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News that The Serious Fraud Office (SFO) yesterday managed to win a civil recovery order against the principal investor of a company that had admitted corruption should come as a major wake-up call to investors and shareholders, say business risk experts Interchange –

The shareholder is now required to pay back dividends gained as a result of corruption in Iraq bridge-building contracts. The SFO took action in the High Court, which subsequently led to an order for the company, Mabey Engineering (Holdings) Ltd, to pay over £130,000 in recognition of sums it received through share dividends derived from contracts won through unlawful conduct.

“This is a very significant move by the SFO which should finally start to have investors asking searching questions of the companies in which they are investing or have already invested,” says John Burbidge-Kind, CEO of Interchange. “This is the first time that the SFO has attempted to recover the proceeds of crime by targeting dividends paid in the UK. It sets an enormous precedent for investors and is even being reported that such action could hit pension funds if applied to listed businesses.”

“Shareholders and investors in companies are obliged to satisfy themselves with the business practices of the companies they invest in,” said Richard Alderman, Director of the SFO. “The SFO intends to use the civil recovery process to pursue investors who have benefited from illegal activity. Where issues arise, we will be much less sympathetic to institutional investors whose due diligence has clearly been lax in this respect.”

This action by the SFO follows recent reports that the Government plans to make shareholder remuneration votes mandatory in an attempt to curb excessive executive pay. “We may be seeing a very different relationship developing between company boards and their investors,” says John Burbidge-King.

For shareholders now concerned about their investment portfolios, Interchange has collated just a few questions that they might be asking of a company board at this year’s AGM:

• Has the company conducted a formal risk assessment of both the impact of bribery and the Bribery Act 2010, and what measures has it taken to mitigate that risk?

• Is the Audit Committee, or any other appropriate board committee, briefed? And does it understand the nature of the risks? Have members been trained to ask the right questions of the executive directors and management?

• Exactly who in the company has taken on the responsibility for ensuring compliance with the Bribery Act?

• Are you aware of any bribery or corruption that has taken place in the business in the past three years?

• Have any of the directors or agents in the business been involved in bribery in the past?

• Does the company engage with agents overseas, and if so how sure are you that they are not involved in bribery?

• Does the company have adequate procedures in place to prevent bribery as set out in the Ministry of Justice Guidance, and by now if not why not?

• Are there formal policies in areas such as Gifts and Hospitality and proper records kept?

• Is the company prepared for an external investigation by the Serious Fraud Office that will include all financial records including records and authorities for the payment of all agents and those “associated persons” acting on behalf of the company?

• Will the company’s insurers cover the costs of an investigation, and in the worst case the defence?

“The AGM represents a prime opportunity for stakeholders in the business to ask direct, face to face questions of the directors responsible for governing the company,” adds John Burbidge-King. “The act of bribery and corruption itself is damaging enough if found guilty by the authorities, but the worst case scenarios demonstrate that the financial fallout goes a long way beyond direct penalties and will impact on the share price; honest investors dislike dodgy dealings and companies that do not hold up to scrutiny often find their share prices in free fall as a result.”

Canadian-British billionaire Victor Dahdaleh will today appear before a court in connection with fraud allegedly perpetrated against Aluminium Bahrain B.S.C., also known as Alba. The state-owned aluminium smelter claims that Dahdaleh and others bribed senior officials to overpay for millions of tons of raw material.

For further information or to speak with John Burbidge-King, please contact:

Glen Goldsmith
Tel: +44 (0) 1483 811 234

About Interchange –

Formed in 2006, Interchange has an internationally experienced team of hands-on risk experts, all from a corporate background, operating exclusively in the field of mitigating bribery, corruption fraud and reputational risk.

Our sole focus is to help companies and organisations of all sizes and across all sectors underpin their reputation and enhance their business value by taking practical steps towards bribery risk mitigation while continuing to grow their business.

We work with customers across the world to understand and assess the specific risks they face and then help them to develop, implement and embed effective mitigation policies and processes into their business strategy.

We achieve this through a range of services and products, including executive education and briefings, risk based audits, training, policy, implementation process & documentation, and integrity due diligence of representatives and business partners, tailored to fit within your governance and risk management operating model.

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