Omani companies with UK shareholders (whether minority or majority) could be forgiven for believing that the UK Bribery Act 2010 (the Act) does not apply to their operations in the Sultanate of Oman. However, two recent cases have demonstrated that the enforceability of the Act extends far beyond the borders of the United Kingdom and companies with a UK interest need to exercise caution, regardless of where they operate.
For the first five years following its implementation, it seemed that little overt action was being taken by the United Kingdom Serious Fraud Office (SFO) to enforce the provisions of the Act. However, over the past year, two landmark cases have been settled, demonstrating both the extent of the powers of the Act and the severity of penalties which can be imposed for breach.
On 17 January 2017, the SFO announced that it had agreed a deferred prosecution agreement (DPA) with two subsidiaries of engineering firm Rolls-Royce Holdings plc. The terms of the DPA provide that Rolls-Royce pay a settlement sum of £497 million, in addition to a payment of £13 million towards the SFO's costs of running its investigation into Rolls-Royce's activities. The investigation examined trading by Rolls-Royce in China, India, Indonesia, Malaysia, Nigeria, Russia and Thailand spanning a 23 year period.
The Rolls-Royce settlement comes hot on the heels of the Sweet Group plc case (Dentons considered the impact of the Sweet case in February last year).
In this case, a UK company, Sweet Group plc was found guilty of failing to prevent bribes, relating to a construction project in the United Arab Emirates, by one of its subsidiaries - Cyril Sweet International Limited, a Cypriot company. Sweet Group was subsequently ordered to pay £2.25 million, comprising a £1.4 million fine and £851,152.23. The SFO was awarded costs of £95,031.97. The key point of the Sweet Group case was that a UK parent company was held responsible for a non-UK subsidiary's actions in a different jurisdiction (United Arab Emirates).
What is clear after considering the facts of the above is that the scope of the Act is far reaching and penalties for non-compliance can be severe. The Rolls-Royce and Sweet cases are particularly relevant to UK companies with operations in Oman or elsewhere in the GCC where use of commercial intermediaries is prevalent and often seen as crucial to conducting business.
Companies entering a new jurisdiction will regularly look to enter into arrangements with commercial intermediaries (most commonly commercial sales agents) in order to gain a foothold in the market. These parties often prove to be invaluable in bridging cultural divides as well as connecting the foreign business with local clients. However, relationships with commercial intermediaries are (as Rolls-Royce and Sweet can testify) fraught with risk.
Dentons is keen to assist any principal looking to enter a business relationship with a commercial intermediary and we have prepared a summary of key points that should be taken into consideration prior to formalising any such arrangement:
Due Diligence: Proceed with caution when looking to enter into an arrangement with a commercial intermediary. Companies need to conduct thorough due diligence in order to ascertain whether the counterparty is reliable and, moreover, capable of operating within the parameters of the Act and any local anti-bribery and corruption legislation. This may prove difficult from a logistical perspective and it may be worthwhile considering engaging the services of a third party to conduct due diligence investigations into the prospective commercial intermediary. You need to ensure that your counterparty is ready and willing to adhere to the ethical standards set by the Act and your own business.
Adequate Procedures: It is important to note that the only defence available under the Act is that of "adequate procedures" (Section 7). What this means is that an entity accused of a breach under the Act must prove that it had adequate procedures in place which are designed to prevent bribery from being committed by those performing services on its behalf. It is therefore imperative that all companies (and particularly those that utilise commercial intermediaries) record, implement and enforce such procedures to ensure that the business will be able to rely on the defence in the event of an investigation by the SFO. The UK Government has published guidance on what constitutes "adequate procedures" and this leads us to the next point below.
On-going Management: Principals must continually monitor the activities of their commercial intermediaries to ensure that ethical and compliance policies and procedures are being adhered to. Commercial intermediaries should have their performance reviewed on a regular basis and ethics training delivered by the principal (if deemed necessary to ensure the commercial intermediary's continued compliance). The practice of on-going management will assist in demonstrating that "adequate procedures" are in place and, more importantly, that they are applied by the principal.
Local Requirements: Be mindful of the local nuances in laws dealing with commercial intermediaries across the GCC. In Oman for example, it is mandatory that agency agreements are registered with the Department of Consumer Protection at the Ministry of Commerce and Industry. Failure to register a commercial agency, or renew the registration on expiry, renders the agency unenforceable in an Omani court. However, in the United Arab Emirates and Saudi Arabia, failure to register an agency agreement will not necessarily render it invalid.
The use of commercial intermediaries can undoubtedly be a critical element of gaining a foothold in a new market, particularly throughout the GCC. However, as the Rolls-Royce and Sweet Group cases demonstrate, relying on commercial intermediaries (at least in some instances) goes hand-in-hand with significant risk from an ethical and compliance perspective. The provisions of the Act are wide in scope and can extend far beyond the borders of the United Kingdom and penalties for non-compliance can be severe. The risks associated with entering into business arrangements with unscrupulous commercial intermediaries cannot be over-estimated - of the ten largest settlements under the relevant legislation in the United States of America, the Foreign Corrupt Practices Act of 1977 (FCPA), the majority involved payments to agents. The largest of these was the US$800million penalty imposed upon Siemens in 2008.