INTERNATIONAL. Clyde & Co recently undertook a survey in the Middle East on 'Doing Business with Confidence' in relation to the forthcoming United Kingdom Bribery Act (The Act).
The results indicated that nearly 45% of respondents were not aware of the Act and of those that were, nearly 73% have not reviewed their business practices or related processes in light of any impact from the Act. While these figures need to be interpreted with a degree of caution, they should serve as a wake-up call to compliance officers and directors alike.
There has been a great deal written already about the forthcoming United Kingdom (UK) Bribery Act though most corporates in the region are not being proactive in doing anything about it including considering the impact on how they currently do business. Additionally, local companies need to ensure any of their staff with a "close connection" to the UK do not fall foul of the legislation. The reputational damage and associated consequences of having a director or other employee prosecuted for bribery will be significant.
This Act is one with teeth – it has global reach and severe criminal and civil penalties that cannot be ignored by any corporate or individual. It is expected to be enforced rigorously.
Whilst talk on corporate governance or the lack thereof, in organisations is ongoing - of note is that the Board is fully responsible for the anticorruption program under the new Act and if nothing else, this piece of law should raise the expectations and practices of good corporate governance in the region.
Q: Why would companies in the Middle East even need to think about the developments in UK Law?
The UK Bribery Act is really a very wide-reaching law. It has implications not only for individuals and commercial organisations operating inside the United Kingdom, but also for British and foreign companies engaging in business transactions on an international scale.
Firms with a UK connection, wherever they do business in the world, cannot afford to ignore the new UK Bribery Act. The criminal offense of failing to prevent bribery has enormous significance for companies with any kind of presence in the United Kingdom, however minor that presence may be. The offense applies to any company that carries on a business, or part of a business, in the United Kingdom, and it relates to the whole of its international operations.
There are many examples of where this may apply to a company's Middle East North Africa (MENA) operations, whether it is a local company or a branch or subsidiary of the UK Company. Such as a MENA company having a subsidiary or branch office in the United Kingdom, or even merely listing shares in the United Kingdom but not otherwise being present in the United Kingdom, is potentially caught in relation to its operations in the MENA region and throughout the world. There is also a plethora of firms in the MENA region that act as agents or representatives or sponsors for UK entities, many others are partly owned, even a minority share, by UK companies.
In addition, the Act creates individual liability for the offence of bribery of a foreign public official. This offence will apply to all individuals who are UK nationals or who have a close connection to the UK. It is irrelevant for these purposes whether the individual is employed by a UK company or a local company.
Moreover, individuals and corporates with a ‘close connection’ with the UK have broad exposure. If an individual or corporate undertake an act or omission of accepting or receiving a bribe (or any attempt thereof) in or outside of the UK, they may face the extensive reach of the Act. The Act defines a ‘close connection’ as:
a British citizen,
a British overseas territories citizen,
a British National (Overseas),
a British Overseas citizen,
a person who under the British Nationality Act 1981 was a British subject,
a British protected person within the meaning of that Act,
an individual ordinarily resident in the United Kingdom,
a body incorporated under the law of any part of the United Kingdom,
a Scottish partnership.
Of the 163 responses to the Clyde & Co survey, nearly 84% employed British nationals in the business and yet as indicative of the survey response, the lack of awareness and lack of preparation must naturally lead to a great deal of exposure to falling foul of the Act.
There can be no dancing around what type of exposure an organisation (and individuals) have – the Act is far reaching and applies to corporates and unincorporated entities, all trades and professions.
Q: Living and working in such a diverse multi cultural society like Dubai, what actually is considered bribery?
Bribery, under the new Act, is defined in terms of intending to procure the “improper performance” of a person’s duties. This means that the recipient of the bribe would be expected to not act in good faith, nor an impartial manner or not in accordance with a position of trust.
Of interest is that expectations are judged by UK, not local, standards.
The Act makes no exception; all payments or financial or any other advantage, no matter how small or considered routine, or indeed expected by local customs, would be illegal. In business terms, this means anything which could be perceived to be of value to the intended recipient.
Cultural inhibitors to “getting things done” or “the usual” business processes can no longer be an excuse: extravagant dinners, reciprocal favours, ‘greasing the wheel’ or any other facilitative payments, excessive hospitality and the like are now firmly in the firing zone.
It has been commented by some that this is impractical; in some jurisdictions it is impossible to get business done without these types of payment. However, other organisations have commented that this state of affairs makes it easier to present a zero tolerance culture within their organisation. This provides for clearer policies and greater understanding amongst employees as to what constitutes compliance.
Q: So, with the new UK Bribery Act coming out, what are some of the significant points for companies and people to know?
Before we discuss the local context, it is important to note that the new Act generally categorises bribery as (1) giving, promising, or offering a bribe in the public or private sector (active bribery), or (2) being bribed either by requesting or agreeing to accept a bribe in the public or private sector (passive bribery).
In addition to active and passive bribery, the Act specifically addresses two further categories of bribery offences (whether actively or passively), bribing a foreign public official (FPO) and bribery arising from a company's failure to prevent those performing services on its behalf from paying bribes..
This is very relevant to businesses in the Middle East as the Act has global reach, applying to acts or omissions taking place anywhere in the world. Firms or individuals with a UK connection, wherever they do business, cannot afford to ignore the new UK Bribery Act.
The Act will make it an offence for a business with UK Connections, to fail to take appropriate steps to prevent bribery by those acting on its behalf, wherever in the world they may be. This may apply, for example, where a subsidiary, branch, agent or joint venture partner or representative of the UK business carries on overseas business.
The Act also, importantly, applies to companies incorporated anywhere else in the world, if that company, or any part of it, operates in the UK.
Businesses operating in the Middle East as part of, or on behalf of, British companies should expect tighter controls over the way in which they do business in this region to ensure that the risk of bribery is minimised.
Furthermore, Middle East-based entities with investments in the UK should consider whether they also need to comply with the Act and put in place safeguards against bribery.
Individuals with UK Connections, as defined in the Act, living and working in the Middle East should also be aware of the personal repercussions for them under the Act, if they are implicated in bribery or even allegations of bribery.
Additionally, entities and individuals that need to comply with the Unites States of America’s Foreign Corrupt Practices Act (FCPA) should note a key point that the FCPA has exceptions for facilitation payments and "bona fide" expenses - the UK Bribery Act does not.
Q: So, what is a company to do to comply and what are the penalties for non-compliance?
A defence mechanism for the company for failing to prevent bribery is to demonstrate that it had “adequate procedures” in place to prevent bribery. The procedures will not be specified in the Act, as they are a matter for companies to devise to reflect the nature of the business however, it is expected that the company put into place and practice the correct implementing of:
Board responsibility: Board and senior management commitment to avoiding bribery;
Risk Management: properly assessing the risk of bribery within the business;
Compliance function: for the implementation, oversight and monitoring of all program activities and accountability of same;
Due diligence: the business the company undertakes in order to minimise bribery risks; decision making process; financial controls; supply chain management
Business Ethics and Conduct: policies, procedures, systems and controls implemented and practiced
Gift and Hospitality: implementation of effective policies available to all employees and the Board
Employment procedures: clear, accessible and practical procedures for all to follow; employment contracts; employee vetting; disciplinary procedures
Effective implementation of all related procedures including regular and effective training;
On-going monitoring and review.
The new Act carries severe penalties of non-compliance and takes the approach of Strict Liability where the only defence is “adequate procedures” and the adequate procedures defence only applies to the corporate offence of failure to prevent bribery. The standards that are expected of a small private company will not be the same as those expected of a large multi-national.
Penalties are rigorous: Individuals guilty of one of the principal offences are liable on conviction to imprisonment for up to 10 years, or to an unlimited fine, or to both. Organisations risk unlimited fines, debarment from EU contracts and the confiscation of the value of corruptly obtained contracts.
The Act also penalises those senior officers of the corporate with whose “consent or connivance” the bribery was committed - this could be committed by the passive acquiescence of a director, if in practice that amounted to consent to the bribery. In addition, failure to maintain “adequate procedures” could render directors vulnerable to civil claims.
There are no defences available for the offences of giving or receiving a bribe; and the only defence for the offence of bribing a foreign public official is that the FPO is either permitted or required by written law to be influenced by a bribe.
Q: More realistically, how will the law apply here?
The overseas bribery need not be connected with the specific UK business. Indeed a bribe may not have actually taken place however an organisation’s only line of defence is to implement and practice “adequate procedures”. Extra territoriality in matters relating to financial crime more generally will become increasingly common throughout the world as time passes.
Organisations should not assume that the government and regulators would be deflected from enforcing the new legislation. Recent indications are that corporate and individual failures to take action to prevent bribery will meet a tough response. Notably, law enforcement and regulators are increasingly working together across borders.
Again, just to emphasise: Local custom and practice is no defence unless the custom or practice is embedded in written local laws and it would be rare that, for example, a payment for “greasing”' and “facilitating” services or the like would be embedded in any written laws. This in particular applies to any dealing with foreign public officials. The “Expectation” test of what is considered reasonable behaviour is encapsulated in the Act and is a subjective test of what practices a reasonable person in the UK would expect in relation to performance of a function or activity.
Q: So what if I own, or work for, a firm that has no assets or activities in the UK and it is not considered a company in the UK? This comes back to the original question, 'why would a Middle East based or local company be concerned with what happens in the UK on the Bribery Act?'
Public statements made by several leaders and a number of recent high profile prosecutions in relation to financial crime have emphasised the current approach on changes in attitude and the application of the law to the prevention, detection and prosecution of financial crime including corruption and bribery.
Vice-President and Prime Minister of the United Arab Emirates and Ruler of Dubai His Highness Sheikh Mohammed Bin Rashid Al Maktoum announced in 2009 a zero tolerance policy to corruption in the Emirates, and is quoted as saying "There is no room for corruption and the corrupt. In all corruption cases, people are not only prosecuted and punished, administrative and legal holes that they exploited to commit their crimes are plugged. No one in the Emirates is above the law".
Whilst not widely known, the UAE also has anti-bribery and anti-corruption legislation in place:
the UAE is a signatory to the UN Convention on Anti Corruption (Federal Decree (8) of 2006)
Federal Penal Code (Federal Law (3) of 1987 as amended)
Federal Tender Regulations (and Emirate level regulations where applicable)
The UAE Federal Penal Code has wide application and it was amended in 2005 to include private sector companies and their staff.
Also, a law that effects us all, whether we work for a financial institution or are customers of banks, insurers, securities or money exchange houses: The UAE Law which criminalises money laundering. UAE Federal Law No 4 of 2002 regarding the criminalisation of money laundering includes as a criminal offence "Bribery, embezzlement and also fraud and breach of trust and related offences". In other countries in the Middle East, most if not all of their anti money laws include similar provisions.
Therefore, even if the UK Bribery Act appears to have no impact on you or your company whatsoever, you may feel the impact from your business or trading partners expecting your company to comply with anti-corruption practices.
Additionally, to avoid falling foul of UAE or other country's' criminal or civil laws; individuals and companies will be required to review the way in which they operate to ensure that their dealings would not be construed as offering a bribe or other advantage in return for the commission of an act or omission by others.
Although this appears to be an obvious point, companies should re-evaluate the way in which individuals and companies who are subject to the UK Bribery Act and local requirements do business – here and in other countries. It is therefore imperative that corporates take local law and compliance advice in each jurisdiction in which they operate.
Corporates should seek to apply, as a bench mark, the most stringent applicable standards. Can you afford not to undertake a full governance and compliance review to ensure that your business is properly protected?
Note. You can access related articles on the Clyde & Co website at www.clydeco.com.
© 2011 Clyde & Co LLP. All rights reserved