Inviting business partners to see the best athletes in action may be risky, explains Jonathan Armstrong, a London partner at international law firm Duane Morris. He recently attended the Prague Regional Meeting, which was co-organized by the Czech Bar Association and the International Section of New York State Bar Association and in which Kocián Šolc Balaštík also participated.
KŠB: The UK Bribery Act has been in force for about 10 months now. What is your first impression of its impact?
Jonathan Armstrong: I think it has changed the way in which UK businesses operate. Even though the only prosecution we have had so far was of a court official (
Munir Patel sentenced for 6 years for taking bribes last year), I think people have changed their mindset in how they behave.
Firstly, foreign businesses doing business in the UK have changed their attitude and they are worried in some respects about how to comply in the UK. The second area where we have seen a lot of activity is in facilitation payments (
payments made to officials for “speeding up” something they have to do anyway). And the third area, where there has been a lot of activity, is corporate hospitality (
entertaining guests at corporate events). And there are two reasons for that. Firstly, it has been permitted within reason under the FCPA (
Foreign Corrupt Practices Act – American anticorruption legislation). And secondly, it´s the Olympics in London this year and obviously lot of foreign businesses are entertaining people in London. That puts them within the scope of the Act. And an Olympics ticket costs a lot of money. By the time you have flown somebody in and given them 3 days in a hotel, you are probably in the region of GBP 5000 or
USD 7000, something like that. And the difficulty with any hospitality is that whether it´s reasonable or not will be judged by prosecutors and also by people sitting on a jury. And if you have an average UK citizen and say to him “We took this guy to Olympics to watch Usain Bolt and it cost us
USD 7500.”, nobody on a jury is going to say „That´s not a bribe.“.
KŠB: Is there any solution for large corporations that want to bring their business partners to see the Olympics?
Jonathan Armstrong: You´ve got to do a risk analysis. Equally I know some businesses that are saying „We will not be doing anything in the UK at all“. And some of them are saying they will not be doing anything for 6 months or even for 12 months because they don´t want to be the first prosecution. In 6 months’ time or 12 months’ time they will see whether anybody is being prosecuted and they will look again at their procedures.
KŠB: So basically they´re waiting for someone that will...
Jonathan Armstrong: …that will get prosecuted first, yes. From my point of view, businesses can do a risk analysis and it will end up with „Who´s going to come?“, „How much money I´m going to spend on them?“, „What level of employee are they?“ and „Is there any ongoing contract bid or renewal with the company?“. The difficulty is we don´t know that, for example, GBP 50 is allowed, GBP 100 is allowed or GBP 200 is allowed. We know the minister who brought in the legislation said „reasonable“ hospitality should be allowed. And he thought Wimbledon or Formula 1 motor racing were OK. But he isn´t the prosecutor. He´s not allowed to interfere with prosecution. The decision is for the independent prosecutor.
KŠB: Many large corporations that need to comply with the Bribery Act are listed on the London stock market. What impact might the Bribery Act have on investors?
Jonathan Armstrong: That´s a very good question, very political in the UK. The old Labour government was clear that if you were listed in the UK, you have to play by UK rules. One of the ministers in the new coalition government that came in said he didn´t think that was the case. When he announced the coming into force of the new Act Kenneth Clarke, the Justice Minister said “mere listing on the (
1068 GBp, -0,37%) or just the fact of having a UK incorporated subsidiary would not necessarily mean the Act applies.” I know from speaking privately to some of the prosecutors that they don´t agree with that at all. They say that if you´re listed here, you sell shares here, you are in the UK for the purposes of the legislation, even though there´s no specific mention of listing itself in the Act. But basically it will be hard for the businesses not to be under the Act because it will have a UK entity which will put it under the Act or it will be doing business in the UK which will put it under the Act. Obviously the selling of shares is likely to be doing business in the UK. Or they will have a British national involved in the business, if only to manage the listing in the UK. So probably mere listing doesn´t get you under the Act but there´s usually nothing like a “mere listing”. To be fair to Ken Clarke he also said that his comments were not meant to be “a carve-out” and that decisions like this would ultimately have to be left to the courts. I think that is correct though obviously it does not bring the certainty that many businesses want.
KŠB: Could they be punished even if the bribery took place elsewhere than in the UK.
Jonathan Armstrong: I think so. And obviously that´s relevant because some of the natural resources, mining companies, for example, who are in more difficult places in the world in terms of bribery are listed in London. But extraterritorial reach isn´t new in terms of bribery legislation. Obviously the FCPA going back to 1977 has only ever prosecuted bribery that didn´t take place in the US. That´s what the Act is called – Foreign Corrupt Practices Act. It´s not for domestic corrupt practices.
KŠB: Why is that?
Jonathan Armstrong: It was a political thing from what I understand. There is other legislation in the US that deals with domestic corruption. And equally I think a lot of prosecutions that we see under the old UK legislation and a lot of the investigations under the new legislation will again concern foreign territories. There are the usual hotspots. Iraq, for example, features a lot. Why? Because it is in some respects US or UK government money that is going into these contracts. And as well as prosecuting bribery, governments want value for money. They don´t want their money being paid in bribes. So that´s why we see countries like Iraq or Afghanistan featured quite heavily when there are military- or infrastructure-related contracts. They will be particularly under the microscope. I know, for example, that UK authorities are interested in Afghan projects.
KŠB: The Bribery Act has almost universal jurisdiction. Is that right?
Jonathan Armstrong: It is. And I think we definitely see that the US for the past 4, 5 or 6 years has taken on the role of being the world’s policeman, if you like, in terms of bribery. Their extraterritorial reach has been immense. So, if you were to look at the US and the UK activity together, then maybe that has reached into 40 different countries over the last 2 years alone. I think the UK has for various political reasons been ashamed that it hasn´t played its part. So we were determined we would work alongside the US to do that. And also Canada is answering the call as well and Sweden also is altering its rules. So there will be a league of countries that will try to improve the situation. And they also co-operate much more closely than they used to before.
KŠB: The whole situation is slightly similar to the fight against tax havens which is also currently underway. Tax havens used to be very sheltered but it started to change some time ago.
Jonathan Armstrong: There´s probably an even closer connection. Part of those prosecutions are easier because banking secrecy is disappearing. Take the Jeffrey Tesler case for instance
(lawyer with UK and Israeli nationality sentenced last year for his role in a Nigerian bribery scandal). The allegation against this particular guy was that he was using Swiss and Luxembourg banking secrecy to move money around. As bank secrecy gets undermined and tax havens get undermined then people have to do business more in the open. And they are easier to find. So you´re right. It´s almost the same fight. But when they combine both of the fights together it´s a much more powerful approach.
KŠB: With British businesses having to comply with such strict laws, they might find themselves in a worse position when competing with their foreign rivals in some part of the globe, such as Africa or Asia.
Jonathan Armstrong: I think that´s right, as I have done more international business over the years. English people are genuinely surprised that a lot of foreign people think we´re so arrogant, aloof, pompous, very moralistic. We are always surprised when foreign people say that to us. And I think /
the new law/ will definitely consolidate their theory. For instance, if there are four business people going to an event in Nairobi and there are let´s say a French guy, Italian guy and a Russian guy…
KŠB: That sounds like a start of a joke.
Jonathan Armstrong: It does, yes. And it´s the English guy who refuses to go out to a club for a drink afterwards then obviously he´s probably disadvantaged and at least is seen as being aloof and arrogant and unfriendly and so on. But on a serious note: lots of the business that you pay bribes to get isn´t profitable business. Because the cost of paying everybody comes off your bottom line. For some businesses, not paying bribes can mean their turnover might be hit, but their profitability might not. Of course, there are also profitable contracts you can get through bribes. But some of these contracts are not worth having, because you are just chasing turnover not profit.
KŠB: Who in your opinion will be the first to be prosecuted under the Bribery Act?
Jonathan Armstrong: I think the first prosecution under the Bribery Act will be somebody who has completely ignored the Act. If any business looks at what they need to do, and makes an honest and diligent effort to get towards compliance, they would be in a better position than somebody who hasn´t done anything at all. In the UK we call it “Nelsonian ignorance”. It´s a saying from the 1800s. Admiral Nelson was blind in one eye and when he was given an order “Do not attack those ships!” via a signal he would put his telescope to the blind eye and say “I really do not see the signal.” So we call it Nelsonian ignorance. And any business that puts the telescope to their blind eye will be prosecuted. But a business that puts the telescope to a good eye and sees the risks and tries to avoid them will on a best case scenario not be prosecuted and on a worst case scenario will be able to negotiate with the prosecutors.
KŠB: What might be the penalty for the first prosecuted company?
Jonathan Armstrong: It will depend on whether the first prosecution is for a lesser offence or the more serious one. Obviously the prosecutors are still working through prosecutions under the old legislation. But they have clear guidance from a judge in a recent case, who says he expects the penalties to be severe, in tens or hundreds of millions of dollars. And we have seen in the Munir Patel case that jail is absolutely in the minds of the courts. So if you are a Czech businessman, for example, meeting with people in Heathrow to do business, the Act is going to hit you and jail will be a possibility unless you do business cleanly.