In the run up to the IBA Virtually Together 2020 session on Recent developments and initiatives in corruption and anti-corruption in construction projects, we discuss recent developments in financial crime in the UK construction sector.
The UK construction sector has been identified as a sector at high risk of financial crime. That risk is heightened in the context of COVID-19. It is therefore more important than ever that responsible organisations are aware of, and take steps to manage, the risk. This article examines recent regulatory developments in the sector in three key areas: (1) bribery and corruption; (2) fraud; and (3) modern slavery.
Bribery and corruption
The risk of bribery and corruption in the construction sector is created by: (1) highly competitive tendering processes; and (2) low profit margins creating pressure to win work. Those circumstances mean that individuals are often tempted to engage in bribery to induce procurement decision makers to award work, or to reward them for doing so. The fact that the sector operates via large supply chains means that it is fertile ground for bribery and corruption – there is scope for bribery at each stage of the supply chain process.
The courts have made it clear that responsible organisations must have in place adequate procedure to prevent bribery within their organisations and across supply chains. Businesses can face prosecution for failing to prevent bribery in their organisation under section 7 of the Bribery Act 2010 and a lack of adequate compliance procedures removes the availability of a defence. Since the widely reported case of R v Skansen Interiors Ltd (2018) in which the company, its former MD and a property developer project manager were convicted for bribery offences, a series of bribery investigations have been reported in the construction sector. For instance, in the past year the Met Police in London have investigated suspected bribery and fraud offences in connection with concerns that staff at health, safety and environment test centres in Cheshire, Essex and London had given test answers to candidates allowing them to receive competency certificates to work in the construction sector. The bribery concern is that candidates paid staff for the test answers.
Separately, in September 2020 five individuals were arrested in connection with concerns of bribery and fraud in relation to the award of work by Liverpool City Council to property developer, Elliot Group. Reports suggest that £300,000 was also seized by the police from the head of Elliot Group, Elliot Lawless. This development demonstrates the continued focus of the UK authorities on investigating suspicions of bribery and taking enforcement action.
Fraud
In January 2020, five company directors of Anton Group Ltd received custodial sentences for their role in a £3.1 million fraud. They conspired to keep cash sales of wastepaper "off record" and shared the proceeds. That resulted in tax evasion offences in respect of in Corporation Tax, Income Tax, VAT and National Insurance Contributions. Around 90 false invoices, amounting to approximately £1.4m, were also discovered in the company’s accounts. These had been declared as payments to suppliers but in fact the funds were siphoned off into the directors’ personal bank accounts and used to repay directors’ loans owed to the business.
Following the case, Adam Kingsgate, Assistant Director, Fraud Investigation Service, HMRC, said: "HMRC is committed to taking action all those who steal from the public purse. Fraudsters who use sophisticated methods to hide their criminal proceeds should know that we are more than a match for them. No tax evader is beyond our reach".
Modern Slavery
Unseen UK's 2019 annual assessment noted a 108% increase in modern slavery instances in the construction sector. That increase has likely been created by: (1) pressure on costs and project deadlines; (2) widespread use of agency and sub-contracted work; and (3) a high concentration of migrant workers.
To address the increasing risks, several major contractors including Kier and Sir Robert McAlpine have worked with the Gangmasters and Labour Abuse Authority to raise awareness within their supply chains. Steps include presentations during health and safety inductions for new starters on forced labour, posters on identifying the signs of exploitation and toolbox talks aimed at raising awareness of workers’ rights on site.
In addition, in September 2020, the UK government published an update on new measures to address modern slavery concerns. Those measures include a requirement for organisations to publish their modern slavery statements on a new digital government reporting service. This step is designed to make the commitments made by organisations more transparent and accordingly to ensure they are held to account for implementing those commitments. Safeguarding Minister Victoria Atkins, MP said: "We expect businesses and public bodies to be open about their risks, including where they have found instances of exploitation and to demonstrate how they are taking targeted and sustained action to tackle modern slavery."
Key messages
These developments demonstrate that the construction sector remains high risk for financial crime. They also demonstrate the continued focus of UK regulatory authorities in investigating suspected breaches.
Responsible organisations across the UK should have in place a thorough system of policies, procedures and training aimed at preventing bribery, fraud and modern slavery both within their organisation and, crucially, across their supply chains.
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