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David Cameron’s announcements last week about some of the immediate priorities for the UK’s forces in Afghanistan have been taken to suggest a shift in government attitudes. Pundits are saying there seems to be an increased focus on how to plot the exit, but in the meantime also on protecting those still operating there, for example with increased resources going towards countering the improvised explosive device (IED) risk.

Significant risks remain for the foreseeable future in both Iraq (where UK forces are now substantially but not entirely withdrawn) and Afghanistan for not only the armed forces, but also the many companies that have personnel based there. That risk can take a number of forms and it is important that those companies understand the legal environment (in the widest sense) they are operating in. Failure to do so can lead to significant corporate damage, including massive loss of reputation.

Those UK companies in the defence and security sphere seeking to export goods or supply services to a conflict zone such as Afghanistan or to embargoed destination countries will first have to ensure compliance with both an extensive UK export control regime and any local import regulations. This process must be considered well in advance of a base being established in the end country as part of the company’s contract negotiation and logistical planning processes. Companies should find themselves building a close working relationship with the UK Government’s Export Control Organisation (ECO) which regulates and oversees the licensing regime for such trade activities. Additionally, there may be the American dimension to consider. Even products which merely include components of US origin may also be subject to the strict US export regulatory regime which can have an extra-territorial reach.

Even where a company is supplying hardware or technology which has an ostensibly non-military purpose but which may have alternative military uses (known as “dual use”) it will have to ensure it is familiar with the UK Strategic Export Control Lists and that its products are properly licensed for export. The classic historical example of the risks in this area came with the Iraq “supergun” affair. Certain UK companies were drawn into the supply of massive steel castings to Iraq for “petrochemical plants”, in circumstances where the security agencies were convinced that they were part of a plan to build “superguns” by Saddam Hussein’s regime.

Much more recently, BAe Systems’ acceptance earlier this year of liability in the UK and USA in connection with long-running investigations by the authorities over, among other matters, the Tanzanian military air traffic control system, is evidence of the extent to which the political focus on high value sales within the defence sector has the potential to embroil a company in harmful publicity and reputational damage. This is the highest profile example of a wider picture. Every company operating in territories where there is the potential for corruption and bad governance in the corporate or government spheres needs to put in place training and systems that ensure their representatives, agents or indeed third parties acting on behalf of the company operate by the highest standards.

This is especially brought into focus in the UK by the offences created under the Bribery Act 2010, expected to come into force later this year, which makes a company responsible for the bribery related acts of its employees, agents or associated third parties unless it can demonstrate a defence by showing that it had adequate systems in place to prevent bribery. Leaving aside the actual liability under the Act, failure to have those adequate systems may well lead to a major corporate loss of reputation.

Employment related duties are another area for companies to consider. Working in the defence and security sectors, a company’s personnel may frequently be sent to an environment which presents risks to their personal safety. Companies need to understand their duty of care to their employees and the extent to which they need to provide training and support to prepare for those circumstances. It may not be sufficient that an individual signs up knowing they are going to be working in a war zone and are receiving an element of enhanced pay and benefits in return, if the circumstances in which that work is then carried out fail to provide a reasonable level of protection from harm in that context.

So, the significant extent of UK corporate presence in the defence and security industries often brings with it extended risks. Those risks should be carefully managed to avoid equally extended liabilities.

Andrew Peddie – Partner

+44 (0) 118 957 0321 – apeddie@pitmans.com

Jonathan Durrant – Director

+44 (0) 118 957 0270 – jdurrant@pitmans.com