What happened in 2018? United Kingdom Compliance Review

Since the United Kingdom Bribery Act commenced in 2010, the topic of anti-corruption has continuously been in the public eye and on the United Kingdom Government’s agenda. The Criminal Finances Act passed in April 2017, further tightening the legislation concerning the facilitation of domestic and foreign tax evasion. In the wake of the Unaoil scandal, the government unveiled the 2022 UK anti-corruption strategy – an ambitious medium- to long-term plan to address domestic and international corruption. The passing of the Modern Slavery Act in 2015, along with the turmoil and uncertainty of the British exit from the European Union (Brexit), has pushed compliance and anti-corruption further into the forefront of how the compliance industry may be affected.

Case law shedding light on ‘adequate procedures’

In 2011, the United Kingdom followed in the United States’ footsteps by increasing the scope of their anti-bribery laws, specifically by imposing new obligations on British companies that operate abroad. While the Bribery Act largely followed its American counterpart, the Foreign Corrupt Practices Act, the United Kingdom’s new law also proved to be surprisingly innovative. In its now-famous Section 7, the Bribery Act states that ‘the failure to prevent bribery’ is a criminal offence. It is now an offence for a company to not take ‘adequate procedures’ in order to prevent bribery. The concept of ‘adequate procedures’ had not previously been implemented and has left compliance professionals wondering, What exactly are ‘adequate procedures’?

In this article, we will explore a sample of the case studies from the last three years and distil the key lessons.

The first conviction for failing to prevent bribery: the Sweett Group PLC case

The case against Sweett, a provider of professional services for the construction sector, began in July 2014, when the Serious Fraud Office (SFO) initiated a probe on Sweett’s activities in the United Arab Emirates. In December 2015, the SFO announced charges against Sweett under allegations that the company had failed to prevent the bribery of Khaled Al Badie by Cyril Sweett International Limited. The bribe was made in order to retain a contract for the construction of the Rotana hotel in Abu Dhabi, worth £1.6 million (US$1.98 million). Eventually, Sweett pleaded guilty to the charge of the breach of Section 7 of the Bribery Act. In its ruling, the court determined that:

  • the company consciously ignored repeated warnings made by independent third parties
  • the bribes were paid over an 18-month period
  • Sweett did not disclose the offence and did not cooperate with the SFO during the investigation, withholding and trying to destroy evidence as well as seeking to undermine the efforts of the SFO.

The most important part of the ruling related to the fact that Sweett wilfully ignored the recommendation made by its consulting firm. In 2010 the senior management of Sweett had become aware of serious concerns over the management of Cyril Sweett International. A consulting firm was contracted to carry out an audit of Sweett’s financial controls and the report found, among other elements, that Cyril Sweett International did not properly document the business justification for hiring external consultants or subcontractors. In 2014, a follow-up review reached the same conclusions, and it was shown to Sweett’s senior management. The court pointed out explicitly the inaction on the part of Sweett despite having knowledge of the red flags.

Towards the end of 2015, a deferred prosecution agreement (DPA) including the Section 7 offence was signed, but it did not help to define the meaning of ‘adequate procedures’. On 19 February 2016, counsels and chief compliance officers across the United Kingdom finally received the first indications of this material definition when a judge at the Southwark Crown Court handed down his judgment in which Sweett Group PLC was ordered to pay £2.25 million (US$2.79 million), comprised of £1.4 million (US$1.73 million) in fines and £851,152.23 (US$1.05 million) in confiscation.

This case casts some light on the concept of ‘adequate procedures’ regarding third parties: companies must implement relevant documentation policies for the engagement of third parties that include business justification for any engagement.

This ruling also highlighted some known reporting requirements companies need to meet:

  • a company must report an offence itself and before the information has been spread publicly
  • a company must genuinely cooperate with the SFO before and during an investigation.

The deferred prosecution agreement: a good deal, or something to have avoided in the first place?

In November 2015, the Standard Bank became the first beneficiary of a DPA under the Bribery Act. The legal technique of a DPA consists of suspending legal proceedings on the condition that the company agrees to meet certain objectives set by the SFO. It is a well-known approach in the United States in the context of the Foreign Corrupt Practices Act. DPAs are designed to encourage companies to collaborate with authorities in order to establish sound compliance programmes within their organisations. If they comply with certain objectives, the sanctions they receive are usually significantly reduced. Some observers noted that financial penalties were stiffer against the Standard Bank than against Sweett, despite Standard Bank’s cooperation with the SFO. Critics suggested this could dissuade companies from fully collaborating with enforcement authorities.

However, critics were proven wrong. In July 2016, the second DPA in the short history of the Bribery Act was approved by a court. The DPA was signed with a company (‘XYZ Limited’), who was granted anonymity until related criminal proceedings are concluded. XYZ had been indicted for conspiracy to corrupt and to bribe and failure to prevent bribery. According to the terms of the DPA, XYZ agreed to pay £6.5 million (US$8.05 million), comprised of a £6.2 million (US$7.68 million) disgorgement of gross profits and a £352,000 (US$435,776) financial penalty.

In early 2017, Rolls-Royce also entered into a DPA, confirming the relevance of the DPA as a valuable tool for prosecutors to offer to induce cooperation.

The SFO ramps up its operations

Starting from 2016, 32 cases were publicly opened, including big names in recent corruption scandals such as Unaoil, GlaxoSmithKline, manipulations of Euribor, and the Euro Interbank Offered Rate. In March 2016, newspapers exposed corrupt practices at Unaoil followed by the SFO announcing a criminal investigation in July 2016. The SFO also opened investigations into Airbus, ABB (as a Unaoil-related case), FH Bertling Ltd and Tata Steel.

It is important to note that the SFO has repeatedly shown interest in prosecuting the individuals ultimately responsible for corruption offences, as with the case of Richard Kingston of Sweett, who was convicted in December 2016 for concealing and destroying evidence.

The SFO has gained some steam since its inception, and doubts about the efficacy of the Bribery Act enforcement should dissipate.

United Kingdom Modern Slavery Act

The advent of the Modern Slavery Act laid out measures to tackle modern slavery, notably through Section 54, which impacts the corporate sector. Any company carrying on business in the United Kingdom with an annual turnover of £36 million (US$44.57 million) or more needs to publish a ‘slavery and human trafficking’ statement. Although compliance observers have noted that companies have started to follow through with this requirement, The Red Flag Group previously observed that most statements lacked substance and specifics. This is not surprising, as compliance officers are navigating uncharted waters, and the proper way to address the Act’s requirements could still be unclear to many. Some companies, like Intel, Marshalls, and Minor, Weir & Willis, stood out with their thorough, precise and explicit statements, but many companies need to improve their approach in this area.

Brexit

While not directly related to the usual compliance issues, it is still valid to question the impact of the June 2016 vote regarding anti-corruption compliance and other obligations. In areas where most of the legal obligations on corporations come from British law, as with the Bribery Act or the Modern Slavery Act, we will not see any significant change. On the other hand, fields like data security and data transfer have regulations that rely on European directives. This area of compliance will likely be further tightened by European institutions in the future. Thus, the impact of Brexit on compliance depends on what the British authorities will decide for the United Kingdom. The core elements of compliance will likely remain, while peripheral issues will be resolved once the United Kingdom Government and the European Commission lay out a roadmap for the withdrawal of the country.

Criminal Finances Act 2017

Entering into force in January 2017, the Criminal Finances Act overhauled the 2002 Proceeds of Crime Act regarding anti-money laundering and confiscation procedures. It gives SFO officers more power to investigate money laundering by arming them with ‘disclosure orders’ – tools that were previously not authorised for anti-money laundering investigations. It also introduced ‘unexplained wealth orders’ (UWOs), which oblige individuals under investigation to explain the origins of assets that do not seem proportional to their income, and to see if they are associated with criminal activity and related organisations or persons. The Criminal Finances Act also makes it a crime for corporations to fail to prevent tax evasion domestically or abroad.

It did not take long for this new law to be put to practical use as, in February 2018, the assets of a Russian oligarch were frozen after the individual was served with a UWO. These assets included a London property worth £22 million, which turned out to be formally owned by the oligarch’s wife. The property will be seized as it was deemed unlikely that the oligarch and his wife would have been able to afford it with his salary as a public official.

The Criminal Finances Act has been widely seen as an important step in combatting money laundering, particularly in the context of how such proceeds impact British life.

2022 UK anti-corruption strategy

Unveiled in 2017, the 2022 anti-corruption strategy seeks to align the interests of national security together with the objectives of reducing corruption and related practices between the United Kingdom and its dealings with foreign countries. A new post has been created for the Minister for Economic Crime, whose task is to reinforce the integrity of the United Kingdom as an international financial centre in the private and public sectors. It will implement a four-pronged approach to prevent corrupt practices and to combat the incentive to engage in related practices by:

  • protection
  • prevention
  • persecution
  • reduction.

What this means for you

In light of the case law that has shed insights into what prosecutors are looking for, it would be prudent to ensure that your third party integrity programme has been revamped so it can withstand scrutiny. Our cumulative foresight can provide your company with the intelligence and systems needed to stay on top of requirements as they develop and evolve.

Follow us as we keep an eye on the interesting developments unfolding as the United Kingdom’s prosecutorial arm continues to take on corruption and money-laundering cases, combined with the challenges that Brexit brings.

 

Sources:

http://www.legislation.gov.uk/ukpga/2017/22/contents/enacted

http://pwc.blogs.com/legal/2017/07/the-impact-of-the-criminal-finances-act-2017.html

https://www.gov.uk/government/news/stop-facilitating-tax-evasion-or-face-criminal-prosecution-hmrc-tells-corporations

https://www.gov.uk/government/collections/criminal-finances-act-2017

https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/672231/Tackling-tax-evasion-corporate-offences.pdf

https://www.gov.uk/government/publications/uk-anti-corruption-strategy-2017-to-2022

https://www.financierworldwide.com/anti-corruption-developments-in-enforcement-policy-in-the-uk-and-the-us/#.W83Ub2gzaUk

https://www.int-comp.org/insight/2017/december/united-kingdom-anti-corruption-strategy-2017-2022/

https://www.ft.com/content/addd777e-de43-11e7-a8a4-0a1e63a52f9c

Previous Article
What to consider when conducting due diligence in emerging markets
What to consider when conducting due diligence in emerging markets

Emerging markets are highly desirable growth markets for many corporations, but they are also extremely ris...

Next Article
Webinar: Why ISO 37001 certification matters in 2019
Webinar: Why ISO 37001 certification matters in 2019

ISO Standards are internationally recognised systems. Learn how certification against ISO 37001 can provide...

Want to receive exclusive updates?

Subscribe