Commentary: Navigating the new UK Bribery Act

The UK Bribery Act 2010 has received significant press coverage in the United Kingdom and abroad. It will be important for Canadian mining companies with a U.K. nexus to understand its implications, in particular given that Canadian junior mining companies frequently operate in challenging emerging-market jurisdictions where the risks of corruption and bribery are often manifest.

The U.K. Bribery Act (UKBA) will be the flagship U.K. legislation combating bribery and corruption. It will come into force on July 1, 2011, and when it does it will create criminal offences prohibiting bribery.

Prohibited conduct includes not only bribing public officials (either to influence decisions or “facilitation payments” to secure routine administrative functions), but also bribery entirely in the private sphere. It also prohibits passive bribery: it will be a criminal offence to be bribed.

The UKBA will also criminalize the failure to prevent bribery, which is potentially the most risky area for mining companies, in that it effectively bypasses the requirement to prove corrupt corporate intent. A commercial organization commits the failure offence where a third party which performs services for the organization bribes someone else in order to obtain or retain a business advantage for the organization. 

Examples include bribery by employees, subsidiaries and agents. This means that mining companies might be criminally liable for the acts of foreign acquisitions, local partners, joint ventures, mining contractors and other mining service providers. This risk may be acute for junior miners managing local joint ventures and working with local partners.

The only defence to the failure offence is for the organization to show that it had “adequate procedures” in place to prevent the bribery. In practice this means that a failure to regulate third parties might lead to criminal liability. We discuss this below.

Does the UKBA apply only in the U.K.? No – it has worldwide scope. The offences not only apply to bribery which takes place in the U.K., but also to bribery by U.K. individuals and companies anywhere in the world, so they have some extra-territorial application. This is where the legislation is relevant to Canadian mining companies that might have otherwise thought that the UKBA does not affect them.

The failure offence has even wider extra-territorial application. It applies to any U.K. partnership or company. It also applies to any non-U.K. partnership or business which carries on a business, or part of a business, in the U.K. The U.K. government has published guidance indicating that this requires a “demonstrable business presence” in the U.K.

The guidance also says that merely listing securities in the U.K. will not constitute carrying on a business. Unfortunately this guidance is not entirely reliable since it will not bind the U.K. prosecutors (currently the Serious Fraud Office) who have indicated that they might take a different view. Canadian miners should carefully assess their nexus with the U.K., and to what extent they carry on their business or part of their business in the U.K.

The bribery itself could occur anywhere in the world. It also need not relate to the business which the organization carries on in the U.K. What this means is that U.K. law applies to you globally if you carry on part of a business in the U.K.

Mining companies which have adequate procedures to prevent bribery will have a defence to the failure offence. While not defined by the UKBA, the U.K. government has published guidance which prosecutors will take into account. This guidance is largely in- line with international best practice, and the core principle is proportionality to the risks.

The guidance sets out six principles which mining companies should consider: a commitment from the top level of management to prevent bribery; a regular and comprehensive assessment of the nature and extent of the risks relating to bribery; policies and procedures to prevent bribery being committed by the organization or on its behalf, proportionate to the bribery risks and the organization’s activities; review and mitigation of bribery risks presented by third parties in all markets in which the organization does business; ensuring anti-bribery policies and procedures are communicated, embedded and understood throughout the organization; and monitoring and review – for example ensuring procedures are being implemented, are adequate to mitigate the risks and are improved where appropriate.

The wide scope of the UKBA means that no area of business will be entirely risk free.

However, key concerns for organizations in the mining industry will be:

Hospitality – Entertaining, gifts, and expenses might come under the microscope to determine whether they have a legitimate business purpose.

Joint ventures, investments and agents – Mining companies could be liable for their wrongdoing. Companies should make sure they know what these joint ventures, investments and agents are doing and that they understand the law. This is a key area of risk for many junior mining companies with operations in emerging markets.

Government contracts – It is important to pay particular attention to dealings with government officials, especially through agents. Mining companies should ensure dealings with co-investors and local partnerships are transparent and lawful.

Local practices – Under the UKBA, local customs and practices which are not part of the written law must be disregarded, even if they are perceived as legitimate. Mining companies need to take special care when dealing in countries with different approaches to business ethics.

A good compliance culture – Make sure employees follow company policies and ensure that you react to incidents of wrongdoing, investigate, and take appropriate remedial steps.

Mining businesses, including Canadian mining companies carrying on their business or part of their business in the U.K., should take responsibility for their risks, and adopt a three-step process to: assess what bribery risks they face, including risks of bribery by third parties; adapt or create procedures, including policies, to reduce those risks; and ensure the procedures are implemented and work in practice.

– The authors are attorneys with Latham & Watkins, a global, full-service legal firm with 2,000 attorneys in 31 offices around the world.

Dan Smith is a Senior Associate in the Litigation department based in the London office, and member of the firm’s Metals & Mining practice.

Chris Langdon is a Partner in the Finance department based in the Riyadh office, Global co-chair of the firm’s Metals & Mining practice. 

Latham & Watkins’ Metals & Mining practice has advised on some of the most complex mining and metals transactions and projects over the last few years. Across the team, Latham & Watkins has experts who have worked in virtually every active jurisdiction in Africa, the Middle East, Russia and CIS, Central and Eastern
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