Alistair Wood: English bribery case highlights advantages of Scottish self-reporting system
Back in March, my colleague Tom Stocker discussed the findings of a House of Lords select committee which reviewed the 2010 Bribery Act, and specifically how businesses self-report suspected cases of bribery and corruption.
While describing the act as “international gold standard” with little need for improvement, the select committee did draw attention to the difference between the two systems of corporate self-reporting in operation in Scotland and the rest of the UK.
In England and Wales, Deferred Prosecution Agreements (DPAs) can be used to allow bribery cases and a range of other financial crimes by companies to be resolved without the companies involved being convicted of offences. In addition to recovering illicit profits, penalties and future compliance obligations are imposed under DPAs. To avail itself of a DPA, a company must co-operate with the prosecutor but self-reporting is not a prerequisite.
In Scotland, the Crown Office and Procurator Fiscal Service (COPFS) operate a civil settlement regime. These are only available when a business self-reports corporate bribery to the prosecutor and co-operates. Under the settlement, illicit profits are removed but there is no additional financial penalty imposed on the self-reporting company.
The select committee suggested the lack of a financial penalty might make it appear that a company has little to lose by self-reporting. The Lord Advocate James Wolffe QC did not agree that civil settlements were a soft option and argued before the committee that the Scottish regime was effective.
The UK government responded to the findings of the committee in May. Whilst acknowledging that the self-report scheme operates differently to a system of DPAs, the government considered that the self-reporting scheme has a number of distinctive features and strengths. In light of this, the government confirmed that there were no plans to legislate to introduce a system of DPAs in Scotland.
This position has now been reaffirmed because, at the end of June, the Lord Advocate approved an extension of the corporate self-reporting initiative until June 2020.
Differences in approach aside, the benefits to a business self-reporting a case of suspected bribery was highlighted by a recent court case brought by the Serious Fraud Office (SFO) against company director Carole Ann Hodson.
Hodson was the former managing director and majority shareholder of ALCA Fasteners Ltd. It was discovered after she had exited the business that Hodson had paid almost £300,000 of bribes to a purchasing manager at a Norwegian client of ALCA Fasteners.
False invoices were created to justify cash transfers or other payments not related to genuine transactions, with Hodson later lying to her company’s auditors to disguise the true nature of the payments. To maintain the value of her company prior to selling it in 2017, Hodson then lied to the purchasers by claiming that the company had not been involved in any unlawful conduct. These facts created personal and corporate criminal liability.
The new company owners, concerned at what they suspected amounted to bribery, self-reported the issue and the SFO launched an investigation into the affairs of the company, including its officers, employees, agents and people associated with it. Hodson was duly prosecuted but ALCA Fasteners was not. At Wolverhampton Crown Court last month (June) Hodson was sentenced to two years in prison, disqualified from being a company director for seven years, and ordered to repay £4.5 million.
This case highlights the potential benefit of self-reporting by companies in appropriate cases such as when past bribery comes to light following a corporate acquisition. No action was taken against the company but rather it was the former owner who was pursued and prosecuted by the SFO. It is a reminder that, if a business reports a suspected incident of bribery in a timeous fashion and are forthright and frank about the circumstances, the public interest may be served by taking action against the former owners and individual wrongdoers, rather than the company itself.
In Scotland we have a unique corporate self-reporting and civil settlement regime that has a number of strengths over the DPA regime, and which has at its heart the objective of promoting corporate transparency, by providing a more lenient outcome for business which have the courage to address corrupt practices. In renewing the corporate civil settlement regime, the Lord Advocate and COPFS are to be commended.
Alistair Wood is a member of Pinsent Masons corporate crime and investigations team