Bribery Act Section 7 creates an obligation for organisations to maintain “adequate procedures” to prevent associated persons from committing bribery offences. What exactly constitutes “adequate procedures” is still open to debate. Even though the Bribery Act 2010 was introduced over ten years ago no contested case exists where the procedures an organisation put in place were deemed adequate. On the contrary however, a number of investigations exist where the procedures organisations had in place were deemed by a regulatory authority to be inadequate. The recent conviction of Petrofac Ltd last month by the Serious Fraud Office (SFO) has become the second conviction under Bribery Act Section 7, following the Swett Group in 2016. It is only the second conviction because most investigations have become subject to deferred prosecution agreements instead of convictions.
On 1st October, Petrofac Limited pleaded guilty to seven separate counts of failing to prevent bribery between 2011 and 2017. Petrofac Limited admitted that it failed to prevent former senior executives of the Petrofac Group from paying £32 million in bribes, to help the Petrofac Group win over £2.6 billion of contract in the oil and gas industry in Iraq, Saudi Arabia and the United Arab Emirates. The Court heard how, over a period of six years, senior executives within the Petrofac Group engaged in elaborate schemes to corrupt the awarding of contracts, using agents to systematically bribe officials to win lucrative contracts by unfair and dishonest means.
A key feature of the case was the complex and deliberately opaque methods used by these senior executives to pay agents across borders, disguising payments through sub-contractors, creating fake contracts for fictitious services and, in some cases, passing bribes through more than one agent and one country, to disguise their actions.
This is the third set of convictions secured by the SFO in its four-year investigation into cross-border corruption at the Petrofac Group. David Lufkin, former Head of Sales at Petrofac pleaded guilty to 11 counts of bribery in 2019 and 3 counts of bribery in 2021. Lufkin was sentenced to a two-year custodial sentence, which was suspended for 18 months. Petrofac was ordered to pay confiscation costs of £22.8 million, they were fined over £47 million and they were ordered to pay the SFO’s costs of £7 million.
Bribery Act Section 7 – what does the law say?
Under the Bribery Act Section 7 an organisation is guilty of an offence if a person associated with it bribes another person, intending to “obtain or retain business” or “business advantage” for the organisation. The offence can be committed in the UK or overseas.
In this section, an organisation can be:
- “A body which is incorporated under the law of any part of the UK and which carries on a business anywhere (whether there or elsewhere).
- Any other body corporate (whether incorporated) which carries on a business, or part of a business, in any part of the UK.
- A partnership which is formed under the law of any part of the UK and which carries on business (whether there or elsewhere).
- Any other partnership (wherever formed) which carries on a business, or part of a business, in any part of the UK.”
What does associated mean?
Under the Bribery Act Section 7, an organisation can be convicted where persons “associated” with it commit bribery. A person is associated with an organisation where that person performs services for or on behalf of that organisation. It does not matter in what capacity the person performs services for or on behalf of the organisation, so they may be an employee, agent or subsidiary. This was one of the biggest changes introduced by the Bribery Act 2010. Organisations are now liable for the behaviour of associated persons who are often contracted within high-risk jurisdictions to aid their business around the world.
Bribery Act Section 7 – adequate procedures
Commercial organisations need to assess whether they have adequate procedures to ensure that they are not involved in bribery and corruption so that they do not incur liability under the Bribery Act Section 7. A failure to implement adequate procedures may result in criminal and civil liability and penalties for organisations and individuals. Although it is not entirely clear what maintaining adequate procedures entails, the Ministry of Justice did publish non-exhaustive practical guidance on how an organisation would go about trying to achieve this. Firstly it mentions that organisations’ bribery prevention policies are likely to include:
- its commitment to bribery prevention;
- its general approach to mitigation of specific bribery risks, such as those arising from the conduct of intermediaries and agents, or those associated with hospitality and promotional expenditure, facilitation payments or political and charitable donations or contributions; and
- an overview of its strategy to implement its bribery prevention policies.
Th guidance then goes on to talk about the procedures which such anti-bribery policies might mandate (again non-exhaustively), including:
- the involvement of the organisation’s top-level management;
- risk assessment procedures;
- due diligence of existing or prospective associated persons;
- the provision of gifts, hospitality and promotional expenditure; charitable and political donations; or demands for facilitation payments;
- direct and indirect employment, including recruitment, terms and conditions, disciplinary action and remuneration;
- governance of business relationships with all other associated persons including pre and post contractual agreements;
- financial and commercial controls such as adequate bookkeeping, auditing and approval of expenditure;
- transparency of transactions and disclosure of information;
- decision making, such as delegation of authority procedures, separation of functions and the avoidance of conflicts of interest;
- enforcement, detailing discipline processes and sanctions for breaches of the organisation’s anti-bribery rules;
- the reporting of bribery including ‘speak up’ or ‘whistle blowing’ procedures;
- the detail of the process by which the organisation plans to implement its bribery prevention procedures, for example, how its policy will be applied to individual projects to different parts of the organisation;
- the communication of the organisation’s policies and procedures, and training in their application; and
- the monitoring, review and evaluation of bribery prevention procedures.
Regulation – deferred prosecution agreement
The SFO is the main prosecutor with responsibility for enforcing the Bribery Act in England and Wales. In practice, most bribery cases investigated by the SFO have been subject to a deferred prosecution agreement (DPA). A DPA is an agreement reached between a prosecutor and an organisation which could be prosecuted, under the supervision of a judge. The agreement allows a prosecution to be suspended for a defined period provided the organisation meets certain specified conditions.
DPAs enable a corporate body to make full reparation for criminal behaviour without the collateral damage of a conviction, they are concluded under the supervision of a judge, they avoid lengthy, costly trials and are transparent, public events. The key to a successful DPA is the full cooperation and transparency of the organisation under investigation. The most significant DPA was completed in January 2017 between SFO and Rolls-Royce. This case was significant for two reasons: that self-reporting suspicions of bribery was not a bar to a DPA, and the size of the settlement payment which was close to £500m.
Bribery Act Section 7 conviction
In December 2015, the Sweett Group Plc became the first company to be convicted under the Bribery Act Section 7(instead of entering a DPA). The case demonstrated the importance of cooperation with the SFO if a DPA is sought.
In Petrofac’s case, the SFO has not confirmed whether DPA negotiations were intended or why this case was resolved by a prosecution. It is therefore a timely reminder for organisations that, while the SFO is clearly willing to offer DPAs, this may not always be the case. In sentencing, the judge remarked that “Petrofac accepts that the procedures in place up to 17 May 2017 were inadequate to prevent bribery.” It is significant that Petrofac did have some, albeit inadequate, anti-corruption procedures in place. The sentencing remarks stated that they were easily bypassed.
Here to help
The conviction of Petrofac (as opposed to the reaching of a DPA) is a reminder of the seriousness of failing to comply with anti-corruption laws. As Lisa Osofsky, Director of the Serious Fraud Office, said “by pleading guilty, Petrofac Limited has accepted that senior executives within the Petrofac Group acted deliberately and without conscience in the pursuit of greed… Today’s result should serve as a warning: the SFO will use all the powers at its disposal to root out and prosecute companies and individuals, whose criminal activity detrimentally affects the reputation and integrity of the United Kingdom.”
Bribery Act Section 7 compliance is not a box-ticking exercise. Organisations need to carry out risk assessments on an on-going basis and monitor their supply chains. They also need to put proper policies and procedures in place. Such policies and procedures are likely to vary widely depending on the circumstances. This is why legal advice will often be needed. Staff training is also a requirement in any compliance programme.
If you have any questions on Bribery Act Section 7 compliance or if you would like us to help you with staff training please get in touch.