The UK’s new Bribery Act comes into force on 1 July. Certain provisions in the Act will impact on Jersey businesses and Jersey based individuals, and everyone working within Jersey’s finance industry needs to know enough about the Act to ensure that they will not fall foul of its provisions.
There are four main offences:
Offence 1: Bribing another person (Section 1)
A person is guilty of an offence if they offer money or another advantage to another person intending the advantage to induce the other to perform a relevant function improperly or to reward improper performance, or where they know that acceptance of the advantage would in itself be improper. This is known as “active” bribery. It does not matter whether the advantage is offered directly or through a third party, or whether the improper performance would be performed by the offeree or another person.
Offence 2: Accepting a bribe (Section 2)
An offence is committed where a person accepts a reward or advantage intending that, as a consequence, they or another person will perform a relevant function improperly or where the person performs the function improperly in anticipation of a financial or other advantage. This is known as “passive bribery”.
Where the improper performance is carried out abroad or is not subject to UK law “any local custom or practice is to be disregarded unless it is permitted or required by the written law applicable to the country concerned”. In other words, even if the bribery takes place in a country where bribery is culturally acceptable, unless that country’s written laws specifically allow the type of bribery to take place, the actions will be judged by the standards of a reasonable person in the United Kingdom.
Concern has been expressed as to whether corporate hospitality can fall within the definitions of active and passive bribery. The answer is that it can, but guidance published by the that the Ministry of Justice in March 2011 (“the Guidance”) makes it clear that bona fide corporate hospitality which seeks to improve the image of an organisation, to present products and services, or to establish cordial relations is not intended to be caught by the Act.
Offence 3: Bribery of a foreign official (Section 6)
A person is guilty of an offence if they bribe a foreign official intending to obtain (or retain) business or a business advantage.
It is important to note that there is no statutory permission for facilitation payments in the Act, whether under Section 6 or Section 1. Therefore, unlike the position with the US Foreign Corrupt Practices Act 1977, a bribe paid to a foreign official to facilitate routine government action (for example a payment to a harbour master to prevent a delay in providing the papers to allow a ship to be released from port) is not exempt from prosecution although the Guidance suggests that where a payment is made in order to protect against loss of life, limb or liberty the common law defence of duress is very likely to be available.
Application of Sections 1, 2 and 6 offences to Jersey
Sections 1, 2 and 6 are applicable to all British nationals, including anyone with a Jersey passport. Therefore, the vast majority of individuals doing business in Jersey do fall within the jurisdiction of Sections 1, 2 and 6 and could be extradited for prosecution in the UK in appropriate circumstances.
For non - UK companies (including Jersey companies), if any act which forms part of the bribery offence takes place in the UK, then the Act is engaged and the company can be prosecuted in the UK. If no such act takes place within the UK, then acts of a Jersey company will not engage the Sections 1, 2 or 6 offences.
If a British citizen (which, again, includes the holder of a Jersey passport) holds a senior position in a UK company and that UK company commits an offence under Section 1, 2 or 6, that person can also be prosecuted if the offence is proved to have been committed with their “consent or connivance”.
Offence 4: Failure of commercial organisations to prevent bribery (Section 7)
A “relevant commercial organisation” is guilty of an offence if a person “associated with” it bribes another person and intends that bribe to benefit the commercial organisation. It is a defence for the commercial organisation to prove that it had “adequate procedures” in place which were designed to prevent persons associated with it from engaging in bribery.
The Section 7 “failure to prevent “ offence has a number of ramifications for Jersey companies.
Application of the Section 7 offence to Jersey companies
The definition of “a relevant commercial organisation” in Section 7 includes “any … body corporate or partnership (wherever incorporated or formed) which carries on a business, or part of a business, in any part of the United Kingdom”. Therefore, if a Jersey company carries on its business or part of its business in any part of the UK, it falls within section 7.
The Ministry of Justice Guidance gives some help on what “carries on a business” means, but stresses that it will be up to the English courts to interpret the application of this phrase. The Guidance suggests that applying a common sense approach, “organisations that do not have a demonstrable business presence in the United Kingdom would not be caught”. The Guidance further clarifies that simply because a company’s securities have been admitted to trading on the London Stock Exchange would not in itself be enough to make that company a “relevant commercial organisation”, and neither, in itself, would the fact that the company has a UK subsidiary, since a subsidiary may act independently of its parent. If a Jersey company could be construed as carrying on business in the UK (because, for example, it has a demonstrable business presence in the UK) then it should consider whether it needs to put in place systems that will allow it to come within the “adequate procedures” defence.
The Section 7 offence only comes into play when a person associated with the commercial organisation bribes another person. The meaning of “associated person” is defined in Section 8 as “a person who performs services for or on behalf of the relevant commercial organisation regardless of the capacity in which they perform those services”. Therefore, the associated person could be an employee, agent or subsidiary, for example.
The Guidance provides a useful commentary. Employees and agents seeking to benefit the commercial organisation should be relatively easy to categorise. More difficult relationships to categorise include joint ventures and contractors and sub-contractors within supply chains.
The Guidance suggests that a contractor may well be an associated person to the extent that they are performing services for or on behalf of the commercial organisation but that where there is a supply chain involving a series of sub-contractors, it is likely that the commercial organisation will only be vulnerable to the actions of its contractual counterparty (normally the prime contractor) and not with the sub-contractors, who will ordinarily be performing services for the contractor.
With joint ventures (“JVs”), the Guidance distinguishes between JVs operating through separate legal entities and where the JV is conducted through a contractual arrangement. Where there is a separate legal entity, the Guidance suggests that bribes paid by the JV entity may lead to liability for a member of the JV if the JV entity performs services for the member and the bribe is paid with the intention of benefiting the member. Where the JV is conducted through a contractual arrangement, the degree of control that a participant has over the person who has given a bribe is likely to be relevant. So, for example, an employee of participant A who gives a bribe in order to benefit his employer would not usually be regarded as being associated with participant B in the joint venture.
The Guidance suggests that a bribe given by an employee or an agent of a subsidiary will not automatically involve liability on the part of the parent company. Liability is likely to depend upon whether the employee or agent of the subsidiary intended the bribe to benefit the subsidiary or the parent.
The Adequate Procedures defence
The Adequate Procedures defence only applies to the Section 7 offence of failure to prevent bribery. As such, it is only directly relevant to those Jersey entities which fall within the scope of Section 7. However the six principles highlighted as being indicative of adequate procedures are founded on a risk based approach and are not dissimilar to the regulatory demands made of regulated Jersey entities; as such, many Jersey companies may conclude that it is prudent and proportionate to recognise and adopt the adequate procedures approach in their own businesses. Furthermore, the Guidance suggests that companies which are caught by Section 7 should be asking their counterparties what measures they have in place to prevent bribery. Therefore, if a Jersey company wishes to do business with English companies in future, it is very possible that the Jersey company be asked, as part of the tendering process, whether they have procedures akin to Adequate Procedures in place. The Six Adequate Procedure principles are:
- Proportionate procedures
The commercial organisation’s procedures to prevent bribery by persons associated with it should be proportionate to the bribery risks it faces and to the nature, scale and complexity of the commercial organisation’s activity. They should also be clear, practical, accessible, effectively implemented and enforced.
- Top level commitment
The top level management of a commercial organisation (be it a board of directors, the owners or any other equivalent body or person) should be committed to preventing bribery by persons associated with it. They should foster a culture within the organisation in which bribery is never acceptable.
- Risk assessment
The commercial organisation should assess the nature and extent of its exposure to the potential external and internal risks of bribery on its behalf by persons associated with it. The assessment should be periodic, informed and documented.
- Due diligence
The commercial organisation should apply due diligence procedures, taking a proportionate and risk based approach, in respect of persons who perform or will perform services for or on behalf of the organisation, in order to mitigate identified bribery risks.
- Communication (including training)
The commercial organisation should seek to ensure that its bribery prevention policies are embedded and understood throughout the organisation through internal and external communication, including training that is proportionate to the risks the organisation faces.
- Monitoring and review
The commercial organisation should monitor and review procedures designed to prevent bribery by persons associated with it and should make improvements where necessary.
The approach of the Serious Fraud Office to non-UK corporates
Richard Alderman, director of the SFO, is on record as saying that investigating and prosecuting overseas corporates is a “top priority” for the SFO, particularly where the use of bribery by a foreign corporate (such as a Jersey company) has deprived an ethical UK corporate of a level playing field. Alderman has stated “I look at the Bribery Act as being a way of supporting ethical UK businesses and helping to ensure that there is an ethical competitive environment. The sorts of case that interest me are those where an ethical UK company loses out because of a bribe paid by foreign company to secure a contract”. Given the SFO’s stated aim to pursue overseas corporates, Jersey companies should not assume that the long arm jurisdiction is window dressing. Jersey companies may well be in the SFO’s sights.
The Corruption (Jersey) Law 2006
Finally, Jersey businesses should remember that whilst the Bribery Act has been much commented on, Jersey already has anti-bribery legislation in force in the form of the Corruption (Jersey) Law 2006.