The Risk to Corporate Reputation by Association

“GUILT BY ASSOCIATION” - THE RISK TO CORPORATE REPUTATION POSED BY THE PROCEEDS OF CRIME ACT


Written December 2014 by:
Peter Doyle QC - 25 Bedford Row - Called 1975 - Silk 2002

A Criminal defence practitioner highly proficient in defending Serious Crime, Complex Fraud & Confiscation proceedings. Peter Doyle QC has a phenomenal eye for detail and is unrivalled in his thorough preparation of cases. He is recommended as a leading Silk in Fraud in the Legal 500 2013 and Chambers & Partners 2014.

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  • Oando Plc is one of Africa’s largest energy companies. It is listed on both the Nigerian and Johannesburg stock exchanges. On 17 September 2013 there was panic selling in Oando stock. In a single day 8.1m shares were sold; 1.5 times the three month daily average. The share price fell almost 20% creating a paper loss of £50m. Stock was being dumped by brokers even though according to one source “the price earnings ratio is one of the best in the sector”. What was the cause of this company’s misfortune?
  • The answer is to be found in the events of the previous day which unfolded at Southwark Crown Court when HHJ Pitts was due to embark on a three week confiscation hearing in the case of James Ibori. Between 1997 and 2007 he was Governor of the oil-rich Delta State in Nigeria. Shortly before his trial in February 2012 he pleaded guilty on an agreed basis to ten counts of fraud and money laundering. He admitted stealing £50m.
  • The judge was not satisfied that all relevant evidence was being presented in order for him to reach a decision as to the extent of Ibori’s benefit. The Crown was seeking an order in the sum of £90m. The judge canvassed a possibility that his actualbenefit might be as much as £200m. Clearly given the nature of the defendant’s criminality he faced the rigors of POCA’s “criminal lifestyle” provisions with the Crown also alleging that he had “hidden assets”. The case has been put back to next year so that the Crown can call evidence; much of which would have been called in the trial.
  • However, so far as Oando Plc was concerned damage to its reputation had already been done as a result of statements made by the prosecution during the first stage of the aborted hearing during the 16 and 17 September; statements based on evidence not tested in court.
  • On the 16 September the Crown told the court that it would “..assert that Oando is a company where James Ibori has hidden assets” and that the defendant has “asserted ownership of a large part” of Oando Plc. The next day the Crown told the court that in 2004 when opening a Swiss bank account and to demonstrate his financial standing, the defendant had told bank staff that he owned 30% of Oando. It was alleged that $1.2m flowed into this Swiss account from the company in three tranches in that same year.
  • The Crown also referred to a comment attributed to the defendant’s former solicitor (serving a ten year sentence for money laundering) that the defendant had a“..beneficial interest in Ocean and Oil Ltd”. The police investigator told the court that he believed that this company and Oando Plc were the same company but simply operating under a different name. Cue panic selling.7. Oando Plc issued a Press Release in which it accused the Crown of “insidious grandstanding” and the investigator of misleading the Court. It made clear that it had engaged of its own volition with the UK prosecutors in 2012. It provided evidence that Ibori owned 443 shares in the company of a total of 6.8bn. As for the transfer of monies referred to by the Crown (a) it was a larger sum (b) it arose as a result of a foreign exchange transaction with a shell company and (c) Oando Plc did not know that the defendant had any connection with that company.
  • Oando Plc went on to point out the gross unfairness that “unbelievable statements” made by convicted criminals to lend credibility to what was in fact a criminal enterprise, could be used as evidence to prove a link to a well-regarded listed company that had no right of reply. The statements having been made in court in the course of criminal proceedings would if proven to be untrue deprive Oando Plc of any civil remedy.
  • What lessons can be derived from the bare facts of the case to date where a company finds itself unwittingly engaged in the “facts” presented by the Crown in confiscation proceedings in which it has no status at all? Indeed the same issues arise where there is to be a contested trial. What can an innocent company do to prevent its reputation being “put in the dock” leaving it to be tried by its shareholders causing damage to both corporate and market reputation?
  • One needs to take a step back from any investigation and/or proceedings and consider the nature of the transactions with which the commercial organisation is involved. Considerable reputational damage can be done to any commercial interest that becomes associated with the laundering of criminal property. It is not only financial institutions that need to carry out due diligence on Politically Exposed Persons and their associates. When contemplating any transaction with an off-shore entity companies must embark on rigorous due diligence into beneficial ownership as well as the origins of the monies involved.
  • What if despite due diligence a company finds itself unwittingly involved in the facts of an investigation and prosecution? It is trite that any such entity should engage with the investigating authority at the earliest opportunity. To do so will alert the company to at least some understanding of the case and how it might impact on its business interests. A company “in the clear” should not wait to be approached by the prosecutor but “knock on its door” so as to make it apparent that it is willing to assist in the investigation; whether by the voluntary provision of documentary material and/or witness evidence.
  • Public quoted companies faced with a sudden or potentially commercially sensitive situation should be in a position to respond in real time so that the market and shareholders can be kept informed as well as primed in advance for any likely negative publicity.

  • This calls for a team of internal advisers, including financial PR specialists, corporate brokers and lawyers, to be ready to deal immediately with an Oando-type situation. Proactive as opposed to merely reactive input should be high on the agenda. The team should as far as possible be trained to co-ordinate or at least work in accordance with a clearly defined reputational “rescue plan”.
  • Clearly where a company is likely to be effected by an overseas investigation the need for early and close co-operation is an imperative. Distance should not become a barrier to engagement; not least because reputational damage is no respecter of geographical boundaries.

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Expert Confiscation Solicitor: 
Majad J Habib: Director - Stuart Miller Solicitors

The expert Confiscation Solicitors at Stuart Miller Solicitors are proficient with Confiscation legislation, knowledgeable in creating the best strategy & able to analyse huge volumes of evidence to find the grain of detail required to achieve success for you. Having Specialist Confiscation Lawyers on your side is vital to achieve the best result and ensure fairness in the proceedings. Challenging Confiscation proceedings successfully is not a stroll in the park by any means, thus ensuring your Confiscation Solicitors are leading experts will maximise your chances of retaining your assets and avoiding additional jail time.

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This document is provided for information purposes only and does not constitute legal advice. Professional legal advice should be obtained before taking or refraining from any action as a result of its content.