Updated: Mabey & Johnson, the SFO, and Confiscated Dividends…

For your interest, recent legal updates on the Mabey & Johnson corruption case unfolding in UK courts, with a specific focus on the recovery and confiscation of dividends and what this might mean re: corruption oversight for investors in public companies:

Confiscation of Dividends by the SFO: Implications for Investors (White & Case)

“The SFO was successful in recovering dividend payments of £131,201 to Mabey & Johnson’s principal shareholder, Mabey Engineering Holding, which represented the benefit received by Mabey Engineering Holding as a result of contracts gained illegally by Mabey & Johnson in Iraq in 2001 and 2002. Mabey & Johnson has been at the centre of one of the SFO’s most high profile corruption cases, having been subjected to substantial penalties and the imprisonment of two of its directors for its role in making illegal payments to the Iraqi government in breach of the UN Oil-for-Food programme. The case is not the first time that the SFO has sought to use its powers of financial recovery to target dividends payments in the UK…” Read on»

The SFO Speaks in the Mabey & Johnson Case: Private Equity – Are You Listening? (Tom Fox):

“Director Alderman goes on to imply that institutional shareholders will be held to a higher standard. The “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.” Think about that statement for a minute. If you are a private US equity company, with a UK portfolio company which sustains a Bribery Act violation and prosecution, you may well have to return profits, even where you did not have knowledge of the violative conduct.

More importantly for private US equity companies, how long do you think it will take for the Department of Justice (DOJ) to incorporate this form of remedy into a Foreign Corrupt Practices Act (FCPA) enforcement action? I can give you the answer; NOT LONG. The SEC enforces the books and records component of the FCPA against publicly listed companies. Most equity companies are privately held so profit disgorgement may not be available in an enforcement action against a portfolio company. Nevertheless, based on the Mabey case, the DOJ may well seek return of dividends, profits or other monies which went from a portfolio company to its private equity owner…” Read on»

Investors Beware: Dividends from Proceeds of Bribes at Risk (Bryan Cave)

“While the sum involved in the repayment of dividends in this case may not be large (largely due to the cooperation of the group), the SFO has sent a clear message that it intends vigorously to seek to recover money from shareholders who receive the proceeds of crime. The SFO emphasized in its press release that shareholders and investors – including institutional investors – are obliged to satisfy themselves concerning the business practices of firms they invest in…” Read on»

SFO Recovers Dividends from Innocent Shareholder (Dechert LLP)

“Today’s announcement is significant because it demonstrates that the SFO can recover, through civil action, the proceeds of unlawful conduct already paid out to shareholders, even if those shareholders are completely innocent of the wrongdoing that has occurred. In the context of anti-corruption enforcement, it is also a further pressure point for companies to put in place preventative measures or else they and their shareholders face the consequences…” Read on»