Legal Updates

It was meant to be so simple.  A new Bribery Act would sweep away the UK’s complicated and anachronistic anti-corruption legislation.  There would be guidance for businesses on how to avoid transgression.  The muscular enforcement of the US Foreign Corrupt Practices Act would be rivalled by equally vigorous efforts by the Serious Fraud Office (the “SFO”), both to inculcate an ethical culture in British business and to bring before the courts those companies and senior officers who resisted the SFO’s efforts.

Yet the Bribery Act 2010 was passed over a year ago, and yet is only coming into force on 1 July 2011.   So what was the problem?  It is not a complicated piece of legislation.  It creates four new offences: paying bribes, receiving bribes, bribing a foreign public official and a new, controversial ‘corporate offence’ of failing to prevent bribery.  There is senior officer liability if they consent to or connive in bribery.  Broadly speaking, bribery is defined as offering, promising, giving, requesting or receiving an ‘advantage’ to act improperly – that is, in breach of an expectation of what a reasonable person in the UK would expect in performance of the relevant function.  If the relevant conduct takes place outside the UK, then local custom will be disregarded when assessing.  A commercial organisation will commit the corporate offence if it fails to prevent a person ‘associated’ with it from bribing another with the intention of retaining or obtaining business.  Adequate procedures’ put in place ‘designed’ to prevent bribery is a defence for companies to this offence.  Guidance as to what constitutes these adequate procedures was to be published to assist businesses.

When passed, the legislation was generally welcomed for its succinct drafting.  However, concerns were soon expressed over the apparent broad ambit of the foreign public official offence and, more worryingly, the draconian nature of the so-called ‘corporate offence’.  The Confederation of British Industry warned that the Act disadvantaged British companies working overseas in difficult markets, and criticised the lack of clear guidance on how companies should avoid committing the corporate offence.  They contend that the Act went further than the US Foreign Corrupt Practices Act, by criminalising overseas private sector corruption, and continuing the UK’s stance on the criminalisation of facilitation payments facilitation payments – payments for ‘routine government action’.

The coalition government elected in May 2010 delayed the implementation of the Act, – as the draft guidance on “adequate procedures” was criticised as vague and unhelpful – which allowed more time for its consultation’ to address industry’s concerns in relation to the corporate offence. 

On 30 March 2011, the new, hotly anticipated guidance on the Bribery Act was finally released.  Although the substantive terms of the Act have not been changed – the corporate offence remains, facilitation payments remain illegal (the Prosecutors Guidance issued by the SFO and the Crown Prosecution Service sets out the circumstances where prosecution may take place) and private sector corruption overseas will still be a criminal offence – the revised six Principles for business in the Guidance, and their commentary and ‘scenarios’ will assist companies to implement adequate anti-bribery compliance systems.  Compliance remains a company’s defence against being prosecuted for the corporate offence.

The six Principles are:

Proportionality; ensuring action taken to prevent bribery is proportionate to the business in question;
Top level commitment; those at the top-level being active in ensuring all employees of a company, and people the company do business with, are aware bribery is not tolerated;
Risk Assessment; gauging the probability of risks of bribery a company may face;
Due Diligence; mitigating risks by knowing who you are dealing with, and ensuring adequate checks with those you choose to represent you;
Communication; all policies and procedures are publicised internally, and – if proportionate- arranging additional training for employees.
Monitoring and review; ensuring that policies and steps taken are contemporary.
Following the publication of the Guidance, the newspapers have been rife with stories about how the Bribery Act will effect business following implementation.  It is fair to say that now commentators broadly fall into three camps.

First are the apocalyptics.  They foresee companies failing to conduct business due to a fear that the Act will criminalise what would otherwise be perfectly normal commercial activity – flexible agency contracts, involvement in JVs with non UK partners, hospitality to contacts and customers.  Foreign companies should also worry – they are caught by the corporate offence if they carry on a business in the UK.

The second camp comprises of the sceptics.  They believe nothing much will change.  The impact assessment for the Act envisages only 1.3 extra prosecutions per year.  More cynically, they point to an SFO budget which is being slashed by 26% since 2008/2009 and is set to drop a further 25% by 2014/2015, which may not exist in its current form by then.

Representing an amalgam of the extremes, the third and - now most powerful category - is the agnostics.  They suspect the Act may not result in many UK prosecutions, if any.  However, they feel that the sensible approach is to engage constructively with the Act.  Compliance systems which may already be in place need to be appropriately revised, contracts and agents reviewed, and anti-money laundering systems and controls amended with the board stating its commitment to ethical corporate conduct.  Dealing with the Act will be another risk to address and monitor, albeit a crucial one, with both corporate and individual liability.

Companies should be critically examining their own anti bribery systems.  This will include their transactional practices and contracts, gifts and hospitality polices and employment policies to name but a few.

Helpful highlights from the Guidance

On the basis of UK operations, the Guidance states a common sense approach will be taken when defining ‘carrying on business’.  A company will be caught if it engages in commercial activities in the UK, irrespective of the purpose for which profits are made (meaning charitable organisations will not be excepted). The mere fact that a company’s securities have been admitted to trading on the London Stock Exchange will not in itself mean it is caught by the Act, now will having a UK subsidiary as it may act entirely independently of the parent.

Excessive corporate hospitality will trigger possible criminal liability, but the Guidance makes clear that the intention is not to criminalise reasonable and proportionate hospitality and promotional expenditure.

Companies which rely heavily on ‘associated persons’, namely agents and business partners, to perform services for them remain at risk under the Act, as they may be accountable for their conduct.  The Guidance advises thorough due diligence in selecting and appointing associated persons should be undertaken before appointed.  The agent/partner’s local reputation in the industry, any media/ enforcement authority scrutiny, the integrity of the relevant jurisdiction for corruption, the political/ business connections of directors and shareholders, and the agent or partner’s existing compliance policies should be especially considered.  Contracts appointing third parties should impose an obligation to adhere to the appointing party’s anti-corruption policies (and ensure any sub-contractors do the same), include rights of audit so compliance can be monitored, and the right to terminate the appointment in the event of suspected corruption.

Companies should take care when entering into joint-venture relationships, as they may be liable for the acts or omissions of employees or agents of the joint venture.  However, the Guidance indicates that in relation to joint ventures undertaken through a separate legal entity, a bribe paid on behalf of the joint venture entity by one of its employees or agents will not trigger liability for members of the joint venture simply by virtue of them benefitting indirectly from the bribe through their investment in or ownership of the joint venture.

Companies considering a merger with or the acquisition of another company should be wary of the risk of successor liability, not only in relation to the Act but also with the money laundering implications of acquiring tainted property. Thorough due diligence of a target’s corruption policies and procedures and existing contracts with agents and other third parties should be undertaken.  Warranties and indemnities should be sought to protect against successor liability.

Companies will have a plethora of employment law policies that they will need to ensure interact with their companies’ anti-bribery code.  Employment policies should contain specific anti bribery provisions.  The significance of maintaining appropriate whistle blowing policies is increased by the Act and Guidance as any employee raising concerns about bribery will almost certainly benefit from the heightened legal protection (and larger damages) afforded to whistleblowers, provided their disclosure is in good faith.  Policies dealing with company values should also be looked at to ensure they incorporate the commitment to an anti bribery culture that the Guidance requires.

The key change in the new Guidance is a recognition that a ‘proportionate’ and reasonable response by companies in dealing with bribery risk should protect them from the attention of the SFO and the criminal courts.  It is now the time for calm assessment, adaptation and management of bribery risk and its mitigation.

Stephen Gentle, Criminal Litigation

This article first appeared in British American Trade & Investment report.