Twitter Logo Youtube Circle Icon LinkedIn Icon

The UK Legal 500 2016

THE HUGE COSTS OF BRIBERY

July 2017 - Crime. Legal Developments by Rahman Ravelli Solicitors.

More articles by this firm.

Aziz Rahman looks at the case of Petrofac, explains how bribery can ruin a company and emphasises what must be done to prevent it.

We may not always know the extent of bribery or who is involved in it. But we can safely assume it is going on.

A European Parliament-commissioned report last year concluded that corruption costs the EU up to 990 billion euros a year; which gives some idea of the scale of bribery.

What many in business may be unaware of is the damage that bribery can bring to their companies, directly or indirectly. There are those in business who, despite the tight restrictions imposed by the UK’s Bribery Act, maintain that bribery is an essential tool for “greasing the wheels’’ when it comes to trading in certain countries.

The fact that the Bribery Act carries unlimited fines, up to ten years in prison and can lead to assets being confiscated after a conviction should be enough of a deterrent to those who still see bribery as an everyday part of doing deals. But if it is not, let’s look at the case of Petrofac.

Allegations

The Serious Fraud Office (SFO) has started an investigation into Petrofac, its subsidiaries and employees because of suspicions of bribery and money laundering.

Since that investigation began, the firm has been warned it faces a legal claim based on allegations that it misled investors over the scandal. This claim followed a huge fall of more than 50% in the value of Petrofac’s shares following the announcement that it was being investigated by the SFO.

Added to this, the Chief Operating Officer has resigned after being suspended indefinitely. He and the Chief Executive have been arrested by the SFO and questioned under caution.

Of course, we do not yet know the outcome of the SFO investigation. The allegations of bribery and money laundering remain, as yet, unproven. But the allegations alone have led to a hugely unsettling investigation, the prospect of damaging legal action, a massive fall in Petrofac’s worth and boardroom chaos. The damage has been done months, or even years, before any legal penalties may be imposed.

Prevention

The Petrofac case illustrates perfectly the idea of business being like a “house of cards’’ if something is not right. If bribery or another crime is being committed in a company’s name, the discovery of it can lead to the loss of its reputation, financial standing, personnel and prospects. Which can hardly be considered to be greasing the wheels.

Bribery must be viewed as something that needs to be prevented rather than celebrated or permitted.

The Petrofac case is the perfect advert for the value of prevention. Only by introducing preventative measures can a company have any hope of ensuring they do not suffer a similar fate.

If you do not devise proper compliance procedures you can hardly be surprised if you are then investigated for failing to comply with the relevant law. The Bribery Act, for example, covers the activities anywhere in the world of any company with a UK connection. Hoping to avoid prosecution under an Act with such a wide-ranging scope, while not having proper compliance in place, is muddled thinking.

Compliance

Regardless of the nature of a business or the geographical or trade sectors it operates in, a well thought-out and carefully enforced compliance programme will greatly reduce the chances of bribery or money laundering – or other white-collar crimes – being committed by people within that company.

It enables a company to prevent identify any possible wrongdoing or, at the very least, recognise it early. Such early recognition and reporting of bribery can be incredibly valuable when dealing with the authorities.

If wrongdoing is carried out, a company will be treated less harshly by the authorities if it can demonstrate that it did all it possibly could to be legally compliant. It will also be treated more leniently if it reports the wrongdoing swiftly, having identified it through its procedures.

While we do not yet know what will happen with Petrofac, it is safe to say that any punishment that may be administered will be far more severe if the SFO finds little or no evidence of appropriate compliance procedures being acted upon.

When it comes to acknowledging a company’s commitment to compliance, the authorities will not give any credit for preventative measures that look as if they are paying mere lip service to the idea of prevention.

With Petrofac, and other similar cases, the authorities will be looking for evidence that the company has:

A strong culture of white-collar crime prevention.

An awareness of the bribery and money laundering risks in the countries and business sectors in which it operates – and procedures to minimise those risks.

Effective procedures for carrying out due diligence on those who work with, for or on behalf of the company.

A whistle blowing procedure for reporting wrongdoing that is operating effectively, regularly reviewed and made known to everyone working for the company in any capacity.

Scope

The authorities are looking to come down hard on business crime. As a result, business has to act to make sure it is reducing the potential for such illegal activity.

While the punishments can be severe, the scope for leniency is large. The introduction of deferred prosecution agreements (DPA’s) has given the authorities the opportunity to impose conditions on a firm that has broken the law, as opposed to prosecuting it.

But such leniency will only be made available to those who made the effort to prevent crime. Anyone else found to have allowed or ignored bribery, money laundering or other wrongdoing will still have to pay the heavy price that accompanies a lack of compliance.