Beware the brown envelope as UK's Bribery Act looms
What's the difference between 'entertainment' or 'donations' and bribery? Irish companies doing business abroad will have to make sure that they know the letter of the law, writes Roisin Burke
Published 24/10/2010 | 05:00
Back in the Nineties it was legal for German multinationals to give backhanders to foreign officials in order to grease the wheels of business. It was even tax deductible and was easily reasoned away at board meetings. After all, they would say, one man's bribe is another man's fee or gift. .
When that changed, Germany's big international engineering firm Siemens simply took the whole practice of dodgy pay-offs underground. It had dedicated cash desks where employees could fill suitcases with banknotes used to buy contracts, the US justice department found, spending possibly more than $800m (€573m) between 2001 and 2007.
Siemens ended up paying out $1.6bn in fines in the US for bribing officials and politicians around the world. The chairman and CEO resigned, and the company stock lost billions in value. A management team purge and overhaul of the business followed.
Oil giant Shell is facing some $30m in penalties following a US investigation into illegal payments to local officials in Nigeria, Saudi Arabia, Algeria and Kazakhstan.
Now Britain is introducing its own Bribery Act, to come into force in April 2011.
Despite their unblemished anti-bribery records, the law change could have serious implications for London-listed Irish companies that operate in corruption-prone countries, because of the massive corporate compliance it demands.
The new act will catch the attention of companies like Tullow Oil, Kenmare Resources, Petroneft, Petroceltic and Petrel, and Glanbia, which has an operation in Nigeria and a base in Britain.
The law will apply to non-UK individuals and organisations that carry on "a business or part of a business in any part of the UK".
The new corporate offence of "failing to prevent bribery" in the act means a company can be found guilty even if it had no knowledge of or intention to bribe.
The company can be liable where it fails to stop a bribe by an "associated person". That could take in anyone from employees to agents, partners, intermediaries or subsidiaries.
Unlimited fines for both organisation and company directors and prison sentences of up to 10 years can apply.
Companies may even have to shut down operations while being investigated.
Even "minor" bribes, say €20 given to a border guard for "passport clearance" or "customs" costs come under the radar. So, too, do "excessive entertainment", "facilitation expenses", "hospitality payments" and expenses to get permits issued, visas, docking and unloading cargo.
The impending act is becoming a lightning-rod issue for companies, particularly those operating in parts of Africa, the Baltics or the Middle East that score low on Transparency International's (TI) Corruption Perceptions Index, which tracks the degree of "abuse of power for private gain" in countries.
Oil, gas and mining are high on the list of sectors where exposure to bribery incidences is strong, according to TI's Corruption Perceptions Index.
"Irish listed companies [operating in unstable countries] are very prone to getting squeezed," says John Teeling, a director at Petrel and African Diamonds. But he doesn't see them succumbing to that pressure.
"Though you hear about it all the time -- exploration licences being bought in exchange for pouches of diamonds and so on -- it happens more in novels than in reality."
Petrel has a rigorous anti-bribery stance, but Mr Teeling is aware of the challenges some companies come up against. "Equipment sitting at a dock for several months until money is paid, and so on. The main thing is that there just isn't the spare cash for it in a public company. If money goes where it's not accounted for, how do you account for it? You can't pull the wool over auditors' eyes if you're publicly listed and audited."
Financial director of Kenmare Resources Tony McCluskey thinks the act could present acute challenges for companies working in countries where bribery is a way of life.
"We've had a clear policy from the start of not doing it during 20 years in Mozambique. It's easy to say that's what we do, but it's true." However, he has sympathy for the challenges some businesses face.
"For companies dealing in precious metals, gold or diamonds, these are areas where every man and his dog can look for something. You're so vulnerable.
"In the Democratic Republic of Congo, with onshore oil exploration, there is so much money involved, so many vested interests -- it all becomes very difficult. It depends on the jurisdiction you're working in and what's feasible. It's going to make it difficult, with parties that firms have no control over. I think the act will have to roll back on that."
The act could lead to companies cancelling contracts with local suppliers altogether, Mr McCluskey speculates. "It would be a tragedy for developing countries where in-country suppliers and contractors you need and want to use are unable to comply with the onerousness of the law and get cut out."
"On a macro basis, one can accept the law," says John Craven of Cove Energy, a British oil and gas explorer with a Dublin office and interests in Mozambique and Tanzania. "During bidding rounds, it ensures no one does something funny. I don't see the problem with its concepts as long as there isn't an unfair competitive advantage for countries not bound by the same restrictions. The US and Canada wouldn't operate in the Sudan [because of bribery and corruption], but Chinese companies moved in and cleaned up."
A group representing FTSE 100 companies, including Tullow Oil, is currently seeking clarification from the British authorities on several aspects of the act.