The Anti-Terrorism Crime and Security Act (the "2001 Act") has amended the existing UK corruption laws to introduce measures to combat bribery by UK nationals and corporations of foreign public officials and overseas agents. The changes came into force earlier this year and have implications for those doing business overseas where introductory commissions, "finders fees" and the like are made to secure new business. UK companies and their directors and employees may face exposure to criminal sanctions arising out of the acts of overseas agents who become involved in making corrupt payments.
The offence of corruption (contained principally in the Public Bodies Corrupt Practices Act 1889 and the Prevention of Corruption Act 1906) arises where a corrupt gift is offered to another person (the "agent") as an inducement or reward for doing something in relation to his principal’s affairs. The obvious example is where the agent (e.g. an employee or government official) is able to influence the grant of a new business contract, but could extend to, for example, a reward fee arising in the event of a successful takeover bid. A case before the courts a few years ago concerned a payment to a senior executive of a bank who had arranged the issue of a letter of support to a corporate customer whose directors were contemplating a flotation.
Whilst the key element of the offence is the concept of a "corrupt" agreement, the case law as to what this means is said to be "in a state of disarray" and the Law Commission has urged reform. The position for those in the financial services sector is rendered more uncertain by the fact that any prosecution in this area is likely to arise under the laws of conspiracy. A person might be party to a corruption conspiracy where they have authorised or facilitated the making of a payment to an agent or government official (or to a third party who was to transmit some or all of the payment to the agent or official). The jury would need to consider that the person concerned must have been party to an agreement to make the corrupt payment. Even if there is no direct evidence of such an agreement, if the jury is satisfied that this is the only proper inference to be drawn from all the circumstances, the defendant could be convicted.
Under the existing UK corruption legislation the jurisdiction of the English courts was restricted to acts of bribery where at least one element of the corrupt transaction took place within England or Wales (such as the offer, acceptance or agreement to accept the bribe). Where the corrupt acts took place wholly abroad, the English courts probably did not have jurisdiction. The amendments introduced by the 2001 Act provide that it is immaterial if the functions of the person who receives or is offered a reward have no connection to the UK and the acts of bribery take place in a country outside the UK.
The anti corruption legislation does not extend just to "grand corruption". It prohibits all forms of "corrupt" payments, irrespective of the size or sums involved. "Facilitation payments" are small amounts paid to secure some service which should have been performed in any event. For example, in some parts of the world, even to have a telephone connected requires some "palm to be greased". Strictly speaking, a UK national who makes such a payment overseas to enable his company to do business now commits a criminal offence in the UK.
For companies that have to do business in countries where corruption is prevalent, this may require increased levels of due diligence being carried out on agents and local subsidiaries. In some countries it is argued that corruption is so rife that business cannot be conducted without making such payments. The legislation makes no exception; its aim is to eradicate bribery. The amount of due diligence which will need to be undertaken where businesses use local agents or third party intermediaries will depend on:
- whether corruption is prevalent within the particular jurisdiction and/or industry concerned
- the nature of the agents’ business
- the commercial justification for the payment to the company’s agent
As well as the need to avoid participating in such an offence, institutions will also need to consider their reporting obligations under the existing regime and impending changes to the money laundering legislation (see previous article).
© Herbert Smith 2002
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