return for its guilty plea to the section 7 offence. The fact that ICBC Standard Bank entered a DPA did not reduce its financial exposure compared to a conviction after an early guilty plea.

DPAs may include significant and costly compliance obligations for the defendant company, in addition to the financial penalty ordered. Pursuant to its DPA, which has a duration of three years, ICBC Standard Bank is required to:

• publish a 55 page statement of facts concerning the charges brought, naming the individuals involved in alleged offences
• co-operate with domestic and overseas law enforcement agencies (including supplying them with relevant evidence), at its own cost and as directed by the SFO, in relation to all matters connected with the conduct described in the statement of facts, and 
• commission an independent report into its current anti-bribery policies and procedures, the scope of which is agreed with the SFO, and implement its advice or recommendations.

Such measures could, in fact, make a DPA more costly than a conviction, following an early guilty plea. There is no basis for imposing such conditions when a company has pleaded guilty to a corruption offence: the sentencing guidelines allow for the imposition of financial penalties only.

Perhaps the most significant difference between the two cases is the reputational impact they have had on the companies. The SFO investigation into ICBC Standard Bank was not made public until the date for the hearing to approve the DPA was announced. At that hearing, ICBC Standard Bank benefitted from positive judicial comment, and a swift and certain resolution of the matter.

In contrast, the Sweett investigation has attracted significant media coverage since the corruption allegations were first reported in the Wall Street Journal in June 2013. This continued when the SFO investigation was announced in July 2014, and intensified in November 2014 when Sweett was forced to retract its statement of co-operation. This is likely to have had an impact on the company’s value; which is reported to have dropped by two thirds in the period since the allegations emerged. Dealing with the protracted SFO investigation alongside its own investigation is said to have cost Sweett more than £2m.

Reacting to the discovery of corruption

At the very outset, when limited information is available, it is difficult for a company to judge the appropriate response to a suspected bribery offence. However, it is apparent from the ICBC Standard Bank case that, if a company suspects that a bribe may have been paid by an associated party, a swift self-report will stand it in good stead with the SFO, and increase its chances of being offered a DPA. A late self-report may still secure a DPA, but would require explaining.

Where a regulated company is required to file a suspicious activity report (SAR) with the NCA, an early self-report is the only viable option due to the likelihood that this information will be shared with the SFO. Where that is not an issue, there may be justifiable reasons why a company would wish to delay making a self-report. For example, the extent and nature of the suspected wrongdoing may not immediately be apparent from the information available, and a company may wish to investigate the matter further before proceeding to report it.

The Sweett case shows that a timely guilty plea may offer another route to a company that wishes to investigate a suspected offence on its own terms, but still benefit from a reduction in the applicable fine in return for some degree of co-operation at a later date, when the facts are clearer. However, taking this route may increase the costs that the company incurs, and could have a significant impact on its reputation.

Simmons & Simmons was not alone, when DPAs were first proposed, in suggesting that the discount to the fine under a DPA should be greater than that allowed for an early guilty plea. This would incentivise companies to self-report in order to secure a DPA. It will be interesting to see whether this suggestion, rejected by the Government in the consultation exercise, is now reconsidered.