In 2014, the Libyan Investment Authority (LIA) brought a civil bribery claim against a French bank in relation to transactions in the period 2007-9. The LIA sought to unwind those transactions. It alleged that Panamanian-registered company was owned by a Libyan businessman and that a payment of US$58 million to it by the bank was a bribe. The case was settled before trial.
A related claim by the LIA was based, not on bribery, but on undue influence. On October 14, 2016, the English High Court rejected the LIA’s claims that Goldman Sachs had exercised undue influence to procure the LIA to enter into a series of derivatives transactions or that the trades otherwise amounted to an unconscionable bargain (Libyan Investment Authority v Goldman Sachs  EWHC 2530 (Ch)). The LIA did not allege bribery in that case but argued that the offering of an internship within Goldman Sachs to the brother of the Deputy Chairman of the LIA improperly influenced the LIA to enter into the trades of US$1.2 billion.
In December 2016, a Dutch Housing Association, Vestia, issued a claim against a German bank in the English High Court alleging that that the bank bribed one of its officials to enter into swaps between 2005 and 2011 in the form of hospitality and by virtue of payments to a broker who allegedly made payments to the official.
More recently, the Court of Appeal held that a German water company could rescind a credit protection contract in relation to derivatives entered into with a Swiss bank on the basis of bribes paid by the company’s financial adviser, upholding the first instance decision (UBS v KWL  EWCA Civ 1567). The Court of Appeal rejected the first instance finding that the financial adviser was the bank’s agent. The financial adviser had formally been engaged by the company, and the bank had been unaware of the bribes. However, the majority considered that the bank could not enforce the transaction as, even though it was not aware of the bribe, it dishonestly assisted in the financial adviser’s breach of its fiduciary duties, in particular the duty to provide loyal and disinterested advice. The company had been entitled to decide whether to continue with the credit protection contract or rescind it (i.e. cancel the contract with the effect that the parties would be put into their respective precontractual positions). The company had elected to rescind, which required it to return the US$30 million premium, but enabled it to avoid paying out US$137 million under the credit protection contract.
Banks are particularly susceptible to claims to unwind transactions. Rescission is more likely to be available in a financial transaction which simply involves payments of money because there is no obstacle to reversing the transaction to put the parties back in their original positions. And, as the cases above illustrate, rescission is particularly attractive for financial contracts when the breach itself has not caused any damage but, due to market movements, the contract as a whole is unprofitable.
To mitigate bribery risk, banks need to understand the role of third parties and conduct thorough due diligence on them, irrespective of which party has formally engaged them. Banks also need effective controls in relation to entertaining clients, particularly where those clients are government officials or otherwise have government connections.