If you want to wine and dine a potential client, or treat an existing client to lunch to thank them for their custom, you may not realise that you could potentially be caught by the Bribery Act 2010 if the gift is deemed to be excessive and go well beyond reasonable efforts to promote your business. While only extravagant and disproportionate gifts are likely to cause an issue, it is worthwhile familiarising yourself with the Bribery Act and the types of activities it covers.
In the second of our series of articles for gallery owners and small businesses, we summarise the main provisions of the Bribery Act 2010 and how it might affect you and your business.
The Bribery Act 2010 came into force on 1 July 2011. The Act makes it an offence for any person (which includes individuals, companies, partnerships and trustees) to:
- bribe another person
- accept a bribe
- bribe a foreign public official
The Act applies not only to dealings with public officials but also to commercial, business-to-business dealings.
What is “bribery”?
The Act defines bribery in wide terms. It covers offering, promising, giving or receiving a financial or other advantage where the intention is to encourage the recipient to perform improperly an official or business function or action. As such, bribery includes not just cash payments but things like gifts, entertainment, holidays and discounts.
The Act focuses on conduct not results. The key element of bribery is the corrupt intention to encourage somebody to do something they shouldn’t. For an offence to take place there is no requirement for the giving and receipt of the bribe to have been completed.
The purpose of a bribe is to induce someone to corrupt themselves for the benefit of the person offering the bribe. In assessing this, the Act makes no allowance for local business customs and practices (unless such practices are required or permitted by local law). The standard of behaviour and integrity set by the Act is that which a reasonable person in the UK would expect. In effect, the Act allows very little flexibility to take into account how business is carried out in different parts of the world.
The Corporate Offence
The Act introduces another offence of failure to prevent bribery, which applies only to commercial organisations (“the Corporate Offence”). This makes it an offence for a commercial organisation to fail to prevent a bribe being offered or made on its behalf by any person associated with it. A person is associated with a commercial organisation if it performs services on behalf of that organisation. This covers not just employees but potentially agents, contractors, joint venture parties and subsidiaries.
The Corporate Offence applies not only to UK companies and partnerships, but also to any non-UK firms which carry on any business in the UK (see below).
It is irrelevant if the directors knew nothing about the bribery, let alone sanctioned it. The only defence to the Corporate Offence is for the commercial organisation to show that it has adequate procedures in place to prevent bribery. This is considered further below.
The Act catches bribery which takes place in the UK and, if it involves a UK person, abroad. Any person with a close connection with the UK can be prosecuted in the UK under the Act if they carry out any bribery anywhere in the world. A person with a close connection with the UK includes any UK national, anyone who normally lives in the UK, and any UK company or partnership.
International companies which carry on any business in the UK could also be liable for prosecution for the Corporate Offence of failing to prevent bribery by an associated person. The bribery does not have to take place in the UK; it can occur anywhere in the world. For a prosecution to be brought, it is enough that the company carries on some business in the UK.
The Act does not define what amounts to carrying on business in the UK. Effectively, if an international company carries on any meaningful business here – even if it is more relative to its global turnover – it could be prosecuted in the UK for its failure to prevent the bribery anywhere in the world.
Corporate gifts and hospitality
Corporate hospitality and gifts are not prohibited. But if they are excessive and go well beyond reasonable efforts to improve a company’s image, cement good client relations, or promote a business’ goods and services, then a corrupt inference might be drawn. On the other hand, if the hospitality and gifts are proportionate and reasonable given the type of business you are engaged in, then it is very unlikely that they will be considered a bribe.
The UK government has reassured businesses that there is no intention to crack down on normal corporate gifts and hospitality. The Act is not intended to stop companies taking clients to lunch or offering gifts as a sign of good relations.
Facilitation payments are small, illegal payments made to officials to speed up or complete an official process (for example, granting a visa, stamping an import licence). They are illegal under the Act. The prosecuting authorities will apply a public interest test before deciding whether or not to bring a prosecution. Large or routine facilitation payments are likely to be prosecuted.
The penalties under the Act are serious. Individuals convicted of bribery could be handed prison sentences of up to ten years as well as fines. Businesses are liable to unlimited fines if they are guilty of a bribery offence.
Directors or managers of a company which has been convicted of a bribery offence can also face prosecution if they have consented to or connived in that offence. However, if the bribery took place outside the UK, only those directors or managers who are British citizens or who normally live in the UK can be prosecuted.
Commercial risks of non-compliance
Many companies rightly do not consider themselves at risk of prosecution. But even they have to take notice of the Act. Increasingly, companies are being asked to demonstrate their anti-bribery policies and procedures in contract tenders. Companies have also had to give warranties about the extent and effectiveness of their anti-bribery procedures in fairly routine commercial agreements. Therefore, even when the threat of prosecution is minimal, the Act can affect the way business is being carried on.
Corporate culture and self-reporting
The government and the prosecuting authorities have made it clear that they want the threat of prosecution under the Act to encourage businesses to clean up any corrupt practices, implement proper anti-corruption procedures and, where necessary, blow the whistle on their own malpractices at an early stage.
The self-reporting model is taken from the United States, where the Department of Justice has in recent years used the threat of prosecution under the Foreign Corrupt Practices Act to instil a whistle-blowing culture in firms. In the US, it is far more common for companies to self-report and agree a settlement with the government than it is for matters to end up in a criminal trial. Like the Department of Justice, the Serious Fraud Office hopes the UK’s anti-bribery laws will help to weed out corporate corruption through a fear of prosecution.
Corporate Offence – adequate procedures to prevent bribery
There is only one defence to the Corporate Offence of failing to prevent bribery: that the commercial organisation has adequate procedures in place to prevent bribery by any of its employees, agents or other “associated persons”. What, in practice, does this mean?
The government has established six principles which companies should apply in assessing its susceptibility to bribery and in minimising that risk. These principles are:
- Proportionate procedures
- Top-level commitment
- Risk assessment
- Due diligence
- Monitoring and review.
The government has also published guidance on how businesses can apply these anti-bribery principles. The principles and the guidance are not prescriptive, but are intended to be flexible and applied proportionately to the bribery risks faced by business.
In a nutshell, context is everything. The anti-bribery policies and procedures expected of a small, predominantly UK based business will be very different from those expected of a large, complicated business which operates in parts of the world or in industrial sectors where corruption is a problem.
The Bribery Act has had a large impact on some organisations, and a minimal impact on others. In gauging the impact on your business, here are some questions you might want to ask yourself:
- Does your organisation use third party agents to introduce new business and/or negotiate on your behalf? If so, your bribery risk is likely to be greater. Agents need to understand and abide by the organisation’s anti-bribery policies and procedures. The consequences of non-compliance should be made clear.
- Does your organisation operate in parts of the world or in business sectors which have a history of corruption?
- Bearing in mind how much corporate hospitality you provide or receive, is it sensible to introduce internal guidelines on the sort of entertainment and gifts that are acceptable, and those that are not? The more generous the hospitality, the greater the need to have it considered, justified and approved by senior management.
- What due diligence does your organisation carry out on new business partners? Are these people you should be doing business with? What controls are in place to make sure they do not compromise your business and reputation?
- Has your senior management taken the lead on anti-bribery? Has it communicated a clear zero-tolerance message throughout the organisation? Has it assessed the business’ susceptibility to bribery? Has it put in place clear and proportionate policies and procedures to deal with this risk?
- Do employees need to be trained on bribery risks? Should you put in place a “whistle-blowing” procedure? If any of your staff are non-English speakers, have your policies and procedures been translated?
- Could your remuneration and incentive arrangements potentially corrupt behaviour? Are your financial controls able to pick up any unusual or unexplained payments?
- Have your contracts been reviewed to see if anti-bribery warranties are beefed-up?
- Have you created a paper trail which can demonstrate your “adequate procedures”?
Cases brought under the Bribery Act
The first conviction under the Bribery Act was in the case of R v Patel in 2011. In this case Mr Patel, who worked at Redbridge Magistrates Court, was found guilty of accepting bribes in return for arranging for those who came before the Court for driving offences to escape disqualifications, fines or points on their licences. Mr Patel’s conduct amounted to the systematic perverting of the course of justice including at least 53 cases. It lasted over a year and it netted Mr Patel over £90,000. On appeal, the sentence (which also reflected other offences) was reduced from six to four years’ imprisonment.
Shortly after was the case of R v Mushtaq. In this case Mr Mushtaq was successfully prosecuted under the Act for offering (as opposed to receiving) a bribe. He had failed a driving test before an Oldham Council licensing officer. He was required to pass the test to obtain a taxi licence. Mr Mushtaq then offered a £200 bribe if the test was changed to a pass. The officer refused the bribe and the matter was reported to the police. Mr Mushtaq was sentenced to two months’ imprisonment, suspended for 12 months with a two-month curfew order.
The first major conviction under the Bribery Act in a corporate case was made at Southwark Crown Court in December 2014. The charges were brought by the Serious Fraud Office and related to an alleged “Ponzi scheme” involving Sustainable Agroenergy Plc, a company that had promoted biofuel investment products linked to tree plantations in South-East Asia. Investments of tens of millions of pounds, predominantly consisting of pension savings, were obtained on the basis of fraudulent representations as to the state of the plantations and the commercial viability of the venture. The total value of the fraud was £23 million. Following the failure of the plantations, the group of companies to which the Sustainable Agroenergy Plc was part of was placed in administration. The SFO brought charges of conspiracy to commit fraud by false representation, fraudulent trading and conspiracy to disseminate false information, against all or some of the four defendants. Three men were convicted for a total of 28 years.
What these cases show is that both large and small-scale actions have resulted in convictions under the Bribery Act, so it is important to ensure that you are familiar with its reach.