EXCLUSIVE: Beware Global Reach Of New Anti-Bribery Laws - Withers In Asia

Tom Burroughes

4 December 2012

The wealth management industry along with other businesses will need to spend more effort to avoid falling foul of anti-corruption laws that have a global reach, a Singapore-based Withers lawyer warns.

With countries such as the UK and US rolling out anti-bribery and corruption laws – sometimes leaving unanswered questions about exactly what sort of behaviour is tolerated – it is urgent for individuals and companies to familiarise themselves with the fine print, Gerallt Owen, Withers’ head of international regulatory and corporate crime, told this publication recently.

His message is hardly new but adds to a drumbeat of noise about the importance of wealth managers understanding this new compliance area, particularly in parts of the world where standards may not always be up to those of other regions. (To view recent warnings to firms in China, for example, click here.) Anti-corruption rules also add to the plethora of regulatory developments adding to compliance burdens in recent years.

Owen joined Withers earlier this year to intensify focus on this area, prompted by growing legislative activity.

“It was to offer our clients, such as ultra high net worth clients and corporations, the experience of looking at these issues from both a proactive regulatory compliance perspective and also to deal with regulatory and corporate crime investigations and proceedings,” he said.

His colleagues look at a range of issues such as fraud, money laundering, corruption and bribery, economic sanctions, tax fraud, financial regulation issues, disciplinary proceedings and processes. While Owen is based in Singapore, his team is based in London.

“The primary focus has been on anti-corruption in Asia,” he said. He referred to Transparency International's Corruption Perception Index to highlight the higher risk of corruption in many of the countries in Asia. (TI is due to issue its 2012 index on such issues on 5 December.)

Close connections

As Owen explained, one important term to understand is what is meant, under UK anti-bribery law, for example, as when a person has a “close connection” to the UK for the purposes of the law’s reach.

“It’s really important, for wealth managers to understand who satisfies the 'close connection' to the UK,” he said, referring to how the Act refers to individuals. “A lot of people don’t understand how far-reaching the Act is. KYC needs to address the question of whether someone has a close connection as of course this is a requirement for a number of the individual offences under the UKBA. They also need to understand if their clients have 'operations' in the UK because any commercial entity that has operations in the UK falls under the jurisdiction of the UK under section 7- the offence of failing to prevent bribery,” he said.

Even more significantly, the UK act doesn’t just cover UK citizens or those ordinarily resident in the UK but also British overseas territories citizens; British overseas citizens; British nationals (overseas); British protected persons and British subjects.

To illustrate, about half of the current population of Hong Kong might be deemed “closely connected” to the UK due to their British national (overseas) status under this Act.

“Of interest to wealth managers who regularly deal with the offshore jurisdictions is for them to understand that British overseas territories include the financial centres of Bermuda, the British Virgin Islands, the Turks and Caicos Islands and the Cayman Islands. Consideration needs to be given as the close connection status of the individuals that operate those businesses in those jurisdictions,” he said.

A firm operating in Hong Kong could be potentially affected by the Act, for example.

Mergers and takeovers

A key example of how due diligence checks are essential for companies is ensuring that a business that is the subject of a takeover does not have the taint of corruption in it. Under the UK’s own Proceeds of Crime Act, a company that buys a “corrupt” business could be liable for having obtained or made use of criminally-obtained property.

“For example you may discover that facilitation payments have been made historically in the target business. If the target company obtained or retained business as a consequence of making these facilitation payments then the whole value of the business retained or obtained would potentially be criminal property. There may well therefore be anti-money laundering regulations to be considered and complied with before a transaction can proceed,” he said.

Given all this, it is no wonder that Owen is a busy man these days advising companies on the potential dangers.

“I get a lot of requests, concerning some corporate hospitality or promotional events, as to whether they are suitable and proportionate. It is vital that there is a consistent and transparent approach to such issues and that the company follows it's own published policy,” he said, noting that some firms may uphold an across-the-board ban on things like forms of corporate hospitality, while others will allow a level of in-country discretion to take into account local rules and customs.

Fine line

“There is a line between the legal activity of building genuine business relationships by corporate hospitality and those who lavish expensive gifts or entertainment or business prospects which could be perceived as paying a bribe. Generally, the higher the value of the hospitality or gift is, the higher the risk.”

“It is really important that whatever hospitality or gifts are given that these are recorded in a transparent way and the purpose of such activity is clear,” Owen said.

Issues can often arise in situations where business and friendships mix: “If two people have been doing business together for years, and one day, one of the individuals has a luxury house in the Cayman Islands. He says to his friend that the latter can use the house with the family. Where would this hospitality be recorded? How will this be shown in the corporates' books? Suppose that just after the holiday at the house the friend who stayed in the house awards the house owner a large business contract?”

“How does that look? What is the market value of the use of the house? The free use of the holiday home might be seen as a bribe. Similarly use of yachts or jets could fall into the same category,” he said. “In some cases like this, there may be a genuine friendship reason for the activity. However, the transaction or relationship may look suspicious."