FINANCIAL INSTITUTIONS ENERGY INFRASTRUCTURE AND COMMODITIES TRANSPORT TECHNOLOGY

Shipping and Corrupt PracticesIntertanko PresentationShipping and Corrupt PracticesIntertanko Presentation

Philip RochePartner

Emma HumphriesAssociate

14 June 2011

Philip RochePartner

Emma HumphriesAssociate

14 June 2011

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UK Bribery Act 2010

• Introduction - the UK Bribery Act? • Why is shipping considered a risk?• Key features of the Act• Facilitation payments• Complying with the Act and Adequate Procedures• Compliance – what do you need to do?

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Bribery Act

Why is it important to you:

1. Jurisdiction – companies doing business or part of their business in the UK

2. Counterparts

3. General International Change in approach

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General Change in Approach

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OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions

15 February 1999.

The 34 OECD member countries and four non-member countries - Argentina, Brazil, Bulgaria, and South Africa -

have adopted this Convention

The Convention permits countries to move in a co-ordinated manner to adopt national legislation making it a crime to bribe foreign public officials. It provides a broad definition of bribery, requiring countries to impose dissuasive sanctions and committing them to providing mutual legal assistance.

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2009 Recommendation for Further Combating Bribery of Foreign Public Officials in International Business

• Adopt best practices for making companies liable for foreign bribery so that they cannot avoid detection, investigation and prosecution for such bribery by using agents and intermediaries, including foreign subsidiaries, to bribe for them;

• Periodically review policies and approach on small facilitation payments. These are legal in some countries if the payment is made to a government employee to speed up an administrative process;

• Improve cooperation between countries for the sharing of information

• Provide effective channels for public officials to report suspected foreign bribery and for protecting whistleblowers from retaliation; and

• Working with the private sector to adopt more stringent internal controls, ethics and compliance programmes and measures to prevent and detect bribery.

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Typical Bribery in the News

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Corruption in Shipping

• May 2010 City of London Corporation Survey on avoiding corruption risks in the City

• Identified the maritime and shipping industry as one of the most ‘high risk’ industries likely to be affected by the Act

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Key Features of the UK Bribery Act

• The new UK Bribery Act comes into force in July 2011

• Guidance – SFO 2009 paper “Approach of the Serious Fraud Office to

dealing with overseas corruption”– MOJ Guidance on “Adequate Procedures”– MOJ circular on Bribery Act– Joint Legal Guidance for Prosecutors

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Key Features of the UK Bribery Act

Two major categories of risk:

• Actual corrupt practices– Bribery– Address Commissions– Brokerage commissions

• Facilitation payments– Day to day “oiling the wheels”

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Key Features of the UK Bribery Act

• The general bribery offences

• someone offers, promises or gives another, or

• requests, agrees to receive or accepts

• a financial or other advantage

• in connection with a person performing a function improperly

– Improper performance is the breach of an expectation that the function will be performed in good faith, impartially or as a result of a position of trust.

– No corrupt intent required.

– The offences extend to “private bribery”11

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Key Features of the UK Bribery Act

Bribing a Foreign Public Official (FPO)

• someone pays or offers an advantage to a FPO• with the intention of influencing the FPO• in order to retain or obtain a business advantage• when such payment / advantage is not permitted or

required by written law

Note: No need for improper performance of function

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Key Features of the UK Bribery Act

• Facilitation Payments

• Not permitted (contrary to FCPA exception)

• Written law is relevant, not local custom

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Key Features of the UK Bribery Act

• Failure of commercial organisations to prevent bribery• Corporate entity commits an offence if it, or anyone

associated with it, bribes another person in order to retain or obtain a business advantage.

• Outward bribery only• Associated person is widely defined: includes anyone

who performs services for or on behalf of the company• This could be employees, agents, brokers, subsidiaries,

JV entities, JV partners• Strict liability offence. Only defence is that the company

has adequate procedures in place to prevent bribery

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Key Features of the UK Bribery Act

Strict liability of the Company for acts of bribery done by associated persons

• New offence of ‘failing to prevent bribery’

• Liability without fault

• Only defence – “adequate procedures”

• Fines – Aon - £5.5m

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Key Features of the UK Bribery Act

• Extra-Territoriality– General and FPO bribery offences: if any part of the

offence is committed in the UK or if committed overseas by a person with a close connection to the UK

– Corporate bribery offence: it is irrelevant where the acts/omissions which form part of the offence take place.

– Applies globally to companies who carry on any part of their business in the UK

– UK management companies– UK chartering brokers/insurance offices– Companies with UK agents/distributors?

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Facilitation Payments

Counterparts• oil majors• banks• purchasers of businesses• commodity traders• energy companies

– BG Clause

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Counterpart Risk and Expectation

Many major global corporates will set the UK Act as the “gold standard” for anti-corruption requirements of counterparts

An example from a shipping contract;

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Energy Major Contract for Services

• Contractor represents, warrants and covenants that it and its Representatives have not Offered and will not Offer with respect to any Matters any Advantage to any Public Official which would violate Applicable Corruption Law.

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Energy Major Contract for Services (2)

• Contractor represents, warrants and covenants that it and its Representatives have not Offered and will not Offer with respect to any Matters any Advantage to any Public Official which would violate Applicable Corruption Law.

• “Advantage” means any financial or other advantage, payment, gift, promise or transfer of anything of value.

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Energy Major Contract for Services (3)• Contractor represents, warrants and covenants that it and its

Representatives have not Offered and will not Offer with respect to any Matters any Advantage to any Public Official which would violate Applicable Corruption Law.

• “Advantage” means any financial or other advantage, payment, gift, promise or transfer of anything of value.

• Applicable Corruption Law" means all of the laws, rules, regulations and other legally binding measures relating to bribery, corruption, money laundering, fraud or similar activities:

- of [relevant country of operation];

- of the country of incorporation of Contractor and Contractor's ultimate parent company and of the principal place of business of such ultimate parent company;

together with the provisions of the United Kingdom Bribery Act 2010 and the United States Foreign Corrupt Practices Act of 1977….

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Facilitation payments

• Oiling the wheels

– Customs officials– Port State Control– Stevedores– Port/Canal Authorities

• Hospitality•Firm view of SFO that these are an “advantage”

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How to ensure compliance

• Only defence is to show that “Adequate procedures” have been implemented

• Local consultants/agents should not be engaged without thorough due diligence

• Beware of standard business practices which are affected by the Act i.e. client hospitality, facilitation payments, allowing agents to arrange business

• ‘Tone from the top’ – adopt a zero tolerance culture

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How to ensure compliance - continued

• Risk assessment – regular and thorough

• Policies and procedures must be clear and practical

• Effective implementation across the business

• Monitor and review compliance

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Goals of Risk AssessmentRisk Assessment (Per MOJ Guidance)

“The commercial organisation [must] regularly and comprehensively [assess] the nature and extent of the risks relating to bribery to which it is exposed”

– A tailored approach– Focus on:

• Internal risk • Country risk• Partnership risk

– Ongoing responsibility 25

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Goals of Risk Assessment

Identify ongoing risk

Assess identified risk – severity and likelihood

Pragmatic and cost effective approach

Risk Mitigation – a risk assessment should inform (1) the development, implementation and maintenance of effective anti-bribery policies and procedures (2) remedial steps.

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Key Features of the UK Bribery ActAdequate Procedures: “Six principles”

Six Principles

1. Risk Assessment

2. Top Level Commitm-ent

3. Due Diligence

4. Clear Policies & Procedures

5. Effective Implementati-on

6. Monitoring and Review

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Anti-Bribery Policy

Statement – zero tolerance approach

Head of Compliance

Scope of Policy

Reporting – whistleblowing

Training

Monitor and Review

FINANCIAL INSTITUTIONS ENERGY INFRASTRUCTURE AND COMMODITIES TRANSPORT TECHNOLOGY