Proceeds of crime legislation allows Serious Fraud Office to target dividends received by shareholders
The Financial Times reports today that the Serious Fraud Office has won a civil recovery order against the shareholder of a company that admitted corruption. Mabey Engineering Holding has agreed to repay a £131,201 dividend it received from Mabey and Johnson Limited, which admitted corruption and breaches of UN sanctions in relation to work in Iraq.
This power of the SFO means that it is able to pursue dividends paid to shareholders who may be entirely unaware of the corrupt actions of the company paying the dividend.
The FT reports the SFO as emphasising that it will not hesitate to pursue third-party investors (which would include institutional or private equity investors) who receive dividends paid by listed companies which are convicted of illegal activity, and quotes the director of the SFO as stating that investors should be obliged to satisfy themselves as to the business practices of the companies in which they invest.
UPDATE: The Serious Fraud Office has issued a press release containing more details of the order. Mabey Engineering (Holdings) Limited, the parent company of Mabey and Johnson Limited, will “pay over” (quite what this means is unclear – presumably to the SFO?) the £130,000 it received in dividends from its subsidiary. The SFO press release suggests that that sum is directly derived from the illegal actions of Mabey and Johnson Limited – “the sum represents the dividends which the parent company collected from the [illegal] contracts”.
The Director of the Serious Fraud Office is explicit that the SFO will pursue institutional shareholders who receive dividends in similar circumstances, irrespective of their state of knowledge:
Richard Alderman, the Director of the SFO, said:
“There are two key messages I would like to highlight. First, shareholders who receive the proceeds of crime can expect civil action against them to recover the money. The SFO will pursue this approach vigorously. In this particular case, however, the shareholder was totally unaware of any inappropriate behaviour. The company and the various stakeholders across the group have worked very constructively with the SFO to resolve the situation, and we are very happy to acknowledge this.
The second, broader point is that shareholders and investors in companies are obliged to satisfy themselves with the business practices of the companies they invest in. This is very important and we cannot emphasise it enough. It is particularly so for institutional investors who have the knowledge and expertise to do it. The SFO intends to use the civil recovery process to pursue investors who have benefitted 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.”
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