Say the word bribe and you immediately think of brown envelopes stuffed with oodles of cash. They may be passed under a table, dropped off by a driver or sent from an offshore account to a numbered bank account in Geneva. It involves dodgy public officials in countries where, to be honest with you, corruption flows through the country with the same certainty that the River Thames flows through the City of London. It is there. You cannot stop it and it has always been there one way or another.
Move from the corrupt public official who has arrived straight from central casting and arrives at the offices of a prestigious superyacht builder in The Netherlands, Germany or Italy. A yacht broker is sitting in a boardroom with his client. They have just signed a contract for a yacht worth €60,000,000. The broker is happy. He has secured his commission of, say, 3%; a commission, though, which the owner may not actually realise is being paid. However, I have to say, I find it hard to believe that owners believe that brokers put deals together for free!
What is wrong with this picture? Hold that picture in your mind and step back 12 months. The client meets his broker in his London office and asks his broker to find him the best deal to build his yacht. Move forward 24 months and there is a problem with the build. The yard calls the broker and asks him to smooth over a problem with the owner arising from a balls-up in the build.
Another scenario: A captain is invited by a superyacht builder or broker to a lavish holiday resort for a conference with minimal ‘conference’ content – and by the way the family can come too. Two years later the captain seeks to encourage the owner to build his new yacht with the builder, who gave him the corporate hospitality; of course he arranges everything through the London office of the builder’s London brokers. And let us not forget the longstanding tradition of some bent captains taking commissions from ships’ chandlers and from brokers on a yacht sale or purchase.
The Bribery Act 2010, which received its Royal Assent just before the recent UK general election, will become law from October 2010. All of the above examples will, at least in the United Kingdom, or involving UK companies, UK nationals or people representing UK nationals, wherever they are in world, have the potential to become criminal offences from October. Given the seemingly disproportionate British population or British connected population inhabiting the superyacht world, a lot of people will be governed by the law, wherever they may be.
Like a heart attack, which kills a seemingly healthy person, whom we then discover had blocked arteries and very high blood pressure, the yacht world is in danger of a fatal cardiac arrest due to practices, which started life quite innocently, but by today’s business ethics are considered potentially unhealthy. The commission payment is to business what the cream cake is to the heart. In the right circumstances it’s not fatal, but if you don’t watch how and what you consume, it will kill you.
So what is a bribery offence for the purposes of the legislation? The offence of bribing occurs when there is an offer, promise or financial advantage to another person where there is the intention to use the advantage to bring about an improper performance of a relevant function or an activity by another person or to reward another person for such improper performance; or where a person knows or believes that acceptance of the advantage offered, promise or given, in itself constitutes the improper performance of a relevant function or activity.
The offence of taking a bribe occurs when a person agrees to receive or accept a financial or other advantage and in receiving the advantage intends that a relevant function or activity is performed improperly. An offence will also occur when a person requests, agrees to receive or accepts a financial or other advantage and the request, agreement or acceptance itself is the improper performance by that person of a relevant function or activity. Further, an offence will also occur when a person requests, agrees to receive or accepts a financial or other financial advantage as a reward for the improper performance of a relevant function or activity. Finally, an offence will occur when a relevant function or activity is improperly performed by a person (or another person, where the first person asks or agrees or allows the second person to do the improper thing) in anticipation of or in consequence of a person requesting, agreeing to receive or accepting a financial or other advantage.
Whether you are offering or taking a kickback, it does not matter if the relevant person knows or believes that performance of the function or activity is improper. It does not matter if the improper perform ance is directly or indirectly performed – if you are part of the chain you are part of the problem. It does not matter if you or someone else, through whom you act requests, agrees to receive or accepts the advantage. It does not matter if the advantage is for your benefit or the benefit of another.
This is not just about public officials, but it is the improper performance of their activities by people in business, be you a lawyer, an accountant, a broker, a surveyor or shipyard employee or shipyard owner.
What does improper performance mean? Where a function is carried out in the expectation that there is good faith or impartially and/ or a person is working for you in a position of trust and that expectation is breached, we then have a problem. What should, for example, a potential owner expect of his professional or other advisors or employees? Essentially, what a reasonable person would expect in relation to the performance of the type of function or activity concerned.
So, taking our examples above: A managed manipulation of an owner to build a yacht at a particular yard, where there is only a cursory hunt for a builder where the broker expects a certain commission in exchange for getting the owner to a particular yard, to the serious exclusion of everyone else, would be an offence. You may think the owner naive, but if the broker is put in a position of trust AND there is no declaration that the reason he favours the, for example, Italian shipyard over the, for example, German shipyard other than the size of the commission offered by the Italian shipyard , then in my opinion the commission becomes a bribe. What is less clear is that if the broker is UK based and yard is not; is it only the receiver that is liable?
Take another common situation of a problem at a shipyard where a builder calls the broker and asks for \ some help. The situation may be dire. There is a very real possibility of the yacht building contract being cancelled. Disaster for the builder? Yes. Disaster for the broker? Yes. Especially if it means he loses his commission or worse still has to pay it back. What does a broker do in those circumstances? Does he act in his own selfish interests and do what he can to rescue the deal to preserve the build and ultimately his commission? Or does he look at what is absolutely right for the client and do what is right for the client and in so doing, alienate the builder?
Like it or not there is a temptation for implied duress by the builder on the broker. If that is applied and the broker is thinking about his commission, has he been compromised? Has the expectation that the client has of ‘his’ broker been tossed into the doubt factory? The client expects clear guidance, given truthfully and in good faith . Can the commission-taking broker do that? What is the expectation of the shipyard in giving the commission to the broker? Will the legislation impose an implied adverse inference on the relationship between broker and builder?
Now, the yachting community may argue that it is not improper for a broker to try to keep a project alive. But in circumstances where the objective test is that a project should fail, a case could be argued that a commission may either mutate into a bribe or there is the presumption that all commissions paid to an owner’s broker are ultimately bribes.
The brokerage community does a valuable job. They are the yacht world’ s matchmakers. The custom and practice of yacht building and the complex relationships therein would horrify the corporate world where this legislation came from. However, the fines that could be placed on brokerage houses of £5,000 and prison sentences of up to 12 months on a summary conviction and I 0 years on an indictment focuses the mind. People could quite easily stumble into jail! It is not just the brokers in the firing line. The directors of brokerage houses and ultimate owners of shipyards could find them selves facing charges. This will come as a nasty shock to the hedge funds and myriad holding companies that own yacht builders as part of their portfolio.
Is there anything a broker or shipyard can do to protect itself? A change in culture might help. If brokers took a finder’s fee from the owner and not the yard, it would be problem solved. In reality the solution is transparency. If a broker is briefed to find a project, the whole process must be open to scrutiny. I know of one broker who has stopped taking commissions from the yards and recovers what would have been the commission from the owner in project management fees and reduces the headline contract price. Why is the contract price reduced? Simple, no brokerage.
The owner must have absolutely no doubt in his mind that an open and independent bidding/assessment process took place when starting a new build. If commissions are offered, those must be disclosed to the owner. Some would say that those commissions should be paid to the owner or that the owner should give his consent for the broker to accept the commission. The legislation is striving to create an atmosphere in which the owner can be certain he is buying the right yacht at the right price and that he has not been stitched up by a cosy little arrangement somewhere.
The UK Government is drawing up guidelines on how the law will work and has focused on the construction industry and their tender processes and tender award mechanisms. They see this as resplendent with bad practice. I believe that the superyacht industry is on their radar.
UK associated brokers and builders should consider having a code of conduct. They should have detailed policies and procedures on gifts, hospitality and also procedures for vetting and monitoring non-UK brokers or agents for suspect activities. Risk management should be undertaken including regular auditing of compliance. Does this mean non UK builders should treat UK and non UK connected brokers differently? Answer no. My assessment is that other European authorities may use already existing law to start the clampdown. Where brokerage and project management activities are undertaken by a brokerage house, I would suggest putting a clear division between the two parts of the business. They should not even share computer servers.
It would be risky to have a broker putting pressure or being perceived as putting pressure, however innocent, on the project management team , which really is answerable to the owner.
A word on hospitality, something that is common at all levels in the industry. In the USA, problems have arisen in marketing trips, which are nothing more than holidays, high-value gifts like prestige watches and tickets to events where there is no representative of the sponsor attending. Conferences with little real technical or business content are also potentially problematic.
Another potential bribery event is when UK connected owners’ representatives take commissions and in return do not sit firmly and solely in the owner’s camp. It is not unknown for stage payments to be approved by an owner’s representative earlier than really due so they can take the next instalment of their commission! This would clearly fall foul of the law.
What if your overseas agents and brokers market their services and do something that could be considered as a bribe in the UK? Even if it is customary to give a small facilitation fee, then the UK end could be in trouble. This extends to the occasional custom of brokers in a sale and purchase transaction paying a little something to a captain. If the captain was led to expect something for helping the sale along or if the captain tipped off a broker to scupper an owner’s deal in order to allow another deal to happen, in the expectation of a benefit that might arise, then that would be caught by the law. As to whether this would extend to UK flagged vessels is not yet certain.
Does this only affect the UK? At present the UK is alone in following the US lead, although there are anti-corruption laws in all the major EU yacht building centres. France, Italy, Germany and The Netherlands are moving in the same direction as the UK, but at present the legislation there is directed at preventing public officials being bribed. But be aware if a bribe, or something which will be viewed as a bribe, is made in US dollars and the US banking system is used; US law may well apply! And there the sentences and the fines are extremely harsh.
At the last Global Superyacht Forum, the owners represented there complained that the kickback culture was creating a doubt in their minds about the integrity of those who purported to represent them. This piece of legislation may be the first step in making the industry rethink how it does business. Each person in this industry has a role to play.