New Anti-Corruption Legislation - International Law
Do any of your clients do business in the UK?
If so, they are subject to tough new anti-corruption legislation which:
Extends UK jurisdiction worldwide
The legislation applies to any corrupt acts regardless of where in the world they take place.
Requires corporate entities to police themselves
The legislation requires corporate entities to prevent corruption.
If the corporate entity fails to prevent corruption it is guilty of a serious criminal offence unless it can show that it had put in place 'adequate procedures' to prevent corruption.
Even if the corporate entity knew nothing of the corruption they are still liable unless they have adopted adequate procedures.
Extends corporate criminal liability to the acts of third parties
The legislation requires corporate entities to prevent corruption not only internally but also within "Associated Persons" which include their agents, joint venturers, contractors & suppliers. If the corporate entity fails to carry out adequate risk assessments or fails to implement adequate anti-corruption systems in respect of third parties and those third parties become involved in corruption then the corporate entity commits the offence of failing to prevent corruption.
Is broader in scope than US FCPA
The UK legislation is broader than the US anti-corruption legislation (Foreign Corrupt Practices Act 1977) in that:
I. Corrupt payments of any type (including private to private) are caught not just to Foreign Public officials
II. Recipients, as well givers, of bribes are caught
III. Facilitation payments are caught (payments, usually to foreign public officials to make something happen faster)
IV. Failing to prevent corruption is an offence.
V. Liability for the corrupt partices of third parties (not just subsidiaries)
Involves a greater risk of detection
Corporate entities that do business in high risk countries and in high risk sectors will be targeted.
Whistleblowers are protected and encouraged (US FCPA investigations reward whistleblowers with a percentage of any fine)
Competitors are encouraged to make complaint
Closer co-operation between enforcement agencies worldwide
Can bring tough sanctions
Multi-million dollar fines.
Confiscation of assets
Senior officers can face up to 10 years in jail
Blacklisting from tendering for public procurement projects
CASE STUDY
DB Gmbh is a German registered company based in Stuttgart which manufactures high specification valves for the oil & gas industry. DB sells its valves worldwide. The UK is an important market for DB and it has a subsidiary in Aberdeen servicing oil rigs in the North Sea.
DB is a well run, well respected company. It is careful to comply with all German anti-corruption laws.
DB regularly tenders for public procurement projects in the EU.
In 2007 DB's export director met representatives from a number of Russian companies at a trade fair. One of those Russian companies, Gorky, has placed sizeable orders.
Gorky recommended that DB use Russian based agency, Logistica, to handle logistics. DB have engaged Logistica to deal with customs clearance and transport in Russia.
Logistica also deal with a number of US companies exporting to Russia.
Business is going well and DB have made £10m worth of sales to Gorky and there are more sales to come. Furthermore, the export director has 3 further Russian companies interested.
In late 2011 an employee of one of the US companies, with whom Logistica dealt, had disclosed to the US authorities that Logistica was systemically bribing Russian customs & transport officials to secure quick and easy transit of its clients' goods. This employee had turned whistleblower in the hope of obtaining a substantial reward from the SEC/DOJ (the US prosecutors).
Material relating to DB has been found and it revealed that Logistica had been paying bribes to Russian customs & transport officials in respect of the transit of DB's valves to Gorky.
The SEC (US) have provided this material to the Serious Fraud Office (UK) anticipating that the SFO may be able to use it enhanced powers under the UK Bribery Act.
SFO quickly concluded that DB itself has not actively been involved in bribery, but have asked DB for details of its anti-corruption procedures in respect of its dealings with Logistica.
DB have no such procedures. It is not required under German law to have such procedures and in any it is not liable under German law for the acts of third parties of which it is completely unaware.
Can DB be prosecuted in the UK?
Yes.
Although it knew nothing of the corruption at the heart of Logistica's operations, DB has failed to take 'adequate procedures' to prevent bribery taking place. In particular DB did not conduct a risk assessment into its dealings with Logistica, nor did it carry out any anti-corruption due diligence. Logistica was operating in a high risk sector in a high risk country (Russia is ranked 154 out of 178 in the Transparency International corruption index).
Although, the acts of corruption had nothing to do with the UK or with a UK company, DB is still liable because it has a subsidiary operating in the UK.
Likely penalties
Large fine.
Reputational damage.
Possible blacklisting for future public procurement projects in the EU.
Possible confiscation of assets.
