The UK Bribery Act: One Year on
– Issues for Energy Market Participants The UK Bribery Act 2010 (the “Act”), having came into force on 1 July 2011, is nearly one year old. The Act’s passage into law was heralded with a curious mix of some (domestic) pride and considerable (mainly international) anxiety, not least because of the Act’s potentially aggressive and uncharacteristically (for the UK) long arm. Below we consider some of the reasons why the energy sector is regarded as particularly susceptible to corrupt activities, and what procedures market participants should put in place to avoid breaching the Act.
By Prajakt Samant & Simone Goligorsky
THE PHYSICAL ENERGY sector has been considered by many as especially vulnerable to the UK Bribery Act, with the propensity for bribery being higher than in many other sectors. A study undertaken in 2011 by Ernst & Young concluded that oil and gas companies were most likely to be affected by the Act. This analysis was based on convictions made under the US Foreign Corrupt Practices Act (FCPA), which can be broadly described as the US equivalent of the Act. Oil and gas companies accounted for 18% of all prosecutions made under the FCPA since 1981, with the life sciences sector coming second with 13% of prosecutions. Although there was no suggestion that companies and individuals involved in the oil and gas sector were intrinsically more corrupt than those working in other sectors, the prevalent nature and location of the oil and gas business exposed those working in these markets to heightened risk for bribery.
Structure of Energy Projects Energy projects (be they exploration projects,
refining activities, the buying and selling of the refined commodity, etc.), typically involve many parties throughout the timeline of the project, often with at least one of the parties based in the country where the resource in question is located. A body corporate (which is subject to the provisions of the Act) will be liable for persons ‘associated’ with it. Such an association may arise from being a contractor, supplier, distributor or (as tends to be more common in the energy sector) a joint venture (JV) partner of a third party.
JV Risk If an employee of JV company ‘A’ bribes a third
party, with the intention of gaining an advantage for the JV project, then JV company ‘B’, may be found to be in breach of the Act (assuming, of course, that company B is subject to the provisions of the Act), as company B is ‘associated’ with JV company A. (See diagram “JV Risk”). Equally, if contractors, local counsel, suppliers, or anyone else
The UK Bribery Act 2010 – Who does it apply to & how?
The Act is four-fold in its approach to preventing bribery and corruption. There are two general offences:
• offering, promising or giving a bribe; and, • requesting, agreeing to receive, or accepting a bribe.
There are also two new offences:
• the bribery of a foreign public official with the intention of influencing them; and
• a corporate offence for failing to prevent a bribe being made on behalf of an associated person.
The Act applies to persons committing an act in the UK, and persons committing an act outside the UK where the act or omissions would have been an offence if carried out in the UK, provided the person undertaking the offence has a “close connection” with the UK. A “close connection” can include persons who are UK residents, UK body corporates, or British citizens. The corporate offence only applies to legal persons carrying on a business, or part of a business, in the UK, although the offence does not need to have occurred in the UK in order to fall foul of the Act.
providing services to the JV project, bribes a third party in order to gain advantage for the JV project, then both JV companies will be responsible for the actions of those service providers, and may be found to have breached the Act. Therefore, when entering into a JV, or any other
agreement with a third party, the underlying contractual documentation should state that all parties will comply meaningfully with the provisions of the Act, and provide that the agreement between the parties may be terminated if one of the parties undertakes an action that is not in accordance with the Act. Similarly, ‘evergreen’ contractual representations and warranties should be given by all parties to the JV that state that the parties have not, and will not, undertake any action that is contrary to the Act. Prior to entering into a contractual relationship
with any third party, all legal entities subject to the Act should undertake a thorough due diligence
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