On July 1, 2011, the U.K.’s new Bribery Act1 came into force with enough extra-jurisdictional reach to potentially apply to Canadian companies. While not as far-reaching as once anticipated, the U.K. Bribery Act is a reminder of the increasing need for companies to address issues of corruption throughout their operations. The Act contains offences for paying and receiving bribes, and (more uniquely) failing to prevent the paying of bribes, this last offence carrying an unlimited fine. The U.K. authorities have shown a greater willingness to cooperate internationally on enforcement, particularly with their U.S. counterparts. An example of this cooperation can be seen in the recent BAE Systems Inc. investigation, which resulted in both the U.K. and U.S. authorities obtaining penalties of £30 million and $400 million (U.S.) respectively. The need for strong compliance procedures is especially important where companies operate in both established and emerging economies. Whether applicable or not, the Act’s accompanying guidance contains useful procedures for companies regardless of where they are operating.
Do you fall under the Act?
Carrying on business in the U.K.
Like other anti-corruption legislation, the U.K. Bribery Act does not apply solely to U.K.-based companies. Any company “carrying on business, or part of a business” in the U.K. is subject to the Act’s corporate offence of failing to prevent bribery, regardless of where in the world the bribery took place.2 A Canadian company carrying on business in the U.K. could be criminally liable for failing to prevent bribery taking place on its behalf in China.
In guidance released in March,3 the U.K.’s Ministry of Justice clarified what activity would (or rather would not) constitute “carrying on business.” While the final arbiter of the term will be the courts, the government intends to take a common sense approach in applying the Act. The mere fact that a company is listed in the U.K. will not be enough to trigger the Act. Canadian companies with London listings will therefore not be subject to the Act due to that fact alone. Similarly, if a Canadian parent company has a U.K. subsidiary, this will not, in itself, mean that the parent is carrying on business in the U.K.
Even if not directly subject to the Act, Canadian companies dealing with other companies carrying on business in the U.K. may find themselves being asked by their U.K. counterparts to voluntarily agree to comply with the U.K. Bribery Act.
The reason for this is that under the Act a company’s criminal liability extends to bribes made by its “associated persons.” An associated person is anyone who performs services for or on behalf of the company.4 It could be an individual or a corporate body. It could be the company’s Canadian subsidiary, supplier, contractor or joint venture partner. For instance, a U.K.-based purchaser (squarely within the Act) could include a term in its contract with its Canadian agent that the Canadian agent will comply with the Act.
The concept of “associated person” is intentionally broad, but the Guidance has to some extent clarified just how broad.
For example, corporate ownership will not automatically attract liability for the parent company of a subsidiary involved in bribery. An individual or company committing bribery must intend the parent company to benefit, even where the parent company indirectly benefits in any event.
Liability will also not extend up and down an entire contractual chain. A contractor or supplier will generally only be an associated person of the entity with which it has a direct contractual relationship.
For joint ventures, the Guidance distinguishes between joint ventures conducted through separate companies and those conducted through contractual arrangements. A joint venture company will not automatically be an associated person of its shareholders. The joint venture company may be an associated person if it is performing services for the shareholders. Where the joint venture is set up by way of a contract it will depend on how much control the participant has over the arrangement. For example, an employee or agent of one joint venture participant will not necessarily be an associated person of all the other participants in the venture.
In all of the above, however, the question will ultimately depend on the circumstances of the case, not just the nature of the relationship.
What is the corporate offence of failing to prevent bribery?
In addition to criminal liability for direct involvement with bribery,5 the U.K. Bribery Act imposes liability on a company that fails to prevent bribes made on its behalf.
A company is guilty of an offence if an associated person makes a bribe intending to obtain or retain business or a business advantage for the company.6 As mentioned above, an associated person is anyone who performs services for or on behalf of the company. The offence is one of strict liability. If found guilty, the company is subject to an unlimited fine.7
Unlike similar U.S. and Canadian legislation (discussed below), the U.K. Bribery Act does not include any exemption for bribery involving ‘facilitation payments’ (colloquially known as ‘grease’ payments to officials for services they would provide anyway e.g. border crossings or police protection).
What defences are there to the corporate offence of failing to prevent bribery?
The Act is not intended to penalize well-run commercial organizations that are involved in a one-off incident of bribery. As such, the Act provides a full defence to failing to prevent bribery where the company has “adequate procedures” in place to prevent bribery by associated persons.8
The Guidance sets out six principles for establishing adequate bribery prevention procedures. Overall, the Guidance advocates for a common-sense, proportionate approach. In the words of Ken Clarke, the U.K. Justice Secretary, “under this law no one is going to try to stop businesses taking clients to Wimbledon or a Grand Prix.”9
The six principles are:
- Proportionate procedures: prevention procedures should be proportionate to the risk of bribery. For example, a company that uses an agent in a country where facilitation payments are identified as a significant problem could, among other steps, seek local legal advice; communicate its anti-bribery policy to its agent; and request that its agent resist paying facilitation payments.
- Top-level commitment: a culture against bribery should be fostered by directors, owners and senior officers. These individuals should communicate and be involved in the company’s commitment to preventing bribery. Potential steps include establishing a code of conduct and appointing a senior-level person as an anti-bribery compliance officer.
- Risk assessment: a company should implement procedures to regularly assess its risk exposure. A company expanding its business into an emerging market, for example, might conduct risk assessments generally about the market and specifically about any individual opportunity including seeking industry, diplomatic and independent specialist advice.
- Due diligence: a company should undertake due diligence of associated persons to assess and mitigate risk. Due diligence of prospective foreign partners can involve questionnaires (verified with the relevant authorities), independent research, and requesting references and evidence of each prospective partner’s anti-bribery policies and procedures. Such due diligence should be renewed regularly.
- Communication: a company should ensure that its anti-bribery policies and procedures are disseminated throughout its personnel, including through training. Communications and training can extend in certain cases to agents and advisers.
- Monitoring and review: a company should periodically examine and evaluate its procedures to keep them up-to-date, as necessary. For example, a company could institute formal periodic reviews and reports for top management, and/or engage external verification of its systems.
With the combination of the offence of failing to prevent bribery and the complete defence of having adequate procedures, the U.K. Bribery Act effectively creates a positive obligation on companies to institute anti-bribery policies and procedures. Companies must develop and apply internal mechanisms for preventing bribery that reflect the likelihood of bribery occurring.
A comparison with Canadian and U.S. legislation
Both Canada and the U.S. have established legislation which applies specifically to the bribery of foreign officials, respectively the Corruption of Foreign Public Officials Act10 (CFPOA) and the Foreign Corrupt Practices Act11 (FCPA). Foreign officials are persons acting on behalf of a government, department or agency.12 The FCPA extends to political parties, party officials and candidates.13 The U.K. Bribery Act covers bribes to public officials and private individuals.14
Like the U.K. Bribery Act, these pieces of legislation have extra-territorial reaches. The CFPOA applies if a bribery offence has a “real and substantial” link to Canada, meaning a significant portion of the activities took place in Canada or impacted Canadians.15 A recent report by the Organisation for Economic Co-operation and Development (OECD) recommended that Canada take greater measures to prosecute Canadians bribing foreign officials abroad.16 The recent guilty plea by Niko Resources Ltd. was the first major public enforcement action under the CFPOA For its part, the FCPA applies to U.S. issuers and companies, and any person pursuing bribery while within the U.S.17
The substantive bribery offences in the three jurisdictions are broadly similar. However, the U.K.’s substantive offence of failing to prevent bribery has no equivalent within Canadian and American law and so represents a new development in international anti-bribery measures. Given the extra-territorial effect any of the above legislation can have, companies are being required to rise to the highest standard among the jurisdictions where they operate.
Both the CFPOA and the FCPA offer the same three defences: the payments are lawful under local law; the payments are reasonable business expenditures; and the payments are facilitation payments.18 In this last respect, the Canadian and American statutes differ from their U.K. equivalent, which does not have an exemption for facilitation payments, although the degree of enforcement remains open.
What action is required?
It is still early days for the U.K. Bribery Act. The Guidance released is not in depth or prescriptive, and many of the Act’s underlying concepts need to be fleshed out in greater detail.
However, Canadian companies should at least assess the likelihood to which they may be “carrying on business” in the U.K. and therefore subject to the Act.
Depending on this assessment, companies may then wish to develop and implement anti-bribery policies and procedures which are informed by the Guidance’s six principles discussed above. In any event, such preventative steps represent good practices that any company should consider following.