Are you faced with an ethical dilemma? Are you witnessing corruption but don’t know what to do about it? Ask the team of Corruption Watch experts what to do by writing to: email@example.com and mark your letter ‘Dear Corruption Watch’.
Dear Corruption Watch,
My (South African) company is considering a merger with a Mozambican firm. The CEO insists that it is impossible to do business there without granting a Frelimo player interest in the company. The newly merged entity plans to list on both the Johannesburg Stock Exchange and AIM (Alternative Investment Market, London), bringing British directors onto the board.
My concern is that the new UK anti-bribery act and rules of corporate governance will define this shareholding as “politically exposed”, potentially opening the way for unwanted scrutiny and, if deemed so, liability and even criminal prosecution of UK-based board members. Is this the correct assessment and what might be a solution to this problem? Yours, Cross-border concerns
You are right to be anxious. The UK Bribery Act, 2010 is perhaps the most comprehensive anti-bribery legislation in the world. It applies to acts of bribery both in the UK and other jurisdictions.
The Act came into force on 1 July 2011.
It creates two general offences of active and passive bribery. It also introduces a specific corporate offence of failing to prevent bribery from occurring. All of the offences are applicable to individuals and companies registered in the UK.
As you are planning to list in London, it will apply to your company as well as its directors and employees in the UK.
You may be surprised to discover that the Act does not define the concept of a “politically exposed” shareholding or individual.
However, the concept of a politically exposed person is defined in the UK Money Laundering Regulations, 2007. The definition is lengthy (a full version is available at http://www.legislation.gov.uk/uksi/2007/2157/schedule/2/made) but it essentially boils down to a person who has been entrusted with a prominent public function, or someone related to such a person.
Because of their position, politically exposed persons are considered to present a greater risk for involvement in bribery and corruption. For this reason, many financial institutions view such clients as compliance risks and conduct enhanced monitoring of their accounts.
As a result, your company will almost certainly be subject to heightened scrutiny, both from financial institutions and regulators, if it proceeds with the envisaged shareholding. You will have to be vigilant about all of your transactions with your new shareholder and ensure that the relationship complies with all applicable laws, including anti-corruption and money-laundering legislation.
This will require a robust due diligence process before deciding whether to enter into the relationship.
If the shareholding itself or any of your interactions with your politically exposed partner falls into the definition of bribery of a foreign official under the Act, your company may be at risk of investigation and prosecution.
However, the mere fact of a shareholding on the part of a politically exposed individual is not an offence under the Act. The Act only deals with bribery, and not every business relationship with a politically exposed individual constitutes bribery.
In addition, for a commercial organisation it is a defence to charges under the Act that adequate procedures were put in place to prevent persons associated with it from undertaking acts of bribery.
So the question for your company is whether its compliance regime is rigorous enough to prevent acts of bribery on its behalf.
This entails, at a minimum, putting in place robust due diligence procedures designed to avoid transactions with politically exposed persons that might violate the law.
Though creating such mechanisms will be time-consuming and costly, it is worth doing so as soon as possible. Not only is it ethically required, it is your only reliable insurance policy against possible future legal trouble.
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