UK: Bribery and Corruption

Significant changes were made to the existing UK corruption laws by the Anti-Terrorism, Crime and Security Act (the "2001 Act") which came into force earlier this year. The 2001 Act introduced measures to combat bribery of foreign public officials and overseas agents by UK nationals and corporations. The changes have implications for those doing business overseas where introductory commissions, "finders fees" and the like are made to secure new business. Under the 2001 Act, UK companies, their directors and employees may face exposure to criminal sanctions arising out of the acts of overseas agents or employees who become involved in making corrupt payments, even where the act of bribery takes place outside the UK.

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 it could extend, for example, to 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.

Given the difficulties with defining "corruption", any prosecution in this area is likely to arise under the laws of conspiracy. A person may be party to a corruption conspiracy where he or she has authorised or facilitated the making of a payment directly or indirectly to an agent or government official. In order to secure a conviction, 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 still 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). Even where a prosecution arose under the law of conspiracy, at least some part of the conspiracy had to take place in the UK. 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.

Transparency International publish a corruption perceptions index, identifying those states and business sectors where corruption is more prevalent. Companies which want to do business in these countries may wish to consider carrying out increased levels of due diligence 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 agent’s 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 money laundering regime and forthcoming changes to the money laundering legislation (see article on page 8).

One of the problems with the existing legislation is defining what is meant by "corrupt". We understand from the Queen’s Speech that a draft Bill will be published further reforming the law in this area. Watch this space!

© Herbert Smith 2003

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