UK: Bribery In International Construction

In Issue 18 of IQ, Sarah Buckingham reviewed the extra-territorial reach of the UK anti-bribery legislation. In Issue 19, we take a more global look at the risks of bribery on construction projects.

A recent report1 by Global Construction Perspectives and Oxford Economics forecasts that by 2030 the volume of construction output will grow by 85% to US$15.5 trillion worldwide, with China, the US and India leading the way and accounting for 57% of all global growth. There is no doubt that global construction is big business, particularly in the emerging markets where large construction and infrastructure projects are being carried out more and more. However, construction (both at home and abroad) has always been viewed as a sector that is extremely vulnerable to bribery.

Why is international infrastructure and construction seen as being so vulnerable and at high risk of bribery?

There are numerous reasons, including:

  1. Many of the large international construction and infrastructure projects are carried out in the emerging markets which are often seen as high risk jurisdictions for bribery.
  2. The significant scale of international infrastructure and construction projects can make it easier to hide bribes or inflate costs.
  3. Large international infrastructure and construction projects often have complex structures with hundreds (if not thousands) of contractual links and supply chains. Each link/chain can be an opportunity to pay or receive a bribe, whilst the complicated structure of a project provides opportunities for the concealment of unlawful activity.
  4. Foreign construction companies working abroad will almost inevitably require the services of local agents and third party intermediaries. However, it is through these third party channels that bribes are often paid.
  5. There may be various cultural differences. For example, what a local agent or contractor considers to be acceptable in their jurisdiction may not be considered acceptable in, for example, the UK or the US.   
  6. Almost all large international infrastructure and construction projects will have some form of government involvement at one level or another. For example, the majority of infrastructure projects are government-owned, whilst even projects in the private sector will require government approvals, permits and licences etc. which, if not controlled properly, provide easy opportunities for officials to extract bribes.

Opportunities for bribery at different phases of a project

There are opportunities for bribery to occur at virtually every phase of a construction project, whether domestic or international.

Tendering and procurement

Tendering and procurement is the stage of a construction project that is often considered to be the most vulnerable to bribery. An obvious example is the payment of bribes to a representative of, or an advisor to, the employer or a government to secure a contract. Further down the contractual chain, subcontractors could bribe an employee of the main contractor to win a subcontract, or a supplier could bribe the main contractor to ensure that it chooses them instead of a rival supplier. Notwithstanding the illegality of such payments, they will inevitably affect the value and quality of the work being procured.

Bribes could be paid direct but most often they are made through third party intermediaries. Alternatively, local well-connected third party procurement agents may themselves receive bribes from local suppliers to influence the contractor's choice of supplier. Indeed, the use of third party intermediaries, not only at the tender and procurement stage but also throughout the project, is seen by many as the most high risk area for bribery taking place. As the prominent global anti-corruption organisation, Transparency International ("TI"), says in their recent guidance on managing third party risk:

"Third parties and intermediaries in particular are the single greatest area of bribery risks for companies. These risks are growing as companies move into new markets and put ever more of their operations in the hands of third parties..."2

As noted above, on international projects a contractor will inevitably need to obtain various permits, licences, planning permission and approvals from "government officials" (a title that can be interpreted widely'). This may provide the officials with opportunities to extract bribes in exchange for the award of these.

Construction

Various opportunities for bribery arise during the construction stage. For example, often on international construction projects contractors will import goods and materials, and sometimes "facilitation payments" may be required to get these through customs.

Another example could be where substandard materials are used or substandard work is carried out in order to save money. Some of the money saved is then used to bribe the relevant checkers to sign off the substandard materials or work as acceptable. As most works or materials on construction projects are eventually covered up by other components, the substandard materials and work can be easily concealed.

What are governments and organisations doing to tackle bribery?

The Organisation for Economic Co-operation and Development's (OECD) Anti-Bribery Convention ("Convention") came into force in 1999 and established legally binding standards to criminalise bribery of foreign public officials in international business transactions. All 35 OECD members (including the UK and the US) and 6 non-member countries (including Russia and South Africa) have adopted the Convention.

Bribery Act 2010

In July 2011, the UK's Bribery Act 2010 ("Act") came into force which makes it an offence for a person to pay or receive a bribe, whether directly or indirectly. In addition, under section 7 of the Act a corporate body is guilty of an offence if an "associated person" (who can be an employee, agent or subsidiary company) bribes another person intending to obtain or retain business or a business advantage for the company.

Sanctions for failing to comply with the Act include fines, imprisonment, disqualification of company directors and confiscation of property.

The liability on companies under section 7 is strict and the only defence to a section 7 prosecution is if the company can show that it had "adequate procedures" in place designed to prevent bribery (see below).

The territorial scope of the Act is wide. It applies to bribery committed by anyone in the UK or, if overseas, by a British citizen, or any other person with a "close connection" with the UK can be prosecuted. Further, the corporate offence under section 7 applies to any UK incorporated entity and any overseas entity that carries on a business or part of a business in the UK.

Therefore, even if a project is aboard, UK companies could still find themselves caught by the Act if, for example, it is found that their employees, agents or subsidiaries are paying or accepting bribes in exchange for the award of contracts. In Issue 18 of International Quarterly, we reported on a recent prosecution of a UK-listed construction company involved in a project in the UAE (the case is the first conviction under section 7 of the Act and highlights its extraterritorial reach).   

Foreign Corrupt Practices Act 1977

The US's equivalent to the Act is the Foreign Corrupt Practices Act 1977 ("FCPA"). The FCPA has two key elements: (i) the prohibition of bribes to government officials to obtain or retain business; and (ii) the requirement that companies maintain accurate books and records and adequate internal accounting controls (this is intended to prevent accounting practices designed to hide corrupt payments).

The FCPA applies to unlawful activities by US persons (US citizens, nationals or residents) or any company that is registered or has its principal place of business in the US, or is organised under US laws. It also applies to foreign companies or persons who engage in any act in furtherance of a corrupt payment while in the US. 

Sanctions under the FCPA include fines and imprisonment. Further, companies and individuals may be excluded or debarred from certain federal programmes and also be ineligible to receive export licences. In addition to these sanctions, a corporation or individual may also be subject to civil or criminal actions.

The FCPA also includes certain defences. For example, unlike the Act, the FCPA permits certain "facilitation payments" to foreign officials to make them perform routine government actions. However, this exemption (which is commonly known as the "grease payment" exemption) is construed narrowly and only applies in certain situations. Another exemption under the FCPA is where the payments are lawful under the written laws and regulations of the foreign official's country. 

United Arab Emirates

In the UAE there is currently no stand-alone or equivalent piece of legislation to the Act. However, in Issue 18 of International Quarterly, we briefly discussed the steps being taken in the UAE to combat bribery.   

Why should companies work towards preventing bribery and corruption?

The obvious reason is that a failure to prevent bribery could result in a prosecution, with heavy financial penalties and even penal sentences. However, there are also other reasons, for example the legal costs of investigating allegations of bribery which are likely to be significant, the risk of debarment from government contracts and, importantly, the damage to reputation which may affect a company's ability to win contracts in the future. As TI says on their website:

"Foreign bribery has significant adverse effects on public well-being around the world. It distorts the fair awarding of contracts, reduces the quality of basic public services, limits opportunities to develop a competitive private sector and undermines trust in public institutions.

Engaging in bribery also creates instability for companies themselves and presents ever-growing reputational and financial risks..."

What steps can companies take to prevent bribery?

The number of global investigations, prosecutions and adjudications for bribery is increasing. In a recent interview,3 the Chair of the OECD Working Group on Bribery emphasised that the OECD's next phase of implementing the Convention would involve focusing on two important areas. First, it will continue to seek to enforce the Convention (i.e. it will continue to investigate, prosecute and adjudicate those that breach the Convention). Secondly, however, the OECD will look to engage the private sector more and work with them as partners to ensure that effective compliance systems are in place. In other words, they want to do more to prevent bribery happening in the first place rather than having to address it after it has already happened.        

As noted above, under the Act an organisation may defend itself if it can prove that "adequate measures" and codes of conduct are in place to prevent bribery. The Ministry of Justice ("MOJ") has published guidance (albeit, at a high level) in the form of six principles to help companies consider whether they have adequate measures in place.4 These principles are:

  1. Proportionality: the action taken should be proportionate to the risks faced and the size of the business. For example, a company might need to do more to prevent bribery if the organisation is large or working abroad in a market where bribery is known to be commonplace.
  2. Top level commitment: ensuring that the people at the top of the company are committed and active in preventing bribery within the organisation.  
  3. Risk assessment: companies should think about the risks they may face. For example, a company may research the markets it operates in and the people it deals with, particularly if it is entering into a new business arrangement or a new market overseas.
  4. Due diligence: knowing exactly who you are dealing with can help to protect the organisation from taking on people who might be less than trustworthy. Therefore, a company may want to carry out due diligence on the people/other companies that it will be dealing with.  
  5. Communication: communicating company policies and procedures to staff and to others who will perform services for the company enhances awareness and helps to deter bribery. Therefore, a company may wish to consider whether additional training and awareness raising is required depending on the size and type of business.
  6. Monitoring and review: the risks a company faces and the effectiveness of its procedures may change over time. Therefore, a company may want to regularly monitor and review its anti-bribery procedures to keep pace with any changes in the bribery risks, for example if a company enters into a new market.

In addition to the MOJ's guidance, other steps that a construction company may want to consider taking include:

  1. The inclusion of anti-bribery and anti-corruption clauses in contracts.
  2. Ensuring that effective financial and audit procedures are in place to monitor (both internally and externally) for bribery during the project.
  3. Ensuring that employees are fully aware of the company's procedure for reporting bribery, in particular the procedure for whistle-blowing (this is still an area that needs significant work – only about 2% of all reported instances of cross-border bribery and corruption have come from whistle-blowers).        
  4. As to due diligence, a construction company working abroad should carry out due diligence on any joint venture partners (a company could potentially fall foul of anti-bribery legislation because of the actions of their JV partner(s)), subcontractors and local suppliers, agents and intermediaries.

Conclusion

Bribery will always be a risk in the construction sector. However, international governments and organisations have made it clear that they are committed more than ever to enforcing anti-bribery legislation. Therefore, companies need to be aware that even on a global construction project, they could still fall foul of domestic anti-bribery legislation, such as the Act. Accordingly, companies should ensure that they have an effective compliance system in place to try to prevent bribery occurring in the first place but also, if it does occur, to try to give themselves as much protection as possible against prosecution.


International Quarterly is produced quartely by Fenwick Elliott LLP, the leading specialist construction law firm in the UK, working with clients in the building, engineering and energy sectors throughout the world.

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.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Topics
 
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions