The UK’s new anti-corruption law, the Bribery Act 2011, is now in force. It is one of the most far-reaching and radical pieces of UK legislation, both in scope and in extra-territorial reach.
What the Act does
Key points of the Act are:
- it creates four new offences of bribery: paying a bribe, receiving a bribe and bribing a foreign public official are the ‘principal’ offences. The fourth offence is of failure by a commercial organisation to prevent bribery. The principal offences require intent or knowledge on the part of the wrongdoer, with the company being liable for bribery where a senior officer of the company either participates or otherwise consents or connives in a bribery scheme;
- the new corporate criminal offence of failing to prevent bribery by an associated person (the Corporate Offence) requires all businesses within the scope of the Act to implement strong anti-corruption processes as this is the only safe harbour for this offence;
- the offences apply not only to UK-registered businesses, but to non-UK organisations which have a business presence in the UK (regardless of whether the bribe is paid in connection with that business). In addition, the personal offences of bribery may be prosecuted against a British national or by a person who is ordinarily resident in the UK regardless of whether the offence took place outside the UK;
- penalties range from imprisonment of up to 10 years for individuals to unlimited fines for companies;
- in many ways the Act is tougher than the US Foreign and Corrupt Practices Act (FCPA) which has been the benchmark legislation for many international businesses.
We have published several alerts on the new Bribery Act, and more details on the Act and its provisions can be found in these articles, links to which are provided below.
Long arm of UK Bribery Act can reach Australia - April 2010
Further delays for UK Bribery Act - March 2011
Guidance for investors
Although the Act’s implementation was delayed in order to allow further work on the accompanying government guidance on best practices, there was still relatively little time for businesses and organisations to put in place the necessary internal procedures.
Transparency International (TI) is an international anti-corruption organisation which has published widely on the new Act. Its latest draft guidelines, published on 1 July, the implementation date of the Bribery Act, focus on bribery due diligence in investment and acquisition transactions. Introducing the guidelines, the authors quote the head of the Serious Fraud Office (which will lead prosecutions under the Bribery Act), “We are stressing the responsibility of the owners of companies to ensure proper standards of governance and a proper anti-corruption culture… It may even be that it is a condition of investment by fund managers allocating funds to you to invest, that you invest only in companies that are FCPA and Bribery Act compliant”.
The comment suggests that the SFO would like to see even stricter standards of adherence than the government, as the official Ministry of Justice guidelines issued in March stated “liability will not accrue through simple corporate ownership or investment, or through the payment of dividends or provision of loans by a subsidiary to its parent”. With serious legal and reputational consequences of a Bribery Act prosecution, it may well be that fund managers will demand assurances that their investments are free from any taint of corruption, particularly as the Act is new and it is still uncertain how it will be interpreted and enforced.
Anti-bribery due diligence
The TI guidelines are intended as a practical tool for companies wishing to undertake anti-bribery due diligence in the course of mergers, acquisitions and investment and are also intended to build on earlier publications such as TI’s Business Principles for Countering Bribery and the Walker Guidelines for Transparency and Disclosure in Private Equity.
The guidance points out that while it is likely that much anti-bribery due diligence will be driven by legal obligations, the practices suggested by the guidelines are the best way to avoid both legal liability and the potential financial and reputational damage which may come from an investment in or the acquisition of a business which is subsequently accused of bribery. Anti-bribery due diligence is most effective when the purchaser itself has in place an anti-bribery programme and care should be taken that bribery does not take place during the investment or acquisition process.
The good practice principles suggested are that anti-bribery due diligence should be:
- conducted for all but the smallest investments;
- conducted with adequate depth and resources to ensure that it is undertaken effectively;
- conducted early in the due diligence process; and
- overseen by the partners or board of the purchaser.
If bribery is discovered which is not ongoing, the purchaser will not acquire any liability by acquiring the target, since it only becomes associated with the company on the acquisition. However the individuals associated with the bribery will still be liable to prosecution.
The TI guidelines recommend that any bribery detected through due diligence should be reported to the authorities. Statements by the SFO suggest that they will be unlikely to pursue any enforcement where a purchaser reports corruption, providing that it is clear that there is a genuine commitment by the purchaser to implement anti-bribery remedial actions.
The position may be more uncertain for investments. Investing in a company without knowledge of any corruption issue will not make a person or company liable for a principal bribery offence. But, an area of uncertainty is, for example, whether a private equity firm or an investor can be liable under the Corporate Offence for their failure to investigate the actions of the target or portfolio company either during the investment or, in the case of private equity, during the management phase. It may be the case that the investment target or portfolio company cannot be an associate of the private equity firm or investor because it does not perform services ‘for or on behalf’ of the investor or private equity firm. Nonetheless the guidelines suggest that the SFO is likely to investigate or prosecute where it views the relationship as one where there is sufficient control over the associate and sufficient benefit to the investor or private equity firm. It is also argued that the that the SFO will seek to penetrate corporate structures designed to frustrate the purposes of the legislation. Importantly in that respect, the Bribery Act defines an associate broadly, ‘irrespective of capacity’ and by reference to ‘all the circumstances and not merely by reference to the nature of the relationship between the associated person and the commercial organisation’.
Whether due to direct pressure from regulators, or indirect pressure from investment funds, it seems likely that anti-bribery due diligence will become a standard and necessary part of the pre-investment or acquisition preparation. The TI guidelines offer best practice suggestions as well as a review of the various risks and a checklist of issues to consider during the due diligence process.