US companies doing business throughout the world, having become comfortable with compliance programs under the Foreign Corrupt Practices Act (FCPA), must now brace for new enforcement initiatives compelled by the UK Bribery Act of 2010 (the Act), which went into effect in July 2011. This poses a new set of risks for companies with a UK presence.
The Act is a far-reaching statute that covers the giving and receiving of bribes, bribing foreign officials, and failing to prevent bribery. Also unlike the FCPA, the Act is not limited to bribery of foreign officials — bribery in virtually every business situation is caught. The Act also differs from the FCPA in that facilitation payments or “grease payments” are illegal, and the FCPA’s requirement that a bribe of a foreign official be offered “corruptly” is absent from the Act. There are steps companies can take now to mitigate their global risks, including implementing specific bribery-prevention procedures outlined in the Guidance to the Bribery Act of 2010 (the Guidance), issued by the Ministry of Justice.
Giving and Receiving Bribes Generally
The Act prohibits giving or receiving bribes other than in a purely private or domestic context. That is, a bribe is not caught if it occurs entirely outside the context of any business or employment relationship, public sphere of activity, or public or private organization. The offenses of giving and receiving bribes are covered in Sections 1 and 2 of the Act.
Sections 1 and 2 apply to any person with a “close connection” to the UK, with respect to actions anywhere in the world, and to any person (regardless of his or her connection to the UK) who commits the offending act in the UK. Corporations can be liable under Sections 1 and 2 if a senior officer consents to or connives with the offending act.
For purposes of Sections 1 and 2, bribery occurs when either (1) the person giving the bribe intends to induce or reward an “improper” action, or (2) where the acceptance of the inducement is itself improper, regardless of whether the desired conduct by the recipient is improper. The second example covers facilitation or “grease” payments, which are payments made to someone (typically an official) to get him or her to do something (or do something more quickly) that he or she is actually supposed to do as part of his or her job, such as a customs official clearing properly imported goods through customs. Unlike the FCPA, the Act does not have an exception for any facilitation payments — a fact that has caused some concern to UK businesses that operate in countries where facilitation payments are routinely expected.
Bribing Foreign Officials
Sections 1 and 2 of the Act apply to foreign officials as well as people employed by private companies or organizations. The Act, however, contains an additional basis for liability with respect to bribery of foreign officials. Section 6 makes it an offense to offer, promise or give anything of value to a foreign public official (or to another person at the official’s request, assent, or acquiescence) with the intention of obtaining or retaining business or an advantage in the conduct of business.
Critically, an element of the Section 1 and 2 offenses is missing from the Section 6 offense: there is no requirement that there be any intention that the foreign official act improperly or that the acceptance of the inducement is itself improper. Nor is there any requirement that the inducement be offered “corruptly” (as in the FCPA). Furthermore, the Act does not contain any exceptions for ordinary corporate hospitality or promotional activities. British companies and legal commentators have rightly pointed out that, on its face, Section 6 can be interpreted as making it illegal to invite foreign officials to participate in promotional activities with any hospitality element.
The UK government’s response (both before and after enacting the statute) has been to say that requiring proof of “improper” performance of a foreign official’s job is too high of an evidentiary burden to place on the prosecution and that instead companies should rely on the government’s intention to exercise prosecutorial discretion. The Guidance provided by the government indicates that ordinary, proportionate corporate hospitality should not provide a basis for prosecution — but of course, the Guidance is not law. (See in particular paragraph 23 of the Guidance, and more generally, paragraphs 21 – 32.)
Note that “foreign officials” include persons who (1) hold a legislative, administrative, or judicial position; (2) exercise a public function on behalf of a country or one of its public agencies or public enterprises (for example, state employees), in each case with respect to a country other than the UK; or (3) are officials or agents of a public international organization. Some commentators have suggested that the definition is less expansive than the US courts’ interpretation of “foreign official” for purposes of the FCPA, but until that is tested in court, we suggest assuming that the more expansive interpretation applies.
Failing to Prevent Bribery
Section 7 of the Act creates an entirely new corporate offense of failing to prevent bribery. Section 7 applies to companies organized in the UK and to foreign companies that do business in the UK. The standard for “doing business in the UK” is not settled yet, but the Guidance suggests that some active business presence is necessary. Note that this might include the occasional presence of sales reps even if there is no permanent sales force in the country.
Section 7 makes a company (or other commercial organization) guilty of an offense if a person associated with the company bribes someone with the intention of obtaining or retaining business for the company, or an advantage for the company in the conduct of its business (essentially, a Section 1 or 6 offense). It doesn’t matter whether the company had knowledge of the bribe, and the associated person can be any person operating anywhere in the world, regardless of that person’s connection or lack of connection to the UK. Nor is there any requirement that the person who offered or received the bribe be charged or convicted (although the criminal standard of proof will apply to the determination of whether or not bribery occurred). It should be noted that a company’s associates include anyone providing services for or on behalf of the company — so the acts of contractors and agents (and possibly others) as well as employees could create liability for a company.
What Companies Can Do to Reduce Their Risk
The Act provides an affirmative defense to a Section 7 charge: It is a full defense if the company can prove (by a preponderance of the evidence standard, called “balance of the probabilities” in the UK) that it had in place adequate procedures designed to prevent persons associated with the company from making bribes. Accordingly, companies concerned about their potential liability for failing to prevent bribery are giving serious attention to putting “adequate procedures” in place.
The Guidance suggests specific procedures, including risk assessments, training, developing, and communicating policies internally and externally; involvement of top-level executives in developing and implementing policies; and ongoing enforcement and monitoring. The Guidance makes clear that any initiatives should be proportionate to the company’s assessment of the likely bribery risk in any given situation.
The most fundamental step that a company can take to help ensure compliance with the Act and mitigate its risk under the “failure to prevent bribery” corporate offense is to prepare, implement, and enforce a group-wide anti-bribery policy. Many companies will already have a policy in place that complies with the FCPA. Since the Act is more expansive, it is advisable to review existing policies and revise them as appropriate to cover the offenses covered by the Act. The Guidance emphasizes that the UK Government expects companies to take proportionate, but proactive, steps to prevent bribery. Ongoing review of bribery risks and monitoring of compliance with a company’s anti-bribery policy are critical aspects of the Section 7 affirmative defense of having adequate procedures in place to prevent bribery.
In the case of non-employee associates in particular, there are various steps that a company can take to demonstrate that it has adequate procedures in place to prevent bribery by such associates. These range from informing non-employee associates of the existence of an anti-bribery policy to contractually requiring compliance with the company’s policy. Intermediate options include a more limited contractual requirement to comply with the Act (without necessarily referring to the full company policy) or permitting termination if the company believes the associate is not complying with its anti-bribery policy or the Act. In many instances, associates may have their own anti-bribery policy, in which case it may be adequate to request their policy, review it, and potentially include a contractual provision requiring the associate to comply with the associate’s own policy (assuming it is roughly equivalent to the company’s policy and consistent with the Act).