Analysis

The Bribery Act 2010

Analysis by Clyde and Co

Known as the “toughest anti-corruption legislation in the world”, Clyde and Co provide an analysis of the UK’s new Bribery Act 2010, with commentary from senior associate Iain Jones about the implications for construction companies in the Middle East

 

The Bribery Act, which will come into force on July 1 2011, has wide ranging extra-territorial application that extends to both UK commercial organisations and foreign commercial organisations carrying on activities outside the UK.
Individuals and commercial organisations operating in the Middle East now have a three month period to amend their procedures to ensure they do not fall foul of an Act that has been described as the toughest anti-corruption legislation in the world.

Brief Overview of the Bribery Act

When it is enforced next month, the Bribery Act will replace the UK’s existing common law and statutory anti-corruption laws with four new offences:

(a) a general offence of offering, promising or giving a bribe (Section 1);

(b) a general offence of requesting, agreeing to receive or accepting a bribe (Section 2);

(c) a distinct offence of bribing a foreign public official to obtain or retain business (Section 6); and

(d) a new strict liability offence for commercial
organisations that fail to prevent bribery by those acting on their behalf (their associated persons), where the bribery was intended to obtain or retain a business advantage for the commercial organisation (Section 7).

The Bribery Act extends the crime of bribery to cover all private and public sector transactions; previously bribery offences only applied to transactions involving public officials and their agents.

The Bribery Act does not apply retrospectively, therefore corrupt conduct that took place prior to July 1 shall be prosecuted under the existing laws.

How much will the new legislation affect construction companies operating in the UAE?

“The level of bribery risk a commercial organisation faces depends on a number of factors, including, amongst other things, the jurisdiction, business sector, partners and transactions in each case.

“The construction industry and the Middle East are, respectively, viewed as a high risk business sector and jurisdiction by Transparency International.

“Construction companies in the reigon may have to engage third party agents and local sponsors to conduct business. The Guidance recognises that organisations working through or with third party agents are exposed to a higher bribery risk.

“Furthermore, construction companies will often tender for public contracts and should be aware of the bribery risks that arise when dealing with foreign public officials. In short, those in the construction industry are exposed to a higher level of bribery risk generally due to the nature of their business.”

The Guidance

The publication of the Guidance was delayed as a result of the significant concerns businesses had raised with the UK Government regarding the practical implications of the Bribery Act.

The Guidance has gone some way to addressing those concerns. The Guidance is non-prescriptive and it specifically notes that it is not a “one-size-fitsall” solution.

The Guidance offers greater clarity on the following issues:

Hospitality

The Guidance recognises that bona fide hospitality that is reasonable and proportionate is an important part of doing business and will not breach the Bribery Act.

Facilitation Payments
There is no exemption under the Bribery Act for facilitation payments; unofficial payments made to public officials in order to secure or expedite the performance of a routine or necessary action i.e. an application for a licence or permit
to carry out a particular activity.

Foreign Public Officials
The Guidance acknowledges that certain governments allow or require those tendering for publicly funded contracts to offer, in addition to the tender offer, an additional investment in the local economy or benefit to the local community.

The additional investment must be a legitimate part of the tender exercise and the relevant local “written law” must   permit or require the official to be influenced by the additional investment.

Corporate Offence
Of significance for companies based in the Middle East, the Corporate Offence applies to commercial organisations incorporated or formed outside the UK if they carry on business, or part of a business, in the UK (irrespective of where the conduct which has led to the offence takes place).

This leaves commercial organisations with two difficult questions:

• Which parties commercial organisations do business with may be considered as “associated persons”?
• What will constitute carrying on business, or part of a business, in the UK for the purposes of the Bribery Act?

Associated Persons
This issue is of particular relevance to businesses in the Middle East, where business is often carried out through, or with the involvement of, third party agents.

Carrying on business in the UK The Guidance confirms a commercial organisation incorporated or established in the Middle East and listed on a UK stock exchange is not deemed to be carrying on business in the UK by reason solely of its listed status.

Likewise, a Middle East based company that has a UK subsidiary is not deemed to be carrying on business in the UK by reason solely of it having a UK subsidiary.

It will be for the UK courts to decide whether or not a commercial organisation is carrying on business in the UK.
Is there scope for misinterpretation, particularly in relation to hospitality?

“The Guidance is very clear that bona fide hospitality that is reasonable and proportionate will not fall foul of the Act.
“Organisations will still be able to take clients to sporting events and fly clients to meetings, provided that any hospitality is not extravagant.

Taking a client to the Abu Dhabi Grand Prix to strengthen a business relationship will not breach the act. Offering a client a two week all expenses stay in the Emirates Palace Hotel after the Grand Prix will, however, attract the attention of prosecuting authorities.

“The position is relatively clear and organisations should take a common-sense approach to any hospitality offered.”

Adequate Procedures

The Guidance details six non-prescriptive principles which are intended to help organisations put in place policies and procedures to prevent bribery by persons associated with them. The Guidance recognises that smaller commercial
organisations may not need sophisticated procedures given the nature and size of their business, whilst at the same time acknowledging that the size of a business should not be the only factor considered; procedures should be
proportionate to the risks faced by an organisation.

The Guidance recognises that bribery risks will vary depending on the jurisdiction, business sector, business partners and transactions involved in each particular case.

The six principles are:
• Proportionate procedures
• Top level commitment
• Risk assessment
• Due diligence
• Communication
• Monitoring and review
What can companies do to protect themselves if a partner is investigated/ prosecuted under the legislation?
“Organisations should ensure that they have “adequate procedures” in place to prevent bribery by persons associated with them.

“They should be able to produce documentary evidence of those adequate procedures to investigators. Evidence would include, amongst other things, documented policies, training programmes and whistle blowing procedures.

“Organisations should carry out regular bribery risk assessments and put in place policies and procedures proportionate to the size, scope and nature of their business.

“In the event a person associated with the organisation is investigated, the organisation should be in a position to demonstrate a top to bottom anti-bribery culture.”

 

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