Gibraltar: Investment Funds And Bribery - Are You At Risk?

Last Updated: 8 April 2014
Article by Felicity Cole

The Crimes Act 2011 (the "CA") introduced four offences relating to bribery which can broadly be described as: taking bribes, receiving bribes, bribery of foreign officials and, in relation to corporate entities, failing to prevent bribery. Although the anti-bribery provisions of the CA were implemented in November 2012, some members of the investment fund community may not have recognised their impact on the funds environment and may not be taking appropriate steps to ensure that their funds are adequately safeguarded against breach. This newsletter sets out to serve as a reminder of the relevance of the provisions to the funds community and as a brief guide to implementation of a proper anti-bribery policy. The offence which is the most relevant to the investment fund community is that of failure to prevent bribery, and this offence is considered in more detail below.

Outline of the Offence

S. 572 of the CA provides that the offence of failure to prevent bribery must be committed by a 'relevant commercial organisation', which is defined as including 'a body incorporated under the law of Gibraltar which carries on business there or elsewhere'. Investment funds formed in Gibraltar as corporate entities or as partnerships fall within the definition and the CA will potentially be applicable to all of them. The offence is committed if a person 'associated' with an entity commits a bribery offence with the intention of obtaining or retaining business for the entity, or of obtaining or retaining an advantage in the conduct of business for the entity. S. 573 of the CA goes on to provide that a person is 'associated' with an entity if he/it 'performs services for or on behalf of' the entity. Associated persons include employees and agents, and the service provider that is most relevant for most investment funds will be its investment manager(s). A Gibraltar-based investment fund could therefore potentially be liable for failing to prevent a bribery offence committed by one of its investment managers or their agents. It should be noted that the CA specifically provides (in s. 568) that a bribery offence may be actionable even if the relevant activity has no connection with Gibraltar or is performed outside of Gibraltar. Four areas of risk which are of particular relevance to investment managers in relation to bribery are:

  • Procuring investors;
  • The use of private equity strategies, joint ventures and portfolio companies;
  • Corporate hospitality; and
  • The use of agents and consultants.

Defence

The offence of failing to prevent bribery is one of strict liability, but there is a defence if the relevant entity can show that it 'had in place adequate procedures designed to prevent persons associated with it from undertaking such conduct'. It is important to recognise that strict liability means that any failure to implement the relevant terms of the CA, including having no knowledge of an investment manager's actions, can give rise to liability if the statutory defence cannot be invoked successfully. Similar bribery offences have been created in the UK under the Bribery Act 2010, and the UK Ministry of Justice has published guidelines as to what constitute 'adequate procedures' where this defence is raised. In the absence of similar guidelines in Gibraltar the UK guidelines are likely to have persuasive influence here. The UK guidelines contain six Principles which should be considered by funds in order to avail themselves of the 'adequate procedures' defence:

  • Proportionality: any actions taken by the fund should be proportionate to the size of the entity and the markets where it is operating. More action would probably be needed in respect of a large organisation or one operating in a jurisdiction where bribery is known to be a problem.
  • Top Level Commitment: formal statements should be issued by senior management (ie a fund's directors) to ensure that associated persons are aware of the fund's zero tolerance policy towards bribery.
  • Risk Assessment: a fund's directors should look at the risks of bribery associated with a particular country in which the fund has investments, the value and duration of a particular project and the people that the investment manager(s) may engage with in order to do business on behalf of the fund.
  • Due Diligence: the Guidance recommends that due diligence be conducted on associated persons and that there is proper governance of all relationships with associated persons. The Guidance confirms, however, that in low-risk situations it may not be necessary to conduct much, if any, additional due diligence. The Directors of a fund should also ensure that the fund's investment manager(s) has adequate anti-bribery policies in place.
  • Communication: the fund' s bribery policies and procedures should be communicated to the investment manager as an associated person.
  • Monitoring and review: monitoring is an essential component of a proficient compliance programme and the fund's directors should regularly assess compliance with the fund's anti-bribery policies throughout the fund's business relationships with its associated persons.

Actions Required by a Fund's Directors

The most prudent course of action for a fund board to follow would be to consider what, if any, action needs to be taken in the light of the UK Ministry of Justice guidelines in order to enable the fund to avail itself of the defence of having 'adequate procedures in place' in the event that a bribery offence were committed by its investment manager (or indeed by any other service provider or agent which is an 'associated person').

In giving effect to the principle of proportionality set out in the UK guidelines, the directors may take into the account factors such as:

  • the relative size of the fund;
  • the possible risks associated with the trading strategies of the fund – particular scrutiny should be employed in relation to private equity-type strategies;
  • whether the fund trades in countries or sectors that are renowned as being high-risk in the context of bribery;
  • regulation to which the investment manager is subject;
  • the anti-bribery policies of the investment manager; and
  • the directors' personal knowledge of the individuals involved with management of the fund's assets.

It would be prudent for the directors of a fund to minute their assessment of the risks and also their policy of no-tolerance of bribery activity. That policy should also be communicated to all associated persons, including the investment manager. The proper course of action will obviously depend upon the individual circumstances pertaining to any particular fund, and legal advice should be sought to ensure that an appropriate policy is adopted and implemented. The CA provides a penalty of a fine on any corporate entity that is found to be in breach of failure to prevent bribery, but the resultant bad publicity of being in breach, particularly in an era when regulators are becoming increasingly intent on sending a message of hard-line compliance to the international business community, may be even more costly. If your fund has not yet assessed its bribery risk profile and adopted a suitable anti-bribery policy, now is the time to act.

www.gibraltarlaw.com

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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