Bribery Act 2010. Think it won't affect your company? Think again.

18th January 2011

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Introduction

After much fanfare, the Bribery Act will come into force in April 2011. The yards of column inches prompted by the Act are deserved. The UK is set to become the global leader in corporate anti-corruption and, like it or not, UK businesses will be the champions of the Act’s high ethical standards.

Key implications

The Act makes two fundamental changes that will particularly affect UK companies with international businesses:

  • The Act will apply UK standards on what does and does not constitute bribery to any business activity in any part of the world. For example, if a UK company indulges in local business practices in foreign markets, which in the UK would be considered bribery, then it will have committed a criminal offence and can be prosecuted for it in the UK. It makes no difference if the local practice and customs are often tolerated or accepted in the relevant foreign country.
  • The Act introduces a new offence of failure to prevent bribery. Any company which does business in the UK will be itself liable for any bribery carried out in its name (whether by an employee, agent, introducer, joint venture partner or other representative)…..anywhere in the world. This means, for example, that a UK company could be prosecuted under the Act if one of its local agents on the other side of the world offers somebody a bribe in the hope or furthering the company’s interests. It makes no difference if the directors in the UK had no knowledge of the bribe. The only defence will be for a Company to demonstrate that it has adequate anti-bribery procedures in place. And what are adequate anti-bribery procedures? That all depends, says the government. But companies will have to do a lot more than just point to a zero-tolerance policy on corruption on its website or in its employee handbook. Prosecutors and courts will want to see robust procedures thoroughly implemented at all levels of the business (see Are my procedures adequate? below).

Background and context

The impetus behind the Act is the UK’s commitment to international anti-corruption standards set out in widely supported documents, such as the OECD’s Convention on Combating Bribery and the UN’s Convention Against Corruption.

The intentions are laudable and there movement towards a single set of global anti-corruption standards. But the conversion of these conventions into domestic law across the world is patchy. The UK, so often criticised in the past for its half-hearted efforts to stamp out corrupt practices by its companies in international markets, has now committed itself to taking the lead in applying global anti-corruption standards. The UK does so ahead of its competitor nations. Some company bosses are concerned that unless all the world’s big economies move forward in lockstep in combating corruption, the UK might end up giving an advantage to competitor nations which take a more laissez-faire approach to bribery.

The Bribery Offences

The Bribery Act 2010 consolidates existing offences into a single statute. But it goes further by having extra-territorial reach and by introducing a new strict liability offence for commercial organisations of failing to prevent bribery. The bribery offences are:

  • Offering bribes
  • Receiving bribes
  • Bribing foreign public officials
  • Failing to prevent bribery

Click here for a more detailed explanation of the offences.

A worldwide web

The breadth of the Act is not limited to its extra-territorial reach. Unlike the US Foreign Corrupt Practices Act (which limits its application to bribery of public officials), the Act covers all commercial activity, whether with public officials or with commercial organisations.

The penalties

The stakes are high. A person who makes or takes a bribe could face up to ten years in prison. Senior officers of a company can also be personally liable and face fines and imprisonment if they are found to have connived in or consented to acts of bribery. A company which fails to prevent bribery, wherever it takes place, could be subject to an unlimited fine. The Serious Fraud Office has already indicated its intention to use its new powers vigorously.

The implications go beyond hefty fines. Companies convicted of bribery or a failure to prevent bribery will not only have their public image tarnished, but might also be excluded from future opportunities to bid for valuable projects and contracts. Even companies which have not been fined could miss out on pitches and tenders if they cannot show that they have adequate anti-bribery procedures.

Next steps

Large multi-national companies are likely to have internal anti-corruption policies and procedures already in place. They will have to review and revise these in the light of the Act. Smaller companies which are trying to grow their international business, particularly in emerging markets, are less likely to have such policies and procedures. If so, they will need to do something about it quickly (see Are my procedures adequate? below). For SMEs operating in parts of the world and in markets where bribery is a more common problem, the message is clear: do your utmost to ensure you do not engage in or tolerate bribery…..and be able to prove it.

Are my procedures adequate?

If someone representing your organisation offers a bribe in order to further your business then your company could face prosecution for its failure to prevent that bribe. The only defence is to prove that your company had adequate anti-bribery procedures in place.

The government published draft guidance on what amount to adequate procedures in September 2010 and it will publish its final guidance in early 2011. The draft guidance stresses that commercial organisations must themselves decide on what procedures are adequate in the context of their business. Understandably, the standards expected of large multi-national corporations will be higher than those demanded of smaller businesses. But all businesses, big and small, are encouraged to review their anti-bribery procedures. The government’s guidance is short on specifics but it sets out six principles around which anti-bribery procedures should be based:

Six principles for bribery prevention

 

Practical points

Risk assessment

  • Consider if your geographical markets and/or industry sectors put you at greater risk
  • Improve controls over third party representatives (agents and introducers)

Top level commitment

  • Communicate a clear message to all employees and business partners that bribery is not tolerated

Due diligence

  • Run checks on third parties you have engaged to represent your business and on wider business partners (e.g. joint venture partners)

Clear, practical, accessible policies and procedures

  • Develop and publicise a clear policy on gifts, corporate hospitality, political and charitable donations
  • Implement internal whistle-blowing procedures to alert central management

Effective implementation

  • Training for employees and representatives on (i) bribery awareness and prevention, (ii) your anti-bribery procedures
  • Add anti-bribery covenants into contractor agreements.
  • Translate your policies and procedures for employees and representatives who do not speak English.

Monitoring and review

  • Make sure your audit and financial controls will pick up unusual or unexplained expenses or transactions
  • Monitor your procedures, their effectiveness and training
  • Consider buying in external help to test your procedures

The Ministry of Justice’s draft guidance on anti-bribery procedures can be found at www.justice.gov.uk/consultations.

Offences

Offering and receiving bribes. The Act introduces two general offences: broadly, these are offering a bribe and receiving a bribe. In either case, there must be a financial or other advantage being offered. The obvious example is a cash payment, but other things can amount to bribes, such as gifts, extravagant hospitality, offers of employment, donations to particular causes, promises of future contracts. The possibilities are seemingly endless and the Act is framed to catch them all.

Whether a bribe is being offered or received, the intention must be for the recipient to carry out a relevant function or activity improperly. A relevant function or activity could relate to an official process (e.g. the granting of an official permit) or a commercial setting (e.g. the award of a contract). The key is that the person receiving the bribe performs the function or activity improperly.

What is improper performance? The Act describes this as performance in breach of a relevant expectation. Whose expectation? The standard applied is that of a reasonable person in the United Kingdom. If a reasonable person in the UK would expect a function or activity to be performed in good faith or impartially (or considers the person performing it to be in a position of trust), and the performance doesn’t meet this expectation, then the performance has been improper. Local customs and practices (which are not themselves part of local law) are irrelevant in assessing this expectation.

Is the Act limited to bribery in the United Kingdom? No. The Act obviously does apply to bribery carried out in the UK. But it also catches bribery carried out anywhere in the world if it is carried out by a British subject, a UK resident, or a British company or partnership. In short, the government has set high anti-corruption standards and is applying them across the world.

Bribing a foreign public official (FPO). This offence speaks for itself but there must be an intention to influence the FPO and obtain or retain some sort of business advantage. FPOs are not just foreign government officials but also representatives of international organisations.

Failure to prevent bribery. The Act introduces a new offence of failing to prevent bribery. Also known as the corporate offence, this is the most controversial aspect of the Act. It does not matter where in the world the bribery takes place. If it is carried out by a person who is associated with a commercial organisation which has a business presence in the UK, then that commercial organisation may find itself prosecuted for failing to prevent the bribery.

The person who engages in the bribery must be associated with the company. This will capture anyone who performs services on behalf of the company, which means not just employees but also agents, distributors, introducers, joint venture partners and other representatives.

It is important to note that the corporate offence applies equally to (i) UK companies/partnerships and (ii) non-UK commercial organisation which have a business presence in the UK. The Act does not define business presence and it will be for the criminal courts to decide whether this means having a trading business in the UK, or whether it means having a lesser presence, such as a non-trading representative office. What is clear is that a company with very little connection to the UK could find itself prosecuted here for a failure to prevent a bribe somewhere else in the world.

Some have argued that the Act will put UK business at a competitive disadvantage. They point out that while UK companies will be required to maintain high standards of probity, competitors from other nations can continue to turn a blind eye to local practices which amount to bribery. But foreign competitors should be mindful of the Act’s extra-territorial effect. The offence of failing to prevent bribery applies not just to UK companies but to any commercial organisation which carries on any part of its business in the UK. With law enforcement agencies increasingly co-operating across national boundaries in their anti-corruption investigations, there is every reason to think that bribery prosecutions will be brought in the UK relating to bribery allegations outside the UK against foreign companies which just happen have a UK business presence.

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