It may not be at the forefront of most parties' minds when tendering for and negotiating the contractual terms of a construction project, as the more immediate key commercial considerations such as price and allocation of risk etc., will inevitably take priority, but failing to properly take stock of anti-bribery legislation can, as a recent case has shown, have far reaching consequences and scupper more than just one deal.
In February this year, Sweett Group Plc ("Sweett"), a UK-listed construction and professional services company, was sentenced and ordered to pay £2.25m after pleading guilty to failing to prevent an act of bribery in the United Arab Emirates. This was the first conviction under section 7 of the Bribery Act 2010 and highlighted both the danger of corporate complacency and the extra-territorial reach of UK anti-bribery legislation.
Consequence of a failure to act
Under section 7 of the Bribery Act 2010, a corporate body is guilty of an offence if an 'associated person' (which can be an employee, agent or subsidiary company) bribes another person intending to obtain or retain business or a business advantage for the company. The offence can be committed in the UK or overseas and criminalises corporate bodies for failing to act to prevent, rather than being complicit in, bribery. The only defence to a section 7 prosecution is if the company can show, on the balance of probabilities, that it had in place "adequate procedures" designed to prevent bribery.
Following an investigation by the Serious Fraud Office ("SFO"), it was revealed that between December 2012 and December 2015 Sweett's subsidiary company, Cyril Sweett International Limited had made corrupt payments to Khaled Al Badie, the Vice Chairman of the Board and Chairman of the Real Estate and Investment Committee of Al Ain Ahlia Insurance Company to secure and retain a contract for project management and consulting services in connection with the building of a hotel in Abu Dhabi. Sweett had not prevented the bribery. A lack of 'adequate procedures' in place meant that it had failed to properly supervise the running of its subsidiary, the actions of its employees and their commercial activities in the Middle East.
In the words of one of the sentencing judges, this amounted to a "system failure" for which the UK company had to take full responsibility. The only defence under section 7 was therefore not available to Sweett and it had no choice but to admit the offence.
A decision to commence criminal proceedings will also take into account an organisation's behaviour and Sweett did not help itself in this respect either. In contrast to the full and swift cooperation with previous SFO investigations by other corporate entities, Sweett was criticised by the judge for trying to conceal matters, a lack of cooperation at the start of the investigation and self-reporting only when knowing a press report was to be published imminently. The lack of adequate procedures was therefore exacerbated by its apparent unwillingness to take immediate responsibility.
Taking appropriate action
But where did they start to go wrong? What 'adequate procedures' are necessary to form the basis of a section 7 defence?
Although the Sweett case does not provide much helpful commentary on this aspect, the guidance published by the Ministry of Justice sets out six principles intended to give all commercial organisations a starting point for planning, implementing, monitoring and reviewing the procedures they can put in place.
The principles: proportionate procedures; top level commitment; risk assessment; due diligence; communication; monitoring and review, do not amount to a prescriptive set of rules - instead the emphasis is on a risk based and proportionate approach, acknowledging that different procedures will be appropriate depending on the size of the organisation, the sector, the jurisdiction in which business is transacted and the nature of those transactions. It is, therefore, for organisations to assess the relevant risks they face and to judge for themselves how best to implement procedures that will be proportionate to those risks. It is important not only to be able to demonstrate that appropriate measures are in place but also to ensure that these are espoused from the top management levels down, communicated to all members of staff in all relevant jurisdictions, monitored and reviewed.
Are corporate bodies now taking note?
Despite this guidance and the negative publicity associated with the Sweett case, we have recently seen that even where a contract includes clear anti-bribery provisions the parties still may not consciously engage with these requirements in a practical sense. For example, a recent contract for the appointment of an Engineering, Procurement, Construction Management ("EPCM") consultant included provisions expressly requiring the consultant to: comply with all applicable anti-bribery laws including the Bribery Act 2010; not engage in any activity or conduct constituting an offence under that Act; comply with the employer's anti-bribery and anti-corruption policies as published and provided to it prior to entry into the contract; and have and maintain its own anti-bribery and anti-corruption policies and procedures including procedures adequate to ensure compliance with the Bribery Act 2010.
It emerged, however, shortly before signing was due to take place that neither party actually had anti-bribery or anti-corruption policies or procedures that could be published, provided to each other or indeed complied with. As a result, the consultant would not only be in breach of contract (a terminable event) but both parties were also exposed to the far reaching consequences of anti-bribery legislation without any form of defence. In this particular instance, a policy was rapidly put in place by the consultant prior to signing to avoid being in breach, but whether or not this would constitute 'adequate procedures' is another question. The employer simply waived the obligation for the consultant to comply with its anti-bribery policies for the duration of the contract – but it would be interesting to know if it now has policies and procedures in place to provide to consultants in respect of future contracts.
In the UAE, anti-bribery and corruption provisions are contained in the Federal and Emirate-specific penal codes and human resources management laws. UAE Federal Law no.3 1987, known as the "Penal Code" specifically prohibits passive bribery (receiving or requesting a bribe) in both the public and private sectors and active bribery (giving or offering a bribe) in the public sector. However, it is significant that at present active bribery in the private sector is not specifically prohibited.
Although there is currently no stand-alone or equivalent piece of legislation to the Bribery Act 2010, the UAE government has recently recognised a need for more specific and up to date anti-corruption legislation. Two key developments in this area took place in 2015; the decision to establish a new anti-corruption unit to be based in Abu Dhabi and the enactment of a new Data Law in Dubai, giving residents enhanced access to certain types of data. Although the new unit's primary objective is to ensure that public entities' resources and funds are managed and spent efficiently, it will also investigate financial irregularities and corruption and identify gaps in legislation – one such gap being the criminalisation of the active form of bribery in the private sector.
Both of these developments are, however, seen as positive progress in two of the UAE's major financial centres in combatting bribery and corruption, demonstrating the UAE's commitment to the United Nations Convention Against Corruption ("UNCAC") and, it is hoped, will accelerate the enactment of UAE-wide legislation to address any gaps.
What lies ahead
With the SFO's first prosecution under section 7 of the Bribery Act having been achieved in an extra-territorial context, the progress being made towards the passing of anti-corruption legislation in other jurisdictions around the world and a commitment to attaining the targets that UNCAC represents, corruption may well increasingly figure as an item on the global corporate agenda going forward. Organisations should take the opportunity to undertake proper due diligence on their domestic and international business structures and operations in order to ensure that 'adequate procedures' are in place to prevent bribery and corrupt practices occurring. There is no excuse for ignorance or complacency and, as can now be seen by the evidence, the cost of exposed corruption will inevitably be far greater than the potentially unlimited fine which may be imposed – Sweett entirely pulled its operations out of the Middle East, its share price plummeted and its reputation in the industry has been badly tarnished.
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.
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