On 17th December 1997, the UK and other of the
world’s leading industrial nations signed the Organisation
for Economic Co-Operation and Development (OECD) Convention on
combating bribery of foreign public officials in international
business transactions. In June 1997, following the Law
Commission’s review of the law on corruption, the Government
issued a consultation paper with a view to clarifying and
consolidating the laws relating to bribery. The Law Commission is
due to publish its report on the topic around the end of this
month. In addition, recent EU initiatives on corruption call for
the criminalisation by all member states of bribery of community
and other national officials.
As a result of these initiatives, it is likely that
there will be a widening of the English law on bribery, possibly
tending towards the US bribery laws, although falling some way
short of that jurisdiction’s Foreign Corrupt Practices Act of
1977 which is discussed in more detail below.
This article reviews the current law on bribery and
kickbacks, and the potential liability of a company for the acts of
its agents and employees who bribe others. It also offers practical
guidance for minimising the risk of a company unwittingly laying
itself open to civil or criminal actions for bribery committed by
its agents.
Nature and extent of bribes and
kickbacks
Bribes can take many different forms. The essential
element of a bribe is that it is a benefit accruing to a
representative of a principal which is given in an attempt to
influence his judgment, usually to enable the bribe giver to win or
retain the business of the principal. A kickback is a specific type
of bribe in which the bribe payer, usually the supplier of goods or
services to the principal, overcharges the principal, paying some
or all of the overcharge to the principal’s representative in
return for awarding a contract to that supplier or continuing to
place business with it.
Bribery is much more commonplace than might be
expected. Moreover, a number of arrangements which some might
consider to be harmless in fact include acts of bribery or, if they
fall short of bribery, may still involve the payment of secret
commissions for which the payer of those commissions may face a
civil claim.
Recent surveys suggest that corruption is rife,
particularly in Eastern Europe, former Soviet Bloc countries,
Nigeria, Ghana and Iran. Estimates given by those involved in
corruption suggest that around 5% of the cost of a project may be
paid in bribes. Those contracts most at risk are thought to be the
supply of aircraft, ships, military supplies, telecommunications
projects and privatisations. However, any supplier who is keen to
obtain a contract may agree with the client’s purchasing
manager to make payments to him personally in return for the award
or continuation of a supply contract. The arrangement may seem
insignificant in the context of the contract but, if the supplier
is found liable to pay damages to the client, having already paid
bribes to the client’s manager, the cost and other
implications of such bribery become more serious.
Criminal provisions
The giving and taking of bribes is a criminal
offence in certain circumstances. The three existing English
statutes relating to bribery are:
- The Public Bodies Corrupt Practices Act 1889
- The Prevention of Corruption Act 1906
- The Prevention of Corruption Act 1916
The 1889 and 1916 Acts deal exclusively with the
bribery of UK public officials and make it an offence to bribe a
member, officer or servant of a public body.
The 1906 Act is wider and deals with the corrupt
transactions of agents. The 1906 Act creates four distinct
offences. It is an offence for:
- an agent corruptly to accept (or agree to accept) a bribe from
any other person in relation to its principal’s affairs or
business;
- any person corruptly to give (or agree to give) or offer a
bribe to an agent in relation to the affairs or business of the
agent’s principal;
- an agent knowingly to use with intent to deceive its principal
any false account or misleading document (whether in respect of a
bribe or otherwise);
- any person knowingly to give to any agent a false document as
referred to above.
The word “agent” is defined widely as
“any person employed by or acting for
another”. “Bribe” includes a gift
or valuable consideration of any kind. Offences under the 1906 Act
are punishable with a maximum of 7 years imprisonment or an
unlimited fine, or both, and are arrestable.
The 1906 Act only applies where one element of the
corrupt transaction (that is, the offer, acceptance, or agreement
to accept) takes place within England and Wales. No offence is
committed under English law where the agreement to pay a bribe and
the actual payment of it takes place in another jurisdiction
(although an offence may be committed in the other country).
The position is less clear where the agreement to
bribe and the receipt of the bribe take place abroad, but the
payment of the bribe is made from England. The 1906 Act
criminalises the “giving” of bribes. It has generally
been thought that the payment would need to be received in order
for the “giving” to be complete, in which case the
giving would take place in the country of receipt. However, this is
by no means clear, and it may depend upon the method used to
transmit the payment . It may also be possible for the court to
treat such conduct as the “offering” of a bribe, which
would fall within the 1906 Act definition.
Companies should therefore be wary of such
arrangements. Moreover, proposals contained in the Government
statement of June 1997 would criminalise acts carried out in this
country which are preparatory to an act of corruption abroad.
Accordingly, whilst not a criminal offence under the current law,
if the new proposals are enacted, it would be an offence for the
Board of a UK company to authorise the use of bribes abroad in
order to secure business, even if all elements of the bribe itself
(agreement, payment and receipt) take place abroad.
Company’s criminal liability
Where the directors or managers which constitute
the “directing mind and will of the company” are
involved in bribery, the company as well as the individuals
involved will be liable. Where an agent of the company gives the
bribe, he will be personally liable, but the company will only be
liable if it can be shown that it in some way empowered the agent
to make the bribe such that it may be vicariously liable.
People involved in the giving and accepting of
bribes will usually be guilty of the common law offence of
conspiracy to defraud.
Civil law consequences
When a dishonest agent accepts a bribe or takes a
secret commission in relation to his principal’s affairs, the
agent and the bribe giver will be jointly and severally liable to
the principal:
1. in restitution for the bribe; and
2. in tort for any loss sustained by the principal
over and above the amount of the bribe.
This is so whether or not the giving of secret
commission was contrary to the criminal law.
It appears that the agent will also hold the bribe
on constructive trust for the principal, and the bribe giver may be
liable for assistance in breach of trust. The principal therefore
has a proprietary claim for the bribes, which may be particularly
useful where the agent or bribe giver is insolvent or where
property purchased with the proceeds of the bribe has increased in
value (the principal will be entitled to claim the increase as well
as the underlying sum, plus interest).
Furthermore, every contract made under the
influence of bribe is voidable by the principal. Where the contract
has not been performed, the principal may opt to rescind it, and
need not give credit to the bribe giver for the value of the bribe:
this is so even if the principal has subsequently discovered the
bribe and recovered it from the agent.
The bribe giver will be liable even if it thought
that the agent would tell or had told its principal about the
bribe/commission; likewise, where it originally arranged for the
bribe not knowing of the agency but, despite learning of the
agency, continued regardless.
The bribe giver may, in some circumstances,
consider that the principal was contributorily negligent as it
should have been aware of the bribes. Such arguments have not
succeeded. However, the position may be different where the bribe
giver can show that the principal was actually aware of the bribe
and did nothing to stop it.
In summary, particularly where the bribe giver has
deeper pockets than the agent, the bribe giver may find itself
paying the bribes twice without any recovery: the first time to the
agent as a bribe and the second to the principal as a result of a
claim for restitution. It may also be liable to account to the
principal for any profits which it made on the infected
contracts.
Directors may also be personally liable to
reinstate any company assets which they have misapplied in paying
bribes.
Company’s civil liability
The general rule applying to employees (as opposed
to agents) who commit wrongful acts is that the employer is liable
only for those acts which the employee committed in the course of
his employment. However, in relation to employees and agents where
allegations of bribery are involved, the Courts have taken a
different approach.
The key question is the extent to which the agent
or employee had actual or ostensible authority to make the bribe.
Where the bribe is made with the approval of the directors, the
company will be liable. If not, in order for the company to be
liable it must have put the agent in a position to give bribes. The
determination of this question will involve examination of the
company’s policy and procedures in relation to bribery, and
any internal documents or other directions on bribe giving and
taking will be disclosable in proceedings as well as the official
company statement of policy.
Whether the company is liable for its agent will
depend upon the facts of the individual case including the degree
of autonomy given to the agent, whether the company was disclosed
as a principal and whether bribe giving is a normal occurrence in
the course of negotiations for the type of contract and country in
question. In attempting to avoid liability, it is likely that the
company would have to show that it had taken steps to enforce its
anti-bribery policy, but that it had been deceived by its
agent.
The Foreign Corrupt Practices Act 1977
UK companies should also be aware of a US statute,
the Foreign Corrupt Practices Act 1977 (the
“FCPA”).
The FCPA has extra-territorial effect and makes it
a crime for US companies or individuals (whether by themselves or
through their agents) to bribe foreign officials in an effort to
attract or retain business.
The definition of “bribe” is wide and
potentially includes giving anything of value to a foreign official
(or to another for his benefit, e.g. a member of his family) with a
view to winning or retaining business. For instance, paying the
expenses of an official with the intention of influencing his
impartiality may breach the FCPA.
There are three exceptions to the rule:
-
payments to expedite or secure routine Governmental
action, for example, the giving of permits, licenses, visas and
work orders etc.
- entertainment expenses are allowed where these are reasonable
and bona fide costs relating to the promotion of particular
products or services or the performance of a contract. Prior
approval of significant expenses may be obtained from the US
Justice Department.
- where a payment is specifically lawful under the written laws
of the foreign country (although this is rare).
Whilst the FCPA does not apply directly to a UK
company or firm operating outside the US, it may have a knock-on
effect on connected US individuals or companies. The FCPA applies
to:
- any US national who is involved in any way with the payment of
bribes, even where he is employed by a UK company
- a US company if its UK subsidiary, its branch or a company with
which it operates a joint venture is responsible for the payment of
bribes
- any company which issues its securities in the US e.g. a UK
company which is listed on the New York Stock Exchange
- UK companies with US subsidiaries may also be affected.
The penalties for a violation of the FCPA can be
grave both for the company, which may be fined, and the officers
and employees of the company, who may be personally fined or
imprisoned. There may also be tax implications for the US parent
company and the possibility of competitors suing for civil damages
and treble damages under RICO (the Racketeer Influenced and Corrupt
Organisations Act).
Practical steps to protect against
liability
Particularly at risk are companies who use local
agents in countries where bribery is commonplace. Companies should
consider taking the following steps:
(I) Obtain undertakings from agents:
(II) consult local lawyers to ensure that none of
the arrangements with the agent (whether subject to English law and
jurisdiction or otherwise) is illegal under local law.
(III) before employing an agent, particularly a
local agent abroad, undertake background checks against him, for
example, a NEXIS search and any local searches which might be
available.
(IV) once the arrangements are in place, continue
to monitor the position and carry out random checks of the
agent’s paperwork.
(V) be suspicious of unusual payment requests, for
example, for payments in cash or through foreign bank accounts not
in the name of the agent
(VI) review news stories in the agent’s
location in order to pick up on any allegations of bribery or
corruption in the region.
(VII) where hiring of agents is a regular part of
the company’s business, adopt standard procedures covering
the above steps. Keep records of all checks for future
reference.
(VIII) if gifts or hospitality are offered to a
customer, ensure that these are of such a nature that no suggestion
of an ulterior motive may be raised and they are of the type which
may be reciprocated by the customer. If in doubt, ensure that the
gift is disclosed to and authorised by the customer’s
management.
Conclusion
The OECD Convention entered into in December 1997
called for a toughening of the laws against bribery including
stricter accounting and auditing requirements to prevent and
monitor bribery, suspension from competition for public procurement
contracts companies who have been found guilty of bribery,
extradition of individuals found guilty of bribery, and the
non-deductibility of bribes for tax purposes (Australia, Austria,
Belgium, France, Germany, Ireland, Luxembourg, The Netherlands, New
Zealand, Portugal and Switzerland all allowed some form of
deductibility for tax purposes prior to the signature of the OECD
treaty).
In light of the developing laws on bribery,
companies may wish to review and, where appropriate, renegotiate
the terms of their existing contracts. Companies should also
develop precedents and procedures for entering into new contracts
and for monitoring their performance.