SFO prosecutes previous company owner for bribery following self-report

Carole Ann Hodson, the former managing director and majority owner of ALCA Fasteners Ltd, paid nearly £300,000 worth of bribes to Würth Group purchasing manager Terje Moe between 2011 and 2016 to secure £12 million worth of contracts for the company. The scheme was uncovered in late 2017 after the sale of the company to new owners, who reported the matter to the SFO.

Hodson was sentenced last month at Wolverhampton Crown Court. She received two years imprisonment and was disqualified from holding a director position for seven years, as well as a confiscation order for just under £4.5m. The court also awarded costs of £478,351 to the SFO.

Hodson created false invoices to justify the payment of monthly bribes to Moe, which were recorded in the company accounts as "sales commission payments" or other payments not related to genuine transactions. She later lied to her company's auditors to disguise the true nature of the payments, and then to the purchasers of the company by claiming that it had not been involved in any unlawful conduct.

Asset recovery expert Alan Sheeley of Pinsent Masons, the law firm behind Out-Law, said that the SFO had likely established that it was not in the public interest to prosecute the company, given that the new owners had themselves been victims of Hodson's corrupt activity.

"It is likely the new owners bought ALCA Fasteners Ltd in good faith," he said. "As usual, the acquirer would have relied on the audited accounts, which in this situation disguised the true nature of the bribes. Such a disguise meant that the value of the company must have been inflated, which can only mean that the acquirer paid more than ALCA's true worth."

"The really good part of this decision is that it indicates that if an acquirer does the right thing on discovering a fraud within a newly purchased company, the SFO will not penalise the acquirer - the acquirer also being an innocent victim at the hands of the old management's fraud," he said.

Corporate crime expert Tom Stocker of Pinsent Masons said: "The case emphasises how important it is for management of newly acquired companies to understand and promptly address any compliance risks in the way the business has been run to date.  This includes considering self-reporting historic conduct to the SFO as well as implementing any necessary improvements to compliance systems and controls for the future."

However, Sheeley said: "Such an investigation is likely to have cost the acquirer, and the company, significant sums, possibly millions, taking into account the initial purchase costs, lost revenue and profits, management time and legal costs more generally - if the SFO spent almost £500,000 it is highly likely that ALCA would have spent significantly more than this to investigate the issues and determine its strategy and way forward to safeguard the business into the future".

"In such a situation, it is important for the acquirer to also consider its civil recovery methods if the compensation/confiscation order does not cover the acquirer's losses. These may be determined by contractual warranties in the purchase agreement. However, the acquirer should also consider the stand-alone fraud claims that can be brought against the fraudster and any associates/co-conspirators. Such claims can be very advantageous to the victim of a fraud and can result in claims being brought for loss of profits, loss of capital increase in the business, the costs of the investigation and legal fees. However, it is extremely important for the acquirer to act quickly and take early legal advice if it is to maximise its chances of recovering money from the fraudster and obtaining the sympathy of the SFO," he said.