The United Kingdom’s (UK) Bribery Act of 2010, which came into force in July 2011, is at the forefront of recent global changes to the legal landscape governing white collar crime. The Act has been described by Steven Powell‚ a forensics executive at South African corporate law firm Edward Nathan Sonnenbergs, as “the most dramatic change to the global corruption environment” since the United States (US) introduced the Foreign Corrupt Practices Act (FCPA) in 1977.⁽²⁾ This CAI paper explores the implications of the extraterritorial application of the UK Bribery Act and analyses how it affects business in Africa.

Background to the legislation

The UK Bribery Act was introduced so as to better address the requirements of the 1997 Anti-Bribery Convention of the Organisation for Economic Cooperation and Development (OECD) group of developed nations.⁽³⁾ The convention is among the initiatives undertaken by the OECD to counter corruption and was established to encourage OECD member states to criminalise bribery of foreign officials under their own national laws.⁽⁴⁾ The convention’s definition of bribery is limited to the act of bribing and does not extend to the receipt or soliciting of a bribe. In 1989, when an OECD ad hoc working group began country assessments, the US was the only country whose national laws criminalised the payment of bribes abroad.⁽⁵⁾ In 2001, the ad hoc working group raised issues about the inadequacy of the UK’s bribery legislation and as such could not determine that the country’s legislation complied with the convention’s provisions.⁽⁶⁾ Consequently, it identified a need for reform of the UK’s national bribery legislation. Since its inception, the convention has been adopted by 34 OECD member countries, including the UK, as well as 6 non-member countries: Argentina, Brazil, Bulgaria, Colombia, Russia and South Africa.⁽⁷⁾

In line with the objectives sought to be addressed in the convention, the UK’s Justice Ministry has postulated that, from a global perspective, bribery hampers the proper operation of markets and poses very serious threats to sustained economic progress in developing and emerging economies around the world.⁽⁸⁾ The UK’s Bribery Act is intended to respond to these threats.⁽⁹⁾ The Act replaces what are collectively known as the Prevention of Corruption Acts of 1889–1916, comprising offences under common law, the Public Bodies Corrupt Practices Act of 1889, the Prevention of Corruption Act of 1906 and the Prevention of Corruption Act of 1916.⁽¹⁰⁾ The Bribery Act empowers the Serious Fraud Office (SFO) to prosecute individuals and companies for the crime of bribery. The Act does not apply only to companies based in the UK. It is applicable if a close connection to the UK can be established, such as incorporation in the UK, regardless of where the act of bribery took place. Foreign companies and their subsidiaries are also subject to the Act if they are associated with the UK through being listed on the London Stock Exchange. As a result, African companies or companies with African based subsidiaries listed on the stock exchange fall under the jurisdiction of the UK courts in respect of the crime of bribery under the UK Bribery Act.⁽¹¹⁾ However, the Act casts its net even further: even African companies expanding into the UK may be governed by its provisions. The Act establishes jurisdiction by linking a UK company to the original transgression via that company’s foreign group entities and their individual agents, employees or officers.⁽¹²⁾ Companies found to have committed an offence are subject to fines without defined limits in value, whilst individuals found guilty are additionally liable to imprisonment of up to 10 years.⁽¹³⁾

The nature of offences

The Bribery Act establishes three main categories of offences: general bribery offences, bribery of foreign public officials, and failure of commercial organisations to prevent bribery. The first category, general bribery offences, comprises, on the one hand, giving a bribe. A person is guilty of this offence if they give or promise to give a financial or other advantage to a third party either directly or indirectly, with the intention of gaining an advantage. Such an advantage relates to 1) the improper performance of a relevant function or activity, or 2) rewarding a person for the improper performance of a function or activity. On the other hand, the category of general offences comprises receipt of a bribe. Such an offence is committed when a person requests, agrees to receive, or accepts a financial or other advantage intended to encourage the improper performance of a relevant function.

The second category of offences relates to bribery of a foreign public official, which is an offence if the intention is to influence officials in their public capacities. A foreign public official is defined as an individual who holds a legislative, administrative or judicial position of any kind in a territory outside the UK or who exercises a public function. Furthermore, there must be an intention to obtain or retain business, or an advantage in the conduct of business. In this context, a bribe occurs when a person, directly or through a third party, offers, promises or gives any financial or other advantage to a public official or to a third party at the request of a public official.

The third category of offences relates to commercial entities, which are guilty of an offence if a person associated with the entity bribes another person in order to obtain or retain business, or to obtain an advantage in the conduct of business, and the entity has failed to prevent this act. This particular offence has not been covered previously by other legislation, such as the FCPA. The risk of prosecution for this offence is high, even for companies whose executives believe they are not actively giving or receiving bribes. To be proactive in avoiding such charges, companies need to implement adequate procedures by imposing strong and effective anti-bribery policies and systems within their organisations, including subsidiaries in foreign territories. Such policies may include training and workshops for employees on corruption.

Corruption in Africa and the UK Bribery Act

The challenge of corruption is undoubtedly very marked. According to the Group of 20, a bloc of major developed and developing countries, “corruption threatens the integrity of markets, undermines fair competition, distorts resource allocation, destroys public trust and undermines the rule of law.”⁽¹⁴⁾ This is especially true in Africa, a continent notorious for its very high risk of corruption. Ernst & Young (EY), a UK-based multinational services firm, has found that the risk of corruption in Africa is aggravated by the lack of sophisticated recording and monitoring systems and environment.⁽¹⁵⁾ EY points out that experience of bribery and corruption in Africa shows that the payment of bribes on the continent comes in multiple forms, namely: informal payments arising out of significant red tape, for instance, with respect to business permits, licences and import of goods; disguised bribes made to facilitators and intermediaries for the purpose of “assisting” with negotiations; and petty corruption in respect of identification books, such as marriage certificates.⁽¹⁶⁾

Companies operating in or with subsidiaries in countries that are prone to corruption may be vulnerable to giving bribes to 1) ensure the repatriation of fees; 2) obtain licences, visas and work permits; 3) avoid penalties or enforcement actions for non-compliance with tax regulations; and 4) pay referral fees aimed at improperly securing business or an advantage in business.⁽¹⁷⁾ These areas of risk are common to a broad spectrum of industries, especially where procurement of contracts through tenders is involved. Industries which may be considered particularly valuable to bribery in Africa are the extractive and construction industries.

The elimination of corruption and bribery is not only an African challenge, but a global one that plagues both public and private sectors alike.⁽¹⁸⁾ Amid numerous international initiatives to provide legal frameworks to deal with the challenge, the most robust and effective mechanisms for discouraging corrupt business practices are national laws with extra-territorial application, such as the UK’s Bribery Act. The threat of imprisonment and large fines under the Act, as well as the controversy raised by white collar crime litigation and negative consumer perceptions caused by such litigation should be a concern for businesses that are affected by public perception and goodwill.

African countries generally rank among the lowest on Transparency International’s Corruption Perceptions Index. On the one hand, Africa is perceived to be the most corrupt continent in the world.⁽¹⁹⁾ Of the 10 most corrupt countries in the most recent Index, half are African: Angola, Burundi, Chad, Equatorial Guinea and Sudan.⁽²⁰⁾ On the other hand, due consideration should be made for the fact that the continent comprises 55 very diverse countries, which find themselves at different levels of the corruption spectrum. Corrupt business practices have the potential to interrupt investment, restrict trade, reduce economic growth, and harm the chances of success for small and micro-enterprises, particularly in developing economies.⁽²¹⁾ Transparency International has calculated that investing in a “relatively corrupt” country compared to an “uncorrupted” one may turn out to be 20% more costly for an investor.⁽²²⁾ In 2002, the African Union estimated that 25% of the gross domestic product of Africa was lost to corruption each year.⁽²³⁾

The implications of widespread corruption are broader than merely an increase in transaction costs: corruption is not only expensive, but also hinders the economic development indicators which naturally follow investment. These may include job creation and, as a result, poverty reduction. Corruption is a crime which works against development. Corruption and bribery have not been afforded adequate legal treatment in Africa due to ineffective national legislation as well as poor enforcement mechanisms. As a result, national legislations with extra-territorial application, such as the UK’s Bribery Act, have the potential to become an effective tool in combating the war against corrupt business practices on the continent.

A heavy hand: Africa punished by the long arm of British law

A key concern for UK-linked companies doing business in corruption-prone countries is the risk of prosecution under the Bribery Act. Even though the SFO prosecuted its first case only in August 2013, two years after the Act came into force, the authorities are actively investigating various individuals and commercial entities and the threat of prosecution looms. In this 2013 case, the SFO charged three directors and a financial advisor of Sustainable AgroEnergy Plc (AgroEnergy), a UK-based company and a subsidiary of Sustainable Growth Group, for fraud and for offering and accepting a financial advantage contrary to sections 1 and 2 of the UK Bribery Act, in respect of the sale of biofuel investment products to UK investors.⁽²⁴⁾ The charge concerned an alleged transaction to purchase 6,000 hectares of land in Cambodia through Cambodian senior military officials.⁽²⁵⁾ The defendants in the case were Gary West, the former director and chief commercial officer, James Whale, the former chief executive officer, Stuart Stone, an independent financial adviser associated with AgroEnergy, and Fung Fong Wong, the former financial controller of AgroEnergy. All defendants, except Whale, were charged with "making and accepting a financial advantage contrary to section 1 and 2(1) of the UK Bribery Act 2010."⁽²⁶⁾ The defendants await trial on 22 September 2014.⁽²⁷⁾

Among the bribery investigations which the SFO is conducting in Africa is a case concerning Smith & Ouzman Ltd, a printing company incorporated in the UK in 1939 which specialises in printing documents, including security documents such as ballot papers. On 6 November 2013, a preliminary hearing took place regarding a charge against two directors, an employee, and an agent of Smith & Ouzman.⁽²⁸⁾ The charge concerns payments totalling nearly £500,000 (US$ 836,000) with the alleged intention to influence the award of business contracts to the company. The payments were allegedly made between November 2006 and December 2010 in Ghana, Kenya, Mauritania and Somaliland.⁽²⁹⁾ The period of the allegedly corrupt payments was prior to the UK Bribery Act coming into force but a charge was brought for a violation of section 1 of the UK Prevention of Corruption Act of 1906, a predecessor to the UK Bribery Act. Had the defendants’ conduct occurred after 1 July 2011, they would have been charged under the current Bribery Act. The trial has been set for 10 November 2014.⁽³⁰⁾ This case sends a timely reminder of the need for UK-linked commercial entities and individuals doing business Africa to act ethically or run the risk of facing the heavy hand of the British legal system.⁽³¹⁾ This case further shows that although prosecution under the current Act has gotten off on a slow start, the SFO is actively investigating companies and individuals and should not be viewed as having bark but no bite. In the Smith & Ouzman case, the investigation and prosecution is very recent, and the timing of the offences is the only reason they fell short of the UK Bribery Act.

Concluding remarks

Corruption is a global challenge. Through initiatives by organisations such as the OECD, countries like the UK are one step closer to combating a problem which has plagued both the private and public sectors the world over. For those doing business in Africa, the era of unethical and dishonest business is being threatened, as a sufficient link with the UK has become the golden thread that connects foreign companies to the jurisdiction of the UK courts on bribery matters. The potential risk of prosecution under the UK Bribery Act should not serve as a deterrent to companies wishing to set up in Africa, but as a strong signal that business opportunities and potential of the continent should be exploited in an ethical manner and in accordance with applicable laws.⁽³²⁾

Written by Magalie Masamba ⁽¹⁾

NOTES:

(1) Magalie Masamba is a research associate with CAI. Her key areas of interest are trade and investment promotion, strategy and risk mitigation in emerging markets. Contact Magalie through Consultancy Africa Intelligence's Industry & Business unit ( industry.business@consultancyafrica.com). Edited by Nicky Berg.
(2) ‘New UK anti-bribery laws to impact SA firms’, Business Report, 23 July 2012, http://www.iol.co.za.
(3) ‘The Bribery Act’, Transparency International UK, http://www.transparency.org.uk.
(4) ‘Convention on Combating Bribery of Foreign Public Officials in International Business Transactions’, International Monetary Fund, 18 September 2001, http://www.imf.org.
(5) Ibid.
(6) Ibid.
(7) ‘Convention on Combating Bribery Of Foreign Public Officials In International Business Transactions’, OECD, http://www.oecd.org.
(8) ‘Bribery Act 2010 – Guidance’, UK Ministry of Justice, March 2011, https://www.justice.gov.uk.
(9) Ibid.
(10) ‘Bribery Act 2010: Circular 2011/05’, UK Ministry of Justice, 1 July 2011, http://www.justice.gov.uk .
(11) ‘Closed business bad for business’, Corruption Watch, 2 September 2013, http://www.corruptionwatch.org.za.
(12) Dunstan-Smith, C. and Beamish, H., ‘Impact of FCPA and UK Bribery Act on African businesses’, Bizcommunity, 20 June 2013, http://www.bizcommunity.com.
(13) ‘Differences between the UK Bribery Act and the US Foreign Corrupt Practices Act’, Norton Rose Fulbright, June 2011, http://www.nortonrosefulbright.com.
(14) ‘G20 anti-corruption action plan 2013–2014’, Group of 20 (G20), http://www.oecd.org.
(15) ‘Managing bribery and corruption risks in the construction and infrastructure industry’, Ernst & Young, 2012, http://www.ey.com.
(16) Ibid.
(17) Barrow, K. and Kendell, D., ‘The Bribery Act two years on: The effect on company value for recruiters’, Osborne Clarke, 12 November 2012, http://www.osborneclarke.com.
(18) Viljoen, T., ‘Bribery and corruption—What South African business executives need to know’, Werksmans Incorporated, 2 July 2013, http://blogs.24.com.
(19) Massarenti, J., ‘Africa: The most corrupt region in the World`, Afrionline, 27 October 2010, http://www.afronline.org.
(20) Ibid.
(21) ‘Economic impact of corruption’, Corruption Watch, http://www.corruptionwatch.org.za.
(22) Ibid.
(23) ‘The rational for fighting corruption’, OECD, http://www.oecd.org.
(24) ‘First SFO bribery prosecution: Businessmen to face court in relation to alleged £23m fraud’, New Law Journal, 20 August 2013, http://www.newlawjournal.co.uk.
(25) Matthew, P., ‘Is the Bribery Act finally beginning to pay off?’, DWF, 18 October 2013, http://www.dwf.co.uk.
(26) ‘Four charged in biofuel investigation’, Serious Fraud Office, 14 August 2013, http://www.sfo.gov.uk.
(27) ‘Sustainable Agroenergy Plc and Sustainable Wealth Investments UK Ltd’, Serious Fraud Office, 15 November 2013, http://www.sfo.gov.uk.
(28) ‘Printing company corruption charges’, Serious Fraud Office, 23 October 2013, http://www.sfo.gov.uk.
(29) Ibid.
(30) Ibid.
(31) Ibid.
(32) ‘Eversheds comment: Bribery case serves as warning for businesses to act ethically in Africa’, Eversheds UK, 24 October 2013, http://www.eversheds.com.