Commercial & Chancery: Corruption interruption
10 September 2007
22 July 2013
18 February 2013
7 January 2013
7 Jan 2013
1 November 2013
Earlier this year, the UK Government was heavily criticised for its decision to stop a Serious Fraud Office investigation into alleged payment of kick-backs by BAE Systems to procure very lucrative defence contracts from the Saudi Government in the late 1980s. The UK Government cited national security (damage to intelligence links with Saudi Arabia) if the investigation continued.
It is debatable whether the UK's international obligations (particularly the Organisation for Economic Co-operation and Development (OECD) Convention) permit such an exception, and the cynics will no doubt say that this is just a cover for 'commercial interests'. Nevertheless, the reaction to the Government's decision (both domestic and international) illustrates significant changes in attitudes and legal responses to corruption.
The story so far
Until February 2002 (when the UK gave effect to the OECD Anti-Corruption Convention of 1999 through domestic law - Sections 108 and 109 of the Anti-Terrorism Crime and Security Act 2001), a bribe/ commission payment paid overseas to procure a foreign contract could have constituted a tax deductible expense. Times have changed - or so it would seem.
For nearly five years, the UK Government has been trying to consolidate existing legislation (about half a dozen statutes spanning more than a century) and case law to provide a workable and effective legal framework to deal with corruption. The present Draft Corruption Bill seeks to provide a clearer definition of what constitutes corruption and its consequences as a matter of criminal law.
The Corruption Bill stems from many initiatives at international level (the main one being the UN Convention Against Corruption 2003), which are aimed at creating a culture of prevention, detection and punishment of corruption. While it will be quietly said by many that 'if we don't pay to get the deal, someone else will', the formal position of almost all companies and states is that bribes are unacceptable. Those who openly say bribes are a necessary 'commercial lubricant' tend to be confined to certain, sadly predictable, jurisdictions.
One of the problems with seeking to tackle corruption through legal measures is perhaps obvious: why would the giver or receiver of a bribe/commission payment reveal their involvement in an illegal act? The effect of this is that gathering evidence is extremely difficult. Indeed, apart from the exceptional cases where cash is paid over in briefcases at swanky hotels, corrupt payments are usually made through complex layers of offshore companies and trusts.
Mutual legal assistance
Most lawyers are unaware of the existence of a process called mutual legal assistance (MLA), whereby a foreign state can request that the UK authorities provide assistance for domestic criminal investigations and proceedings pursuant to the provisions of the Crime International Cooperation Act 2003.
If assistance is granted it can lead to the use of a wide range of powers, including asset restraint, search and seizure of evidence as well as interviews using powers of compulsion (pursuant to Section 2 of the Criminal Justice Act 1987).
This process has been invoked and used successfully by more than a dozen foreign states in recent years to obtain assistance such as asset restraint and evidence gathering. See, for example, reported decisions of the Divisional Court in failed challenges to MLA assistance, such as Abacha (2004) - alleged massive corruption by the late General Abacha in Nigeria, which also saw very successful civil proceedings to recover assets; EFT (2005) - alleged corrupt energy contracts in the Balkans; Quattrocchi (2004) - asset restraint vis the alleged Bofors corrupt deal in India.
Civil asset recovery
Another growth area, which very often is operated in tandem with MLA assistance, is foreign states' use of English commercial/chancery proceedings to freeze assets and recover property alleged to be proceeds of corruption. The electronic trail left by the flow of funds and the post-9/11 environment have made it easier to locate and 'crack open' trusts and accounts held in previously 'safe' offshore havens where the real ownership of proceeds of corruption is often concealed.
In such cases, the availability of worldwide freezing orders, disclosure orders and asset tracing remedies from the English courts has led to some important cases in recent months, for example, AG of Zambia v Meer Desai & Co (2006) - a UK firm involved in corrupt transactions; Government of Pakistan v Zardari & Ors (2007) - proceedings to recover the proceeds of sale of a large property allegedly bought with bribes by the husband of the former prime minister of Pakistan; Nigeria v Dariye (2007), Nigeria v Santolina Investment Corp (2007) - proceedings to recover assets allegedly accumulated by a former Nigerian state governor as a result of payment of bribes.
Some have remarked that the main feature of such cases is the zeal and determination with which the foreign state uses the English legal process. A cynic would no doubt note that the state authorities invariably pursue individuals who have been, or are likely to be, opposition party political figures. Nevertheless, the fact is that our courts are seeing an increasing number of such cases. In addition to the impressive armoury of measures available from the court, there is also the fact that very often the 'money trail' for alleged proceeds of corruption passes through the London financial system or ends up in assets in the UK.
A word of warning
Large commercial deals will often require UK legal expertise to put them together. Sadly, as was seen in the Zambia case, it is very tempting for a small minority of professional intermediaries, such as bankers, accountants and, it would seem increasingly, lawyers, to use their professional skills and reputation for probity as a shield behind which corrupt transactions are undertaken. Not only is this damaging for the profession, but in time, when lawyers involved in such activities are prosecuted and punished in a high-profile case, there is a real risk that the scope of legal and professional privilege will be limited and greater regulation of client account use will take place.
It is also important to realise the consequences of invoking corruption in a case. It is very rare for corruption to be raised as an issue in a civil case other than to found a claim to recover assets, unless it is to avoid a transaction. For an interesting, if unusual, arbitration decision, see the recent case of World Duty Free v Kenya (2006). An International Centre for Settlement of Investment Disputes tribunal dismissed a claim under an investment treaty because the claimant pleaded (as background and for no apparent reason) that he had paid bribes to do business in Kenya. His claim was rendered ineffective because the tribunal held that bribery is against international public policy.
For the overwhelming majority of lawyers, recent developments in the context of the use of civil law to tackle corruption will be seen as a welcome development, promoting good governance and the rule of law. For those commercial litigators who are quick off the mark and of an especially strong constitution, this is an area that provides considerable opportunities. nKhawar Qureshi QC is a barrister at Serle Court