21 February 2005
It was Lord Falconer who acknowledged that corruption "weakens democracies, harms economies, impedes sustainable development and can undermine respect for human rights by supporting corrupt governments, with widespread destabilising consequences". The launch of New Labour's 'ethical foreign policy' has introduced a political focus.
The issue of corruption and bribery has reared its head in the media again. First, there has been significant press coverage regarding public consultation on the changes made to the Organisation for Economic Cooperation and Development (OECD) procedures affecting anti-bribery and corruption procedures introduced by the Export Credits Guarantee Department (ECGD) last year. Second, there has been coverage in relation to the debarring of French company Thales Engineering and Consulting SA (THEC) from receiving any World Bank-financed contracts for a year as a result of fraudulent practices in relation to the Cambodia Demobilization and Reintegration Project - the purpose of which was to assist Cambodia in its military demobilisation efforts of 30,000 soldiers.
The media's appetite for stories regarding bribery and corruption highlights the reputational issues that may arise simply by an investigation against a company or institution. It is vitally important that companies and institutions involved in international commerce appreciate fully the steps that may be taken to minimise risks in the area.
Key legislationThe OECD, which is comprised of 30 countries, led the campaign against bribery and corruption with the OECD Convention Against Bribery of Public Officials in International Business Transactions, which came into force in 1999. Each signatory country was required to adopt national legislation that criminalised the bribery of public officials as well as having in place adequate procedures for dealing with such an offence. The convention also recognises that businesses play a part in the fight against bribery and corruption and that companies must change their cultures by being more transparent in their international business dealings.
The current UK law on bribery is contained in the Prevention of Corruption Act 1906, the Prevention of Corruption Act 1916 and the Public Bodies Corrupt Practices Act 1989. The legislation makes it a criminal offence to make a bribe to a public official, a servant of a public body or an agent of those persons. In addition, Part 12 of the Anti-Terrorism Crime and Security Act 2001, which was introduced in response to the 11 September attacks largely to combat international terrorism, goes one step further and confers extraterritorial jurisdiction on the UK courts in relation to offences of bribery or corruption committed by UK nationals overseas - an offence that is punishable by up to seven years' imprisonment.
The risks to businessesWhile it may be considered in some parts of the world to be acceptable business practice to 'grease the palms' of public officials in order to win contracts, such an act is a criminal offence in the UK, even if it is committed overseas. Indeed, many are unaware that making facilitation payments or providing corporate gifts could be deemed a financial inducement or bribe, which consequently makes it a criminal offence. It is significant that facilitation payments - generally small payments aimed at speeding up the provision of a service, such as the connection of a telephone line or electricity supply - are allowed under the US Foreign Corrupt Practices Act, but not under the UK legislation. This poses risks for global corporations that base their ethics guidelines on the longstanding US legislation.
The combination of potential criminal sanctions, and the very real damage that can be caused to a company in terms of reputation and shareholder value, means it is essential that companies analyse their existing contractual arrangements. They should also conduct a review of all existing business procedures to ensure that the risks are minimised.
The futureOn 24 March 2003, the Government issued a draft Corruption Bill in response to the conclusion of the Law Commission's report, published in 1998, which stated that the law on corruption was in an "unsatisfactory condition and should be reinstated in a modern statute", as well as in response to increasing international concern over escalating corrupt practices.
A joint committee was appointed by the Government to conduct a consultation process and receive written and oral evidence from various bodies, including the Serious Fraud Office, and to report on the Government's proposed bill. The joint committee published its report on 31 July 2003 and the Government responded at the end of the year, but the bill was not included in this current Parliamentary session. Despite this, companies and individuals must still ensure that they have undertaken a 'root and branch' review of their procedures so as not to fall foul of the Anti-Terrorism Act, their international obligations and any impending new legislation that may come into effect.
Actions to be takenIn order to minimise the risks of being investigated and prosecuted for bribery and corruption offences, companies and individuals should ensure that they undertake a review of their processes. Their aim should be to have:
clear and transparent accounts and records that reflect accurately any payments made in the course of business;
training procedures whereby those involved in international business - especially in parts of the world where the payment of a 'dash' or a 'baksheesh' is an age-old part of business culture - can minimise risks of corrupt payments being solicited;
anti-corruption policies and procedures that are accessible and publicised throughout the workplace;
discreet whistle-blowing procedures and clear avenues for the early notification of concerns to enable all members of staff to report suspected corrupt practices; and
thorough due diligence procedures to ensure that no foreign companies expect facilitation payments as a prerequisite to the deal being completed.
There are serious consequences for those who commit acts of bribery and corruption and companies must ensure that they comply with their existing national and international obligations. In the light of the continuing publicity surrounding this issue and the commitment shown by the Government to eradicating it, the effective handling of this legally and culturally complex issue has never been more significant.
Darren Allen is a partner and Kelly Williams is an assistant at DLA Piper Rudnick Gray Cary