Bribery and Corruption in the UK: a Clearer Future?
For a country that is often accused of being over-regulatory but praised for its commercial good-practice (credit crunch aside), it is somewhat startling to read that less than 2 years ago the UK was “sharply criticised” by the OECD for failing to bring its anticorruption laws into line with the OECD Anti-Bribery Convention1, even though the UK had ratified the Convention in 1998. This has now all changed - dramatically. When the Bribery Act 2010 (“the Act”) comes into force, it will provide a complete overhaul of the UK’s legislative approach to bribery and corruption and will implement what many perceive to be the toughest piece of anti-bribery legislation in the world.
The Act was enacted on 8 April 2010 and was expected to come into force by the end of 2010. However, on 20 July 2010, the Lord Chancellor announced that the implementation of the Act would be delayed until April 2011 to allow for further consultation on the “adequate procedures” defence and the publication of the “adequate procedures” guidance (due under section 9) at the end of January 2011.
On 31 January 2011, the Ministry of Justice announced that the Act was being reviewed as part of the government’s “growth review” of legislation. The Act has recently received a significant amount of press coverage and the Ministry has come under considerable pressure to consider how it might affect British companies, especially in difficult financial times2. Publication of the guidance will now be delayed as the Ministry is “working on the guidance to make it practical and comprehensive for business. [The Ministry] will come forward with further details in due course”. The Ministry explained that the Act will now not come into force until at least three months after any guidance is published, therefore the April 2011 deadline will be missed.
The old (but still current) law
The UK’s ‘modern’ approach to bribery and corruption did not start off badly. In fact, it started early and relatively aggressively. As early as 1889, legislation was enacted to address corrupt practices that were considered to be widespread in the Metropolitan Board of Works3. Despite this promising start there has since evolved an unclear ‘tangled mess’ of legislative4 and common law offences that have been shown to be wholly inadequate for policing the modern commercial world. This is notwithstanding that, under the current law, liability can attach to UK nationals or corporates for acts committed outside of the UK5.
The criticisms levelled against the existing legal framework are multiple. The OECD has stated that there is “a lack of clarity among the different legislative and regulatory instruments in place… [such that] the current substantive law governing bribery in the UK is characterised by complexity and uncertainty”6. The principle complaints are about (i) the fragmentation between the statutory and common law offences; (ii) the distinction between public (the 1889 Act) and private (the 1906 Act) sector bribery which is not necessarily warranted by the substantive law; (iii) the inconsistencies in language across the offences and a consequential lack of clarity; (iv) the unnecessary requirement for an agency relationship under certain offences; and (v) the reversal of the presumption of innocence that exists under the 1916 Act does not apply to offences committed abroad.
Against this backdrop, the Government finally took steps to reform the law accepting that “modernisation of the law is a priority to deal with those who offer or accept bribes, and to reinforce transparency and accountability in international business. That is why we are committed to the foundation of a new and consolidated criminal law of bribery”7. The UK is therefore on the cusp of meeting its obligation to comply with the OECD Anti-Bribery Convention.
The new law: the Act
The Act reforms the criminal law of bribery and corruption to provide for a new consolidated scheme of bribery offences covering both the UK and abroad. The Act repeals the offences at common law and statute (abandoning the agent/principal relationship) and replaces them with three general offences applicable to individuals and corporations8:
- Section 1: offering, promising or giving a financial or other advantage (i.e. bribing another person);
- Section 2: requesting, agreeing to receive or accepting a financial or other advantage (i.e. being bribed); and
- Section 6: bribing a foreign public official, for which the only defence is if the briber can show that the recipient was permitted or required to receive the bribe under the written law applicable to the recipient.
In recognition of the complexity of this area of the law and the potential for confusion, the draftsmen have broken down the first two offences into a number of examples to improve their clarity. However, the draftsmen purposefully have not defined what “a financial or other advantage” is: a bribe is no longer just cash passed under a table.
If any one of these three offences is committed abroad, provided that it would have been an offence if it were committed in the UK and it is committed by a person with a “close connection”9 with the UK, liability will attach10.
Whilst the codification of these offences has not been considered controversial and has been generally approved of, of the other provisions contained in the Act, the inclusion of two ‘new’ offences - aimed directly at corporations - has sent shockwaves through both the national and international commercial world.
The main cause for concern is the imposition of a strict liability offence for failing to prevent bribery11, irrespective of where the offending acts have taken place12. This applies to companies and partnerships incorporated or formed in the UK13 as well as “any other body corporate (wherever incorporated) which carries on a business, or part of a business, in any part of the [UK]”14. The only defence that can be raised is if the corporate can show that it had in place “adequate procedures”15 designed to prevent bribery. What “adequate procedures” are is addressed below.
The second point of particular concern is the imposition of liability on a “senior officer”16 of a corporate (as well as the corporate itself) if it can be shown that one of the three general offences was committed by the body corporate with his/her “consent or connivance”17. This offence should come as no surprise as the inability of UK authorities to successfully prosecute senior management and corporates was one of the main criticisms levelled at the old (current) legal regime. However, the fact that directors, managers and other similar functionaries may now find their necks on the line - albeit subject to proving consent or connivance - will certainly bring the effect of the Act into sharper focus at the higher levels of corporate organisations.
The effect of the Act
The Act has sent a very strong signal that the UK is now positioning itself at the head of the global anti-corruption drive. It is wider in scope than the US Foreign Corrupt Practices Act, compliance with which was previously considered to be the benchmark for anti-corruption corporate good practice. The Act, however, looks like it will re-write the good practice checklist in its own terms.
The Ministry of Justice is obliged to publish guidance on adequate procedures (the “Guidance”). As mentioned above, it was expected that this would be published in early 2011, but has now been postponed.
Subject to the outcome of this latest postponement, it is currently expected that when (finally) produced, the Guidance is unlikely to produce a definitive list of adequate procedures. Rather, it will be a collection of generic concepts and practices that are to be encouraged. Indeed, the consultation paper18 has proposed the following six generic principles that are likely to form the backbone of the Guidance:
- risk assessment;
- top level commitment;
- due diligence;
- clear & accessible policies;
- effective implementation; and
- monitoring and review.
What does this mean in practice? In light of the good practice guidance that is already in existence19, we consider that the Guidance will most likely confirm that, although no definitive checklist can be set out, what is required to benefit from the adequate procedures defence is a commonsensical approach to situations with clear evidence of the commercial entity having given active and ongoing consideration to the corruption risks it faces on a day to day basis. The Guidance is unlikely to provide any guarantees that certain specific conduct will avoid liability, but should give a clear indication of the sort of actions corporates are expected to take. The effect of the Section 7 offence is that proactivity on behalf of the corporate is required: complacency or a cursory nod to the obligations it imposes will only increase the risks of liability.
The Act’s prohibition of all improper payments prima facie excludes any facilitation (or ‘grease’) payments and throws into doubt the legitimacy of corporate hospitality. Unlike the American approach of permitting certain facilitation payments20, facilitation payments are categorically forbidden by the Act. Whilst corrupt payments cannot be condoned in any way, the commercial reality of operating in certain (often developing) nations is that small payments are needed to enable various, lawful, things to get done21 in a commercially realistic timeframe. Indeed this was accepted in rather stark terms in a previous debate in Parliament which lead (amongst other reasons) to the rejection of an earlier attempt at legislative reform22.
The unsatisfactory compromise that looks likely to provide the reality check is the requirement for the consent of the director of the SFO, DPP or Revenue and Customs Prosecutions in order for a prosecution to be brought. In this regard the Director of the SFO has already made his position clear:
“… as a practical investigator and prosecutor with more cases to deal with than I have resources to devote to them, the possibility that I might prosecute for a one-off facilitation payment is remote. That does not mean that I condone it or believe it to be anything other than unlawful - it simply means that I have more important things to do.”23
With regards to corporate hospitality, the problem is no clearer. Whilst the SFO considers that facilitation payments are unlawful - full stop - they are more troubled by hospitality. The crucial legal test will be whether the hospitality is intended to bring about improper performance by the recipient (or someone else)24, or - if it is given to a foreign public official - whether the giver intends to influence the official in their “capacity as a foreign public official”25 “to obtain or retain business, or an advantage in the conduct of business”26. These appear clear as a matter of law, but how these tests will be applied in practice is by no mean clear and no guidance is expected on this point. An additional point of caution is that it is not a defence to the Section 6 offence to say that (for example) extravagant entertainment is part and parcel of the way of doing business in a certain jurisdiction, and everyone knows it. The only defence is if it is permitted by written law or rule27.
It appears likely (but not certain) that in practical terms, a ‘blind eye’ may be turned to small value cases: the SFO is, after all, concerned with serious fraud. However, it is far from adequate to be able to say only that, ex post facto, a prosecution may not be brought. From the wording of the Act, if an offence has been committed liability attaches and it is far from satisfactory to be able to say only that, ‘hopefully, the sum paid (e.g. in order to undertake a lawful activity) or hospitality given (e.g. in order to cement a business relationship) will not be considered worthwhile by the prosecuting authorities.’
The Act undoubtedly throws the UK into a new regime of anti-corruption legislation and corporate expectation. The Act is drafted so as not to limit the prosecuting authorities’ ability to go after potential offenders; be it in terms of what actually constitutes a bribe, who does it, who carries out the corrupt act, where the offence is committed or what a corporate is expected to do to prevent it. The Guidance should be of some help, but it is not expected to provide a watertight checklist that will guarantee safety from prosecution. Furthermore, the implementation of a ‘once and for all’ generic anti bribery and corruption policy that does not take into account the specifics of the business’s operation and does not allow for amendments, will not suffice.
Notwithstanding the most recent delay in publishing the Guidance and implementation of the Act, due to the amount of time necessary to review and/ or overhaul internal policy guidelines, we would not recommend waiting until the Guidance is issued but to start a thorough review process of a company’s existing anti bribery and corruption policies now. We consider it essential to conduct an initial risk assessment to discover potential shortfalls and then to construct a policy that is tailored to the needs and risks of each entity. Due to Bird & Bird’s extensive expertise in providing risk management advice and our broad industry sector knowledge, we are in an ideal position to assist businesses, on a national and international level, with this exercise.
A final word - although the Act appears to give prosecutors not just teeth, but a predator’s jaw, it has been carefully worded and is not, necessarily, intended to bulldoze through corporates Business Development Plans and general operational strategy. Bird & Bird is very well positioned to provide you with clear and concise advice on how best to respond to the legislation in your own specific circumstances and ensure a balance between due compliance with the law and continuing commercial operations.