Legal Updates

Crime has gone corporate and corporations are very worried. Lawyers, politicians and NGOs conjure up visions of the downcast CEOs of ethically challenged companies forming an orderly queue along Elm Street before emptying their pockets of tainted overseas profit and making their admissions at the grey doors of the Serious Fraud Office--relieved to have had their mea culpa moment but fearful of the consequences: prison, fines, confiscation, reputational damage, shareholder fury and derivative actions, satellite civil litigation, legal costs, debarment; the catalogue of consequences seems infinite.

The Bribery Act 2010 provides the new legislative context for this unprecedented corporate engagement with the criminal law, the parameters of which are not yet defined. However, what is a generally well drafted statute, and in particular its prospective enforcement, can only be understood through an analysis of broad themes in what is now a virtuous circle comprising of a significant increase in global awareness of the impact of corruption, international legal instruments such as the OECD anti bribery convention1 gaining traction in domestic law and increased enforcement activity with all the attendant publicity. The result has been a greater emphasis in large corporations in managing criminal risk. The hope amongst politicians and prosecutors is that this emphasis on prophylactic corporate governance will somehow trickle down to smaller entities with perhaps little historic experience of managing compliance with the criminal law.

The detail of the legislation is dealt with in Professor Sullivan's article in this issue and so after a brief summary of the legislation, this article will examine whether the Act provides the clarity required in a penal statute with particular emphasis on the offence committed by commercial organisations if they fail to prevent bribery. Specifically from a corporate perspective, I look at the tension between the criminal conduct defined in s.7 of the Act and the regulatory character of the defence to that conduct. I consider briefly the draft guidance issued to assist companies in designing anti bribery policies. Finally, I conclude with a short comment on how anti corruption enforcement may develop once the Act is in force.

*Crim. L.R. 102  Summary of the main provisions of the Bribery Act 2010 The Act has been broadly welcomed as modernising and clarifying the UK's complicated and aged anti corruption legislation. It is a short statute. It uses unfussy language. Conceptually it is relatively straightforward. The Act creates four offences: one of paying bribes, that is “active bribery” (s.1), the s.2 offence of receiving bribes (“passive bribery”), a discrete offence of bribing a foreign public official (s.6) and, finally, the offence with which this article is predominantly concerned, namely the failure of a commercial organisation to prevent bribery (s.7).

The s.1 offence is committed where a person offers, promises or gives an advantage to another, intending that the advantage should induce him to perform improperly a function which he is expected to carry out impartially, in good faith or as a consequence of his being in a position of trust. What is expected is what a reasonable person in the UK would expect in relation to the particular function. The offence is also committed if an advantage is offered, promised or given in circumstances where the payer knows or believes that the acceptance of the advantage itself would constitute improper performance of the relevant function or activity.

Section 2 of the Act sets out four situations (or “cases”) where the offence will be committed. In broad terms, the criminal conduct consists of a person requesting, agreeing to receive or accepting an advantage or prospective advantage to perform improperly a relevant function. It is also an offence to request a reward for improper performance of a relevant function, to perform improperly a relevant function in anticipation of an advantage or to request, accept or agree to receive an advantage where the request, agreement to receive or acceptance itself constitutes improper performance of the relevant function.

Section 6 of the Act describes the offence of bribery of a foreign public official. The criminality consists of offering, promising or giving an advantage to a foreign public official with the intention of influencing him in his capacity as a foreign public official. The payer must also intend to obtain or retain business or an advantage in the conduct of business. The payment will only be a bribe if an advantage is given to the official (directly or indirectly) or to someone else at the official's request or with his assent or acquiescence and the official is neither permitted nor required by the written law applicable to him to be influenced in his official capacity by the advantage offered, promised or given.

In each of the offences, the “advantage” referred to need not be financial.

The failure of a commercial organisation to prevent bribery is the offence set out in s.7 of the Act. If a person “associated” with the commercial organisation, that is someone who performs services on its behalf, bribes another person intending to obtain or retain business or an advantage in business for that organisation, then the commercial organisation is guilty of a s.7 offence. The commercial organisation therefore is strictly liable for the criminal conduct of those with whom it is associated. The associated person need not have a “close connection” with the United Kingdom (see below). The statutory defence available is that the commercial organisation had in place adequate procedures designed to prevent bribery by those associated with it. It will be for the commercial organisation to prove the defence on a balance of probabilities. A commercial organisation is defined in s.7(5) and *Crim. L.R. 103  the definition includes corporate bodies and partnerships which are incorporated or formed in the United Kingdom and which carry on a business in the United Kingdom or elsewhere and foreign corporate bodies or partnerships which carry on a business or part of a business in the United Kingdom.

The legislation has a wide territorial reach. An offence is committed under ss.1, 2 or 6 if any act or omission which forms part of the offence takes place in the United Kingdom. If a person's acts or omissions take place outside the United Kingdom, there is nevertheless jurisdiction for the conduct to be tried here if they would form part of the offence if done in the United Kingdom and the person has a “close connection” with the United Kingdom. A “close connection” is defined in s.12(4) of the Act as being, inter alia, someone is British, an individual ordinarily resident in the United Kingdom or a body which is incorporated under the law of any part of the United Kingdom. In some circumstances, therefore, the legislation criminalises bribery in the private sector which takes place overseas.

An offence under s.7 can be committed irrespective of whether the relevant conduct takes place in the United Kingdom or elsewhere.

Is the criminal conduct in the Act sufficiently well defined? In evidence before the Joint Committee of the House of Commons and the House of Lords on the Draft Bribery Bill, a number of industry representatives identified a lack of clarity in the terms “good faith”, “impartiality” and “trust” although there was no substantive criticism of the concept of an “advantage”. However, since the passage of the Act, the criticism has not continued and there does appear to be a broad measure of agreement that ss.1 and 2 of the Act are sufficiently clear for individuals and companies to remain on the right side of the law. This reflects the view of the Report of the Joint Committee on the Draft Bribery Bill which stated at para.35:

“We endorse the ‘improper’ performance test that has been developed by the Law Commission to distinguish bribes from legitimate conduct under the two proposed offences of bribing (clause 1) and being bribed (clause 2). In particular, the reliance on a reasonable person's expectation of ‘good faith’, ‘impartiality’ and ‘trust’ represents a careful balance between simplicity, certainty and effectiveness. It also takes into account the approach adopted in other countries and international anti-bribery conventions.”

Perhaps the broad acceptance of the legislation in its domestic context is influenced by the realisation that there is little conduct which is criminalised by the Act which would not fall foul of existing legislation or common law such as offences under the Fraud Act 2006, the Proceeds of Crime Act 2002 or common law conspiracy to defraud. There is no real expectation that the Act will prompt a significant increase in prosecutions for domestic bribery.

There is not the same acceptance of the new offence of bribery of a foreign public official. Plainly the offence was introduced to mark publicly the UK's compliance with the OECD Convention in the wake of strong criticism of the UK's perceived failure to prosecute overseas bribery due to “deficiencies” in existing legislation, since there does not appear to be any conduct caught by s.6 that would not be caught by s.1. Its terms have provoked a good deal of dismayed discussion *Crim. L.R. 104  within the business community. Much of this discussion, at least initially, focused on what appears to be the imposition of severe constraints on the overseas marketing carried out by corporations--after all, it is said by many in industry, the whole purpose of marketing overseas is to influence foreign public officials (and others) to gain or retain business. The concern is that perfectly legitimate activity may be criminalised and businesses suffer.

There has been, however, a discernible shift in the debate since the Act was passed, away from the focus on the result of the corporate conduct--that is the obtaining or retaining of business--and towards the actual conduct required for an offence to be committed--namely the promise, offer or provision of a financial or other advantage to the foreign public official. It is this which constitutes the necessary behaviour for the bribery offence to be complete. In short, in order for the offence to be committed, an advantage must be offered to the official with the intention of influencing him in the performance of his functions. There is no reference to inducing him to perform his functions improperly or receiving an improper advantage. This means that it is for the commercial organisation to decide how to approach its relationship with the official. For example, if a relatively small company is seeking to show its goods to a purchasing overseas government department, one would not criticise the company paying for the official to come to the United Kingdom to inspect a factory and stay in a reasonably priced hotel. No advantage is being offered. However, if first class flights are booked for the official and a family member, a luxury hotel is paid for and extensive hospitality is given, then plainly the offence may be committed--an advantage has been given--something over and above what is appropriate from a UK perspective. This is a difficult aspect of the legislation for companies conducting business overseas, particularly when read alongside the s.7 offence. However, it is arguable that, despite the lack of prescriptive legislation (and query how possible or indeed how helpful that would be), commercial organisations are well able to risk assess what would fall outside permitted conduct--it is just that it has been commercially unattractive to address the issue in the past. There is now no real excuse for companies which are active overseas to remain unaware of the effect of the Act and to be aware of the vast amount of guidance, both generic and industry specific which is available.

Like the s.6 offence, there has been extensive discussion as to whether the s.7 offence is sufficiently clear for commercial organisations to avoid criminal liability. The focus has been on three areas in particular. First, the extent to which the definition of a “relevant commercial organisation” catches overseas entities who have a presence in the United Kingdom. Second, the relationship between the person carrying out the bribery and the commercial organisation which is liable for that criminal conduct--what does “performing services” mean? Finally, the nature of the “adequate procedures” defence has created a great deal of debate.

Section 7 has significant ramifications for overseas businesses present in the United Kingdom which carry out business outside the United Kingdom--particularly if that business is operating in areas which are vulnerable to corruption. Section 7(5)(c) provides that a relevant commercial organisation includes one which “carries on a business or part of a business in … the UK”. On its face, this definition includes an overseas company with any presence in the *Crim. L.R. 105  United Kingdom, even through a subsidiary. The drafting of subs.5 dealing with the definition of a relevant commercial organisation is careful. It refers to a relevant commercial organisation as being one which carries on “a business, or part of a business… in the UK”--wider than simply carrying on business. Section 453 of the Companies Act 1985 (which deals with the powers of Inspectors appointed by the Department for Business, Innovation and Skills to investigate overseas companies) refers to “carrying on business” and one might suggest, therefore that the drafting is deliberate. As a result of the drafting, if an overseas entity has any business presence in the United Kingdom, even where no actual business is carried out, this presence would provide the necessary jurisdiction to a UK prosecutor to take action under s.7 of the Act. Whether a prosecution would take place is, of course, a different matter but an example, albeit an extreme one illustrates the point:

A French mining company (C) has a representative office (RO) in London comprising of three individuals, none of whom work full time and all of whom deal with sub Saharan Africa. C has a subsidiary company (A) in Kazakhstan which pays bribes to the Ministry of the Interior to obtain work permits for C's staff. A has no “close connection” with the United Kingdom. In these circumstances, by virtue of its representative office alone, C is a relevant commercial organisation for the purposes of the Act. A performs services on behalf of C and is therefore associated with C. A has committed a bribery offence under s.6 of the Act since although A has no “close connection” with the United Kingdom, as would normally be required in a prosecution where the acts or omissions do not take place in the United Kingdom, s.7(3)(b) removes that requirement for the purposes of a prosecution under s.7. So long as C falls within the definition of a relevant commercial organisation, that is sufficient for the offence to crystallise.

Although it may be an unwelcome message to the business community, therefore, it is perfectly clear that the Act does not admit to any significant debate as to the wide definition of a “relevant commercial organisation” and therefore the power of the UK authorities to investigate and potentially prosecute foreign corporations for failing to prevent bribery.

What of the second area of debate around the s.7 offence, namely, how are we to define the performance of “services” so that a prosecutor can identify an “associated person” under s.8 of the Act?

The Act states that:

“[T]he capacity in which [a person] performs services for [the commercial organisation] does not matter and that “whether or not [services are performed] is to be determined by reference to all the relevant circumstances and not merely by reference to the nature of the relationship between the [person performing services] and the [commercial organisation]” (s.8(4)).

The Act specifically states that if the person who engaged in bribery is an employee of the relevant commercial organisation:

“[I]t is to be presumed unless the contrary is shown that [he] is a person who performs services on behalf of the organisation.”

*Crim. L.R. 106  In reality, the problem for a UK company will arise when its foreign subsidiary or its agent engages in bribery to obtain or retain business, with or without the knowledge of the UK parent company although, plainly, if the foreign subsidiary or the agent act on their own account then no liability would attach.

Whilst it is clear that there is no exhaustive list of relationships that may lead to a person being associated with a company for the purposes of the Act, the terms of s.8(4) make it obvious that an assessment of the relationship will focus on substance rather than form. Plainly, businesses would like to have as much guidance as possible in making this assessment but ultimately, the relationships are qualitative ones which will form part of a company's risk management procedures. The implications of the Act are clear: a company should interrogate the nature of the relationships that it has with others in conducting its business, be they agents, subsidiaries, distributors or suppliers and the like. It is clear that having done so, if a risk is identified that a relationship may result in the company incurring criminal liability under s.7 of the Act then in those circumstances, targeted anti bribery procedures should be employed so that if necessary the defence offered in s.7(2) is available. Businesses are perfectly able to identify the relevant relationships and the Act is helpful in describing them in broad terms. The real difficulty with which they have to grapple is to establish procedures which ensure that if one or more of those relationships is tainted by bribery, the company has done all it can to have prevented the criminal conduct occurring by having adequate anti bribery procedures in place to provide the company with a defence to bribery having been carried out on its behalf.

The defence under s.7(2) has provoked an enormous volume of discussion. Debates in Parliament focused on what “adequate” actually means--a not unreasonable question for a company seeking to remove the threat of strict criminal liability with all the consequences that flow from that. Efforts to replace “adequate” with “reasonable in all the circumstances” were defeated on the basis that this would allow a company to escape liability for bribery being committed by those associated with it too easily. A further criticism levelled was that the defence was no such thing--in circumstances where a company was being prosecuted for the s.7 offence and the prosecution could show that bribery had indeed taken place (an essential element in obtaining a conviction of the company), then the procedures in place were self evidently inadequate.

The differences expressed in Parliamentary debates, although they may appear somewhat arcane, have real significance. Two particular points may be drawn from them, both of which are indicative of wider themes in the Act. First, it is arguable that the defence is clearly focused on an objective assessment of the procedures that a commercial organisation has in place to prevent bribery--the drafting of the Act is clear; has the company “designed” adequate procedures to prevent the criminal activity? Arguably, it is not a question of looking at the context of their operation with reference to the particular bribery which has taken place--hence the resistance to a “reasonable procedures” defence and the provision of guidance under s.9 of the Act. One can envisage expert evidence from compliance professionals attesting to the strength or otherwise of the policies adopted by the company--either being deployed in a trial or, more likely, by way *Crim. L.R. 107  of mitigation. Analysed in this way, and this is a second point which might be drawn from the debates and the legislative scrutiny, the Act's regulatory aspect is thrown into sharp focus.

Part of the legislative imperative of the Act is to change corporate governance and commercial conduct--compliance engineering through legislation. In creating a serious criminal offence where the defence is to show regulatory compliance, the Act represents an example of that blurring of the criminal and regulatory categories in penal statutes which will form part of the Law Commission report on criminal liability in a regulatory context (Consultation Paper 195).

There is perhaps one final point of drafting that should be mentioned as it may become important if and when the s.7 offence is tested in the courts. It is a defence for a commercial organisation to prove that it has adequate procedures in place not to prevent “bribery” but rather “to prevent persons associated with [the commercial organisation] from undertaking such conduct ” (emphasis added). It is arguable that, although the tenor of the Act and the debates in Parliament were clear (as stated above), the reference to “such conduct” can be interpreted as being referable to the specific bribery that must be shown before the s.7 offence is committed rather than to bribery in general. In other words, one reads s.7(1) and s.7(2) as being within the same factual matrix. In reality, one would expect this to be the case at trial but is by no means certain that a company would escape prosecution (albeit possibly not conviction) by showing that although it had adequate procedures in place to deal with the particular bribery, the procedures as a whole were deficient. After all, the draft guidance in its summary of the Act states that:

“There is a defence if the organisation can prove that it had in place adequate procedures designed to prevent persons associated with the organisation from bribing on its behalf.”

Clarity around this point must, however, await illumination in the courts.

Adequate procedures to prevent bribery--the Guidance Section 7(2) of the Act provides a defence for a commercial organisation to an allegation that it has failed to prevent bribery by a person associated with it. The defence is that a commercial organisation had in place adequate procedures designed to prevent those associated with the organisation from engaging in bribery.

It is worth noting that there is no stand alone offence of failing to have adequate procedures in place to prevent bribery. This is in contrast to the position for those conducting “relevant business” under the Money Laundering Regulations 2007. The defence will only apply (or rather, be needed) once the prosecution has shown that bribery took place and that the person who carried out the bribery was performing services for the commercial organisation. These are high evidential hurdles, particularly if the criminal conduct took place overseas. Of course, the company itself may still be liable for the substantive bribery, assuming that the requisite directing mind can be located in the corporate structure and, in addition, there may be individual liability for “senior officers” of the company if they can be shown to have consented to or connived in the corporate offending (s.14 of the Act).

*Crim. L.R. 108  The Joint Committee of the House of Lords and the House of Commons, when examining the draft Bribery Bill, expressed the view that some form of guidance should be issued to help industry prepare for the Act. Professor Horder noted:

“I would not be confident about letting this offence loose on the general public unless and until there has been adequate guidance agreed so that there is public confidence, business confidence in how this is going to work.”

In response, the Act was amended to require the Secretary of State for Justice, in s.9 of the Act, to publish guidance on the procedures that relevant commercial organisations can put in place to prevent those associated with them from engaging in bribery. The draft guidance was published in September 2010 and once a consultation exercise is complete and the guidance is finalised, the Act will come into force. The guidance is designed to assist companies in designing their own anti bribery procedures. The draft guidance sets out six principles with commentary and explanation and asserts that:

“In establishing and maintaining policies and procedures in line with [these] principles, commercial organisations will do much to help prevent bribery from taking place on their behalf.”

The guidance does not itself describe policies and procedures; it provides a broad framework to assist organisations in designing their own policies.

The six principles are:

1. risk assessment;

2. top level commitment;

3. due diligence;

4. clear practical and accessible policies;

5. effective implementation; and

6. monitoring and review.

The principles are described as “outcome focused and flexible”; the guidance is a useful starting point for a company which has no policies or procedures in place and no real idea of how to begin to construct a compliance programme--particularly one which is designed to ensure it does not suffer criminal liability in the future. For example, the explanation for principle 4 in the guidance has specific advice on the areas that policies should cover, including political donations, promotional gifts and hospitality and whistle blowing. Although much of this may seem obvious for large multinational corporations (many of which will already have procedures in place to deal to avert liability under the Foreign Corrupt Practices Act), for SMEs and other smaller companies, the guidance is valuable and indeed crucial if that category of commercial organisation is to change its approach to dealing with third parties, particularly overseas. Anecdotal evidence suggests that there are large swathes of corporate Britain which are entirely unaware of the changes in the law although the enthusiastic proselytising of the SFO is perhaps having some effect. The consultation process has specific questions seeking views on how to make the guidance more relevant to SMEs and smaller businesses.

*Crim. L.R. 109  As well as the guidance from the Ministry of Justice it is envisaged that guidance for prosecutors will be issued by the Attorney General which will set out the circumstances in which charges should be laid under the Act as well as guidance from the SFO. In addition to this more or less “official” guidance, there is a large body of guidance from NGOs such as Transparency International as well as industry specific guidance.

The question is whether all this guidance is of real assistance. Although convention dictates almost automatic criticism, in reality, it is difficult to envisage how the situation could be much improved and although substantive suggestions may come out of the consultation exercise, the broad, non prescriptive nature of the guidance is unlikely to be significantly amended.

The reality of the discussion around guidance for industry is not at all complicated: a broadly welcomed piece of timely criminal legislation will shortly be in force. Its terms are as clear as a piece of criminal legislation can be. Bribery and corruption are generally recognised as crimes which are routinely carried out for corporate benefit and accordingly, commercial organisations should act to prevent this criminal conduct being carried out on their behalf by not engaging in the substantive conduct, clearly, but also in establishing procedures to prevent that criminal conduct. Risk management procedures are familiar to almost all corporate entities of whatever size and the guidance is clear in stating that it does not adopt a “one size fits all” approach. To assist companies in complying with the law, a lengthy period has been given to the commercial sector to either update or establish procedures which it believes will be compliant. The lead prosecutor has itself engaged in the educative process to the extent of providing client advisory letters, meeting with companies and their lawyers and offering to consider individual anti bribery policies. Although some argue this is not an appropriate role, there can be no doubt as to the commitment to ensuring that anti corruption compliance is high on the corporate agenda.

Future enforcement The Act will come into force in April 2011. It will be some months and, in relation to prosecutions for overseas bribery, possibly years before prosecutions are before the courts as the Act's terms are not retrospective and will not catch conduct carried out before April 2011. It is worth remembering that the current crop of SFO investigations and prosecutions are taking place under the aegis of the existing legislation. Nevertheless, the Act is already having a significant effect on business, particularly large multinational businesses. Corporate criminal risk management is now recognised as a necessary part of a company's governance. This is crucial; the success of the Act will be measured both by the number of successful prosecutions (probably in relation to overseas conduct) and the extent to which it leads to a genuine change in corporate behaviour. The expectation is that although there may very well be an increase in prosecutions, these are likely to be as a result of self reports by companies of (generally) historic criminal conduct rather than prosecutions mounted following independent investigation by the SFO. Investigations would encounter difficulties in evidence gathering overseas, problems in proving a s.7 offence since the SFO need first to prove that bribery took place and difficulties in prosecuting the s.6 offence as a result of problems in properly *Crim. L.R. 110  identifying a relevant “advantage”. These difficulties may lead to a more global enforcement of anti bribery legislation with mutual legal assistance being used to a far greater extent. The machinery for this cooperation is, of course, already in existence. This leads to an important observation. Anti bribery enforcement is increasingly sophisticated. In the United Kingdom, the FSA has shown itself ready to take action against authorised firms for breaches of principle 3 (of the Principles for Business) when firms fail to comply with systems and controls designed to prevent criminal activity such as bribery. The FSA fined Aon Limited (Aon Ltd) £5.25 million for failing to take reasonable care to establish and maintain effective systems and controls to counter the risks of bribery and corruption associated with making payments to overseas firms and individuals. Cross border cooperation in investigations and prosecutions is relatively common and plainly will continue, despite the problems identified in the Innospec judgment by Thomas L.J. (Southwark Crown Court March 26, 2010)--specifically the lack of a formal plea bargaining regime in England. Capacity building in states which suffer from endemic corruption is ongoing and a new corruption academy, of which the United Kingdom is one of 31 founder members, has been established. Organisations such as the World Bank are becoming increasingly visible in anti corruption. It now regularly sanctions offending firms and bars future procurement.

The Act is not grey letter law. Its terms are clear and accessible. Whilst there is room for interpretation of some of its provisions, that interpretation is capable of informing the Act rather than obfuscating it. The guidance issued, though high level, provides a useful framework for compliance with the Act. Criticisms of anti corruption enforcement can and should be made but the legal tools for that enforcement are now present in the new Act.

Crim. L.R. 2011, 2, 101-110

Stephen Gentle

This article first appeared in the Criminal Law Review.