The UK Bribery Act 2010 The extractive industries sector in Africa is viewed by most enforcement agencies as “red flagged” for corruption risk. It is not to say that companies in the sector are inherently corrupt, it is more that the nature of the industry involves a number of factors known to increase corruption risk: large scale multinational operations, often dealing in emerging markets where corruption can be systemic and entrenched, depending on third parties, and dealing with governments, state-owned entities and government officials. Companies can be held accountable not only for their own conduct and that of their officers, directors, senior managers and employees, but also for corrupt practices of partners, subsidiaries, agents or distributors. Foreign owned operators and investors in the sector (and their officers, directors, senior managers and employees) face the risk of prosecution for corruption offences not only under local African anti-corruption laws but also under anti-corruption laws of other nations, such as the FCPA or the Bribery Act. Companies in this sector already have been hit with substantial penalties by US and UK enforcement agencies. Put simply, if you are investing or operating in the extractive industries in Africa, your business needs an anticorruption strategy. The UK Bribery Act 2010 The UK Bribery Act 2010 came into effect on 1 July 2011. It replaced common law bribery and the statutory offences under the Prevention of Corruption Acts 1889-1916. Those prior laws however continue to apply to activities amounting to offences under those laws which have been committed wholly or in part before 1 July 2011. Indeed, we are seeing continued enforcement under those prior laws (as well as under other relevant laws, such as anti-money laundering laws). Just recently, a UK printing company (Smith & Ouzman Ltd) was prosecuted and convicted under those Global Anti-Corruption / Foreign Corrupt Practices Team This is the second article in a series in which we explain and discuss key anti-corruption risks and issues when investing or operating in “red flag” jurisdictions and sectors. The series will also discuss key anti-corruption laws and what you and your business can do to minimize the risks of falling foul of those laws. In Part 1 we covered why your business needs an anti-corruption strategy if you are investing or operating in the extractive industries in Africa, and gave examples of recent Africa-related enforcement actions taken by US and UK authorities. In this Part 2, we cover the UK Bribery Act 2010.Bryan Cave LLP America | Europe | Asia www.bryancave.com 2 prior laws. Smith & Ouzman Ltd was a small to medium enterprise and the bribes were not, in the scheme of things, particularly large (less than £400,000). So the takeaway from that case is that enforcement agencies are not focused solely on “big, household names” or large bribe payers, although several large multinational companies are under active investigation and are also at risk. Under the Bribery Act, both companies and individuals can be liable for bribery offences. In addition, senior officers of a company can be liable where a company is guilty of bribery. A conviction under the Bribery Act can have very serious ramifications. A company can be barred, across the EU, from public procurement. For both individuals and companies, they can face unlimited fines. Conviction can also result, for an individual, in serious jail time. In 2014, the SFO obtained its first convictions under the Bribery Act of three directors and agents of Sustainable AgroEnergy PLC as part of a wider fraud case (prior to that, the Crown Prosecution Service had obtained convictions under the Bribery Act of three individuals – a student, a taxi driver and court clerk). The sentences handed down were severe – a total of 28 years jail (13, 9 and 6 years respectively). As explained below, the Bribery Act has extra-territorial jurisdiction, and a company that does business in the UK can be held accountable for failure to prevent bribery by “associated persons” anywhere in the world, even if such bribery is not related to its UK business, unless the company can demonstrate that it had in place adequate procedures aimed at preventing bribery by associated persons. This will have serious consequences for many companies – the recent OECD report 2014 found that in the cases of bribery of foreign officials it reviewed, third parties/intermediaries were involved in three out of four cases. Understandably, the Bribery Act has engendered a great deal of interest from both UK and non-UK companies and has led to reviews of companies’ anti-corruption policies and procedures, as well as due diligence in this area in acquisition transactions. General Offences The Bribery Act includes general offences of bribing a person (“active bribery”) and of accepting a bribe (“passive bribery”). Bribery is an offer, promise or gift of a financial or other advantage, or requesting, agreeing to receive, or receiving the same, intending to induce or reward “improper performance” of a public or private function (such as an activity in connection with a business or performed in the course of employment or on behalf of a company). “Improper performance” is performance that breaches an expectation that the person performing the function will perform it in good faith or impartially, or the person performing it is in a position of trust. The test is what a reasonable person in the UK would expect in relation to performance of a type of function or activity. The general offences cover both public and private bribery, and direct bribes and bribes through a third party. They can also cover implied offers of a bribe (such as discussions over an open briefcase of money) or incomplete transactions to bribe. These offences carry a wide jurisdiction. The functions and activities involved may be carried out either in the UK or abroad, and need not have any connection with the UK.Bryan Cave LLP America | Europe | Asia www.bryancave.com 3 The Bribery Act contains a separate offence of bribery of foreign public officials, which largely tracks the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions. Under this offence, a bribe is a direct or indirect offer, promise or gift of a financial or other advantage to a foreign public official, or at his or her request or with his or her acquiescence, intending to influence the official in the performance of his or her official function with the intent to obtain or retain business or a business advantage. There is no “improper performance” element in respect of this offence. The general offences and offence of bribery of foreign public officials apply to acts or omissions in the UK, as well as acts or omissions outside the UK by persons with a close connection to the UK, such as UK companies, British nationals and individuals ordinarily resident in the UK. In the table below, are some comparisons with the FCPA. The key takeaway is that compliance with the FCPA does not automatically ensure compliance with the Bribery Act. Gifts and Hospitality and Facilitation Payments As under prior law, the Bribery Act even prohibits so-called “grease” or “facilitation” payments, though prosecution is dependent on prosecutorial discretion. In practice, it appears less likely that the SFO will prosecute a company for facilitation payments unless it is systemic or forms part of a widespread culture of corruption. Nonetheless, it is important that your anti-corruption strategy clearly and consistently deals with such payments. However, bona fide hospitality or promotional or other legitimate business expenditure is not prohibited under the Bribery Act, and is recognised in the UK as an established and important part of doing business. Whether such expenditures tip over into corruption, which will be prosecuted, will largely depend on the circumstances and context. The Ministry of Justice Bribery Act Guidance offers a number of tips and examples, but the key questions to ask yourself include: Who is the recipient? – is this a goodwill exercise designed to inform or cement relations with a category of individuals or is one individual in particular being targeted?; What is the value of the expenditure? – is it excessive or lavish? (n.b. lavishness may differ from country to country); and When and in what context is the expenditure taking place? – it is just prior to a key contract being awarded? In the case of government officials, the standards may be more stringent. Such agencies may have their own rules about where and when gifts and hospitality may be accepted. It is also very important to ensure that your company does not fall foul of the FCPA. In the UK, enforcement agencies have prosecuted and convicted parties in circumstances where gifts and hospitality expenditure was clearly excessive and intended to corrupt. For example, in 2012, the former finance director and the accounts manager of Greenvale, a potato supplier to Sainsburys, were both convicted under prior laws of corruption (and other laws) for showering a Sainsburys potato buyer with excessive gifts and hospitality purportedly in order to retain a contract worth circa £40 million as well as colluding to overcharge Sainsburys by £8.7 million. This included stays at Claridges Hotel worth £200,000, a 12-day Monaco Grand Prix excursion costing some £350,000, as well as some quite blatant lump payments of cash amounting to £1.5 million. ByBryan Cave LLP America | Europe | Asia www.bryancave.com 4 any account that level of expenditure, entirely unrelated to the businesses, would be seen as lavish and excessive. Also, in the context, it’s quite clear the intent was to bribe the buyer into awarding or retaining the contract. The accounts manager received a jail sentence of three years, and the finance director was sentenced to two and a half years for authorizing the payments. The Sainsbury’s buyer was also convicted and sentenced to jail for four years. So it’s clear that if the line is crossed from bona fide expenses into corruption, the consequences can be severe for all involved. Therefore, although bona fide expenses are not prohibited under the Bribery Act, any company would be well advised to deal with such expenditure in its anti-corruption strategy. The Corporate Strict Liability Offence The Bribery Act also provides for a new strict liability offence if a UK company, or a non-UK company that carries on a business or part of a business in the UK, fails to prevent bribery by an “associated person” intending to obtain or retain business or a business advantage for the company. An “associated person” is a person anywhere who performs services for or on behalf of a company and can include employees, sales representatives, subsidiaries, other contractors, joint ventures or joint venture partners, depending on the circumstances. There is no requirement for the associated person to have a close connection with the UK, and no requirement for the bribe to be related to the UK business of the company. A conviction under this offence will not trigger a mandatory ban from EU public procurement, though public procurement authorities may still exercise a discretion to exclude a company for having been convicted of this offence. The UK is currently considering whether to extend this corporate offence to a corporate offence of failing to prevent any economic crime by an associated person. This would make prosecuting a company for fraud much easier. The UK is also considering whether the corporate offences should fall within the automatic exclusion under the EU public procurement regime. Both developments would have very serious, wide ranging impacts on companies. Adequate Procedures There is a statutory defence to the current strict liability corporate offence if the company can show that it had in place “adequate procedures” designed to prevent associated persons from engaging in bribery. The UK Ministry of Justice has issued guidance suggesting that the following six elements should inform a company’s “adequate procedures”: (1) Procedures proportionate to the bribery risks faced and nature, scale and complexity of the company’s activities; (2) Top-level management commitment to preventing bribery, which fosters a culture within the company in which bribery is never acceptable; (3) Periodic assessment and documentation of the nature and extent of its exposure to potential external risks of bribery;Bryan Cave LLP America | Europe | Asia www.bryancave.com 5 (4) Proportionate and risk based approach to due diligence procedures in respect of persons who perform or will perform services for or on behalf of the company; (5) Internal and external communication, including training, proportionate to the risks faced to ensure that bribery prevention policies and procedures are embedded throughout the organisation; (6) Monitoring and review of procedures to prevent bribery and make improvements where necessary. Deferred Prosecution Agreements In February 2014, Deferred Prosecution Agreements (“DPAs”) became available in the UK for the first time for offences (regardless of when they were committed). A DPA is a voluntary agreement between a prosecutor and a corporate entity (these are not available to individuals), by which charges are brought but suspended, subject to certain Court approved conditions for a period of time. Unlike the US system, DPAs are subject to judicial scrutiny. To date, no DPAs have been agreed. However, it seems very likely that we will see the first DPA agreed during the course of 2015. There are various benefits of entering into a DPA, including: (1) No criminal conviction is recorded against the offender, which also means currently that it avoids the mandatory EU-wide public procurement ban (though, as with the offence of failing to prevent bribery, entering a DPA may be a factor in public procurement processes); (2) It could mean a substantial reduction in any fine; and (3) It can avoid the disruption associated with a prolonged investigation. Entering into a DPA is a matter for prosecutorial discretion. The directors of the Serious Fraud Office (“SFO”) and Public Prosecutions have published a joint Code of Practice providing guidance on when a DPA is likely to be appropriate and other matters. The SFO has welcomed DPAs, but made it very clear that its focus remains on prosecution and it will not be easy for organisations to obtain an offer of a DPA. It has said that one of the most important factors will be the company’s “unequivocal cooperation” and there are “no guarantees”. The decision whether or not to prosecute will be taken in light of the prosecutorial guidance, and public interest considerations – what is clear however, is that voluntary disclosure of an issue will not guarantee that a DPA will be offered. DPAs are intended however, to complement the SFO’s encouragement of corporate selfreporting.Bryan Cave LLP America | Europe | Asia www.bryancave.com 6 Contact us To discuss any of these issues further, please direct your queries to the authors, your contact at Bryan Cave or to any member of the Global Anti-Corruption / Foreign Corrupt Practices Team. Cara Dowling, London Direct Dial: +44 (0)20 3207 1208 email@example.com Anita Esslinger, London / Washington D.C. Direct Dial: +44 (0) 20 3207 1224 / +1 (0) 202 508 6333 firstname.lastname@example.org To learn more about Bryan Cave’s Global Anti-Corruption / Foreign Corrupt Practices Act Team or to view other related briefings and webinars, please visit our website at www.bryancave.com/gact. Bryan Cave's alerts/bulletins/briefings are available online at www.bryancave.com/bulletins. Comparing the US Foreign Corrupt Practices Act (“FCPA”) Unlike the FCPA, the Bribery Act: includes domestic as well as foreign bribery; includes acceptance of a bribe (“passive bribery”); extends to private bribery; does not include a “corrupt intent” or “improper performance” element in bribery of foreign officials; there is no limitation period for bribery offences (though if there has been an excessively long delay in prosecuting an offence and that has reduced the chances of a fair trial, the judge may decide not to hear the case); does not contain a statutory carve-out for facilitation payments (prosecution of which are dependent on prosecutorial discretion); does not contain a statutory carve-out for reasonable and bona fide promotional expenses (although again there are guidelines for prosecutorial discretion).