British legislation is restrictive, demanding and compels UK companies to exercise utmost vigilance in partnerships with foreign businesses, as they might bear the consequences of practices occurring elsewhere. In an ironic post-Brexit paradox, British companies may actually find themselves more at risk from dubious industrial partnerships with foreign companies due to more stringent British legislation.
The UK Bribery Act came into force back in April 2011, aiming to introduce stringent liability for commercial organisations “whose service providers (called ‘associated persons‘) engage in bribery unless the organisation has adequate procedures in place to prevent it.” The far-reaching objectives of the act have had an extensive effect on how British companies engage and deal with foreign investors.
The legislation, signed off by the UK parliament in 2010, brought about a transformative shift in corporate criminal law, fundamentally altering the landscape by holding “relevant commercial organisations” accountable for criminal liability. This groundbreaking Act mandates that these entities can be held criminally responsible if they neglect to prevent an act of bribery. Notably, this bribery should be, at the very least, partly aimed at benefiting the commercial organisation and must be carried out by individuals associated with it. This legal framework represents a significant departure from traditional norms.
The knock-on effect of this is heightened caution in the UK when entering into partnerships with foreign countries whose industrial sectors have a history of dubious practices and ethical transgressions. Around Europe, the UK’s allies have a checkered history when it comes to corruption. Corruption in Spain, for example, costs around EUR 90 billion every year (8% of GDP), according to a 2018 report into EU corruption by the European Green Party. The Netherlands, with whom the UK has a close industrial partnership, notably in AI and mobility solutions, has been dealing with its own scandal involving the use of Dutch foundations to hide criminally obtained capital. And let’s not forget the EU corruption scandal involving Qatar that sent shockwaves through EU institutions… For the purposes of this article, we will be having a closer look at Germany, a country with whom the UK retains a number of joint ventures in strategic sectors.
As was to be expected, the Brexit vote and the subsequent cooling of trade relations between the United Kingdom and its former European partners has led to a drastic decrease in trade, resulting in economic downturns for both parties. “Brexit is an economic disaster for both sides of the channel,” said Volker Treier, head of foreign trade at the German Chamber of Industry and Commerce (DIHK). The UK has slipped from Germany’s third most important export market, to eighth in 2023, and as a combined trading partner (imports + exports) the UK has now dropped to eleventh place. On the other hand, Germany was the UK’s 2nd largest trading partner in 2023.
But although the UK’s retreat from the Single Market has no doubt weakened its position, there has been no large-scale exodus of German companies from British soil. “The situation in the UK is also perceived as more business-friendly than in the EU or Germany. Companies are affected by less bureaucracy and regulation in the UK, which makes it an important market, also for future investments,” according to the British Chamber of Commerce in Germany (BCCG). Indeed, commercial relations between the two states are generally moving in a positive direction.
Many UK businesses have remained keen to retain a foothold in Europe. “We expect inquiries from the UK to remain at a high level,” said GTAI Managing Director Robert Hermann. “It is important for British companies to have a foothold in the EU.” One can see why improved bilateral trade relations with Germany are attractive to British companies, thanks to its central location, population size and booming industrial regions. Moreover, the political will is there for a reassessment of post-Brexit trade relations. “If you want to intensify your trade relationship to the EU, call us. We really appreciate the United Kingdom and its values, its people … and I would really, really appreciate it if we can intensify [the trade relationship] again,” stated German Finance Minister, Christian Lindner to the BBC.
Though the economic advantages of increased trade relations are evident, caution may be wise on the British side, if indeed regulatory considerations in the framework of the Bribery Act remain important. The two countries have joint venture projects in many fields, notably in defence, although Germany’s actions in this sector are not always to be trusted.
Germany’s conflicting relationship with corruption
In general, Germany is not near the top of the most corruption-prone list of state or private actors. Indeed, it was ranked 9/180 in transparency.org’s 2022 Corruption Perceptions Index. But delve a little deeper, and you come across a number of problematic stories, suspicious trade deals or corruption scandals involving German companies, which makes German partners potential sources of corruption. To sum up, Germany is not a bribe-taker, but it is regularly criticised for being the bribe-giver. The UK has valid reasons to question the relevance of its association with Germany, posing risks, including legal consequences for UK businesses, not least because Germany retains veto power over contracts legally obtained by the UK. The latest example was Germany blocking BAE’s sale of Typhoon fighters to Saudi Arabia for £5 billion. Berlin’s recent about-face, entirely circumstantial and therefore reversible, does not undermine the fundamental objection on this matter.
Indeed, the defence sector seems to be one of the bigger culprits. Consider, for example, Der Spiegel’s investigation into the German defence company Hensoldt AG, which is part-owned by the German state. The company produces technologies installed in many German weapons systems, and weapons systems operated by other states, such as the Eurofighter combat jet, the Leopard-2 battle tank and Class 212 submarines. The firm’s radar systems also equip the IRIS-T air defence system that is currently protecting the airspace over the Ukrainian, Kyiv, amid an ongoing onslaught from Russian missiles.
The German publication reported that the firm has been selling its products to via subsidiaries and dubious sales agents to Saudi Arabia, Uganda and Qatar, pushing the company’s compliance to the limits. There was even a suggestion of bribes being paid to high-ranking officials, and collaboration with other dubious partners, notably the Israeli arms dealer Boaz Badichi.
Another questionable affair was brought into the limelight by revelations brought forth in a legal proceeding and through the efforts of investigative journalists that have exposed a EUR 28-million fee, designated for mediating a transaction between a German arms manufacturing firm and the state of Qatar, diverting towards a letter-box company in the canton of Zug (Switzerland). These details surfaced during a court case related to a EUR 1.9 billion deal involving the German Krauss-Maffei Wegmann (KMW) tank manufacturing company based in Munich and the state of Qatar. The dispute, which has since been resolved, centred around the precise amount of commission owed by the German company to an unnamed elderly German couple residing in the Aegeri Valley. This couple had acted as intermediaries in facilitating the deal. It would be wise to scrutinise Germany’s upcoming contracts with the Gulf State.
Suspicions are commonplace in Germany’s foreign export sphere, such as the corruption scandal involving German industrialists in the framework of its submarine deal with Israel, or the loosening of its arms exports restrictions to Saudi Arabia, highlighting once again rather lax attitudes toward corruption and its interference in contracts for domestic political reasons. “Saudi Arabia has been making a significant contribution to Israel’s security,” said Foreign Minister Annalena Baerbock (Green Party) on January 7 during a visit to Jerusalem. “And this is helping to contain the danger of the conflict spreading across the region.” Moreover, potential issues could come to fore over the lifespan of the deal, as has been highlighted by Germany’s refusal to continue with plans to upgrade Turkey’s Leopard tanks following domestic uproar against their use in Syria.
Away from the defence sector, Germany’s state-owned KfW Ipex-Bank became embroiled in a bribery scandal following a €50mn loan linked to Isabel dos Santos, the daughter of Angola‘s former president and the subject of serious corruption allegations. The bank was fined EUR 150,000, and the bank was cleared of any wrongdoing according to its spokesperson: “The investigations resulted only in an administrative fine against Ipex for negligent violation of certain internal procedural processes. This has brought to an end the investigations.” But consider alongside other corruption scandals involving German actors, such as the ABB scandal, cause for precaution seems necessary.
Annalena Baerbock, the German Foreign Minister from the Green Party, places strong emphasis on the need for German foreign policy to be anchored in fundamental values. However, if the information obtained by Der Spiegel is accurate and reveal that a key German company, with partial state ownership, is transgressing these very values, it raises pertinent questions about the credibility of Berlin’s commitment to its professed principles. Throw in the heightened regulation and compliance laws set out in the Bribery Act, then British firms hoping to deal with their German counterparts must enter negotiations with a degree of caution.
[Photo by Adrian Pingstone, via Wikimedia Commons]
The views and opinions expressed in this article are those of the author.
Jonathan Brown, a cum laude graduate in Government and European Studies, began his journey as a Policy Analyst with an internship at the EU. He is working as a Junior Business Analyst within a team of influencer market strategy consultants, specializing in luxury brand dynamics.