After much fanfare and comment, an unexpected delay, and the publication of government guidance that has divided critics, the Bribery Act 2010 (the Act) will finally be brought into force on 1 July 2011. This article provides a brief overview of the Act and the ‘adequate procedures’ which companies may wish to consider implementing in response to its advent.
Key points at a glance
- The Bribery Act will come into force on 1 July 2011.
- The new ‘corporate offence’ will impose liability on companies for the acts of employees and third parties who pay bribes on the company’s behalf, subject only to the company being able to demonstrate that it had an adequate anti-corruption programme in place.
- The offence applies extra-territorially to UK companies and to non-UK companies which carry on part of their business in the UK.
- The government’s ‘adequate procedures’ guidance contains some significant clarifications in the relation to the intended scope of the Act.
- The guidance sets out six core principles, supplemented by additional commentary, to assist companies in developing their compliance programmes.
- The impact of the Act
The Act creates several new offences, carrying a maximum penalty of 10 years’ imprisonment or an unlimited fine for individuals, and an unlimited fine for commercial organisations. These are:
- active bribery (offering, promising or giving a bribe);
- passive bribery (requesting, accepting or agreeing to accept a bribe);
- bribing a foreign public official; and
- a ‘corporate offence’ of failing to prevent bribery.
For an in-depth analysis of the new offences, see Herbert Smith’s corporate fraud, investigations and asset recovery update, dated June 2010.
The Act is significant both because of its sweeping provisions and because it is likely to be enforced. Traditionally, the UK has had a deplorable record of prosecuting corruption offences, particularly in relation to bribery overseas. That has changed, and over the last few years the Serious Fraud Office (SFO), under its director Richard Alderman, has begun to build a track record of convictions and civil recovery orders in response to corruption incidents.
The Act will strengthen the SFO’s hand, in particular, in relation to prosecutions of corporate entities. Existing UK corruption law is already relatively wide-ranging and extra-territorial in scope, but prosecuting companies is challenging because of the need to satisfy the ‘identification principle’; that someone sufficiently senior within the company to be regarded as its ‘directing mind and will’ had the relevant corrupt intent. The Act will address this issue through the introduction of the new corporate offence (section 7 of the Act). This offence imposes strict liability on organisations where persons performing services on the organisation’s behalf commit the ‘active bribery’ or the ‘foreign public officials’ offence with the intention of obtaining business, or a business advantage, for the organisation. In such circumstances, the organisation’s only line of defence will be to prove that it had ‘adequate procedures’ in place designed to prevent such persons from committing acts of bribery.
In short, the corporate offence may impose liability on a company for the acts both of its employees (who will be rebuttably deemed to perform services on its behalf) and a potentially very wide range of third parties. As ‘adequate procedures’ are the only way to mitigate this risk, many companies are in the processes of reviewing or implementing anti-corruption programmes before the Act comes into force in July.
Extended jurisdictional reach
The impact of the Act is compounded by its extraterritorial scope. The active and passive bribery offences, and the foreign public officials offence, apply to the acts of UK-incorporated companies, British citizens and UK residents, worldwide, as well as to acts done in the UK. More alarmingly, the corporate offence also applies to the overseas acts of non-UK incorporated companies, if those companies carry on part of their business in the UK (section 7(5)(b) of the Act).
The SFO has sought to emphasise the application of the Act to non-UK companies, in part, it is thought, in response to criticisms that the Act will be bad for British business. The question of whether they will, in practice, chose to focus their resources, remains to be tested. In the interim, however, there has been a focus on the question of what is meant by “carry[ing] on… part of a business…in the UK”, ie, what degree of nexus to the UK is necessary before a company, and its worldwide activities, are caught by the Act.
Significant scope clarifications in the guidance
At the end of March, the government published its longawaited and pithily entitled ‘Guidance about procedures which relevant commercial organisations can put into place to prevent persons associated with them from bribing (section 9 of the Bribery Act 2010)’, which is the statutory guidance on adequate procedures required to be published by the Act. As well as guidance on anti-corruption programmes, this document contains important commentary on the Act, including a significant ‘gloss’ on a number of key areas of uncertainty.
Three of the most significant clarifications in the guidance are:
- In relation to jurisdictional scope, the suggestions that: (a) a test of ‘demonstrable business presence’ may be appropriate; (b) that the fact that a company has a UK subsidiary will not, in and of itself, necessarily mean that the parent entity carries on part of its business in the UK; and (c) that a UK listing will not, in and of itself, amount to carrying on a business here.
- Additional commentary on the meaning of ‘associated persons’, ie, the persons performing services on behalf of a company, whose actions can trigger the commission of the corporate offence. The consultation draft of the guidance, published last year, had suggested that an impracticably broad range of third parties (including suppliers of goods, a company’s entire supply chain, and, virtually, the kitchen sink), might be regarded as falling within this definition, such that those parties should be subject to due diligence and other anti-corruption risk mitigants. Thankfully, the guidance now reverts to a test which tracks more closely the language of the Act itself.
- A significant re-interpretation of the foreign public officials offence (section 6 of the Act), to ‘read down’ the importance of the fact that the offence does not, on its face, require an advantage to be provided to an official with an intent to influence the official to act improperly. It is sufficient, on a strict reading of the Act, to intend to influence the official and to obtain a business advantage.
The guidance must be approached with a degree of caution (as it simply reflects the current government’s view of what the Act was intended to mean, and is not a ‘safe harbour’ as such). Notwithstanding the new guidance, dealings with public officials clearly present a higher risk than dealings in the private sector. The clarifications are, however, welcome, and do carry some weight; it is notable that the guidance issued jointly by the Director of Public Prosecutions and the director of the SFO in relation to their approach to prosecutions under the Act (the Directors’ Guidance) confirms that the adequate procedures guidance will be taken into account in considering any prosecution for the corporate offence.
- Adequate procedures
By comparison to the excitement of the scope clarifications referred to above, the core guidance as to the ‘adequate procedures’ which companies should put in place to prevent bribery by their associated persons may come as something of an anti-climax. Nonetheless, it deserves careful reading. The guidance sets out six broad principles which are intended to guide companies in determining what bribery prevention measures to put in place, together with additional commentary (which is outside the scope of this briefing) on each principle. The six principles are:
- Proportionate procedures – A commercial organisation’s procedures to prevent bribery by persons associated with it are proportionate to the bribery risks it faces and to the nature, scale and complexity of the commercial organisation’s activities. They are also clear, practical, accessible, effectively implemented and enforced.
- Top level commitment – The top level management of a commercial organisation is committed to preventing bribery by persons associated with it. It fosters a culture within the organisation in which bribery is never acceptable.
- Risk assessment – The commercial organisation assesses the nature and extent of its exposure to potential external and internal risks of bribery on its behalf by persons associated with it. The assessment is periodic, informed and documented.
- Due diligence – The commercial organisation applies 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 seeks to ensure that its bribery prevention policies and procedures are embedded and understood throughout the organisation through internal and external communication, including training, that is proportionate to the risks it faces.
- Monitoring and review – The commercial organisation monitors and reviews procedures designed to prevent bribery by persons associated with it and makes improvements where necessary.
The Bribery Act creates significant new legal risk for many companies. Whilst it does not impose any positive compliance obligation on companies to implement an adequate procedures programme, a ‘do nothing’ approach may therefore be a very high risk strategy. Companies which do wish to take action in response to the Act now have until 1 July 2011 to review their existing policies and procedures to ensure they are ‘adequate’ for the purposes of the Act.