Bribery, Debarment and DPAs in the Construction Industry: an updateOctober 2021
What has happened? Why is it relevant?
On 17 August 2021, five individuals (including two former senior executives) appeared in court having been charged by the Serious Fraud Office (“SFO”) with various counts of bribery and money laundering. The charges were brought under S 1 and 2 of the Bribery Act 2010 (the “Act”) and S 328(1) of the Proceeds of Crime Act 2002.
The charges made against the individuals relate to the suspected payment of bribes to win contracts within the UK construction sector. These highlight the need for construction firms to be vigilant to the risks of bribery or corruption occurring. Construction is widely considered to be high risk in terms of the occurrence of bribery and fraud for a number of reasons:
- the competitive nature of the industry and the pressure of winning high value contracts;
- the complex supply chains common within the industry which often span frontiers, making it more difficult to monitor the activities of associated organisations working on the business’ behalf; and
- the typical complexity of projects and layers of bureaucracy (e.g. applying for licences or permits) which makes corrupt conduct easier to hide and gives more opportunities for bribery and kickbacks to occur.
Penalties are severe for infringing the Act. There is a maximum penalty of 10 years’ imprisonment and/or an unlimited fine for individuals. Corporate defendants face an unlimited fine.
What is known about the prosecution?
Given the prosecution remains live, the SFO has made little comment at this time. We know only that two former senior executives are charged with four counts of bribery and two counts of money laundering for suspected offences between 2014 and 2016. Two other men are charged with receiving the suspected bribes. Bribes were reportedly given in connection with securing construction contracts.
The SFO has also charged another individual with two counts of money laundering. These individuals were charged at an earlier date. All individuals made their first appearance at Southwark Crown Court on 17 August 2021. The case has been listed for trial, to commence 12 September 2022. The SFO opened its investigation in February 2017.
10 years on: What has been the impact of the Act?
The case coincides with the ten year anniversary of the Act and the proposal of relevant amendments to the UK laws on public procurement, which are expected to be tabled before Parliament this winter.
The initial aim of the Act was to improve compliance with anti-bribery and corruption laws. It consolidated the previous law around a number of core offences:
- offering, promising or giving a bribe to another person (S 1 of the Act);
- requesting, agreeing to receive or accepting a bribe from another person (S 2 of the Act);
- bribing a foreign public official (S 6 of the Act); and
- the corporate offence of failing to prevent bribery (S 7 of the Act).
Views differ on the extent to which the Act has secured its goals. The number of cases taken to Court under the Act has been relatively low but is steadily rising. Between 2010 and 2017, there were only two prosecutions. That number has jumped to four for the period between 2018 and 2021.
One of the innovations of the Act was the introduction of a corporate offence of a commercial offence failing to prevent bribery (S 7 of the Act). The offence may be committed where a company fails to prevent bribery being committed by a party with whom it is associated (e.g. consortium partners, agents or sub-contractors), either in the UK or anywhere else in the world.
S 7 created obvious risks for businesses involved in international construction, particularly when working in jurisdictions with high levels of corruption. Indeed, the first company to be prosecuted for an offence under S 7 was construction and professional services company Sweett Group plc, sentenced and ordered to pay £2.25 million as a result of a conviction arising from a SFO investigation into its activities in the United Arab Emirates.
To enable organisations to manage the risk of responsibility for an act of bribery committed by parties beyond their control, the Act introduced the “adequacy defence” opposable to any S 7 charge. The defence may excuse an organisation from liability where it had taken steps to put in place adequate measures to prevent bribery. These include top-down commitment to compliance, anti-bribery training and policies.
Proposed reform of public procurement laws
One of the reasons why there have not been more bribery cases taken to court may be the SFO’s reliance on Deferred Prosecution Agreements (“DPAs”) to enforce the Act. DPAs are agreements that suspend prosecutions for a defined period provided the organisation meets certain conditions, usually payment of a penalty or compensation. If the beneficiary of a DPA violates its terms, it can at that point face prosecution for the charges to which the DPA relates. The terms of the DPA must be approved by a Court before the agreement can take effect.
From the perspective of a corporate defendant, a DPA may provide the benefit of avoiding a formal criminal conviction, thereby reducing the probability of debarment from competing for government contracts. In Serious Fraud Office v. Rolls Royce, the Court endorsed a proposed DPA after taking account of the effect on the defendant’s shareholders and employees if it were to be debarred from government contract opportunities. Public sector work accounted for 10-15% of its total revenues.
The Government has recently consulted on proposed reforms to UK procurement law with a Parliamentary Bill expected this winter. The procurement rules currently provide a list of debarment grounds, split between mandatory grounds (which require exclusion by the authority) and discretionary grounds (which permit exclusion where proportionate). Changes have been proposed to these lists.
A conviction under S 1, 2 or 6 of the Act is currently a ground for mandatory exclusion (Reg 57(1)(d) of the Public Contracts Regulations 2015 (“PCRs”)). This would kick in for either a conviction of the organisation itself, a member of its executive body (e.g. a director) or a person with control over the organisation (e.g. a parent company). The “corporate” offence under S 7 of the Act is not an express ground for debarment but may constitute “grave professional misconduct”, a discretionary ground under Reg 57(8)(c) of the PCRs.
DPAs are not referenced in the lists. There is therefore an argument that a contracting authority should not, in the absence of a conviction, exclude a bidder for an offence documented in the DPA. Although a contracting authority could attempt to exclude for documented “grave professional misconduct”, the legislation is silent and there is no direct case law to support the position.
The proposed reforms would mean that DPAs fell within the list of grounds for exclusion for the first time. That would alleviate the current legal uncertainty and give greater scope for exclusion. As a discretionary ground, there would also be leeway for a contracting authority not to exclude a DPA signatory. For that reason, the Government hopes defendants would still have some appetite to negotiate DPAs with prosecuting authorities. It will be interesting to see how this plays out in practice.
Looking beyond bribery, the Government has proposed amending the procurement rules to ensure that suppliers are excluded for offences related to fraud against UK financial interests by including a mandatory exclusion ground for criminal convictions related to fraud. This will plug a gap in the current regulations, which only require exclusion for fraud against EU institutions. The recent prosecutions illustrate the potential overlap between bribery and other offences, such as money laundering or conspiracy to defraud. It will also be interesting to see whether S 7 is mentioned (or implied) anywhere in the new list of mandatory debarment grounds as an “offence related to fraud”.
The case against the five individuals has been listed for trial in September 2022. Further details will be released by the SFO once proceedings are concluded. This case – and the steadily growing number of prosecutions for bribery offences – provide evidence of increased enforcement activity in this area, with the construction industry a keen focus.
Clearly, businesses must be alert to the risk of bribery, fraud or other economic crimes occurring within the organisation. Penalties are severe and the changes to the procurement rules would raise the stakes even further.
Robust anti-bribery and corruption procedures and policies are imperative. Staff members should be given regular training on these matters and taught how to report any suspicions of bribery, corruption, money laundering or other fraudulent conduct. That is not only with the “adequacy defence” in mind, but more importantly to prevent offences occurring in the first place. Even where policies and training are already in place, it is important to keep these under review and ensure they remain fit for purpose.
Commercial pressures on businesses and individuals have substantially increased as a result of the pandemic, meaning individuals may be more willing to take risks to win work, even where they understand the law. For that reason, businesses need to have in place effective monitoring and reporting structures so any unlawful conduct can be speedily apprehended and appropriate steps taken without delay.
Other key questions for the organisation to consider are:
- has due diligence been carried out on any joint venture and supply chain partners with regard to bribery and corruption compliance? Is there a policy to underpin such procedures?
- does the organisation carry out due diligence systematically before implementing projects of high value or strategic importance?
- does the organisation have effective tools to conduct due diligence? Does it know the right questions to ask or the appropriate resources to use? Would it have the wherewithal to spot red flag issues?
- have the business’ values been clearly communicated to its trading partners? Are contracts in place to ensure these parties will comply with the organisation’s anti-bribery and anti-fraud policies?
- have new employees received training since the previous rounds of training were given? did employees find the previous training clear and helpful but also relevant to their day-to-day functions?
- does the organisation have an internal reporting (“whistle-blowing”) policy to allow staff to report concerns arising in the organisation?
- if such a policy is in place, have GDPR / data protection issues been addressed within the policy, given the sensitivity of personal data involved?
We would be happy to assist any client with implementing these policies or reviewing their current organisational compliance and training procedures.
 Case No: U20170036, date: 17 January 2017Download PDF