According to the Bribery Act 2010, offering inducements can easily amount to unlawful activity. But what happens where such activities are carried on by a subsidiary? If a contract is undertaken using a subsidiary company, can the profits be made there and passed up to the holding company by way of dividends?

Cathy Cook, Head of Company and Commercial at Jordans, says the answer is: No. “The dividends themselves can be regarded as proceeds of crime, and confiscated.”

In a recent, high-profile case the shareholders in a firm agreed to pay back £131,000 worth of dividends gained as a result of Iraq bridge-building contracts which involved breaching UN Sanctions. The sum represents the dividends which the parent company collected from the contracts at the centre of the UN Sanctions prosecutions.

There are two key messages:

First, shareholders who receive the proceeds of crime can expect civil action against them to recover the money. The Serious Fraud Office will pursue this approach vigorously.

Second, shareholders and investors in companies are obliged to satisfy themselves with the business practices of the companies they invest in.

Cathy Cook comments: “Investors need to be on the alert. The SFO intends to use the civil recovery process to pursue investors who have benefitted from illegal activity. Where issues arise, they will be much less sympathetic to institutional investors whose due diligence has clearly been lax in this respect.”

If you feel you may need advice, Jordans Solicitors can advise you. Call Cathy Cook on 01924 387110 for further information.


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