Julian Messent, the former CEO of reinsurance broker PWS Holdings, has been jailed for 21 months, after a plea agreement with the SFO was approved on 26 October at Southwark Crown Court in London. He pleaded guilty to committing bribery in Costa Rica – admitting making or authorising corrupt payments of almost $2million between February 1999 and June 2002 to Costa Rican officials in the state insurance company, and the national electricity and telecommunications provider.
Further, in an interesting reparation move, he was ordered to pay £100,000 compensation within 28 days to the Republic of Costa Rica or serve an additional 12 months imprisonment if he failed to do so.
Messent was at the time the head of the Property (Americas) Division at PWS, where he was responsible for securing and maintaining contracts for reinsurance in the Central and South America regions. Between 1999 and 2002, PWS acted as broker on behalf of several state institutions in Costa Rica. During this period, he authorised 41 corrupt payments totalling just short of $2m to be paid to Costa Rican officials, their wives and associated companies, as inducements or rewards for assisting in the appointment or retention of as broker. Messent was appointed the firm’s chief executive in 2003 and resigned three years later after investigations into the payments began. PWS went into administration in 2008.
The case was brought by the Serious Fraud Office (SFO) and City of London Police after the Foreign and Commonwealth Office was tipped off by the Costa Rican authorities. Charges were brought under s1 (1) of the Prevention of Corruption Act 1906. Messent was charged in April 2010, and had entered into a plea agreement with the SFO.
At the hearing, Messent’s barrister said he had not acted alone – he had not concealed the illicit payments from other PWS staff; the details were known to the heads of the finance department and the compliance unit; and that arrangements for the corrupt payments had been “inherited” by Messent when he became head of the firm’s Latin America department in 1996.
The SFO however believed that Messent was the “directing” mind behind the corruption, and the Court – under Judge Geoffrey Rivlin QC – agreed with them. It emerged during the trial that PWS had created a slush fund in which “ceding” and “third-party” commissions were received from the state and these funds were used to bribe government officials.
The Judge stated that Messent had faced a custodial sentence of between four or five years, but was given a reduced term because of the trial’s length and his previous good character and record.
It is no mitigation to say others do it [pay bribes] or that it is the way of doing business…anyone minded to do it should be deterred from doing so.
The Messent case appears to indicate that the SFO have learned from their experience on Dougall (here). The judge in Messent seems to have felt that the sentence mooted with the defendant was proportionate and reasonable, and both the SFO and City of London Police were complemented by the court on their handing of the case. We haven’t seen the agreement, but from the defendant’s side it appears that the plea agreement and co-operation with the SFO did work to lower the sentence in this case. Nevertheless, despite Messent’s co-operation, a lengthy custodial sentence was still imposed, and this is likely to be a signal to those self-reporting that a slap on the wrists is unlikely to be sufficient if bribery can be easily proved to have taken place.
The SFO’s press release can be found here.
EU Debarment Rules on Bribery Set to Ease?
One of the main issues facing a company being found guilty (or admitting to) bribery was mandatory debarment from competing for contracts given by EU government bodies. Fines were bad, invariably unwelcome, but the inability to do government work would put many infrastructure providers out of business.
The rules were set out in the 2004 EU Procurement Rules, codified as European Union Directives 2004/18/EC and 2004/17/EC here, and enacted in the UK as Regulation 23 of the Public Contracts Regulation 2006 (here) and regulation 26 of the Utilities Contracts Regulations 2006 (here). These state that a public contracting authority having actual knowledge of an economic operator or its directors or certain other representatives, that has been convicted of the offence of corruption or bribery or fraud or money launderings, should treat that entity as ineligible and it not be selected in the tendering procedure.
The US has rules relating to US government contracts – Part 9.406 of the Federal Acquisition Regulations, here, although the rules are not mandatory and debarment requires the active intervention by a federal official. Currently, because FCPA actions are usually resolved by execution of a non-prosecution agreement (“NPA”) or deferred prosecution agreement (“DPA”), contractors need to be aware of the consequences of the Act when negotiating such agreements. Specifically, contractors must ensure that the negotiated NPA or DPA does not expressly require the company to admit to violating the FCPA or committing bribery and so come under the ambit of the Federal Acquisition Regulations.
Mandatory debarment is draconian, and the fact that it is mandatory regardless of the seriousness of the offence and the presence of mitigating factors makes it especially damaging. It is unclear whether conviction for failure to prevent bribery under the new Bribery Act 2010 would lead to mandatory debarment. Putting companies out of business though was not the aim of the Act, and there has been much disquiet about the effects of the EU Procurement Directive when it comes into full effect in April 2011 (and when prosecutions for bribery become arguably much more straightforward?). Indeed, most of the recent plea agreements were focused on accounting breaches and did not contain admissions of bribery specifically to avoid debarment.
The Daily Telegraph has reported here on a very welcome development that the Government is reviewing the debarment laws and the good arguments for why this should not be triggered in every case. Crispin Blunt, a junior Justice minister at the Ministry of Justice has reportedly said:
If debarment is not a factor in the resolution of bribery cases, we are likely to see more companies admitting the obvious, and less reliance on artificial accounting offences. Surely a welcome development?