BACKGROUND

The Bribery Act 2010 (“the Act”) comes into force on July 1st, 2011. The Act provides a new codified anti-bribery and anti-corruption regime which may create both civil and criminal law liability for foreign companies and their officers and directors.

In several respects, the Act goes considerably further than its US equivalent, the Foreign Corrupt Practices Act ("FCPA") and related US legislation.

The memorandum addresses the practical impact of the Act and related UK legislation on a foreign company and its management where the company is doing business in or with the UK.

It must be recognised, however, that acts amounting to bribery or corruption may create liability in more than one jurisdiction.

THE OFFENCES

The specific offences relating to bribery of third parties under the Act are:

Section 1: Offence of Bribing Another Person

A person (“P”) is guilty of an offence where:

  1. P offers, promises or gives a financial or other advantage to another person; and
  2. P intends the advantage:
    1. to induce a person to perform improperly a relevant function or activity; or
    2. to reward a person for the improper performance of such a function or activity; or
  3. P knows or believes that the acceptance of the advantage would itself constitute the improper performance of a relevant function or activity.

Direct or indirect payments are caught and the offence applies equally to public and private persons.

A relevant function or activity, for the purpose of the Act includes:

  1. any function of a public nature;
  2. any activity connected with a business;
  3. any activity performed in the course of a firm’s employment; or
  4. any activity performed by or on behalf of a body of persons (whether incorporated or not).

The relevant function or activity must satisfy one of the following conditions to be caught by the Act, namely that the person performing the function or activity is:

  1. expected to perform it in good faith; or
  2. expected to perform it impartially; or
  3. is in a position of trust by virtue of performing it.

The function or activity will be deemed to be performed improperly if it is performed in breach of “relevant expectation”. The test for overseas or UK is the same – what a reasonable person would expect in the UK, not in the foreign country. Local customs are to be disregarded unless the payment is permitted or required by the written law of the country in question – being in legislation or a written and published judicial decision.  

Section 6: Bribery of Foreign Officials

This includes any direct or indirect payments to a foreign public official with the intention of obtaining or retaining business or an advantage in the conduct of business (including any trade or profession) if the intention is to influence a foreign official – including to secure any omission to exercise his or her functions or any use of the official’s position as such, even if the act or omission sought is not within the official’s authority. “Foreign public official” includes anyone holding a legislative, administrative or judicial position of any kind, whether elected or appointed, of any country outside the UK or any subdivision thereof or any public agency or enterprise of that country or is an official of a public international organisation.  

The latter includes any organisation where members are countries or territories, governments, other public international organizations or any mixture of the above.  

Unlike Section 1, Section 6 does not require proof that an act would be an “improper performance” of a public duty or even that the person intended to induce an improper performance.  

Unlike the FCPA, being an official of a political party, on its own, is not caught by the Act.

The above offences will apply and there is no defence to them if they are proven to occur, unlike the Section 7 offence.  

Sections 1 and 6 of the Act apply to a foreign company, where any act or omission which forms part of the offence takes place in the UK.  

They may also apply to offences committed outside the UK if it would have been an offence in the UK and the person committing it has a close connection to the UK – either nationality or residence. However, in the latter case, for the foreign company, rather than just the individual, also to be liable, the individual must be the "directing mind or will" of the company ie. a senior executive officer.  

Section 7: Failure of a Commercial Organisation to Prevent Bribery

Section 7 makes any UK business or any foreign business which conducts any business in the UK (“relevant commercial organization”) liable if an “associated person” bribes another person (public or private) in the course of its business. It is an absolute offence, but it carries an absolute defence – that the organization put in place adequate procedures to prevent this and the offence occurred without the organisation’s knowledge or acquiescence, notwithstanding existence of these procedures. The fact that the organization did not know of the actions of the associated person will be no defence if the organization has not put in place adequate procedures.  

An “associated person” is any person providing or performing services on the Company's behalf – be it an employee, an agent, a contractor, supplier or any other person.  

The reference to an employee needs to be qualified. If the bribe is authorised, made or acquiesced in by a director or manager who is the “directing mind or will” of the Company, the act will be attributed directly to the Company and fall within Section 1, not Section 7. The Section 7 procedures discussed below will, therefore, provide no defence to the Company. For Section 7 to be triggered, the associated person must have done something which, if done in the UK, would be an offence under Section 1 or Section 6 of the Act.  

A foreign company is therefore liable for the action of associated persons anywhere in the world if it carries on a business or part of a business in the UK. The Ministry of Justice guidelines purport to state that merely listing stock on a UK stock exchange is not sufficient to create a place of business. However, the Serious Fraud Office, as prosecuting authority, appears to be taking a more aggressive line, despite the reluctance of the framers of the Act to have it apply to an “issuer” of securities, like the FCPA. In the circumstances, it is safest to assume that if the foreign company has a listing in the UK, it is exposed to Section 7 liability.

WHO IS LIABLE FOR THE OFFENCES?

If a foreign company is liable, any director, manager, secretary or similar officer (“Senior Officer”) with knowledge of the offence will be liable for the offence in the UK. Also, in respect of overseas actions, which are an offence, a Senior Officer who has a “close connection” to the UK (nationality or residence) will also be liable jointly with the Company if, in either case, the offence was committed with his or her consent or connivance (Section 14).

WHAT ARE THE PENALTIES?

Under the Act, a company is liable to a fine – unspecified. An individual is liable to a fine and/or imprisonment. The term of imprisonment is up to 12 months on summary conviction (minor offences) and up to 10 years on indictment. A fine is likely to be calculated by reference to the benefit obtained, even if not full “disgorgement of profits” which has been the feature of recent US prosecutions. However, Bribery is now a crime and the benefits obtained are therefore proceeds of crime and therefore liable to forfeiture under the money laundering laws. Richard Alderman, head of the Serious Fraud Office has publicly signaled an intent to use all available laws to recover the proceeds of crime.

Additional penalties potentially include:-

  1. Loss of any concession, licence or contract obtained as a result of corruption.
  2. Disqualification from public works under the EU public procurement and various national procurement rules.
  3. Exposure to other anti-corruption laws (including the US, if a company has shares listed there) and the local laws of the jurisdiction.
  4. Exposure of UK individuals to risk of extradition. The UK currently has extradition treaties with over 100 countries. In the case of the so-called "Category 2" countries, no prima facie evidence is required in support of an application for extradition.
  5. Potential civil claims by competitors who lost out as a result of the corrupt act, class actions and shareholder actions – particularly in the US.
  6. Reputational loss.

THE APPROACH OF THE UK PROSECUTORS

Under current arrangements, action will normally be initiated by the Serious Fraud Office. The SFO has the ability to pursue either a civil suite of remedies and/or a criminal suite.

The SFO's stated policy is to encourage self-reporting. If a company self-reports, co-operates and is found, on investigation, to have a serious anti-corruption ethos, in respect of which the event was an aberration, the SFO may well pursue a civil remedy aimed at disgorging the benefits of the corrupt act.

If, on the other hand, the offender has been negligent in putting in place procedures or is considered to be tolerant of corruption, a criminal prosecution is likely. The SFO has stated that it will use a wide range of intelligence gathering techniques – reports from embassies and local media, whistleblowers, sting operations and the full panoply of white collar crime surveillance techniques to catch offenders. The richest source of intelligence is likely to be from whistleblowers within companies who suspect that company is acting corruptly.

Any prosecution requires the personal approval of the head of the prosecuting agency. This is so that the agency can focus on cases which first have a good chance of success and secondly are in the national interest.

THE IMPORTANCE OF CORPORATE ETHOS AND PROCEDURES

It will therefore be seen that a publicly expressed corporate anti-corruption ethos and adequate procedures are essential for the following reasons:

  1. To reduce the risk of employees, agents, contractors and service providers contravening the Act in the Company’s business.
  2. To reduce the risk of criminal prosecution, if an event occurs.
  3. To provide a defence, in the case of actions by associated persons, to the Section 7 offence.
  4. To reduce the risk of individual directors and senior officers being extradited to a country where the offence was alleged to be committed.
  5. To protect the assets of the Company from forfeiture.
  6. To reduce reputational risk.

FACILITATION PAYMENTS – ARE THEY A BRIBE?

The UK law does not allow for the making of so-called facilitation payments, which are currently permitted under the FCPA. These are small payments made to officials to get them to do what they have to do – not to influence them to use their discretion, which is an offence in the US just as much as in the UK.  

Facilitation payments are not permitted in the UK and any payment will be an offence. Overseas, the official UK line is that if a facilitation payment is demanded, it should be resisted and reported to the local UK embassy so that pressure can be brought, if necessary, on behalf of all affected businesses.  

This is likely to be one of the most vexed areas of risk because, in many countries, it is impossible to clear customs, get licences etc. without making such payments.  

It is to be hoped that the authorities will act reasonably and determine that it is not in the national interest to prosecute for small facilitation payments which are generally unavoidable. However, no assurance can be given and the SFO is publicly taking a very strong line.

CORPORATE ENTERTAINMENT AND HOSPITALITY – IS IT A BRIBE?

One of the major concerns (and one of the main reasons for the delay in introducing the Act) has been concern that corporate hospitality, extended to private or public counterparties, would be treated as a bribe. To a degree this has been clarified by guidelines issued by the Ministry of Justice. The motive is the key. The more lavish the hospitality or the higher the expenditure, the more suspect it will be. There is an official encouragement for industry-wide bodies to develop their own guidelines on what is and what is not appropriate. The guidelines give case studies, but only for illustrative purposes. The motive will remain key. The issue is discussed further below.

WHAT PROCEDURES SHOULD THE COMPANY ESTABLISH?

The procedures to be put in place by any foreign company doing business in or with the UK must be proportionate to the risks it faces and to the nature, scale and complexity of the commercial organisation’s activities. They should be clear, practical, accessible, effectively implemented and enforced. Depending on the size of the company and the risks it encounters, the procedures may vary from a simple statement of policy and monitoring by a single person to the creation and staffing of an extremely complex regulatory system.

Particular attention must be paid if the company is operating in one of the high risk businesses – e.g. mining, defence, contracting, public health, oil and gas or in one of the high risk areas identified in the Transparency International Corruption Perspective Index. We are not just considering the risk of corruption in acquiring the underlying assets – but the day-to-day ongoing risks arising from operations – the risks of both paying bribes and of employees being bribed, which is equally an offence under the Act.  

The analysis of risks and the decision on what procedures are adequate is for the Board to determine. Unlike the US, the UK’s system is principle based, not rules based. There will be no clearances or approvals and no rules on what is right or wrong. The situation is therefore more risky than in the US, with greater discretion to the prosecuting authorities. Nonetheless, experience in the US is helpful in defining the content of the company’s required procedures and has informed the guidance issued by the Ministry of Justice. Compliance with this guidance will be taken into account in a determination by prosecutors as to whether adequate procedures were in place for the purpose of Section 7. They are, therefore, a good start. Although these guidelines are strictly only relevant to Section 7 offences and form no defence to Section 1 or 6 proceedings, they also define good practice generally and may influence prosecutors to pursue civil rather than criminal procedures for a one-off offence.  

As stated above, the approach is principle, not rules, driven. The guidance sets out 6 principles and provides 11 case studies to illustrate adequacy of the procedures in certain cases. The Board should read and understand them and they are briefly summarized below.  

Principle 1

Proportionate Procedures

This includes defining, recording and implementing procedures following an internal risk assessment, which are commensurate with the risks identified.

The procedures should include, at a minimum:

  • A top level statement of the company’s commitment against bribery and corruption. To be communicated as appropriate – by website, internal communication, supply chain communication etc.
  • Due diligence on existing and potential partners, agents and associated persons.
  • Policy on gifts, hospitality, promotional expenditure, charitable and political donations and demands for facilitation payments.
  • Terms and conditions of employment outlawing bribery – including annual self-certification if appropriate.
  • Terms and conditions against bribery for inclusion in commercial contracts.
  • Financial controls.
  • Transparency of transactions and decision making.
  • Allocation of management supervision, monitoring, responsibility and reporting, including board or committee level oversight.
  • Enforcement and disciplinary rules.
  • Whistleblower facility.
  • Plan for implementation of the anti-bribery project in existing businesses and with existing relationships.
  • Staff communication and training.

Principle 2

Top Level Commitment

To include:

  • Board Commitment
  • Communication.
  • Top management involvement.
  • Articulation of the business benefit of rejecting bribery.
  • Involvement in industry-wide initiatives.
  • Selection and training of senior executives to oversee the performance with direct reporting lines to the Board or Committee.

Principle 3

Risk Assessment

  • Both initial and regularly reviewed.
  • Resourcing to reflect the scale of the organisation and risks identified.
  • Due diligence enquiries.
  • Access to database of government officials.
  • To include country risk; sectoral risk (mining is considered a higher risk sector); transaction risk - particularly charitable or political donations; business opportunity risk; business partnership risk.

Principle 4

Due Diligence

Particularly as to business parties and associated persons - but also employees in high risk areas (procurement, for example).

Principle 5 Communication and Training

To ensure that the policies and procedures are kept up to date, communicated and understood. Training may include commercial or bespoke online systems, but issues such as dealing face-to-face with corrupt officials is normally best done as role play.

Principle 6

Monitoring and Review

Consider both internal and external review arrangements

NEXT STEPS

If a company is, or is contemplating, doing business in or with the UK:-

The Board should familiarise itself with the Ministry of Justice guidelines, http://www.justice.gov.uk/guidance/docs/bribery-act-2010- guidance.pdf

The Board should carry out a risk assessment.  

The Board should approve and publish procedures. There are a range of commercial procedures available which can be used as an agenda or model - the fullest being, probably, Transparency International's "The 2010 UK Bribery Act Adequate Procedures", which, however, is more appropriate to larger companies. http://www.transparency.org.uk/working-with-companies/adequate-procedures

We are currently working with a range of clients to develop compliant procedures.  

The Board should determine responsibility for implementing and monitoring the procedures and establish direct reporting lines.