Brand-Rex Limited, a Scottish company specialising in developing cabling solutions for network infrastructure and industrial applications, has become the first UK Company to be penalised for contravention of Section 7 of the Bribery Act 2010.
The company avoided criminal prosecution and was instead ordered to pay £212,800 by way of a civil recovery order after self-disclosing an instance of failing to prevent bribery by a third party associated with the company.
What did Brand-Rex do wrong?
The company had been operating a system called ‘Brand Breaks’ between 2008 and 2012, in which UK distributors and installers were eligible for varying degrees of rewards (including foreign holidays) for meeting or exceeding sales targets.
The scheme itself was wholly legitimate. The problem arose when an independent installer of Brand-Rex products (“an associated person” for the purposes of Section 7) offered tickets earned by him under the scheme to an employee of one of his customers. This went beyond the intended terms of the scheme, as this customer was an end user of Brand-Rex products, not an installer or distributor. The individual who received the tickets was in a position to influence decisions as to where his company purchased cabling from, meaning Brand-Rex were in breach of Section 7 of the Bribery Act even though they did not intend this individual to receive any tickets.
Why did Brand-Rex receive a civil sanction for a criminal offence?
As soon as Brand-Rex became aware of the issue, and their potential liability under the Bribery Act, they engaged external solicitors and forensic accountants to investigate. In June 2015, they self-reported the matter to the Scottish Crown Office and Procurator Fiscal Service (COPFS), accepting responsibility for their failure to prevent bribery by an associated person under section 7 of the Bribery Act.
Due to this self-reporting and extensive co-operation with the authorities, the COPFS were lenient and agreed to a civil recovery order. The civil settlement was calculated based on the gross profit made by Brand-Rex resulting from the misuse of the incentive scheme.
Brand-Rex also agreed to ensure the implementation of its anti-bribery and corruption (ABC) policies, procedures and training programmes. Brand-Rex had ABC policies and procedures in place while the Brand Breaks scheme was operating, however they did not attempt to assert that they were adequate, which would have constituted a complete defence under Section 7(2) of the Bribery Act.
Would the result have been a different in England?
Brand-Rex took advantage of a specific voluntary disclosure programme in Scotland, which meant that their self-reporting and co-operation with the authorities worked heavily in their favour. There is no such scheme operating at present in England.
It is possible that had the case been dealt with in England by the Serious Fraud Office (SFO), the company would have been given the option of entering into a Deferred Prosecution Agreement (DPA) as an alternative to a criminal prosecution. DPAs allow for the suspension of a prosecution for a fixed period of time, but only if the organisation agrees to stringent conditions, which may include fines, orders to pay compensation and other remedial measures.
The SFO has stressed that it wants to encourage genuine cooperation from corporate bodies, and hopes that offering DPAs as an alternative to criminal prosecutions will encourage companies to self-report. However, the SFO have said that whilst self-reporting is a factor that will be considered when deciding whether to prosecute an offender, it is only one factor and there is no guarantee that they will offer a DPA following a self-report and therefore, a reporting company may still be the subject of a criminal prosecution in respect of a contravention of the Bribery Act. Any evidence provided to the authorities from their self-reporting could in fact be used against the reporting company if criminal proceedings are taken.
What does this mean for UK businesses?
Most importantly, the case highlights the significance of formulating and enforcing adequate ABC procedures to prevent bribery by associated persons. Organisations can be liable for the acts of third-party agents and this is an area which is often overlooked. Adequate procedures should be in place to combat this risk. This may include compliance training to third parties and on-going monitoring of their business. If adequate ABC procedures are in place, a company should have a complete defence to any criminal prosecution.
The Brand-Rex case also shows the importance of undertaking a full internal investigation into alleged wrongdoing at the earliest opportunity and, if a self-report is to be made, that this is done promptly.
It is unclear how the SFO would have approached this case in England, although a DPA would have been a high possibility. Companies should keep up to date with any developments regarding DPAs and look out for the publication of the first UK agreement, which according to some, is to be expected in late 2015/early 2016.