UK: The Bribery Act And The Shipping Industry: Complying With A "Zero Tolerance" Approach To Facilitation Payments In An Imperfect World

Last Updated: 22 May 2012
Article by Kevin Cooper, Lauras Rambinas and Reema Shour

In July 2011, shortly after the Bribery Act (the "Act") came into force, we highlighted in an article that the Act had made facilitation payments a minefield for the shipping industry (see Ince Shipping E-Brief July 2011 at www.incelaw.com). The Act has been described as the most draconian anti-corruption legislation in the world and, unlike the Foreign Corrupt Practices Act ("FCPA") in the US, does not provide any exceptions for facilitation payments, but rather takes a zero tolerance approach.

The difficulty for the shipping industry is that facilitation payments are often a predictable evil in foreign jurisdictions as a means of convincing public officials (e.g. port entry and customs officials) to properly and expeditiously perform the services that they should in any event be doing as part of their job. The incentives demanded are often of low value (typically, cigarettes or some alcohol). A recent report from the British Chamber of Shipping ("BCS"), discussed in more detail below, observes that these payments should be distinguished from the use of financial incentives to secure an (unfair) advantage at a foreign port, for example to jump a queue. This is arguably not proper performance by the relevant official of his role but more an example of "classic bribery", which is also covered by the Act. The BCS recommends rebuffing demands for such payments.

Where facilitation payments are an entrenched feature of a foreign port, a ship-owner (or his representative in the person of the master or local agents) is faced with a dilemma as to how to proceed: to resist attempts by local officials to extort payments and run the risk of delays and lack of co-operation on the ground or, alternatively, to give in to pressure and make a payment in cash or kind that may contravene the Act and potentially lead to prosecution. In view of these very grave concerns, members of the shipping industry entered into discussions with UK government in a bid to obtain guidance for the industry on reconciling its competitive position in the global market with its obligations under the Act.

We summarise below some of the guidance and advice that has since been issued by various bodies, which will be of use to those in the shipping industry.

The Serious Fraud Office

In a bid to address the shipping industry's and similar industries' concerns, the Director of the Serious Fraud Office ("SFO"), the lead UK agency for the Act, recently stated that he had not expected facilitation payments to end the moment the Bribery Act came into force. What was expected was that corporates who did not yet have a zero tolerance approach to such payments should commit themselves to such an approach and to work on how to eliminate them over a period of time. He also invited corporates to approach the SFO to discuss these issues where necessary. From this statement, it would appear that the SFO has decided to take a more nuanced approach to the eradication of facilitation payments and that companies are expected to phase out the making of facilitation payments over a period of time, rather than go "cold turkey". This might give some comfort to those in the shipping industry who had noted the prosecuting authorities' original stance, which required prosecutors to exercise any doubt in favour of prosecution.

Additionally, the SFO has set out some guidelines that may help in avoiding prosecution for those who continue to make small facilitation payments. The SFO will consider:

  1. whether the company has a clear issued policy regarding such payments;
  2. whether written guidance is available to relevant employees as to the procedure they should follow when asked to make such payments;
  3. whether such procedures are being followed by employees;
  4. if there is evidence that all such payments are being recorded by the company;
  5. if there is evidence that proper action (collective or otherwise) is being taken to inform the appropriate authorities in the countries concerned that such payments are being demanded; and
  6. whether the company is taking what practical steps it can to curtail the making of such payments.

Where the SFO answers these questions to its satisfaction and if the SFO believes that the company has a real commitment to phasing out these payments over time and arriving at a zero tolerance position, this can only help to avoid prosecution. The bottom line is that the SFO retains a discretion on how it should proceed in any individual case but transparency appears to be the best means of ensuring it exercises its discretion in a corporate's favour.

It is also worth noting that the SFO has produced a standard form letter designed to be handed out to local officials who persist in their demands for facilitation payments. The letter makes it clear that facilitation payments are prohibited under the Act and that individuals and companies who make them risk criminal prosecution. Presumably the letter is intended to convince those demanding such payments to back off, although it remains to be seen whether it will be sufficiently persuasive.

The British Chamber of Shipping

In March 2012, the British Chamber of Shipping ("BCS") issued its "Guidelines to the Bribery Act 2010", providing additional useful advice for the shipping industry. The BCS highlights the fact that the Foreign and Commonwealth Office ("FCO") has issued advice to overseas diplomatic posts on the purpose and implications of the Act and is encouraging embassies and consulates to engage with local politicians and officials to emphasise the UK's firm stance in relation to the practice of using intimidation tactics to extract payment in cash or kind for fulfilling otherwise routine operations or duties.

Shipping companies with overseas representatives are also urged to assist local consular officials in their discussions and, where possible, provide evidence of corrupt behaviour. Consular officials have also been made aware of the importance of providing concrete diplomatic support and assistance in the event of deliberate delays, harassment of crew, purported irregularities with paperwork or manufactured deficiencies in the ship or equipment. Where individuals or companies prefer, the BCS offers to act as the conduit for reporting demands for facilitation payments or other unacceptable behaviour to the FCO. This may be useful where a company does not wish to be "blacklisted" in some way in a particular port or country for being a whistleblower.

The BCS Guidelines also give some practical advice as to what companies should do in order to comply with the Act. Amongst other things, companies are advised to provide regular training to all employees, agents and subcontractors to explain company anti-bribery policies and how to react to facilitation payment demands. Companies with overseas operations should ensure that their corporate policies are extended to cover the local situation. Where company activities are out-sourced, third party contractors should be required to provide necessary assurances of their own anti-corruption policies and how they are policed and enforced. Of particular interest to ship-owners with established trading patterns, the BCS suggests that there is likely to be more scope for diplomatic intervention at a port that represents an important element in a local economy.

OECD Report

Also in March 2012, the Organisation for Economic Co-operation and Development ("OECD") Working Group issued a report on implementation of its Anti-Bribery Convention in the UK. The Report is lengthy and it is beyond the remit of this article to discuss its findings in detail. In essence, however, the Report acknowledges positive aspects of the UK's fight against bribery such as allocating significant financial resources for foreign bribery investigations. The Report also commends the UK for the significant increase in its foreign bribery enforcement actions, as well as its efforts to increase awareness of the Act and of foreign bribery-related issues.

At the same time, the Report expresses concern that the UK has made slow progress in extending the OECD Anti-Bribery Convention to its overseas territories, some of which are offshore financial centres at risk of being used to facilitate corrupt transactions. The UK is encouraged to adopt a roadmap for remedying this deficiency.

Specifically in relation to facilitation payments, the Report recommends that the UK:

  1. adopts firm criteria for assessing whether companies are indeed moving towards a zero tolerance policy within a reasonable timeframe;
  2. ensures prosecutorial discretion is exercised coherently, specifically that the UK prosecuting agencies, the SFO, the Crown Prosecution Service (CPS) and the Scottish Crown Office and Procurator Fiscal Service co-ordinate their approach on facilitation payments (the SFO has now undertaken to do so); and
  3. use a consistent definition of facilitation payments in published guidance.

The underlying concern of the OECD Working Group about facilitation payments seems to be that the Act imposes a zero tolerance policy, yet the various guidelines issued by the UK authorities suggest a more flexible approach allowing for a transitional phase and adjustment to zero tolerance over a period of time. Whilst the latter approach arguably makes more commercial sense and is more realistic in view of the cultural and practical barriers that need to be overcome, the Working Group seems alive to the risk that potentially conflicting approaches could make affected companies complacent in complying with the Act's clear objective of eradicating the practice of facilitation payments quickly and completely. On the other hand, it was always clear that facilitation payments were not going to disappear overnight and it may well be that a gradual eradication of such payments might be a more achievable goal.

Comment

In 2011, an administrative clerk in a magistrates' court became the first person to be prosecuted under the Bribery Act for requesting and receiving a bribe to improperly perform his official functions. He was sentenced to six years' imprisonment last November. This conviction is the only one reported so far but it demonstrates that the courts will take a tough stance over offences under the Act and it is expected that they will do so particularly in the case of corporates, when such cases come before them, so as to provide a strong deterrent to others.

It is not too late for companies who have not yet introduced effective anti-corruption procedures to do so but they should not delay. Indeed, it has very recently been reported in the press that an oil major has put a global chartering manager on leave of absence as it investigates claims that he offered favourable freight rates to a ship-owner in return for cash. There were, at the time of writing, few details available regarding this matter but it appears that the investigation of the individual concerned follows on from claims made by a whistleblower both to the corporate concerned and to the SFO directly. It may be, therefore, that this will lead to the first prosecution relating to the shipping industry.

Another new development is that the SFO has a new director, David Green QC, as of 23 April 2012. Mr Green is a former head of the Revenue and Customs prosecution office and a leading barrister. He replaced Richard Alderman and is reported to be pursuing a more aggressive crime-fighting strategy. In his first interview as SFO director, Mr Green promised to investigate "significant strategic targets" suspected of committing the most complex financial crime and overseas corruption. It is therefore likely to be only a matter of time before we see corporates being prosecuted under the Act.

These developments should act as a wake-up call for companies who do not have adequate anti-corruption procedures in place as yet. Those companies that already have robust anti-corruption procedures may also wish to revisit their existing procedures in the light of the latest guidelines from the SFO and the BCS.

Kevin Cooper regularly writes and speaks on Bribery Act matters and has advised clients on how to minimise their potential exposures in respect of anti-corruption legislation. In the event of any query relating to this article or in respect of compliance with the Bribery Act generally, please contact your usual contact at Ince & Co or Kevin Cooper.

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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