If you suspect a business counterparty is implicated in bribery and corruption what should you do? How do you protect your business from being tainted by the actions of your counterparty? Are your assets at risk?
One recent example is that of International Oil Company Unaoil, which is due to be investigated by the Iraqi Government after reports of bribes paid to officials in order to secure contracts. Officials acted after the SFO reportedly sent an urgent request for help to Iraqi officials. Companies that used the intermediary may now face investigations from the SFO.
We consider a case study and the issues it raises.
Scenario
X-Co, a company in the oil and gas industry, receives services from Y-Co for which X-Co pays a fee. It becomes apparent to X-Co that Y-Co may have been engaged in bribery and corruption but X-Co has no knowledge or suspicion that it relates to any of the services that it, X-Co provides.
It does, however, have concerns that the consideration that it pays which is credited to a general account of Y-Co may be used for future illicit purposes.
What should X-Co do?
The first thing to consider is whether X-Co is at risk of committing the strict liability offence at s7 of the Bribery Act 2010 (“BA10”). S7 has an extraordinarily wide scope.
The office is established if a person “associated” with X-Co bribes another person intending to obtain or retain business or an advantage in the conduct of business for X-Co.
Y-Co is very likely to be deemed an associate of X-Co. Given that X-Co suspects Y-Co of engaging in this illicit conduct it is unclear how it can be confident that the bribery does not relate to its own services.
The strict liability nature of the s7 offence means that X-Co’s lack of suspicion is irrelevant if Y-Co’s bribery and corruption was with the intent of obtaining or retaining business or an advantage in the conduct of business for X-Co.
The only protection X-Co would have is the adequate procedures defence – illustrating how important it is to get those procedures right.
The second thing to consider is whether X-Co has any exposure pursuant to the Proceeds of Crime Act 2002 (“POCA”).
There is a risk X-Co might be committing one of the primary money laundering offences which include concealing, disguising, converting, transferring or removing from the UK criminal property (s.327 POCA), being involved in an arrangement which the defendant knows or suspects facilitates the acquisition, retention, use or control of criminal property on behalf of another person (s328) or acquiring, using or having possession of criminal property (s329).
The most apt in this scenario might be the s328 offence of becoming concerned in an arrangement which X-Co knows or suspects facilitates (by whatever means) the acquisition, retention, use or control of criminal property by or on behalf of another person.
By paying over money which might be used for an illicit purpose, X-Co is involved in an arrangement which provides funds which will facilitate the acquisition of criminal property (e.g. funding bribes for the acquisition of new contracts).
X-Co should therefore consider whether it would be appropriate to make an authorised disclosure to the NCA to afford itself a defence to the money laundering offences.
There are many other circumstances in which a company may find itself unwittingly in receipt of potentially tainted funds by virtue of its relationship with counterparties, agents, JV partners and other associated entities/individuals.
It is important to have adequate procedures in place to seek to reduce the risk of any involvement in bribery offences and that these are part of a broader compliance framework which addresses the real risks of corruption and money laundering which are of increasing concern to both companies and regulators and which carry very real and significant penalties.
Written by John Whittaker, a partner at global law firm Clyde & Co, and Associate Anousheh Bromfield