The UK Bribery Act 2010, which became effective on July 1, 2011, has a significant reach beyond the UK and will affect many U.S. businesses.
A U.S. company that carries on any “part of a business” in the UK could be prosecuted under the UK Bribery Act for failing to prevent bribery committed by any of its employees, agents, or other associated persons, notwithstanding that the act that constitutes bribery:
- Is committed outside of the UK; and
- Does not involve any UK person.
A U.S. company can protect itself from prosecution under the UK Bribery Act by putting in place, and being able to show that it has, “adequate procedures” to prevent bribery across its group.
To illustrate the potentially wide reach of the UK Bribery Act, consider the following example. A U.S. company is conducting business in Asia. The U.S. company appoints an agent in a country in Asia to assist with the establishment of its business in that country. In order to speed up the connection of telecommunications services to the new business, the agent makes a facilitation payment to a local official. The U.S. company also has a subsidiary in the UK, but the UK subsidiary does not have any connection with the business in Asia.
The U.S. company is potentially liable under the UK Bribery Act for failing to prevent bribery. It is not relevant that neither the U.S. company nor the UK subsidiary was aware of the actions of the agent in Asia, or that the bribery has no connection with the UK. The potential application of the UK Bribery Act to the U.S. company is triggered simply because the U.S. company has operations in the UK.
The U.S. company is still potentially liable for an offence under the UK Bribery Act even if the payment by the agent would not constitute an offence under U.S. Foreign Corrupt Practices legislation. U.S. legislation permits facilitation payments to public officials in certain circumstances, but there are no equivalent provisions in the UK Bribery Act permitting facilitation payments.
Even if the U.S. company does not have a subsidiary in the UK, it would, on the same facts, still be potentially liable for an offence under the UK Bribery Act if it simply carries on business in the UK, including, for example, by trading direct with customers in the UK or by having appointed an agent in the UK.
The regulators in the UK have indicated that they will be actively looking at bringing proceedings in the UK against overseas companies and businesses. Speaking at an event for the U.S.-Russia Business Council not long before the UK Bribery Act became effective, the Director of the UK Serious Fraud Office (SFO) said that:
“Our view is that if a foreign group has a subsidiary in the UK and in another country and that bribery occurs in that other country, then that bribery is within the remit of the SFO.”
When does the UK Bribery Act apply to a U.S. company? When carrying on “part of a business” in the UK.
Key to whether the UK Bribery Act applies to a U.S. company is whether that company carries on any “part of a business” in the UK. The main points to note are:
- If the bribery is committed outside of the UK; and if the U.S. company carries on business in the UK in its own right, whether, for example, through a UK branch or office or by appointing an agent in the UK or in any other way that benefits the U.S. company, the U.S. company’s activities will be covered by the UK Bribery Act; and
- If a U.S. parent company carries on business in the UK through a UK incorporated subsidiary, the U.S. parent will be covered by the UK Bribery Act—whether the UK Bribery Act applies to the U.S. parent company will be a question of fact depending on how the UK subsidiary is controlled and whether or not it has complete operational independence of its U.S. parent company (but note that, whether or not the UK Bribery Act applies to the U.S. parent company, it will always apply to the UK subsidiary company).
What action will cause a U.S. company to commit the corporate offence under the UK Bribery Act?
If the UK Bribery Act applies to a U.S. company (because it is regarded as carrying on part of a business in the UK), then it will commit an offence under the UK Bribery Act if:
- A person associated with the U.S. company performing services on its behalf bribes another person with the intention to obtain or retain business or an advantage in business; and
- The U.S. company is not able to show that it had adequate procedures in place designed to prevent bribery being committed by persons performing services on its behalf.
Key points to note:
- A U.S. company will be liable for the actions of its “associated persons.” A person is “associated” with a company if it performs services on its behalf. An “associated person” of a company will include employees and agents but could also include subsidiary companies, distributors, sub-contractors, and joint ventures.
- The action that constitutes “bribery” does not need to have any connection to the UK. The UK Bribery Act will apply to bribery carried out anywhere in the world and neither the person giving the bribe nor the person receiving the bribe needs to be a UK person or have any connection to the UK.
- “Bribery” is not just the payment of cash or the making of facilitation payments, but can include corporate hospitality, gifts, or charitable donations.
- Unlike under the U.S. Foreign Corrupt Practices Act (FCPA), the UK Bribery Act catches “bribes” paid or offered to any person (and not just foreign public officials). In other words, the UK Bribery Act applies to “bribery” in the private sector as well as the public sector; for example, corporate hospitality given by one private sector company to another private sector company intended to induce improper behavior (e.g., to award a contract otherwise than in accordance with proper procedure), could amount to bribery for the purposes of the UK Bribery Act.
- Further, while the FCPA contains specific exemptions for payments made to facilitate or expedite routine government action and for reasonable bona fide business promotion, the UK Bribery Act has no equivalent exemptions for facilitation payments or corporate hospitality.
- While we have referred in this article to a “U.S. company” being potentially within the scope of the UK Bribery Act, the Act will potentially apply to any relevant U.S. commercial organization carrying on any part of a business in the UK. This will therefore also include U.S. partnerships, trading businesses, and professional organizations carrying on any part of a business in the UK.
How does a company in the U.S. protect itself? With “adequate procedures.”
A U.S. company carrying on part of a business in the UK can protect itself from potential liability under the UK Bribery Act by putting in place “adequate procedures” to prevent bribery across its group.
The UK Ministry of Justice has issued guidance as to what may constitute “adequate procedures.” The guidance is not a safe harbor and following the guidance will not, in itself, make procedures “adequate.”
A risk-based approach should be followed and procedures adopted that are proportionate to the risk involved. The UK Ministry of Justice guidance sets out six fundamental principles that it advises should be followed, namely:
- Proportionate Procedures: Clear and accessible procedures to be effectively implemented that are proportionate to the risks faced by that particular business.
- Top-level Commitment: Commitment by top-level management (i.e., board of directors and/or owners) to preventing bribery by associated persons that fosters a culture in which bribery is never acceptable.
- Risk Assessment: Periodic, informed, and documented assessment of the nature and extent of an organization’s exposure to potential bribery by associated persons.
- Due Diligence: Applying due diligence procedures to persons who perform and will perform services for or on behalf of an organization.
- Communication/Training: Ensuring that bribery prevention procedures are embedded in and understood throughout an organization and by other associated persons through communication and training.
- Monitoring and Review: Ensuring that an organization monitors and reviews procedures designed to prevent bribery and makes improvements where appropriate.
It is important to note that, because of the differences between the UK Bribery Act and the FCPA, anti-corruption policies that a U.S. company has put in place for the purposes of the FCPA may not be sufficient to constitute adequate procedures for the purposes of the UK Bribery Act.
Any FCPA anti-corruption procedures put in place by a U.S. company that carries on any part of a business in the UK should, therefore, be reviewed and updated to also ensure compliance with the UK Bribery Act.
The offences under the Bribery Act are criminal offences and can lead to fines and imprisonment, disqualification of persons from acting as a director of a company, and possible debarment from tendering for public sector contracts.