THE SFO RAISES THE BAR
The Serious Fraud Office has taken action in the High Court under Part 5 of the Proceeds of Crime Act which has resulted in an Order for a parent company, Mabey Engineering (Holdings) Ltd, to pay £131,201 in recognition of sums it received through share dividends derived from contracts won through unlawful conduct by one of its subsidiaries, Mabey and Johnson Limited, in which it was a principal shareholder.
Following an internal investigation, the subsidiary approached the SFO in 2008 highlighting discovered irregularities and had subsequently fully cooperated with the SFO. In September 2009 it pleaded guilty to charges of corruption and breaches of UN sanctions.
Director of the SFO, Richard Alderman, has highlighted two key messages arises from this settlement:
“First, shareholders who receive the proceeds of crime can expect civil action against them to recover the money. The SFO will pursue this approach vigorously. In this particular case, however, the shareholder was totally unaware of any inappropriate behaviour. The company and the various stakeholders across the group have worked very constructively with the SFO to resolve the situation and we are very happy to acknowledge this.
The second broader point is that shareholders and investors in companies are obliged to satisfy themselves with the business practices of the companies they invest in. This is very important and we cannot emphasise it enough. It is particularly so for institutional investors who have the knowledge and expertise to do it. The SFO intends to use the civil recovery process to pursue investors who have benefited from illegal activity. Where issues arise, we will be much less sympathetic to institutional investors whose due diligence has been lax in this regard.”
These proceedings have already excited considerable concern. It has been suggested that by targeting shareholders in this way, the SFO are pushing the law to its limits and that it is unfair to put at risk ordinary shareholders who may not have access to the sort of information available to institutional shareholders.
Richard Alderman is unrepentant. He suggests that institutional shareholders have ownership responsibilities which require them to ensure that the companies in which they have holdings have proper compliance procedures.
With regard to SMEs and family-run concerns, the SFO expects to see those shareholders questioning and, where necessary, seeking to influence company compliance policy and procedures particularly at annual company meetings which they attend.
There can be no doubt that this development has demonstrated:
- the SFO’s appetite for taking a tough practical approach in its fight against corruption,
- the willingness of the SFO to target parent companies for unlawful conduct by their subsidiaries,
- the importance placed by the SFO upon proper application of the due diligence process, and
- the SFO’s willingness to focus upon individuals as well as corporate entities in relation to corporate corruption.