All posts by Prina Patel

Associate at Cooley UK LLP

White collar crime

Skansen Interiors Limited: The UK’s first contested prosecution under S7 of the Bribery Act

The recent conviction of UK company Skansen Interiors Limited (SIL), for the corporate offence of failure to prevent bribery has caused controversy. This is the first conviction under S7 of the Bribery Act after a contested trial where the company self-reported but was still brought to trial. Commentators are asking if this decision means that there is a shift in the UK’s Deferred Prosecution Agreement (DPA) mechanism.

Since the Bribery Act came into force there has only been one other prosecution under S7, that of Sweett Group in 2015[1] which pleaded guilty.

The Facts

It was alleged that SIL agreed to pay a fee to a senior project manager at a company (DTZ) in order to ensure that SIL won the tenders for two office refurbishment contracts in London worth approximately £6m. This was achieved through the project manager passing confidential information to SIL, giving it an advantage over other tenderers.

The payment was to be made in three stages: two payments totaling £10,000 followed by a third payment of £29,000. The third payment was never paid after SIL’s newly appointed CEO became concerned by the legitimacy of this arrangement. He launched an internal investigation and implemented a new anti-bribery policy. SIL did not previously have an anti-bribery policy. It was a small company with only thirty employees. Despite agreeing to comply with the new anti-bribery policy, the Managing Director tried to make the third payment of £29,000. The payment was stopped and he was dismissed. SIL then submitted a suspicious activity report to the National Crime Agency and self-reported the matter to the City of London Police.

During the criminal investigation, it was not disputed that SIL cooperated fully and even voluntarily providing confidential and legally privileged documents to the City of London Police.

SIL became dormant in 2014 whilst the investigation was ongoing.

The Section 7 Offence

Section 7 of the Bribery Act imposes liability on a company for failing to prevent bribery and has a statutory defence of “adequate procedures”.

The Ministry of Justice Guidance on this offence (which mirrors the general CPS guidance on prosecution) states that: “whether to prosecute an offence under the Act is a matter for the prosecuting authorities. In deciding whether to proceed, prosecutors must first decide if there is a sufficiency of evidence and, if so, whether a prosecution is in the public interest… The more serious the offence, the more likely it is that a prosecution will be required in the public interest.”

Self-Reporting and Deferred Prosecution Agreements (“DPAs”)

The narrative from the SFO in various speeches and public statements of policy has been that whilst a DPA will not automatically follow self-reporting, co-operation is strongly encouraged in order to maximise chances of receiving such an agreement.

The outgoing SFO director, David Green, giving a speech in January 2018, said “Companies feel they need certainty and now they have certainty. They know that if they cooperate with us, and I mean fully cooperate, then odds on they are heading for a DPA. If they do not they will be prosecuted.” [2]

It has been reported that the SFO justified the decision not to offer SIL a DPA because, as a dormant company, SIL did not have the assets or resources to pay any fine that a DPA would carry.

The decision to prosecute

The judge, at an abuse of process hearing, queried why SIL had been prosecuted given its status as a dormant company and willingness to cooperate. It was said that a successful conviction would send a message to other small and medium-sized companies that bribery needs to be taken seriously, and appropriate procedures must be put in place regardless of the number of employees.

SIL was convicted of breaching s7 of the Bribery Act because the jury was not persuaded that the company had adequate procedures in place to prevent bribery. However, owing to its status as a dormant company and lack of assets, the only sentence available to the judge was an absolute discharge.

The question has been raised whether the decision to prosecute a dormant company was a proportionate and appropriate use of resources, given the end result, meaning that the conviction will not be registered on SIL’s record and it will not face any penalties.

Conclusion

Whilst the prosecution of SIL has certainly shown that small and medium-sized companies will be prosecuted, the lack of a DPA means that some now query whether there is any meaningful incentive for offering DPAs to companies that self-report and cooperate throughout an investigation. SIL provided extensive documentation, conducted its own internal investigation and dismissed all senior executives previously involved. However, others argue that this case can be distinguished because of its particular facts, and does not represent a change to UK DPAs.

For more information please contact Louise Delahunty, Prina Patel (ppatel@cooley.com) or Julia Maskell (jmaskell@cooley.com)

[1] https://www.sfo.gov.uk/cases/sweett-group/

[2] https://www.youtube.com/watch?v=UvFpgwUZgw8#action=share

White collar crime

Sanctions: what tech companies should consider

While sanctions restrict trade and dealings with specified individuals, entities and states, export controls restrict the distribution of specified products & services, namely military goods and items that can have a dual civilian and military use.

In the past, compliance with sanction and export regimes was largely seen to be an issue for companies that dealt with military hardware or products that had a clear potential military use & for banks supplying financial assistance to sanctioned entities. That mind-set is now dangerously outmoded.

Technological advancement in ‘civilian’ products and software has resulted in many of these products and services being caught by sanctions and export control regimes. The most obvious example being the now widespread use of encryption software in civilian products and services used to secure data that is transmitted wirelessly between electronic devices. This presents significant challenges for tech companies. These challenges are compounded by the ease with which technology and software services can be transferred globally and the difficulties with identifying and restricting potential access. With the ever-increasing use of cloud services, this is a growing issue.

Tech companies considering sanction and export compliance must address three fundamental questions:

  • Are any of our products or services (or part of them) controlled?

To establish the status of products/services, tech companies operating in the UK must refer to the UK Strategic Export Control Lists (which incorporate EU controls). They should also be aware of the US export control regime, which has wide-reaching extraterritorial effect. Exemptions may apply. For example, certain open source software and “mass-market” software products using encrypted technology are exempt from requiring a license.

  • To whom do we supply our products/services?

Companies should have a method of screening customers and related parties before access is given to products/services to ensure they are not on any sanctions list. This can be managed internally with specialised software or subcontracted to third party providers. These checks should also be carried out periodically on existing customers to capture any updates to sanction lists.

  • What is our geographic scope?

This can often be the hardest question for tech companies that supply goods/services electronically. All companies should understand their potential geographic scope of supply to ensure they are not providing goods or services to sanctioned states or entities. For companies supplying controlled products or services, it is essential that access is geographically limited or that appropriate export licences are obtained. Limitation can be achieved in a number of ways: by restriction of supply to specific servers; or, if cloud services are being used for distribution, ensuring that the cloud service itself has appropriate restrictions in place.

Navigating the complexities of international sanctions and export control regimes is daunting but crucial. Where there is any doubt as to the status of goods, the geographic scope of supply, or the application of sanction and/or export control regimes, legal advice should be sought as a matter of urgency.