Sweett Group plc: first conviction for Bribery Act corporate offence

Summary

Today in Southwark Crown Court, Sweett Group plc was ordered to pay approximately £2.35m for the offence of failing to prevent bribery by an associated person under section 7 of the Bribery Act 2010. This case marks the first conviction of a corporate for that offence and offers the first real insight into how the court and prosecutor will (i) assess what constitutes an “associated person” and (ii) approach sentencing for the offence.

Facts of the case

Sweett Group plc (“SweettCSIAAAI”) pleaded guilty to the offence of failing to prevent an associated person bribing on its behalf. In this case, Cyril Sweett International (“”) (a Cypriot incorporated, wholly owned subsidiary of Sweett that was responsible for its Middle East and North Africa operations) paid a bribe to Mr Khaled Al Badie (a member of the eminent Al Badie family) in order to win a project management and cost consultancy contract with Al Ain Ahlia Insurance Company (“”) relating to the building of a £63 million hotel in Dubai. The contract was worth £1.6million to CSI (2.65% of the project value).

Khaled Al Badie was the Vice Chairman of the Board of AAAI and Chairman of the Real Estate and Investment Committee of AAAI. He also had a pre-existing relationship with former directors of CSI, as his group (the Al Badie Group) had a sponsorship arrangement with CSI to provide services as CSI’s local partner in Abu Dhabi.

The AAAI contract was awarded to CSI in January 2013 without any tender process and was signed by Mr Al Badie on behalf of AAAI. At the same time, CSI entered into a sham consultancy agreement with one of Mr Al Badie’s other companies, North Property Management (“NPM”), under which CSI agreed to pay 1.08% of the overall project value (around £680,000) to NPM for “hospitality services” for the AAAI project. However, there was no evidence that services were provided under this agreement and it was agreed that this was simply a route by which CSI could make payments to Mr Al Badie personally in return for the award of the AAAI contract. The payments were made to NPM on a monthly instalment basis mirroring the payment mechanism under the AAAI contract.

As a result of investigating other allegations of bribery involving CSI, Sweett uncovered the NPM contract, self-reported the matter to the SFO and eventually pleaded guilty to the corporate offence in December 2015, at its first appearance at court. However, there was evidence that during the investigation Sweett had not fully cooperated with the SFO and had tried to mislead the prosecutor concerning the true nature of the payments to NPM. Sweett has now entirely withdrawn its operations from the Middle East. The SFO continues to investigate the actions of individuals connected with this matter.

“Associated Person”

It was CSI that engaged in the bribery (without the involvement or knowledge of Sweett, its parent company) and it was CSI who secured the AAAI contract as a result. However, CSI’s bribery was treated as being for the benefit of Sweett (and ultimately triggered criminal liability) because the judge considered that CSI, although legally a separate entity from its parent, was not autonomously operated, but was effectively operated by Sweett as a department or division to service its Middle East operation.

Inadequate procedures

Counsel for the prosecution explained that Sweett had a number of internal policies aimed at anti-corruption. At the relevant time, Sweett had in place an anti-bribery statement, an ethics policy and provided its staff (including those at CSI) with online training on anti-bribery. However, these were not sufficient to enable Sweett to rely on the adequate procedures defence.

Specifically in respect of CSI, accountants performed an audit of its financial controls at the end of 2010, following Sweett’s discovery of cash payments being made to third parties. The report was highly critical of CSI’s controls and identified numerous controls failings. It concluded that CSI’s overall controls framework was inadequate. The headline recommendation was that management needed to address the control failings as a matter of high priority, given they were exposing Sweett to significant financial and reputational risk. One key observation was CSI’s failure to document the business justifications for engaging subcontractors/consultants.

A follow-up review in March 2014 again concluded that CSI’s financial controls were unsatisfactory and required urgent attention from management. CSI’s lack of policies or processes around engagement of third parties was identified as a significant issue. Both reports were widely circulated within CSI and Sweett, including to members of Sweett’s senior management.

However, it should be noted that Sweett admitted that it did not have adequate procedures for the purpose of the defence in section 7(2) of the Bribery Act 2010 and so this issue was not tested before the court.

Sentencing

Sweett was ordered to pay a total of approximately £2.35m, comprising £851,152.23 in confiscation, a £1.4m fine and around £95,000 in costs. No compensation was sought or ordered.

The confiscation figure was calculated by determining the gross fees received by CSI (£1,212,222.29) less the project costs (direct labour, travel, subsistence etc, which amounted to £361,070), which resulted in CSI’s gross profit of £851,152.23. This figure was agreed between the SFO and Sweett prior to the sentencing hearing, but was also approved by the judge. Therefore, for the purpose of confiscation, the “benefit” was treated as CSI’s gross profit on the tainted deal.

The fine was calculated by reference to the Sentencing Council’s Fraud, Bribery and Money Laundering Offences Definitive Guideline (the “Guideline”). When making a sentencing decision under the Guideline, the court must first classify the corporate’s culpability (high, medium or low) by considering the offending corporate’s “role and motivation” in the wrongdoing. This classification then informs a percentage multiplier to be applied to the financial sum calculated by reference to the harm caused by the wrongdoing. In this case, the judge considered that Sweett’s culpability was in the highest culpability category (which carries a percentage multiplier range of 250-400%) and that a percentage multiplier of 250% should be applied to the gross profit figure determined in respect of the confiscation order.

In determining Sweett’s culpability, the judge took into account that:

• the offending took place over a prolonged period of time (in that Mr Al Badie received payments under the NPM contract for an 18 month period)
• Sweett had done little to improve its internal governance since the Bribery Act came into force in 2011
• management “wilfully ignored” the concerns raised by the external accountants’ reports in respect of CSI’s financial controls and
• individuals within Sweett/CSI deliberately attempted to mislead the SFO in their investigation by obtaining a letter from AAAI confirming that it knew about the NPM contract.

However, the judge also acknowledged a number of mitigating factors, which resulted in the multiplier being reduced from the 300% starting point to 250%. These factors were that Sweett had no previous convictions and, since July 2015, it had progressively cooperated with the SFO and taken steps to “get its house in order”.

Interestingly, the judge (when hearing the parties’ submissions on sentencing at a hearing on 12 February 2016) indicated that he was not persuaded by the approach to financial penalties in the recent Standard Bank deferred prosecution agreement (“DPA”) (read our LawNow on the Standard Bank DPA here).

In terms of the timing of payment of the penalties, Sweett submitted that it had limited liquidity (which varied over the course of the month) and asked for a delay to payment of the fine element. The judge was unconvinced by Sweett’s submissions, but ultimately decided that the confiscation order was to be satisfied within 3 months of judgment and the fine to be paid in two equal instalments, the first being due on 19 February 2017 and the second on 19 February 2018.

Comment

This judgment is significant in that it is the first sentencing of the corporate offence under the Bribery Act since it came into force in 2011. It provides important guidance on the court’s approach to the meaning of “associated person” for that offence, finding that in an appropriate case a subsidiary who pays a bribe to win a contract for itself can be an “associated person” of its parent.

The Ministry of Justice guidance on adequate procedures notes that “liability will not accrue through simple corporate ownership” and “a bribe on behalf of a subsidiary by one of its employees or agents will not automatically involve liability on the part of its parent company”. This guidance is not binding on the courts, but is persuasive. However, the guidance also notes that parent liability can flow where the subsidiary is the person “which pays a bribe which it intends will result in the parent company obtaining or retaining business”. In this case, it appears that the lack of autonomous management of CSI resulted in it being accepted that the acts of that subsidiary were to be treated as being for the benefit of the parent (Sweett).

This serves to highlight the importance of supervision and oversight of foreign subsidiaries and their activities (particularly where they are centrally managed and/or not run as autonomous businesses) and, equally, the importance of addressing any control issues that may be raised in respect of their operations.

The judgment also provides another interesting comparator to the financial terms of the Standard Bank DPA. While the benefits of a DPA in avoiding a criminal prosecution and conviction cannot be over-stated, this judgment (along with the earlier sentencing of Smith & Ouzman Ltd under the Guidelines for pre-Bribery Act offences – read our LawNow here) highlights the high bar that the SFO may set in relation to the financial terms that it will expect a corporate to accept when negotiating a DPA in the future.

In both the Sweett case and Smith & Ouzman Ltd, the offending took place over a prolonged period and the corporates were fined on the basis of a 250% and 300% multiplier respectively applied to the gross profits they obtained from the wrongdoing. In Standard Bank, the financial penalty was calculated on the basis of a 300% multiplier (despite the fact that the offending was a one off payment made by its sister company, without any knowledge or involvement from the UK bank) on the gross turnover of both Standard Bank and its sister company obtained as a result of the tainted mandate. Further, the DPA required confiscation of the benefit obtained by both Standard Bank and its sister company, as well as the imposition of an independent monitor to review its compliance programme – neither of which could be ordered by a court. This might suggest that corporates should expect to pay a premium for the immense benefit in avoiding prosecution and conviction through a DPA.

Over the last 12 months, the SFO has shown its appetite and ability to pursue individuals and corporates for overseas bribery. Coupled with the SFO’s strong statements of intent to continue to hold corporate offenders to account and their success in securing additional funding to support their investigations, these cases should serve as a reminder for corporates carrying on business in the UK to ensure they are actively monitoring and mitigating their bribery risks.