We are incorporated in the Middle East, why is this relevant to us?
1 July 2011 saw the introduction of the Bribery Act 2010 (Act). The Act brings a new statutory regime to an area where the existing law is largely out of date. The Act has the potential to affect the way business is conducted by the international shipping community. The changes mean that the offence will also apply to any foreign (i.e. non-UK) business which carries on part of its business in the UK, and the impact of the far-reaching changes that this legislation entails, and its potential for extra-territorial application, will be felt by shipowners and other regional businesses, even if their main commercial operations are concentrated in the Middle East.
Whilst the application of the Act is still at the early stages, the shipping sector has from the outset been identified as a “high risk” area, given the cross-border nature of its activity in numerous jurisdictions around the world, risk of exposure to potentially corrupt environments, provision of services to high risk areas such as defence and natural resources, close interactions with public officials and the frequent use of agents. It would not be uncommon in the case of a ship calling into a port for the master of the ship to deal with people that the Act designates as foreign public officials who often regard a “backhander” as a customary perk.
The Act is the latest in a series of laws promulgated by various countries in order to strengthen their anti-corruption legislation. The rationale is that bribery in any form erodes the rule of law and damages social and economic progress in developing and emerging economies and international trade. In the region, Bahrain ratified the United Nations Convention against Corruption last year, and this year Saudi Arabia established a commission aimed at fighting administrative and financial corruption. In the UAE, a new law against corruption was also introduced by the Dubai ruler, with penalties of up to 20 years in prison (Law No. 37 of 2009).
Offences pursuant to the Act may be prosecuted if undertaken by a corporate entity, regardless of where in the world the act or omission took place. The Act contains two offences covering the offering, promising or giving of a bribe (active bribery) and requesting, agreeing or accepting a bribe (passive bribery).
The Act also sets out two further offences: firstly, a new strict liability offence for commercial organisations of failing to prevent bribery. A commercial organisation will be liable if an “associated person” carries out an act of bribery by making a corrupt payment on its behalf. The offence is absolute and strict in the sense that there is no “de minimus” level. Any payment, however small, made with the requisite intention will be classified as a bribe and constitute a breach of the Act.
The offence of failing to prevent bribery can be committed by any commercial organisation with a “business presence” in the UK. Accordingly, a foreign entity is caught by the Act, even though it is not incorporated in the UK, if it carries on business (or part of a business) in the UK. This is the case even if the act of bribery was committed abroad and even if the UK-based part of the business had no involvement. Foreign entities that carry on a business in the UK will fall within the ambit of the new law just as much as UK companies. For example, a Jebel Ali incorporated shipowner with a branch in London that conducts its chartering and ship management operations in London could be caught within the Act if one of its ships owned by the UAE incorporated parent calling at a port pays an “expedition fee” in the form of a few hundred Marlboro Lights to the port superintendent in order to expedite docking and unloading. Whilst guidance notes issued by the UK Government set out a common-sense approach as to the type of business which will be deemed to carry on business in the UK (for example, a mere listing on the London Stock Exchange will not be enough), there are still a lot of foreign companies with extensive business interests in the UK that might be seen as having a “demonstrable business presence” in the UK. It has been recently clarified that the chartering of ships on the Baltic Exchange would mean that the test is satisfied, even if the resultant contracts are performed elsewhere. Although we do not think that a bottle of alcohol or a few hundred cigarettes will necessarily attract the attention of the prosecutors, it is conceivable that the same payment or gift over a long period of time may mean that it is in the public interest to prosecute such payments.
A company can be guilty of the corporate offence even if it did not know about the payment in question. The situation is compounded by the fact that the company can also be liable for the actions of “associated persons”. An “associated person” is defined very broadly so as to include an employee, an agent, a subsidiary or a joint venture partner, i.e. such persons over whom the company has far less control.
What steps should we be taking?
The Act is not designed to penalise well-run organisations that experience an isolated incidence of bribery. Accordingly, the Act recognises a defence driven by the fact that no laws or regulations will be capable of preventing bribery at all times.
Accordingly, an organisation will have a full defence if it can show that it had “adequate procedures” in place. The Act does not define what amounts to an “adequate procedure” and the guidance notes are all high level. Accordingly, it would be prudent for all shipping companies to revisit their existing anti-bribery policies in order to ensure that, as far as possible, appropriate steps are taken so that the Act is not contravened.
What about customary payments – that is the way business is done in that region
Some of the vocal critics of the Act have included the shipping community, which claims with some legitimacy that many customary business practices in the shipping industry that have previously been considered acceptable or usual will now contravene the Act. The most obvious area of concern is the facilitation payment made to a public official in order to secure or expedite performance of his duties. Whilst discretion is likely to be exercised when it comes to deciding whether prosecution is in the public interest, the fact remains that any payments made to officials for the purpose of easing the process of official actions, or those required by local custom, are likely to be unlawful.
Gone are the days when a small “gift” or “bonus” might be offered by a vessel’s Master in order to achieve customs clearance or perhaps to obtain a necessary permit that little bit quicker. The fact that a vessel’s voyage will be delayed, resulting in liquidated damages for loss of profit, or that refusing to make payment may have an impact on an operator’s reputation in some jurisdictions is no defence. Only if such payments are permitted or required by written local law will they be acceptable. We are aware of some clients who maintain that goods cannot be moved across a particular border without facilitation payments. Following advice from the Serious Fraud Office, that company was instructed to talk to its competitors and find out whether the problem was generalised. After that, the UK and other embassies put pressure on the state concerned.
There have been some critics who claim that in many places around the world bribes to facilitate government action are simply a fact of life. Nonetheless, the guidance notes pursuant to the Act do not seek to limit the scope of the Act’s application to facilitation payments. The Act is seen as an important step in a global attempt to bring about a complete culture shift and a change of mindset so as to eradicate corrupt practices. The only defence is that where payments are sought and there is a genuine threat of loss of life or limb will there be an exception. The duress has to be physical rather than economic, so if a voyage is delayed, resulting in less hire paid (an economic loss), this will not suffice.
It’s just someone playing with words, it is not a bribe. It is hospitality extended to a trading partner
Reasonable and proportionate business hospitality will fall outside the Act. It is only an offence if it is intended to induce or influence a public official. Most organisations will have procedures in place regarding reasonable hospitality and entertainment.
The watchword in relation to bribery is now “zero tolerance”. This is true across the board, but especially where businesses operate in ethically high risk jurisdictions and delegate responsibility to agents. Shipping companies, like all others, must implement a culture whereby the practice of bribery, of whatever type and regardless of context, is treated as wholly unacceptable. Similarly, employees must be educated through training and made aware that no advantages should be given, promised or offered to third parties (nor received from third parties) if such advantages could be construed as corrupt.
“Top level commitment” is a guiding principle and it is crucial that management conduct appropriate risk assessment exercises, perform due diligence in respect of such parties as agents, consultants or business partners, and have in place clear policies and procedures in order to ensure compliance. To avoid falling foul of the law, these must be effectively implemented, communicated and enforced, then regularly monitored and reviewed.
Shipping companies in the Middle East and elsewhere would be well advised to familiarise themselves fully with the Act’s requirements.