SFO to pursue dividends paid through ill-gotten-gains

Richard Alderman, Director of the SFO, issued the warning after the SFO won a High Court ruling entitling it to recover £131,201 from the parent company of an engineering firm after it had received dividend payments from a subsidiary that had acted illegally in generating the revenue.

Alderman advised third-party shareholders to familiarise themselves with the "business practices" of firms they invest in and said "institutional investors" must conduct proper due diligence if they are to benefit from the SFO taking a more sympathetic approach to enforcement.

"Shareholders who receive the proceeds of crime can expect civil action against them to recover the money," Alderman said in a statement. "The SFO will pursue this approach vigorously.

"In this particular case, however, the shareholder was totally unaware of any inappropriate behaviour," he said. "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."

"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," said Alderman. "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 benefitted from illegal activity. Where issues arise, we will be much less sympathetic to institutional investors whose due diligence has clearly been lax in this respect," he said.

The SFO recovered the £131,201 from Mabey Engineering (Holdings) Ltd after the organisation had received the amount from its subsidiary Mabey and Johnson Ltd (M&J). M&J had paid the dividends in relation to contracts it had to build bridges in Iraq, the SFO said. M&J reported "irregularities" to do with the contracts to the SFO in 2008 following an internal investigation and admitted to corruption charges and a breach of UN sanctions in 2009.

In 2011 three senior executives were found guilty of inflating the price of the contracts in order to pay "kickbacks" to the Iraqi state. The SFO subsequently took action to recover dividends paid to Mabey Engineering that had derived from the contracts. The Proceeds of Crime Act allows courts to confiscate money earned from criminal activity and reward prosecutors with some of the money recovered.

“The SFO has been threatening to pursue shareholders in relation to dividends that relate to corrupt contracts," Barry Vitou, expert in anti-corruption law at Pinsent Masons, the law firm behind Out-Law.com, said. "It took its first steps last year with the civil recovery against MW Kellogg, a subsidiary of Kellogg Brown and Root. The latest news makes good on these threats. This simply endorses for a firm that shareholders have a vested interest that companies they invest in behave ethically."

The SFO said that, following its cooperation, M&J had undergone a "transformation", with the company operating under new management, introducing new "anti-bribery and corruption procedures" and appointing an "independent monitor".

"We have been very impressed by [Mabey Group's] attitude and the clear commitment of the new management to ethical trading," Alderman said. "We get regular updates from the independent monitor about the business's ethics and controls and it appears that in many ways the Mabey Group is now leading the way in implementing controls and procedures to ensure that it is able to trade ethically in high-risk jurisdictions."

Alderman said the ruling represented "the final piece in an exemplary model of corporate self-reporting and cooperative resolution" and was a model to follow in future cases.

"This is the approach I would like to foster across the wider business community when it comes to the self-referral processes the SFO has created. The process should provide clarity, confidence and, ultimately for the business concerned, a resolution to the problem. It requires wholehearted support from the business concerned and we got this from the Mabey Group," Alderman said.

Peter Lloyd, Mabey Group chief executive, said companies that identify internal corruption should own up to the activity.

"We welcome the endorsement of the SFO for the rigorous approach we have taken to this major issue of ethical trading and of our conduct in the self reporting process. Self-referral in these circumstances is not an easy path to take, but, from our experience, it is beyond doubt the right one,” Lloyd said, according to a report on thebriberyact.com - a website operated by Barry Vitou and other anti-corruption lawyers.

The SFO is an independent Government department that investigates and prosecutes serious or complex fraud and corruption. It has previously encouraged businesses to self-report bribery uncovered in their organisations, in return for more lenient punishment.

Mabey Bridge chief executive Peter Lloyd will be speaking at one of a series of events early this year on practical steps companies can take to comply with the Bribery Act. To register your interest in attending the events, which are run by Pinsent Masons, the law firm behind Out-Law.com, please email [email protected]