Crushing corruption4 June 2002
In February 2002 new provisions came into force creating criminal offences for UK nationals and companies involved in the making of corrupt payments overseas
The UK legislation dealing with criminal offences of corruption has been in place for about 100 years. It consists of two principal statutes dating from the end of the 19th and beginning of the 20th centuries. Such statutes have been the subject of relatively few reported decisions. Some of the decisions there have been related to points unlikely to be of much significance to major companies involved in international projects. A key factor was that the legislation did not appear to deal with the payments made by UK companies overseas, when no activity took place within the UK. Even then, the legislation has been subject to more fundamental criticism, not least by the Law Commission of England and Wales, which undertook a thorough review of the law, and published a report in 1998 calling upon the government to repeal the old anti-corruption laws and introduce a comprehensive new regime. The report concluded that the law, as it then stood, was 'obscure, complex, inconsistent and insufficiently comprehensive' and noted the view of one commentator who described the case law relating to the meaning of 'corruptly' in the legislation (a rather central concept) as being in a state of 'impressive disarray'. Only last year, the UK's House of Commons Select Committee on International Development produced a report urging the government to take action. This followed a review on behalf of the Organisation for Economic Co-operation and Development (OECD) which was unable to confirm that the UK met its obligations under the OECD Convention on Combating Bribery of Foreign Officials in International Business Transactions, which the UK had ratified in 1998.
The government had recognised the need for reform and in June 2000 published a document Raising Standards and Upholding Integrity: The Prevention of Corruption. The proposals largely followed the recommendations of the Law Commission and involved a wholesale reform of the law. Nevertheless, no indication was given as to when parliamentary time might be found to pass the required legislation. The government's position changed radically following 11 September 2001 and events subsequent thereto. The Anti-terrorism, Crime and Security Bill was passed through parliament in great haste. There was much press coverage dealing with many aspects of that Bill, but relatively little given to the part of the Bill dealing with anti-corruption provisions. Similarly, those provisions were subject to little debate in either the House of Commons or the House of Lords in the passage of the legislation through parliament. The Bill received the Royal Assent in December 2001 and the relevant provisions came into force on 14 February 2002.
The anti-terrorism act
The Anti-terrorism, Crime and Security Act 2001 (the Anti-terrorism Act) contains just three sections dealing with bribery and corruption. It does not represent the wholesale revision of the law called for by the Law Commission. The effect of these provisions is to determine that:
• The offences prescribed by the existing UK legislation are committed by a UK National (principally British citizens and companies incorporated in the UK) irrespective of where the acts constituting the offence take place provided that those acts would constitute a corruption offence if they had been done in the UK. The law of the country in which the acts took place is not directly relevant.
• It does not matter that the government officer involved, or commercial agent in the private sector, has no connection with the UK.
Existing uk legislation
The existing UK law is contained principally in two statutes, the Public Bodies Corrupt Practices Act 1889 (the 1889 Act) and the Prevention of Corruption Act 1906 (the 1906 Act). The 1889 Act is of particular significance in relation to local authorities and similar public bodies and may have less relevance to multi-national companies in the construction and projects sector. The 1906 Act is of much wider application in that it applies to any corrupt offer or payment made to any 'agent' of another party, whether that agent is an individual officer of a government department or an agent (either a commercial independent agent or an employee) of a third party in the private sector. The UK legislation goes further than the OECD Convention requires, in that the Convention only covers undue pecuniary or other advantage given to foreign public officials.
Under the 1906 Act it is an offence to: 'Corruptly give (or agree to give or offer) any gift or consideration to any agent as an inducement or reward for doing … any act in relation to his principal's affairs'.
There are interesting distinctions in the wording of the 1889 Act and the 1906 Act. In the 1889 Act the offence is couched in terms that relate not only to payments made by the accused to the agent, but also payments made 'in conjunction with any other person' to an officer of a public body or to a third party but 'on account' of such an officer. The distinctions may be important in major construction projects involving consortia with multiple parties and overseas agents. It is for this reason that any prosecutions which might in due course be brought in reliance on the extra-territorial provisions of the Anti-terrorism Act are likely to be for a statutory conspiracy to commit an offence under the 1906 Act.
The meaning of corruptly
The UK legislation does not define what is meant by 'corruptly', the central concept underlying the UK criminal offence. The courts have struggled with the word and have reached different views at different times as to what it means. The difficulty has centred upon what instructions are to be given to the jury as to how they should interpret the meaning of the word and apply it to the facts they are faced with in evidence. The current position is that 'corruptly' means: 'Purposely doing any act which the law forbids as tending to corrupt. It does not have the same meaning as dishonestly.'
This statement was made in the context of a judgment in which it was stated that 'corruptly' was an ordinary word, the meaning of which would cause a jury little difficulty. Juries can reach a view on a common sense basis as to whether the accused intended to exert improper influence. That is enough. Interestingly, the US courts have adopted a similar approach and, instead of trying to dissect the word, use instead relatively simple terms such as 'wrongfully influence'.
The uk law of conspiracy
In a prosecution for conspiracy, it is necessary to show that the accused was part of some agreement with others to commit the offence in question. Thus, the prosecution has the burden of proving the existence of that agreement, as well as the other factors required in relation to the specific offence. If such an agreement can be shown to exist, however, the potential problems arising out of the wording of the 1906 Act in relation to indirect payments become less significant.
It is rarely possible for the prosecution to adduce direct evidence of an agreement forming a criminal conspiracy. The jury can determine that such a conspiracy took place on the basis of inference and consideration of the parties' actions and all the surrounding circumstances. It is in this context that the dangers arise for multi-national companies doing business in countries where corruption occurs. Substantial payments may be made to third parties as introductory commissions for assistance in negotiations and it may only subsequently transpire that part of those payments found their way to, or benefited, a government official. Nevertheless, a UK incorporated company and individual employees thereof may be accused of conspiring with colleagues in an overseas subsidiary (not UK incorporated) or members of a consortium to make corrupt payments to a third party to obtain new business. The jury can convict if it believes it can infer from all the circumstances that some corrupt intention was shared and an agreement was formed to put that intention into effect.
In a survey conducted by Gallup International Association for the NGO Transparency International and published on 14 May 2002, the public works and construction industry was singled out as the sector most likely to engage in the making of corrupt payments to officials in emerging countries in order to win or retain business (with the arms and defence industry and oil and gas following). Perhaps more surprisingly, the US, Japan and France were all perceived as being countries whose companies were likely to engage in the making of corrupt payments. The UK (despite its previous lack of criminal legislation outlawing the payment of bribes overseas) was perceived as a country with fewer propensities to pay bribes to overseas officials.
Contractors in major construction projects frequently operate through multi-national consortia. The complicated structures underpinning such consortia themselves can obscure the channel of payments made in relation to the securing of new business. During the course of evidence given to the Select Committee on International Development in January 2001, the Chief Executive of UK-based Balfour Beatty gave evidence of difficulties faced by a UK company where a consortium member is accused of making corrupt payments to secure business for the consortium.
Balfour Beatty was one of a number of companies forming two consortia to tender for and carry out the construction works for the Lesotho Highlands water project and the Muela hydro power project. The project was managed by the lead member of the consortium, not Balfour Beatty but another European contractor. The Lesotho government alleged that the consortium was involved in substantial corrupt payments to Mr Sole, the chief executive of the Lesotho Highlands Development Agency who was responsible for the awarding of contracts for the construction of the scheme.
Mr Sole was alleged to have maintained Swiss bank accounts holding sterling, French francs, German marks, US and Canadian dollar deposits. Although Balfour Beatty was not cited as a defendant in the proceedings brought in Lesotho (the consortium was), its name was coupled in the press with the allegations and it had been suggested that if the consortium was found to have engaged in corruption, then the World Bank might take steps to blacklist consortium members from future World Bank projects.
Problems arise where there is a lack of transparency regarding payments made in connection with major construction projects. The absence of transparency gives corrupt officials overseas the opportunity to divert those funds away from the state, but it does not necessarily mean that the contracting company is complicit in the payment of a bribe. In the energy sector, certain oil companies seek to deal with this situation by publishing the details of payments made under agreements of this kind together with related taxes and levies, thus giving transparency to the payment process. In so doing they go some way to protecting themselves and to assist in the potential task of negating any suggestion that they had corrupt intentions which would make them party to a conspiracy. A similar approach might be appropriate in the construction industry when dealing with major projects such as hydroelectric power or dam construction schemes. But where others involved in the transaction insist that the amount of such payments are confidential and no publication is to take place, it is arguable that, in proceeding with the transaction in the face of a refusal to permit transparency, the company places itself at greater risk than if it had not made the suggestion in the first place.
A recent example of an apparently successful application of such an approach was announced in February 2002 with the selection of the winning bidder for consultancy for the Greater Karachi water supply scheme. A no-bribes 'integrity pact' agreed by the Karachi Water and Sewerage Board and consultant bidders included a commitment to disclose all payments and to report any violation of the integrity pact by other bidders during the bidding or the execution of the service. It is suggested that the consequence of the transparent approach to the bidding process and the inclusion of the no-bribes commitment resulted in substantial savings being made on consultancy costs. The estimated contract value of the scheme as a whole is US$100M.
A US comparison
Major multi-national and other companies in the international business field are likely to be aware of the provisions of the Foreign Corrupt Practices Act (FCPA) - the principal US legislation dealing with anti-corruption overseas. This statute prohibits US nationals, any company whose stock is publicly-traded in the US and certain foreign persons from making corrupt payments to foreign officials (whether directly or through intermediaries) for the purpose of obtaining or retaining a business benefit.
In contrast to the Anti-terrorism Act, the FCPA specifically excludes facilitating payments from its scope. Facilitating payments are payments for 'routine government action' such as obtaining licences and permits. Facilitating payments arise where, for example, a payment is made to a customs official to persuade him to sign off the papers required to release urgently needed machinery from a bonded warehouse. Major companies operating internationally (whether or not they are US companies or listed on a US securities exchange) tend to model their governance and ethical business guidance systems in this area on the basis of the provisions of the FCPA and related provisions. Thus, whilst staff and executives are not encouraged to make facilitating payments, they may not be prohibited from doing so under such internal guidance.
The FCPA falls into two basic parts. First, the FCPA makes it unlawful for a US person (individuals or corporations) and certain foreign companies which issue securities in the US to make corrupt payments to foreign officials or entities for the purpose of obtaining or retaining a business benefit.
Secondly, the FCPA requires companies which issue securities in the US to meet certain accounting requirements. Such requirements involve the keeping of books and records that accurately reflect the transactions of the company and involve the maintenance of adequate systems of internal accounting controls. These requirements apply to all the operations of the issuer, both domestic and international.
In so far as US nationals and issuers are concerned, the FCPA extends the jurisdiction of the courts to cover not only acts undertaken within the US in furtherance of corrupt payments made abroad, but also to any act outside the US in furtherance of a corrupt payment. Thus, US companies can be criminally prosecuted and/or held civilly liable for the acts of its employees or agents acting entirely outside the US. In addition, foreign companies and individuals can violate the FCPA for acts taken within the US in furtherance of a corrupt payment.
In the US, the Department of Justice (DOJ) is responsible for criminal enforcement of the FCPA and has sole responsibility for investigation and enforcement of domestic concerns. The Securities and Exchange Commission (SEC) has responsibility for investigation of issuers and enforcement of civil violations of the FCPA, and may refer criminal prosecutions to the DOJ. There is no private right of action which allows an individual to sue for recovery under the FCPA.
The following sets forth in brief the elements of a FCPA anti-bribery violation:
• A payment, offer of a payment, promise to pay, or authorisation of a promise to pay, is made of money or anything of value.
• The payment, offer or promise is made to a foreign official, foreign political party, party official or candidate for foreign political office. This can include officials of public international organisations, such as the World Bank, and officials of certain types of state-owned enterprises.
• The payment, offer or promise is made to 'any person' knowing that it will be passed on to an official of the kind described above. But 'knowing' is defined to include more than actual knowledge and includes deliberate ignorance, wilful blindness or a conscious disregard of a 'high probability' that a payment or offer as above will be made. Certain 'red flags' should alert corporations to the risk of bribes, for example a history of corruption in the country concerned, unusually high commissions and lack of transparency in accounting arrangements.
• The payment, offer or promise is made 'corruptly'. According to the legislative history of the FCPA, this connotes an evil purpose or motive, intent to wrongfully influence the recipient. It covers an act done with the purpose of accomplishing an unlawful end or a lawful result but by an unlawful means.
• The payment, offer or promise is made either: (i) to influence an act or decision of a foreign official in his or her official capacity;
(ii) to induce that person to act in violation of his or her lawful duty;
(iii) to induce that person to influence any act or decision of the foreign government; or
(iv) to secure any improper advantage.
• The payment, offer or promise is made in order to obtain, retain or direct any business, that is any economic benefit, to any person.
In addition to the primary offences arising directly under the FCPA, offences also arise in relation to conspiracies to violate the FCPA and in relation to those who aid, abet, counsel, command, induce, procure or wilfully cause another to violate the FCPA.
The FCPA contains an exception for 'facilitating payments', being gratuities given to government officials to secure or expedite the performance of 'routine governmental action' such as obtaining non-discretionary permits and licences, processing visas, providing telephone services or unloading cargo. This exception is consistent with the OECD Convention in that such payments are not made to obtain or retain business. Such payments, however, probably are illegal in the country in which they are made, as they would be if made in the US to a US government official.
Other defences arise if it can be shown that the payment was lawful under the written laws of the country in which the payment was made. But it is to be assumed in those circumstances that the offence would not arise because the payment was not made 'corruptly', which is what the prosecution would have to establish as an element of the crime.
Furthermore, parties can approach the DOJ in the context of a particular transaction and seek guidance regarding the present enforcement intentions under the FCPA regarding the business conduct proposed. An opinion issued by the DOJ stating that the conduct conforms with current policy will result in a presumption of conformity in any subsequent enforcement action.
A level playing field
US companies have for many years claimed that they faced a more harsh regime where the US courts had jurisdiction over acts committed overseas, but the legislation of other countries was deficient in this regard. The playing field may be becoming more level, but it remains the case that prosecutions in 'home' jurisdictions are likely to remain few and far between. Whatever the state of the legislation, prosecutors will always struggle to obtain admissible evidence of the acts perpetrated overseas necessary to establish that corruption has occurred. Such cases as do arise tend to come to light as a result of a whistle-blowing employee and/or a change of regime in the country where the corrupt payment was made with the new regime wishing to discredit the old.
There are areas, however, where the anti-corruption legislation of different countries such as the UK and the US remain dissimilar. In the UK the making of 'facilitating payments' overseas (payments to induce an official to perform the task he or she should by rights be performing anyway) is an offence. The FCPA in the US provides a specific exemption from the effect of the legislation in relation to such payments. Whilst the making of such a payment in the US would constitute an offence, and it would almost certainly be an offence in the country in question, it does not give rise to an offence under the FCPA. As explained above, the UK legislation also applies to any corrupt payment whether in the private or in the public sector. The FCPA confines itself to dealings with foreign officials in their capacity as representatives of their governments.
In its report on corruption, the Select Committee on International Development stated: 'We must equip companies with the necessary legislative backing to resist extortion and bribery. The law should provide companies with a shield that protects them from those who solicit bribes by giving them the argument that a company and the individuals concerned would face the stiffest penalties [including prison] in the UK if they were to engage in corruption of any sort.'
Whether companies operating in the UK regard the legislation as a shield for their use or a sword to be used against them remains to be seen. We shall also need to wait to see if other countries (including the US) introduce legislation to outlaw the making of facilitating payments overseas and corrupt payments in the private sector as well as in the public sector.
|Terms of the legislation|
|Under the terms of the new legislation, the UK criminal courts will have jurisdiction in corruption cases even though none of the acts giving rise to such offences may have taken place within the UK. The UK legislation goes further than similar legislation in certain other jurisdictions, for example, the US, in that facilitation payments to induce officials to perform their legitimate functions will be caught, as well as larger sums paid to influence officials in the context of the allocation of new business. The legislation applies equally to payments made in the commercial sector as well as in relation to the public sector. The new UK legislation is significant for participants in major construction projects. Such projects in developing economies may involve very substantial sums being paid to agents in the context of securing new business. Alternatively, companies may be members of a consortium where the lead contractor is involved in the payment of large sums as ‘commissions’ or to agents. Such descriptions may be used to disguise payments which are, in fact, corrupt, particularly when made in relation to projects in countries with a reputation for endemic corruption. Companies that have based their codes of conduct and instructions to employees on the US Foreign Corrupt Practices Act (FCPA) will have to review such material in light of the new legislation. In some regards the UK law now goes considerably further than the FCPA.|