The UK Bribery Act was passed in April 2010 but will not become law until 1 July 2011. In the meantime there has been a change of Government and strong reaction to the new law leading to much political lobbying, media pressure and public interest. The focus for this has been the prospect of formal Government guidance about the way the Act will work.
The guidance was published by the Ministry of Justice at the end of March together with a
covering statement by the Secretary of State, and a “Quick Start Guide” to help businesses with compliance activity.
The tone of the guidance was placatory and soothing. Honest businesses would not need to employ an army of lawyers in order to comply, it said.
At the same time as publication of the Government guidance the UK prosecuting authorities issued their own guidance about the principles to be adopted when criminal proceedings under the new Act are being considered. Reading these alongside the Ministry of Justice guidance gives a much clearer picture about the effect of the new law than existed before.
There are still many uncertainties, but even pending further clarification by the courts, .it is possible to draw some conclusions about how tough the new UK regime will be, by comparing its main effects with the US Foreign Corrupt Practices Act (FCPA), which is 34 years old and has been applied in practice to thousands of specific cases. The history of the FCPA can help business estimate how the UK Act may actually affect global business.
All the OECD countries have adopted a Convention aimed at stamping out commercial bribery of government officials. Like the UK Act, the FCPA prohibits bribery by US companies of foreign officials. Unlike the UK Act, the FCPA does not deal with bribery within the private sector. The UK Act has a broader effect than the FCPA as it applies across the UK, covers bribing and being bribed and applies to both public and private sector bribery. The FCPA is aimed primarily at criminalising bribery of foreign public officials. There are other federal and state laws in the USA that apply directly against the recipient of a bribe, but the FCPA does not.
The UK Government confirmed that corporate hospitality is in itself not a crime but could amount to bribery in some circumstances. To avoid this, hospitality must be reasonable, proportionate, bona fide and transparent. Even high profile events like Wimbledon or the Grand Prix can be acceptable within these guidelines, as can fine dining, if the overall objectives are to meet, network and improve relationships with customers. This position is broadly the same as under the FCPA, but US persons have gone to jail for extending lavish entertainment and gifts that amount under the circumstances to a bribe. The difficulty will be in distinguishing when an effort to make good relations appears in hindsight to be an improper inducement to gain or retain business. The US experience is that companies create compliance systems that provide maximum monetary amounts for entertaining clients and requiring review and approval when something beyond a common meal is intended.
No reassurance was given in the UK guidance about gifts, but it is thought unlikely that these will be challenged if they fall within the reasonable, proportionate, bona fide and transparency limits applicable also to corporate hospitality. The position is in the US is different, although nominal gifts (corporate labelled pens, hats and similar items are not viewed as bribes), as the US has no de minimis figure for determining when a gift is “too much.” The FCPA prohibits “anything of value” being given to a foreign official when intended corruptly to influence the official to extend or retain business or to grant the US company a commercial advantage over its competitors.
Facilitation - “Grease” - Payments
Facilitation payments – such as paying a Customs agent £10 to get a trade show sample through the Customs line, rather than have it stuck there for several days - are illegal under UK law. The guidance showed no softening of approach in relation to them, except that it was recognised that sometimes these payments are made in circumstances where the recipient of the demand is in fear of health, safety or wellbeing - in these circumstances the defence of duress may be available to a criminal charge. The payments should still be forbidden in employment contracts, however. This is one of the main differences compared with the position under the FCPA, under which facilitation payments are not illegal. Facilitation payments are defined narrowly, however, to fit only circumstances where the foreign official was ministerial and was not in a position to exercise any discretion in response to receipt of a favour.
The Corporate Offence
The Act creates a criminal offence by section 7 in circumstances where associated persons of relevant commercial organisations commit bribery in order to obtain business for the organisation. The guidance helped with interpretation of the terms somewhat - a “relevant commercial organisation” is one doing business in the UK in common sense terms - a physical presence is likely to be required for this, so listing on the London Stock Exchange may not be enough to engage the Act. It was made clear that there is no reason why public, charity or educational organisations cannot be caught by this test. “Associated Person” means a supplier of services, not just goods. The act of bribery by such a person must be intended to directly benefit the organisation, and it is not sufficient that some indirect benefit might follow. Uncertainties remain in this area for holding companies and investors whose subsidiaries or agents of whose subsidiaries act illegally causing resulting benefit to shareholders.
The FCPA is equivalent to the extent that if any US person on behalf of the foreign subsidiary of a US corporation authorises, acquiesces in or facilitates bribery of a foreign public official by a foreign subsidiary , the US corporation and any US persons involved can be held civilly and criminally liable.
Anti corruption management procedures as a defence to the Corporate Offence
The main effect of the guidance was to give information about what is meant by the “adequate procedures “ which can be deployed as a defence to the section 7 corporate offence. These will be regarded as adequate if they are introduced following a risk assessment of exposure to bribery and are proportionate and effective in relation to the result of the assessment. This was the main Government response to the charge of imposition of heavy burdens on business, but at the same time it was made clear that the existence of procedures, and the extent of adherence to them on an ongoing basis, would be a key issue for those considering whether to prosecute, or not.
In the US, failing to have a compliance system is not, in and of itself, an offence. Nonetheless, increasing numbers of businesses have adopted corporate codes that meet best practice standards as a means of preventing violations and of establishing a good faith defence in case one of their employees or agents runs afoul of the FCPA and corporate policy intended to achieve compliance.
The role of the Court
The guidance made it clear that the Court would have the key role to play in deciding how some of the broadly defined concepts applied in particular circumstances. Although the guidance will be a useful aid to a Court faced with a judgment call, it will not be conclusive and could even be ignored in certain circumstances. Certainly a Court would be unwilling to hide behind the reassurance given by the guidance, and to use it as an excuse to do nothing.
Of course, judicial interpretation is also vital in the US where the courts have been quick to impose multi-million dollar fines in circumstances regarded as serious. The largest FCPA fine to date has totalled about US $1.5 billion, levied against 4 participants (including 3 non-US companies) in a scheme to gain commercial advantage in a tender for an LNG facility in Nigeria. It remains to been seen whether UK courts will impose similarly heavy penalties. The US experience suggests that prosecutors and courts will ensure that penalties are heavy deterrents, forcing companies to disgorge ill-gained profits, to pay fines beyond that and to submit to compliance monitors and systems to ensure no repeat of a violation. In the case of USSEC v KPMG Siddharta and Harsono the accountants consented to the making of a final injunction against them to prevent violation of the FCPA ( without admitting or denying the allegations made )..
One key distinction between the Bribery Act and the FCPA is that in the UK there is no clearance procedure available within the Government whereby intended actions can be legitimated before a course of action is undertaken. In several US cases an “advice of Counsel “ defence has been rejected, where it is apparent that the legal advice given was found to be mistaken.
Key points arising from the guidelines to prosecutors in England and Wales are these:
A decision to prosecute must follow from a review of the strength of the evidence and whether it is in the public interest to prosecute - a two part test.
A decision to prosecute must be made by the Director of the Serious Fraud Office or the Director of Public Prosecutions
It will be in the public interest to prosecute unless the factors against outweigh those in favour: amongst the factors to be considered are
- likelihood of conviction and likely size of penalty;
- whether circumstances were self reported and management have been open in disclosure and co operation;
- whether adequate procedures are in place;
- whether adequate procedures have been adhered to.
So the incentive to introduce procedures is not limited to their providing a defence if prosecution occurs but a reason why a prosecution could be avoided.It should also be borne in mind that the main prosecuting authority, the SFO, has been given very little additional resource with which to police the Act. This doesn’t mean that prosecutors will be short of funds if the US experience is followed, however, as there the proceeds of successful prosecutions have been cited by prosecutors to increase funding their investigatory and enforcement work. In fact, if that experience is followed, this are is likely to be fertile ground for criminal litigation.
In the US another use of the proceeds of successful prosecutions is to reward whistleblowers who can be entitled to receive up to 30% of the amounts collected by Government under therecent Dodd-Frank Act and related laws. No such rewards are available in the UK ( apart from as a result of any private arrangement) although of course both in the UK and the US whistleblowers are exempt from any retaliatory action and enjoy security of employment.
Of particular relevance to accounting firms is the US FCPA requirement that, at least for public companies and other “issuers” (generally any company that reports to the US Securities & Exchange Commission), financial records must accurately report any bribes and other inducements to foreign officials, and may not be gently disguised as “marketing” or “petty cash.” There is no materiality standard for such improper reporting, and this has led to stringent measures applied to preparation, review and audit of financial statements. By contrast, the UK Act did not intrude into this particular space.
The new UK Bribery Act creates a tougher legislative framework for prosecution and punishment of bribery than applies in the US under the FCPA, and if followed up by pro-active enforcement activity is likely to be an effective anti-corruption tool. Equally, the signs are that in the US and elsewhere in the developed world bribery laws are being reviewed and progressively toughened, so that it is not likely that the UK will stand out amongst these countries in this way for long. The message to business is to institute promptly compliance systems that will deter violations, to engage in multi-lingual training of those involved in marketing, sales and other activities affecting a company’s effort to gain and retain business and to achieve commercial advantage, and to strive for a standard that is most likely to achieve best practices under the most stringent of applicable laws. The alternative is to risk embarrassment, financial penalties and jail time.