Dividends paid to 'innocent' shareholders by 'criminal' companies vulnerable to civil recovery
When Mabey & Johnson Limited's parent received a dividend, little did it think that it would be vulnerable to civil recovery following the conviction of its subsidiary's employees for corruption and breaches of UN sanctions.
However, following an application for civil recovery by the SFO under Part 5 of the Proceeds of Crime Act 2002 (POCA), an order has been made against the parent to pay over approximately £130,000, representing the dividends received by it relating to the contracts at the centre of the UN sanctions prosecutions.
The fact that such an order was made in circumstances where the SFO (and, so far as we know, the court) accepted that the parent was unaware that such property had been obtained through unlawful conduct demonstrates the limitations of the legislative provisions designed to protect the innocent recipient of recoverable property (s.266 POCA).
As the SFO's Richard Alderman remarked, institutional investors and private equity firms have the ability to conduct due diligence into the companies in which they are investing to limit their potential exposure to future civil recovery actions should the companies be found guilty of a criminal offence, particularly in light of the Bribery Act 2010. However, that very fact may make it harder to defend any subsequent claims. Private individuals investing should also beware – there is nothing to prevent dividends they receive being attacked in the same way.