Reed Smith Client Alert

Authors: Charles Hewetson Eoin O'Shea George Brown Rosanne Kay

The UK’s Serious Fraud Office has made clear that its anti-bribery investigations are focussed on two industries in particular: construction and energy. Construction firms especially are under-prepared for the risks which this new approach will bring, and need to take action quickly.

Making a Clean Sweep

In a recent speech, David Green, Director of the SFO, said that the agency would adopt a “sweep” approach and focus on specific industries. The sweep approach involves seeking out intelligence, including by covert means, to identify businesses which might be breaking the law. Whistleblowers and co-operating witnesses will then be actively encouraged to provide information about their own and competitor companies. The idea is to build up a detailed picture of corrupt practices industry-wide. This inside information will then drive dawn raids, and document production orders, arrests and charges against a large number of individuals and companies.

Most international energy companies will have been exposed to the U.S. Foreign Corrupt Practices Act for some time and will have significant anti-bribery measures in place (though how effective these are is another question). Construction, as a sector, is not as well prepared. It is a particularly juicy target for the SFO because of its historic exposure to government contracting and international markets. Moreover, there is a general view that corruption is rife, with a recent survey indicating that 48% of respondents believe that corruption is “common” within the industry in the UK. You can find the report from the Chartered Institute of Building here.

A similar industry-sweep approach in the United States has seen numerous prosecutions in the pharmaceutical and medical devices sectors, for example, with huge effects on the finances and prospects of some of the biggest names in those industries.

What Next for Construction?

So what is the prospect for the UK construction industry? Here is a prediction: in the next two years, at least two large international firms will be forced to announce SFO investigations in connection with infrastructure projects. There are likely to be several other unannounced investigations. How many actual convictions or prosecutions will ensue is impossible to say, but any firm announcing such an investigation will almost certainly see an effect on its share price, its ability to recruit, and its customer-base, not to mention the serious worry about whether it faces blacklisting under EU procurement rules.

Anecdotally, SFO people seem more confident that important cases are in the pipeline. They are bringing more corruption cases to court. The push to prosecute economic crimes that would have been ignored 10 years ago (such as the charges against newspaper editors for corruption and phone-hacking) is getting much stronger.

Action Required

If you are in the construction industry, then ignoring bribery risk (never a clever approach) for the next four to five years amounts to playing Russian roulette with the future of the company.

The penalties under the UK Bribery Act for individuals and companies are severe. Executives who collude in or cover up this behaviour are also facing career-ending consequences, including serious jail time. A company faces strict liability if its procedures are not adequate. The Act, and the SFO’s approach to enforcement, have been widely advertised, so no one can say they weren’t warned.

Construction firms should start protecting themselves now. They should review and update anti-bribery policies and procedures and make sure they are being implemented. They should quickly investigate rumours or reports of payoffs, kickbacks, bid-rigging, cover-pricing, and invoice-padding. They should investigate historic practices such as giving discounted or free work, cash payments or lavish perks to purchasing managers, planners or other decision-makers. This applies to customers and also to referral sources such as architects, surveyors and sub-contractors. It applies to both UK and international projects.

Reed Smith’s Global Regulatory and Enforcement Group

Reed Smith’s Global Regulatory and Enforcement (GRE) Group draws together international experience in antitrust and competition, export regulation, government procurement, data security, civil and criminal fraud, and other executive and corporate liability, to help clients with regulatory compliance and enforcement actions worldwide. It includes one of the world’s largest anti-corruption and white-collar investigations practices, with expert lawyers in the UK, the United States, Continental Europe, Middle East and Asia. As well as advising once external investigations have commenced, our specialist team employs a multi-disciplinary and multi-jurisdictional approach to assist clients in drafting compliance plans, supplying training, performing due diligence, undertaking internal investigations, and providing day-to-day transactional advice.

 

Client Alert 2013-304