Category: Bribery

Anti-corruptionBriberyWhite collar crime

UK’s Serious Fraud Office secures second deferred prosecution agreement – this time with the UK Subsidiary of US Corporate

Lord Justice Leveson has approved the Serious Fraud Office’s (“SFO’s”) second application for a Deferred Prosecution Agreement (“DPA”). The Agreement is with a company which cannot be named because of continuing related legal proceedings. The first DPA was with ICBC Standard Bank in December 2015. Further agreements under the DPA system have been keenly awaited, and this second DPA sends a strong message to UK Plc and international companies that the DPA model is here to stay.

The DPA involved a small to medium sized (“SME”) UK company and allegations of overseas bribery in a number of countries with bribes paid through third parties in Asia. The agreement encompasses financial orders totalling £6.5m, and continuing co-operation by way of an annual report to the SFO on third party intermediary transactions, and the company’s anti-bribery controls, policies and procedures. Charges laid under both pre Bribery Act and Bribery Act law have been suspended and will be discontinued within 5 years as long as the company is compliant with the DPA.

The judgment is interesting to companies from all sectors, including financial services, in a number of respects:

  • The SME company is of limited means and the question of sentencing and the potential consequence of a company insolvency is addressed. SFO Director David Green has stated, “This case raised the issue about how the interests of justice are served in circumstances where the company accused of criminality has limited financial means with which to fulfil the terms of a DPA but demonstrates exemplary co-operation.” The fine was lower than the recommended guideline amount because of the risk of insolvency.
  • The bribery was discovered as a result of the SME’s US parent company implementing a global compliance programme.
  • The fine will be paid by the UK company but £2m of the disgorgement payment will be met by the US parent which is not accused of any misconduct, as a repayment of a significant proportion of the dividends that it received from the SME over the indictment period.
  • The judgment gives useful commentary on the meaning of co-operation, including the company providing comprehensive information on the initial self-report, and oral summaries of first accounts of interviewees. It also facilitated interviews, and responded promptly and completely to SFO requests for information.

UK and international corporates will follow this decision with interest. The entity and the amount involved may be modest, in this case but the guidance on several important DPA issues given by Lord Justice Leveson is crucial to any company which has any jurisdictional nexus with the UK, discovers it is affected by criminal conduct, and considers availing itself of the UK self-reporting regime.

Louise Delahunty, a partner in our White Collar Crime & Regulatory Defense practice, can provide more information if you need it.

Bribery

Beyond the Bribery Act

A recent petition heard in the Scottish Court of Session Outer House has highlighted the wide-ranging implications of the Bribery Act 2010 in the UK beyond the criminal offences of the Act itself.

The petition was brought by the former Chief Executive of a company, Mr Gray, who participated in a corrupt arrangement with an employee of a customer. Following an investigation, Mr Gray was dismissed for gross misconduct, although the dismissal was later suspended. Mr Gray brought the petition in the Scottish Court alleging unfair prejudicial conduct on a number of related issues including the conduct of the investigations into the bribery arrangement and the disciplinary proceedings against him.

Section One of the Bribery Act 2010 sets down the offence of bribing another person where one person gives a financial advantage to another intending to bring about an improper performance of a function by that other person. In this case, Mr Gray facilitated a financial advantage for the employee of a customer with the intention that the employee would direct more business to Mr Gray’s company. This violated the expectation that the customer’s business would be placed impartially by the employee and was therefore improper performance of his function. Whether or not Mr Gray was aware that this arrangement constituted a criminal offence under the Bribery Act was not relevant to the Court’s decision; only that he was at least complicit in its approval and creation.

Although the Court upheld three of his eight claims of unfair prejudice, a crucial issue related to a “Bad Leaver” clause in the company’s Articles of Association and the level of relief available to Mr Gray under s.996 of the Companies Act 2006 given his key role in the bribery. The clause provided that where a shareholder’s employment is terminated due to the board finding he has committed an act of gross misconduct, there will be a compulsory sale of his shares at an undervalue. The Court was tasked with determining whether Mr Gray’s shares should be sold at an undervalue as required by the “Bad Leaver” clause or whether the unfair prejudicial conduct suffered by Mr Gray should relieve him of the provision.

S.996 affords the Courts a wide discretion in determining the appropriate relief for unfair prejudicial conduct. Lord Tyre also cited a number of key principles which expand upon this general power:

  • Fairness includes the avoidance of unjust enrichment (established here);
  • The conduct of the petitioner may affect the relief which the court thinks fit to grant; and
  • The terms of a contractual agreement fairly entered into by shareholders are a relevant consideration when deciding upon relief (established here).

With these principles in mind the Court acknowledged that whilst the board had not actually dismissed Mr Gray for gross misconduct, there had clearly been a corrupt arrangement. The Court also held that such bribery would amount to gross misconduct and therefore Mr Gray’s conduct would trigger the “Bad Leaver” clause despite the fact that the board had not actually established gross misconduct itself. The Court therefore held that the proper approach in the circumstances was to ensure that Mr Gray was not put in a better position than he would have been had there been no unfairly prejudicial conduct. The Court held that Mr Gray was a Bad Leaver, despite there being no such determination from the board, and the compulsory purchase was ordered.

The Court’s broad application of the discretion afforded to it by s.996 is a clear affirmation of the Court’s refusal to reward a claimant who does not come to the Court with clean hands. As the Court found that Mr Gray was guilty of gross misconduct, refusing to grant Mr Gray relief from the unfairly prejudicial conduct suffered clearly demonstrates that the Court will exercise its discretion to the fullest extent to avoid the unjust enrichment of a party. In addition, by upholding the “Bad Leaver” clause even when unfairly prejudicial conduct has been established this case also affirms the Court’s reluctance to interfere in a freely negotiated contractual arrangement. Mr Gray was well aware of the implications of the “Bad Leaver” clause and by participating in bribery, he must bear the consequences of his actions as contractually agreed.

Although the criminal offences set down in the Bribery Act 2010 should act as a sufficient deterrent to individuals minded to participate in bribery, it is clear from this case that there may also be far wider commercial implications for those subject to “Bad Leaver” clauses.

Bribery

What states should know about the contractual consequences of bribery

This week’s tip-sheet concerns the remedies available to states where they are party to a contract procured through bribery. We discuss the pros and cons of rescission and termination as well as the reasons why a state may choose to re-negotiate contracts that have been affected by bribery. We also consider the risk of waiver that can occur when a decision to terminate or rescind is not taken quickly enough. Our tip-sheet is available here.

Bribery

What states should know about proprietary claims to corrupt assets

This tip-sheet gives a summary of proprietary claims. This type of claim arises where a state’s property has been stolen, or wrongfully transferred away, such as property sold below market value as a result of bribery. It is a claim for a specific asset or sum of money, which can be contrasted with a compensatory claim for damages. So, for example, a victim state can claim the return of a stolen asset, including any increase in its value, in priority to other creditors. We explain how and when this type of claim can be used and the advantages a proprietary claim has over a claim for compensation in our tip-sheet here.

Bribery

What states should know about knowing receipt

We have just published our second tip-sheet on the substantive claims available to victims of bribery and corruption, which sets out the key details for a claim in knowing receipt. This claim allows a victim to sue anyone who received the benefit of assets taken in breach of trust, in circumstances where it would be unconscionable for the recipient to keep them. We explain who can be sued, when the claim applies, what needs to be proved, when the claim will fail, and what can be recovered in our tip-sheet here.

Bribery

What states should know about the civil tort of bribery

Click through here for a quick summary of the key issues on the tort of bribery that states, and indeed any victim of bribery, should know. Our tip-sheet covers the basic legal principles, identifying available defendants, the circumstances when a claim can be brought and the facts that must be established to bring a successful claim. It also considers the available remedies and the impact on contractual relationships.

Bribery

What are the civil claims and remedies for bribery in England?

In our latest briefing, we consider the various civil claims and remedies available to states that are victims of bribery. The law of England, and the law of other common law jurisdictions, allow states to pursue claims not only against the bribe-payer and recipient, and but also against those who assisted in the bribery scheme. Those “assisters” are not confined to companies or other legal entities used to pay or receive bribes, or to launder their proceeds, but could extend to advisers such as lawyers and accountants, or to financial institutions. Depending on the type of claim deployed and the circumstances, a state can seek to recover the value of the bribe, the bribe itself or property acquired with it, or compensation for all of losses that have been suffered. There are also powers to rescind or terminate contracts with the wrongdoers.

The range of available claims and remedies inevitably creates complexity, and careful analysis of the facts is required to choose the right claim. Should a state terminate the contract and seek its losses for the other side’s breach or should it rescind the contract, putting each party back in the position they were in before the contract was agreed (less the bribe)? Where a bribe-taking public official has hidden his ill-gotten gains in inaccessible jurisdictions, are there any third parties who assisted his breach who would be susceptible for a claim? This note considers only the English position: there will be additional complexity, nuance and also opportunity if there are competing candidates for the applicable law.

Our briefing, “Civil claims for bribery”, appears here.