Companies are competing to win a contract. One pays a bribe to exclude its competitor from the bidding process, or to win the contract. If caught, it faces prosecution under the UK’s Bribery Act 2010, as do its bribing directors or employees. The bribing company also risks termination of its contract and claims from its customer.
But could it also be sued by its aggrieved competitor for compensation?
In England, and other common law countries, the answer is yes. And the available claims are not limited to wasted bidding expenditure. Lost profits can also be recovered.
The issue was tested in England in the recent case of Jalal Bezee Mejel Al-Gaood v Innospec Ltd. The defendant, Innospec, had previously admitted paying bribes in criminal proceedings in both the UK and the US. It had also settled a civil claim made against it by a manufacturer of competing chemicals in New York. The Claimant sued in England. It lost the case on the basis that it would not have won the contract in any event. But the case confirms that such a claim is viable. Our fuller briefing on the case appears here.
A public official receives a bribe to award a contract. Does the bribe “belong” to the official or to the state that he or she represents?
The answer to the question can matter a great deal to the success of a claim. But the issue has been controversial and the answer was for a long time unclear in English law, particularly in recent years.
The English position has been conclusively resolved by the the United Kingdom’s Supreme Court. It decided that the bribe belongs to the state. The decision ensures that English law is identical to other major common law jurisdictions.
This is important for a number of reasons:
- First, if the official becomes insolvent, all of the funds can be claimed by the state in preference to the claims of other (innocent) creditors.
- Secondly, if the funds are invested in assets that increase in value, such as property in a rising market, the state will be entitled to recover the entirety of those assets. This means the state takes the benefit of the increase in value. In the absence of ownership, this would be more difficult, if available at all, because the increase in value is not itself usually a result of any wrongdoing.
- Thirdly, claims based on ownership offer more effective mechanisms to trace and recover funds.
- Fourthly, a claim by the state may be subject to less onerous requirements that claims must be brought within a certain period.
- Fifthly, the state may be able to obtain better rates of interest on sums awarded to it. That can make a difference when bribes are substantial and uncovered only after a significant period of time.
Our fuller briefing on the English legal position, linking to the judgment, appears here.
If you’re a company officer or director and need a quick reminder on your responsibilities under the UK Bribery Act, take a look at our one page tipsheet. We cover the following areas
- the offences;
- the corporate offence of failing to prevent bribery;
- the defence of adequate procedures;
- the global reach of the Act;
- self-reporting and deferred prosecution agreements; and
- due diligence in M&A transactions
Victim states seeking to recover the proceeds of corruption, or compensation for corrupt acts, may have a choice of mechanisms to do so: criminal, civil and non-conviction forfeiture. Each mechanism has advantages and disadvantages, and the “right” route for a particular case depends on the circumstances. Flexibility is key, and any substantial programme is likely to deploy all of the available mechanisms. Indeed, many successful individual cases have used two or more mechanisms to maximise recoveries.
Cooley’s briefing, “Recovering the proceeds of corruption: how states can recover stolen assets” outlines and discusses the recovery options, and the factors that a state should consider when choosing between them. It is available here.
Welcome to our blog.
Cooley has a proven team representing states and companies seeking to trace, freeze and recover the proceeds of corruption or fraud, or obtain compensation for corrupt or fraudulent acts.
We assist states to:
- Recover stolen public funds, bribes and compensation for corruption from dishonest public officials, their companies, trusts, and associates;
- Make claims for compensation against contractors that have paid bribes to win contracts or gain other advantages (and we advise on the termination or renegotiation of tainted contracts);
- Make claims to recover assets or compensation against third parties which knowingly handle the proceeds of corruption, or assist in the laundering of it;
- Use insolvency remedies to take control of companies used to receive or launder the proceeds of corruption
We have worked internationally on some of the most innovative and successful claims to recover the proceeds of corruption and, in addition to cases in our own jurisdictions, have assisted states to formulate and implement international asset recovery strategies taking into account the complex practical and legal issues that arise in cases involving multiple countries.
We also help companies or individuals that have suffered fraud or theft to recover assets, or to make claims against the principal wrongdoers or those that have assisted them.
This blog will discuss key issues in the field of asset recovery and claims arising from corruption. We hope our blogs are enjoying, interesting and insightful.