The UK’s Serious Fraud Office has promised that large scale prosecutions under the Bribery Act 2010 are imminent and corruption in shipping will not escape detection
December 2014 saw the first three convictions brought by the Serious Fraud Office (SFO) under the Bribery Act 2010, in the Sustainable Growth Group case, involving the fraudulent selling and promotion of investment products based on green biofuel.
The three individuals were convicted, among other things, of bribing and receiving bribes and the sentences for the offences relating to bribery were significant, ranging from four to six years’ imprisonment. Also in December 2014, the UK Government announced that it intended to set up a specialist police unit to tackle bribery and corruption.
With corruption increasingly hitting the headlines (think GlaxoSmithKline in China and Qatar’s World Cup bid), in early December 2014, the OECD issued a new report on corruption, highlighting the scale of bribery worldwide. It found that transportation is one of the four sectors most affected by the issue of bribery.
“David Green QC, director of the UK Serious Fraud Office, has promised that large scale prosecutions are imminent”
In addition to highlighting the scale of corruption, the OECD report concluded that senior management of corporations is often either involved in, or aware of, the practice of foreign bribery. In other words, it “rebut[s] perceptions of bribery as an act of rogue employees” and places blame more squarely on the shoulders of corporations and their leaders.
According to the report, in 12% of cases, the chief executive was aware of and endorsed the bribe; in 41% of cases, other members of management were aware of and endorsed the bribe; and 41% of cases related to bribes paid in well-developed countries. These findings underline the relevance of the corporate offence of failing to prevent bribery, which was introduced in the UK’s Bribery Act 2010.
Since the entry into force of the Act, much column space has pointed out the difficulties faced by commercial organisations trading in developing countries – including in the shipping sector. The Act created a new form of corporate liability for failing to prevent bribery for all companies that carry on business or part of their business in the UK. But the impact of the Act goes far beyond such companies: even if not subject to the Act themselves, many companies will trade with, insure or otherwise be ‘associated persons’ to companies that are bound by the Act, and those companies that are bound by it will (if they have done their homework properly) require compliance with its principles as a matter of contract.
Any company subject to the Act can receive a potentially unlimited fine if a person associated with it bribes another person intending to obtain or retain business, or an advantage in the conduct of business, for that company. It does not matter if the bribe takes place outside the UK or if the company had no knowledge of the bribe.
This new ‘failure to prevent’ type of offence is, of course, very far reaching, but it is a defence for the company to show that it has in place ‘adequate procedures’ designed to prevent persons associated with it from acting corruptly. In other words, companies carrying out business in the UK must ensure that they have in place adequate procedures to prevent bribery by persons associated with them, and those that trade with companies subject to the Act may have a contractual obligation to comply with its principles.
In a recent speech published by the SFO, Stuart Alford QC, SFO joint head of fraud, reminded firms and individuals that the Act is at the forefront of the SFO’s priorities for prosecutions. Not many cases have been prosecuted yet, but this is unsurprising considering that the Act does not have retrospective effect. In order to reach court, therefore, an offence must be committed, detected, reported, investigated and the case prepared. All this will need to have happened since the Act came into force in 2011 but David Green QC, the director of the SFO, has promised that large scale prosecutions are imminent.
It is therefore more important than ever to have adequate procedures in place. Some assistance is provided by guidance issued by the UK’s Ministry of Justice addressing, among other things, the type of procedures that commercial organisations should put into place to avoid being found guilty of the offence of failure to prevent bribery.
What this means is that companies must have in place policies and procedures that are proportionate to the company’s size and bribery risk, and that are effective. There is no ‘one size fits all’ solution and no place for an extensive anti-bribery policy that employees and ‘associated persons’ are unlikely to read. It is necessary to assess whether the policy is effective and amend it if it is not. Do employees and associated persons know what it says and follow it? If not, then the policy certainly needs to be revised. The best advice is to aim for as short a policy as possible: the simpler the message, the more likely will it be understood and followed.
The ‘failure to prevent’ offence, which puts the onus on companies to reduce the risk of bribery, is a strong tool in the UK Government’s fight against bribery. With the world focusing on economic crimes and on the role businesses are being required to have in preventing such crimes, this type of offence will most certainly be used more widely. Indeed, in September 2014, the UK Government announced its intention to create a new offence of failing to prevent economic crime, which will be modelled on the Act’s ‘failure to prevent bribery’ offence. Economic crime has yet to be exactly defined, but it will likely encompass a wide range of unlawful activities, including corruption, cyber-crime, money-laundering, insider trading and fraud.
If this new offence is introduced, it will significantly broaden the scope of corporate liability for entities carrying out business in the UK. An ‘adequate procedures’ defence will be available to companies who can show that they have adequate procedures in place to prevent the occurrence of the crime, but the need for wide-ranging revision of compliance policies can be expected.
Kevin Cooper is a partner and Florence Preux is a solicitor at Ince & Co based in London. Kevin’s core expertise is in shipping law, primarily as a litigator. His main focus is on Admiralty cases, complemented by his dry shipping expertise in charterparty, cargo claim and ship- and boat-building disputes. He can be contacted on 44 (0) 20 7481 0010 or email@example.com. Florence is a dispute resolution lawyer with her practice focusing on shipping (wet and dry), including collisions, allisions, salvage arbitration, cargo shortage, shipbuilding disputes and pollution. She can be contacted on +44 (0) 20 7481 0010 or firstname.lastname@example.org.