Shipping and Corrupt Practices Intertanko Presentation Philip Roche Partner Emma Humphries Associate 14 June 2011

UK Bribery Act 2010 Introduction - the UK Bribery Act? Why is shipping considered a risk? Key features of the Act Facilitation payments Complying with the Act and Adequate Procedures Compliance – what do you need to do?

Bribery Act Why is it important to you: 1. Jurisdiction – companies doing business or part of their business in the UK 2. Counterparts 3. General International Change in approach

General Change in Approach

OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions 15 February 1999. The 34 OECD member countries and four non-member countries - Argentina, Brazil, Bulgaria, and South Africa -have adopted this Convention The Convention permits countries to move in a co-ordinated manner to adopt national legislation making it a crime to bribe foreign public officials. It provides a broad definition of bribery, requiring countries to impose dissuasive sanctions and committing them to providing mutual legal assistance.

2009 Recommendation for Further Combating Bribery of Foreign Public Officials in International Business Adopt best practices for making companies liable for foreign bribery so that they cannot avoid detection, investigation and prosecution for such bribery by using agents and intermediaries, including foreign subsidiaries, to bribe for them; Periodically review policies and approach on small facilitation payments. These are legal in some countries if the payment is made to a government employee to speed up an administrative process; Improve cooperation between countries for the sharing of information Provide effective channels for public officials to report suspected foreign bribery and for protecting whistleblowers from retaliation; and Working with the private sector to adopt more stringent internal controls, ethics and compliance programmes and measures to prevent and detect bribery.

Typical Bribery in the News

Corruption in Shipping May 2010 City of London Corporation Survey on avoiding corruption risks in the City Identified the maritime and shipping industry as one of the most ‘high risk’ industries likely to be affected by the Act

Key Features of the UK Bribery Act The new UK Bribery Act comes into force in July 2011 Guidance SFO 2009 paper “Approach of the Serious Fraud Office to dealing with overseas corruption” MOJ Guidance on “Adequate Procedures” MOJ circular on Bribery Act Joint Legal Guidance for Prosecutors 9 9

Key Features of the UK Bribery Act Two major categories of risk: Actual corrupt practices Bribery Address Commissions Brokerage commissions Facilitation payments Day to day “oiling the wheels”

Key Features of the UK Bribery Act The general bribery offences someone offers, promises or gives another, or requests, agrees to receive or accepts a financial or other advantage in connection with a person performing a function improperly Improper performance is the breach of an expectation that the function will be performed in good faith, impartially or as a result of a position of trust. No corrupt intent required. The offences extend to “private bribery” 11 11

Key Features of the UK Bribery Act Bribing a Foreign Public Official (FPO) someone pays or offers an advantage to a FPO with the intention of influencing the FPO in order to retain or obtain a business advantage when such payment / advantage is not permitted or required by written law Note: No need for improper performance of function 12 12

Key Features of the UK Bribery Act Facilitation Payments Not permitted (contrary to FCPA exception) Written law is relevant, not local custom 13 13

Key Features of the UK Bribery Act Failure of commercial organisations to prevent bribery Corporate entity commits an offence if it, or anyone associated with it, bribes another person in order to retain or obtain a business advantage. Outward bribery only Associated person is widely defined: includes anyone who performs services for or on behalf of the company This could be employees, agents, brokers, subsidiaries, JV entities, JV partners Strict liability offence. Only defence is that the company has adequate procedures in place to prevent bribery

Key Features of the UK Bribery Act Strict liability of the Company for acts of bribery done by associated persons New offence of ‘failing to prevent bribery’ Liability without fault Only defence – “adequate procedures” Fines – Aon - £5.5m

Key Features of the UK Bribery Act Extra-Territoriality General and FPO bribery offences: if any part of the offence is committed in the UK or if committed overseas by a person with a close connection to the UK Corporate bribery offence: it is irrelevant where the acts/omissions which form part of the offence take place. Applies globally to companies who carry on any part of their business in the UK UK management companies UK chartering brokers/insurance offices Companies with UK agents/distributors? 16 16

Facilitation Payments Counterparts oil majors banks purchasers of businesses commodity traders energy companies BG Clause

Counterpart Risk and Expectation Many major global corporates will set the UK Act as the “gold standard” for anti-corruption requirements of counterparts An example from a shipping contract;

Energy Major Contract for Services Contractor represents, warrants and covenants that it and its Representatives have not Offered and will not Offer with respect to any Matters any Advantage to any Public Official which would violate Applicable Corruption Law.

Energy Major Contract for Services (2) Contractor represents, warrants and covenants that it and its Representatives have not Offered and will not Offer with respect to any Matters any Advantage to any Public Official which would violate Applicable Corruption Law. “Advantage” means any financial or other advantage, payment, gift, promise or transfer of anything of value.

Energy Major Contract for Services (3) Contractor represents, warrants and covenants that it and its Representatives have not Offered and will not Offer with respect to any Matters any Advantage to any Public Official which would violate Applicable Corruption Law. “Advantage” means any financial or other advantage, payment, gift, promise or transfer of anything of value. Applicable Corruption Law" means all of the laws, rules, regulations and other legally binding measures relating to bribery, corruption, money laundering, fraud or similar activities: - of [relevant country of operation]; - of the country of incorporation of Contractor and Contractor's ultimate parent company and of the principal place of business of such ultimate parent company; together with the provisions of the United Kingdom Bribery Act 2010 and the United States Foreign Corrupt Practices Act of 1977….

Facilitation payments Oiling the wheels Customs officials Port State Control Stevedores Port/Canal Authorities Hospitality Firm view of SFO that these are an “advantage”

How to ensure compliance Only defence is to show that “Adequate procedures” have been implemented Local consultants/agents should not be engaged without thorough due diligence Beware of standard business practices which are affected by the Act i.e. client hospitality, facilitation payments, allowing agents to arrange business ‘Tone from the top’ – adopt a zero tolerance culture

How to ensure compliance - continued Risk assessment – regular and thorough Policies and procedures must be clear and practical Effective implementation across the business Monitor and review compliance

Goals of Risk Assessment Risk Assessment (Per MOJ Guidance) “The commercial organisation [must] regularly and comprehensively [assess] the nature and extent of the risks relating to bribery to which it is exposed” A tailored approach Focus on: Internal risk Country risk Partnership risk Ongoing responsibility 25 25

Goals of Risk Assessment Identify ongoing risk Assess identified risk – severity and likelihood Pragmatic and cost effective approach Risk Mitigation – a risk assessment should inform (1) the development, implementation and maintenance of effective anti-bribery policies and procedures (2) remedial steps. 26 26

Key Features of the UK Bribery Act Adequate Procedures: “Six principles” 1. Risk Assessment 2. Top Level Commitm-ent 3. Due Diligence 4. Clear Policies & Procedures 5. Effective Implementati-on 6. Monitoring and Review 27

Anti-Bribery Policy Statement – zero tolerance approach Head of Compliance Scope of Policy Reporting – whistleblowing Training Monitor and Review

FINANCIAL INSTITUTIONS ENERGY INFRASTRUCTURE AND COMMODITIES TRANSPORT TECHNOLOGY