A minefield for the shipping industry
In enacting the UK Bribery Act 2010 (“the Act”), which comes into force today, the UK Government has demonstrated a proactive stance to eradicating corrupt practices, particularly within commercial organisations.
The Act is wide-reaching and extra-territorial in effect in that it extends to (i) companies that have links to the UK, even though they may not carry on business in the UK; (ii) offences committed both within and outside the UK by those companies and; (iii) offences committed by persons “associated with” an organisation who enter into corrupt practices on their behalf. An associated person is someone who, in whatever capacity, performs services for and on behalf of the commercial entity, for example agents.
The shipping industry is regarded as being at high risk of having to deal with corruption because of its operation in high risk jurisdictions (countries with known corruption risks), its interaction with foreign public officials who may require incentives to perform what is in fact their job and its use of foreign subsidiaries to act as intermediaries.
Of particular concern to the shipping industry is the issue of facilitation payments, often known as “grease” payments made to public officials to secure or expedite performance of their duties. Whilst these were already illegal under English law prior to the Act, the extra-territorial reach of the Act makes facilitation payments a significant concern for shipping companies operating in countries where a ship’s master or agent will routinely be expected to make minor donations or gifts to port officials e.g. during customs or cargo clearance or to obtain necessary permits.
Shipowners have expressed concern that a failure to co-operate locally could have a serious impact on them: manufactured deficiencies and expensive delays caused by those expecting a “bonus” for doing their job efficiently. At a recent meeting between members of the shipping industry and UK government officials, a known “tariff” of facilitation payments in various ports around the world was quoted as evidence of the inevitability of such payments being requested.
Nonetheless, the Act makes it clear that all facilitation payments, no matter how minor, are prohibited unless such payments are permitted under the local written law. There is no de minimis exception and whilst it may be unlikely that the odd “gift” will be investigated under the Act or that it will lead to anything more than a nominal fine, the reality is that a number of small payments over a period of time by a large shipping entity could add up such that the company may be investigated by the authorities and the matter could result in prosecution.
Whilst this approach might appear to be excessive to those in the shipping industry who recognise the commercial realities of doing business in jurisdictions where facilitation payments are considered “customary”, the aim of the legislation is to reverse this mindset and introduce a zero tolerance environment. Indeed, the UK has taken a more restrictive approach to facilitation payments than has the US, whose equivalent legislation, the Foreign and Corrupt Practices Act (FCPA) makes an exception for small payments paid to officials to facilitate the processes of official actions.
In its defence, a shipowner may seek to argue that it has “adequate procedures” in place to prevent persons associated with it from making bribes. However, the Act does not define what constitute adequate procedures and whether the procedures put in place are adequate may ultimately prove to be case-specific. Whilst smaller shipping companies might not be expected to meet the same standards as major international shipping lines with greater resources at their disposal, larger companies are potentially more exposed because of the number of persons that may be deemed to be associated with them under the Act.
It has been reported that some shipping companies are keeping a record of any gifts or small payments that their employees or agents are obliged to make in order to “get things done” locally. The idea is that if they are open about their procedures, those procedures will be deemed adequate. In truth, they run a risk that those records may well form part of the evidence against them in any subsequent investigation and prosecution. The alternative is of course to declare a company-wide zero tolerance policy but, as discussed during the meeting in London referred to above, in view of the fact that facilitation payments are expected in many places, and on a daily basis, this runs the risk of individual masters still making such payments but without reporting to their management.
The situation is made no easier by the fact that the UK’s Serious Fraud Office (the main UK authority likely to investigate and bring prosecutions) guidelines currently require prosecutors to exercise any doubt in favour of prosecution. Discussions continue with the UK government to establish whether any comfort can be provided during the “transitional period” following 1 July. Until such comfort is provided, shipowners will continue to face difficulty in deciding how best to implement the requirements of the Act.
Source: BIMCO,Kevin Cooper
