In February 2018, the UK secured its first ever contested conviction of a company for “failure to prevent bribery.” Under Section 7 of the UK Bribery Act (UKBA), a company or commercial organization faces liability for failing to prevent bribery if a person “associated with” the entity bribes another person while intending to obtain or retain business or “an advantage in the conduct of business” for that entity. Following an internal investigation, Skansen Interior Limited (SIL)—a 30-person furniture refurbishment contractor operating in southern England—discovered that an employee at its firm had agreed to pay nearly £40,000 in bribes to help the company win contracts worth £6 million. Company management fired two complicit employees and self-reported the matter to the National Crime Agency and the City of London police. The Crown Prosecution Service ultimately charged SIL with failing to prevent bribery under Section 7. Protesting its innocence, SIL argued that the company had “adequate procedures” in place at the time of the conduct to prevent bribery; SIL, in other words, sought to avail itself of the widely-discussed “compliance defense” in Section 7(2) of the UKBA, which allows a company to avoid liability for failing to prevent bribery if the company can show that it “had in place adequate procedures designed to prevent persons associated with [the company] from undertaking” the conduct in question.
The case proceeded to a jury trial. The verdict? Guilty. The sentence? None. In fact, SIL had been out of business since 2014, so the judge had no choice but to hand down an absolute discharge—wiping away the conviction.
The hollow nature of the government’s victory has led some commentators to call the prosecution “arguably unprincipled” or even a “mockery of the UK criminal process.” Indeed, the bribing employee and the bribed individual had already separately pleaded guilty to individual charges under UKBA Sections 1 and 2, respectively, and the remaining shell of a corporation had no assets or operations. Other commentators pointed out that precisely because the company was dormant it would have been unable to enter into a deferred prosecution agreement (DPA), lacking assets to pay financial penalties or compliance programs to improve. Putting aside arguments about the wisdom or fairness of pursuing a prosecution in these circumstances, the SIL case sheds light on Section 7(2)’s “adequate procedures” defense. While the UK government has secured a few DPAs for conduct under Section 7—beginning with Standard Bank Plc in 2015—SIL is the first case in which the Section 7(2) “adequate procedures” defense was tested in front of a jury.
While the government argued that it prosecuted the case primarily to send a message about the importance of anti-bribery compliance programs, the UK government’s actions in the SIL case ultimately sends mixed messages to companies and may have counterproductive effects.To provide some context, it’s useful to begin with the observation that the UKBA itself doesn’t clearly establish what companies must do to show adequate anti-bribery procedures. In response to this concern, the UK Ministry of Justice (MoJ) published a guidance document, which explains that the “adequacy” of anti-bribery procedures should be informed by six principles: (1) proportionality, (2) top level commitment, (3) risk assessment, (4) due diligence, (5) communication (including training), and (6) monitoring and review.
SIL advanced a few arguments as to why its compliance procedures were adequate within the meaning of the UKBA, as elaborated by the MoJ guidance. First, SIL argued that the company’s small size and open-floorplan office meant that it did not require a full-blown compliance program on par with larger corporations. Indeed, all of its business was local, with no international clients. Second, the company had policies that promoted integrity and transparency, and it displayed a sign on the wall reminding employees to operate ethically. Third, SIL added language to its business contracts—including for the transactions in this case—that explicitly disavowed bribery and permitted the contracts to be cancelled if bribery occurred. Fourth, the company had a system that required multiple people to approve significant payments. Fifth, the bulk of the bribery money that ultimately triggered the prosecution had not been paid, precisely because SIL’s new management had flagged the transaction as unusual and launched the internal investigation. SIL also stressed that it had fired the guilty or negligent employees and self-reported the violations.
The prosecution pushed back on the notion that SIL had adequately fostered a culture of compliance, pointing out that the company had lacked any formal anti-bribery training program and that SIL’s policies had not been updated since the passage of the UKBA. The government also highlighted that at the time of the bribery no individual within the company had dedicated responsibility over anti-bribery compliance and there was no specific mechanism for employees to report suspected bribery activity.
It’s impossible to discern the full reasoning behind the jury’s decision to reject SIL’s arguments as to why its compliance program was adequate; all we know is that the jury voted to convict. Nonetheless, the arguments that the prosecution advanced, ultimately successfully, may send a couple of mixed messages about corporate liability under UKBA Section 7:
- First, demonstrating adequate compliance may be relatively more difficult for smaller companies. When explaining its first principle—proportionality—the MoJ guidance states that “small organisations are unlikely to need procedures that are as extensive as those of a large multi-national organization . . . a very small business may be able to rely heavily on periodic oral briefings to communicate its policies while a large one may need to rely on extensive written communication.” Nevertheless, at trial the prosecution emphasized that the company had no records of compliance discussions or company-wide procedures and that there was an absence of any documentation that the company had meaningfully reacted to the commencement of the UKBA in 2011. In a large corporation, such documentation would be inevitable, simply given the need to communicate information to a greater number of people—not all of whom work in a single room. Likewise, the prosecution noted for the jury that at the time of the bribery SIL lacked a designated compliance official who could monitor anti-bribery compliance. Large corporations will typically have whole compliance departments, if not specific anti-bribery officers, to which they can point for a Section 7(2) defense. Notwithstanding MoJ guidance, the prosecution’s arguments suggest that small corporations will need relatively larger overhauls to ensure “adequate procedures” are in place, despite generally more limited risks, limited compliance resources, and operations that don’t already require many of the procedures flagged as missing in this case.
- Second, cooperation with a government investigation and mounting a successful defense under Section 7(2) may actually pull in opposite directions. In this instance, after self-reporting the bribery, SIL cooperated fully with the government’s investigation. And to demonstrate the company’s anti-bribery commitment, the new CEO revamped its compliance system. But at trial, the prosecution used these remedial actions against the company. Arguing that SIL was unable to demonstrate that its employees had read and understood the company’s prior ethics regulations, the prosecution contrasted SIL’s prior lack of procedure with the new CEO’s decision to email the updated anti-bribery policy to the entire company and request explicit confirmations from all employees that they had read it. And in highlighting that SIL had failed to update its procedures in response to the passage of the UKBA, the prosecution pointed to the policies that the company now had in place that directly addressed bribery risks. The use of SIL’s subsequent measures, enacted while cooperating with the government, may push companies to view full cooperation as necessarily ceding the opportunity to later mount a credible Section 7(2) defense. By implicitly encouraging the perception that companies would be effectively locked into cooperation, the SIL prosecution may spur companies to think twice before self-reporting violations.
Of course, once the decision was made to prosecute the company under Section 7, it was the prosecution’s duty to rebut any defenses and aggressively pursue a conviction. But the arguments marshaled by the government at trial suggest that Section 7(2) may prove a weak defense, especially for smaller companies. Because large corporations susceptible to bribery tend to avoid “bet the company” criminal trials at all costs anyways, it’s unlikely that we will see many Section 7(2) defenses. Precisely the actors who may have used the adequate procedures defense—small and medium companies—now might think twice about the costs and benefits of cooperation when drawing lessons from the SIL prosecution.
Many thanks for an excellent analysis. By far the best of the many commentaries on the case.