The UK Bribery Act 2010 (the "Act") comes into force on July 1, 2011 with no grace period. Firms must develop compliant procedures in time to implement them effectively before then.
The long-awaited guidance from the Ministry of Justice (MoJ) [pdf, 45 pages, 0.4Mb] and the joint guidance from the Director of Public Prosecutions (DPP) and the Serious Fraud Office (SFO) [pdf, 12 pages, 0.1Mb] were published today (together, the guidance). The guidance provides scant comfort for anyone hoping to rely on it to produce proportionate and practical procedures - particularly on the subject of facilitation payments.
What Does It Say on the Big Questions?
Q: Hospitality: Can I take clients to Twickenham?
"Bona fide hospitality and promotional or other business expenditure which seeks to improve the image of a commercial organisation better to present products and services or establish cordial relations is recognised as an established and important part of doing business and it is not the intention of the Act to criminalise such behaviour."
The question is whether the hospitality is provided with the relevant criminal intention. The "lavishness" of any hospitality is one (but only one) of the circumstances which would be taken into account in determining this.
However, there are some helpful examples in the guidance: e.g. "an invitation to foreign clients to attend a Six Nations match at Twickenham as part of a public relations exercise designed to cement good relations or enhance knowledge in the organisation's field is extremely unlikely to engage section 1 as there is unlikely to be evidence of an intention to induce improper performance of a relevant function." (The answer might be different if the invitation was to a foreign public official, as the required intention is different.)
What should I do? Establish policies and procedures controlling provision of hospitality. Consider the demonstrable purpose of any hospitality. Consider imposing limits on the value and type of hospitality to be provided. Ensure recipients clearly understand hospitality is provided on a no-obligation/no-expectation basis. Ensure your firm pays for hospitality directly to the provider (rather than making cash reimbursements to the client). Consider any hospitality to foreign public officials very carefully.
Q: Facilitation: Where I am, you can't get a public official to do anything without giving them a tip. When is it acceptable to fall in line, when not?
Despite the MoJ's protestations that the guidance would be proportionate and practical, a hard line has been retained on facilitation payments. Firms and individuals seeking comfort must rely on the mercy of the DPP or SFO, which will look to the "public interest" in initiating prosecutions.
"As was the case under the old law, the Bribery Act does not … provide any exemption for such payments … exemptions in this context create artificial distinctions that are difficult to enforce, undermine corporate anti-bribery procedures, confuse anti-bribery communication with employees, … perpetuate an existing 'culture of bribery' and have the potential to be abused."
It is recognized that "individuals may be left with no alternative but to make payments … to protect against loss of life, limb or liberty." This may provide a defense of duress (or discourage prosecution), but other forms of duress or extortion are not recognized.
What should I do? Individuals are placed in a difficult position. A firm whose associate bribes a foreign public official is liable to prosecution for "failure to prevent." Its defense to that charge is to prove – to the satisfaction of a jury – that its procedures are "adequate to prevent" bribery. For its protection, it must have clear procedures, which unambiguously prohibit facilitation payments (this is common even in the US despite the more flexible approach under the US Foreign and Corrupt Practices Act (FCPA)). Firms with a "genuinely proactive approach, involving self-reporting and remedial action" are less likely to be charged.
Q: Associates: Am I responsible for the contractors my joint venture associate uses?
Yes, where they provide a service to your business. A firm is responsible for its "associates." An associate is a person who performs services for or on behalf of an organization. The capacity in which they do this or their legal relationship with that organization is not determinative. One must consider "all the relevant circumstances." A joint venture (JV) in itself would not give rise to association unless the JV company performed services for a principal (or unless a contractual JV gave the principal sufficient control).
The guidance recognizes that the "broad scope means that contractors could be associated persons to the extent that they are performing services for or on behalf of a commercial organisation. Also, where a supplier can properly be said to be performing services for a commercial organisation rather than simply acting as a seller of goods, it may also be an 'associated person'."
What should I do? Identify your associates. Consider your suppliers - proportionately. Presumably a utility supplier would be outside the scope, although the guidance is unhelpful on this point. Manage your "supply chain" by imposing restrictions on your primary supplier.
Q: Territorial Scope: Our only UK connection is a London listing – are we a "relevant commercial organisation"?
Not by virtue of that. The Government would not expect for example "the mere fact that a company's securities had been admitted to the UK Listing Authority's Official List … in itself to qualify that company as carrying on a business or part of a business in the UK, and therefore falling within the definition of a relevant commercial organisation." (This is in contrast to the position under the FCPA.)
What should I do? Consider whether you have any other connection to the UK.
Q: We are the UK branch of an overseas entity – is the whole of that entity a relevant commercial organization needing to comply with the Act?
Yes, the Act will apply to the entity as a whole. But, unlike a branch, a UK subsidiary of an overseas parent will not by virtue of that legal relationship alone make the overseas parent a relevant commercial organization. "Having a UK subsidiary will not in itself mean that a parent company is carrying on a business in the UK, since a subsidiary may act independently."
What should I do? Develop procedures at least covering the whole legal entity, but also consider your associates.
Q: FCPA: We’ve been complying with the FCPA for years, surely that’s good enough?
No. The Act differs from the FCPA in several key areas (see FCPA + UK Bribery Act). So, no matter how good your FCPA procedures are (or your AML procedures, your sanctions procedures or your general ethics procedures), they are most unlikely to have addressed all the aspects of the Act.
It is essential that all businesses covered by the Act understand that:
- It is an offense to bribe, or receive a bribe from, anyone, not just foreign public officials.
- A bribe includes even the smallest facilitation payment.
- Adequate procedures is a corporate defense to the offense of failing to prevent bribery.
- Your best protection is a thorough and documented risk assessment, backed up with strong policies and procedures, supported by senior management, implemented and monitored regularly.
For more information, see our previous mailing.