(www.MaritimeCyprus.com) 9th December is the International Anti-Corruption Day. Taking this opportunity we'd like to touch the big challenge in the shipping industry where there's frequent and persistent demands for low value amounts demanded by public officials to facilitate port operations (‘so called facilitation payments’). Typically, the demands are for cash (small or large amounts), cigarettes or soft drinks. Opposing demands in the interaction with public servants can reduce demands in one country and lead to severe consequences in another. The ship can be detained, or in worst cases the crew can be exposed to severe extortion situations.
Vessels are provided with services by many different agents and officials, some of whom take advantage of the opportunity that this provides to extract bribes. Corruption can range from an expectation of receiving cigarettes as a gift, to demands for substantial cash payments. If not met, these demands can result in delay, additional costs and even substantial fines.
Corruption has long been a problem for parts of the shipping industry. For example, charterers commonly pay a separate sum for communication/victuals/entertainment and this has been described as partly to cover the costs of the Master’s duty to … serve drinks/cigarettes, if deemed necessary, to pilots/customs officers/foremen etc. There have also been well reported problems with the payment of charterparty commissions.
Vessel owners may feel that they face an impossible dilemma when receiving demands for bribes. If they refuse to pay, the vessel may be unfairly targeted or delayed, with an immediate cost to the owners (e.g. a fine or off-hire claim). It can then be difficult for the owners to prove that the cost was in fact caused by local corruption. As a result, in practice, much of the cost and risk of port corruption has often fallen upon vessel owners.
Anti-bribery legislation is not new, but many countries are taking increasingly tough stances against bribery, even if it occurs on the other side of the world. The US Foreign Corrupt Practices Act imposes standards on conduct abroad, as does the UK’s Bribery Act 2010 (the Bribery Act).
One feature of anti-corruption legislation particularly relevant to shipping is that it may prohibit facilitation payments (i.e. payments demanded by officials for doing what they are already required to do).
Under the Bribery Act, a company can be guilty of a criminal offence if an employee bribes another person intending to obtain or retain a business advantage. This could include a facilitation payment. It is a defence to show that despite a particular case of bribery, the company nevertheless had procedures designed to prevent it. Conviction for failing to prevent bribery can result in large fines against a company. Some useful guidance can be found at the bottom of this article.
As a result, many companies are reviewing their internal anti-corruption policies to avoid criminal sanctions if something does go wrong. This is leading to an increasing demand for counterparties to agree to comply with applicable anti-corruption standards.
The BIMCO anti-corruption clause for charterparties
Tailor-made anti-corruption clauses have been in use for some time, but they have often been most favourable to the drafting party. The BIMCO Clause is an attempt to re-address the balance between owners and charterers.
Sub-clause (a): The parties agree to comply with all applicable anti-corruption legislation, which includes all jurisdictions in which the parties and the vessel operate. They must also both have procedures designed to prevent offences being committed under applicable legislation.
Sub-clause (b): If the owner or Master receives a demand for something of value from an official or contractor (e.g. pilot or hold inspector), and it appears that meeting the demand would breach anti-corruption legislation, then the Master shall notify the charterers as soon as practicable, and all must work together to resist the demand.
Sub-clause (c): If the demand is not withdrawn, the Master may issue a Letter of Protest. Unless there is clear evidence to the contrary, any delay to the vessel is deemed to be the result of the corrupt demand, and the vessel will remain on hire/laytime shall run.
Taken together, sub-clauses (b) and (c) make it clear that where charterers order the vessel to a port where there is corruption, the charterers should bear the cost of resulting delays. If the vessel loses time for some reason other than the corrupt demand then the vessel can still be placed off-hire.
Sub-clause (d): The parties indemnify each other for losses caused by a failure to comply with applicable anti-corruption legislation.
Sub-clause (e): Either party may promptly terminate the charterparty if the other has breached applicable anti-corruption legislation, which in turn causes the innocent party to itself be in breach of anti-corruption legislation.
This provision will no doubt be an incentive for both parties to comply with the Clause.
Sub-clause (f): Both parties warrant that they did not breach anti-corruption legislation during the negotiation of the charterparty.
Even with increasing opposition to bribery, and the growth of organisations like the Maritime Anti-Corruption Network, problems with corruption will continue to occur in some places for the foreseeable future. It is therefore important for Members to understand the requirements of applicable anti-corruption legislation and to ensure that they have appropriate anti-corruption policies and safeguards in place to comply with such legislation. This may in some cases include incorporation of the BIMCO clause into charterparties.
The Bimco Clause is used where appropriate, both as a tool for opposing corruption and as part of a general compliance with anti-corruption requirements and risk management. If the Clause is used, it is important for charterers and owners to understand its operation and effect. Masters should be informed if the Clause is being used, and consider providing crew with training on applicable anti-corruption legislation, so that they know what to do if they experience it.
In addition, maritime companies can benefit by implementing ISO 37001 – Anti-bribery management systems in Shipping. ISO 37001 specifies requirements and provides guidance for establishing, implementing, maintaining, reviewing and improving an anti-bribery management system. The system can be stand-alone or can be integrated into an overall management system within the Company’s SMS.
Guidance papers (Click on below images to download documents):
Maritime Anti-Corruption Network (MACN) – Introduction video: