Suitable codes of conduct for English businesses abroad
13 June 1995
22 July 2013
9 August 2013
1 November 2013
Conflicts between domestic disclosure obligations and foreign illegality — a Hong Kong law perspective
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Since the 1900s international trade has increased by 70 per cent and even greater levels of growth are expected in the future. As international trade continues to grow, lawyers are likely to be asked more frequently how their clients should react to requests for payments to oil the wheels and secure the contract.
But, this path can be fraught with risks, particularly to UK directors inherent in some foreign business payments.
British companies submitting tenders for contracts in foreign countries often engage a local representative in the foreign country to advise and
assist them in winning the contract. Such agents may be retained on a salary or paid by commission.
The business culture and concepts of acceptable business conduct in some countries mean that amounts of money paid by British companies to their local representative will sometimes be used by the representative for the purchase of gifts for employees of the foreign enterprise which the British company hopes to contract. Such practice is unofficially regarded as normal conduct in a number of countries and can range from innocent business gifts to bribes.
The directors of the British company may sometimes suspect, or even be aware, that the representative is doing exactly that. The question arises as to the possible ramifications for the British companies and their directors in such a position.
Most people will be aware that it is illegal to offer a secret commission to the agent or employee of a company as an inducement to persuade that agent or employee to use his influence or position in such a way as to have a contract awarded to the person making the payment. It is illegal under the Prevention of Corruption Act 1906 to offer such a payment to an agent or employee of a private company.
It is also illegal under the Public Bodies Corrupt Practices Act 1889 to offer a civil servant an inducement to do anything regarding a matter or transaction which the relevant public body has a concern in.
However, both of these Acts relate only, in principle, to activity conducted in the UK and are unlikely to apply to payments made in respect of
contracts performed overseas.
The Prevention of Corruption Act 1906 is subject to the long-established presumption in English law that an Act creating an offence is not intended to make conduct occurring outside the territorial jurisdiction of the Crown an offence triable in England. The general principle is that all crime is local and a crime's jurisdiction belongs to the country where the crime is committed.
Where a substantial number of the Acts or omissions constituting the crime take place in England, the courts may take jurisdiction, even where substantial parts of the crime in question have been committed outside the UK.
In this situation, most of the Acts attracting liability under the Prevention of Corruption Act 1906 will usually not be committed within the territorial jurisdiction of the UK.
The Act focuses on a payment made to an agent or employee of an organisation with whom the donor wishes to contract. That payment is likely to be made in the foreign country in question, not in the UK. The payment made by the British company to its representative in the foreign country is not a payment attracting liability under the Act.
In any event, since a payment is generally made where it is received, any payment made by the British company to its representative is also likely to be made in the foreign country in question.
For the same reason, neither the British company nor its
directors would be liable for aiding, abetting, counselling or procuring the commission of an offence within the UK, nor would there be a conspiracy to commit an offence in the UK.
The only other possible conspiracy would be a conspiracy in England to commit an illegal act abroad. Here, the general rule is that an agreement in England to commit an offence abroad is not triable in England, the only exception to this rule being a charge of murder.
The Public Bodies Corrupt Practices Act 1889 only covers public bodies within the UK. It does not apply to corrupt offers of gifts made to members or
officers of public bodies of other countries and so is of no relevance when British companies are dealing with foreign governments or public bodies.
Many countries have passed legislation whose purpose is to prevent or restrict corrupt business payments aimed at winning or retaining contracts or business. These laws are cast in very broad and general terms and provide a host of pitfalls.
Although no offence may have been committed in England, it is quite possible that the British company and its directors, if they know or ought to know what the company's representative in the foreign country is doing, may be liable for a similar offence under the criminal law of the foreign country in question.
Companies and their directors must be particularly careful to avoid allegations of conspiracy. The law in many countries holds that persons who are physically outside a country when they conspire to commit a criminal offence within it, commit an offence which is triable in that country.
The UK company and its directors must also be careful to avoid an allegation of aiding or abetting the commission of an offence within the foreign country. Whether an offence has been aided or abetted will depend upon the law of the foreign country in question.
Particularly important because of its wide-reaching territorial grasp is the US Foreign Corrupt Practices Act (FCPA) which prohibits US companies, issuers of securities registered in the US and individuals who are subject to US jurisdiction from making payments to foreign government officials to obtain or retain business.
Directors of British companies should note that the FCPA applies not only to US companies but also to foreign-owned companies which have issued registered securities (for example shares) in the US. Thus, a UK company listed on the New York Stock Exchange will be subject to it.
Even where a company is not subject to the provisions of the FCPA, individual employees or agents (and, therefore, directors) of the company might be. An employee or agent who is subject to the jurisdiction of the US and who wilfully violates the FCPA is subject to a civil penalty under it.
Violation incurs penalties which vary according to whether the person guilty is a company or private individual. Companies face a fine of up to US$2 million, and officers or directors found guilty face a fine of up to US$100,000, imprisonment, or both.
Directors of companies seeking business abroad should take steps to ensure they are fully aware of all the legal regimes which may apply to their intended transaction. Directors, and the companies for which they are responsible, will not necessarily be able to get away with shutting their eyes to the obvious or seeking to distance themselves from transactions which might fall foul of laws designed to prohibit certain business payments.
Failure to take proper care can lead to disastrous consequences.
Tim Hardy is a litigation partner at McKenna & Co.