Public Prosecution Investigations and Criminal Complaints within the Commercial Context

In Oman, corporations may find themselves involved in commercial disputes that end up in arbitration or litigation. Within that context, it is not unusual to find that a party in those disputes has chosen to separately lodge a criminal complaint at the Royal Oman Police (“ROP”). The supposed rationale behind such an action is that a criminal complaint may place commercial pressure on another party and could lead to a settlement within the commercial dispute.

However, what makes the above scenario slightly unusual is that, pursuant to the Omani Penal Code, crimes in Oman are treated as strictly personal. As such, corporate entities – faceless abstract giants as they are – cannot be named as the accused. To be rendered valid, a criminal complaint must be lodged against an individual employed by the corporation in question and not against the corporation itself. Sadly, to what extent a named particular individual is personally responsible for the grievance for which they are charged is less important than the extent of their proximity to that grievance.

To this end, the ROP and Public Prosecutor are tasked with ascertaining which person or persons are closest to the crime at hand. The Public Prosecutor is the pivotal figure in cases of this nature. He/she holds the power to decide whether or not the complaint brought forward against a corporate entity can be filed as a criminal court case. In effect, the Public Prosecutor exercises his/her discretion. Whilst they are meant to identify the face of the corporate entity, they can elect to name any employee they so deem as being a person of interest. For example, if an individual is injured at a playground due to a faulty slide, the criminal investigation could be against the maintenance manager of the playground apparatus.

The Public Prosecutor and ROP may move to confiscate travel documents at an early stage. Even though the legal system is known to operate in a more flexible manner, ample precedent exists for seizing travel documents. Passports may be taken early on during investigations to curtail all movements of the accused until a decision is reached.

The matter becomes even more convoluted when the accused is not an Omani citizen. Expatriates can find themselves embroiled within a criminal judicial system that they do not understand and that causes them great anguish. This can be especially crippling for the accused. It then becomes vital for a lawyer to conduct an exhaustive investigation of the case at hand and carry out a methodical examination of the known facts. Documentary evidence, witness statements and third-party reports are often painstakingly obtained to protect a client’s interests, and ultimately to procure their freedom.

Expatriates often make the mistake of assuming that legal principles such as “burden of proof” and “innocent until proven guilty” apply within Oman. As stated earlier, the Omani legal system is far more fluid. Accordingly, a crime usually has to be proven beyond a measure of a doubt before any punishment is meted out to the accused on behalf of his/her employer. In practice, this is not always followed through, making any outcome difficult to predict in advance. However, an appeal system exists so as to offer an opportunity to remedy miscarriages of justice.

From a practical perspective, the procedural timeline with regards to a criminal complaint within a commercial setting is as below:

1. A criminal complaint is made to the ROP or the Public Prosecutor against an individual attached to a company.

2. The ROP/Public Prosecutor carries out his/her own investigation of the complaint and decides whether the individual is the appropriate person to be investigated. This step may involve inviting the individual to attend an interview. The individual MUST attend. Failure to attend may result in an arrest warrant being issued and/or a travel ban being imposed. The Public Prosecutor may allow the individual to be accompanied by a lawyer or may refuse to do so.

3. The Public Prosecutor documents the investigation and decides whether to file a criminal case with the Primary Court or not.

4. If there is to be no criminal case, the ROP/Public Prosecutor will inform the individual and may keep the file open. However, no further action would be taken at this stage.

5. The entity which reported the complaint has a mechanism whereby it can seek to have the decision not to proceed overturned. This would be by way of an ex parte application to the Appeal Court asking the Court to look into the decision and explaining why the decision is wrong. The Appeal Court can then provide an order to the ROP/Public Prosecutor to continue investigating or to investigate in a different manner or to file a criminal case.

6. If there is to be a criminal case, the individual may need representations being made for bail and evidence must be gathered quickly.

7. Expert and witness testimony must be examined immediately as the case must be rigorously defended.

As can be seen, lawyers play a critical role in relation to Public Prosecution investigations and criminal complaints within the commercial context. It is vital to engage the assistance of a lawyer from the outset so that all matters can be dealt with expeditiously and so that all avenues are explored with the client early on.

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Debt Securities

Many companies use debt to fund their operations and investments. Broadly speaking, there are two main types of debt finance: bank loans and debt securities. We have discussed bank loans – such as overdrafts, term loans and revolving facilities – extensively in past posts. This month we provide a brief overview of debt securities.

Debt securities are financial instruments that borrowers (who are referred to as “issuers” in this context) sell to investors.

Typically, a debt security entitles its holder to receive periodic interest payments from the issuer during the term of the security, as well as repayment of the security’s principal amount at the end of the term. For example, if you hold a 20-year, RO 1,000 bond paying a fixed 5% annual interest, the issuer is obligated to pay you interest of RO 50 per year throughout the 20-year term and then to pay you RO 1,000 at the end of the term. There are, of course, other variations that a debt security can take. Some debt securities carry the right to receive a fixed periodic interest rate, others a floating interest rate. Convertible debt securities give the holder the right to tender the security to the issuer in exchange for a given number of shares of the issuer’s common stock. Zero-coupon debt securities pay no periodic interest and only repay the principal amount.

Debt securities are thus used by companies to borrow money from investors as an alternative to borrowing from a bank. Many governments also issue debt securities. In Oman, both the Government and large corporations issue debt securities.

The name used to describe a debt security is often based on the length of its term. Longer-term debt securities are usually called “bonds”, whereas short-term debt securities may be called “commercial paper” when issued by companies or “bills” when issued by a government entity.

While bank loans continue to meet most Omani companies’ debt finance needs, debt securities are often a viable alternative or complement for large companies. It is also important to note that other forms of debt, such as vendor financing (e.g., when a corporate customer buys heavy equipment using a loan provided by the equipment manufacturer), play an important role for many Omani companies, particularly small and medium-sized enterprises.

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International Law Update: UK Ministry of Justice Publishes Bribery Act Guidance (Part I)

Following on from the publishing of the UK Bribery Act 2010 (the “Act”) last year, the UK Ministry of Justice has recently published final guidance (the "Guidance") on the procedures which relevant commercial organisations can put in place to prevent persons associated with such organisations from bribing. The Act will enter into force on 1 July 2011.

The Act applies to all commercial organisations that are registered in the UK or that have any operations in the UK. Therefore, as mentioned in our article on the Act in the Curtis Oman Client Alert in September 2010, we anticipate anti-corruption clauses becoming widespread in commercial contracts between UK entities and Omani companies. In addition, the Act will be a point of concern for any Omani companies which have operations in the UK. We understand that investigations and prosecutions under the Act are most likely to be targeted at companies in extraction industries and transactions with government entities including politically exposed persons.

The new Guidance has revised all of the adequate procedures for commercial organisations to have in place as a statutory defence in the event of prosecution under the Act from the draft guidance published in September 2010, which was criticised as unworkable, inhibitive of customary business practices and detrimental to the competitiveness of UK companies. The UK Ministry of Justice has also addressed concerns raised by the business community over the ambiguous and potentially far-reaching nature of certain provisions of the Act, namely, regarding corporate hospitality, facilitation payments, suppliers and joint ventures, and foreign companies accessing the UK capital markets.

Corporate Hospitality

The Guidance reiterates the importance to businesses of “reasonable and proportionate” hospitality and promotional expenditures designed for improving corporate image, marketing products and services, or developing public relations, and adds that such expenditures are not intended to be criminalised by the Act. Reasonableness is determined within the context of the organisation’s size and nature of business and the customary practices of its industry.

Lavish or extravagant expenditures lacking in business purpose or to unnecessary or out-of-the-way locales are likely to raise an inference of intention to improperly influence foreign public officials. Accordingly, whilst it would be acceptable for a health care provider to furnish ordinary travel and accommodation to a foreign public official to visit one of its hospitals, a five-star holiday to the same official that is unrelated to a demonstration of the organisation’s services would be suspect. The Guidance provides additional examples of reasonable travel expenditures for foreign public officials. One of these is for flights and accommodation to visit distant mining operations to demonstrate a UK organisation’s safety standards. Another is for flights, hotels, fine dining and sporting event tickets for a foreign official and his or her partner to visit New York as the most convenient location for meetings with senior executives of a UK organisation, although this would be called into question if the executives had visited the official’s country with all the relevant documentation enabling such a meeting to occur the previous week.

Facilitation Payments

Facilitation payments are illegal under the Act. The Guidance contains no specific defences for making facilitation payments, unlike the Foreign Corrupt Practices Act, which has a narrowly construed exception for such payments. Duress is a factor to take into account when considering prosecutions for making facilitation payments, as it provides a common law defence in the UK.

Associated Persons

The Guidance further clarifies the definition of “associated persons” in the context of the corporate offence of failure to prevent bribery, with respect to suppliers and joint ventures.

Suppliers

Whilst mere sellers of goods are not to be considered “associated persons” for purposes of the corporate offence of failure to prevent bribery, suppliers of services that are within the organisation’s control are likely to be included. Indirect suppliers who perform services along a supply chain without any contractual relationship with the organisation are not likely to be associated persons.

Joint Ventures

The Guidance makes a distinction between the treatment of joint ventures that operate as separate legal entities and those which arise through contractual arrangements. Separate entities are not presumed to be associated with their members, and therefore bribes paid by such entities will not necessarily give rise to liability for a member’s failure to prevent them, absent a showing that the venture was performing services for the member and the bribe was paid with an intent to benefit that member. The analysis is different for contractual joint ventures, where an examination of the level of control of the members over the activities of the venture is appropriate. In such case, a member could be liable for failing to prevent a bribe made by the joint venture in the performance of services for that member.

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Company Formation FAQ’s

We frequently assist clients in the formation of Omani companies. Clients who are not accustomed to doing business in Oman tend to have quite a few questions regarding the company formation process, on everything from complex subjects like corporate governance to more mundane - but important – things like naming the Omani entity. From time to time we publish such ‘frequently asked questions in the Client Alert for the benefit of all of our readers.

What name should we give to our Omani company?

For many of the clients that we help to form an Omani corporate entity, one of their first questions is what name they should give to the new company. Many wish to include the word “Oman” in the name, as in “Acme Widget Company (Oman) LLC”. However, due to internal regulations of the Ministry of Commerce and Industry, an Omani company must have a minimum capitalization of 500,000 Omani Rials (approximately US$1,300,000) in order to carry “Oman” in its name. This is significantly higher than the 150,000 Omani Rials (approximately US$400,000) capitalization that is normally required for Omani companies with foreign ownership. As a result, many of our clients choose names for their Omani entitiy that reference the region rather than the country, such as “Acme Widget Company (Gulf) LLC” or “Acme Widget Company (Middle East) LLC”.

How long does it take to form an Omani company?

We normally estimate that it takes one to two weeks to set up an Omani company once all of the appropriate corporate paperwork has been arranged, although the formation process can sometimes take as little as a few days depending on the availability of government authorities. Careful planning is the key to maximizing the speed of the process and minimizing headaches, and professional advisors can play a helpful role in determining which documents are necessary and how to prepare and/or obtain them most efficiently.

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