It has recently been revealed that the Serious Fraud Office (SFO) may be investigating the communications giant O2 on the basis of potential breaches to the Bribery Act 2010. Reports in the media reveal that former executives offered kickbacks to customers which suggests that this investigation may well reveal long-standing dark corners of corruption within the organisation.
O2 is said to be cooperating with the investigation which appears to have emerged from a management shake-up in 2017. The SFO’s involvement with O2 is particularly timely given the recent high-profile case in SFO v Petrofac, where the energy company was prosecuted for bribery and corruption.
The SFO is continuing to send a strong message to large corporations, demonstrating its commitment to stamping out bribery and corruption as the organisation steps up its attempts to hold companies liable for failing to prevent economic crime.
O2 released the following statement accepting that it was under investigation:
“O2 has been addressing a request for disclosure made by governmental authorities which is related to possible violations of anti-bribery laws and regulations. O2 continues to co-operate with the governmental authorities investigating this matter which is still ongoing. Whilst it is not possible at this time to predict the full scope or duration of this matter or its eventual outcome, O2 was able to make a reasonable estimate of the outcome, and recorded an accrual during 2019, which is included in our statement of financial position as of 30 June 2021. Additional disclosures of the matters required by International Accounting Standard (IAS) 37 have not been provided as permitted by IAS 37 para 92 as the directors believe that further disclosure will be seriously prejudicial to future developments on this matter.”
One of the most interesting elements of this statement lies in O2’s belief that it can reasonably estimate the outcome of the investigation. The assessment that any further disclosures to the IAS will be harmful to the developments of “the matter” is particularly noteworthy, under the belief that this will prejudice the development of the investigation. IAS are international accounting standards which are published with the aim of improving transparency in financial reporting. IAS 37 specifically defines the accounting for and disclosure of provisions, contingent assets, and contingent liabilities. Their relevance to this investigation relates to the potential liabilities that O2 may be subject to. What can be inferred from this, is that the investigation has a solid and legitimate basis and is unlikely to simply go away.
O2 should take heed of the Petrofac case. Petrofac pleaded guilty to seven separate counts of bribery. The bribes were designed to ensure contracts for oil and gas were secured. The cost to Petrofac, in terms of fines, confiscation and costs, is £77 million. This cost was significantly mitigated, however, by Petrofac’s co-operation with the SFO, as well as the assistance of David Lufkin, head of sales for Petrofac, in the investigation. The important point to note from the Petrofac case, is that in the event of an investigation by the SFO, seeking to mitigate the damage by collaborating and demonstrating a proactive attitude may well reduce the financial impact of a company’s conduct. It has been reported that O2 is collaborating with the SFO in their investigation. However, the extent of their cooperation remains to be seen.
The disclosure of the SFO’s investigation into O2 is likely to cause concern throughout not only the mobile communications industry, but other corporation giants, particularly in the wake of the Petrofac case. Practices within O2, that are now under the spotlight, are not uncommon in the industry, meaning telecom operators will want to sit up and take note of this investigation and look at strengthening their own compliance systems or risk being next in the SFO’s firing line.
From a legal perspective, the law has been developing (and is continuing to develop) in favour of a cultural shift where companies are expected to self-regulate. The Bribery Act made it an offence to fail to prevent bribery, targeting commercial and corporate operations particularly. Criminalising the failure to prevent acts of bribery, ie any individual associated with giving or receiving a bribe for commercial advantage, aims to ensure that all companies have policies in place which will prevent bribery within the organisation at any level. The onus is then placed on the company itself, encouraging internal regulation of affairs and cooperation with authorities should any bribery and corruption be revealed. Similarly, the Criminal Finances Act 2017 focuses on the facilitation of tax evasion. Under the Criminal Finances Act, it is an offence to fail to prevent the facilitation of evasion of UK or foreign taxes. Thus, there is evidently an increasing emphasis on tackling corporations that permit economic crimes to take place. Moreover, the Law Commission has opened a consultation in relation to corporate criminal liability and how the law can be improved.
In the aforementioned statement, provided by O2, they are quite probably referring to the expectation that companies themselves will take the lead on ensuring corporate compliance and, where necessary, self-reporting to the SFO. Internal economic corruption within organisations can no longer be permitted or concealed. From a legal standing, O2 should be conducting a comprehensive investigation into what occurred with a view to informing the SFO of its findings, which could potentially mitigate punishment.
O2 would do well to get their ducks in a row sooner rather than later given the extensive media coverage around the Petrofac case, which has highlighted how intensely companies can be scrutinised by the public, as well as anti-corruption organisations, and held to account by their customers
O2 and Petrofac cases bring corporate corruption into the limelight once more. The subject is widely discussed across legal and corporate sectors and highlights some key lessons to be put into practice. By demonstrating a proactive approach to working with the SFO to stamp out corruption, organisations are more likely to retain customer confidence. In introducing and effectively maintaining tight policies, companies will maintain public trust and find themselves on the right side of the SFO.
Gary Pons is a barrister at 5 St Andrew’s Hill, specialising in complex financial cases often with a multi-jurisdictional element.
Image by Michal Jarmoluk from Pixabay
