The importance of corporate governance and risk management is gaining recognition worldwide including, as was recently reported by Clyde & Co's Hamish Walton and Chloe Lake on 10 February 2010, in the UAE.

Historically, certain industries and jurisdictions have been renowned for their susceptibility to corruption given the sums of money involved and the prospects of using bribery to gain a commercial advantage over competitors or smooth the way with public officials. It is unclear if there has been an increase in such white collar crime or whether an economic downturn encourages individuals to seek unfair gains through corrupt practices. What is clear, however, is that governments around the world are cracking down on corruption. Any reliance upon the assumption that, in certain parts of the world, such conduct is a necessary evil could land organisations in hot water, in more than one jurisdiction, regardless of where the conduct takes place.

The British Connection

The UK currently has a raft of statutory and common law offences relating to corrupt practices. At present, an individual or company can be punished for corrupt acts committed outside of the UK, if such acts would constitute an offence if committed in the UK. These prohibitions are based upon nationality and, therefore, only apply to companies incorporated in the UK or British citizens. Accordingly, a UK company's overseas subsidiary would not be subject to these offences, provided that subsidiary is incorporated in a jurisdiction outside the UK.

It is a common mistake for management to assume that British anti-corruption legislation has no relevance to the conduct of a business, and its employees, in the Arabian Gulf Cooperation Council (GCC). However, following heavy criticism of its current anti-corruption regime and, in particular, its inability to punish foreign corrupt practices, the UK introduced the Bribery Bill (the Bill) in 2009. The Bill, which is expected to be enacted this year, will repeal the current statutory and common law offences and replace them with new offences.

The extra-territorial effect of the Bill could impact upon the conduct of organisations, and individuals, in the GCC with a sufficient connection to the UK. With penalties including prison sentences of up to 10 years, and unlimited fines, the effects of the Bill should not be ignored.

Highlights of the Bill

  • A stand alone offence of bribing a foreign public official.
  • A prohibition upon active or passive bribery, whether governmental or purely commercial, both inside and outside of the UK (i.e. offering, promising or giving an advantage (financial or otherwise) and requesting, agreeing to receive or accepting an advantage to induce/reward the improper performance of an activity).
  • The Bill provides prosecutors with the discretion as to whether to prosecute those that make "facilitation payments". What is considered to be a "facilitation payment" is a grey area, but there is a danger that a payment to a public official in exchange for prompt processing of a document, for example, could fall into this category.
  • A company or partnership will commit an offence if it fails to prevent people performing services on its behalf from paying bribes. This is significant as the only defence provided in the Bill is to show that the organisation had "adequate procedures" in place to prevent a bribe being paid.
  • The Bill will apply to offences committed extra-territorially, not only by British nationals and companies incorporated in the UK but also individuals who are ordinarily resident in the UK and companies (wherever incorporated) which carry on a business, or part of a business, in the UK.

The US connection

As with the British legislative framework, the extra-territorial nature of the United States' Foreign Corrupt Practices Act (FCPA) should be kept in mind by organisations in the GCC. The FCPA generally prohibits US companies and citizens, foreign companies listed on a US stock exchange, or any person while in the US, from corruptly paying or offering to pay, directly or indirectly, money or anything of value to a foreign official, a foreign political party or official, or a candidate for a foreign political office to influence any act or decision (including a decision not to act).

A US territorial nexus is not required for the US Department of Justice to investigate an organisation's or individual's actions; violations can occur even if the prohibited activity takes place entirely outside of the US. The Department of Justice has been known to take action against organisations on that basis and can, and will, pursue multinationals based outside of the US. The scope of the FCPA is also widened by its third-party payment provisions, which mean that a company will not be immune from the FCPA by doing business abroad through others, as improper payments to anyone in the knowledge that all or part of that payment will be given (directly or indirectly) to a foreign official will be caught by the FCPA.

There is no de minimis value associated with what is offered as a bribe and the FCPA has been interpreted to apply to not only the bribery of foreign officials, but also employees of state-owned or state controlled entities. In such circumstances, every employee (regardless of rank) of the state-owned or controlled entity will be considered to be a "foreign official".

Unlike the UK Bill, the FCPA exempts "facilitation payments". i.e. payments to a foreign official to expedite or secure the performance of a routine governmental action. However, a payment is only likely to benefit from this exemption if it relates to non-discretionary actions by a foreign official. The FCPA also provides that offenders can rely upon a defence that the payment made was lawful under the laws of the country in which it was made or that the money was spent as part of demonstrating a product or performing a contractual obligation.

FCPA violations can result in significant fines and penalties, with companies liable to fines of up to $2 million per violation and individuals up to $250,000 as well as imprisonment for 5 years. Sanctions, such as the termination of government licences (such as export licences) and debarment from government contracting programmes can also be imposed upon offenders.

How does this relate to your employees?

The anti-corruption regimes set out above are just two examples of ways in which the actions of organisations, and their employees, in the GCC might be subject to the scrutiny of foreign enforcement agencies. A huge number of organisations operating in the GCC will, arguably, have sufficient connections to a foreign jurisdiction to render their actions subject to the anti-corruption legislation in force in that foreign jurisdiction. Similarly, an organisation could, potentially, fall foul of more than one anti-corruption regime.

Whilst many organisations, particularly multinationals, are increasingly alert to the dangers of corrupt practices, many remain unaware of the risks to which their employees might be exposing them. It is important to note that the anti-bribery provisions commented on apply to more than just "a suitcase of cash" and can include, among other things, discounts, gifts, use of materials, hospitality and the promise of future employment.

Any corporate anti-corruption regime will be dependant upon a clear commitment to preventing such practices at a management level. There are certain steps that employers in the GCC should be taking now, to minimise the risks of breaching the various anti-corruption regimes in place, particularly in light of the new strict liability offence set to be introduced in the UK Bill:

  • Familiarity: Whilst the terms of the UK Bill have yet to be finalised, and some countries have still to introduce anti-corruption legislation, organisations are advised to familiarise themselves with the legislative regimes in place and where their employees and/or business are likely to render them subject to those legislative provisions.
  • Code of conduct: Review or introduce a code of conduct or compliance manual, underlining to employees the types of behaviour / practices that will not be tolerated and which could expose both the employer and the employee to criminal sanctions. In drafting such a code, the organisation should carefully review its current approach to the conduct of business and the methods used by it to sustain business relationships, its customer profiles and its reliance upon critical permits etc to operate.
  • Training: To implement a culture of zero tolerance when it comes to corruption, employees must be trained on the behaviour expected of them and alerted to the situations in which they may find themselves and which could lead to corrupt practices. Ideally, any such training programme should be preceded by the identification of any roles in the organisation that may be particularly susceptible to corrupt practices and an assessment of how aware the organisation's management is of the risks of corruption and of the serious penalties applicable.
  • Enforcement: Often an employer simply pays lip service to the concept of compliance. It is vital that an employer actively enforces its code of conduct and imposes disciplinary sanctions upon employees breaching that code.
  • Whistle blowing: An organisation's main exposure in relation to corrupt practices will be the conduct of its employees. In order to prevent such practices, it is important that employees feel that they can raise concerns without the fear of victimisation. Employers are advised to introduce a comprehensive whistle blowing policy and to ensure the protection of whistle blowers acting in good faith.

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.