News & what's on - Written by on Sunday, February 15, 2015 4:34 - 2 Comments

OPINION: It was so easy to avoid: Chickengate: Smith & Ouzman Sentencing Remarks in full under new sentencing guidelines

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reporter pictureWe are lucky that Francesca Hedges, Trainee Solicitor with Pinsent Masons LLP in its corporate crime team (pictured) attended the sentencing of Father and son Christopher and Nicholas Smith last week.

Sentencing remarks are not always reported after the soundbite headline has been made.

But we find them interesting.  Below we publish the sentencing comments in full.

We also shared the sentencing remarks with Richard Bistrong.

  • Unlike the Smiths Richard pleaded guilty to FCPA violations and has served time in prison for them.  Today Richard is a recognized blogger, guest-writer and speaker in the field of anti-bribery compliance, reflecting on front-line issues which impact international business teams and compliance personnel.  He offers a different perspective.

Sentencing of Christopher J. Smith and Nicholas C. Smith

Before: Judge Higgins

14.00 Southwark Crown Court, court room 9 on 12th February 2015

You have both been convicted of very serious offences. Smith & Ouzman Ltd will be dealt with separately. Christopher Smith has been convicted of two counts of corruptly agreeing to pay bribes. Nicholas Smith has been convicted of three counts involving the same offences. The trial has lasted for just over six weeks and as a result, I have been able to make findings of fact and am able to sentence.

As father and son, you have been involved in the family business involved in the printing trade. The business has been running since 1850. The Smith and Ouzman families joined force in 1946. The company is held in the highest regard re its products with a security dimension, for caring for staff and its contribution to the local community, namely Eastbourne. That you and the company have been brought so low by the convictions before the court appears to flow from you, Christopher Smith’s decision to expand the business into Africa, namely in the field of electoral ballot papers. Christopher Smith, during trial, accepted he had been exposed to corruption in the shape of land road blocks which you said you paid and requested bribes for airport clearance which you said you refused. Nicholas Smith, you said there was a culture of corruption in Africa, including Kenya.

In Innospec, the Lord Chief Justice said that corruption was an insidious plague with a corrosive effect on societies and is most destructive in the third world. The process of investigation and trial has been in excess of half a million pounds for prosecution costs. Corruption of public officials is at the top end of corruption and Christopher Smith became aware that bribery was likely to advance Smith & Ouzman’s business. It is an inescapable fact that between 2006 and 2010, payment of bribes were routine and common place. It is a measure of your attitude that bribes were paid indirectly through agents in Kenya and Mauritania, but also bribes were directly paid. £5,000 was paid to Paul Wasanga, the Chief Executive Officer of the Kenyan National Examinations Council, whose salary was £40,000. This was therefore a massive bribe. The payment of bribes being in a casual manner reflects that it was part of your standard operating procedure.

Count 4 (which Christopher Smith has not taken part in) is the payment of 50,000 euros into the French bank account of the daughters of the Official of Ministry of Interior in Mauritania. You were paying substantial bribes to secure printing contracts. The SFO states that you paid £395,074 to foreign public officials in Kenya and Mauritania to secure and to obtain contracts worth £2 million. You added the bribe to the pricing. Bribes were channelled back to the official via the agent used or paid directly. People in these countries are the victims. Integrity and confidence in electoral systems are undermined and the results of this could be catastrophic. It could lead to violence and loss of life. The OECD has said that bribery is a widespread phenomenon in international business transactions and undermines governments as well as economic development.  

It should make a material difference that Christopher Smith has been convicted of two counts rather than three, but it will only partly make a difference. It was Christopher Smith who created a climate that bribery was commonplace and acceptable. Your son was introduced to this. He did take over your role and played a more active part. This is distinct from personal mitigation. The euphemism ‘chicken’ was used and you sought to channel bribes through agents. I am wholly satisfied that these were premeditated, pre-planned, sophisticated, sustained and very serious routinely and repeatedly committed crimes. They were cynical, deplorable and deeply anti-social. You must accept the consequences. Before these crimes, you were men of good character and there was a substantial body of character evidence. There is an element of tragedy about this case. No benefit of a guilty plea can be given and this would have saved an immense amount of public money. You have a right though to put your case to the jury and you chose to do so, but the jury rejected it.

Christopher Smith, I have regarded your age and poor health together with personal circumstances. Whatever happens will have a great effect on your wife and other family members. This is the case with other defendants too though and this did not concern you when you committed the crimes. You accept your guilt in reports which you so strenuously denied in front of the jury.

Concerning the quality of Smith & Ouzman products, they offered a genuine competitiveness regarding price. Prices were fair and products were good. Prices were not improperly elevated except from the uplift regarding bribes.

Nicholas Smith, your father set a poor example for you but you were more than ready to adopt behaviour of the same type.

You both compartmentalised the office from your otherwise exemplary lives.  The end does not justify the means. You both did not seek personal gain. You were doing all that you could for the company and its contribution for the benefit to the public. This cannot be mitigated through altruistic motive. I need to take on board your personal circumstances and Nicholas, I understand that your daughters are deeply distressed.

The seriousness of crime is based on several factors: culpability and harm, rehabilitation, matters i.e. public protection. These factors are all in competition. This means that they pull against each other. I have the benefit of Court of Appeal decisions and the Sentencing Council Guidelines. The offences were committed before the guidelines were introduced. However, the guidelines are to be adopted and a cautious approach is to be taken. The guidelines are not to be ignored.

Culpability and harm for Christopher Smith and Nicholas Smith:

Culpability:

1. A leading role was played

2. There was intended corruption of a public official

3. The offences were of a sophisticated nature

4. The motive was for substantial financial gain

There is a high culpability

Harm

1. There was undermining of governance in Kenya and Mauritania

2. Financial gain was substantial and loss was incurred by Kenya and Mauritania due to the price implication to public officials

I need to decide whether the offences fall under 1 or 2 for harm. This is not an easy task. The guidelines must not be applied rigidly. The starting point will be category A(2) – this is 5 years of custody in a range of 3 to 6 years. The case requires more attention than that category. The actual sentencing starting point will be that the sentences on each count will run concurrently and they are discrete. As there was a continuous nature to the offences, it is better to impose concurrent sentences.

The aggravating factors:

1. Community impact, namely good governance being affected

2. The offence was across borders

The mitigating factors:

1. Good character was exemplary

2. The health and age of Christopher Smith

The terms of A(2) should be reduced because of the circumstances of this case.

Sentence

Nicholas Smith – 3 years imprisonment, concurrent. 3 years in total. Nothing regarding remand. He must serve half of this sentence in custody and will be released when the licence period arrives.

Christopher Smith – 18 months imprisonment. Under extreme mitigation and as an act of mercy, this will be a suspended sentence for 2 years on condition that you do not commit any more offences. You will undertake 250 hours of unpaid work. You will be under a 3 month curfew between 7pm and 6am.

You will both be disqualified from being a Director for 6 years and no financial order will be made yet because the Smith & Ouzman confiscation proceedings have been adjourned.

RichardBistrong-picture-smallRichard Bistrong comments:

What I found interesting here is that Judge Higgins directly addresses the societal consequences of bribery that I don’t often hear articulated in judicial decisions, expressly that bribery is not a “win-win” at the business level, but does in fact victimize entire societies. Thus, in this sentencing memo, Judge Higgins goes beyond the traditional model of crime and personal consequences in the context of deterrence, but in fact shines a light on the greater impact of bribery.

As I have shared during numerous forums and papers, including your own UK Regulatory Conference, Barry, is that the language of bribery uses wide variety of “wink and nod terms” with the exception of one: bribe! Thus, while “chicken” never crossed my road, we can add that to the dirty lexicon of “tolls, making happy, and taking care of.”  Regardless of the name, as Judge Higgins well points out, they are all “cynical, deplorable and deeply anti-social,” but yet well understood at the front-lines of business.

What I find interesting is that on both sides of our pond, Judges are being more assertive in both oversight and in their sentencing remarks.  At a recent hearing (February 2015) in US District Court, DC Circuit, my own sentencing Judge, Richard Leon, rejected a DPA as presented to the Court with respect to U.S. v. Fokker Services, involving criminal charges against Fokker to unlawfully export U.S. Goods and Services to Iran, Sudan, and Burma.  In the submitted motion, the DOJ and Fokker proposed an 18 month DPA in which the company agreed to forfeit $10.5 million and to pay an additional $10.5 million in a parallel civil settlement. Judge Leon rejected the proposal in its entirety, and had the following to say:

“While I do not discount Fokker Services’ cooperation and voluntary disclosure or, for that matter, its precarious financial situation, after looking at the DPA in its totality, I cannot help but conclude that the DPA presented here is grossly disproportionate to the gravity of Fokker Services’ conduct …  In my judgment, it would undermine the public’s confidence in the administration of justice and promote disrespect for the law for it to see a defendant prosecuted so anemically for engaging in such egregious conduct for such a sustained period of time and for the benefit of one of our country’s worst enemies. ..  As such, the Court concludes that this agreement does not constitute an appropriate exercise of prosecutorial discretion and I cannot approve it in its current form.”

Where I draw the connection is that when it comes to overseas fraud, be it bribery or unlawful export, that the Judiciaries in the US and UK now intend to weigh in, looking at both the conduct and mitigating circumstances, and don’t appear to be tolerant of this behavior or unaware of its consequences, be it corporate or individual. If I was now in the field, I’d have to take a line from Jack Nicholson from the movie The Departed, “prepare accordingly.”

Opinion

A small owner managed family company with a world class product exporting in global markets.  In many ways Smith & Ouzman is a poster child for a great SME business in UK PLC.

Frequently when we meet SME businesses they tell us that they are just not interesting or big enough for the SFO to be bothered with.  This sorry tale proves them wrong.

It could all have been avoided so easily.  Smith & Ouzman is a small company.  It did not need a massive back office or complicated compliance program.  A few proportionate and simple steps would have kept it, and its owners, on the straight and narrow.

The Smiths have plenty of time to reflect on that now.

If your company is an SME trading globally don’t waste any more time.

Take some simple anti-bribery steps.  You’ll sleep easier and do the countries you’re trading with a favour too.

What’s not to like.

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2 Comments

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Friday FCPA Roundup for Week Ending February 20
Feb 20, 2015 7:01

[…] briberyact.com published in full the Judge’s sentencing […]

Frank Numann
Feb 20, 2015 19:59

Interesting remarks by judges at both sides of the ‘pond’. It would be good for all to remember that laws were created by and for society. Judges and attorneys have a role to play in administering these laws and regulations, but should at all times remember what the intend of the law was and what sort of society is created by non-adherence to these laws.

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