In this edition of Middle East exchange, we take a look at the impact of the UK Bribery Act on Middle East based businesses and individuals. We also report on some recent legal developments.
- The UK Bribery Act 2010 - why does it matter in the Middle East? Are you ready for the new law?
- Recent legal developments
The UK Bribery Act 2010 - why does it matter in the Middle East? Are you ready for the new law?
Businesses in the Middle East may not have developments in UK law at the top of their agenda. However, firms with a UK connection, wherever they do business, cannot afford to ignore the new UK Bribery Act 2010 (the Act), which comes into force in April 2011.
The Act will make it an offence for a UK business 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 overseas business is carried on by a subsidiary, agent or joint venture partner of the UK 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.
British citizens 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.
Overview of the Act
The Act will modernise the UK's archaic and numerous anti-bribery laws. Its provisions are detailed. In summary, the law provides for the following:
- offences which may be committed by the payer of the bribe;
- offences which may be committed by the recipient of the bribe;
- an offence of bribery of foreign public officials; and
- a new corporate offence for failure to take adequate steps to prevent bribery.
The Act sets out at length the conduct which will amount to bribery. The parameters are wide. Payments or gifts of any value will be caught, providing that the requisite intention or conduct is present. A person who gives a bribe may commit an offence even if the recipient does not act as the briber had intended. For the recipient of the bribe, an offence may occur if the receipt of the gift or payment was improper (which the Act defines) even if the recipient had no intention of acting upon it. Payments which are made to facilitate or speed up an administrative process, or to achieve something to which the payer is already entitled (often known as "grease" or facilitation payments) are not exempt, as they are in some other jurisdictions.
The penalties for committing one of the offences under the Act are severe. An individual who commits bribery may be imprisoned for a maximum period of 10 years and/or subjected to a fine. For a company, the maximum punishment is an unlimited fine.
If the alleged bribe is paid or received outside of the UK, it may be a defence to say that the conduct in question was legitimate under local law. However, the fact that local law does not criminalise that conduct will not be enough, nor will it be sufficient to demonstrate that the conduct in question is common practice. For such a "local law" defence to succeed, evidence of the written law in question must be produced and shown to expressly permit the conduct complained of.
Who does the Act apply to?
The Act applies to the following:
- all persons and entities if the offence takes place in the UK;
- for all of the offences regardless of where committed, individuals who are UK citizens or nationals or otherwise ordinarily resident in the UK are subject to the Act, wherever they may be;
- for all of the offences regardless of where committed, businesses incorporated in the UK, even if headquartered elsewhere;
- for the corporate offence (see below) regardless of where committed, companies incorporated or partnerships established anywhere else in the world if their business, or part of their business, is carried on in the UK;
- for all offences (other than the corporate offence) committed in the UK, directors or other senior officers (of any nationality) of companies incorporated anywhere in the world who have consented to, or connived with, the company to commit a primary offence of bribery under the Act;
- for all offences (other than the corporate offence) regardless of where committed, British directors or other senior officers of companies incorporated in the UK who have consented to, or connived with, the company to commit a primary offence of bribery under the Act.
Relevant examples of who may be caught within the Middle East include:
- a British citizen making a "facilitation payment" to secure a business relationship for a Middle East incorporated company;
- a UAE director of a Middle East incorporated company approving the payment of a bribe to an individual in the UK in order to secure a business relationship;
- a UK company employing a Middle East commercial agent who bribes another person anywhere in the world in order to benefit the UK company, subject to the "adequate procedures" defence. It is irrelevant whether the company was aware that the agent intended to pay a bribe;
- a Middle East incorporated company with a UK subsidiary where an employee bribes a public official in another country, or makes a "facilitation payment" to another person anywhere in the world for the purpose of securing a business relationship, subject to the "adequate procedures" defence – see below. Importantly, the bribe does not need to benefit, directly or indirectly, the UK subsidiary or business for the Act to apply.
In practice, it will be difficult for a foreign entity or individual to be charged with an offence under the Act unless they are in the UK.
The corporate offence
One offence under the Act which is of particular interest to businesses in the Middle East with British connections is the so-called "corporate offence". As mentioned above, the scope of this offence is particularly wide: it will apply to a business (C) which is incorporated, formed or carries on business in the UK, or to a company incorporated anywhere else in the world which carried on business in the UK. It will commit an offence if a third party (A) with which C is associated bribes another person intending to obtain or retain business for C. A may, for example, be a UAE based subsidiary, branch, commercial agent, employee, joint venture partner or other representative.
It will be a defence for C to demonstrate that it had adequate procedures in place to prevent bribery. The procedures will not be specified in the Act: they are a matter for companies to devise to reflect the nature of the business. Guidance on such procedures is expected in January 2011. An update to this bulletin will be issued to take account of the guidance. However, it is likely that the guidance will focus on the company addressing the following:
- properly assessing the risk of bribery within the business;
- management commitment to avoiding bribery;
- due diligence in relation to the business the company undertakes in order to minimise bribery risks;
- clear, accessible and practical procedures for staff to follow;
- effective implementation of those procedures;
- ongoing monitoring and review.
Whilst the guidance on the procedures is yet to be finalised, businesses which are subject to the Act may start to take steps now to prepare for the Act's implementation next April and to ensure that those procedures also take account of applicable laws in the countries in which they do business.
Bribery of Foreign Public Officials
The Act also introduces an offence of bribing a Foreign Public Official (FPO). The offence occurs in circumstances where a person offers or gives any financial or other advantage intending to influence the FPO in his/her capacity as such (rather than in the FPO's private capacity) and in order to obtain or retain business or a business advantage.
This provision is likely to give rise to difficulties for companies in identifying whether a person is a FPO, since individuals may have multiple roles. Corporate hospitality may become more difficult. Businesses will need to consider carefully to whom they provide corporate hospitality and what they seek to obtain from it. British citizens working in the Middle East may commit this offence, for example, if they entertain regional government officials with a view to securing a commercial relationship.
The UK government has stated that the Act should not be used to penalise legitimate and proportionate hospitality, including in relation to a FPO. It remains within the discretion of the UK Director of Public Prosecutions to decide in each case whether the entertainment was reasonable.
Regional criminal law on bribery
It should be remembered that there are also domestic criminal offences in many jurisdictions in the Middle East for bribery. For example, the UAE federal Penal Code contains anti-bribery provisions under which an offence will be committed in the following circumstances:
- by a public official who seeks or accepts an advantage of any kind in return for breaching his/her duties (even if he/she does not proceed to do so);
- where an employee or executive solicits or accepts a bribe for breaching his/her duties;
- where a person offers a bribe to a public official to breach her/her duties.
Notably, UAE law does not criminalise bribery of a foreign public official (as opposed to a UAE based official). Also, UAE law does not criminalise bribery of a private individual: the offence is committed by the receipt of the bribe by a private recipient only. There have been a number of high profile cases in the UAE concerning bribery (together with fraud and embezzlement) and the government is determined to combat it. Some high profile cases have involved companies which have found themselves in financial difficulties during the global economic crisis, demonstrating that the Dubai authorities are particularly willing to intervene to clean up businesses in circumstances where money has been deployed unlawfully or corporate roles have been performed improperly to the detriment of others.
Bribery may not only give rise to criminal proceedings. The act of bribery will also give rise to potential civil claims under the laws of many countries including under English law, UAE law and the laws of the Dubai International Financial Centre.
Sheikh Mohammed Bin Rashid Al Maktoum, the Ruler of Dubai, said in 2009 "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".
Minimising the risk of bribery and other unlawful activity should now be at the top of the agenda for all businesses. For UK companies and non-UK companies conducting business in the UK, this is acutely the case at present in view of the imminent introduction of the Act. The provisions of the new law are reasonably complex. It is imperative that businesses have in place an appropriate culture, management direction and anti-bribery policy to minimise the risks of bribery. This policy must not sit on a shelf – staff must be made aware of it and understand it. Legal advice will in many cases be necessary to ensure compliance with the Act and other applicable laws. If bribery is detected, advice will also be needed to ensure that the problem is rapidly investigated, understood and addressed so as to minimise the legal, regulatory and reputational exposure which may follow.