The international aviation industry is a highly competitive, highly regulated and international industry which is also inherently susceptible to allegations and instances of corruption. Over-regulation, protectionism, and government ownership of industry can lead to slow economic growth, high unemployment, and widespread poverty – such bureaucratic control lies at the core of endemic corruption and can also create opportunities for businesses to gain significant business advantage.
High profile cases include investigations against Airbus, Embraer and Bombardier which have resulted in investigations worldwide by the United States Securities and Exchange Commission ("SEC"), the US Government, UK Government, Canada and Brazil. Whether buying, selling, financing or maintaining an aircraft, corruption risks associated with the aviation industry are well documented.
The legal and business consequences of corruption in the aviation industry include criminal investigations, prosecutions, convictions, fines, penalties, shareholder losses (resulting in civil law suits) and ultimately jail terms for individuals found guilty.
Countries and States worldwide have been taking new and tougher approaches to corruption both on a domestic basis and internationally. In China, a far-reaching campaign against corruption began in 2012 carried out under the aegis of Xi Jinping. Saudi Arabia claims to have recouped more than $100bn through its anti-corruption purge and controversially jailed up to 56 high-profile royal family members and businessmen who refused to surrender their wealth. Economic, trade, scientific and military embargos and sanctions continue to be implemented against countries for a variety of different reasons. Most notable are those recently Russia, historically being imposed by the U.S. government or under U.S. pressure by the international community through the United Nations Security Council. In the UK, the Financial Sanctions Unit of the Bank of England administers financial sanctions in the United Kingdom on behalf of HMT (Her Majesty's Treasury).
Anti-Corruption Measures in the UK
In December 2017, the UK Government produced an anti-corruption strategy which establishes a longer-term framework to guide UK government efforts to tackle corruption at home and abroad in the period to 2022.
This strategy sets out 6 clear priorities for the UK Parliament. These are:
1. Reduce the insider threat in high-risk domestic sectors such as borders and ports.
2. Strengthen the integrity of the UK as an international financial centre.
3. Promote integrity across the public and private sectors.
4. Reducing corruption in public procurement and grants.
5. Improving the business environment globally.
6. Working with other countries to combat corruption.
Some anticipated changes include:
- Public beneficial ownership registers for overseas legal entities - The government plans to establish a public register of beneficial ownership of overseas legal entities. A key objective of this register is to "identify, in a public and easily accessible way, the owners and controllers of overseas legal entities that own property in the UK, increasing transparency and trust in the UK property market and supporting law enforcement in their investigations."
- Changes to government architecture on economic crime - The government will establish a National Economic Crime Centre, based in the National Crime Agency. The government will "continue to support the Office of Financial Sanctions Implementation (OFSI) in imposing monetary penalties" and will "continue to assess the effectiveness of financial sanction".
- Improving the Suspicious Activity Reporting (SAR) regime - The government will: "reform the SAR regime, upgrading capabilities (including IT) and making the necessary legislative, operational and technical changes".
- Implementation of the remainder of the Criminal Finances Act 2017: April 2018 - The provisions of the Criminal Finances Act 2017, a significant overhaul and update to the UK anti-money laundering regime will be implemented over time on a staged basis. The government "will implement all key elements of the Criminal Finances Act, including Unexplained Wealth Orders, by the end of April 2018 (subject to parliamentary time)."
- Corporate offence of failure to prevent economic crime - The strict liability corporate "failure to prevent" offences are currently limited to the sphere of bribery and the facilitation of tax evasion. More detail on the Bribery Act is provided below.
The Bribery Act, 2010
The Bribery Act 2010 was introduced to update and enhance UK law on bribery including foreign bribery to address better the requirements of the 1997 OECD anti-bribery Convention. The Act is not concerned with fraud, theft, books and record offences, Companies Act offences, money laundering offences or competition law all of which are regulated elsewhere.
Does your company (or anyone associated with your company) offer commissions, bribes, hospitality and goodwill gestures in return for services? Has your business ever facilitated or been aware of a broker or agent commission in the sale of an aircraft which was not made know to seller or buyer? Have you ever bought and sold an aircraft as a "back to back" deal? Do you pay facilitation payments to ensure the timely landing and handling of your aircraft?
The Act creates a strict liability offence of failing to prevent bribery. There is no need to prove negligence or the involvement and guilt of the company. An organisation will only have a defence to this if it can show that it had implemented "adequate" anti-corruption compliance procedures. The scope of the Act is extensive and has significant reach beyond the UK.
The four offences can be summarised as follows:
1. Bribing Another Person
It will be an offence to offer or give a financial or other advantage to a person
a. With the intention of inducing them to behave improperly;
b. As a reward for that person to behave improperly; and
c. Knowing or believing that the recipients acceptance of the "advantage" would constitute improper behaviours
2. Being bribed
It will be an offence to receive a bribe if the person receiving it agrees to or receives an "advantage" to act in an improper manner. The offence occurs where the bribe is either paid directly or through a third party. In many cases it does not even matter if the recipient knows that his or her acceptance would constitute a bribe.
3. Bribery of Foreign Public Officials
It will be an offence to offer or give any advantage to a foreign public official with the intention of influencing them in their capacity as a public official and to obtain or retain business or business advantage from them. There is no requirement under this heading for the advantage to be "improper" and there is a guarded exemption where the law permits payments to officials.
4. Failure of Commercial Organisations to Prevent Bribery
A company or a partnership will be automatically liable for any bribe offered or given in connection with its business unless it can show that it has in place adequate procedures designed to prevent bribery.
Who Does the Act Apply to?
The Act is far-reaching and extends to cover bribery committed worldwide by individuals who are UK nationals or are ordinarily resident in the UK, as well as organisations who conduct some portion of their business in the UK. The Serious Fraud Office (SFO) can take a more wide-ranging approach to investigating and prosecuting corporations and individuals involved in corruptive practices in the UK and abroad. It is also likely that an SFO investigation may increase the risk of parallel investigations in other jurisdictions with countries that have a close working relationship to the UK (e.g. the US). In fact, US companies with a presence in the UK will now not only have to comply with their local Foreign Corrupt Practices Act (FCPA) but will also need to comply with the Bribery Act which is more extensive.
For businesses, the new corporate offence will make companies liable if anyone acting under its authority commits a bribery offence, including employees, agents, subsidiaries, partners and consultants.
Furthermore, the offence does not need to take place in the UK. So, companies that have a UK office or operate in the UK or even simply hire a UK resident will be liable under this Act. All that is needed is a UK presence.
What are the Sanctions Under the Act?
Convictions under the Act include jail and/or unlimited fines for individuals and the potential for the confiscation of property under the Proceeds of Crime Act 2002. Companies can receive unlimited fines which are likely to be substantial. "Senior officers" (which is broadly defined and will include directors and key management; possibly even shadow or non-executive directors) can also be convicted of an offence where they are deemed to have given their consent or connivance to giving or receiving a bribe or bribing a foreign public official. Importantly, it is possible that omitting to act might be regarded as consent or connivance and lead to prosecutions, fines and/or imprisonment. A director convicted of a bribery offence is also likely to be disqualified from holding a director position for up to 15 years.
A company commits an offence if a person associated with it bribes another person for that company's benefit. "Association" is loosely defined to include people who perform services for or on behalf of the company, regardless of the capacity in which they do so. It does not stop at employees and will include agents, consultants and suppliers. The only way to avoid criminal liability under the Act is for companies to establish a system of "adequate procedures" designed to prevent bribery.
The essence of the guidelines are six basic principles which are all designed to give commercial organisations a basis for planning and implementing their regime to combat corruption:
1. Principle 1: Risk assessment
Conduct a risk assessment on your global business and identify areas of high risk. Do you operate in countries where corruption is perceived to be high (e.g. Africa, Russia, and India)? The World Bank provides up to date data on corruption risks in its Worldwide Governance Indicators website. Do you interact with public officials and do you provide corporate hospitality as a way of encouraging business with your company? Do you make use of agents in high risk jurisdictions and do they ever tender for business? What processes have you in place to ensure these people are not engaging in corruptive practices? Do you have commission agreements, and do they include warranties and undertakings from the various parties as to anti-corruptive compliance?
2. Principle 2: Top level commitment
Issue now a clear statement of anti-corruption culture at the highest levels of management. Stick to it and ensure the message is not only given but also shown to be followed – lead by example. The anti-corruption statement should be clearly published and accessible, both internally and externally.
3. Principle 3: Due diligence
Put in place processes for auditing the anti-corruption program at all levels. Carry out an audit regularly – spot check arrangements with suppliers and brokers. Are your sales team aware of their duties? Are they reporting back and is your response team effective in dealing with the reports? Review your contracts and assess the structure you have in place for appointing agents, the purpose of their appointment and the way they are remunerated. Appoint a compliance officer.
4. Principle 4: Clear, practical and accessible policies and procedures
Ensure all persons associated with your business are aware of your stance and have a system of reporting in place. Train staff and update them regularly on anti-corruptive practices. Make clear statements about your company's stance on gifts and hospitality, payments to advisers and agents, political contributions. Check your stance on paying officials simply to secure the performance of their normal duties (e.g. granting a licence). These acts are commonplace around the world but may now constitute an offence under the Act.
5. Principle 5: Effective Implementation
Your system should include a process for investigating reports and set out your strategy on disciplinary action. Incorporate this strategy in your commercial contracts at all levels - employee contracts, pilot and crew arrangements, service and supply arrangements, sales and management agreements etc.
The information and opinions contained in this document are for general information purposes, are not intended to constitute legal or other professional advice and should not be relied on or treated as a substitute for specific advice relevant to particular circumstances. The Air Law Firm LLP is a limited liability partnership registered in England and Wales.