This article by Philip Riches & Liisa Lahti first appeared in Lloyd's List on 17 August 2011.
The Bribery Act 2010 broadens the scope of criminal offences and targets 'facilitation' payments.
The UK Bribery Act 2010 which came into force on 1 July 2011 is expected to have a significant impact on the shipping industry.
The Act creates a new set of criminal offences which are much broader in scope than those which existed under the old regime. It sets out two general offences which are, broadly, bribing another and being bribed (the â€śgeneral offencesâ€ť).
It also creates two specific offences. The first makes it an offence to bribe a public official (the â€śfacilitation offenceâ€ť). The second makes a commercial organisation liable if an associated person commits either the general offence or the facilitation offence.
An â€śassociated personâ€ť is defined broadly and can for example be an employee, an agent, a subsidiary or a joint venture partner.
The corporate offence is committed regardless of whether the underlying offence was committed within the UK or abroad as long as the commercial organisation in question is incorporated or formed under the law of any part of the UK and/or the organisation carries on at least part of its business in the UK.
It is a defence to the corporate offence for a commercial organisation to show that â€śadequate proceduresâ€ť have been put in place to prevent bribery. Therefore it is important for all commercial organisations to review their anti-bribery regimes, including anti-bribery policies, anti-bribery training and reporting procedures, to ensure that the requirements of the Act are met.
The shipping industry has been identified as a â€śhigh riskâ€ť industry, due to (among other things) its international nature, use of agents and frequent contact with government authorities.
It is therefore important for the shipping industry to ensure appropriate steps â€“ which may well be extensive â€“ are taken to ensure compliance with the Act.
A particular area of concern for the shipping industry is the impact of the Act on facilitation or â€śgreaseâ€ť payments i.e. payments made or gifts given to a public official (directly or through a third party) to secure performance of an act by them in their capacity as a public official.
Facilitation payments are not uncommon in the shipping industry - a shipâ€™s master may for example make a small â€śgiftâ€ť of money, cigarettes or alcohol in order to speed up customs clearance, facilitate entry into a lock or canal or obtain environmental clearance.
Indeed, such payments or gifts are considered customary in many parts of the world and have in the past often been condoned or accepted as part of the cost of doing business in certain jurisdictions.
However under the Act this will no longer be possible. Unlike the United States Foreign Corrupt Practice Act, the new UK regime does not create an exception for small facilitation or grease payments.
Therefore, if a payment is made in order to secure an act by a public official in his capacity as such this will, no matter how small, amount to the facilitation offence under the Act if there is an intention to retain business or an advantage in the conduct of business.
In most cases this will be the only reason why a gift or payment is made to a public official.
Such a payment may also constitute making a bribe under the general offence, provided there is an intention to induce or reward improper performance. The fact that a gift is disproportionate or extravagant may suggest that such an intention exists.
However even small payments are illegal if the relevant intention exists (and can be proven) as there is no de minimis limit to what can constitute a bribe under the Act.
Furthermore, if a facilitation offence is committed by an employee, the employer shipping organisation will have committed the corporate offence. Whether it is liable for that so will depend on whether it has any defence, in particular whether it has adequate procedures in place which are designed to prevent bribery.
The company can be guilty of the corporate offence even if it did not condone or know that the payment in question was made or the gift given.
Indeed, organisations can be liable for payments and gifts made by â€śassociated personsâ€ť other than employees over whom the company has far less control, such as subsidiaries, agents or joint venture partners.
The new Act has the potential to cause significant problems for the shipping industry. It is clearly impractical or even impossible always to refuse to make facilitation payments.
The Ministry of Justice accepts in its Guidance about the about procedures which relevant commercial organisations can put into place to prevent persons associated with them from bribing (the â€śMOJ Guidanceâ€ť) (published in March 2011), that in many places small bribes to facilitate government action are a fact of life and cannot be eradicated without a cultural shift.
Equally, however, the new Bribery Act does not make an exception for facilitation payments, the implication being that the Act is intended to be part of such a cultural shift.
The only exception envisaged by the MOJ Guidance is that in certain circumstances payments may be obtained by extortion such that a person who makes a payment under pressure may have a defence of duress (at common law).
However this will not always be the case as duress only applies where there is a risk of loss of life, limb or liberty. It will not apply just because the result of not making a payment is that a vesselâ€™s voyage will be delayed and money lost.
Therefore the vast majority of facilitation payments will be illegal under the Act. Of course whether or not particular behaviour that amounts to an offence under the Act will be prosecuted is a question for prosecutorial discretion.
As a prosecutor will only prosecute if it is in the public interest to do so it is easy to think that small facilitation payments and/or gifts amounting to a few hundred pounds or a bottle of alcohol will never be prosecuted.
However this may not necessarily the case. It is true that the fact that a particular facilitation payment is small may make it unlikely that a prosecutor would prosecute as a result of one payment or gift.
However, a significant sum may be paid in small facilitation payments over a period of time or in many different instances (for example if a shipping organisation has worldwide operations) making it more likely that a prosecutor will conclude that it is in the public interest to prosecute such payments.
Furthermore, a vesselâ€™s, fleetâ€™s or organisationâ€™s budget may set aside funds for facilitation payments.
Therefore it is important for companies within the shipping industry to consider what they need to do in order to take advantage of the Actâ€™s â€śadequate proceduresâ€ť defence.
Unfortunately the Act does not provide a clear answer to this question and the answer will hopefully become clear over time as the case law develops.
However some guidance can be gleaned from the MOJ Guidance and from the guidance issued jointly by the Director of the Serious Fraud Office and the Director of Public Prosecutions in March 2011 for prosecutors on the Bribery Act (the â€śJoint Prosecution Guidanceâ€ť).
Case Study 1 annexed to the MOJ Guidance provides some examples of steps that a company may consider in the context of combating facilitation payments.
These suggested steps include training staff about resisting demands for facilitation payments, identifying procedures which employees should follow to try and avoid making facilitation payments and even building realistic timetables into the planning of a project so that shipping, importation and delivery schedules allow, where feasible, time for resisting and testing demands for facilitation payments.
The Joint Prosecution Guidance provides a list of factors tending for and against prosecution in the context of facilitation payments. Among the factors tending in favour of prosecution is that facilitation payments are planned for or accepted as part of a standard way of conducting business.
Among the factors tending against prosecution are that (1) the company has a genuinely proactive approach involving self-reporting and remedial action and (2) that a commercial organisation has a clear and appropriate policy setting out procedures an individual should follow if facilitation payments are requested and these have been correctly followed.
It appears from the MOJ Guidance and the Joint Prosecution Guidance that facilitation payments are being taken seriously and that it will be impossible for organisations to condone or turn a blind eye to such payments.
Ideally, of course, a zero tolerance policy should be implemented. However, as this is likely to be impractical or impossible for most shipping companies, it is clear from the guidance referred to that, at the very least, companies should have a clear policy in place setting out when employees should refuse to make payments and what employees (and other associated persons) should do in order to resist payment. It may even be worth requiring facilitation payments to be reported and recorded within the organisation.
This will hopefully go a long way to showing that â€śadequate proceduresâ€ť are in place and that it is not in the public interest to punish the company in question.
However, given the lack of clear rules or guidance about facilitation payments, it will continue to be difficult for organisations to know for certain what steps they should take in order to prevent being prosecuted and fined under the Act.
Finally, it should be noted that while facilitation payments are particularly problematic to the shipping industry, the Act will also have an impact more generally on the manner in which corporations approach corporate hospitality and the types of compliance programs they have in place to combat bribery.
It is beyond the scope of this article to discuss these. Suffice to say that companies will need to ensure that they are fully informed about the implications of the new Act and that their internal policies and procedures are in line with the requirements of the Act.
Philipâ€™s practice covers a wide range of general commercial work including energy, arbitration, international trade and shipping, insurance, civil fraud and joint venture disputes. His work often focuses on jurisdiction disputes and on disputes from emerging markets, particularly Russia and China, and regularly involves applying for injunctions or other urgent relief.
Prior to being called to the Bar, Philip was based in China and Japan working in the commodities trade.
Languages: Advanced Spanish and French. Good spoken Mandarin.
Philip is recommended as a leading junior for international arbitration: general commercial and insurance and as an up and coming barrister for commercial dispute resolution in Chambers & Partners and for international arbitration and fraud: civil in the Legal 500.
â€śâ€¦Philip Riches, who is considered to be â€śan exceptionally clever and hard-working young barrister.â€ť He has worked on a number of Russia-related arbitrations and, as a speaker of Mandarin, is also attracting an increasing amount of work from China.â€ť
Philip Riches, an up-and-coming junior who has impressed with his â€śprompt and commercial advice.â€ť Richesâ€™ practice has a significant international element as witnessed by his recent appearance in a USD400 million dispute arising from a Kazakh bankâ€™s loan guarantee.
Since joining Stone Chambers as a tenant in December 2010, Liisa has worked on a broad range of commercial matters for a wide-range of clients.
Before coming to the Bar Liisa spent 2 1/2 years at Freshfields Bruckhaus Deringer. During her time at Freshfields she gained experience in the Corporate, Finance and Litigation Departments and spent time on secondment to ExxonMobil.
Her practice includes:
- Dry Shipping & Commodities
- Salvage, Collision and Admiralty
- Insurance & Reinsurance (non-marine and marine)
- Commercial Litigation
- Banking & Finance
- Professional Negligence