It seems that everything that happens in the bribery / corruption space these days is touted as establishing a new trend with wide implications.
Recently the U.K. Serious Fraud Office (“SFO”) announced here that Mabey Engineering (Holdings) Ltd., the parent company of Mabey & Johnson Ltd., forked over approximately £130,000 via a civil order based on the improper conduct of Mabey & Johnson Ltd. See here for the prior post summarizing the Mabey & Johnson Ltd. enforcement action. In the release, SFO Director Richard Alderman said that there are “two key” messages. “First, shareholders who receive the proceeds of crime can expect civil action against them to recover the money.” Second, “shareholders and investors in companies are obliged to satisfy themselves with the business practices of the companies they invest in. [...] The SFO intends to use the civil recovery process to pursue investors who have benefited from illegal activity.”
One source said that the Mabey & Johnson development “could have far-reaching implications.” Another called it a “landmark development” and a “further pressure point for companies to put in place preventative measures or else they and their shareholders face the consequences.” Another called it a “concerning development.” Another stated that the SFO is now recovering “tainted dividends from innocent investors.” Another stated that the SFO is beginning “to claw back dividends paid by companies that are convicted on criminal charges.
All that occurred with the recent development is that Mabey Engineering (Holdings) Ltd., the parent company of Mabey & Johnson Ltd., paid money in a civil action based on the improper conduct of Mabey & Johnson Ltd.
This is hardly revolutionary. Nearly every FCPA enforcement action involves (query whether it should) the parent company being held accountable often in the context of a DOJ non-prosecution or deferred prosecution agreement or an SEC civil action for the alleged improper conduct of its (sometimes very distant) subsidiary companies.
Much was written about Alderman’s statement that Mabey Engineering (Holdings) Ltd. “was totally unaware of any inappropriate behavior.” However, the same is true in the majority of FCPA enforcement actions in the U.S., there is no allegation, suggestion, or implication that the parent company knew of or authorized the improper conduct at issue. The standard that the U.S. enforcement agencies advance is essentially strict liability.
In this alert, Covington & Burling LLP attorneys Robert Amaee, John Rupp, and Alexandra Melia rightly tempered the brewing storm by laying out reasons why the Mabey & Johnson development “does not set a wide ranging precedent.” The Bribery Act “guys’ (here) nicely set forth the issues as well.
Indeed, in an e-mail statement, Richard Alderman told me as follows.
“The focus of this going forward will be on investors who have the ability to influence management. This will normally be the institutions (or major family shareholders) rather than small retail investors. We are looking to the major shareholders to help ensure that the companies in which they invest have an appropriate anti-corruption culture. In the regular discussions they have with management for example we would expect them to ask if the company is satisfied that it has adequate procedures under the Bribery Act. After all, this sort of dialogue is needed in view of the damage to the share price that can happen if there is a corruption investigation. We are looking to the future with this and are not looking to go back over cases that have been finished.”
In another U.K. development, the SFO recently announced here that former Innospec executive David Turner pleaded guilty to three counts of consppiracy to corrupt.