HMA v WEIR GROUP PLC
Today at the High Court in Edinburgh Lord Carloway imposed a fine of £3 million on Weir Group PLC after they pled guilty to breaching sanctions in terms of the Iraq (United Nations Sanction) Order 2000.
On sentencing Lord Carloway made the following statement in court:
“Financial and trade sanctions against Iraq by the United Nations in terms of Security Council Resolution 661 were commenced in 1990, after Iraq’s invasion of Kuwait. They continued until May 2003 and the downfall of Saddam Hussein. The original purpose of sanctions had been to force a withdrawal from Kuwait. Subsequently, after the first Gulf War in 1991, they were said to be intended to compel the payment of reparation and later to force disclosure on and destruction of weapons of mass destruction. But there was considerable criticism that the sanctions were causing illness and death to Iraqi citizens, especially children. This led to the introduction of the Oil for Food Programme sanctioned in 1996 (UNSCR 986), which permitted Iraq, under UN supervision, to sell oil and to exchange the price of that oil to import food and other items required to sustain the civilian population.
By 2004 it was recognized that the OFFP, devised for humanitarian purposes, had been bedeviled by corruption. The scheme was relatively simple. It took the form of what has been described as a system of “kickbacks” in slang and as an illegal “after sales tax” in some of the documentation. The oil sales proceeds would be held in a United Nations account. The humanitarian imports would be paid for using that money. This required appropriate authorization. The Saddam Hussein regime determined that a 10% surcharge would be levied on all imported goods, payable to that regime. This appears to have become well known. Invoices would be inflated by 10% to be used to obtain the correct payment plus the “kickback”. The 10% would be channeled through agents, and usually Swiss bank accounts, to the Iraqi government. Such payments breached the sanctions and, at the time of the current offences, were criminal in terms of the Iraq (United Nations Sanctions) Order 2000.
It is estimated that some $1.5 billion was paid to the Iraqi government in this manner, representing some $15 billion of imports by international companies. The plea of guilty by Weir Group plc represents an acceptance that they participated in such sanctions breaking over the period from September 2001 and April 2004 whereby they made illegal payments of just over £M3 in order to secure contracts worth in excess of £M35. They also made additional prohibited payments of slightly less than £M1.5 to an agent in Iraq to facilitate the payments to the government. The goods being supplied were pumps, and related equipment, for both the oil industry and the domestic water supply.
In selecting an appropriate criminal penalty, the court has to bear in mind the need to deter future offences which are calculated to damage the interests of the nation and indeed the United Nations by breaching resolutions agreed by the United Kingdom and the UN Security Council. Seen in that context, and having regard to the effect of the 10% on the amount of humanitarian products allowed into Iraq, a substantial financial penalty is undoubtedly merited. This is especially so given that the illegal payments were made after a meeting in September 2001 attended by a director of the Weir Group, a senior manager and the principal salesman together with directors and the manager of the principal subsidiary company involved in the deals. The payments were specifically authorized to be made at group director level and that in relation to a company which then as now is seen as an example of Scottish global achievement.
Set against that there are a number of mitigatory factors. These include especially the acceptance by Weir Group that they must pay the sum of almost £M14, representing the profit which they made from the transactions in Iraq.
They also include the remorse shown at current group board level in relation to their betrayal of the confidence of the company, its shareholders and the general public. The board has now altered and those involved in the illegal payments have departed from group employment. The particular subsidiary’s business has been sold and a large number of new businesses acquired to create a company of a different complexion. The court has been informed that procedures and training are now in place designed to ensure that there can be no repetition of the illegal actings by employees or agents of the group at home or abroad.
The court has had some regard to the penalties imposed on other companies prosecuted for a breach of the sanctions, notably Mabey & Johnston in England. They were fined £ M2, having undertaken to pay £M1.5 in reparation to the UN Iraq fund for offences involving payments of €422,264 to secure a contract of € M 4.2. There are other examples of proceeding against companies in the United States (Innospect, Novo Nordisk, AGCO, ABB), but it has been difficult to derive any useful comparisons given that other offences have sometimes been involved and the penalties (some criminal, some civil or a combination of both) may have been the product of plea bargaining.
Having regard to all the circumstances, but for the early plea of guilty, the court would have considered a fine of £M4.5 to be appropriate in respect of the charges, although as the charges are statutory it will for practical purposes attribute £M3 to charge (1) and £M1.5 to charge (2).
Weir Group have pled at the earliest stage of the formal criminal process, albeit that it has now been some time since the investigations started. They are entitled to a significant discount for such an early plea, but at this level of fine, the court has carefully considered whether what might be regarded as the maximum one third for a plea at a section 76 diet in terms of Spence v HM Advocate 2007 SCCR 592 accurately reflects the utilitarian value of the plea. However, looking at the potential complexities of a prosecution for this type of offence and to the fact that the Weir Group did, after a short period, make a voluntary disclosure to the DTI, as it was then, and an announcement to the Stock Exchange, it will in this case give that full discount.
The fines will total £M3 (attributed £M2 and £M1 to each charge)”.