Following years of discussions and consultations, the Bribery Act 2010 (“the Act”) finally came into force on 1 July 2011.
The Act consolidates existing laws on bribery and creates four distinct offences. Under the Act, it is an offence to bribe another, to receive a bribe or to bribe a foreign public official. It is also an offence for a commercial organisation to fail to prevent bribery by an associated person.
How is Bribery Defined?
A person bribes another where he offers, promises or gives a “financial or other advantage” to another person, with a view to inducing or rewarding that other person to “perform improperly” a “relevant function or activity”. The Act clarifies what each of these phrases will mean in practice.
Financial or Other Advantage
“Financial or other advantage” is fairly self-explanatory. What constitutes a financial or other advantage will be determined as a matter of common sense by the courts on a case by case basis.
One issue that came up throughout the consultation process was the extent to which corporate hospitality could be deemed to be an “advantage”. In the Ministry of Justice’s official Guidance (“the Guidance”), the Government has confirmed that bona fide hospitality which is “reasonable and proportionate” will not be an issue. In other words, it should be acceptable for a business to take clients out to lunch for business development purposes, if reasonable in the circumstances. On the other hand, it is unlikely to be acceptable for that same business to pay for a client’s month-long holiday in a five star hotel in Dubai.
Interestingly, money (or equivalent) need not have changed hands for people to be caught under the Act. A person can be guilty of an offence if he promises to pay or agrees to receive a financial or other advantage.
Relevant Function or Activity
The phrase “relevant function or activity” has a wide definition in the Act. It can be any function of a public nature or any activity concerned with a business, performed in the course of a person’s employment or performed by or on behalf of a body of persons (whether incorporated or not).
To be caught under the Act, the person performing the function or activity must either have been expected to perform it in good faith, perform it impartially or must be in a position of trust by virtue of the performance.
Performing a relevant function improperly involves breaching a “relevant expectation”. The test here is based on what a reasonable person in the United Kingdom (“UK”) would expect. In other words, a court will consider a situation from the viewpoint of a “reasonable person” in the UK. What this will mean in practice will only become clear over time.
It is irrelevant whether or not the person offering or receiving the bribe is the person who will perform the relevant function improperly: the Act will still catch the people involved in the bribery. It is also irrelevant if a third party carried out the bribe. In other words, where person A receives money for a bribe but did not take part in any negotiations, person A may still be guilty of an offence.
Of most interest to businesses is the so-called “corporate offence” under section 7 of the Act. A “relevant commercial organisation” will be guilty of an offence if a person associated with it bribes another with the intention of obtaining or retaining business for the organisation.
Relevant Commercial Organisation
The term “relevant commercial organisation” covers just about every type of commercial entity possible. The key point to look out for, though, is an organisation’s link to the UK.
The Act applies to those organisations incorporated or formed within the UK, whether or not they carry on business in the UK. Further, the Act applies to any other organisation, wherever formed or incorporated, if that organisation carries on a business (or part of a business) in the UK.
Generally, it is easy to establish whether or not an organisation was formed or incorporated in the UK. The trickier issue is whether or not a foreign organisation “carries on a business” in the UK. The Government has been keen to stress that common sense will apply here. It seems likely that each case will be looked at individually.
As an example, potential difficulties may include the situation where a parent company incorporated abroad (“P”) has a UK subsidiary (“S”). In the situation where a person associated with S bribes another in terms of section 7, much will depend upon the relationship between P and S. If, say, P has a degree of control over S, then P may well be guilty of an offence. Alternatively, if P can show that S is, for all intents and purposes, a separate entity, then S may be guilty of an offence but P may not.
A person associated with a relevant commercial organisation for the purposes of the Act is a person who performs services for or on behalf of the organisation.
Again, this is a fairly wide concept. An associated person could be the organisation’s employee, agent or subsidiary. A contractor could even be an “associated person”. It is easy to see that any number of persons could be performing services for an organisation.
Commercial organisations do have the opportunity of putting forward a defence to any prosecution under section 7 of the Act. If the organisation had in place “adequate procedures” designed to prevent an offence under section 7, then the organisation will not be guilty.
Perhaps inevitably, the Government has not been too prescriptive regarding the definition of adequate procedures. Helpfully, though, the Guidance sets out six principles which should be borne in mind by businesses. These principles are as follows:
- Proportionate Procedures
Essentially, procedures should be proportionate to the risks faced by the organisation in question. Naturally the level of risk will vary from organisation to organisation, depending on various issues such as the industry in which the organisation works.
- Top-Level Commitment
Managers of a commercial organisation must be seen to be committed to preventing bribery and should foster a culture in which bribery is never acceptable. The Guidance suggests managers could publish a formal statement, setting out a zero-tolerance approach to bribery.
- Risk Assessment
It is extremely important that organisations assess the nature and extent of likely exposure to the risk of bribery under section 7. The Guidance recommends that such assessment should be periodic, informed and documented.
The Guidance also categorises external risks into five groups: country, sectoral, transaction, business opportunity and business partnership. Further, internal risks include bonus cultures that reward excessive risk-taking and lack of clarity on policies on hospitality and similar.
- Due Diligence
Organisations must carry out appropriate due diligence in respect of associated persons. In other words, organisations should investigate those persons with whom they have a business relationship, taking a proportionate and risk based approach.
- Communication (including training)
The Guidance advises organisations to provide proportionate training to both internal and external staff and contacts. It is suggested that general training on anti-bribery measures could be mandatory for all new employees. According to the Guidance, effective training is “continuous and regularly monitored and evaluated”.
- Monitoring and Review
On the basis the risks of bribery can change over time, anti-bribery procedures should be monitored and reviewed regularly.
It is important to realise that bribery taking place outwith the UK can still be covered by the Act. Any person connected with the UK (ie a British citizen or a body incorporated in the UK) may be guilty of the general offences of bribing another, being bribed or bribing a foreign public official anywhere in the world.
The corporate offence is wider. On the basis the organisation is a relevant commercial organisation (see above), then an associated person of that organisation does not have to be connected with the UK. So an Australian could bribe a Russian in South Africa with a view to obtaining business for a UK-based company. The company could be guilty of the corporate offence, if it did not have adequate procedures in place.
Importantly, local customs or practices in other countries are to be disregarded, unless permitted or required by relevant written law. The Government has indicated, though, that it recognises the problems that organisations may face in respect of so-called “facilitation payments” (small bribes to facilitate routine Government action which are common in some countries). These are illegal under the Act but the Guidance does refer to their eradication as a “long term objective”.
Commercial organisations can receive an unlimited fine if found guilty of an offence (whether a corporate offence under section 7 or one of the general offences).
Individuals who commit an offence under the Act could face an unlimited fine, ten years’ imprisonment or both.
The Act seeks to tackle bribery and corruption. With its wide remit, it is certainly capable of doing so adequately. Of course, the approach which will be taken by the various authorities when enforcing the powers under Act remains to be seen.
What is imperative, though, is that businesses take heed of the new legislation and ensure they have adequate procedures in place to prevent bribery, in accordance with the Guidance. Failure to do so could leave those businesses open to prosecution in respect of actions by third parties.