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Liability for corruption

The prevalence of corruption in the road sector is contributed to by lack of awareness as to the risks of participating in corruption. Civil and criminal liability may be incurred by both individuals and their corporate employers. If there was greater awareness of such risks, individuals would be less willing to participate in corruption on behalf of their employers, companies would be more concerned to prohibit their employees from committing corrupt acts, and more corruption would be reported to the criminal authorities. This would significantly reduce the incidence of corruption in road projects.

Criminal liability

In many jurisdictions, activities involving bribery, extortion or fraud are serious criminal offences. The manner in which liability may be incurred for such offences will differ according to the jurisdiction. The following principles may apply in a number of jurisdictions. Companies and individuals should always familiarise themselves with the relevant laws of both their home country and of the country in which they are working.

(1) Corporate liability: A company may incur criminal liability and can do so through acts committed by its employees. Consequently, if a company wishes to avoid liability for corruption, it should ensure that its employees are fully aware that corruption is prohibited. This may be done by adopting a corporate ethical policy under which the employees receive training. Systems should also be introduced which enable employees' conduct to be monitored. (Management Systems)

(2) Corporate liability for business partners: A company may incur criminal liability for corrupt acts carried out by its associated or group companies, sub-contractors, agents or joint venture partners, if it can be shown that the company consented to, acquiesced in or turned a blind eye to the corruption. In some cases, where there is no direct proof of such complicity, this may be inferred from the circumstances. For an ethical company, this can cause serious difficulties where, for example, it is unable to ensure that its business partners will not commit corruption and is, therefore, at risk of being implicated by inference in the corruption. Consequently, in order to avoid liability or to mitigate any penalty, companies should take sufficient preventive measures to counter any such inference. Such steps may include adoption of a corporate ethical policy, carrying out proper due diligence on prospective business partners, and requiring those partners to take similar steps and to provide anti-corruption warranties. (The prevention of corruption)

(3) Individual liability: An individual may incur personal criminal liability for bribery, extortion or fraud, even where:

(a) he did not commit the corrupt act personally,

(b) he was acting purely in the interests of his employer,

(c) he was acting under the instructions of a manager or other senior employee,

(d) he stood to make no personal gain from the corruption, and/or

(e) the employer managed to avoid prosecution or conviction.

(4) Individuals who are peripherally involved may be implicated: In addition to those individuals who physically commit the corrupt act, other individuals may be implicated who were only peripherally involved. These may include:

(a) board directors who suspect corruption, or have turned a blind eye to it, or have tacitly condoned it;

(b) senior officers in a company who attempt to distance themselves from a criminal act by delegation or by minimising their involvement or by pretending lack of knowledge of the event;

(c) in-house lawyers and/or external legal advisers who advise on a transaction or draft agreements in respect of it while suspecting corruption;

(d) financial officers of a company and/or external financial advisers and/or lenders who advise or arrange for loans or payments in relation to a transaction while suspecting corruption;

(e) quantity surveyors, consultants, and lawyers who advise on and prepare claims which they know or suspect are inflated and/or are based on falsified or fabricated evidence.

(5) Wilful blindness will not prevent corporate or individual liability: Corporate or personal criminal liability for corruption may be incurred where a person has not become involved in a corrupt transaction but has deliberately closed his eyes to the circumstances. Thus, a contractor may be liable for the act of an agent where the circumstances of the agent's appointment alerted him to possible corruption, but he has ignored the indications and continued with the arrangement.

(6) Common practices in relation to road projects may be criminal offences: A large number of activities often considered as standard practice in the industry may constitute one or more criminal offences involving fraud. Such activities are wrongly regarded, not as crimes, but as falling within the grey area of acceptable sharp practice. They may include:

(a) by project owners, the wrongful withholding of payments, the wrongful levying of liquidated damages, and the preparation and submission of exaggerated or fabricated defects claims; and

(b) by contractors and consultants, the preparation and submission of inflated or fabricated claims for delay, extra costs or variations, use of poor workmanship and materials to boost profits, and concealment of defects.

In each case, the fabrication or falsification of project records or other evidence in order to support the above frauds may themselves constitute criminal offences. Thus all individuals involved in such activities, or who turn a blind eye to them, may be criminally liable, as may their corporate employers.

(7) Extortion or other enforced corruption may not exempt an individual or company from criminal liability: In many cases, individuals and companies may not wish to commit a corrupt act. However, they may frequently be placed in situations where such acts may appear necessary. Bribes may be demanded during tender in order for them to be permitted to participate in the tender process or to have any expectation of winning the contract. Bribes may be demanded during project execution in order for them to obtain permits, certificates, approvals or payments. Inflated claims may be submitted only because it is known that the project owner, as a matter of standard practice, automatically halves any claim submitted to it. If contractors or consultants commit a corrupt act in such circumstances, they may still incur criminal liability. In some jurisdictions, a person may avoid liability for paying a bribe that has been extracted by extortion but only if that person was threatened with imminent bodily harm.

(8) Prosecution may be possible at home and abroad: Many countries have extra-territorial jurisdiction in relation to bribery, extortion and fraud offences. Thus, if a company through its employees commits bribery or fraud in a foreign country, it is quite possible that the company and its employees could face prosecution both in their respective home countries and in the country in which the bribery or fraud was committed. Thus it would be wrong for a company or individual to assume that, simply because a road project is located in a country which is perhaps lax in its prosecution of corruption, or where they happen to be on good terms with the Minister of Justice, they will escape such prosecution. It is quite possible that their home country could prosecute. All OECD countries, as a result of the OECD Convention against Bribery, have laws which enable their companies and nationals to be prosecuted at home for a bribe paid overseas.

(9) Criminal penalties for companies: The criminal penalties for companies convicted of corruption may include the imposition of fines and seizure of all monies that are shown to be proceeds of the crime.

(10) Criminal penalties for individuals: The criminal penalties for individuals convicted of corruption may include fines, imprisonment and, in some jurisdictions, execution.

Increased prosecution of corruption is necessary

Prosecution and conviction are necessary to deter corruption. The majority of individuals and companies in the industry do not want to commit corrupt acts. They will be further deterred from doing so by the knowledge that certain actions are crimes for which they may be prosecuted. However, there will always be some individuals and companies who are prepared to practise corruption regardless of the ethical considerations. Unless there is a real threat of prosecution and conviction, these persons will not stop committing corrupt acts, and will therefore prejudice the efforts of more ethical companies and individuals to act with integrity. At present, there are few instances of prosecution for corruption in road or other construction projects, in developed or developing countries. Prosecution must be increased if corruption is to be deterred.

Civil liability and other consequences of corruption

Civil liability and other consequences of corruption will often run simultaneously with criminal liability. The actual civil rights and liabilities will depend on the relevant legal jurisdiction. However, these may include the following.

(1) Claims for lost tender costs: Tenderers may sue for lost tender costs where there has been corruption in the tender process. Where the corruption has occurred between a tenderer and a representative of the project owner, claims may be made against both of these parties and against the project owner.

(2) Claims for damages: A party may claim damages for loss incurred as a result of corruption. Such claims may be made under a contract or otherwise.

(3) Termination of project contracts: A project owner may terminate a contract which it discovers has been awarded on the basis of corruption with consequent claims for compensation by all affected parties. Even if the contract does not expressly contain termination provisions, many countries' legal systems provide that contracts procured by a corrupt act can be terminated.

(4) Termination of financing and guarantee agreements: Such agreements may have stringent provisions requiring immediate termination of loans in the event of corruption. If such provisions were properly applied and if there was proper monitoring in order to detect corruption, this would be a significant incentive to all parties to the project to limit corruption.

(5) Debarment for companies: Companies may be debarred from participating in future projects. Multi-lateral development banks (such as the World Bank) have procedures under which companies which are found to have been involved in corruption are prevented from participating in projects financed by those organisations for a specified period of time. The European Union has mandatory debarment from all public tenders in EU countries in circumstances where a company, or its relevant officer or senior manager, has been convicted of corruption. Many countries have similar provisions. Debarment can have a devastating effect on a company.

(6) Damage to companies' reputation: Even if not debarred, ethical organisations may be reluctant to participate in any project involving a company that has been convicted or even investigated for corruption. Such companies will, therefore, start to lose business. Publicly listed companies may lose share value if they are involved in corruption, as many investors may sell rather than hold shares in a company implicated in corruption.

(7) Disciplining by professional bodies: Individuals may be disciplined by or suspended from membership of professional associations to which they belong.

(8) Loss of employment: Individuals may dismissed from their employment. This may be done by companies because the individual was acting contrary to the ethical policy of the company or because he is being used as a scapegoat by the company.

Catherine Stansbury, Global Infrastructure Anti-Corruption Centre
www.giaccentre.com