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12 January 2016

First sentence for corporate following an SFO investigation in to Bribery and Corruption

Categories: Blog, Bribery and corruption, Business crime & fraud,

Peter Bowles Oct 2018 web

Categories: Blog, Bribery and corruption, Business crime & fraud,

Categories: Blog, Bribery and corruption, Business crime & fraud,

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Categories: Blog, Bribery and corruption, Business crime & fraud,

Categories: Blog, Bribery and corruption, Business crime & fraud,

Categories: Blog, Bribery and corruption, Business crime & fraud,

Categories: Blog, Bribery and corruption, Business crime & fraud,

Categories: Blog, Bribery and corruption, Business crime & fraud,

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Categories: Blog, Bribery and corruption, Business crime & fraud,

Categories: Blog, Bribery and corruption, Business crime & fraud,

Categories: Blog, Bribery and corruption, Business crime & fraud,

By Sangeeta Bedi

Categories: Blog, Bribery and corruption, Business crime & fraud,

Categories: Blog, Bribery and corruption, Business crime & fraud,

Categories: Blog, Bribery and corruption, Business crime & fraud,

Categories: Blog, Bribery and corruption, Business crime & fraud,

Categories: Blog, Bribery and corruption, Business crime & fraud,

Categories: Blog, Bribery and corruption, Business crime & fraud,

Categories: Blog, Bribery and corruption, Business crime & fraud,

Categories: Blog, Bribery and corruption, Business crime & fraud,

Categories: Blog, Bribery and corruption, Business crime & fraud,

Categories: Blog, Bribery and corruption, Business crime & fraud,

Categories: Blog, Bribery and corruption, Business crime & fraud,

Categories: Blog, Bribery and corruption, Business crime & fraud,

Categories: Blog, Bribery and corruption, Business crime & fraud,

Categories: Blog, Bribery and corruption, Business crime & fraud,

This was the first time a corporate had been convicted following a trial in relation to international corruption investigated by the SFO. It was also the first time the sentence of such a case was considered under the Sentencing Guidelines for Fraud, Bribery and Money Laundering (the Guidelines), even though they did not technically apply. The case therefore provides a valuable insight for practitioners in respect of a Court’s approach to sentencing a corporate offender regarding bribery and corruption.

Smith and Ouzman Ltd (S&O) is a leading international security printing company. In December 2014, it was convicted of an offence under the Prevention of Bribery Act 1906. It was committed via an agent of government officials in relation to printing contracts in Kenya and Mauritania. The agent was paid £395,000 in bribes.  S&O’s conviction was a consequence of  those of its former chairman and  marketing director for this bribery. Last December they received sentences of 18 months imprisonment, suspended, and 3 years imprisonment respectively.

The sentencing hearing of S&O occurred in January. The Recorder sensibly decided he should pay careful regard to the Guidelines which apply to offences committed under the Bribery Act 2010, despite the fact the conviction related to the regime which preceded that act. The Guidelines require that the quantum of the fine is calculated after consideration of compensation and confiscation.  In this case there was no compensation to be paid because the Recorder was not satisfied that compensation would reach the people entitled to it.  The amount which could be confiscated was calculated as the company’s benefit from the contract with an uplift to reflect inflation. However the costs of performing the contract and other expenses were not deducted.

The fine was calculated by the following steps:

1. Identification of the ‘harm figure’. In cases of bribery this is either the gross profit from the contract obtained or sought or, for offences under section 7 of the Bribery Act 2010, concerned with failure to prevent bribery, the ‘harm figure’ may be the likely cost avoided by failing to put in place adequate procedures to prevent bribery. Smith and Ouzmans’ ‘harm figure’ was its gross profit from the offending, which was calculated as £438,933.

2. Culpability of the offender. This is determined by identifying whether any of the non-exhaustive list of features set out in the Guidelines applies in order to determine where the offender should be placed in a ranking of A–C, with A being the most culpable and C being the least. In this case the parties agreed that the company was in category A in light of the role of the company, the payments made to government officials, the period of offending and its position in the market.

3. Determination of starting point and category range to identify the multiplier. The factor by which the ‘harm figure’ is multiplied is established by considering aggravating and mitigating features. A further non-exhaustive list of features is provided, which sets out which factors increase seriousness and which reflect mitigation. In this case the Recorder took into consideration several features which are not reflected in the guidelines, notably:

  • Significant remedial action;
  • The contribution the company has made to, and the high regard it was held in, its local community, Eastbourne;
  • Smith and Ouzman’s record of being a ‘good employer’: by way of illustration, 13 of its 83 employees have been with the company for over 25 years.

The Recorder relied on these factors to reduce the multiplier from the 350% that he had initially believed appropriate to 300%. The fine of £1.3 million was ordered to be paid in instalments over a period of 5 years to enable the company to continue as a going concern. The Recorder was concerned that his sentence should not put the company out of business and the Guidelines expressly suggest that the Court should take into account the power to allow time for payment or order that the payment be made in instalments.

Therefore the overall cost of paying bribes of £395,000 to win business of £881,000 was overall financial penalties (including a contribution of £25,000 to the prosecution’s costs) of £2.2 million.

While this is the first time that the Guidelines have been applied in respect of international bribery following a trial, it is the second time that they have been used to calculate a fine in relation to this type of offending. In the recent DPA agreed between the SFO, Standard Bank plc and the Court, these guidelines were also followed. In this case the Court and the parties disagreed about whether the offending, which involved a single incident of bribing a public official, was category A or B. This disagreement eventually became academic because the Court put the offending towards the lower end of Category A and the parties put the offending at the higher end of category B and so there was agreement about the level of multiplier; 300%.

In neither Smith and Ouzman nor Standard Bank were there any adjustments to the fine following a further step, described as ‘the stepping back process’, which is provided for in the Guidelines after the initial stages 1 – 3. Steps 1 – 3 set out a process leading to a calculation, and the ‘stepping back’ allows any appropriate adjustments to be made. In this aspect of sentencing, the Court is invited to consider the overall effect of compensation, confiscation and fine, and consider whether it achieves:

  • The removal of all gain;
  • Appropriate additional punishment, and
  • Deterrence

This stage of the sentencing process reintroduces discretion and enables the Court to adjust the fine to ensure “that it is substantial enough to have economic impact which will bring home to management and shareholders the need to operate within the law. Whether the fine will have the effect of putting the offender out of business will be relevant; in some bad cases this may be an acceptable consequence.”

This stage reintroduces the unpredictable and makes the giving of advice about a likely sentence more challenging. There is no guidance setting out the extent to which fines might be scaled up or down. The steps leading to determination of a multiplier are flexible, as the Recorder demonstrated by looking beyond the list of features set out within the Guidelines, but predictable. In contrast, there is no indication in the final ‘stepping back’ as to what quantum an increase or decrease should take.  Perhaps this is why the Recorder and the parties involved in the Standard DPA avoided any adjustment by reference to them.  Cases that follow may offer guidance on this aspect of the Guidelines but until they do, anticipating how the ‘stepping back’ might alter a fine will remain a challenge.

 

This article has also been published by Fraud Watch, and can be found here. A slightly amended version of the article has also been published in Criminal Law & Justice Weekly, and can be found here.

In R v Smith & Ouzman & Others – Corker Binning represented an individual who was tried and acquitted of the indictment.

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