First EVER acquittal of a company prosecuted under s.7 of the Bribery Act 2010
Reeds Solicitors acted for the first corporate entity to be acquitted of an offence contrary to section 7 of the Bribery Act 2010 in proceedings before Southwark Crown Court.
Julian Richards, head of the Compex Crime team at Reeds, was initially instructed by the Managing Director (MD) of a company (“RL”) in September 2013 after police officers executed a search warrant at his business premises.
MD was interviewed on three separate occasions over a five-year period until a decision was finally made in April 2018 by the Specialist Fraud Division of the Crown Prosecution Service to prosecute both him and the Company (“RL”) of which he was the Managing Director.
In April 2018 both the Managing Director and RL were charged with offences contrary to section 1 (1) and (2) of the Bribery Act 2010, and RL was charged with offences under section 7 of the Bribery Act 2010.
The Bribery Act 2010 s.1 states that a person is guilty of an offence where he or she promises or gives a financial or other advantage to another person, and where that person intends the advantage: –
- to induce a person to perform improperly a relevant function or activity, or
- to reward a person for the improper performance of such a function or activity.
s.7 states that a commercial organisation is guilty of an offence under this section if a person associated with that organisation bribes another person intending: –
- to obtain or retain business for the organisation, or
- to obtain or retain an advantage in the conduct of the business for the organisation.
Section 7(2) of the Bribery Act 2010 provides a full defence against an offence under s.7 if the organisation can prove, on the balance of probabilities, that it had in place adequate procedures designed to prevent persons associated with it from undertaking such conduct.
What amounts to a defence under s.7?
The most important element of the offence that must be proven is that a bribe has been paid. If no bribe can be shown to have been paid then the offence is not made out and the statutory defence in s.7(2) is not required.
Only a ‘relevant commercial practice’ can commit an offence under s.7, namely a body or partnership incorporated or formed in the UK irrespective of where it carries on its business, or a body or partnership carrying on its business, or part of its business, in the UK, irrespective of where it has been incorporated. The nature of the ‘business’ is irrelevant to the offence, and indeed charitable work can fall under the definition.
The prosecution must also show that the person paying the bribe is ‘associated’ with the commercial practice. The scope of who is deemed to be ‘associated’ is broad, but not all-encompassing; for example, where the commercial practice contracts with another company to provide services, any person sub-contracted by the contracted company is arguably not associated with the commercial practice. Joint ventures add further complications and must be carefully looked at to assess whether the person paying the bribe is indeed an ‘associated person’.
If the above elements can be evidenced, then it is up to the defence to show that the company has put into place “adequate procedures designed to prevent” persons associated with it from paying a bribe.
But what exactly amounts to adequate procedures to prevent bribery?
There is no provision for what amounts to “adequate measures” in the Act. As such, what will be adequate will depend on the specifics of each case, including, inter alia, the size and nature of the business, the activities that it undertakes, and the risk associated with those activities.
The prosecution will seek to assert that those procedures must have been inadequate, as they had failed to serve their purpose by preventing a bribe being paid or offered, and so it is of paramount importance that the commercial practice’s procedures are carefully examined by the defence to assess whether a defence under s.7 of the Act is available.
The outcome of a successful prosecution
The impact on an organisation of failing to prevent bribery are substantial; aside from reputational damage, the organisation might well be at risk of financial ruin.
The sentencing guidelines suggest that, in the most serious cases, the Court should impose on an organisation guilty of an offence a fine of up to 400% of the gross profit from the contract obtained, retained or sought as a result of the offending.
The case – Investigation
The investigation into our clients commenced after a customer of another company complained that the Purchasing Manager of that company had advised them that he could secure them orders if they were to pay a bribe to him.
Subsequent enquiries into that Purchasing Manager’s financial affairs revealed that he had also received funds from RL. The payments were made via bank transfer after the Purchasing Manager submitted invoices to RL under the heading of “Consultancy Payments”.
Our clients did not at any stage dispute that the Purchasing Manager had been paid by RL. The defence was that these payments related to legitimate consultancy work that he had undertaken for the business and for which he was entitled to be paid. They had not received, or sought to obtain, any financial advantage as a result.
We therefore challenged whether a bribe had in fact been paid. In the absence of such a bribe, there could be no conviction of the Managing Director or the Company.
The prosecution sought to argue that the payments were made improperly, and that any orders placed with RL were only placed as a direct consequence of a corrupt relationship.
Reeds undertook substantial investigative work during the pre-charge stage to build our clients’ defence. As a result of our investigations we were able to demonstrate that RL had overall been paid at or under market rate for the orders from the company for whom the Purchasing Manager had worked.
We were able to demonstrate through email chains that the vast majority of orders placed with RL were not in fact placed by the Purchasing Manager but rather by other members of the purchasing team. As a matter of course, RL was asked to tender for work against other suppliers. Work was inevitably awarded on best price.
Even on the occasions when the Purchasing Manager accused of wrongdoing was performing his purchasing function, this pattern remained clearly visible. In fact, there were numerous instances in which the Purchasing Manager awarded work to other companies as they had beaten RL on price. There were even occasions when RL had not been invited to tender for products that they it was perfectly able to supply.
We obtained expert evidence from an accountant confirming that, had RL been paying bribes in the manner asserted by the prosecution, then the payment of those bribes would have led to it making a loss on those supplies.
We provided further evidence that genuine consultancy work had been undertaken.
Remarkably, the prosecution had not made any real enquiry of the procurement process which went to the heart of this case before commencing this prosecution, despite having access to the material which evidenced this process. Once this issue was raised by us, the trial was adjourned so that these enquiries could take place.
Having considered our representations as to the evidence in this case and having reviewed the material that evidenced the procurement process, the prosecution confirmed that it could find no evidence of any favouring of RL in the procurement process.
In December 2019, it formally offered no evidence against both of our clients on the basis that there was insufficient evidence to provide a realistic prospect of conviction.
Julian Richards, the Head of our Complex Crime Team who is ranked by the Legal 500 as a “Leading Individual” in Crime, represented both clients. Adrian Darbishire QC and Kathryn Hughes of QEB Hollis Whiteman were instructed Counsel.
If you would like further advice on the issues raised in this article, then please contact Julian on 01865 260230 or contact us here.