Foreign Corrupt Practices Act & UK Bribery Act and Their Effect in Countries like UAE
The goal of the UK Bribery Act 2010 was to strengthen the UK’s position on corruption and bribery while providing a broadening development of anti-bribery legislation on a global scale. Along those lines, the act was designed to parallel the U.S. Foreign Corrupt Practices Act (FCPA) in many ways, which has served as a global benchmark. Under the UK Bribery Act, the bribery of foreign public officials was made an offense and even extended to include any third parties who may act on behalf of a company.
One element that is quite interesting regarding the UK Bribery Act is that in certain manners, the act actually goes beyond the FCPA. For instance, the act covers not only bribery involving public officials but all acts of bribery. There are no exceptions made for the facilitation of payments made for the purposes of expediting government actions. In addition, under the act, failure to prevent bribery is made a corporate offense. The act also makes receiving as well as giving a bribe an offense.
When the UK Bribery Act went into effect on July 1, 2011, the UK was granted one of the most stringent anti-corruption legislations in the world. Consequently, companies must now ensure everything is completely in order, regardless of industry or location. In particular, it is now vital that companies take the time to access their vulnerability to corruption and bribery and ascertain whether their current control environment is sufficient. Such due diligence is essential to ensure an environment of anti-corruption.
Under the Act, the person committing the bribery offence does not have to be a UK citizen nor does the activity have to fall within UK jurisdiction, but the law only requires that the entities maintain a “close connection” with the UK. The Law does not carry a legal definition of the two words that the authorities can use to fit shape or size to fit their needs. However, a good attorney would ensure that the two words “close connection” are derived from “series of activities designed to advance an enterprise to gain profit”.
Commercial organisations include not only partnerships or companies incorporated in the UK, but also partnerships and companies which are incorporated elsewhere, but carry on any part of their business in the UK (“third parties”).
Thus it is sure that a company operating in the Middle East and having a branch in UK will be liable, what happens in a case when a Middle East Company who owns a subsidiary owns a UK subsidiary would they be similarly liable, despite being a separate legal entity? One would need to evaluate whether the subsidiary’s activities form part of the parent’s business operations, and the degree of ownership and control exerted. This will determine if the Middle East parent company would be “in essence” carrying out business in the UK.
The Middle East is an environment that believes in gifts of giving and receiving, and hospitality through which firms need to navigate. This is totally different from the company’s actual attitude of the parent companies that would be operating out of USA or UK, where gifts are seen as a measure of influencing ones own decision. This is a grey area one would need to carefully evaluate, whether to follow the compliance program word-for-word or compromise on the same. Not following the customs may drive business to other firms that are locally based or firms having weaker compliance programs.
The bottom line of difference where companies operating out of Middle East stand is that FCPA, requires a company to know or perceived to be known of bribery in order for it to be an offence. While there is no such requirement under the UK Bribery Act and FCPA, it allows for facilitation payment / Greece payments which UKBA does not provide any exceptions.
Lets take a look at a brief snapshot of how this plays out.FCPAUKBABribery of foreign (public) officialsBoth the Bribery Act and the FCPA make it an offence to bribe foreign (public) officials. Under the Bribery Act a “foreign public official” is defined more narrowly than under the FCPAPrivate-to-private briberyDoes not cover bribery on a private levelCoveredActive and passive briberyCovers active bribery i.e. Giving of bribeCovers both active and passive bribery i.e. the taking or giving of a bribeFailure to prevent briberyThe philosophy is Company is responsible for the acts of employees and Agent so the organization needs to have proactive controls in placeCreates a strict liability corporate offence for failure to prevent bribery. They look if a company has good compliance procedures in placeIntentPerson offering the bribe did so with a “corrupt” intent.No written requirement for a “corrupt” or “improper” intent in relation to the bribery of a foreign public official but it does implicitly incases so.Facilitation paymentsExemption for facilitation paymentsNo ExemptionPromotional expensesPromotional expenses act as a defenseNo Defense
What Are the Key Trends of the FCP A and UKBA?
Both the FCPA and UKBA are presenting a number of key trends of which companies in all sectors and industries should be aware. In particular, many companies have recognized three critical compliance challenges. Those challenges include the need to audit third parties for compliance, variations in national requirements and local laws regarding issues such as payment facilitation and data privacy, and difficulty in performing due diligence effectively on third parties and foreign agents. The rise of electronic payment methods has proven to be particularly challenging for many firms, which are now concerned about potential susceptibility to prohibited cash payments. This is of particular concern in societies that are largely cash based, as it can be difficult to monitor and control the flow of cash expenditures.
Even more concerning is the fact that an increasing number of firms believe that such regulations place them at a competitive disadvantage. In fact, an increasing number of executives now believe that such regulations will change the way in which firms do business.
How Have They Affected the Current Policies Across the Globe?
The repercussions for noncompliance of both FCPA and UKBA can be so significant that many companies have found it much less expensive to develop a comprehensive compliance program. In 2008, for instance, a large engineering company based in Munich agreed to pay $1.34 million USD in order to settle FCPA investigations.
With the scare of FCPA and UK BA people have started to follow the basic guidelines, which can be summaries as follows:
Implement a WB hotline
Develop a comprehensive compliance and fraud control program
Approved Framework, policies and procedures
Have a strategic position of Chief Compliance Officer with a dotted line reporting to Audit Committee and Close tight interactions with Legal Affairs department.
Establish systems for background checks and declaration forms such a conflict of Interest, gift declarations etc.
Carry out Compliance reviews and investigations
Have a standard of conduct, Fraud control policy whistle-blowing policy, etc.
Penalties in the USA and Other Countries, like UAE, for Violation of FCPA and UKBA
The penalties for both the FCPA and the UKBA can have far-reaching consequences in the USA, as well as other countries, such as the UAE. Under the FCPA, criminal penalties can include a fine of up to $2 million USD for corporations as well as a fine of up to $250,000 USD and imprisonment for up to five years for directors, officers, stockholders, agents, and employees. Furthermore, such fines could actually be higher under the Alternative Fines Act. In fact, the actual amount of the fine could be twice the amount of the benefit sought by the defendant by making the corrupt payment. Principals and employers are also not allowed to pay imposed fines for their employees or agents. Civil penalties also apply and can include fines up to $10,000 USD against any company, director, officer, stockholder, agent, or employee who violates anti-bribery provisions.
While fines and potential imprisonment are certainly serious enough, violations could potentially have even further-reaching consequences, including potential bans on doing business with government agencies. Even years after such violations, companies may be required to continue compliance improvements, which not only results in additional labour but also legal fees and a burden on the ability to conduct normal business operations.
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