A UK refurbishment contractor has been found guilty under Section 7 of the UK Bribery Act 2010 (the “UKBA”) for failure to prevent bribery. The case represents the first time that a jury has considered an “adequate procedures” defence under the UKBA and provides a timely reminder to companies of the risks of self reporting offences under the UKBA to the UK authorities.
An Act not to be taken lightly
Skansen Interiors, a small-scale UK based refurbishment company, was charged under Section 7 of the UKBA (failure to prevent bribery) in relation to allegations that Skansen’s former managing director paid bribes to secure refurbishment contracts worth £6 million. As well as filing a suspicious activity report with the UK National Crime Agency, Skansen voluntarily self reported the conduct to the City of London Police and co-operated with the police’s investigation. The UK Serious Fraud Office (the “SFO”) encourages companies to self report misconduct, potentially in return for more lenient treatment, including a Deferred Prosecution Agreement (a “DPA”). There have been four such DPAs agreed with the SFO to date, but none have been agreed with the Crown Prosecution Service (the “CPS”).
Despite the decision to self-report and cooperate, the CPS pursued a Section 7 charge against Skansen and separate charges against the two individuals involved. Section 7 of the UKBA holds companies strictly liable for failing to prevent bribery by those associated with them.
At trial, Skansen sought to argue that the policies and procedures it had in place at the relevant time satisfied the “adequate procedures” defence available under Section 7(2) of the UKBA. It is a full defence to a Section 7 charge for an organisation to prove that, despite a particular case of bribery, it nevertheless had adequate procedures in place to prevent persons associated with it from paying, offering or giving bribes. In particular, Skansen’s defence sought to draw to the jury’s attention the company’s modest size (a workforce totalling approximately thirty) and limited geographical reach to argue that the company did not need sophisticated procedures to be in place for them to be “adequate”. Skansen also argued that staff did not need a detailed policy to tell them not to pay bribes because such a prohibition was common sense and the company should be able to rely on the integrity and honesty of its employees to help avoid bribery. Skansen also sought to rely on broadly worded policies that enforced ethical conduct even though, at the relevant time, it had no specific anti-bribery policy. Existing financial controls, requiring transactions to be given the green light by numerous individuals and standard form clauses relating to bribery in contracts were also raised in support of the case for the defence.
However, this was not enough to convince the jury that the company’s procedures were adequate and a guilty verdict was returned. The company avoided a financial sanction by virtue only of its dormant status, which had left it without any funds to pay any fines which may have been forthcoming.
A warning to all
Although Skansen was a small, UK based company, the facts of this case are of importance to all companies operating within the jurisdiction of the UKBA.
First, although this case did not involve a self report to the SFO, it serves as an important reminder to all companies that self reporting misconduct to the UK authorities does not guarantee that a company will not be prosecuted for that misconduct. Even if a company fully investigates allegations of misconduct, self reports to the authorities, and co-operates fully with any ensuing investigation, the UK authorities may still determine that the company and/or any culpable individuals should be prosecuted. The SFO have made it clear on a number of occasions that offering DPAs will not become the default method of dealing with corporate wrongdoing. Self-reporting is no guarantee that a prosecution will not follow. Each case will turn on its own facts. As a result, the decision whether or not to self report suspected wrongdoing is a very fine balance to strike and is a decision that should be taken with the benefit of specialist advice after consideration of all relevant factors. The SFO’s guidance on self reporting can be found here.
Second, the case provides an insight into what factors may and may not be taken into account by a jury when considering whether anti-bribery procedures are “adequate”. The Ministry of Justice guidance accompanying the UKBA repeatedly makes clear that adequate bribery prevention procedures only need to be proportionate to the bribery risks that an organisation faces. More specifically, the guidance notes that if an organisation is small or medium sized “the application of the principles is likely to suggest procedures that are different from those that may be right for a large multinational organisation” and that “[t]o a certain extent the level of risk will be linked to the size of the organisation and the nature and complexity of its business, but size will not be the only determining factor.” Clearly in this case the jury did not consider that the steps Skansen had taken to prevent bribery were adequate, despite the small size of the company and its limited geographical reach. The case therefore serves as a reminder to small and medium sized companies to ensure that a rigorous risk assessment is conducted in relation to bribery risks and robust procedures are in place to deal with those risks that comply with the six guiding principles set out in the Ministry of Justice’s Guidance. That guidance can be found here. The case also highlights the importance of documenting steps taken to implement “adequate procedures”, irrespective of the size of the organisation, even if the conclusion is that there is no need for a policy (although that conclusion is likely to be rare for most companies). For all companies, large and small, the case suggests that, when it comes to considering adequate procedures, juries will give short shrift to ineffective policies and procedures that are not designed to target the considered bribery risks faced by the company and/or are not properly documented and communicated.
