Following the recent announcement of the first prosecution under The Bribery Act 2010, that came into force on 1st July 2011, Alan Davies and Joanne Eden of Pitmans Defendant Insurance Department spoke to Reading Insurance Institute on the Implications of The Bribery Act.
The offence of bribery is not new. There were common law prosecutions from Victorian times and legislation particularly concerning those in public office. However, the Bribery Act brings a new emphasis on business. A KPMG survey in June 2011 suggested that one third of UK companies had not conducted an anti-bribery and corruption risk assessment and as we will see that is clearly something that needs to be done if not done already.
Although the Act was passed in April 2010, it did not come into force until 1st July this year. This follows two delays and a certain amount of criticism of government for apparently dragging their feet. But at least now we have certainty, and also we have the guidance that the Ministry of Justice had said they would provide at the time of announcing the date the Act would come into force. The guidance focuses on procedures that organisations can put in place to prevent “persons associated with them” from bribing.
So, it is now important for organisations to consider what the Bribery Act means for them, and what they are going to do about it. This really is an important piece of legislation, but at the same time perhaps not so drastic in its effects as some of the more sensationalist commentaries might have suggested so far as commercial organisations are concerned. However, so far as individuals are concerned the bar has been set very low by the CPS who announced the prosecution of a 21 year old Magistrates Court Clerk who sought a £500 bribe.
In terms of the detail of the Act, we have to start with what it provides in terms of offences.
In brief, here are the 5 main offences in the Act:
- Bribing another person
- Being bribed
- Bribing a foreign official
- Organisations failing to prevent bribery
- Body corporates and senior officers involved in bribery.
Section 1 – Bribing another person
We all know what a basic bribe is. The wording “Financial or other advantage” confirms that it doesn’t have to be just cash. And it doesn’t actually have to be giving: it could be just offering or promising to give a financial or other advantage.
But note also that it has to be coupled with an intention that the recipient will perform a “relevant function” improperly as a result of the “bribe” (case 1) OR that the payer knows or believes that acceptance itself amounts to improper performance (case 2).
The concept of “relevant function” goes throughout the Act in relation to the recipient’s role. This is very wide.
It includes functions of a public nature, but also activity in connection with a business, employment, or functions performed on behalf of a body of persons, provided that in each case it involves any one of:
- an expectation of good faith;
- an expectation of impartiality; or
- a position of trust.
Section 2 – Being bribed
Again, a fairly obvious statement of the wrong-doing involved in being the recipient of a bribe. It includes requesting as well as actually accepting or receiving.
As with the Section 1 offence, Section 2 breaks into a number of specific “cases” where either:
- the intention of the Recipient is that they will perform their function improperly; or
- where the mere request for/acceptance of the bribe itself amounts to improper performance; or
- where the advantage requested, received, agreed or accepted is as a reward for past improper performance; or
- in anticipation of/consequence of the advantage, the Recipient performs their function improperly.
Section 6 – Bribing a foreign official
The wording in this section is different from that in section 1 in some respects, but covers similar ground. It is a separate statement that it is unlawful for a person to whom the Act applies to bribe a foreign official.
Difference is that there is no need to show that there was intention to induce “improper performance” by the official, because of the difficulty of showing what “proper performance” might be in some circumstances/jurisdictions.
OECD Convention on Bribery of Foreign Public Officials in International Business Transactions of 1999 was what gave rise to the sense that this needed a separate section. Also the language of this section reflects this Convention. It allows the UK to amend this section if the Convention is amended.
It is perfectly possible for the same activity to be caught by section 1 and section 6.
Section 7 – Organisations failing to prevent bribery
This is at the heart of much controversy surrounding the Act.
Section 7 creates a strict liability offence (meaning no “intention” is required on the part of the organisation: so if you fall within the section, unless the main defence applies, you are guilty). Accordingly, a commercial organisation (broadly defined as a body corporate or partnership) is guilty of an offence where an “associated” person bribes a third party, intending to obtain an advantage. A person associated with a commercial organisation is defined as a person who ‘performs services’ for or on behalf of the organisation. Whether or not someone performs services is determined by reference to all the prevailing circumstances.
- So, a company could clearly be liable for the acts of its employees or officers under this section.
- But also for acts of its subsidiaries, consultants, agents, joint venture partners.
- The offence applies to UK “formed” organisations, but also overseas entities which carry on business or part of their business in the UK. It is clear that there will need to be some significant degree of association with the UK for a charge to be brought –the Guidance states that it is not expected it will apply to a company just because it is listed in the UK as it should also have some physical operations.
- The actual briber does not have to be prosecuted but the offence must have occurred – it must be established beyond reasonable doubt. So the criminal standard is applied not the civil standard of balance of probability.
- The bribery can obviously be in the UK or elsewhere.
- The only specific defence is that an organisation has in place “adequate procedures” to prevent bribery. So this is a crucial area which will be addressed further in a later slide.
[BUT NOTE that even if it can be properly said that an agent, subsidiary, or another person acting for a member of a joint venture, was performing services for the organisation, an offence will be committed under s.7 only if that agent, subsidiary or person intended to obtain or retain business for the main organisation. Without proof of the required intention by the briber, liability will not arise through simple corporate ownership or investment.
This is so even though the parent company or subsidiaries may benefit indirectly from the bribe. On the other hand, liability for a parent company could arise where a subsidiary is the ‘person’ which pays a bribe which it intends will result in the parent company obtaining or retaining business.]
Section 14 – a corporate personality committing one of the offences in sections 1, 2 or 6
A corporate personality can commit the offences under sections 1, 2 or 6 (bribing, being bribed, or bribing a foreign official). This can occur if it is shown to have had sufficient awareness on the part of a “directing mind” of sufficient seniority of the offence.
Then the senior officer who ‘consents and connive’s to that offence can be prosecuted as well as the company, under this section. i.e. the officer under this section, the company under section 1, 2 or 6 as applicable.
A senior officer means a director, manager, secretary or similar officers.
[There is a territorial connection required: the senior officer must have a close connection with the UK to be within this section: essentially being British, or ordinarily resident here.]
Scope, sanctions and defences
As we have seen, these various Bribery Act offences are very wide in their terms and their application. There is also a range of significant penalties applying to the individual or company found guilty, which on conviction on indictment could include unlimited fines and prison sentences of up to 10 years for individuals. In respect of offences committed by organisations there could be unlimited fines in the most serious offences. Other sanctions include orders for confiscation and recovery of the proceeds of crime, to debarment from public procurement related contract bids (under the EU regime, for example).
These could all be immensely serious for any individual or organisation. The debarment rules could drive a company out of business at worst.
No de mimimis exemptions this is unlike the USA Foreign Corrupt Practices Act where there is the facilitation payment carve out.
The section 7 defence of “adequate procedures” to prevent bribery, only applies in relation to that corporate offence by an organisation. In essence it will amount to a defence if the organisation can prove “ it had in place adequate procedures designed to prevent persons associated with it from undertaking such conduct.”
View of the authorities
There is no doubt that since they took power, the Coalition Government has taken a look at the Bribery Act, in the context of the economic situation, and the need for an export-led recovery. Although they consistently said they were committed to its implementation, they would also like to help industry with the way the Act is implemented so that the UK is not at a competitive disadvantage. But, their ability to do so has been pretty limited.
- The Guidance, provided by the MOJ is worth reading, particularly on the “adequate procedures” defence and really does try to be as practical as possible – but it has its limitations. It remains a faintly unsurprising list of things that an organisation might do if contemplating bribery risks, applied in a number of example circumstances.
- There is one passage of the Guidance which is I think worth quoting in full in this context, to illustrate the approach that Government is trying to take: “The objective of the Act is not to bring the full force of the criminal law to bear upon well run commercial organisations that experience an isolated incident of bribery on their behalf. So in order to achieve an appropriate balance, section 7 provides a full defence. This is in recognition of the fact that no bribery prevention regime will be capable of preventing bribery at all times. However the defence is also included in order to encourage commercial organisations to put procedures in place to prevent bribery by persons associated with them”.
- In reality, there is a limited capacity for investigation and pursuit, therefore the number of prosecutions (which have to be personally approved by the DPP or Director of Serious Fraud Office) is going to be limited.
- The intention as far as commercial organisations are concerned is that they are not going to go for small stuff.
- There is going to be continued desire to avoid knocking out of action any really significant parts of the UK BUSINESSES. So plea bargaining is quite likely to feature in any prosecution.
- But there may well be a desire to get some prosecutions up and running to put down markers. So even small to medium sized organisations really do have to be prepared and get their houses in order.
- The CPS has already decided to bring the first prosecution under the Act against a court employee. Munir Yakub Patel faces a charge under section 2 of the Act for requesting and receiving a bribe intending to improperly perform his functions. It is alleged that he promised an individual summonsed for a motoring offences that he could influence the course of criminal proceedings in exchange for £500. Mr Patel will face the charge in the Crown Court on 14 October. The DPP has consented to the charge. The maximum sentence is 10 years imprisonment. This case brought by the CPS will put pressure on the Serious Fraud Office to act sooner rather than later.
What to do now (1)
Companies really ought to have started creating the right culture and procedures already. Hopefully they will be building on their existing systems – after all bribery has been an offence under English statute law for over 120 years and in common law for much longer. But there is obviously a renewed emphasis given the need to show a defence for this section 7 offence for corporates of failing to prevent bribery. The following considerations could be a basis for showing you have “adequate procedures to prevent bribery” as per that defence.
The Government considers that procedures put in place by commercial organisations should be informed by six principles. These principles are not prescriptive. They are intended to be flexible and outcome focussed as small organisations will face different challenges to those faced by large multi-national enterprises.
(i) Proportionate procedures. This is proportionate to the risk of bribery and the nature of the organisation. Procedures include clear, practical and accessible policies for staff and business partners under your effective control, covering all such things as political/charitable contributions, gifts, “expenses”, promotional costs, how to respond to demands for facilitation payments or what to do when an allegation of bribery comes to light. Other procedures may be financial controls such as book keeping, auditing and approval of expenditure, as well as ensuring transactions are transparent and avoiding conflicts of interest. These policies and procedures must be properly communicated and implemented.
(ii) Top level commitment: so clear messages from the top internally and externally, creating the right culture, and ensuring that business partners and management are committed to a zero-tolerance approach to bribery. A formal statement appropriately communicated can be effective in advising that bribery is against company culture. In large organisations the board should be responsible for setting policies, tasking management to design, operate and monitor procedures and reviewing the policies.
(iii) Risk assessment: This should be the first step taken to identify the risks for your organisation. For example, do you have any foreign official contact? Deal with particularly risky jurisdictions? Use others to carry out services on your behalf? Or make charitable or political contributions? Factors to look at internally are deficiencies in employees training, skills and knowledge, bonus cultures that reward excessive risk taking and lack of clarity in policies on hospitality and promotional expenditure. Risk assessment procedures should include appropriate resourcing and the need to prioritise relevant risks, as well as keeping documentation of the risk assessment and its conclusions. The risk assessment should be reviewed as the organisation evolves. The risk assessment will then lead to appropriate codes of conduct and policies being drawn up.
(iv) Due diligence: This requires you to consider who you do business with, funds destinations or origin, and look at your business relationships in detail. Due diligence may include conducting direct interrogative enquiries, indirect investigations, or general research on proposed associated persons. Again the requirement for and extent of due diligence undertaken should be proportionate to the risk. An organisation selecting an intermediary to establish business in foreign markets will require a higher level of due diligence than an organisation contracting for IT services.
(v) Communication and training: Effective implementation requires actually embedding in training and with procedures and controls (IT based or otherwise) to ensure so far as possible that everyone knows what is expected, and that will pick up problems before they persist or are repeated. Internal and external communication of policies through a statement or code of conduct is suggested. You may need to consider including contractual terms on bribery prevention measures in an agreement with another company for a joint venture or request details of companies’ anti-bribery policies in a tender. Internally you may need to consider appropriate disciplinary procedures.
(vi) Monitoring and review: Regular auditing of compliance and monitoring of what is happening on the ground has to be a part of the system: otherwise how do you know what is happening? But some of this may be capable of being IT based (links to expenses claims, or payment systems, keyword alerting or email traffic etc).
(vii) In addition (and this partly comes from the Foreign Corrupt Practices Act recommendations): be prepared to deal with whistle blowing. Companies need generally, and specifically, to have in place appropriate procedures to deal correctly with someone on the ground alerting the organisation to a bribery problem. This has implications in employment law as well as in the Bribery Act context. Treating the whistle blower unfairly is the worst direction to go.
What to do now (2)
As well as companies going through processes of getting written internal policies and procedures updated, training staff, doing due diligence and the like, there are a number of consultancies in the market which offer help to companies in establishing procedures to combat bribery risk.
Some of these will offer an IT based solution. It may well be that these are worth considering particularly in large organisations. Some have the ability to link expenses claims above a threshold to a red alert to management that something may need investigation.
The MoJ guidance does go out of its way to say though that there is no need for any organisation to consult external advisers in order to be able to say that it has adequate procedures in place to prevent bribery.
Often this will come down to taking a hard look at your organisation in the context of its vulnerabilities to corrupt practices. As the MoJ guidance emphasises, there will be no need for many organisations to seek external help where they can readily make sensible decisions about their approach. And the overall watchwords coming out of the Guidance are that a common sense approach, and proportionality, are the key thoughts that organisations need to have in mind when considering what to do in the face of the Bribery Act.
What to do now (3)
So, some topical questions organisations should be asking themselves:
- How far do you go with corporate hospitality (giving or receiving)? Do you need to consider limits on individual hospitality spending? When do you think, for your organisation, that such hospitality might stray onto the wrong side of the line? Common sense is the watchword and proportionality.
- Does your organisation carry out promotional activity which includes rewarding customers or potential customers? Such as stays in resorts for potential customers? And do you think this is sustainable?
The Government does not intend that genuine hospitality that is reasonable and proportionate be caught by the Act so you can continue to provide and receive bona fide hospitality and promotional business expenditure such as tickets to sporting events, taking clients to dinner, offering gifts as a reflection of good relations or paying for reasonable travelling expenses. However the authorities would look more closely where it was thought that the hospitality was really a cover for bribing someone and would take into account the level of hospitality offered, the way it was provided, openly or secretly, and the level of influence the person receiving it has on the business decision.
- What’s your corporate response to being faced with requirements to pay “facilitation payments”? Facilitation payments are payments to induce officials to perform routine functions they are otherwise obliged to perform. There are no exemptions for these payments under the Act. However, you can continue to pay for administration fees or fast track services.
- How far do you currently go in diligencing agents, counterparties, other “associates”? You only have to think about doing due diligence on persons who will actually perform services for you or on your behalf. It is unlikely you will have to carry out due diligence on persons further down the supply chain. If you have assessed the risk as low you may only need to satisfy yourself that the person performing services for you is genuine and someone you can trust by making enquiries with business contacts, local chambers of commerce or the internet.
This is not a “one size fits all” situation and the steps you will need to take depend on your organisation.
In conclusion we have an Act which came into force on 1 July 2011, which will take UK businesses into a new world in terms of bribery and corruption risk.
Although Government and the prosecuting authorities do not want to put UK businesses at a disadvantage in world terms, there will be a level of offence (in financial terms) which they will want to prosecute actively.
And even for those which don’t get pursued, the risk to reputation of attention from the press or pressure groups is potentially still very significant. This is an essential area not to lose sight of: the fact that even without a prosecution, enormous damage can be done merely by being involved in something which the press get hold of and run with.
And in fact having a robust, well run system in place for dealing with these issues can enhance corporate reputation: for example see the contrast between BP’s Gulf spill crisis, and Rolls Royce’s response to its Airbus jet engine problems. You could apply these lessons to a Bribery Act context with similar results.
So, there may be reasons to look positively at the spur that the Bribery Act may represent, even if it is a challenge.