A spate of activity in the past year shows why construction should remain vigilant about financial crime, say Ramsay Hall and Paul Marshall
Financial crime remains a problem for construction. Occurrences of fraud, bribery and tax evasion in the past 12 months indicate that the sector continues to be fertile ground for this kind of crime. And the risk of financial crime is not confined to any single stage of the construction process; it exists across the lifecycle of a project.
Fraud in training and certification
Work in the construction sector requires a high volume of labour. One area where criminal activity can occur is the training process, driven by the need for individuals to demonstrate that they have the experience and expertise required to work on construction projects in a safe manner.
In the past year, the Met Police in London has investigated staff at health, safety and environment test centres in Cheshire, Essex and London for suspected fraud and bribery, for allegedly giving test answers to candidates, allowing them to obtain competency certificates. Investigations are ongoing into whether candidates paid staff for the test answers – a potential offence under the Bribery Act 2010 – and whether staff committed fraud by providing certificates in the knowledge that the recipients did not have the necessary experience and expertise.
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Incidents like this are obviously a concern for responsible organisations within the construction sector. If a safety incident occurs on site and investigating regulators like the Health & Safety Executive discover that the labour involved did not have the necessary skills and expertise to work in a particular role, principal contractors and other organisations involved in the project will likely come under scrutiny.
Given the competitive nature of the tendering process, there is a high risk of financial crime occurring within procurement. For instance, influencing a procurement decision maker to award a contract, or rewarding them for doing so, may constitute an offence under UK bribery law.
In July, two former executives of Unaoil were found guilty of conspiracy to give corrupt payments to secure contracts in Iraq, with a third individual having already admitted to five counts of a similar offence. During the trial, evidence was heard about plans to bribe an Iraqi official for information on construction tenders, leading to a further two former executives being found guilty of paying over £376,000 ($500,000) in bribes to secure a £41m ($55m) contract. Director of the UK Serious Fraud Office, Lisa Osofsky, said that the individuals "abused the system to cut out competitors and line their own pockets. It is our mission to pursue and bring to justice those who use criminal means to weaken the integrity of business.”
Another key area of risk for the sector is tax fraud – making false declarations on tax owed to HMRC.
In January, five company directors of Anton Group Ltd received custodial sentences totalling 11 years for their role in a £3.1m fraud. They conspired to keep cash sales of wastepaper 'off record' and shared the proceeds, thus evading 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 loans they owed to the business.
Events from the past 12 months have taught us that financial crime continues to bean issue for the UK construction sector. That risk is heightened in the context of Covid-19. The cases discussed above demonstrate that financial crime can take place across the lifecycle of a construction project – from staff training to procurement through to invoicing.
They are also a reminder that organisations should take steps to implement policies, procedures and training aimed at preventing financial crime, both within their organisation and across their supply chains.
Ramsay Hall is a senior associate and Paul Marshall is a partner, specialising in corporate crime and investigations at Brodies LLP
