In an increasingly globalised marketplace, multinational corporations continue to face legal risk arising from use of extraterritorial antibribery and corruption legislation. Following recent enforcement activity brought by the UK Serious Fraud Office for breaches of the UK Bribery Act 2010, it is pertinent to consider to what extent are Indian firms subject to the growing reach of...
In an increasingly globalised marketplace, multinational corporations continue to face legal risk arising from use of extraterritorial antibribery and corruption legislation. Following recent enforcement activity brought by the UK Serious Fraud Office for breaches of the UK Bribery Act 2010, it is pertinent to consider to what extent are Indian firms subject to the growing reach of regulatory agencies in the UK, and the steps that Indian corporates can take to mitigate against this risk
India's rapid economic growth has seen, in recent years, Indian companies take their place among the world's largest multinationals. Like their counterparts headquartered in the west, and the world's other fast-developing economies, Indian companies are now doing business across a wide range of jurisdictions; each presenting, alongside opportunities for growth, their own particular legal risks, including bribery and corruption risks.
For some time, western multi-national corporations have been compelled to respond to the challenges of international bribery and corruption investigations. Regulators have used extra-territorial legislation to sanction firms for acts of bribery and corruption committed by those companies wherever in the world they occur. Corporates have faced substantial fines, and executives prison sentences. As Indian firms continue to expand their operations across the world, should they now be more mindful of this risk? This article explores whether the UK Bribery Act 2010 presents new legal challenges for Indian firms operating in a globalised economy.
Extraterritorial Anti-Corruption Legislation
The US has led the field in relation to international bribery and corruption enforcement. Both the US Department of Justice and Securities and Exchange Commission have both employed the 'long arm' jurisdiction of the US Foreign Corrupt Practices Act to impose criminal and civil penalties on a long list of foreign entities found to have engaged in bribery and corruption beyond US borders. The DOJ and SEC's bullish approach to enforcement has seen massive fines meted out to corporates, on the basis of alleged bribery and corruption in foreign jurisdictions, even where those companies had only the most limited nexus with the US.
Whilst UK legislation criminalising bribery and corruption dates back to at least 1906, it was the passing of the UK Bribery Act (UKBA) in 2010 that heralded a new dawn in UK bribery and corruption enforcement. With the passing of UKBA, the UK agency charged with investigating bribery and corruption, the Serious Fraud Office (SFO) was equipped with a set of powerful new weapons with which to combat alleged bribery and corruption both within the UK, and, critically, around the world.
The UK Bribery Act 2010
The UKBA criminalises the giving of bribes, the receipt of bribes, and the corruption of public officials, by both individuals and corporate entities. Those found guilty of these 'primary offences' face serious penalties, including unlimited fines, and, for individuals, up to 10 years' imprisonment. Both individual and corporate defendants convicted of offences under the UKBA may also find themselves the subject of 'draconian' confiscation proceedings, depriving the defendant of the benefit of his offending – including the value of any improperly secured contract. Corporates convicted of bribery and corruption offences may also find themselves debarred from lucrative public procurement contracts.
The UKBA primary offences are given broad extra-territorial effect. They operate to make bribery and corruption a crime which can be prosecuted before the UK courts, wherever in the world it takes place, so long as the defendant is a UK national or individual ordinarily resident in the UK, or a UK company,
The Section 7 Corporate Offence
The most novel feature of the UKBA is the offence created by section 7. This offence, which can only be committed by a corporate entity, was designed to avoid the restrictive 'directing mind' theory of corporate criminal liability that has made the kind of corporate prosecutions that are commonplace in the US relatively (albeit not completely) unheard of in the UK. Section 7 provides that a company will commit a criminal offence if a person associated with that company – perhaps a company employee, a subsidiary, or a consultant or other agent acting on the company's behalf – pays a bribe to secure the company some advantage in business.
Critically, a company will only have a defence to the section 7 offence where it can show that it had adequate procedures in place to prevent bribery and corruption. In other words, robust systems and controls designed to identify and, where possible, mitigate bribery and corruption risk.
Again, the section 7 offence has broad extraterritorial application. It creates liability for the acts, or rather omissions, of foreign companies, even in jurisdictions other than the UK, so long as the company carries on some part of their business in the UK. The expression 'part of a business' is not defined in the UKBA, and whilst guidance published by the UK authorities suggest that a company which is simply listed on a UK stock exchange will not, without more, be caught, the provision has never been tested. The territorial reach of the Act's offences is far reaching.
Recent SFO Enforcement Action
Until 2015, it was wondered whether the SFO was ready and willing to take enforcement action against corporates suspected of bribery and corruption in overseas jurisdictions. That question has now been answered.
November 2015 saw the approval of the UK's first Deferred Prosecution Agreement ("DPA") between the SFO and ICBC Standard Bank Plc (Standard Bank). To avoid being prosecuted for the section 7 offence, Standard Bank had self-reported to the SFO, having identified concerns arising from an associated company's conduct in relation to the banking division's work in Tanzania in 2012-13. Standard Bank was ordered to pay a fine of $25.2m.
Shortly after, in February 2016, Sweet Group PLC was sentenced at Southwark Crown Court, having pleaded guilty to the section 7 offence following an SFO investigation into allegations that a subsidiary had engaged in bribery to secure a contract to construct a hotel in the UAE. The organisation was fined £2.25m.
Do Indian Companies Have Cause For Concern?
The extraterritorial reach of the UKBA is, prima facie, very wide, and key concepts – such as what it means to carry on a business in the UK – have yet to be subject to any proper analysis by the UK courts. At the same time, the SFO is likely to feel emboldened by its recent successes. Given that so many Indian firms do business in the UK, and in jurisdictions presenting high bribery and corruption risk, what, then, should Indian firms do to mitigate against this risk?
The most important step is to put in place robust systems and controls so that, should the worst happen, the firm will be able to rely on the section 7 offence's adequate procedures defence. The UK Ministry of Justice has published guidance listing six key principles for organisations to take into account when formulating and assessing their systems and controls, which are:
- Proportionality;
- Top Level Commitment;
- Risk Assessment Procedures;
- Due Diligence Procedures;
- Communication and Training; and,
- Monitoring and Review.
Indian firms would be well advised to conduct a thorough, holistic audit of their anti-bribery systems and controls, not only to meet the growing expectations of Indian law enforcement agencies, but of their counterparts around the world. To be best placed to respond to an SFO investigation, firms should have a comprehensive bribery and corruption policy in place, whereby possible bribery and corruption red flags – specific to the relevant jurisdiction, business area, or third party relationship – are identified, thorough due diligence is carried out at every stage of a given business relationship, and the company's board and its employees are empowered to focus on anti-bribery and corruption as a central aspect of the firm's culture.
Disclaimer - The views expressed in this article are the personal views of the author and are purely informative in nature.