The payment of bribes to foreign customs officials to facilitate the importation of goods in a foreign country has recently been in the spotlight after the Ralph Lauren Corporation made facilitation payments to Argentinian customs officials in connection with the importation of goods into the country.
On 22 April 2013, it was reported that the Ralph Lauren Corporation (a US company) would pay over USD 1.6 million to US authorities as part of a settlement for violations of the Foreign Corrupt Practices Act. This followed the discovery that the Argentinian subsidiary of the corporation paid bribes and made gifts to Argentinian customs officials between 2005 and 2009, to ensure that goods were imported into the country without inspection and without necessary paperwork. The corporation discovered the misconduct during an internal review and promptly reported it to the regulators. As a result of its co-operation with the authorities, the Ralph Lauren Corporation has not been charged with violations of the Foreign Corrupt Practices Act, which would have led to criminal and civil liabilities. Instead, it has entered into non-prosecution agreements with the regulators, under which it is obliged to pay the above sum, by way of disgorgement and interest, and to comply with specified remedial measures, including compliance training, strengthening of internal controls, and procedures for third party due diligence.
Art businesses regularly ship artworks overseas. Like other businesses, they are exposed to the risk that someone acting for them will bribe, or seek to bribe, officials in the country of importation. A“facilitation payment” may be made to expedite the importation process, to encourage a Customs official to turn a blind eye to the artificially low declared value of the art, or to reward an official for waiving or reducing the amount of taxes or duties due upon importation.The risk is particularly high for those seeking to import artworks into emerging markets, where it may be customary to make unofficial payments to public officials. Such payments areagainst the law under the Bribery Act 2010 which came into force in the UK nearly 2 years ago. We set out below a summary of offences under the Bribery Act.
In the US, anti-bribery provisions are found in the Foreign Corrupt Practices Act. The Act has been in force since the mid-1970s. Its anti-bribery provisions are narrower in scope than the UK Bribery Act because its focus is on the prohibition of bribes to foreign government officials. The UK Bribery Act is significantly broader.
The Bribery Act 2010
There are three categories of bribery offences under the Act:
General bribery offences
Sections 1 to 5 of the Act cover “general bribery offences”.
The crime of bribery is described in section 1 as occurring when a person offers, gives or promises to give a “financial or other advantage” to another individual, in exchange for “improperly” performing a “relevant function or activity”.
Section 2 covers the offence of being bribed, defined as requesting, accepting, or agreeing to accept, such an advantage, in exchange for improperly performing such a function or activity.
“Financial or other advantage” is not defined in the Act, but could potentially include items such as contracts, gifts and entertainment. The “relevant function or activity” element is explained in section 3. It covers any activity connected with a business, trade or profession; any activity performed in the course of a person’s employment; or any activity performed by or on behalf of a body of persons whether corporate or unincorporated.
Under section 4, the activity will be considered to be “improperly” performed when the expectation of good faith or impartiality has been breached, or when the function has been performed in a way not expected of a person in a position of trust.
Finally, section 5 provides that the standard in deciding what would be expected is what a reasonable person in the UK might expect of a person in such a position. Where the breach has occurred in a jurisdiction outside the UK, local practices or customs should be disregarded unless they form part of the written law of the jurisdiction.
Bribery of foreign public officials
The bribery of foreign public officials is a distinct crime under section 6. A person will be guilty of the offence if they promise, offer or give a financial or other advantage to a foreign public official, either directly or through a third party, where such advantage is not legitimately due. A foreign public official is defined as “an individual holding legislative, administrative or judicial posts or anyone carrying out a public function for a foreign country or the country’s public agencies or an official or agent of a public international organisation”. The inclusion of “through a third party” is intended to prevent the use of go-betweens to avoid committing a crime. If the written law of the country of the foreign public official allows or requires the official to accept the advantage offered, no crime will be committed.
The offence under section 6 only applies to the briber, and not to the official who receives or agrees to receive such a bribe. There is no requirement to show that the public official acted improperly as a result of the bribe.
Failure of commercial organisations to prevent bribery
Under section 7, the failure of commercial organisations to prevent bribery on their behalf is a crime. This applies to all commercial organisations conducting business in the UK. The offence is one of strictly liability, with no need to prove any kind of intention or positive action. It is also one of vicarious liability; a commercial organisation can be guilty of the offence if the bribery is carried out by an employee, an agent or a subsidiary.
Under section 7(2), the commercial organisation has a defence if it can show that, whilst bribery did take place, the commercial organisation had in place “adequate procedures designed to prevent persons associated with [the company] from undertaking such conduct”. The burden of proof in this situation is on the organisation, with the standard of proof being “on the balance of probabilities”.
The penalties for conviction of an offence under the Act are harsh. An individual (including directors and employees) can be sentenced to imprisonment for up to ten years and/or ordered to pay a fine; a company found guilty of an offence may face an unlimited fine.
To date, there have been only three prosecutions under the Act, and those have been of individuals. The most recent prosecution saw a student at the University of Bath convicted of attempting to bribe his tutor with £5,000 to receive a pass mark for his dissertation. His was sentenced to 12 months’ imprisonment and ordered to pay nearly £5,000 in costs. Previous sentences included two months’ imprisonment and a two month curfew for a taxi driver who offered smaller bribes, also in exchange for a qualification; and four years’ imprisonment for a court clerk convicted of receiving bribes for influencing the outcome of motoring offence cases.
To our knowledge, there have been no prosecutions for bribery of art businesses in the UK. Nonetheless, art market professionals are potentially exposed to the risk of bribery. In addition to facilitation payments to foreign officials, areas to watch are the payment of commission to intermediaries, and the entertainment of clients and stakeholders. Whilstin principle, the payment of commission to intermediaries, and the entertainment of clients, areperfectly legitimate activities, in certain circumstances, they may amount to bribery.
Articles published on this blog reflect the opinion of the stated author of the article only. The information they contain does not constitute legal advice.