In recent months, the media has been awash with headlines that suggest that the UK, and the London property market in particular, has become a safe haven for money launderers. Aside from the inevitable hyperbole, these headlines carry an element of truth and, more importantly, act as a cautionary reminder of the pervasive nature of corruption, particularly within the construction industry.
In 2011, Transparency International’s Bribe Payers Index indicated that, out of the 19 different business sectors it surveyed across 28 of the world’s largest economies (including the UK), bribery was perceived to be most common in the public works contracts and construction sector. This perception of the construction industry remains and is not confined to jurisdictions that are seemingly more corrupt than the UK1. A report produced by the Chartered Institute of Building (CIOB) in September 2013 found that 49% of the 701 UK based construction professionals it surveyed considered that corruption was either extremely or fairly common within the UK construction industry. This sentiment was reinforced by a subsequent report published by the Organisation for Economic Cooperation & Development (OECD) in December 2014, which analysed 427 bribery enforcement actions across 17 countries (including the UK) between February 1999 and June 2014 and noted that almost two thirds of the cases occurred in just four sectors, with the construction industry ranking as the joint second most corrupt of those sectors.
Arguably, these findings should come as no great surprise. The nature, scope and scale of the construction industry inevitably make it more susceptible to corruption than other business sectors. It is a universal industry that spans the public and private sectors, often experiencing pressures on time and cost, normally requiring some form of government or local authority approval (for example planning permission, licences etc) and increasingly involving large sums of money, cross-border transactions, as well as multiple parties from multiple jurisdictions with, quite often, differing attitudes towards or laws on bribery and corruption. Undoubtedly, these factors will increase the external and internal threats of corruption, whether they be from organised crime or from individuals and organisations within the industry itself. So, with so many potential risk factors, what can organisations do to minimise their exposure to bribery and corruption risks?
First, a brief recap of the law in the UK
The anti-bribery and corruption regime is governed by the Bribery Act 2010, which came into force on 1 July 2011. It created four main offences, namely, bribing or being bribed (note that the specific act of bribing a foreign public official forms a separate offence) and failing to prevent bribery. An organisation may be liable for the latter if a person associated with the organisation commits one of the other three offences. However, the organisation can raise a defence to this offence if it can show that it has implemented adequate procedures to prevent bribery. It is important to note that the Bribery Act is broad in scope. It applies to the public and private sectors alike and covers conduct within and outside the UK (as long as the party involved or the activity in question is closely connected to the UK).
The anti-money laundering regime is governed by the Proceeds of Crime Act 2002 (POCA) and the Money Laundering Regulations 2007 (MLR). They create offences regarding money laundering itself, as well as failures to report money laundering offences. More specifically, the MLR relate to money laundering within the regulated sector (more recently expanded to include estate agents). It should be noted that the Fourth Money Laundering Directive is on its way, which will mean that the MLR will be amended in the UK in the next 12-24 months (depending on when the Directive is finalised). Like the Bribery Act, the anti-money laundering legislation is wide in jurisdictional scope, as it can apply to criminal conduct committed in other jurisdictions if that conduct would be deemed to constitute an offence in the UK, even if it is not an offence in the jurisdiction in question. A party may be able to raise a defence to such an allegation in imited circumstances.
The impact on your organisation
Under the Bribery Act, POCA and MLR, unlimited fines may be imposed upon the convicted individuals or organisations and property may be confiscated from them. The convicted individuals may also be imprisoned for up to 10 years under the Bribery Act, 14 years under POCA or five years under the MLR. In addition, under the Public Contracts Regulations 2015, organisations will face a mandatory 5 year exclusion period from participation in public procurements if convicted of bribery, corruption or money laundering offences.
Aside from the criminal and civil sanctions imposed by this legislation, there are additional risks to those operating in the construction industry. These include reputational damage, tendering uncertainty, dangerous or overpriced projects and reduced project opportunities in the future.
Minimising your exposure
To minimise your exposure to the risks of bribery and corruption within the construction industry, you should have regard to the following:
- Conduct a risk assessment of your organisation - The UK government’s guidance on the Bribery Act states that an organisation should have an anti-bribery policy in place if there is a risk that it may be exposed to bribery. To assess that risk, the organisation should have regard to the countries and sector that it is operating in, the value and duration of the services and/or products that it is providing, the other individuals and organisations that it is working with, as well as the contractual and supply chain structures that it has in place
- Conduct adequate due diligence of the projects you will be working on and the parties that you will be working with – This due diligence will overlap with, and inform, the overall risk assessment of the organisation. It may also be necessary under the UK’s anti-money laundering legislation. In addition, it will help an organisation identify any specific risks in the project’s supply chain (ie inadequacies in the other parties’ anti-bribery, corruption and money laundering policies, or concerns regarding the transparency of budgets, payments or certifications on the project etc)
- Pending the outcome of the risk assessment and due diligence, ensure that adequate policies and procedures are put in place and disseminated throughout your organisation - The UK government’s guidance on the Bribery Act states that the policy should be appropriate to the risk level (ie the higher the risk, the more stringent the policy needs to be). The policy should be clear. If appropriate, it should set out guidance on risk management, internal audits and any internal reporting procedures. The organisation should also ensure that all staff are aware of and trained to practice the policy. This includes senior and middle management, as well as all other staff. As noted above, a defence to some of the Bribery Act’s offences can be successfully raised by an organisation if it can be shown that it had adequate procedures in place to prevent bribery
- Ensure that your organisation’s policies and procedures are also disseminated to other parties that could be deemed to be associated with the organisation, such as intermediaries in other jurisdictions – The OECD’s 2014 report found that 75% of the corruption cases that it reviewed involved payments through intermediaries. An organisation should therefore ensure that it has communicated its policies and procedures to its associated parties so as to avoid any inadvertent breaches of the applicable UK legislation (eg in jurisdictions where facilitation, or “grease”, payments are considered the norm)
- Regularly review, update and amend your organisation’s policies and procedures and disseminate those changes throughout the organisation and to other associated parties
- Maintain full and accurate records of the projects that you are working on and conduct internal audits where necessary – This may help maintain some transparency on the projects and flag any suspicious activity (eg theft of materials, unusual payments etc)
- Keep up to date with any changes in the applicable UK legislation. Also be aware of the anti-bribery, corruption and money laundering legislation in the jurisdictions that you are operating in, albeit the UK’s legislation is perhaps the most stringent and far reaching of all current regimes