In a very interesting recent development concerning the application of the UK Bribery Act 2010 (“the 2010 Act”), a company has self-reported itself in Scotland for failing to prevent bribery for which it has consequently been ordered to pay UK £212,800 (about USD $326,450). The case is possibly the first under a new provision in the Bribery Act 2010 and also illustrates that hospitality is likely to be an area of interest for prosecutors.
Section 7 of the 2010 Act introduced a new criminal offence of failure to prevent bribery which essentially means that a company commits an offence if a person “associated” with it bribes another for the company’s benefit. A person is “associated” with the company if they perform services for or on its behalf, regardless of the capacity in which they do so, which covers agents, employees, subsidiaries, intermediaries, joint venture partners and suppliers, all of whom could make the company guilty of this offence.
In terms of practice, a business can self-report itself with regard to the 2010 Act but the issue of whether it will be prosecuted or not depends on a number of factors as set out under official UK prosecution guidance, such as the Guidance for Corporate Prosecutions, which can be found here. Essentially, if on the evidence there is a realistic prospect of conviction then a business will be prosecuted if it is in the public interest to do so. If a corporate body has reported itself that will be a relevant consideration to the extent set out in in the Guidance for Corporate Prosecutions. According to this, for a self-report to be taken into consideration as a public interest factor that will go against bringing a prosecution, it must form part of a genuinely proactive approach adopted by the corporate management team when the offending is brought to the notice of the prosecuting authority in question.
The Crown Office and Procurator Fiscal Service, which is Scotland’s prosecution service, reported (here) that, after reporting itself for failing to prevent bribery by a third party a Glenrothes cabling company has to pay UK £212,800 under an agreed civil settlement.
According to the report, Brand-Rex Limited is a developer of cabling solutions for network infrastructure and industrial applications mainly located in Glenrothes. In June 2015 lawyers acting on behalf of the company contacted the Crown Office to declare that there had been an instance of failing to prevent bribery by a third party associated with the company.
The facts were that between 2008 and 2012 the company ran an incentive scheme called “Brand Breaks” for UK distributors and installers whereby in return for meeting or exceeding sales targets, distributors and installers were eligible for various rewards including foreign holidays.
The scheme in itself was not unlawful but an independent installer of Brand-Rex products offered his company’s travel tickets to an employee of one of his customers. The problem with this was that it went beyond the intended terms of the scheme as this particular customer was an end-user of Brand-Rex products as opposed to being a distributor or an installer. Further, the individual who ultimately received the tickets was in a position to influence decisions as to which company they purchased cabling from, and, personnel from this company and individuals connected to them used these tickets for foreign holidays in 2012 and 2013.
After an internal review Brand-Rex became aware of the issue and undertook an internal investigation using outside lawyers and forensic accountants following which the company self-reported to the Crown Office accepting responsibility for failing to prevent bribery. The Crown Office did not consider the matter as one suitable for criminal prosecution but said instead that it merited a civil recovery settlement, which was based on the gross profit relating to the misuse of the Brand Breaks scheme. It is also understood that the company has implemented new policies and training to ensure future compliance.
This is the first failure to prevent bribery self-reporting case that has been resolved in this way. The company was fortunate in avoiding prosecution having been able to avail itself of an initiative that it is understood is no now longer available in Scotland. Had this occurred in England the company might not have fared so well because despite the existence of civil recovery orders their use is considered as exceptional. Alternatively, the company might have merited a so-called “Deferred Prosecution Agreement” (“DPA”) which is a tool to be used by the prosecution designed to reach a kind of plea bargain with corporate offenders where criminal proceedings are suspended and a company agrees to certain conditions such as paying a penalty – further details about DPAs can be found in the Deferred Prosecution Agreement Code of Practice, which can be found here. The DPA system came into force last year and it is believed that use of the first DPA process is imminent.
In light of this case businesses would do well to check their incentive schemes along with their anti-corruption and bribery compliance policies and training.
Andre Bywater and Jonathan Armstrong are lawyers with Cordery in London where their focus is on compliance issues.
Jonathan Armstrong, Cordery, Lexis House, 30 Farringdon Street, London, EC4A 4HH
Office: +44 (0)207 075 1784
André Bywater, Cordery, Lexis House, 30 Farringdon Street, London, EC4A 4HH
Office: +44 (0)207 075 1785