Following on from the publishing of the UK Bribery Act 2010 (the “Act”) last year, the UK Ministry of Justice has recently published final guidance (the "Guidance") on the procedures which relevant commercial organisations can put in place to prevent persons associated with such organisations from bribing. The Act will enter into force on 1 July 2011.
The Act applies to all commercial organisations that are registered in the UK or that have any operations in the UK. Therefore, as mentioned in our article on the Act in the Curtis Oman Client Alert in September 2010, we anticipate anti-corruption clauses becoming widespread in commercial contracts between UK entities and Omani companies. In addition, the Act will be a point of concern for any Omani companies which have operations in the UK. We understand that investigations and prosecutions under the Act are most likely to be targeted at companies in extraction industries and transactions with government entities including politically exposed persons.
The new Guidance has revised all of the adequate procedures for commercial organisations to have in place as a statutory defence in the event of prosecution under the Act from the draft guidance published in September 2010, which was criticised as unworkable, inhibitive of customary business practices and detrimental to the competitiveness of UK companies. The UK Ministry of Justice has also addressed concerns raised by the business community over the ambiguous and potentially far-reaching nature of certain provisions of the Act, namely, regarding corporate hospitality, facilitation payments, suppliers and joint ventures, and foreign companies accessing the UK capital markets.
The Guidance reiterates the importance to businesses of “reasonable and proportionate” hospitality and promotional expenditures designed for improving corporate image, marketing products and services, or developing public relations, and adds that such expenditures are not intended to be criminalised by the Act. Reasonableness is determined within the context of the organisation’s size and nature of business and the customary practices of its industry.
Lavish or extravagant expenditures lacking in business purpose or to unnecessary or out-of-the-way locales are likely to raise an inference of intention to improperly influence foreign public officials. Accordingly, whilst it would be acceptable for a health care provider to furnish ordinary travel and accommodation to a foreign public official to visit one of its hospitals, a five-star holiday to the same official that is unrelated to a demonstration of the organisation’s services would be suspect. The Guidance provides additional examples of reasonable travel expenditures for foreign public officials. One of these is for flights and accommodation to visit distant mining operations to demonstrate a UK organisation’s safety standards. Another is for flights, hotels, fine dining and sporting event tickets for a foreign official and his or her partner to visit New York as the most convenient location for meetings with senior executives of a UK organisation, although this would be called into question if the executives had visited the official’s country with all the relevant documentation enabling such a meeting to occur the previous week.
Facilitation payments are illegal under the Act. The Guidance contains no specific defences for making facilitation payments, unlike the Foreign Corrupt Practices Act, which has a narrowly construed exception for such payments. Duress is a factor to take into account when considering prosecutions for making facilitation payments, as it provides a common law defence in the UK.
The Guidance further clarifies the definition of “associated persons” in the context of the corporate offence of failure to prevent bribery, with respect to suppliers and joint ventures.
Whilst mere sellers of goods are not to be considered “associated persons” for purposes of the corporate offence of failure to prevent bribery, suppliers of services that are within the organisation’s control are likely to be included. Indirect suppliers who perform services along a supply chain without any contractual relationship with the organisation are not likely to be associated persons.
The Guidance makes a distinction between the treatment of joint ventures that operate as separate legal entities and those which arise through contractual arrangements. Separate entities are not presumed to be associated with their members, and therefore bribes paid by such entities will not necessarily give rise to liability for a member’s failure to prevent them, absent a showing that the venture was performing services for the member and the bribe was paid with an intent to benefit that member. The analysis is different for contractual joint ventures, where an examination of the level of control of the members over the activities of the venture is appropriate. In such case, a member could be liable for failing to prevent a bribe made by the joint venture in the performance of services for that member.