February 2018 saw the UK’s first contested prosecution of the corporate offence of failing to prevent bribery under section 7 of the Bribery Act 2010 (2010 Act), with the defendant company asserting the adequate procedures defence (R v Skansen Interiors Limited, unreported) (see box “Section 7 and adequate procedures”).

Although there was no judicial comment on what constitutes adequate procedures, the prosecution’s submissions provided insight into how they may assess the defence going forward.

Before becoming dormant in 2014, Skansen Interiors Limited (SIL) traded as a fit-out refurbishment contractor in the London area. SIL successfully won tenders from DTZ Debenham Tie Leung, a property company, for the refurbishment of two commercial units in London worth a combined £6 million.

The prosecution alleged that SIL’s then managing director, Mr Stephen Banks, made two bribes totalling £10,000 to Mr Graham Deakin, a DTZ project manager, to win the tenders and also sought to make a third payment of £29,000, although this was never paid. These bribes were apparently intended to reward Mr Deakin for passing SIL bidding information during the tender process and seeking to influence the outcome by persuading colleagues to select SIL.

The prosecution argued that a number of steps had been taken to conceal the true nature of the payments, which included the creation of a separate company, Goodier Property Services Limited, to invoice for and receive the bribes, purportedly on the basis that it had provided design and other related services. Goodier’s sole shareholder and director was Mr Deakin’s son.

These matters came to light after SIL’s new CEO became concerned about the payments when Mr Banks sought to approve the third payment of £29,000. Following an internal investigation, Mr Banks and SIL’s commercial director, who was not charged with any offence, were summarily dismissed. SIL also reported the matter to the City of London Police, before becoming dormant in May 2014.

SIL co-operated with the police investigation, which included voluntarily furnishing confidential company documents and records relating to the internal investigation. Nevertheless, in March 2017, SIL was charged under section 7 of the 2010 Act, together with Mr Banks and Mr Deakin, who were charged with offences of bribing another person under sections 1 and 2 of the 2010 Act. Both individuals pleaded guilty before trial.

SIL defended the prosecution, claiming that it had adequate procedures, in particular relying on the following points:

The jury was not persuaded that these controls were sufficient to meet the adequate procedures defence and returned a guilty verdict. As SIL was dormant and without assets, the court imposed an absolute discharge, which became immediately spent.

The prosecution raised a number of interesting submissions that companies may want to consider when assessing the effectiveness of their anti-bribery and corruption policies:

Recording compliance efforts. The prosecution focused significant attention on there being few contemporaneous records of SIL’s efforts to indoctrinate a compliance culture and no evidence that it had done anything to respond to the new offences in the 2010 Act when it came into force in July 2011 (see feature article “Bribery Act 2010: what does it mean for your company?”).

The prosecution contrasted this with the actions of the new CEO to introduce a formal anti-bribery policy and ensure that all staff read and agreed to it. This indicated that, before this, adequate procedures were not in place. It is therefore crucial that companies create and retain records of all compliance-related discussions, decisions and activities. Particularly in smaller companies, where discussions are more likely to be face-to-face, it is advisable to follow up on relevant discussions in writing or to document the fact that those conversations occurred.

Communicating and updating policies and procedures. The prosecution noted that while SIL had various policies on its servers, there was no evidence that it had monitored or ensured that staff had accessed or even read the policies. In addition, there was no active communication or training on the policies. Companies should use any changes in the law or circumstances to revisit their existing controls in order to satisfy themselves that they are fit for purpose and should regularly remind staff of the key controls through targeted communications and training. The prosecution noted that SIL had failed to react to the introduction of the 2010 Act by putting in place a specific policy referencing and responding to the change in law until the new CEO joined the company in 2014.

Appointing a compliance officer. Small companies should ensure that someone at senior level within the business is tasked with ensuring that the company’s anti-bribery controls are embedded and complied with. The prosecution highlighted SIL’s lack of designation of anyone in that role at the time of the offending and contrasted this with the policy introduced after the new CEO joined the business in which he was identified as the compliance manager.

Skansen Interiors Limited involved the prosecution of a dormant company where there was no hope of any meaningful penalty on conviction. The authorities only learned of the issues because SIL proactively reported the matter and provided extensive co-operation. Yet that did not help SIL when it came to the Crown Prosecution Service’s (CPS) decision whether to prosecute, even though it had acted exactly how a different prosecutor, the Serious Fraud Office, has said it expects businesses to behave in similar circumstances if they wish to receive a more benign outcome, such as a deferred prosecution agreement (see News briefs “Bribery Act 2010: SFO concludes first deferred prosecution agreement” and “Tesco deferred prosecution agreement and final notice: breaking new ground”).

The decision is a reminder that companies which do the right thing by reporting criminal conduct and co-operating with the authorities will not necessarily avoid prosecution. In Skansen Interiors Limited, the CPS justified the prosecution on the basis that it would send a message to the industry about the importance of putting anti-bribery procedures in place. However, the decision may also have a chilling effect on corporate reporting of wrongdoing where there is a risk that companies will expose themselves to prosecution.

In the meantime, Skansen Interiors Limited demonstrates that it would be prudent for even the smallest companies to revisit their compliance programmes to consider if they are doing enough to protect themselves against bribery risks, and for all businesses to reconsider whether they are adequately documenting their efforts to do so, in order to support reliance on the adequate procedures defence, if needed.