Long arm jurisdiction - are you subject to the law? - Written by Barry & Richard on Friday, March 4, 2011 16:12 - 0 Comments
Richard Alderman comes out of the box: Overseas corporates and risks under the Bribery Act
While some commentators have speculated that the UK SFO will limit itself to cases of domestic bribery and/or cases of bribery involving UK corporates we have long (and publicly) disagreed.
Overseas corporates proceed with caution
We have always been of the view that prosecution of overseas corporates would be a priority for the SFO and concerned that overseas corporates should not be lulled into a false sense of security. There are many reasons for this including the huge political pressure which the UK government faced from those lobbying against the new law claiming that it would be uncompetitive for UK business.
We asked Richard Alderman, Director of the SFO, this week his view and published his answer here. In a nutshell Mr. Alderman confirmed to us that investigating and prosecuting overseas corporates was a “top priority” for the SFO.
However, to reinforce this and to put it all beyond any doubt Richard Alderman spoke extensively on the subject to a Belgian audience this week:
“You might think that you are based here in Belgium, that you find an instance of bribery in another continent and that all of this has got nothing to do with the SFO. You would be wrong. It has come as a considerable surprise to foreign corporations to discover that there is an extended jurisdictional reach under the Bribery Act which will bring foreign corporations in certain circumstances within the jurisdiction of the Serious Fraud Office”
Carrying on business in the UK
“What then is needed to trigger this extended jurisdiction? The answer to this is that you need to be carrying on business or part of your business in the UK. This test is described in very simple terms. I repeat – are you carrying on business or part of your business in the UK? That is all it takes.”
We have written about what constitutes carrying on business in the UK very recently – here. It is a low threshold (though we do think that there are arguments which could limit it) The SFO accept that this phrase will be subject to judicial interpretation. As Chris Walker, Head of Policy at the SFO has said:
“Questions have been raised about whether a quotation on the London Stock Exchange is sufficient, whether subsidiaries in the UK are sufficient, whether the raising of loan finance is sufficient and whether supplying services over the internet is sufficient. We intend to adopt an aggressive interpretation of the Act’s jurisdictional reach, but are aware that we will need to persuade a judge and jury that a company is carrying on business in the UK when deciding whether to assert jurisdiction over a particular business.”
Given the aggressive approach the SFO intends to take overseas corporates need to proceed with extreme caution.
Continuing his theme, in Belgium, Mr. Alderman said:
“Please note that this does not mean that the company responsible within your structure for the bribery in another continent has to be a company based in the UK. Indeed, the business presence that you have in the UK may be totally unaware of the bribery that takes place. All that is needed is that we look at your business set up and we look at the way you conduct your business and we ask ourselves in the SFO does this Belgian commercial organisation carry on business or part of its business in the UK. If so bribery committed by your organisation anywhere else in the world comes within the SFO’s jurisdiction.
What this means is that we may need to look at your organisation and the way you do business. Ultimately, the Courts will decide on the relevant approach and on the tests to be applied. You need, however, to work on the basis that the UK will adopt a wide interpretation of this legislation in order to maximise its impact.”
We have been advising the same. Answering another question we have been asked Mr. Alderman continued:
What has any of this got to do with the UK?
“You may again start to wonder what this has got to do with the SFO when the bribery takes place in another continent. You may be thinking that this is a matter solely between you and the Belgian authorities and also with the authorities in the country where the bribery takes place. Again, if you think that you have been misinformed.
I look at the Bribery Act as being a way of supporting ethical UK businesses and helping to ensure that there is an ethical competitive environment. The sorts of case that interest me are those where an ethical UK company loses out because of a bribe paid by a foreign company to secure a contract that would otherwise have gone to that ethical UK company. In such a circumstance there are victims potentially. These victims will be the citizens (and usually the poorest citizens) of the country in which the bribe has been paid. Those citizens are likely to suffer from very poor quality (and sometimes life threatening) goods and products. There are many stories of this and Transparency International has been very effective in explaining the damage that is done to societies when bribes take place.
There are also victims within the UK. The ethical UK company may have to close down an operating subsidiary in the UK and make many employees redundant. This will have an impact on the wider community as well including the families of the redundant employees. They are victims too.
What I want to see is UK companies competing on level terms and on an ethical basis with companies based in other jurisdictions. In using my resource in order to tackle corruption, I shall be looking for cases where the UK’s ethical companies have lost out. My view is that there is a very strong UK nexus in those circumstances and that it is very much in the UK’s public interest that vigorous enforcement action is taken by the Serious Fraud Office.”
The comments echo those made by Chris Walker, Head of Policy at the SFO earlier in February who gave this example:
“…if there are two companies, one UK based and one from the United States which build factories in a remote town in a developing country, a local official tells both companies that it will take four months to activate their telephone service, but for some pocket money, they can do it the next day. Taking advantage of the FCPAs facilitating payments section, the US company pays the man and gets the phone service. The UK company’s policy prohibits facilitating payments, in accordance with the Bribery Act, and so the factory will remain shut for four months. If the US company conducts any business in the United Kingdom (thereby creating jurisdiction), the SFO will carefully consider whether to prosecute that company for having made the facilitating payment, because otherwise, the UK company is at a competitive disadvantage for its higher anti-corruption standards.”
Is it clear now?