Comment: Bribery case highlights justice of Scots system

In March, my colleague Tom Stocker discussed in these pages the findings of a House of Lords select committee which reviewed the 2010 Bribery Act, and specifically how businesses self-report suspected bribery and corruption. While describing the act as “international gold standard” , the select committee did highlight the difference between the two systems of corporate self-reporting in Scotland and the rest of the UK.

In England and Wales, Deferred Prosecution Agreements (DPAs) can be used to allow bribery cases and a range of other financial crimes by companies to be resolved without the companies involved being convicted of offences. In addition to recovering illicit profits, penalties and future compliance obligations are imposed. To avail itself of a DPA, a company must co-operate with the prosecutor but self-reporting is not a prerequisite.

In Scotland, the Crown Office and Procurator Fiscal Service (COPFS) operates a civil settlement regime. These are only available when a business self-reports corporate bribery to the prosecutor and co-operates. Under the settlement, illicit profits are removed but there is no added financial penalty for the self-reporting company.

The select committee suggested the lack of a financial penalty might make it appear that a company has little to lose by self-reporting. The Lord Advocate, the Rt Hon James Wolffe, QC, did not agree that civil settlements were a soft option and argued before the committee that the Scottish regime was effective.

The UK government responded to the findings of the committee in May and confirmed that there were no plans to legislate to introduce a system of DPAs in Scotland. This position has now been reaffirmed as, at the end of June, the Lord Advocate approved an extension of the corporate self-reporting initiative until June 2020.

The benefits to a business self-reporting a case of suspected bribery were highlighted by a recent court case brought by the Serious Fraud Office (SFO) against company director Carole Ann Hodson.

Hodson was the former MD and majority shareholder of ALCA Fasteners. It was discovered after she had exited the business that Hodson had paid almost £300,000 of bribes to a purchasing manager at a Norwegian client of ALCA Fasteners.

False invoices were created to justify payments not related to genuine transactions, with Hodson later lying to her company’s auditors to disguise the true nature of the payments. To maintain the value of her company prior to selling it in 2017, Hodson then lied to the purchasers by claiming that the company had not been involved in any unlawful conduct. These facts created personal and corporate criminal liability.

The new company owners self-reported the issue and the SFO launched an investigation. Hodson was duly prosecuted but ALCA Fasteners was not. At Wolverhampton Crown Court last month Hodson was sentenced to two years in prison, disqualified from being a company director for seven years, and ordered to repay £4.5 million.

This case highlights the potential benefit of self-reporting by companies in appropriate cases. No action was taken against the company, rather it was the former owner who was pursued and prosecuted by the SFO. It is a reminder that, if a business reports a suspected incident of bribery in a timeous fashion and is forthright and frank about the circumstances, the public interest may be served by taking action against the individual wrongdoers, rather than the company itself.

In Scotland we have a unique corporate self-reporting and civil settlement regime which has at its heart the objective of promoting corporate transparency, by providing a more lenient outcome for business which have the courage to address corrupt practices. In renewing the corporate civil settlement regime, the Lord Advocate and COPFS are to be commended.

- Alistair Wood, Pinsent Masons corporate crime and investigations team.