Bribery Act 2010 – FIRST SETTLEMENT OF THE CRIMINAL OFFENCE OF FAILURE TO PREVENT BRIBERY

Introduction and key facts

1. The Scottish Crown Office and Procurator Fiscal Service announced on 25 September 2015 the first disposal of an offence under section 7 of the Bribery Act 2010.

2. Section 7 was a new offence introduced under the Bribery Act 2010 to some controversy as it made the failure to prevent bribery by an associated person a criminal offence.

3. The case was disposed of by way of a civil recovery order under the Proceeds of Crime Act 2002 in consideration of the Defendant’s decision to self-report to the authorities and its extensive investigation into the incident, which allowed the Defendant to avoid prosecution.

Who and what and when

1. Brand-Rex Limited develops and supplies cabling systems for network infrastructure and industrial applications, employing around 300 people.

2. It operated an incentive scheme for UK distributors and installers under which those who met or exceeded sales targets were eligible for certain rewards, including foreign holidays.

3. One of its independent installers offered their rewards to an individual who was in a position to influence decisions as to the purchase of one of Brand-Rex’s customer’s cabling solutions.

4. Brand-Rex instructed external solicitors and forensic accountants to conduct an extensive investigation into the issue once it came to the company’s attention.

5. Following the investigation, Brand-Rex made a self-report to the Crown Office, a step which played a key part in the company being deemed suitable for a civil recovery settlement rather than facing a criminal prosecution.

The test for a section 7 offence

1. The test for a section 7 offence was met because the independent installer was deemed to have been an associated person of Brand-Rex (performing services for or behalf of Brand-Rex) and offered incentives to its customers in order to induce the relevant individuals to act improperly in preferring the products of Brand-Rex to its competitors’.

2. Although it is a complete defence to the section 7 offence if the company had adequate procedures to prevent bribery by its associated persons, in this case the company did not seek to argue that it had such a defence.

3. Brand-Rex paid £212,800 under the civil settlement, which was based on the gross profit of the company related to the misuse of the incentive scheme.

What is to be learnt?

1. This case serves as a reminder to firms as to the importance of having in place and maintaining adequate systems and controls to prevent bribery by its associated persons, which may include its agents, service providers or employees.

2. The section 7 offence brought in by the Bribery Act 2010 means that companies can be convicted of a criminal offence even in circumstances where the identification principle means that primary liability for the underlying bribery offence cannot attach to the company.

3. The case also illustrates the benefits of self-reporting to the relevant authorities in appropriate cases (although the approach of law enforcement in England and Scotland appears to have diverged to some extent).

4. Brand-Rex was deemed to be suitable for a civil recovery order in Scotland due to its co-operation with the Scottish authorities and its investigation into the incident. By doing so, Brand-Rex avoided criminal prosecution.

5. In England, whilst civil recovery orders are still available to the Serious Fraud Office, the emphasis of the SFO in recent public statements has been on its power to enter into Deferred Prosecution Agreements as a means of addressing criminal conduct by cooperating corporates (although it is still yet to enter into its first DPA).