Bribery In International Construction

Author:Mr James Mullen
Profession:Fenwick Elliott LLP
 
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In Issue 18 of IQ, Sarah Buckingham reviewed the extra-territorial reach of the UK anti-bribery legislation. In Issue 19, we take a more global look at the risks of bribery on construction projects.

A recent report1 by Global Construction Perspectives and Oxford Economics forecasts that by 2030 the volume of construction output will grow by 85% to US$15.5 trillion worldwide, with China, the US and India leading the way and accounting for 57% of all global growth. There is no doubt that global construction is big business, particularly in the emerging markets where large construction and infrastructure projects are being carried out more and more. However, construction (both at home and abroad) has always been viewed as a sector that is extremely vulnerable to bribery.

Why is international infrastructure and construction seen as being so vulnerable and at high risk of bribery?

There are numerous reasons, including:

Many of the large international construction and infrastructure projects are carried out in the emerging markets which are often seen as high risk jurisdictions for bribery. The significant scale of international infrastructure and construction projects can make it easier to hide bribes or inflate costs. Large international infrastructure and construction projects often have complex structures with hundreds (if not thousands) of contractual links and supply chains. Each link/chain can be an opportunity to pay or receive a bribe, whilst the complicated structure of a project provides opportunities for the concealment of unlawful activity. Foreign construction companies working abroad will almost inevitably require the services of local agents and third party intermediaries. However, it is through these third party channels that bribes are often paid. There may be various cultural differences. For example, what a local agent or contractor considers to be acceptable in their jurisdiction may not be considered acceptable in, for example, the UK or the US.    Almost all large international infrastructure and construction projects will have some form of government involvement at one level or another. For example, the majority of infrastructure projects are government-owned, whilst even projects in the private sector will require government approvals, permits and licences etc. which, if not controlled properly, provide easy opportunities for officials to extract bribes. Opportunities for bribery at different phases of a project

There are opportunities for bribery to occur at virtually every phase of a construction project, whether domestic or international.

Tendering and procurement

Tendering and procurement is the stage of a construction project that is often considered to be the most vulnerable to bribery. An obvious example is the payment of bribes to a representative of, or an advisor to, the employer or a government to secure a contract. Further down the contractual chain, subcontractors could bribe an employee of the main contractor to win a subcontract, or a supplier could bribe the main contractor to ensure that it chooses them instead of a rival supplier. Notwithstanding the illegality of such payments, they will inevitably...

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