Extraterritorial Reach of Anti-Corruption Laws on Corporations and Persons in the Gulf
June 3, 2015
The extraterritorial reach of the U.S. Foreign Corrupt Practices Act (FCPA), the UK Bribery Act (UKBA) and the Canadian Corruption of Foreign Public Officials Act (CFPOA) is broad and can easily ensnare individuals and corporations conducting business in the GCC region who may assume that they are not subject to such laws. That wrong assumption can result in severe consequences to those caught in their net.
The Elements of a Bribery Offence
The three anti-corruption laws generally prohibit corporations or individuals from offering, promising, providing or authorizing the payment of money or anything of value to a foreign official (or additionally, a private individual in the case of the UKBA), or any person while knowing that all or a portion of such money or thing of value will be offered, given or promised, directly or indirectly, to any such foreign official for influencing or inducing to omit any act or decision of such official, or to secure an improper advantage in order to obtain, retain or direct business.
Extraterritorial Reach of the FCPA
The FCPA covers U.S. corporations or any persons acting on behalf of such corporations. This includes U.S. citizens, nationals or residents; foreign and U.S. issuers; or foreign persons and entities while in the territory of the United States. The FCPA does that by applying its jurisdictional reach to three kinds of entities: “domestic concerns,” “issuers” and “any person” acting in U.S. territory.
A “domestic concern” covers U.S. citizens and nationals (wherever they may be located), U.S. resident aliens, corporations or other business entities established under U.S. law or with their principal place of business in the United States. Officers, directors, employees, agents or shareholders of any of those entities, regardless of their nationality, are subject to the FCPA. An “issuer” includes companies that register securities or are required to file reports with the U.S. Securities and Exchange Commission (SEC), or any officer, director, employee, agent or shareholder of such a company. This would include foreign companies that issue stock, including American Depository Receipts (ADR) on a U.S. securities exchange and their personnel. The FCPA also covers “any person” (no matter what his or her nationality) who acts within U.S. territory. This could include a non-U.S. person wire-transferring U.S. dollars anywhere in the world, since all U.S. dollar funds are cleared through
New York City banks.
Extraterritorial Reach of the UKBA
The UKBA can apply either a territoriality or nationality test to capture prohibited acts. It extends to any person or entity that has a “close connection” to the United Kingdom, including a British citizen, a resident of the U.K., or an entity incorporated in the U.K. In addition to the employees involved in the bribe, senior officers (which include directors, company secretaries and senior managers) of a body corporate can be convicted of an offence under the act where they are deemed to have given their consent or connivance to giving or receiving a bribe or bribing a foreign public official.
The UKBA also makes it an offence for a “relevant commercial organization” to fail to prevent bribery regardless of where the bribery takes place. This strict liability offence potentially sweeps into its jurisdiction any corporate body or partnership with only a minor presence in the U.K.
Extraterritorial Reach of the CFPOA
The CFPOA was originally based on the concept of territoriality. It was recently amended and now provides that every person who commits an act or omission outside Canada, which if committed in Canada would constitute an offence, is deemed to have committed that act or omission in Canada if the person is a Canadian citizen; a permanent resident of Canada who, after the commission of the act or omission, is present in Canada; or a public body, corporation, society, company, firm or partnership that is incorporated, formed or otherwise organized under the laws of Canada or a province.
The FCPA provides significant penalties including:
- Fines of up to US$2-million per criminal violation by companies
- Fines of up to US$100,000 per criminal violation and US$16,000 per civil violation by individuals and imprisonment for up to five years
- Consent decrees, civil fines or orders to disgorge profits and debarment of individuals from roles in public companies
- Appointment of an independent compliance monitor and imposition of enhanced compliance and reporting requirements
U.S. authorities can and do impose additional penalties for related charges, such as conspiracy and money laundering. The cumulative effect of all these penalties can be quite large, running into the hundreds of millions of dollars.
The UKBA provides for an unlimited fine for a company or partnership and up to 10 years of imprisonment and an unlimited fine for an individual. Penalties under the CFPOA are unlimited and at the discretion of the courts for both individuals and companies. Individuals can also be subject to imprisonment for up to 14 years.
As examples of the extraterritorial reach of these anti-corruption laws, the following Gulf individuals and corporations could find themselves the subject of investigation and prosecution under any of these anti-corruption laws:
- Saudi employee of an American company
- Qatari company doing some business in U.K.
- Dubai company that issued an ADR on a U.S. securities exchange
- Omani citizen with dual Canadian citizenship
- Kuwaiti company that pays a bribe using a U.S.-dollar wire transfer
- Bahraini citizen who is a director of a U.S. company or a joint venture with a U.S. company having a controlling interest
As a result, corporations and individuals in the Gulf need to be aware of the risks involved in paying bribes and the potential impact of these anti-corruption laws on them, even though they may have a limited relationship to the United States, United Kingdom or Canada. If they do not abide by the appropriate laws, they could be faced with significant fines and possible imprisonment.
Posted in: Middle East
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