The long arm of the law just got longer

This year, I have endured the attempted elicitation of bribes in Liberia, Uganda, Ghana and, most recently, Zambia. As anyone working within the energy industry in Africa knows, bribe-dodging is not an unusual practice. In fact, most of my colleagues would agree that it is par for the course when doing business in so-called high-risk jurisdictions.

My most recent experience did, however, give me cause to consider the extent to which the United Kingdom’s new Bribery Act, which came into force as recently as 1 July 2011, may affect the activities of the energy industry in Africa.

Under pressure from the Organisation for Economic Co-operation and Development (OECD), to bring the anti-corruption legislation of the UK up to speed with international developments – which, apparently, included a threat to place the UK on an export blacklist alongside countries such as Nigeria – the UK’s legislature set about fashioning the Bribery Act.

Albeit a statute of the UK, the Act has, from a legal perspective, a particularly ‘long arm’, so to speak. Not only do the stringent provisions of the Act bind natural and juristic persons of the UK, they also facilitate the enforcement of what can best be described as a form of extra-territorial jurisdiction. This is because they allow for the prosecution of natural and juristic persons who “carry on business or part of a business in the UK”.

Unsurprisingly, rumblings from big business have included assertions that the UK’s legislature went too far, in that the Act is so stringent that it will place the UK at a competitive disadvantage by criminalising activities that, as previously mentioned, are generally considered par for the course when doing business in certain parts of the globe.

Although disagreement exists as to whether the Act will, in fact, place the UK at a competitive disadvantage, there appears to be consensus that corporate entities operating within the oil and gas industry will be the most susceptible to prosecution under the Act.

To this end, Deloitte, KPMG and Ernst & Young have suggested that the oil and gas industry will be the hardest hit because of the fact that it operates in those parts of the world where the exposure to corruption is dramatically higher.

It is not rocket science: If you ride your bicycle inside the boundaries of the Kruger National Park, as opposed to outside, you are more likely to be bitten by lions.

Nevertheless, due to the jurisdictional reach of the Act, those members of the oil and gas industry operating in well-known corruption hot spots and which carry business – or part of a business – in the UK, would be well-advised to fully understand the implications of the Act.

By way of example, Shell, Anglo American, BHP Billiton, BP and numerous other well-known industry members that maintain offices in the UK also maintain operations in countries such as Russia, the Democratic Republic of Congo and Nigeria, which received particularly low rankings in Transparency International’s 2010 Corruption Perceptions Index (CPI).

South Africa ranked 54th out of the 178 countries that featured in the CPI.

The offences

For members of the oil and gas industry to ensure compliance with the provisions of the Act, they must – as a starting point – gain an understanding of the offences created under the Act.

In essence, the Act creates four offences:

Firstly, it criminalises so-called active bribery, which involves offering, promising or giving a bribe.

Secondly, it addresses so-called passive bribery by making it an offence to request, agree to receive, or accept a bribe.

Thirdly, the Act introduces a more specific offence, namely the bribery of foreign public officials. For those members of the energy industry who carry business in the UK, or part of a business in the UK, and who ‘ride their bikes inside the park’, this new offence ought to be borne in mind, particularly when one considers the potential penalties for committing such an offence, which will be discussed further on in the article.

The fourth, and perhaps the most significant offence created under the Act, is that of failing to prevent a bribe by an associated person. An associated person is broadly defined as a person who performs services on behalf of a commercial organisation. Simply put, entities operating within the energy sector in high-risk jurisdictions that have business ties to the UK would be well-advised to take cognisance of the fact that it is now possible for them to be prosecuted not merely for the payment of bribes, but also for failing to prevent the payment of bribes.

That which drums home the significance of this point is the fact that failing to prevent the payment of a bribe is subject to strict liability, and it is an offence that is not limited to the organisation itself, as directors and other employees may also be found guilty.

Consequently, those persons who have a hand in steering the operations of energy companies through corruption-prone jurisdictions are at particular risk of being found criminally liable for the payment of bribes by agents or other associated persons even if they were not aware of such payments being made.

Bearing in mind the offences created under the Act, together with the fact that energy companies tend to operate in corruption-prone jurisdictions where hospitality can be particularly lavish and facilitation payments are not uncommon, it is perhaps worth mentioning the manner in which hospitality and facilitation payments are addressed under the Act.

Hospitality and facilitation payments

The official guidance notes published by the UK government recognise that hospitality is part and parcel of improving or maintaining a corporate image, and do not prohibit the practice. The guidance notes do stress, however, that hospitality must be reasonable and made in good faith. Thus, where hospitality has been particularly lavish, the hosts may be exposing themselves to criminal liability for bribery.

The Act prohibits facilitation payments, also known as “grease payments”, and which are typically made so as to ensure the timely fulfilment of an official’s administrative tasks.

Although prosecutorial guidance issued by the UK’s director of Public Prosecutions and the UK’s Serious Fraud Office (SFO) has confirmed that facilitation payments are strictly outlawed, I have no doubt that the more experienced members of Africa’s energy industry will be quick to draw a distinction between theory and practice.

They will no doubt point out that officials in certain jurisdictions are well-versed in conveying that, in their view, such payments are non-discretionary in nature.

Significantly, the United States’ Foreign Corrupt Practices Act pays deference to this distinction between theory and practice, in that it does not adopt the zero-tolerance approach of the Act and instead allows for certain minor facilitation payments. That said, the SFO has recognised that facilitation payments will, in practice, need to be phased out over a period of time and thus it has advised that those who continue to make minor facilitation payments, since the coming into force of the Act, may escape prosecution if they can demonstrate that:

• the company has issued a clear policy regarding facilitation payments;

• written guidance has been made available to employees, setting out the procedures that should be followed when asked to make such payments;

• such guidance is, in fact, being followed;

• all facilitation payments are being recorded by the company;

• action has been taken to inform the appropriate authorities in the countries concerned that facilitation payments are being demanded; and

• the company has been taking steps to circumvent the extension of facilitation payments.

Relying on the possibility of prosecutorial leniency should, however, not be an approach that is readily adopted, particularly in view of the potential penalties created under the Act. What is clear is that demonstrable transparency is at the heart of the SFO’s guidance on how to possibly avoid prosecution for minor facilitation payments.

Penalties and defences

When it comes to penalties, the Act is particularly strict, allowing for the imposition of unlimited fines and imprisonment of up to 10 years.

What is more, directors could be faced with concomitant disqualification under the Company Directors Disqualification Act and confiscation of assets under the Proceeds of Crime Act.

For those who may find themselves on the wrong side of the law, the cardinal defence is the so-called “adequate procedures” defence. As the name suggests, a company may defend itself by demonstrating it had adequate procedures in place to prevent bribery.

Guidance from the UK’s Ministry of Justice regarding what constitutes “adequate procedures” sets out the following six principles:

• Proportionate procedures – a business should maintain anti-bribery and corruption procedures that are proportionate to the relevant risks and the specific nature of the particular business;

• Top-level commitment – persons in managerial positions must lead by example and demonstrate their commitment to preventing bribery, and see to it that their example is adopted as part of their company’s corporate culture;

• Risk assessment – businesses ought to adopt the practice of arranging for regular corruption risk assessments;

• Due diligence – companies must take cognisance of the reputation and background of their business partners;

• Communication – anti-bribery policies ought to be ingrained in the company’s business processes; and

• Monitoring and review – in order to ensure compliance with their anti-bribery policies, companies ought to adopt appropriate monitoring and review mechanisms.

Arguably, the manner in which these principles ought to be interpreted and applied is not perfectly clear and thus company- and location-specific interpretations of these principles may prove to be a tricky task, involving various questions of law and ethics. Initial judicial interpretations of the adequate procedures defence will thus be noteworthy.

Conclusion

In so much as the law appears, on paper, to be particularly strict, we will only be able to gauge the true reach of the Act’s provisions once the barristers have argued and the courts have had their say.

Nevertheless, this new statute undoubtedly contains particularly stringent provisions and the offence of failing to prevent a bribe is certainly a shining example thereof.

Despite the issuing of guidance notes by significant entities such as the Ministry of Justice, detailed information on the most appropriate procedures to be adopted so as to satisfy the provisions of the Act do not exist.

Although judicial pronouncements on the true ambit of certain of the Act’s provisions will be welcomed, at least by those who are not on the receiving end thereof, there will still be a need for the formulation of company- and location-specific anti-bribery procedures and mechanisms.

As a starting point, however, it would be advisable for companies to conduct bribery-specific risk assessments that take cognisance of the principles that underpin the concept of “adequate procedures”, and to see to the cultivation of corporate cultures that are unequivocally anti-bribery.

Luke Havemann

BA LLB LLM (UCT) PhD (ABDN)

Director: Havemann Inc.

Specialist Energy Attorneys