Investigations and Decisions
U.K.: Criminal proceedings brought against Alstom subsidiary by SFO
Following an investigation lasting five years, on 24 July 2014 the SFO commenced criminal proceedings against Alstom Network UK Ltd (“ANUK”), a UK subsidiary of Alstom, the French transport and power giant.
ANUK has been charged with three offences of corruption and three offences of conspiracy to corrupt in respect of alleged bribery, false accounting and money-laundering in respect of large transport projects in India, Poland and Tunisia, between June 2000 and November 2006.
In 2010 the SFO arrested three members of Alstom's board in the UK in connection with the allegations. The investigations into two of them - Robert Purcell and Stephen Burgin, were subsequently dropped while the third, Altan Cledwyn-Davies, died shortly after his arrest. However, the SFO continued its investigation into the company’s activities.
In November 2011 Alstom was fined €31m by Switzerland’s attorney-general for negligently failing to stop bribery by some employees in Latvia, Malaysia and Tunisia. However, the investigation did not find any criminal wrongdoing by the company and a Swiss affiliate, and the Swiss attorney-general stated that there was “no evidence of a systematic way with regard to criminal acts or of systematically accumulated ‘slush funds’.”
The first hearing in this case will take place on 9 September 2014, at Westminster Magistrates Court. David Green, director of the SFO, has said that charges against individuals may follow those against the company.
U.K.: SFO opens investigation into Sweett Group
The SFO confirmed on 14 July 2014 that it has opened an investigation into allegations published in the Wall Street Journal that a former employee of Sweett Group, the global construction and property services company, paid bribes in 2009-11 to a United Arab Emirates official inside the personal foundation of the president Khalifa bin Zayed al Nahyan, to win a $100m (£58.2m) hospital contract in Morocco being funded by the foundation. A former Sweett director is also alleged to have told architects bidding for the contract to design the hospital that they would have to pay a "service charge" of 3.5% of the contract price to UEA officials to win the project. The architects initially paid the money but later stopped the payment on legal advice. Sweett denies that any money was paid.
Sweett Group launched its own internal investigation into the allegations and is now reported to be co-operating fully with the SFO. Sweett is one of the oldest UK construction surveying and services companies and is listed on the UK AIM.
The SFO’s press release is available here.
U.K.: Arrests in SFO’s investigation into corruption by Airbus subsidiary GPT
It has been reported that the SFO questioned up to seven people over the weekend of 5-6 July 2014 in connection with alleged corruption in Saudi Arabia by a subsidiary of Airbus, the European aircraft and defence group. Four former and current staff of GPT Special Project Management Ltd ("GPT"), which supplies communications equipment, were arrested and released on bail after questioning. A number of other people, who do not work for Airbus, were also questioned but not arrested including, according to the Financial Times, two UK Ministry of Defence officials.
The SFO opened a criminal investigation into allegations concerning GPT and aspects of the conduct of their business in Saudi Arabia in August 2012, looking into allegations of bribery relating to a £2bn contract to provide communications and intranet services for the Saudi national guard, which protects the kingdom's royal family. Allegations of corrupt subcontractor payments and gifts to Saudi generals by GPT were made in 2011 to the SFO by Ian Foxley, a former employee of GPT based in Saudi. An internal audit by PwC commissioned by Airbus in 2012 to investigate whether improper payments had been made concluded that there was no evidence of any such payments. Initially the SFO had not intervened in the investigation but, following a review of all of the SFO's on-going cases by the then newly–appointed director, David Green, a formal criminal investigation was launched.
An SFO spokesman said: "We can confirm that a search warrant has been executed and a number of arrests have been made. Officers from the National Crime Agency assisted the SFO with its operation." However, no further details have been posted on the SFO website and its entry regarding the GPT investigation has not been updated.
Airbus has commented: "Airbus Group understands that four former and current employees were recently interviewed under caution as part of a wide-ranging SFO investigation into subsidiary GPT. At this stage we cannot add anything further to our previous statements on this matter."
U.K.: Former trader charged with insider dealing
A former Schroders equity trader has been charged with nine counts of insider dealing following an investigation brought by the FCA. Damian Clarke is accused of committing offences relating to share trading and spread betting between 2003 and 2012. Mr Clarke was dismissed by Schroders in early 2013 for gross misconduct. The bank, which has not been the subject of any investigation, released a statement underlining the fact that it does not tolerate behaviour which runs counter to its “core value of integrity”.
The FCA is currently prosecuting seven other individuals for insider dealing, having secured 24 prosecutions to date. The majority of those waiting to stand trial have been charged in connection with Operation Tabernula, the regulator’s largest insider dealing investigation. In its 2014/15 Business Plan, the FCA indicated that it intended to examine the steps firms are taking to ensure trading is conducted in a way which is consistent with the FCA’s expectations as to market integrity.
UK: Former Alba boss jailed for bribery
Bruce Hall, the Australian former chief executive of Bahrain's state-owned aluminium producer Alba, has been sentenced to 16 months in prison after pleading guilty to conspiracy to corrupt. He has also been ordered to pay a confiscation order of nearly £3.1 million and a further £500,000 to Alba in compensation. Hall admitted receiving a series of corrupt payments from Sheikh Isa bin Ali al-Khalifa, a senior member of the Bahraini ruling family and the former chairman of Alba, as part of a larger conspiracy involving contracts worth $3 billion (£1.8 billion) between 1998 and 2006. Sheikh Isa has denied the payments were corrupt as they had been approved by Alba’s board.
Hall, who was sentenced at Southwark crown court by Judge Nicholas Loraine-Smith on 22 July 2014, is the only person so far to be convicted in respect of the alleged conspiracy. He was due to give evidence for the SFO in its prosecution of Victor Dahdahleh, who was accused of paying £38 million of bribes to Sheikh Isa in return for the Alba contracts. The case against Dahdaleh collapsed in spectacular fashion in December 2013 due in part to a change in Hall's evidence.
Hall will need to fulfil the confiscation order within seven days or face an additional term in prison. Judge Loraine-Smith noted that Hall had co-operated with the investigation and that this had been taken into account when passing sentence. Nonetheless, he told Hall that “[i]n any view, this was an extremely serious use of corruption. … There was a reluctance by you to accept that what was done by you was as corrupt as it so obviously was."
The collapse of the case against Victor Dahdaleh is considered in our previous Financial Crime Update.
UK: Supreme Court rules that bribes and secret commissions are property of principal
Overturning long-existing authority, the Supreme Court has ruled that bribes and secret commissions received by an agent should be treated as the property of its principal, giving the principal a proprietary remedy against the agent and not merely a claim for equitable compensation. The Supreme Court also noted that there is currently considerable concern worldwide about the impact of bribery and corruption. It considered that there are good public policy reasons why the law should be particularly stringent when dealing with claims against agents for bribery or secret commission.
Upholding the Court of Appeal judgment, the Supreme Court held that a secret commission received by the defendant, Cedar Capital Partners LLC, when acting as agent for FHR European Ventures LLP (“FHR”) in the purchase of the issued share capital in a hotel in Monte Carlo, was to be treated as the property of FHR, giving rise to a proprietary claim on behalf of the FHR and not merely a claim for equitable compensation. Prior to this decision there were two lines of authority stretching back over 200 years and giving rise to opposing principles: that money received by an agent as a secret commission or bribe would be held by the agent on trust for its principal (the "Proprietary Rule"); and the conflicting view that in such a case the principal would have merely a claim for equitable compensation but no proprietary interest in the bribe or secret commission. This latter strain was most recently approved by the Court of Appeal in Sinclair Investments (UK) v Versailles Trading Finance Ltd .
However, the Supreme Court has now found that there are practical and policy considerations for holding that the Proprietary Rule applies to all unauthorised benefits acquired by an agent and not just those derived from assets which were, or should be, the property of the principal. In doing so it expressly overruled Sinclair and the line of cases preceding it, saying that the law had taken a "wrong turn" in the nineteenth century cases of Tyrrell v Bank of London (1862) and Metropolitan Bank v Hieron (1880).
This decision should make it easier for a principal to recover benefits obtained by agents in breach of fiduciary duty. The agent will be considered a constructive trustee for its principal and obliged personally to account for any benefits it receives. Furthermore, in the event of the agent's insolvency, the principal will be able to claim priority over other creditors, and use trust principles to trace property that has passed into the hands of third parties.
Case: FHR European Ventures LLP and others v Cedar Capital Partners LLC  UKSC 45 (15 July 2014)
The judgment is available from the Supreme Court website, here.