Bribery in the gambling sector: change,“non-legality” and grey areas

For several years the UK authorities, including HMRC, have been investigating allegations of bribery in connection with gambling operations in or relating to Türkiye (the new official name of Turkey). Those under investigation included  GVC Holdings plc, which in 2020 was re-named as Entain Plc.

On 5 December 2023, the investigation was resolved by the entry into a “deferred prosecution agreement” (“DPA”) between the Crown Prosecution Service and Entain.  The DPA requires payment  by Entain of penalties, disgorgements and costs totalling £615 million. 

A DPA is an agreement between a UK prosecution authority and a corporate entity by which the prosecutor agrees not to bring a criminal charge on condition that the corporate pays financial penalties and agrees to certain other future conduct. DPAs must be approved by a judge as being in the interests of justice.  

In this case, the figures are salutary. The total of £615 million is made up of disgorgement of profits of £120 million, a financial penalty of £465 million, a charitable donation of £20 million and paying the CPS’s costs of £10 million. The period in question was between 2011, when the Bribery Act entered into force, and 2017, when Entain, then called GVC, sold its Türkiye business.

It’s important to realise that the figure of £615 million is estimated by the CPS and the court to be 50% of what would otherwise be payable had there been a conviction.

Our information about the DPA comes from the short, summary judgment of Dame Victoria Sharp (President of the King’s Bench Division). The key test which a proposed DPA must pass is whether the agreement, including the discount applied, is in the interests of justice.  The judge found that it was. This does not come as a great surprise given that all the DPAs published so far have had the approval of the court.

Although many of the underlying facts have not been disclosed pending the resolution of connected cases, the summary judgment (which can be read here) contains some interesting intelligence. Some brief points:

Alleged Offending Was “Failure to Prevent Bribery” 

GVC was found to have failed to prevent bribery in the sense provided by  Section 7 of the Bribery Act 2010. That bribery will have been attributable to some person or persons performing services for or on behalf of GVC at the material times. 

As one would expect with a penalty of this size, the conduct was serious and long-lasting.  According to the judgment:

“the conduct alleged in the Indictment and described in the Statement of Facts is serious, and in reaching its conclusion with regard to this DPA it has had regard to the public interest factors in favour of prosecution identified in para 2.8.1 of the DPA Code. Specifically, these are serious harm; established business practice; scope of conduct; failure to report; and adverse impact of conduct on the integrity or confidence of markets and local or national governments.

50% Discount For Cooperation and Significant Change  

A 50% discount is more than the normal one-third reduction in sentence which may be received in the case of an early guilty plea. However, such a discount is seen more often in DPA cases where there has been cooperation and other commendable conduct by the company after the event.

The judgment makes clear that, in considering the appropriateness of the DPA on these terms,  the Court has given significant weight to the fact that there has been a “wholesale change of senior management and approach and an acknowledgement by Entain that it was necessary to overhaul its culture and practices.”

The Judge cites the view of the CPS that “the process of ensuring that Entain now holds the highest standards of ethical business practice is substantially complete” and it seems that the CPS has taken it upon itself to conduct “its own review and evaluation of Entain’s Ethics and Compliance Programme and has found it to be “robust and fit for purpose”.  Apparently based on this, the Judge felt capable of stating that: “The risk of any repetition of the conduct can properly be considered to be remote”.

Entain will also commission an external compliance review (the terms of reference for which will be agreed with the CPS) and share a copy of the report issued as part of that review with the CPS. It will also report to the CPS on the implementation of the recommendations received within 12 months of receiving such a report.

The Court has given Entain credit for its efforts to adopt a comprehensive reform not only of its internal compliance system, but in making commercial decisions which may be driven by a desire to avoid legal risk, whether the risk of bribery or other potential offences. The Summary Judgment specifically praises Entain’s general “commitment to the promotion of open and transparent gambling operations, to the improvement of corporate governance over the next four years, and to operating at the highest ethical and compliance standards in the industry”.

A Dose of Consequentialism

Another factor which appears to have had significant weight in the decision to permit a 50% discount, is the effect which a prosecution might have on the overall fortunes of the company. The judge stated that:

“I am satisfied that the prosecution of Entain would have disproportionate consequences. In particular, if convicted, Entain would risk losing its licenses to operate in territories in the United States and other jurisdictions. This in turn would put at risk thousands of jobs in this jurisdiction and elsewhere; and the revenue losses would risk damaging the interests of shareholders, pension-fund holders, contractual counterparties, and those in its supply chain.”

It is not unusual for the overall economic effects of a potential conviction, especially the effects on third parties, to be taken into account when the courts consider DPAs. Similar reasoning is to be found, for example,  in the judgment approving the DPA between the Serious Fraud Office and Rolls-Royce (which can be found here Serious Fraud office -v- Rolls Royce (Home - Courts and Tribunals Judiciary)).  We can expect such factors to be considered in many future cases.

Role of HMRC and the CPS

A point which may be of more interest to practitioners than others is the fact that the investigation of GVC / Entain was carried out not by the Serious Fraud Office, the agency with the greatest expertise and focus on international bribery, but by Her Majesty’s Revenue and Customs (“HMRC”).

In turn, the prosecution was brought not by HMRC itself but by the Crown Prosecution Service.  One can speculate as to the reasons for this, but it is, in our view, a clear signal that agencies other than the SFO are aware of the importance of these matters and it does these agencies’ profile little harm to be responsible for such substantial resolutions.

“Non-Legal” Conduct Overseas

The judgment and the approach of the CPS also throw some light on an issue which often arises in international corporate crime cases.  The issue is the extent to which foreign law is relevant to a case where the charge is to be brought in the UK.

Technically speaking, the effect of foreign law on the offence of bribery itself is limited. As regards bribery, a local permission or requirement as regards influence or acceptance of payments or other advantages may be an excusing factor in some cases of bribery - see the Bribery Act S.5(2) (general offences) and S.6(3)(b) (foreign public official offences).

However, in this case, there seems to have been no relevant local permission or requirement. In fact, at the material times, gambling in Türkiye was what the judge described as “non-legal”.   This unusual term is explained as follows:

“The phrase non-legal in this context refers to services that were considered illegal by the Turkish  authorities, or designated as illegal by Turkish domestic legislation, but which would not be illegal if offered in England and Wales where the provision of facilities for gambling (i.e. gaming, betting and/or lotteries) is legal if appropriately licensed and complies with the requirements of the Gambling Act 2005 (the 2005 Act)”

At least in the absence of more information, it is not entirely clear what relevance this has or should have to the exercise being conducted by the court. As we understand it, the sole charge in this case is under the Bribery Act, not the Gambling Act. There seem to have been no other charges for related conduct. So, what does it matter to this DPA exercise that the gambling services (which are unlikely to have been elements of the offending) were “non-legal” in Türkiye?

It may have been thought that any other illegal conduct connected to the charged conduct could be seen as an aggravating factor when considering the DPA. The intention of the court may have been to make clear that, on the facts of this case, the illegality of gambling in Türkiye was not to count against Entain as far as the exercise of the DPA powers goes, because such gambling is not illegal in England.

If correct, this seems quite reasonable. It is coherent to take the position that, for the purposes of an English DPA, conduct abroad will be judged by English rules, even if the rules in other countries are different and would make that conduct unlawful there.

But this position does not sit entirely comfortably with another factor which is said to weigh in favour of the DPA. That factor is that Entain is in the process of exiting many international markets in which gambling is not regulated or where “there is no clear path to domestic gambling regulation”.  No doubt this is a reasonable business decision, but it was also considered highly relevant to the approval of the DPA.  It is an express term of the DPA that “Entain is required to conduct its gambling operations only in regulated markets”.  We take “regulated” here to indicate that gambling is legal in the relevant jurisdiction as long as the provider abides by local regulations, such as licensing conditions.  

If it’s not an aggravating factor to be in breach (or at least potentially in breach)  of overseas gambling laws, because English gambling laws would permit the relevant actions, why is it a mitigating factor to exit those overseas countries? Why should the lack of regulation overseas be seen as anything but a neutral factor?  Although overseas countries will apply their laws as they see fit, all that should matter to the English court and the CPS is that the conduct does not offend English law.

The answer to these questions might be found in the issues to which the question of “non-legality” are most likely to be relevant.  We tentatively identify two such issues, though there may be others.  The first is whether overseas illegality should be counted against a defendant in circumstances when the relevant conduct would not be illegal in England. Most people would accept that English courts should apply English standards of conduct, so to penalise a person for something not illegal in this country, even as part of a DPA-approval process, appears unfair.

The second issue may be more to do with compliance, culture and risk-management. It is whether it is  worthwhile for a company such as Entain to reduce the risks which arise from operating in markets where gambling is not regulated.  Although it is not spelled out in the judgment, the underlying assumption may be that there is a greater risk of bribery being committed on behalf of a company in unregulated foreign markets because such an environment increases the risk that company representatives will cut ethical corners.

Grey Markets: A Grey Area?

After the publication of the DPA the CPS issued a press statement, parts of which appear to address the gambling industry as a whole. Senior CPS Prosecutor  Andrew Penhale said:

“The wider gaming industry may wish to reflect on the implications of this agreement for their own corporate compliance procedures and, where appropriate, take action to address and report any failings they identify. The CPS will continue to work closely with law enforcement partners in this area, such as HMRC, as well as the industry regulator, the Gambling Commission”.

It’s unusual for a prosecution authority to take a direct interest in specific regulatory matters in this way. Again, the idea seems to be that compliance failings are a potential red flag as regards criminal liability. The promise of a joined-up approach to these issues between prosecutors and regulators should be taken seriously.

How far does this go? Should this be interpreted as the CPS “calling time” on non-regulated operations in grey markets, as suggested in  some commentary ?

Gambling operations in grey markets and their legal consequences are beyond the scope of this note. However, if the suggestion is that this agreement directly alters the legal status of such operations, we would urge caution. A specific DPA does not have the status of a binding precedent.  The CPS’s statement suggests that it is willing to prosecute similar cases.  But every case will turn on its own facts. In our view, the fact that a company may operate in a grey market does not mean that it has committed offences under UK law. To prove a specific offence such as bribery, even “failure to prevent” bribery, there must be strong evidence of both actions and mental states which are typically different from those seen in cases of regulatory infringement. Every prosecution must have a strong evidential basis and be considered to be in the public interest.

That said, it seems to us that the UK risk-landscape may well be changing as regards activities in non-regulated markets. On average, such activities are likely to involve a greater degree of legal risk than in licensed markets. It seems  that the UK authorities are more alive to the financial crime issues which may arise and thus more enforcement action may result.

Moreover, UK investigating and prosecuting authorities now have a wider range of  tools at their disposal than previously. The Economic Crime and Corporate Transparency Act  has created new offences for companies above a certain size which “fail to prevent” not only bribery but fraud, false accounting and tax-evasion. The effect of the DPA regime may be that many companies will compromise and consent to large penalties and wholesale change rather than go to trial, where the stakes would be even higher.

Lastly, of course, authorities in the grey markets may themselves wish to carry out investigations, including into UK entities or individuals. In the wake of such a high-profile case, those authorities may be more willing to approach the UK for assistance with gathering evidence via mutual legal assistance procedures and may have higher expectations of the UK legal regime than previously.

Conclusion

As with all DPA cases, no-one was before the court to argue the other side. One consequence of all parties furiously agreeing with each other is that some propositions, and the assumptions underlying them, are not explored in depth. Another is that commentary such as this relies on assumptions and speculation a bit more than usual, which is always uncomfortable for lawyers. 

However, we can say the following with some confidence: DPAs such as this one signal the attitudes of law-enforcement and the courts towards certain types of business conduct. This agreement is further evidence that cultural factors and compliance reforms are significant contributors to reduced penalties and reputational harm. The effect of the case on operations in grey markets is not clear as a matter of law. But, as a matter of practice, such operations now seem to be under considerable scrutiny, from prosecutors as well as from regulators.