The Bribery Act; A paper tiger or a well trained guard dog?

The Bribery Act was lauded by many as a noble piece of legislation aimed to ensure that where businesses registered in the UK engage in trade of any sort, they do so honestly and fairly and do not resort to the payment of bribes to attain or retain unfair advantages.

It was criticised by other as badly drafted (it undoubtedly is), unnecessary and a disadvantage to British businesses aiming to compete in a global market.

It certainly had businesses worried when the Act was passed. Failing to put into place anti-bribery systems meant that UK businesses became exposed to serious penalties; unlimited fines and custodial sentences of up to 10 years for individual convicted of being involved in bribery.

Businesses scrambled to put in place systems and train staff, hampered by the lack of clarity as to the scope and meaning of parts of the Act. Then nothing much happened. No prosecutions were brought against commercial organisations. Businesses relaxed, systems became lax, then it happened.

Well it took a while – The Serious Fraud Office got its first (and only) conviction for a corporate offence under the much heralded UK Bribery Act 2010. It took until February 2016 (it came into force in July 2011 – yes, note the gap of nearly 5 years), for a conviction to be obtained. This was against Sweett Group PLC.

A corporate offence under the Bribery Act is committed where a commercial organisation fails to prevent persons (or in this case a subsidiary company) associated with them from bribing another person on their behalf  for a business advantage.

So what did Sweett Group do? Sweett Group is a successful business involved in construction, consultancy and physical asset management and is based in the UK.

It was convicted because it failed to prevent a subsidiary company from paying bribes on its behalf. The subsidiary had been misbehaving for a while – three years actually and had been paying bribes relating to the development of a hotel in Dubai. Frankly, that is how a lot of business had been done over there and no doubt many companies had been at it, before and after the Bribery Act came into force; but Sweetts got caught.

So why have there been so few prosecutions under the Bribery Act by the Serious Fraud Office? To be fair, anybody who is any good at paying or receiving bribes will probably be fairly cautious and so evidencing bribes will often be tricky. Collecting evidence will be difficult and the business advantages gained or retained may be hard to identify in nature and in scope. Forensic accountants will be needed to understand transactions and the paperwork generated will be voluminous.

All of which will present significant challenges to investigators and prosecutors.

It is not uncommon in VAT frauds for example, for prosecutions to take years to reach trial, often after lengthy investigations. So, bearing in mind Sweetts was prosecuted for conduct taking place between 2012 and 2015, it can be argued that the SFO has moved fairly quickly.

Another reason for the lack of prosecutions is that any conduct before the Bribery Act came into force by commercial organisations cannot be prosecuted under the Act. To do so would be to apply legislation retrospectively which (righty) cannot be done.

The outcome for Sweetts was disastrous. They faced a fine, prosecution costs and confiscation of the benefit they were deemed to have made of about two and quarter million pounds. Further, their stock price plummeted with over 20% of their value wiped off.

Again, bear in mind is that it was not the parent company which was caught paying bribes. It was a subsidiary based in the UAE. Indeed there was no evidence to suggest that the parent company was aware that bribes had been paid by the subsidiary.  The key point is that Sweetts, a company registered in the UK, could not they show that they had reasonable systems in place to prevent bribery.

The result would have been the same for Sweetts even if the bribes had been paid not by a subsidiary, but by an agent or other associated person acting on their behalf.

The lessons to be learned are sobering for UK business. The SFO has not just bared its teeth, it has bitten and hard.

Businesses registered in the UK need to take care that where they are doing business, no matter what part of the World, they need to ensure that those acting on their behalf are not involved in bribery.

Arguing that this is how business is done in certain parts of the World will be as useless as whinging that the Bribery Act makes UK businesses uncompetitive. The only defence available is to show, on balance, that the company has put reasonable systems in place to prevent bribery and that those systems are followed.

Commercial organisations will need to look at whether their corporate governance is properly structured, whether auditors have identified weaknesses, to have robust reporting and training procedures and take extra care where particular areas of business have traditionally attracted bribery.

Sweetts possibly may have avoided prosecution had immediately fallen at the mercy of the SFO who have previously demonstrated their willingness to enter in to ‘Deferred Prosecution Agreements’. Where these have been entered into, it has followed the demonstration by an organisation of full and frank cooperation with the SFO, transparency of its structures and transactions, commitment to improvement of systems and self-reporting of wrong-doing. Needless to say Sweetts did none of this.

The SFO has demonstrated more than a willingness to come down hard on organisations involved in bribery. It has also shown wisdom. It knows how to build an effective case against a wrongdoer, yet it has also shown a willingness to work with, rather than against organisations who have committed unlawful acts but are committed to change.