On 19 February 2016, the construction consultancy firm Sweett Group plc (Sweett) was sentenced for an offence under the Bribery Act 2010 (the Act), and ordered to pay £2.25m. It had pleaded guilty to the charge of failing to prevent an act of bribery, contrary to section 7(1)(b) of the Act.
This is significant as it is the first conviction secured by the Serious Fraud Office (SFO) of an offence under section 7 of the Act.
The SFO commenced its investigation after Sweett self-reported the findings of an internal investigation into its conduct in the Middle East. The SFO’s investigation found that Sweett’s subsidiary Cyril Sweett International Limited (CSI) had made payments to Khaled Al Badie, who was the Vice Chairman of the Board and Chairman of the Real Estate and Investment Committee of Al Ain Ahlia Insurance Company. The payments were found to have been intended to secure and retain a contract relating to the construction of the Rotana Hotel in Abu Dhabi.
Sweett was charged under section 7(1)(b) of the Act, which provides that a “relevant commercial organisation” is guilty of an offence if an “associated person” bribes another person intending to obtain or retain an advantage in the conduct of business for the commercial organisation. A “relevant commercial organisation” is defined in section 7(5) and includes a UK body corporate or partnership, or a body corporate or partnership incorporated or formed in any jurisdiction which carries on business or part of a business in the UK.
It is a defence for the commercial organisation to prove that it had adequate procedures in place designed to prevent associated persons from undertaking the offending conduct (s7(2)). In this case, however, Sweett did not try to avail itself of that defence, and admitted that it did not have adequate procedures in place.
Who will be an “associated person”?
This case provides guidance on how the court will apply the definition of “associated person” (A) under section 8 of the Act, being a person who “performs services for or on behalf of the organisation” (C):
- The capacity in which A performs services for or on behalf of C does not matter, so A can be, for example, an employee, agent or subsidiary.
- There will not be an automatic finding that A is associated with C purely as a result of the relationship between A and C. Rather, the court will determine the question by reference to all the relevant circumstances. Therefore, a subsidiary engaging in bribery will not automatically be performing services on behalf of a parent company for the purposes of sections 7 and 8.
The Ministry of Justice’s guidance on the Act states that:
“…an offence will be committed only if that agent, subsidiary or person intended to obtain or retain business or an advantage in the conduct of business for the organisation. The fact that an organisation benefits indirectly from a bribe is very unlikely, in itself, to amount to proof of the specific intention required by the offence.”
In finding that CSI performed services on behalf of Sweett, the court held that CSI (which is a subsidiary of Sweett, but a separate legal entity) was not an autonomous operation and was treated as a division of Sweett’s operation in the Middle East.
How did the court decide on the sentence to be imposed?
HHJ Beddoe ordered Sweett to pay £2.25m, comprised of:
- a fine of £1.4m, half of which is payable by 19 February 2017, with the other half due by 19 February 2018; and
- £851,152.23 in confiscation, which must be paid within three months.
Sweett was also ordered to pay £95,031.97 towards the SFO’s costs.
The relevant sentencing guidelines for a corporate offence under the Act are the Sentencing Council’s Definitive Guidelines on Fraud, Bribery and Money Laundering Offences.
The level of fine is calculated by reference to the “harm” caused by the offence (which will normally be the gross profit from the contract obtained as a result of the relevant offence), multiplied by a percentage dependent on the level of culpability, and then adjusted (if required) to take into account various other considerations. The levels of culpability and corresponding percentage ranges are as follows:
- low culpability: 20 – 150% (with a starting point of 100%);
- medium culpability: 100 – 300% (with a starting point of 200%);
- high culpability: 250 – 400% (with a starting point of 300%).
The judge considered that, taking all factors into account, Sweett’s culpability fell into the most serious category, although at the bottom of that range (250%). In so doing, he found that the offending conduct had occurred over a prolonged period, between 1 December 2012 and 1 December 2015, and that Sweett had not cooperated fully with the SFO from the outset.
Osborne Clarke comment
It is worth comparing the approach taken by the SFO in this case to the outcome of its first Deferred Prosecution Agreement (DPA) in relation to section 7 of the Act, which it recently entered into with Standard Bank (see our previous article here):
- The multiplier used to determine the fine payable by Standard Bank (300%) was higher than that applied to Sweett (250%), despite the fact that Sweett’s offence was found to be one of high culpability, whilst Standard Bank’s was agreed (and approved by the judge) as being one of medium culpability.
- The costs that Sweett was ordered to pay (£95,000), following investigation and prosecution by the SFO were significantly lower than those which Standard Bank agreed to pay (£330,000).
- Standard Bank’s DPA also involved a restitutionary element, requiring Standard Bank to repay $6m plus interest to the government of Tanzania, being the amount that the government would have otherwise received had that amount not been paid to a third party (although it had not been Standard Chartered or its sister company that had made that payment).
- The DPA also required Standard Bank to enter into a review and monitoring programme, and to cooperate with the SFO and other authorities in the future.
- Standard Bank was, however, entitled to a discount of a third by reaching agreement with the SFO at the earliest stage.
DPAs are not intended to allow businesses to obtain a significant discount from the amount that they would be likely to be fined if convicted: agreed financial penalties are intended to be “broadly comparable” to the fine that a court would impose.
Nevertheless, when comparing the sanction imposed in the first DPA (Standard Bank) and that imposed in this matter, businesses might be left wondering whether the terms that will be required to be agreed to, if a DPA is offered by the SFO, would be more onerous than would be imposed by a court on conviction. This could act as a disincentive to self-report issues of potential wrong doing to the SFO. It remains to be seen how the SFO, and commercial organisations, will approach the calculation of any financial penalties in any future DPAs. The benefits of avoiding a public trial, a criminal conviction and the reputational damage that will inevitably result will remain. However, the financial penalty resulting from a DPA may be no more favourable, and potentially less favourable than a sanction imposed following conviction.
This case demonstrates that to secure a DPA, it is not sufficient to cooperate (as Sweett did) once matters are already some way down the track, or when a commercial organisation thinks it is appropriate to cooperate. The SFO will expect full cooperation from the outset.
It also remains to be seen whether future courts will approach sentencing in the same way as in this case. On the same day as the sentencing of Sweett, the Ministry of Justice announced that it would be conducting a review of Financial Impositions in the Criminal Courts (see here). This consultation will consider how costs and penalties are imposed on offenders and seeks to bring “greater simplicity and clarity to the system in England and Wales”.
Above all, it is clear from the Sweett conviction and the Standard Bank DPA that businesses must not view compliance as a “tick-box” exercise, but should take a proactive and considered approach to the formulation and implementation of their anti-bribery and corruption policies.