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UK Bribery Act may offer overseas firms loophole

Source: Thomson Reuters Foundation - Wed, 30 Mar 2011 12:40 GMT
Author: Reuters
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* Bribery Act might not affect some London-listed firms

* Pragmatic on European anti-bribery directive

* "Reasonable, proportionate" hospitality no offence

* Critics says creates unlevel playing field in UK

By Kirstin Ridley and Tim Castle

LONDON, March 30 (Reuters) - Britain has potentially limited the scope of the world&${esc.hash}39;s most draconian anti-bribery act in a move that preserves the appeal of UK capital markets, while drawing criticism that it creates double standards.

The delayed Bribery Act, which will come into force from July, will not necessarily apply to overseas companies listed in Britain or with a UK incorporated subsidiary, Justice Secretary Kenneth Clarke said on Wednesday.

"I can foresee that it is arguable whether some of those companies (listed on London&${esc.hash}39;s junior AIM market) are carrying on a business in the United Kingdom," Clarke said. "The investors would be very surprised to be told so in some of the cases. They think they are out in Tanzania looking for copper."

He also said the UK would be pragmatic in its interpretation of a European directive on bribery, saying companies convicted under the act would face a discretionary, rather than mandatory, exclusion from public procurement contracts.

Britain&${esc.hash}39;s 122-year-old bribery laws have long been slated as inadequate by the likes of the Organisation for Economic Cooperation and Development, which helps governments tackle economic, social and governance problems.

But the new Bribery Act, passed by parliament in the dying days of the last Labour government, worried multinationals, partly because of a new offence of failure to prevent bribery, and a clampdown on "facilitation payments" and disproportionate hospitality to oil the wheels of business.

UNLEVEL PLAYING FIELD

Multinational firms with businesses in the UK demanded clarification of the new rules, which will affect those industries especially relying on myriad overseas partners, such as oil and gas, pharmaceuticals, insurance and private equity.

The CBI (Confederation of British Industry) trade body welcomed the government guidance, saying Clarke had listened to concerns that honest companies could have been unwittingly caught out by poorly drafted legislation.

But George Dallas, corporate governance director at fund manager F&C, which has around 105 billion pounds (${esc.dollar}169 billion) under management, said any exemption of UK-listed companies created an unlevel playing field.

"The guidelines could put the government potentially in the position to have to explain how companies that raise capital might directly or indirectly use this capital in some shape or form for bribe paying," he said.

"One of the key competitive features of London as a leading financial centre is its reputation for integrity. I think that this potentially challenges that reputation."

"DEPLORABLE"

Transparency International, a UK anti-corruption watchdog, called the guidance "deplorable" and accused the government of surrendering to eleventh-hour lobbying by business groups.

"This will disadvantage all honest companies and perversely turn on its head the government&${esc.hash}39;s stated aim of creating a level playing field through the act&${esc.hash}39;s extra-territorial reach." said Chandrashekhar Krishnan, TI&${esc.hash}39;s executive director.

The World Bank estimates that ${esc.dollar}1 trillion is spent each year on bribery, and the UK was shamed in the latest annual Corruption Perceptions Index, when TI said the country dropped to 20th place from 17th last year, trailing nations such as Qatar.

The new act makes businesses with any UK interest criminally liable if staff, subsidiaries, intermediaries or "associated persons" offer bribes on their behalf anywhere across the world.

The possible exemption of some foreign companies with UK listings, however -- although the courts will ultimately define what "carrying on a business in the UK" means -- will assuage concerns the act may undermine the appeal of UK capital markets.

"If the bribery rules did apply to international firms listed in the UK, it would have made life more difficult for the London Stock Exchange <LSE.L> (in wooing overseas companies)," said one industry insider. (Additional reporting by Luke Jeffs and Tommy Wilkes; Editing by Will Waterman) (${esc.dollar}1=.6225 Pound)

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