Confronting and mitigating against corruption in different jurisdictions

Construction is a $1.7 trillion industry worldwide, contributing between 5 and 7 percent of GDP in most countries. However, it is also an industry that is highly vulnerable to corruption due to its inherent characteristics. It also delves into the broader anti-corruption frameworks implemented in various jurisdictions, specifically focusing on England & Wales, Hong Kong SAR, Singapore, the United Arab Emirates (UAE), Saudi Arabia and the United States (US). We conclude with our view as to the practical and legal steps which parties can take to limit the risks to their businesses.

Prevalence of corruption in the construction industry

Construction projects often span several years, involve significant financial investment, and are uniquely complex with no two projects being the same and extensive supply chains that involve many parties. This has given rise to various practices which amount to corrupt activities. This is an issue that has come up internationally and cannot be seen as limited to just one geographical area, albeit there are places where the risk of corruption is higher. The broader anti-corruption frameworks in place in the UK, US, Hong Kong SAR, Singapore, the UAE and Saudi Arabia, while not limited to the construction industry, offer valuable insights into the comprehensive measures taken to combat and mitigate corruption within this vital sector, illustrating the universal strategies that can be applied to uphold integrity in construction projects and the current practice when it comes to the forms of construction contract used in each jurisdiction.

PwC’s 2014 Global Economic Crime Survey highlights the alarming prevalence of economic crimes, particularly bribery and corruption, within the construction industry. Nearly half (49%) of respondents from the construction sector reported experiencing bribery and corruption, making it the industry with the highest level of corruption among those surveyed. PwC’s report found that asset misappropriation - at 76% - was the most frequent type of economic crime respondents experienced and 7 out of 10 of the most serious crimes were perpetrated by insiders, thus making the construction industry one of the most susceptible to corruption. This pervasive corruption significantly also impacts on other types of economic fraud within the sector, often exacerbating issues such as accounting fraud, as corrupt activities are generally not transparently recorded in financial statements.

Several structural and cultural factors contribute to the high risk of fraud and corruption in the construction industry.

Incentives to get project done: Construction projects often have strong incentives to finish on time. Efforts to uncover fraud and corruption may be deprioritised to avoid delays, which are seen as obstacles to project completion.
Cost variability: The unique nature of each construction project makes cost predictions and comparisons difficult. This variability hinders the detection of excessive costs and potential fraud, as legitimate cost increases can mask fraudulent activities. It can also lead to delays and overruns, resulting in additional charges that fraudsters can exploit.
Complex supply chains: Large projects often involve complex supply chains with multiple contractors and international links, increasing opportunities for fraud and corruption.
Low bid contracts: Public sector contracts are often awarded to the lowest bidders. This can lead companies to bid low initially with the intention of recouping profits through fraudulent means once the contract is secured.
Large costs allow concealment of fraud: The substantial costs involved in construction projects allow for the concealment of fraud and waste, and the often hidden nature of the work means substandard materials and workmanship can go unnoticed.

Legal Frameworks for Combating Corruption Across jurisdictions

To combat corruption, various jurisdictions have implemented comprehensive anti-corruption legislation. The following sections explore the anti-corruption frameworks in place within England & Wales, Hong Kong SAR, Singapore, the UAE, Saudi Arabia and the United States, highlighting both criminal and civil liabilities.

England & Wales

Criminal Liability

The Bribery Act 2010 (“BA 2010”), introduced on 01 July 2011, reshaped the laws on bribery in England and was considered “the most severe piece of anti-corruption legislation in the world”. It represents a comprehensive overhaul of England’s anti-corruption laws, establishing a rigorous framework to combat bribery in both public and private sectors. The legislation applies to UK nationals or a person located in the UK and has worldwide application. Key aspects include bribing and receiving bribes, bribery of foreign public officials and failure of commercial organisations to prevent bribery. The latter is one of the most significant aspects of the BA 2010, holding commercial organisations to strict criminal liability if they fail to prevent bribery, unless they can prove they had adequate procedures in place to prevent such conduct.

Enforcement of the BA 2010 is carried out by the Serious Fraud Office (“SFO”) and other relevant authorities, with the legislation granting them broad powers to investigate and prosecute offences. The penalties for violating the BA 2010 are severe, with individuals facing up to 10 years in prison and organisations subject to unlimited fines.

The Bribery Act 2010 (“BA 2010”), introduced on 01 July 2011, reshaped the laws on bribery in England and was considered “the most severe piece of anti-corruption legislation in the world

Civil Liability

English civil law provides several remedies for a principal against its agent or employee who has been bribed as well as the third party that offers the bribe. The most straightforward legal action for bribery is the tort of bribery and the related restitutionary claim for the bribe, which can be pursued against both the agent and the third party. However, it should be noted that bribery typically leads to multiple and overlapping legal causes of action. Such claims would normally be based on the tort of bribery or contractual claims where a contract contains provisions that cover bribery. Other potential causes of action include breach of fiduciary duties, which covers agents in fiduciary positions, such as company directors, as well as claims against a third party for dishonest assistance, knowing receipt, and unlawful means conspiracy.

Construction contracts

In the UK, the most widely used forms of standard construction contracts are the NEC4 and JCT suites of contracts. The JCT form provides that an Employer may terminate the contract if the Contractor has breached the BA 2010. The NEC4 suite of contracts prohibits a “Corrupt Act” and requires contactors to prevent Subcontracts/Suppliers from doing so too and to ensure that they have similar provisions with their subcontractors. A “Corrupt Act” is defined under clause 11.2(5) NEC4 as the offering, promising, giving, accepting, or soliciting of an advantage as an inducement for an action which is illegal, unethical, or a breach of trust; or abusing any entrusted power for private gain. Breach of such requirements gives rise to a right to immediate termination.

Hong Kong SAR

Criminal Liability

Hong Kong’s legal framework against bribery and corruption is primarily governed by the Prevention of Bribery Ordinance (Cap. 201) (“POBO”), which targets both public and private sector corruption.

With respect to the public sector, the POBO criminalises offering or receiving any advantage to influence the actions of a public official, including the Chief Executive of Hong Kong, without lawful authority or reasonable excuse. It explicitly prohibits bribery of public servants and extends the jurisdiction of this provision extraterritorially with the use of the phrase “whether in Hong Kong or elsewhere”. Specific offences also include bribery related to government contracts and auctions, emphasising accountability in public procurement and contracting processes.

Penalties for corruption offences [in Hong Kong] are severe, with a maximum sentence of 10 years’ imprisonment and a fine of HK$1 million

The private sector is equally regulated under the POBO, which stipulates offences concerning the improper exchange of advantages to influence business decisions without lawful authority or reasonable excuse. This encompasses acts like offering an advantage to an agent without their principal’s permission or an agent accepting such advantages.

“Advantage” encompasses a wide range of benefits, including money, gifts, commissions, offices, contracts, services, favours, and partial or full discharge of liabilities. Entertainment is specifically excluded from the definition, meaning that providing food, drink, and associated entertainment on specific occasions is not prohibited. Despite this exemption, guidance issued by the Independent Commission Against Corruption (“ICAC”), Hong Kong’s anti-corruption agency - which is an autonomous unit with extensive investigative powers, including the authority to arrest suspects, search premises, and require individuals to provide information - advises that civil servants should avoid accepting lavish, unreasonably generous, or frequent entertainment, as well as any entertainment that could lead to a conflict of interest or compromise their impartiality.

A person convicted of accepting a bribe will be ordered to repay the bribe under section 12(1) of the POBO. The courts are also empowered under section 84 of the Criminal Procedure Ordinance (Cap. 221) to order the transfer of property from the convicted person to the victim directly.

The enforcement of these laws is carried out by the ICAC. This body operates independently from the civil service and reports directly to the Chief Executive, ensuring that its anti-corruption efforts are comprehensive and unimpeded by potential governmental interference. Penalties for corruption offences are severe, with a maximum sentence of 10 years’ imprisonment and a fine of HK$1 million.

Unlike the BA 2010, under POBO there is not a specific offence for corporate entities relating to bribery, nor does it link corporate liability to its directors or officers. However, corporations can be held accountable for bribery offences committed by their employees or agents, particularly when such acts are directed by individuals who control the company, albeit that such prosecutions under the POBO are rare.

Civil Liability

In addition to criminal sanctions, traditional civil remedies similar to those under English law are available to a principal whose agent has received a bribe.

In relation to the remedies for breach of fiduciary duties, the Privy Council case of AG for Hong Kong v Reid [1994] 1 AC 324 on appeal from the Hong Kong courts laid down the principle that the fiduciary held a bribe received on constructive trust for the principal. The case was considered in Justice v Hon Kam Wing & Others [2003] 1 HKLRD 524, and the Hong Kong courts accepted that equity regarded the bribe as a legitimate payment intended for the principal, such that the payment must be handed over to the principal immediately upon receipt, and equity will impose a constructive trust over the funds for the benefit of the principal.

Construction contracts

Hong Kong now has its own version of the NEC form of contract, which contains similar provisions to those discussed above for the UK, but by reference to the POBO. Another widely used standard form of contract is the building contract drawn up by the Hong Kong Institute of Architects (“HKIA”) and Hong Kong Institute of Surveyors (“HKIS”). Although it does not contain a provision allowing the Employer to terminate the contract for breach of the POBO, that is an amendment that can be added.

Singapore

Criminal Liability

In Singapore, the primary anti-corruption legislation is the Prevention of Corruption Act 1960 (“PCA”). For both public and private sectors, the primary offences are set out at sections 5 and 6 of the PCA:

Both sections target corrupt actions where gratification was given or received as an inducement or award. Section 5 covers “any person”, whereas section 6 focuses on an agent offering or accepting gratification in relation to the performance of the affairs or business of his principal.
The definition of “gratification” under the PCA is extensive and encompasses any property, payment, favour or advantage as stated in section 2 of the PCA.
It is worth noting that section 6(c) of the PCA does not refer specifically to a corrupt act but targets third parties and agents who knowingly give false, erroneous or defective documentation with the intention to mislead the agent’s principal.

Section 10 of the PCA specifically deals with contracts for work tendered by the Government or a public body, where a person offers or accepts any gratification to procure withdrawal of or to withdraw a submitted tender for the relevant contract. In this vein, Singapore public sector agencies may impose restrictions on suppliers and their staff involved in corruption cases, including debarring suppliers from tendering for Government tenders for a period to be decided by Ministry of Finance’s Standing Committee on Debarment.

Both individuals and companies can be held liable for bribery offences under the PCA. A person convicted for corruption offences under either section 5 or 6 of the PCA faces a fine not exceeding S$100,000 and/or a custodial sentence (for individuals only) of up to five years for each individual charge for which they are convicted. Where the offence involves a public official, the maximum custodial sentence is extended to seven years. The courts may also impose monetary penalty orders on the recipient of bribes under section 13 of the PCA to disgorge the illicit gains of corruption.

…the PCA grants….CPIB officers wide ranging powers to arrest, conduct a premises search and to seize evidence without warrant if there is credible information or reasonable suspicion that a corruption offence has been committed

An example where a prosecution for corruption was brought against a construction company in Singapore is the case of Public Prosecutor v Wong Chee Meng and another appeal [2020] 5 SLR 807. In this case, two construction companies, 19-ANC and 19-NS2, together with its managing director, were convicted for acting in furtherance of a conspiracy with their managing director to give bribes to the former general manager of a Town Council in Singapore. Both companies were sentenced to the maximum fine of S$100,000.

The Corrupt Practices Investigation Bureau (“CPIB”) is Singapore’s local enforcement agency tasked to investigate all offences under the PCA. The PCA grants, amongst other things, CPIB officers wide ranging powers to arrest, conduct a premises search and to seize evidence without warrant if there is credible information or reasonable suspicion that a corruption offence has been committed.

In addition to the PCA, the Penal Code 1871 (“Penal Code”) contains offences related to bribery and other forms of corrupt practices related to domestic public officers. In contrast with the PCA, it is more focused on abuse of power by public servants. For example under section 165 of the Penal Code, the mere acceptance of any valuable thing (without consideration or inadequate consideration) from a person concerned in any business transacted by the public servant, is enough to be caught within the provision. The Penal Code imposes a fine and/or imprisonment for a term ranging from one to three years for violation of its bribery offences.

While the Penal Code is relevant in the context of corruption offences, in practice, prosecutors usually rely on the PCA and the Penal Code is rarely used for the prosecution of corruption offences. In 2022, the Minister for Law and Home Affairs stated that the Singapore Government would review the possibility of shifting the offences dealing with public servants corruption listed under the Penal Code to under the PCA.

There are no explicit defences against bribery under the PCA or Penal Code in contrast to other jurisdictions, for example, the UK.

Civil Liability

Under the PCA, civil remedies are available for a victim of corruption to recover property of which he or she has been deprived as a result of the corrupt activity. Section 14 of the PCA provides for the recovery as a civil debt, by the principal, of an amount paid to its agent.

Other traditional civil remedies similar to those under English law are available to a principal whose agent has received a bribe.

In the case of Indian Bank v Green Mint Pte Ltd and others [2021] SGHC 265 [21], the court commented on the choice available to the principal to either enforce or rescind a contract obtained through bribery in an infrastructure project. The court noted that with respect to the Public Sector Standard Conditions of Contract for Construction Works (8^th Ed, July 2020), clause 31.1(2)(b) provides that bribery by the contractor is a ground for termination of the contract by the Government. While this added a contractual right of termination to the common law right of rescission available (where a bribe has been paid in connection with procurement), the fact that “termination is an option and not mandatory reflected the reality that a government may still want the bribing contractor to complete performance of the contract”. Ultimately, in the context of public policy in Singapore, the innocent party has the option to proceed with or avoid the contract, upon discovery of the bribe.

Middle East

In recent years, the Middle East (and specifically Gulf Co-operation Council (“GCC”) nations) have developed their approach to corruption and bribery, with relevant laws now in place in Saudi Arabia, the UAE, Kuwait, Bahrain and Oman. All six GCC countries have ratified and acceded to the UN Convention Against Corruption, as well as the Arab Convention Against Corruption.

Both the UAE and Saudi Arabia have developed their approach to corruption in a bid to dispel historic perceptions, attract international investment and promote confidence in the region. One key element of this is the promotion of the clear and transparent function of the construction industry in the region.

In the Middle East, the FIDIC standard form of contract is the most widely used. In terms of anti-corruption, clause 15.2(f) of the 1999 edition gives the Employer to right to terminate if the Contractor gives or offers to give any person (directly or indirectly) a bribe, gift, gratitude, or commission or other thing of value, as an inducement or reward for doing any action in relation to the Contract or for showing favour, or disfavour, to any person in relation to the Contract. Clause 15.2(h) of the 2017 edition gives the Employer a right to terminate the contract if the Contractor is found, based on reasonable evidence, to have engaged in corrupt, fraudulent, collusive, or coercive practices in relation to the Contract. Both editions afford immediate termination rights in the event of corruption.

The UAE

Criminal Liability

The UAE does not have a single piece of dedicated legislation addressing bribery (unlike the BA 2010 in England & Wales).

Instead, it has a series of laws and decrees that address specific offences, including:

Federal Decree Law No. (31) of 2021 regarding Crimes and Penal Code, amended by Federal Decree Law No. (36) of 2022 (the “UAE Penal Code”);
Federal Law No. (20) of 2018 on Anti-money Laundering and Combating the Financing of Terrorism and Financing of Illegal Organisations (as amended) (the “Federal AML Law”); and
Federal Decree Law No. (49) of 2022 on Human Resources at the Federal Government.

The UAE Penal Code sets out the key offences, which all carry criminal liability (and therefore apply across the UAE, including in the Dubai International Financial Centre (“DIFC”) and Abu Dhabi Global Market (“ADGM”) freezones). Such offences cover: (i) the offering of gifts to public sector employees in exchange for acts that fall within their duties (or that would otherwise breach those duties); (ii) the acceptance of gifts by either public or private sector employees (including public officials); and (iii) accepting gifts from public officials. Further, the offences extend to the bribery of public officials in other countries.

It is clear that addressing anti-corruption remains a priority for the [UAE] and it can be expected that there will be further developments going forward

An individual found guilty of such offences could be subject to a fine (equivalent to the benefit accepted) or, where the offence is more serious, imprisonment of up to five years. A corporation is likely to be subject to fines or confiscations. The UAE courts approach offences on a case by case basis and the Public Prosecutor employs a wide discretion as to the penalties imposed in any given case.

Abu Dhabi and Dubai also have their own Emirate-specific legislation, which specifically focusses on the abuse of power and corruption by public employees in those Emirates.

Relevant legislation is recent and it therefore remains to be seen how their provisions will be utilised by authorities: notably, the well-known bribery case successfully brought in the region against Petrofac was brought by the UK authorities. However, it is clear that addressing anti-corruption remains a priority for the country and it can be expected that there will be further developments going forward.

Civil Liability

Beyond any criminal liability, a party is likely to have a claim for breach of contract in the UAE. While the exact causes of action available in English law are not available in the UAE, a party may have recourse under the UAE Civil Code.

Further, directors of companies are also required to act with loyalty, duty and care, and should otherwise avoid conflicts of interest. Any act of bribery (or corrupt behaviour) will contravene the roles and responsibilities of directors detailed in the Commercial Companies Law and other ancillary legislation.

Saudi Arabia

Criminal Liability

In Saudi Arabia there are several decrees in place detailing offences for bribery and corruption of public officials, new laws in relation to the protection of whistle-blowers and, infamously, recent high-profile arrests by the Oversight and Anti-Corruption Authority (otherwise known as Nazaha). The key legislation is the Royal Decree No. M/36 (1992), as amended by further Cabinet Decisions (the “Anti-Bribery Law”).

The Anti-Bribery Law originally applied to public bodies and their staff only. However, offences were extended to the private sector in 2019. The Anti-Bribery Law is engaged where bribes are promised, given, requested or received. In order to maintain a broad application, the law does not define what benefit may constitute a bribe.

While the development and update to these laws are relatively recent, the increased reporting and transparency regarding the activities of Nazaha indicate that this will continue to be a key focus for the country.

Civil Liability

In a similar manner to the UAE, a party in Saudi Arabia is likely to have a cause of action for breach of contract where bribery or other corrupt activity has occurred. Equally, the Kingdom has, in recent years, enacted in an updated Companies Law, which puts managers and board members under a duty of care and loyalty to companies, including a stipulation to refrain from accepting any benefit granted by third parties.

Increased reporting and transparency regarding the activities of Oversight and Anti-Corruption Authority (otherwise known as Nazaha) indicate that this will continue to be a key focus for [Saudi Arabia]

United States

Criminal Liability

In the United States, numerous laws at the federal, state and local levels apply to fraud, corruption, and bribery in the construction industry. The Anti-Kickback Act specifically targets bribery and corruption on federally funded projects. It prohibits contractors from soliciting or accepting any form of kickback in exchange for awarding contracts or favourable treatment. Violations can result in severe penalties, including imprisonment, fines, and debarment from future government contracts. The False Claims Act, which makes it illegal to submit false claims for payment to the government, is another federal law frequently used to prosecute fraud in the construction industry.

Companies and individuals who suffer financial harm due to another’s fraud, bribery or corruption may seek recovery under US tort law for compensatory damages and, in particularly egregious cases, punitive damages

The Foreign Corrupt Practices Act (“FCPA”) outlaws, among other things, payments with corrupt intent to foreign public officials anywhere in the world. The FCPA has been enforced against both US companies as well as foreign-based companies having certain connections with the United States. Companies charged with violating FCPA anti-bribery provisions face fines up to US$2 million per violation, with fines commonly totalling tens of millions of dollars.

In addition to federal statutes, each state and many municipalities have their own laws criminalising bribery and fraud. Such anti-bribery laws generally prohibit payments, gifts and other acts intended to improperly influence government officials in the performance of their official duties. State and local fraud charges are brought to prosecute deliberate schemes to obtain financial or similar gain from the government or members of the public by using false statements, misrepresentations, or concealment of relevant information.

Civil Liability

In the United States, civil liability may be imposed for fraud, bribery, and corruption under many of the same statutes mentioned in the above criminal liability discussion. Under such statutes, the government may file civil actions imposing penalties and pre-judgment interest, and seeking disgorgement to recoup funds received through fraudulent or corrupt conduct.

Companies and individuals who suffer financial harm due to another’s fraud, bribery or corruption may seek recovery under US tort law for compensatory damages and, in particularly egregious cases, punitive damages. Common law actions for fraud and breach of fiduciary duty are available in appropriate circumstances to construction industry participants who are victims of fraud and other corrupt practices. Civil liability for breach of contract might also attach when a party has been damaged by a counterparty’s violation of its contractual obligation to comply with applicable laws.

Contract Clauses

Construction contracts in the United States typically contain clauses broadly requiring compliance by the Contractor with applicable federal, state and local laws, codes, rules and regulations. Popular form construction contracts in the US, including those published by the AIA, EJCDC and DBIA, do not have terms specifically addressing the Owner’s or the Contractor’s obligations to comply with laws pertaining to fraud, bribery, or corruption.

Conclusion

Corruption in the construction industry is something that parties need to be aware of, bearing in mind that the complexity and high stakes involved in construction projects can create a fertile ground for fraudulent activities. It is therefore imperative to address these issues through comprehensive and stringent anti-corruption measures.

While the anti-corruption legislation in the various jurisdictions explored above is not specifically tailored to the construction industry, it nonetheless provides a robust framework for combatting corruption across all sectors. This can be reinforced by adding the appropriate contractual provisions, in order to ensure that parties can rely on civil remedies and seek compensation where possible and are not just dependent on the relevant government authority taking the necessary action.

As with many other areas, awareness is key and parties should consider to what extent corruption is a likely risk and what may be the appropriate measures to take in each case based on a variety of factors. These include the geographical location of the project. Training is another important element and combining that with the appropriate amendments to standard construction contracts will help reduce the potential adverse impact of corrupt activities in construction and engineering projects.