You are unlikely to have missed recent press about the UK Bribery Act which came into force on 1 July 2011 and applies to all companies incorporated in England and Wales or carrying on any part of their business in the UK. The Act aims to consolidate the UK's anti-corruption legislation and make it easier for bribery to be investigated and prosecuted. In addition to creating specific offences relating to bribing, bribing a foreign public official and being bribed, the Act also creates a new strict liability offence of failure to prevent bribery. The penalties for these offences are harsh and may involve up to 10 years in prison and unlimited fines.
Scope of the Act
Under the Act, bribery involves offering or promising someone a financial or other advantage with the intention of inducing or rewarding improper performance of a relevant function or activity. It is important to note that it does not matter whether the bribery occurs in the UK or abroad. The test of what is "improper" is what the reasonable person of moral probity in the UK would think. So, it will not be a defence to argue that local custom permits or expects such actions to be taken, unless this is expressly reflected in written law in the relevant jurisdiction.
The broad definition of bribery under the Act will potentially cover a range of activities carried out by retailers, including facilitation payments that are commonly used in some jurisdictions to speed up services such as getting perishable goods through a port. In many countries such payments are regularly reported as unavoidable and this now poses a real challenge for retailers operating in those markets. The risks may be even greater in countries such as China where it is common to have contact with government employees, as the test of what constitutes a bribe is lower when dealing with foreign public officials. Although retailers have raised concerns about the effect this might have upon their ability to compete with companies who are not subject to the Act, the Serious Fraud Office (the body responsibly for enforcement of the Act) is largely unsympathetic. Facilitation payments may not be the most serious issue the Act is designed to address, but the SFO has confirmed that it will pursue prosecutions in respect of such payments if it is in the public interest to do so and the sums involved (whether individually or in the aggregate) are sufficiently large. If your organisation has built facilitation payments into its business model so that they are regular and systemic, you may be leaving yourself vulnerable.
Liability for third party acts
The corporate offence of failure to prevent bribery set out in the Act is probably the one with the greatest immediate impact on retailers and others. This offence will be committed if a person associated with an organisation bribes another person intending to obtain business or a business advantage for the organisation. The definition of an "associated person" is very wide and will cover anyone performing a service for your organisation (employees, agents, suppliers, etc.), anywhere in the world. There is no need for you to have control over the associate to become liable for its acts, even where you were unaware of them, and so this is an area of significant concern.
It will be a defence to the failure to prevent bribery offence for your organisation to show that it had adequate procedures in place to prevent bribery from taking place. What constitutes "adequate procedures" will depend almost entirely upon your organisation and its operations, but the Ministry of Justice has published helpful guidance (www.justice.gov.uk/guidance/docs/bribery-act-2010-guidance.pdf) which sets out six principles (proportionate procedures; top-level commitment; risk assessment; due diligence; communication; monitoring and review) that should inform the steps your organisation takes to establish effective procedures.
Steps to take now
The Guidance underscores the need for procedures to be proportionate to the bribery risks your organisation faces and to the nature, scale and complexity of its activities. An initial assessment of risk across the organisation is therefore an essential first step. The findings should flow through into your bribery policy which should be documented and communicated clearly both within your organisation and externally to customers, suppliers, joint venture partners and others who may fall within the definition of "associated persons" referred to above.
You should ensure that your contracts with suppliers state clearly your organisation's zero tolerance of bribery and require such persons to familiarise themselves with, and agree to abide by, your anti-corruption policy. Make it clear that you expect the third parties with which you work to have a clearly articulated stance against bribery and to require their sub-contractors, particularly in jurisdictions where corruption is a problem, to do the same.
You should also consider managing your exposure by incorporating into your terms with suppliers a right to audit their files relating to your business relationship and to terminate your contract if bribery or corruption is discovered. Of course, it is possible that larger suppliers with greater negotiating power may be reluctant to vary existing terms, but a paper trail showing that you have done what you could to assess the risk of bribery in relation to such relationships and acted to prevent it will be important.
Closer to home, you should ensure your organisation's commitment to preventing bribery is prominent on your website and any intranet and that staff understand fully your zero tolerance stance on bribery. Depending upon the risks faced, staff training may be required and the effectiveness of your anti-corruption procedures should be tested and monitored regularly. You may wish to set up a confidential hot-line for employees to report concerns about bribery and it is important that no adverse action is taken against any employee who raises bona fide concerns.
That reach of the Bribery Act is long and the prospect of potential liability for the acts of your employees and other associates is sobering. But most retailers will already have policies in place to prevent many of the circumstances which might give rise to problems under the Act. To the extent your organisation does not, you should be acting now to assess the actual risks faced by your business and establish the procedures that will allow you to protect yourself if the SFO does come knocking at your door.
This article first appeared on the Retail Gazette website on 21st July 2011.