Beware of businessmen bearing gifts

The custom of gift-giving between businesses in the Gulf could lead to companies finding themselves on the wrong side of new UK anti-bribery legislation, lawyers warn. Exchanging presents has been an integral part of Arab culture for centuries, with the practice being adopted by businesses in the region over recent decades.

But companies operating in the region with links to the UK have been warned that following such a custom could risk them being exposed to the Bribery Act, which this month became law in the UK as part of a tightening of legislation on corrupt business practices. Lawyers say the new rules target UK companies making payments or gifts in kind to overseas officials to facilitate business. The provision is triggered if the gift relates to business activities among companies.

"Anti-bribery provisions can apply to more than just 'a suitcase of cash," said Joanne Hennessy, an associate at the law firm Clyde and Company in Dubai. "It can include, among other things, discounts, gifts, use of materials, hospitality and the promise of future employment." The law makes it clear it does not recognise a defence of adhering to local practice or custom, said Ashley Painter, a partner at Clyde and Co.

Under the law, any company that operates part of its business in the UK, or an individual ordinarily resident in that country, could face charges of bribery and corruption, irrespective of where the offence takes place. A company will be liable if it fails to prevent its staff, or third parties performing services on its behalf, from paying bribes. Companies with UK links have been urged to tighten their corporate codes of conduct informing employees and agents, suppliers and consultants they use about levels of behaviour expected and what gifts were acceptable to give.

"There's nothing wrong with gift-giving as a practice," said Michael Adlem, the director of fraud investigations at Ernst & Young in the Middle East. "But some of the gifts given in this region can be quite extensive in value so the problem could be to prove they have been given innocently. The company only becomes liable if the gift has been given to win a contract or retain a contract." It is a defence under the law for a company to show it has adequate anti-bribery legislation in place, Mr Adlem said.

The act is viewed partly as a reaction to a recent case involving the UK defence company BAE Systems following an investigation into its business deals in Saudi Arabia. The case was dropped after the intervention of the UK government. This year, BAE agreed to pay £300 million (Dh1.69 billion) in fines after signing a plea bargain with the country's serious fraud office and the US department of justice.

The impact on regional businesses of the UK legislation is expected to be more far-reaching than the US's Foreign Corrupt Practices Act, (FCPA) say lawyers. Unlike the FCPA, the UK act makes no allowances for small facilitation payments in line with local culture. Although lawyers consider the UAE's own legislation under-developed compared with international standards, the country moved up five places last year to become the 30th least-corrupt country of the 180 assessed by businessmen and analysts in the UK-based Transparency International's corruption perceptions index.

Under UAE criminal law, it is an offence to try to bribe a government official. "In the UAE, a more robust commercial law on anti-bribery is needed and more education at a company level around the importance of greater corporate governance," said Mr Painter. [e-mail]