The new UK Bribery Act is due to come into force in April 2011. Section 7 of the Act establishes a corporate strict liability offense for failure to prevent bribery. It extends liability to bribery committed by an 'associated person'. In considering and implementing 'adequate procedures' to prevent bribery by its own employees, companies subject to the Act also need to consider how best to police the actions and activities of those associated with it.
Our previous articles have discussed in more detail the Bribery Act itself, the new strict liability, corporate offence which can potentially render any company that does business in the UK criminally liable for failing to prevent bribery, and the potential defence available for the company that can establish that it had adequate procedures in place to "prevent," not simply to minimise or detect, bribery.1 This article will focus on the potential scope of vicarious liability under the Act and steps that may be taken to address that risk.
An offence under section 7 of the Act can be based upon bribery by an 'associated person'. In this regard, it is important to recognize that the Act creates a strict liability offence, and it will be no defence that the company did not know about the bribe or did not intend to pay it. The Act also doesn't require as a predicate that the person who actually paid the bribe is charged, prosecuted or convicted for having done so.
The definition of an 'associated person' whose acts can expose a company to liability appears relatively broad, focusing on whether services are performed or provided by the 'associated person' for the benefit of the company. The statutory intent appears to cover as many alternative management, ownership and/or operational structures as may be possible and to prevent companies from avoiding application of the Act by clever restructuring of such relationships. It is quite likely that this approach will be tested in the courts as to common relationships, such as joint-ventures, as well as to other commercial affiliations and alliances whose activities, while meant to limit liability in the contractual and tort sense, might still fall within the scope of this expansive section, thus creating the potential for vicarious liability beyond the usual approaches of respondeat superior and conventional agency or contractual doctrines.
Although the current consultation documents regarding forthcoming guidance to be issued by the UK government contain some language to suggest that the definition of an 'associated person' may require 'effective control' over that associate, that is a somewhat circular analysis that does not present a bright line dividing the associated from the non-associated for liability purposes.
Since this new statutory obligation to 'prevent' bribery may well extend to all associated or affiliated entities and persons, regardless of the form of affiliation or association, what is to be done when the company itself may have satisfactory procedures in place? Is that enough? Will it face liability if its 'associated person' has not implemented the same procedures or has violated them? It appears that UK companies and their subsidiaries, UK subsidiaries of foreign companies, and indeed any business operation with ties to the UK, that also conduct operations in countries or areas known for acceptance of "facilitation payments" as part of the local business culture, where bribery or corruption are prevalent, or where local anti-bribery laws are less stringent than the Act, will now be required to take affirmative and effective anti-bribery action in all their downstream relationships to protect themselves from liability under the Act.
The draft guidance issued for consultation under section 9 of the Act (available here) includes among its six principles a requirement of Due Diligence. That includes knowing with whom the company does business and where its money is going. It also means assuring that relationships between the company and its associates and between the associates and customers and government officials are all transparent and ethical, with reciprocal anti-bribery agreements and the ability to monitor and audit compliance.
The Act, consistent with a strict liability regime, sets a very high bar on company procedures, policies and systems, both internally and externally. Participation or close monitoring of the current consultation and the guidance to be issued in early 2011 would appear prudent for all companies exposed to liability under the Act. In addition, it should be borne in mind that the anticipated guidance will not seek to undermine the rules set by the Financial Services Authority for the financial services industry and regulated organisations must continue to comply with sector-specific regulations and standards at all times. Further, it is understood that joint guidance for prosecutors is currently being drawn up by the Director of Public Prosecutions and Director of the Serious Fraud Office to encourage a broad consistency of approach to the Act between the police, CPS and SFO. The Ministry of Justice will be publishing a circular on the Act as whole, which may also be of assistance to anyone seeking greater understanding of the Act's provisions.
Finally, all of the guidance issued will be advisory only, and compliance with the guidance will not constitute a defence. It will only be one factor a UK court will consider in deciding whether the defence has been made out by the company. It will be the accused's burden to prove the defence. In the end the goal is that robust and effective anti-bribery policies and procedures be put in place by private companies, regardless of their size, and that they act along with the government to achieve an open and fair business climate where bribery has been eliminated. It remains to be seen whether the Act's reach exceeds its grasp, but the government's enforcement intentions must be taken seriously.