Long arm jurisdiction - are you subject to the law? - Written by on Monday, January 17, 2011 9:11 - 0 Comments

Complaints the Bribery Act is anti-competitive for UK PLC do not tell the whole story

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We wrote at the weekend that we do not consider that the Bribery Act will undergo any material change as a result of the well publicised government review when we looked behind the headlines to the real story.

The Bribery Act & its broad long arm jurisdiction

One of the key arguments put forward is that the new law will make UK PLC and its businesses less competitive than other countries on the world stage who, the argument goes, either have less draconian laws or do not enforce what they have.

These arguments are not new and similar arguments were raised on the introduction of the FCPA.

The SFO’s view is that the Bribery Act deals with this.

When does a business become subject to the Bribery Act?

In order to be caught by the new law all that is required is that an organization carries on business or part of a business in the UK.

Once this threshold is passed then broadly the overseas businesses worldwide activities are potentially caught by the Bribery Act.

This is important.  The SFO has set out its clear intention to use the Bribery Act to target foreign businesses who unfairly compete against UK PLC and UK business using bribery.

In other words, mindful that UK businesses could be unfairly prejudiced the SFO have gone on the record saying that they intend to use the Bribery Act (and possibly other laws) as a weapon to prosecute overseas businesses who unfairly compete against ethical UK businesses.

The threshold of carrying on business is potentially a very low one.

During our interview with the General Counsel of the SFO on Thursday 13th January we asked Mr Robinson about the SFO’s view of what carrying on business in the UK meant.

Some sobering examples

We asked Mr. Robinson what the position might be for an internet retailer with operations outside the UK but with a web presence and which ships products to the UK.

Would this equate to carrying on business in the UK under the Bribery Act?  His answer: “I think that the courts may very well construe that as carrying on business”.

Such an approach would be consistent with the way the Financial Services Authority has interpreted similar requirements.

So, potentially the Bribery Act can apply to a large number of corporates.  Many, if not most, global corporations operating in developing countries may have a presence in the UK which in the SFO’s view satisfies the criteria on some level.

Richard Alderman, Director of the SFO recently gave an example of how it would seek to punish unethical overseas businesses who unfairly compete with UK PLC using bribery:

Two companies one US and one UK based set up operations in a third country.  A local official tells both companies that it will take several months to activate their telephone service.  However, for a facilitation payment it can be organised the next day.

The US company takes advantage of the FCPA’s facilitation payments exception.  The payment is made and the telephone connected.  The ethical UK company’s does not and cannot get its business up and running for several months.  Mr. Alderman said that if the US carries on business in the UK that he would consider prosecuting it on the basis that it had undercut the UK business.

As an aside it is worth noting that compliance with the US FCPA facilitation payment exemption criteria (namely recording the payment as a bribe) will be all the evidence the SFO needs to succesfully prosecute under the Bribery Act once the threshold of carrying on business is got over.

This morning in the Daily Telegraph pointing to the SFO’s intended use of UK money laundering laws Mr. Alderman is quoted as pointing to the scope of jurisdiction of those laws in fighting corruption saying: “We can still consider money-laundering legislation if any part of the contractual sum has passed through the UK…”.

The takeaway

Overseas businesses will need to consider very carefully the application of the Bribery Act to their worldwide operations.  It is clear that the SFO intend to use the law to prosecute non UK based businesses.

Look to the US

In doing so it would be following a well trodden path.  The US has used the FCPA and its own long arm jurisdiction to prosecute many non US businesses.

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