Formula One, Bribery And The Serious Fraud Office

Rahman Ravelli | View firm profile

Aziz Rahman explains why the SFO’s enquiries into Formula
One are relevant to all senior executives and corporates.

Formula 1’s racy image seems to have spilled off the track,
as the sport finds itself at the centre of enquiries regarding possible corruption.

The high-profile sport has attracted the attention of both
the Serious Fraud Office (SFO) and MP’s; both of whom are interested in a major
deal that was agreed by motor racing’s power brokers.

Attention is focused on the 2013 Concorde Implementation
Agreement, the contract which outlined the sport’s governing principles and
power structure. It was signed by the sport’s governing body, the Fédération
Internationale de l’Automobile (FIA) and the Formula One Group. At the time,
Formula One Group was controlled by private equity firm CVC but was then sold
to investment firm Liberty Media for £6.2 billion.

Formula One Group paid the FIA £3.9m ($5m) in recognition of
it signing the Concorde Implementation Agreement. The deal also gave the FIA a
1% stake in the Formula One Group for the tiny price of £360,000. The FIA’s
approval was needed for Liberty’s takeover of Formula One Group: which it gave
and made a £62m profit by then selling its stake.

Agreement

Everyone involved has denied any hint of bribery regarding
the agreement.

The FIA has stated that: “The Concorde Implementation
Agreement entered into by the commercial rights holder (CRH) of Formula 1 and
the FIA in 2013 introduced a new governance structure for Formula 1 and
redefined certain conditions applicable to their relationship, in particular to
ensure that the FIA be properly remunerated for its regulatory role.

“Within this agreement, a lump sum payment of $5m was made
to the FIA as part of the global consideration received in connection with the
renegotiation of the terms of the agreements between the commercial rights
holder and the FIA, and of the Concorde Agreement, at that time.

“Following its approval, the Concorde Implementation
Agreement came into force and this sum was paid to the FIA and properly
accounted for. No individual received any payment out of this sum. Any
allegation to the contrary would be defamatory.”

It added: “There is no conflict of interest on the part of
the FIA with regard to its approval of the change of control of the CRH which
has been approved… taking into consideration exclusively the terms of the
existing agreements between the CRH and the FIA and the best interests of the
Championship.’’

Concerns

However, MP Damian Collins, chairman of the government’s
Culture, Media and Sport Select Committee, had concerns about the deal. He alerted
the SFO to the deal.

In a reply to the MP, the SFO Director David Green states:

“The SFO’s Intelligence Unit is following this issue very
closely and reviewing materials pursuant to allegations of bribery and
corruption

“I can assure you that the SFO will conduct a thorough
examination of the facts in order to determine whether or not there are
suspected offences that on reasonable grounds involve serious or complex
fraud.”

Mr Collins has said that the main issue is “whether the FIA
discharged its duties responsibly’’ and has expressed concern about why F1
would need to make a payment to its governing body and regulator as part of the
Concorde.

It seems almost inconceivable that an organisation as high
profile and powerful as FI would find itself subject to business crime
allegations. But alarmingly, this is not the first time in recent years that
the sport has been the subject of bribery allegations.

Three years ago, the then head of F1, Bernie Ecclestone, was
set to go on trial in a German court, accused of bribing a banker with $44M to
ensure the sale of a stake in F1 to a private equity firm went ahead. That case
came to what seemed – to British observers, at least – a bizarre end when
Ecclestone, who always denied the allegations, settled it in an arrangement
that involved a £60M payment.

Sport and every other type of business is now subject to far
more stringent scrutiny than ever before. And while it would be a mistake to
think that elite sport is immune to bribery prosecution, it would be an equally
big error of judgement for any company with a lower profile than F1 – which is
just about all of them – to think any of its corrupt activities will never come
to the SFO’s attention.

Bribery Act

The Bribery Act 2010 sets high standards for all companies and
anyone acting on their behalf. It covers the activities of anyone and everyone
representing any company and its punishments include unlimited fines and, for
individuals, up to ten years’ imprisonment.

The Act, which came into effect in 2011, makes a company
liable for the corrupt actions of any staff, agents or third parties acting for
it, either in the UK or abroad. The bribery does not even have to be carried
out in the UK. The person committing it simply has to have a close connection
to the UK. Being a British citizen, national, subject or resident or working on
behalf of a company that does at least some business in the UK is adequate for
the purposes of the Act. If such a person pays, receives or requests a bribe,
either directly or indirectly, to perform a relevant function improperly
anywhere in the world then there are grounds for a Bribery Act prosecution.
There is also an offence of using a bribe to influence a foreign official to
gain a business advantage.

Any company facing investigation for breaching the Bribery
Act does have a valid defence if they can show that it had carried out all
adequate procedures to prevent anyone representing it acting illegally. But if
that is not the case, a prosecution of the company is likely. And if that offence was committed with the
consent or “turning of a blind eye’’ of a senior officer of the company then
that person can have criminal proceedings brought against them.

Scope

The scope of the Act, therefore, makes it impossible to
ignore. Companies of all types and sizes must take steps to make sure they have
done everything to prevent them being prosecuted for bribery. This means each
company assessing all aspects of its work to examine where the potential for
bribery exists.

Workplace procedures must then be introduced to “design
out’’ that potential. Staff have to be given advice and, if necessary, training
on both the dangers and tell-tale signs of bribery. Whistle blowing procedures
also have to be introduced to ensure that staff or anyone else with a
connection to the company can raise concerns of wrongdoing.

When the damage that can be prevented by such actions is
considered, such procedures have to be seen as worthwhile. If companies are
wary of what they should do, there is no shortage of specialist legal advice
available – however high or low-profile your business is.

More from Rahman Ravelli