Two Former Directors of UK Company Convicted of Breaching UN Sanctions in Connection with Kickback Payments to Iraq

Article by Marc R. Cohen , Angela Hayes , Andrew Legg and Susan Rosser

Originally published February 14, 2011

Keywords: illegal payments, Iraq, UN sanctions

Recently, Charles Forsyth and David Mabey, two former directors of UK engineering firm Mabey & Johnson Ltd, were found guilty by a Southwark Crown Court jury of making illegal payments to Iraq during 2001-2002 in breach of United Nations sanctions. They are to be sentenced on 23 February.

At the time of the offence, Charles Forsyth was the Managing Director of Mabey & Johnson Ltd, and David Mabey the Sales Director. Another defendant, Richard Gledhill who was Sales Manager for contracts in Iraq, pleaded guilty to sanctions offences at an earlier hearing and gave evidence for the Prosecution.

Economic sanctions were imposed on Iraq following the invasion of Kuwait in 1990. Mabey & Johnson Ltd entered into a contract under the UN Oil-for Food Programme which was introduced to alleviate hardship for the Iraqi people. The company had agreed with the Iraqi Government to pay a kickback amounting to 10% of the contract value for the supply of 13 bridges. The kickback was disguised as "commission" payable to the company's local representative and was factored into the contract price by increasing the price.

The Iraqi Government's demands for kickbacks on humanitarian contracts came under UN scrutiny following the international action against Iraq in 2003. Following a referral by the UN Independent Inquiry Committee, the UK's Serious Fraud Office (the "SFO") commenced an investigation in 2007.

Mabey & Johnson Ltd self-referred to the SFO and subsequently pleaded guilty to breaching United Nation's sanctions in September 2009. At the same time the company admitted corruption offences in relation to other overseas contracts - between 1994 and 2001 it bribed public officials over a bridge and road project in Ghana and another building contract in Jamaica.

Mabey & Johnson Ltd was ordered to pay a total of £6.55m in connection with these offences, including £4.6m in fines and disgorgement of profits. The company was ordered to pay £2 million in connection with Iraq and has paid £618,000 to the Iraq Reconstruction Fund. In addition, Mabey & Johnson was ordered to pay the costs of an independent compliance monitor to ensure it had appropriate systems and controls in place going forward.

The court stressed that the fact that the company had self-reported the problem to the SFO and then cooperated fully...