SFO civil settlement with Macmillan: cooperation and cost shifting assists the SFO
On 22 July 2011 the SFO announced it had entered into an £11 million civil settlement with UK company, Macmillan Publishers Limited; the fifth and largest civil settlement entered into by the SFO to date.
Pursuant to a High Court Civil Recovery Order, Macmillan has been ordered to pay £11,263,852.28 (plus £27,000 for the SFO’s costs) in recognition of the proceeds it received as a result of unlawful conduct related to its Education Division in East and West Africa.
At a time when many are questioning the SFO’s budget and ability to fund and pursue multiple large scale corruption investigations, the settlement with Macmillan demonstrates that SFO investigations can reach an outcome in a timely and cost effective manner. The model followed for the Macmillan investigation is likely to be replicated for investigations into offences under the Bribery Act.
The settlement with Macmillan came approximately 16 months after the matter was brought to the attention of the SFO and was the result of a combination of inter-authority referrals and extensive cooperation, both between the authorities and with Macmillan itself.
The SFO began its investigation into Macmillan in March 2010 following a referral from the World Bank’s Integrity Vice Presidency, which is responsible for investigating allegations of fraud, collusion and corruption in World Bank projects. The World Bank’s own investigation was commenced after an agent attempted to pay a bribe in support of an unsuccessful bid to secure the award of a World Bank funded tender to supply education materials in Southern Sudan. As a result of its investigation and admissions made by Macmillan, the World Bank debarred Macmillan from being awarded contracts financed by the Work Bank for a minimum period of three years.
The SFO cooperated closely with the World Bank and the City of London Police to identify the three jurisdictions in which Macmillan’s conduct was to be investigated (namely Rwanda, Uganda and Zambia) and to subsequently investigate all of the public tender contracts in those three jurisdictions in which Macmillan was involved in the period 2002 – 2009, whether funded by the World Bank or otherwise.
Commenting on the settlement, Stephen Zimmermann, Director of Operation, World Bank Integrity Vice Presidency stated:
“Today’s announcement is testament to the importance of unified global action against corruption to ensure efforts to educate the children of Sudan and other developing countries are not undermined by corruption...
...To be truly effective in breaking the cycle of corruption, we must leverage the impact and deterrent effect of the World Bank’s investigations and referrals.”
In addition to co-operation with the World Bank and City of London Police, one of the key ways in which the SFO was able to conduct such a large scale investigation cost effectively was to shift the burden and cost of much of the investigation work on to Macmillan itself. Macmillan was required to follow a procedure that complied with the Serious Fraud Office's guidance on self reporting in respect of overseas corruption. At Macmillan’s own cost it instructed external lawyers to review the company’s books and records in order to identify areas of corruption risk. The SFO used the results of this initial investigation to select the areas of the business and the three jurisdictions that would be the focus of its investigation. The baton was subsequently passed back to Macmillan’s external lawyers, who conducted detailed investigations into the business activities of Macmillan’s Education Division operating in East and West Africa. The results of those investigations were presented to the SFO and the World Bank, and were regarded by the SFO as being thorough and satisfactory. The costs of those investigations were met by Macmillan.
It would appear that the speed and efficiency of the investigation into Macmillan had a great deal to do with Macmillan’s own willingness to provide its full cooperation to the SFO and the World Bank. In return, it avoided a protracted investigation into its affairs by the SFO, which would likely have resulted in extensive cost and disruption to the business and possibly a criminal prosecution.
In response to the settlement, Richard Alderman, Director of the Serious Fraud Office stated:
"I am pleased with this outcome. Civil recovery allows us to deal with certain cases of corporate wrong-doing effectively. It delivers value for money to the public by saving the cost of lengthy investigations and protracted legal proceedings and removes any property obtained as a result of the wrong-doing. At the same time it forces the company to reform its practices for the future."
Given the success of the SFO’s approach in reaching a quick and cost efficient outcome through cooperation and the use of the civil recovery route as opposed to a criminal prosecution, we can expect to see more of the same.