Bribery and corruption are a scourge on society, threatening democracy and fairness, damaging institutions and hampering economic development and growth. Given the cross-border reach of many offences, the fight against bribery and corruption is a global one and relies on cooperation between countries and strong bribery and corruption laws across the world.
As the UK’s Bribery Act 2010 (the Act) reaches the fourth anniversary of its coming into force, bribery and corruption issues have never been so prominent. The recent scandal involving FIFA, football’s world governing body, has pushed bribery and corruption to the forefront of the political agenda (albeit in the context of a US prosecution). This was underlined when David Cameron used the recent G7 summit to urge the international community to use the FIFA crisis to spur it into fighting corruption in organisations, businesses and governments worldwide.
It is therefore an opportune time to reflect on how the UK’s fight against bribery and corruption is going and particularly how the Act, sometimes described as the toughest anti-bribery law in the world, has fared in practice. We will also take the opportunity to recap on practical advice to help you ensure that your organisation and clients stay compliant.
The Act was brought in at a time when the UK was facing increased international criticism for failing to properly address the threat of bribery and corruption. The Organisation for Economic Cooperation and Development (OECD) in particular had expressed serious concerns about the effectiveness of our then bribery laws. The previous laws, found in a combination of unwritten common law and statutes from the 19th and early 20th centuries, were outdated and fragmented.
The Act was the biggest reform of the UK’s bribery laws for more than a century, sweeping all of the old laws away and replacing them with a single Act of Parliament setting out the law on bribery in one place, whilst simplifying and modernising the old regime. The cornerstones of the Act are the four main bribery offences which are:
- Offering or giving a bribe;
- Accepting a bribe;
- Bribing a foreign public official; and
- Failing to prevent bribery.
It is this last offence (the section 7 “corporate” offence of failing to prevent bribery) which has caused particular concern for businesses due to the potential liability that they could face if they fail to prevent their associated persons from engaging in acts of bribery on their behalf. An associated person is defined in section 8 as a person who performs services for or on behalf of the organisation and could include, for example, employees, agents or subsidiaries.
In apparent recognition of the fact that organisations may not be able to prevent every potential act of bribery, legislators included a statutory defence to the section 7 offence. Simply put, an organisation has a full defence if it can demonstrate that it had “adequate procedures” in place to prevent bribery (more on that later).
The Act is also particularly notable for its extra-territorial application. An offence will have been committed under sections 1, 2 or 6 of the Act (offering or giving a bribe, accepting a bribe and bribing a foreign public official) if any part of the offence is committed in the UK, or if the offence takes place outside the UK but the person/entity has a sufficiently “close connection” with it (eg being a British citizen, being incorporated in the UK). In relation to section 7 the application is even wider – a section 7 offence will have been committed under the Act regardless of where in the world it took place so long as the organisation in question is either incorporated in the UK or carries on business or a part of its business here.
THE BRIBERY ACT BITES?
Until recently, the Act had only been deployed in a handful of cases which generally involved bribery on a small scale and not in a commercial context. (You may have heard of the case of the court clerk who accepted bribes to influence the outcome of cases involving motoring offences, or the student who attempted to bribe his tutor to give him a pass mark on his dissertation.)
After all of the fanfare that had accompanied the enactment of the Act, critics understandably began to question its effectiveness in relation to corporate bribery. However, in December 2014, the landscape changed when the Serious Fraud Office (SFO) secured two landmark convictions in a corporate context, considered briefly below.
SUSTAINABLE GROWTH GROUP
On 5 December 2014, following an investigation by the SFO which began in 2012, two businessmen were convicted under the Act for giving and accepting bribes. It was found that the Sustainable Growth Group (SGG) had mis-sold supposed investments into green biofuel tree plantations in Cambodia. Investors were led to believe that a subsidiary of SGG owned a plantation in which they were investing (mainly through Self Invested Personal Pensions), and that an insurance policy was in place to protect investors if the crops failed. In fact, both the plantation and the insurance policy were fictitious. The total value of the fraud was approximately £23 million.
As well as mis-selling to investors, it was found that a third party agent had bribed a director to produce false sales invoices which entitled the agent to a huge commission on investors’ funds. The agent was convicted of giving, and the director of accepting bribes under sections 1 and 2 of the Act. They were also convicted of various fraud offences and disqualified from being directors of a company. Both received substantial custodial sentences.
These convictions are notable because of their corporate context and because they were the SFO’s first ever convictions under the Act. The case underlines that the SFO will prosecute bribery offences even where they are ancillary to the main offence of fraud. It also demonstrates the high risk posed by using intermediaries/agents.
SMITH & OUZMAN LIMITED
December 2014 was a very good month for the SFO. In the same month it also secured another landmark bribery conviction, this time against a company, following an investigation which had begun in 2010. As the offences took place before July 2011, and the Act is not retrospective, charges were brought under the previous Prevention of Corruption Act 1906.
Smith & Ouzman is a company specialising in the printing of secure documents, such as ballot papers and exam certificates. A series of inflated payments to agents (made between 2006 and 2010) were identified. The agents had been overpaid to enable corrupt payments to be made to public officials in Kenya and Mauritania in return for the award of contracts. The company itself and two of its directors (a father and son) were found guilty of corruptly agreeing to make payments.
Although not brought under the Act due to the dates of the offences in question, the Smith & Ouzman case is the first case of a conviction being secured against a company for foreign bribery following a contested trial. Interestingly, the case demonstrates that the SFO will take action even where the payments in question are relatively small (under £400,000 in this case). The SFO’s chairman David Green QC commented that “The convictions recognise the corrosive impact of such conduct on growth and the integrity of business contracts in the developing world.”
The case highlights that the SFO will prosecute where bribery takes place overseas and will pursue the corporation as well as the relevant individuals, including not just big business, but SMEs too. It also illustrates the higher risks involved when an organisation’s mode of business requires its associates to interact with public officials in countries which are perceived to have a higher level of corruption. Organisations in that position must take extra care to have appropriate anti-bribery measures in place.
ADEQUATE PROCEDURES DEFENCE
In the current climate, businesses cannot afford to be complacent. The UK and many other countries are clamping down on bribery and corruption, and the potential penalties are severe – substantial prison sentences, unlimited fines, debarment from tendering for public sector contracts, a personal criminal record and disqualification from being a company director; not to mention the reputational damage. So what can companies and individuals practically do to protect themselves?
The “adequate procedures” defence set out in section 7(2) of the Act provides a helpful starting point. Organisations may have a full defence to the offence of failing to prevent bribery if they can demonstrate that they have adequate anti-bribery procedures in place. The Government’s guidance on what constitutes “adequate procedures” (published in accordance with section 9 of the Act) centres around six guiding principles, which organisations would be wise to base their procedures on. Briefly, they are as follows:
This is the core principle underlying the guidance. It means that the measures that an organisation takes should be proportionate to both its size and to the particular risks that it faces. So for example, those doing business in higher risk countries or industries, relying on third party intermediaries or conducting negotiations with foreign public officials will be at a higher risk. Conversely, if you only do business in the UK, the risk will be considerably lower.
It is expected that those at the very top of an organisation from CEO and board level downwards will foster a culture where bribery is unacceptable (the “tone from the top”).
Organisations must take steps to assess the level of risk of bribery occurring involving their associates, so that they can then make informed decisions on how to manage the risk by putting appropriate procedures in place.
Know exactly who you are dealing with by carrying out appropriate investigations.
COMMUNICATION (INCLUDING TRAINING)
It is not enough to have anti-bribery policies and procedures in place. These must be regularly communicated and fully understood throughout the organisation, including to those based abroad. Communication is also a two-way street and procedures should be in place to allow staff to safely blow the whistle without fear of reprisals.
MONITORING AND REVIEW
The risks an organisation faces can change over time and it is important that procedures keep up and are adjusted accordingly if they do. It is therefore an ongoing process.
A TOUGH NEW ERA?
These recent convictions, along with current investigations such as into Alstom and Sweett Group, send out a clear message. The Government and the SFO appear intent on stamping out bribery and corruption, and the low number of prosecutions to date should not necessarily be seen as an indicator of inaction – we are still at a relatively early stage of implementation of the Act, and cases typically take years to come to light, investigate and prosecute. There are almost certainly more in the pipeline. Indeed, Stuart Alford QC of the SFO has been quoted in recent months as saying “You will start to see an increase in the number of prosecutions: both from the SFO and other agencies.”
It is also worth remembering that the quantity of prosecutions is not the only benchmark of success. The legacy of the Act will be measured in terms of its success in changing certain cultures and long-term behaviours. It may well be that much of the Act’s impact has been in compelling businesses to assess their bribery and corruption risks and implement new policies and procedures.
Taken with other developments such as the publication of the Government’s 66-step “UK Anti-Corruption Plan”, the tougher sentencing guidelines that came into force on 1 October 2014, the new powers handed to the SFO in February 2014 to enter into deferred prosecution agreements (essentially plea bargains) and other large scale corruption investigations such as that into Libor fixing, there can be no doubt that bribery and corruption are firmly centre stage both in the international and domestic arenas, and businesses must take note.
PRACTICAL TIPS ON “ADEQUATE PROCEDURES”
Following the six principles gives an organisation a strong basis for routing out bribery and importantly for availing itself of the adequate procedures defence should it need to. The following are some tips on how best to put the principles into practice:
- Have comprehensive policies/codes of conduct in place on bribery and corruption and whistleblowing, and publicise these regularly.
- Have policies in place on hospitality, promotional expenditure and facilitation payments, and publicise these regularly.
- Bona fide corporate hospitality, promotional or business expenditure (eg tickets to sporting events or paying travel expenses) is still permissible but must be proportionate and reasonable. Set an agreed limit above which formal authorisation is required
- Facilitation or “grease” payments are never acceptable (in contrast to US law, which has an exemption for facilitation payments).
- Append your anti-bribery and corruption policies to commercial contracts so that contractors are legally bound by the terms, and require them to “flow the obligations down” to subcontractors.
- Consider including other contractual terms to deter bribery such as appropriate indemnities or warranties, requiring prompt reporting of demands for bribes and making breach of the anti-bribery policy a material breach enabling you to terminate.
- Assess the risk by researching the relevant countries and markets, potential business partners and key individuals.
- Ask associates and business partners to provide feedback to identify the risks they may be exposed to and how the procedures are working “on the ground”.
- Top-level management should regularly convey the anti-bribery message both internally and externally.
- Hold regular mandatory training sessions.
- Regularly monitor the effectiveness of your procedures. Don’t leave them in a drawer to gather dust!
- Have a crisis management plan in the event of bribery and corruption being discovered and consider self-reporting – sanctions will be higher where an organisation has failed to self-report.
- Keep a paper trail so that you can demonstrate the procedures that have been implemented eg written policies, minutes of meetings, records of risk assessments and actions taken, training records and written reports.
This article was published in Commercial Litigation Journal in August 2015.