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03rd March 2020

BREXIT – The riskier and costlier business of International Trade.

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We are in the Brexit departure lounge waiting for the call – the call to a bright new global trading future we are told. Trading with our former European partners might end up being a bit more complicated, a bit slower and a bit more expensive, but goods and services will still flow to-and-fro; they are our neighbours after all. The UK Government is pinning the nation’s future economic hopes however to new opportunities to sell elsewhere in the world – untapped markets. Undoubtedly there is much that can be done on that front. The UK has plenty of exceptional wares to offer that will be highly attractive to many other parts of the world and we will certainly sell more if more effort is put into doing that. Increasing trade with more distant regions does add cost though and not just on shipping. There are collateral risks and hidden costs; corruption and the higher cost of measures to prevent bribery amongst them.

Under the UK’s Bribery Act 2010, when someone who is associated with a commercial organisation (that is, a person who performs services for it eg an employee, agent or other representative) commits a bribery offence in the course of those services, whether domestically or, significantly here, in another part of the world, that person’s corrupt activities are attributed to the organisation. The organisation becomes ‘strictly liable’ for the misconduct and thereby, the criminality. It is well understood that a bribery conviction or even the investigation of an offence can have very serious consequences for a business and its proprietors. Something to avoid if at all possible. It can end a business. The risk can be mitigated, if not avoided though. Under the Act, an organisation can avoid a prosecution and establish a complete defence against liability if it is able to demonstrate that at the time of the offence it had adequate procedures in place to prevent bribery.

Expectations for what procedures will be adequate for any one business will be tested against the Government’s published guidance [https://www.gov.uk/government/publications/bribery-act-2010-guidance]. The starting point for an organisation’s response to that guidance and deciding on the anti-corruption procedures it should introduce are periodic and informed risk assessments. Amongst the commonly encountered risks identified by the guidance for such assessments – indeed, the first it mentions - is ‘country risk’. Such risk (in the words of the guidance):

“…is evidenced by perceived high levels of corruption, an absence of effectively implemented anti-bribery legislation and a failure of the foreign government, media, local business community and civil society effectively to promote transparent procurement and investment policies.”

The respected global anti-corruption movement Transparency International produces an annual Corruption Perceptions Index (CPI) [https://www.transparency.org/cpi2019]. The CPI ranks 180 countries and territories by their perceived levels of public sector corruption according to experts and businesspeople surveyed globally. The higher the score on the index, the better – zero is highly corrupt and 100 is very clean. In the most recent CPI (2019), more than two thirds of the world have a CPI score below 50. The average score for all 180 areas measured is 43.

So, here lies the rub. Looking at the regions, the highest scoring is Western Europe & the EU - 66. Indeed, the lowest individual score of States in the region is 43 – that is, the same as the average for the whole world.

Western Europe & EU 66
Asia Pacific 45
Americas 43
Middle East & North Africa 39
Eastern Europe & Central Asia 35
Sub-saharan Africa 32

The regional average score closest to Western Europe & EU – Asia Pacific - is 21 points lower.

This stark cultural picture is well recognised by those who operate in global markets of course; but, the legal liability significance of this new trading world for both risk and cost, perhaps not so much – That, trading in other regions of the world offers the prospect of materially higher bribery related risks than trading in Europe; that, the higher the ‘country risk’, the more thorough, intensive or extensive the anti-corruption measures organisations will be expected to introduce to meet those risks; and that the more thorough, intensive and extensive the measures introduced, the higher will be the cost.

I shall leave it to the economists to measure the cost of this future dynamic for UK plc, but I venture there will be one.

Dominic Hopkins is head of Disputes and Litigation at Hewitsons and an Associate Member of the UK Constitutional Law Association. For more information please contact Dominic Hopkins on 01604 233233 or click here to email Dominic.