Bribery and corruption have long pervaded the construction industry. The topic is regarded by many as synonymous with construction and engineering projects.1 However, the procurement and completion of such projects demands interaction between the participants; it involves a certain level of cooperation in order to coordinate the numerous activities which make up the construction process. The balance between activities which legally facilitate this process and those which are tainted by concepts of bribery, or corruption is not always clear.
The scale and complexity of many construction projects, together with the number of parties participating, the geographic locations where they are performed and the legal systems to which they are exposed can make them especially prone to bribery and corruption. Activities in certain cultural circles, which might be regarded as essential to getting the job done, and a lawful means of doing so, may well be seen elsewhere as dishonest, or unlawful. It is therefore important to appreciate the effect such activities may have on operations both at the source of the project and in other jurisdictions.
Globalisation has significantly affected the construction industry. The emerging markets, where many substantial construction and infrastructure projects are carried out, generally have less developed legal systems and processes for controlling bribery and corruption. In recent years, the international spotlight has focused on many of these regions, with governments of more developed economies seeking to impose controls on parties operating in these new and relatively uncharted territories. Participants should not therefore assume that the absence of local laws will shield them from sanction over bribery and corruption.
2. The Bribery Act 2010
The UK Bribery Act 2010 came into force on July 1, 2011. It provides for a number of offences including:
a) bribing, giving, promising, or offering a bribe;
b) being bribed, requesting, agreeing to receive, or accepting a bribe;
c) bribing a foreign public official;
d) failing to prevent bribery where an associated person pays a bribe to obtain, or retain a business advantage for a commercial organisation.
Importantly, the Bribery Act has broad extra-territorial effect. The basic bribery offences of bribing and receiving a bribe apply to projects performed both within and outside the United Kingdom, provided that one of the persons involved has a close connection with the United Kingdom, or part of the bribe transaction involves the United Kingdom.
The Bribery Act also imposes strict liability on organisations which fail to prevent payment of bribes in connection with their business by those persons acting for them, or on their behalf. Such “associated” persons include employees, agents, subsidiaries and even joint venture partners. The legislation in relation to this offence is particularly far reaching in that it applies not only to companies incorporated in the United Kingdom but, also, to companies incorporated elsewhere who conduct part of their business in the United Kingdom and who may commit the offence in another country. For example, a US construction company with a UK presence may be liable for the acts, or omissions of a subsidiary operating in China. This may well be the case even though the offending persons operating in China have no direct, or physical connection with the United Kingdom.
Senior officers also face personal liability under the Bribery Act for conniving in, or consenting to bribery. For instance, where the senior management of a construction company operates in regions with a track record of corruption, their failure to establish bribery prevention procedures may well constitute connivance in corruption.
Unlike certain other legislation, such as the US Foreign Corrupt Practices Act 1977 (FCPA), the Bribery Act makes facilitation payments unlawful. Small payments made to officials in an effort to expedite, or secure performance of routine government action are permitted under the FCPA.2 No such exception exists in the Bribery Act, although there is some question about the US position, especially in light of more recent cases suggesting the exception is narrowly construed. Indeed, senior management of California’s Control Components Inc. recently admitted to paying officials of state owned facilities in China, Korea, Malaysia and the UAE some US$4.9 million on approximately 26 separate occasions.3 Although expedition of certain routine governmental action is exempted from application of the FCPA, the reality is that many US organisations adopt zero tolerance policies on the basis that the exception is regarded by many as problematic.4
In any event, making facilitation payments in the United States, the United Kingdom, or elsewhere, may constitute a criminal offence under the Bribery Act, even if such payments otherwise comply with the FCPA. Guidance from the Serious Fraud Office (SFO) in the United Kingdom provides that action will most likely be taken where the facilitation payments are large and/or regular and where there is no indication that prevention measures have been put in place. Action may even be taken in relation to acts of corporate hospitality.
The Bribery Act does provide for a defence to the offence of failing to prevent a bribe where the organisation is able to show that it had adequate procedures in place to prevent bribery. The nature of such procedures is addressed later in this article.
Sanctions for failure to comply with the Bribery Act are unlimited fines for companies and up to 10 years’ imprisonment and/or unlimited fines on indictment for individuals. Company directors may also be disqualified from acting as directors for a period of up to 15 years. Certain sanctions may also follow in addition to those under the Bribery Act, such as prohibitions on entering into public contracts,5 the confiscation of assets under the Proceeds of Crime Act 2002 and, in some circumstances, the invalidation of contracts procured through bribery.
Civil rather than criminal sanctions are more likely where corruption is self-reported and where businesses cooperate with the SFO. This has indeed been the approach in certain high profile matters, such as that involving British bridge equipment manufacturer, Mabey and Johnson. In September 2009, the company pleaded guilty to charges of corruption which resulted in fines, reparations and the confiscation of contract proceeds of some £6.6 million.6
3. Proceeds of Crime Act 2002
The Proceeds of Crime Act 2002 (POCA) creates further offences in connection with bribery and corruption, by specifically targeting money laundering activities. Essentially, a person commits the offence of money laundering by:
a) concealing, disguising, converting, or transferring criminal property, or removing it from England, Wales, Scotland, or Northern Ireland;
b) entering into or becoming concerned with an arrangement which the person knows, or suspects facilitates the acquisition, retention, use, or control of criminal property by, or on behalf of another person;
c) acquiring, using, or having possession of criminal property.7
Criminal property is broadly defined and includes any benefit obtained as a result of criminal conduct. For example, payments received pursuant to a construction contract, procured through an act of bribery, will constitute criminal property.8 Criminal conduct, as defined by the POCA, may occur not only in the United Kingdom, but also in other jurisdictions. The criminal conduct in question is assessed by reference to the criminal law as it applies in the United Kingdom. This means that perfectly lawful activities in other countries may nevertheless constitute criminal conduct for the purposes of the POCA.9
Although there are defences available where, for example, the conduct is lawful in the jurisdiction of performance, duty holders will inevitably have some difficulty deciding whether particular conduct is indeed lawful in a given country. Multi-national organisations with operations in the United Kingdom arguably need to ensure that all of their activities worldwide are POCA compliant, unless they have local legal advice confirming the legality of questionable activities.
Confiscation orders may be imposed which require recipients to disgorge the proceeds of criminal property. Indeed, this was the result in Mabey and Johnson, who admitted to bribing government officials in relation to bridge building contracts in Jamaica and Ghana. The bribes included payments to Saddam Hussein’s government in breach of UN sanctions.
It is hardly surprising that the payments the subject of Mabey and Johnson constituted criminal property. However, there are other less obvious activities where the POCA may well affect construction operations. It has been suggested that the POCA could come into play where a company is prosecuted for breaches of health and safety law. For example, a contractor who is responsible for work site deaths and who has failed to allocate sufficient funding to protect workers from injury, thereby benefiting from the savings generated, is arguably the recipient of criminal property.10
Contravention of local planning requirements may also give rise to offences under the POCA. In Basso and Another v R,11 the England and Wales Court of Appeal confirmed that profits derived from an airport car-parking facility constructed without planning permission constituted criminal property. The owner in that case was the subject of a confiscation order covering revenue received from the unlawful business operation which exceeded the profits actually made from the venture.
The above examples indicate the far reaching and perhaps unanticipated impact of the POCA on construction industry participants. Operators should be aware that unlawful activities, however trifling they may appear, could well result in severe financial and reputational consequences. Indeed, on October 9, 2012, the SFO confirmed that it will prosecute under the Bribery Act in appropriate cases; however, civil confiscatory powers, such as those under the POCA, may be exercised as an alternative, or in addition to criminal proceedings.12
4. The Foreign Corrupt Practices Act
The FCPA makes it unlawful to bribe foreign government officials to obtain, or retain business. It also requires maintenance of records which accurately and fairly reflect transactions and adequate systems of internal accounting controls.13
Like the Bribery Act, the FCPA applies to unlawful activities performed anywhere in the world by US companies, or persons. The jurisdiction extends to those who are registered, or have their principal place of business in the United States, or are controlled by a US parent corporation. It also applies where foreign companies, or persons act in furtherance of corrupt payments within the United States.
Criminal and civil sanctions may be imposed for failure to comply with the FCPA. They may include fines, terms of imprisonment, being ruled ineligible to receive export licences and being suspended, or barred from participating in government contracts. Private causes of action may also be brought for punitive damages.
Defences apply where, for example, payments are made to facilitate, or expedite routine governmental action, such as obtaining permits, licences, or other official documents. However, as indicated above, this defence is construed narrowly and it is therefore difficult to apply in practice. There is also a defence available if the payment was lawful in the foreign official’s country.
Proceedings brought under the FCPA have affected a number of well-known construction companies. For example, a joint venture between KBR, Technip, Snamprogetti, and JGC Corporation paid more than USD180 million to government officials in order to secure a USD6 billion construction contract for a liquefied natural gas facility on Bonny Island in Nigeria. Marubeni Corporation was the agent through which the bribes were paid. In addition to the criminal fines and disgorgements paid by the defendants, which exceeded USD1 billion, KBR and Technip were ordered to retain independent compliance monitors, whilst the key individuals involved were sentenced to lengthy prison terms and payment of fines.14 These proceedings confirm that the US Department of Justice maintains a zero
tolerance approach to bribery and corruption in the construction industry. They also highlight the significant consequences for participants who fail to implement appropriate anti-bribery measures.
5. Vulnerability of construction industry to bribery and corruption
The construction industry, by its very nature, is exposed to bribery and corruption. Parties involved with construction and engineering projects are especially vulnerable for a number of reasons including:
(i) High risk jurisdictions
Bribery and corruption may occur anywhere in the world, however, the risk is higher in certain jurisdictions. For example, North Korea and Somalia are recognised as particularly high risk countries, whilst Denmark and Finland are acknowledged as very low risk.15 Many major construction and engineering projects are carried out in high risk jurisdictions. Indeed, growing demand for infrastructure in the emerging markets has attracted many new entrants from more established economies, including the United States and the United Kingdom.
(ii) Cultural differences
Local agents are often necessary conduits between foreign entities and the organisations they are dealing within unfamiliar jurisdictions. Such agents may have different views from those of their employers when distinguishing between conduct which is regarded as compliant and that which is tainted with bribery, or corruption. These views are often influenced by cultural differences which, in certain instances, may tolerate activities otherwise regarded as unacceptable in other jurisdictions.
(iii) Limited regulation
The regulation of construction and engineering projects is generally less rigorous in less developed countries. The temptation for parties to engage in bribery and corruption is inevitably greater where there is a perception that the risk of being detected and penalised is relatively low. Consequently, the solution increasingly being adopted by governments of more developed economies is the introduction of their own regulatory controls with extra-territorial reach.
(iv) Limited competition
The pool of parties with the capacity to carry out and complete the larger and more complicated projects is often quite limited. Over time, parties will develop relationships with key decision-makers in the procurement process. This may present a further inducement to become involved in bribery and corruption.
(v) Ease of concealment
The significant scale of many projects makes it easier to conceal bribery and corruption. Large sums of money transferring through complicated structures and supply chains can provide cover for unlawful activity. Indeed, even the dispute resolution processes used in many international construction projects, especially private processes such as arbitration, have been acknowledged as having the capacity to provide a medium for money laundering.16
6. Managing compliance
The appropriate bribery prevention procedures for any given organisation will vary greatly depending on its size, the nature of its business and the geographic locations where it operates. The core principle is that the procedures should be proportionate in each case.
UK Government guidance recognises that isolated instances of bribery will occur in even the best managed businesses. However, the onus is on the organisation itself to show that adequate procedures were in place to prevent bribery.
Key principles applicable to ensuring compliance with the Bribery Act and the FCPA are set out below.
(i) Proportionate procedures
Anti-bribery procedures should be proportionate to the bribery risk faced by the organisation and have regard to the nature, scale and complexity of the organisation’s activities. International construction companies working on large and politically sensitive infrastructure projects in Zambia arguably require more extensive anti-bribery procedures than developers carrying out house renovations in the United Kingdom. In any event, the procedures should be clear, practical, accessible and effectively implemented and enforced. They are best applied prospectively, although procedures may also allow for retrospective application to existing associated persons. Organisations should take a practical, risk-based approach in each case. This may be somewhat similar to the approach taken in relation to compliance with health and safety laws such as the Construction Regulations in the United Kingdom.17
(ii) Top-level commitment
Top-level management must be committed to preventing bribery by any person associated with the organisation. They must foster a culture within the organisation that bribery is never acceptable. This is likely to require their involvement in communicating the anti-bribery approach as well as in developing the procedures and dealing with breaches.
(iii) Risk assessment
The organisation should periodically assess the nature and extent of its exposure to potential external and internal bribery risks. This process should be informed and documented, it should involve top-level management and it should evolve with the business. Documentation of this process is crucial for any defence that adequate procedures were in place. Whilst such processes may be criticised for simply generating self-serving paper trails, as opposed to genuinely seeking to identify and deal with relevant risks, the absence of well documented assessments will invariably create difficulties in the event of an investigation.
(iv) Due diligence
Adequate due diligence procedures should be performed on those persons providing construction and design services for the organisation. The approach should be risk-based and proportionate with a view to mitigating identified bribery risks. In commenting on Mabey and Johnson, the former director of the SFO, Richard Alderman, indicated that the SFO will be far less sympathetic to those whose due diligence has been deficient.18
(v) Communication and training
The organisation should ensure that its bribery prevention policies and procedures are understood throughout the organisation from top-level management through to site labourers. Training may need to be conducted both internally and amongst external contractors and suppliers.
(vi) Monitoring and review
The organisation should monitor and review its anti-bribery procedures and improve them where necessary. This means monitoring both internally and externally. Indeed, an employer should monitor its own staff as well as the various professional team members and construction contractors appointed to carry out and complete the project. Some care should be taken to ensure that the persons appointed to monitor are not the same persons involved with the business processes and transactions.19
The organisation should regularly report on its anti-bribery measures. Recent guidance from Transparency International suggests that an organisation should publish the following information:
- details of anti-bribery and anti-corruption programs;
- details of subsidiaries, affiliates, joint ventures and related entities;
- individual financial accounts for each country of operations;
- corporate website containing at least one international language.20
The particular information required will vary according to the nature of the organization and the activities with which it is involved. For example, disclosure rules released by the US Securities and Exchange Commission in August 2012 affect those in the extractive industries who are required to file annual reports with the Commission. The primary aim of the rules is to ensure that governments are held accountable for the wealth created through extraction, processing and export of natural resources. In particular, the rules require businesses to report on payments made to foreign governments in relation to each project involving the commercial development of oil, natural gas, or minerals.21 Such reporting is required in relation to all subsidiaries of reporting companies, regardless of where their projects are located.
It has been suggested that these disclosure rules, which apply in addition to the Bribery Act and FCPA, will assist investors to better understand the risks involved in countries where governance is weak and there is relatively greater exposure to bribery and corruption.22
At the same time, the rules may well assist in revealing payments made in contravention of antibribery legislation. They are indicative of the increasing level of government intervention from developed economies, with reporting requirements being imposed wherever business is conducted.
These principles are deliberately flexible and outcome focused, allowing those involved in construction projects to tailor appropriate compliance procedures. Like the principles which apply in managing compliance with health and safety requirements, the responsibility is on the participants to develop, implement and monitor appropriate anti-bribery measures.
7. Problem areas for construction projects
There are a number of areas where bribery and corruption pose a unique threat to the construction industry. Indeed, the Anti-Corruption Code for Individuals in the Construction and Engineering Industry23 outlines no fewer than 47 scenarios where bribery, deception and fraud may occur in relation to construction projects and the disputes arising from them.
Areas of particular concern to the construction industry include those set out below.
(i) Joint venture arrangements
Larger projects are often procured pursuant to joint venture, or alliance arrangements. The difficulty with these arrangements is that one joint venture partner may have little, if any, control over the acts and omissions of the other partner. Appropriate processes and procedures may have been implemented by one partner and not the other; however, joint venture partners are effectively jointly and severally liable for all of their fellow partners.
Nevertheless, for the purposes of the Bribery Act, the existence of the joint venture alone does not automatically mean that one partner is responsible for the other partners. It must also be established that, for example, the joint venture entity was performing services for the joint venture partner and that the joint venture entity paid a bribe for the benefit of that partner. Much will depend on the degree of control which the partners have over each other through contractual and other arrangements. Indeed, where the joint venture itself is conducted through a contractual arrangement, as opposed to a separate legal entity, there is greater likelihood of one partner being held responsible for the acts, or omissions of other partners.
Professional consultants in the UK construction industry have embraced net contribution clauses as a means of avoiding joint and several liability. Such clauses seek to limit a particular consultant’s liability to that for which it is directly responsible.24 But they will not protect against a joint venture partner’s failure to prevent bribery by an associated person. Responsibility for such failures cannot be avoided by contract. In the circumstances, the best form of protection is to ensure the joint venture has adequate procedures in place to prevent bribery at the outset.
(ii) Facilitation payments
Contractors will often import materials from other jurisdictions and, in doing so, will be required to clear customs and other government imposed controls. Facilitation payments may be used as a means of obtaining approval for goods that satisfy these controls. Whilst these payments are permitted in certain jurisdictions, and indeed are expressly authorised by the FCPA, they are prohibited under the Bribery Act.25
Government approvals are typically required in relation to plans for design and construction. It seems clear enough that payments made to a government authority, with the intention of unduly influencing its decision-making process, will amount to facilitation payments. However, less obvious arrangements may also fall within the scope of this offence. For example, payments made to authorities for the purpose of obtaining specifications favouring certain proprietary materials, or equipment are likely to be illegal facilitation payments. This practice has been observed in China, where state-owned design institutes have accepted such payments in return for their endorsement of particular suppliers. In one recent example, US supplier, Watts Water, was ordered to disgorge profits made and to pay penalties in connection with facilitation payments disguised as sales commissions.26
Given the widespread practice of making facilitation payments in certain countries, such as Africa, some operators have questioned whether it is appropriate to criminalise them. Indeed, the Australia-Africa Mining Industry Group has recently suggested that anti-bribery laws in this context are counter-productive.27 They argue that many African governments are not in a position to pay officials the salaries they deserve and facilitation payments are therefore seen as a necessary supplement in such countries. But the difficulty with this is that, although such payments arguably form part of the business approach in certain countries, they are likely to contravene the FCPA and will almost certainly constitute bribes under the Bribery Act. Therefore, the best approach is to ensure that key stakeholders and, in particular, those at the coal face of operations understand that such activities are unlawful and will not be tolerated.
Those persons managing tender processes for sub-contracted work and services are exposed to potential bribes from tendering sub-contractors. Indeed, the potential for bribery exists throughout the supply chain. The acceptance of material incentives, even if they emanate from the most competitive and ultimately the chosen sub-contractor, is likely to constitute bribery.28 This can be controlled, to some extent, where employers are involved in the sub-contract selection process carried out by their contractors. Indeed, the employer may nominate, or name, particular subcontractors which provides an opportunity to better understand their business and the terms of their appointment. Other methods of protection include questionnaires and training schemes containing anti-bribery components. By carrying out at least some level of due diligence, the employer will be better placed to demonstrate that adequate procedures were in place.
The employer may also impose on its main contractor certain obligations in relation to sub-contracts as a means of limiting the potential for bribery offences. For example, the main contract could include cascading obligations to the effect that all sub-contracts shall contain anti-bribery provisions consistent with those in the main contract. Main contractors can protect themselves with similar terms cascading through to any sub-subcontracts.
But anti-bribery provisions alone are unlikely to be sufficient. Indeed, the SFO suggests a mixture of contractual provisions and procedures, such as risk based due diligence, are imposed throughout the supply chain.29 For high risk projects, such provisions and procedures should be carefully tailored to adequately address the particular risks involved, however, they can be simplified where the risks are relatively low. Even if the employer has little involvement in the sub-contracting process itself, such measures will help to establish the defence that adequate procedures were in place.
(iv) Procurement agents
The appointment of well-connected procurement agents is commonly made where parties are seeking to source materials, plant and equipment at keen prices. These relationships are more conducive to bribery and corruption as they can heavily influence decisions as to choice of suppliers. Appointing parties may well have little or no contact with the persons involved in this process, which leaves them even more exposed to unknowingly engaging in bribery through the acts, or omissions of their procurement agents.
Given the greater potential for bribery in relation to this kind of arrangement, employers should take extra care with the appointment process, ensuring that adequate anti-bribery provisions are included in the procurement agent’s terms of appointment and in monitoring the agent’s performance. Of course, such measures will be limited to those matters which are properly within the employer’s control.
This raises the question of the extent to which the employer should become involved. Arguably the employer will face less responsibility where, for example, less onerous monitoring provisions are included in an appointment. However, the absence of any such provisions might suggest that the employer failed to adequately assess the risks at the outset. Clearly a balance is required to ensure that the risk assessments, and the anti-bribery measures imposed, are appropriate having regard to matters such as the nature and location of the project in question.
(v) Contract administration
In many jurisdictions, including the United Kingdom, contract administrators have a duty to act impartially as between their employer and the contractor. However, in certain instances, parties may agree that contract administrators are the employer’s person and that they have no such duty.30 Such arrangements are more likely to result in contraventions of the Bribery Act. For example, an employer’s own person, who is not regulated by a professional body, may face greater temptation to accept bribes from contractors as a means of speeding up issuance of completion certificates.
Employers should be aware that, if they choose not to appoint a third party contract administrator, greater efforts will be required to demonstrate that anti-bribery processes and procedures are adequate and have been satisfied. This highlights one of the main difficulties in attempting to apply uniform legal frameworks in different locations with differing industry practices.
There is also significant scope for bribery offences in connection with the issuance of interim and final payment certificates. For example, unscrupulous employers may offer contract administrators the opportunity to tender for other projects if they follow instructions to delay, or unlawfully withhold payments which are properly due to contractors.
Conversely, contractors may agree with contract administrators to account for off-site materials which are not properly designated and set aside for the project in question.31 They may also offer bribes to facilitate approval of claims for additional money, or time where such claims are not properly justified. While certain safeguards may be imposed through the performance of due diligence at the outset of a project, and through the incorporation of appropriate contractual provisions, it will also be important to carefully monitor those involved with contract administration duties throughout the course of the project.
(vi) Unjustified calls on bank guarantees and bonds
Unlawful calls on bank guarantees and other forms of performance, or payment security may also be the subject of bribery offences. For example, an unscrupulous employer seeking to convert a bank guarantee may bribe a contract administrator to assist with the conversion. This might entail the wrongful certification of the contractor’s breach of the underlying construction contract in circumstances where such certification is a condition precedent to conversion. Although it is difficult for contractors to protect themselves against this possible outcome, they may obtain some benefit by lobbying for an independent third party to act as the contract administrator. They may also request provisions which give them an opportunity to challenge unlawful calls.
Funds received by beneficiaries as a result of unlawful calls against bank guarantees, or bonds are likely to constitute criminal property under the POCA. This raises the question of how the competing interests of issuing banks, contractors and government entities will be resolved in accounting for any proceeds obtained in excess of the beneficiary’s loss and damage. Arguably the issuing banks and contractors are in a more difficult position if confiscation orders are made against the beneficiary. They may need to consider the possibility of pursuing both the perpetrator of the offence and the government for recovery of their funds.
(vii) Project financing
Larger projects are often financed through debt and/or equity funding. Recipients of such funding must ordinarily represent to their lenders, at the very minimum, that they will not engage in bribery, or corruption. Evidence of bribery, or corruption will almost certainly prejudice ongoing financing arrangements. For example, in June 2012, the World Bank announced a withdrawal of its $1.2 billion International Development Association credit for the Padma bridge project in Bangladesh.32 The Bank’s investigative team had previously informed the government borrower about corruption related to the project, and identified a series of counter-measures to be implemented. The borrower failed to implement those measures and so the Bank cancelled its financing.
Furthermore, through a mutual “cross-debarment” agreement, the World Bank, African Development Bank Group, Asian Development Bank, European Bank for Reconstruction and Development and the Inter-American Development Bank will enforce each other’s debarment actions. Therefore, if any one of these Banks finds evidence of bribery, the borrower is likely to be ineligible from bidding on other Multilateral Development Bank projects. Furthermore, any future funding will invariably be the subject of strict controls designed to monitor and avoid future bribery and corruption, which will add considerably to financing costs.33 The message from the World Bank is clear that any direction it provides on anti-bribery measures must be taken seriously.
(viii) Witness evidence
In the event of legal proceedings, such as litigation, or arbitration, overzealous parties may offer bribes to witnesses with the intention of advancing, or undermining claims and defences. The parties who agree to do so, and who ultimately provide false evidence, will invariably commit bribery offences as well as offences against the administration of justice such as contempt of court.
For witnesses employed by well advised parties, contractual safeguards against bribery may appear in their employment contracts. However, this form of protection may not be available in all cases. Appropriate measures in such instances are likely to include careful due diligence to ensure that evidence is truthful and is not the subject of manipulation.
The proliferation of cross-border business activity has generated new opportunities for the construction and engineering industry. It has also created challenges for those charged with delivering construction and engineering projects in accordance with relevant legal requirements. One of the more pressing challenges is ensuring compliance with the increasingly stringent regulation of bribery and corruption.
In many countries, legal frameworks are either non-existent, or inadequate as a means of controlling the activities of those involved. This has led to the development of government controls with global reach in order to remotely influence project participants. Awareness of these controls amongst all levels of management and operations is now more important than ever.
The controls imposed through the FCPA, the Bribery Act and the POCA are flexible enough to operate effectively in relation to construction projects completed anywhere in the world. Any suggestion that they can be ignored, or that compliance may be excused, because of the geographic location, or cultural differences involved will not provide a helpful defence.
The conduct of project participants may range from that which is seen as little more than morally improper, or unethical through to more serious matters such as fraud, bribery and corruption. The boundaries between these concepts are not always clear. Ultimately, relevant acts, or omissions must be considered in their given context to establish exactly where they fall within this range.
The larger, better resourced and more experienced players are clearly expected to lead by example and often have the economic power to do so. Measures for avoiding bribery and corruption must be proportionate and must have due regard to particular risks such as those applicable in emerging markets.
Responsible, practical and transparent management and operational practices are the key to dealing with bribery and corruption. Indeed, the potential consequences for failure to accommodate these ever-expanding regulatory requirements provide a substantial incentive for participants to proactively manage bribery and corruption in the construction industry.
1. For example, the Transparency International, Bribe Payers Index, October 2011, at p.14, ranks public works and construction as the most bribery prone industry sectors.
2. Section 78 of the FCPA.
3. See, for example, The United States of America v David Edmonds SA CR No.
09-00077-JVS SA CR No. 09-00077-JVS, Plea Agreement of June 14, 2012.
4. Indeed, accurate records of facilitation payments must be maintained which potentially leaves organisations in a difficult position for future investigations.
5. EU Directive 2004/18/EC of the European Parliament and of the Council on the coordination of procedures for the award of public works contracts, public supply contracts and public service contracts, March 31, 2004. It should also be noted that criminal conviction carries with it exclusion under World Bank rules. This point is discussed in more detail later in this article.
6. Serious Fraud Office Press Release, September 25, 2009.
7. Sections 327 to 329 of the POCA.
8. This may also include profits arising in connection with the contract and which have been distributed to group companies in other countries as was the case where Mabey Engineering (Holdings) Ltd was ordered to disgorge dividend profits received from its subsidiary, Mabey and Johnson, in connection with illegal bridge building contracts in Iraq (Serious Fraud Office Press Release, January 13, 2012).
9. Subject to various defences, including belief on reasonable grounds that the conduct was not criminal in the place it occurred (s.102 of the Serious Organised Crime and Police Act 2005), acquisition, use, or possession of property subject to adequate consideration (s.329(2)(c) of the POCA) and lack of knowledge, or suspicion that property is criminal property (s.340(3)(b) of the POCA requires that the person “knows or suspects” it is criminal property).
10. Lord Advocate, Frank Mulholland QC; Transcript of Scottish Affairs Committee, December 14, 2011 at question 871. In the United Kingdom, new regulations will take effect from October 1, 2012 which also require those in breach of health and safety law to pay the health and safety authority’s costs of investigating relevant incidents (Health and Safety (Fees) Regulations 2012).
11. R v Del Basso (Luigi)  EWCA Crim 1119 (May 19, 2010), per Leveson L.J.
12. Serious Fraud Office, Revised Policies, October 9, 2012.
13. Section 387 of the Companies Act 2006 provides that a UK company’s failure to keep adequate accounting records may trigger criminal liability for its officers.
14. United States Department of Justice, Office of Public Affairs, Press Release, February 11, 2009.
15. Transparency International Corruption Perceptions Index, December 5, 2012.
16. Andrew de Lotbinière McDougall, “International Arbitration and Money Laundering” 20(5) American University International Law Review.
17. Construction (Design and Management) Regulations 2007.
18. Serious Fraud Office Press Release, January 13, 2012.
19. This can be contrasted with the recent case involving a Wal-Mart subsidiary in Mexico, which put the person who allegedly authorised certain bribes in charge of its corruption investigation; as reported in the New York Times, April 21, 2012.
20. Transparency in Corporate Reporting; Assessing the World’s Largest Companies (Transparency International, June 2012), p.6.
21. Section 13(q) of the Securities Exchange Act of 1934 (introduced through s.1504 of the Dodd-Frank Wall Street Reform and Consumer Protection Act relating to disclosure of payments by resource extraction issuers). UK registered companies must also keep adequate accounting records and their failure to do so may trigger criminal liability for their officers under s.387 of the UK Companies Act 2006.
22. US Securities and Exchange Commission Final Rule Release on Disclosure of Payments by Resource Extraction Issuers NO. 34-67717; FILE NO. S7-42-10 at 145.
23. Neill Stansbury, Unethical Behaviour and Criminal Acts, Society of Construction Law,March 2005.
24. See for example the standard terms of appointment produced by the Association of Consultant Engineers (ACE).
25. The payments would also constitute criminal property under the POCA. It is important to note that there are reservations as to the scope of the authority for such payments under the FCPA, as discussed earlier in this article.
26. In the Matter of, Watts Water Technologies, Inc. and Leesen Chang, Respondents Administrative Proceeding File No. 3-14585 of October 13, 2011.
27. E Swanepoel, “Criminalising Facilitation Payments Won’t Have Desired Effect — AAMIG”, Mining Weekly, May 4, 2012.
28. Both the incentives and subsequent payments made in relation to the sub-contract would constitute criminal property under the POCA.
29. Government guidance of March 2011.
30. Scheldebouw BV v St James Homes (Gosvenor Dock) Ltd  EWHC 89 (TCC) per Jackson J. as he then was. Cf Beaufort Developments (NI) Ltd v Gilbert Ash (NI) Ltd  2 All E.R. 778 where Lord Hoffmann said of the contract administrator, “He is a professional man but can hardly be called independent.”
31. This risk can be managed to some extent through the use of vesting certificates.
32. World Bank Statement on Padma Bridge, June 29, 2012.
33. See, for example, the World Bank Statement on Padma Bridge, September 20, 2012.
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