beyondbrics

Corruption at the very top of Arab governments is helping fuel the revolt sweeping the Middle East, toppling regimes in Tunisia and Egypt, and now threatening Libya and even the monarchy in Bahrain.

But bribery is also about to become a risk, especially for British business, both individuals and companies.

Delayed guidance on the UK Bribery Act 2010 is expected to be published in the coming months and will be followed three months later by the implementation of this extra-territorial legislation, which can impose fines and recover assets from UK-linked companies involved in bribing officials and executives anywhere.

Business people have for years grappled with the US Foreign Corrupt Practices Act (FCPA), which applies to companies in the US and many linked to it. The UK act has similar strictures against payments to influence foreign officials, directly or via third-parties.

But this legislation goes further, criminalising bribes in the private sector, whereas the US act is reserved to bribes paid to public officials.

The UK act also extends the legislation to cover more common, minor corruption: so-called “facilitation” or “grease” payments made to help the installation of a telephone line or speed up the clearance of goods through customs.

Businesses in the Middle East with a link to the UK will have to devise strategies to cope with the tough legislation.

The combination of light touch regulation, especially in some of the tax-free zones that allow foreign ownership of companies, as well as poor compliance on money laundering, makes the country ripe for private sector corruption.

Bankers are already concerned about the legal risk they face when working on mega-deals, especially in Abu Dhabi, where commission payments to seemingly unrelated parties are increasingly common.

Transparency International places several regional countries low down its corruption perception index. Yemen and Iraq trail in at 146th and 175th, respectively.

The United Arab Emirates, a regional business hub, has a relatively high ranking, but observers  warn that this could be misleading.

“The index only covers public sector corruption and is not reliable for the level of corruption in the UAE,” says Stuart Paterson, a Dubai-based partner with Herbert Smith, a law firm.

The breadth of the act is already prompting complaints from British business abroad, concerned that the strictures will give undue advantage to competitors with no links to the UK, who are not covered by the legislation.

“Some say this is the UK government gone mad. At a time when UK business needs to be more competitive, it is – under pressure from the OECD – facing legislation more aggressive than the FCPA,” says Mark Beer, chairman of the British Business Group in Dubai. “Legislation needs to be there, of course, but as we already know the FCPA works, why add another layer.”

Lawyers predict that the UK authorities will pursue a high-profile case in the early years of the act as a warning to business people that some existing business practices need to be reviewed.

As well as imprisonment of up to ten years unlimited fines, the government will be able to freeze profits deemed to flow as a result of corrupt practices. “This is potentially business-breaking,” says Paterson at Herbert Smith.

Business is still waiting the publication of guidance surrounding the act.

Corporate hospitality is one contentious area. “Lavish” hospitality is regarded as an offence under the act, but reasonable expenses are allowed.

The main defence for companies operating in emerging markets will be the extent to which the company has built a culture against corruption. This will require risk-based procedures, training and updating of corporate rules to take into account developments in the business.

“Most corporate governance procedures will cover the act, though it may require some tightening,” says Stephen Millington of corporate investigators Kroll.