SFO's first conviction under Section 7 of Bribery Act sends warning to banks

The Serious Fraud Office's (SFO) first ever conviction of a company under Section 7 of the Bribery Act 2010 has sent out a warning to all financial institutions. Sweett Group was fined £2.3 million at Southwark Crown Court on February 19 in a sentencing that reflected failure in prompt self-reporting to, and full cooperation with, the SFO and failure in internal investigations. 

The construction company pleaded guilty in December 2015 to a charge of failing to prevent an act of bribery intended to secure and retain a contract with Al Ain Ahlia Insurance Company. The conduct occurred between December 1, 2012 and December 1, 2015.

Michael Brompton QC, counsel for the SFO, said the case had the "greatest similarity" to that of Standard Bank, which was fined $16.8 million in November under the UK's first deferred prosecution agreement (DPA) for bribery in Tanzania. The two cases demonstrate the importance of correct actions for any firm that has discovered bribery in its organisation and wants to avoid prosecution under Section 7.

A source close to both cases, speaking on condition of anonymity, said they should be studied and compared by any financial institution.

Overseas subsidiary paying bribes to a subcontractor

The Sweett and Standard Bank cases both involved overseas subsidiary companies which had paid bribes to a subcontracting consultant. They were similarly unable successfully to employ the defence under Section 7(2) which operates if a firm accused of failure to prevent commercial bribery can demonstrate that it had adequate procedures in place designed to prevent persons associated with the commercial organisation from undertaking the bribery.

Sweett was unable to show, for example, that it had procedures for requiring documentation of the fact that that due diligence had been undertaken on whether subcontracted consultancy contracts signed by subsidiary companies were justified.

Sweett had self-reported a separate matter to the SFO, while knowing that the Wall Street Journal was likely to publish an article exposing the case. Furthermore, the group failed to act on internal reports from KPMG from 2011, indicating inadequate systems and controls and the danger of reputational risk. 

A major issue was that internal investigations that Sweett had commissioned from law firms Mayer Brown and Pinsent Masons had failed to get to the bottom of the affair. This, coupled with the lack of cooperation at the start of the investigation, had been problematic with regard to the issue of the possibility of being granted a DPA. 

According to the anonymous source, there had been a third change in lawyers at Sweett when Pinsent Masons, which had been involved initially before being replaced by Mayer Brown, took over investigating the affair. At this point, the relationship between Sweett and the SFO had improved. Even so, the internal investigations failed to satisfy to the authorities. Reporting and cooperation levels were the other problem areas.

Lawyers at Pinsent Masons were unavailable for comment.

The most serious category

Judge Beddoe considered Sweett's offence fell into the most serious category under the commercial bribery sentencing guideline because the offence had been committed over a sustained period of time. 

Furthermore the company tried to conceal it by having sought to solicit a letter from the principal contractor to the effect that the subcontract had been a legitimate business contract and the fee that had been paid was a legitimate finder's fee. 

The effort to conceal was compounded by the fact Sweett sought to set up an escrow account into which the consultant's fees were to be held so that they would be available for payment if and when the SFO investigation was cleared up. 

The outcome is a lesson for banks in how not to go about dealing with the SFO if a similar situation arises, the source said. They should instead follow the route of Standard Bank, which achieved a DPA by adopting a strategy of prompt disclosure followed by full cooperation.

(Additional reporting by Helen Parry of Thomson Reuters Regulatory Intelligence)

Alex Davidson is senior editor, AML/Financial Crime, in London for Thomson Reuters Regulatory Intelligence.