The U.K. Ministry of Justice announced in July that the recently enacted Bribery Act of 2010 would not become effective until April 2011, in order to allow time for a “short consultation exercise” during which public comments could be provided regarding draft guidance “about procedures which commercial organisations can put in place to prevent bribery on their behalf.”2 This consultation exercise began on September 14 and will continue until November 8, 2010. The eventual guidance will be significant, as section 7 of the Act punishes not only bribery itself, but also the failure of companies to prevent bribery. This new provision would apply if a company fails to prevent the payment of a bribe by one of its employees or agents in connection with the company’s business.
The draft guidance released by the Ministry consists primarily of six principles intended to identify bribery risks and to encourage the adoption and implementation of effective policies and procedures to detect and prevent bribery.3 They include (1) risk assessments; (2) top level commitment; (3) due diligence; (4) clear, practical and accessible policies and procedures; (5) effective implementation; and (6) monitoring and review. The Ministry published a number of “illustrative scenarios” intended to explain the way in which the “application of [the] six anti-bribery principles might relate to a number of problem scenarios commercial organisations may encounter.” However, these scenarios are not part of the draft guidance and may not be relied upon as official pronouncements. The Ministry also provided additional comments regarding the application of particular provisions of the Act.4
Principle 1, “risk assessment,” is described by the Ministry as “the foundation of any effective efforts to prevent bribery.” Bribery risks may include deficiencies in employee knowledge of the law and in the training provided by a company, as well as a lack of clarity of key policies, such as, for example, those concerning gifts, entertainment, and travel. The Ministry also noted several external risk factors, such as country conditions (including the prevalence of bribery and the lack of enforcement of anti-bribery laws), “transactional risks” (such as those related to licensing, public procurement, high value projects, and the use of intermediaries or agents), and “partnership risks” (as in the case of business partners that operate in high-risk areas or lack transparency). The Ministry suggested that it may be appropriate to employ external consultants to conduct risk assessments. It also recommended “tapping into existing information” such as audit reports, complaints that may have been filed, and other publicly available data.
Principles 2 and 3 relate to the need for “top level” management to set a proper tone by showing its commitment against the payment of bribes, and to establish “due diligence policies and procedures which cover all parties to a business relationship.” Top management is encouraged to create a culture of “zero tolerance” for bribery and to clearly communicate its anti-bribery policy to all employees as well as to the third parties with which it deals. Management should also communicate the consequences of breaching the company’s anti-bribery policies.
Under Principle 3, companies should “know who they are doing business with” by implementing due diligence procedures applicable to all third parties, including agents, intermediaries and joint venture partners. A company should inquire about the reputation of an entity and associated individuals for bribery, including whether they have a history of investigations or prosecutions related to bribery and other crimes. In addition, organizations should consider country and market conditions to determine specific risks and whether a project is to be undertaken at market prices.
Principles 4 and 5 call for the adoption and “effective implementation” of “clear, practical and accessible policies and procedures” intended to detect and prevent bribery. Principle 4 would require “a clear prohibition of all forms of bribery[,]” and the establishment of guidance on charitable contributions and payments for hospitality, as well as communicating the proper response to threats of blackmail and extortion. It also encourages the adoption of “speak up” procedures that would provide employees the opportunity to confidentially report instances of bribery. It also suggests that special attention be focused on “particularly vulnerable operational areas such as procurement and supply chain management.”
Principle 5 focuses on the need to ensure that anti-bribery policies and procedures are “embedded throughout the organisation” and “reflect the practical business issues that an organisation’s management and workforce face.” This may be accomplished in part “through the allocation of roles and responsibilities [related to anti-bribery policies] and by setting milestones for delivery and review.” In addition, “[l]arger organisations” should develop strategies that indentify individuals responsible for the implementation of these policies within a specified time frame, providing training to employees, and identifying and seeking the assistance of external consultants.
Lastly, Principle 6 addresses the need for effective “monitoring and review mechanisms” capable of ensuring compliance with the company’s policies and identifying additional needs as the risk environment changes. For smaller companies, monitoring and review may involve financial and auditing controls and procedures to solicit and incorporate the views of employees and business partners. Larger companies may implement “bribery reporting and incident management procedures,” including periodic reporting to the board of directors, its audit committee or a similar body, which may make recommendations regarding the company’s anti-bribery policies in their annual report to shareholders.
In its draft guidance, the Ministry noted with respect to section 6 of the Act (prohibiting bribery of foreign public officials) that it must be shown that the alleged bribe “is not permitted or required . . . as determined by the written law applicable to the foreign official.” Thus, for example, “offset” arrangements, under which a commitment to make an additional future investment is required as part of a company’s project tender offer, “are unlikely to give rise to any difficulties under section 6 where such arrangements are subject to legislative or regulatory provision.” However, the Ministry cautioned that where local law is silent, there remains a risk of prosecution under the Act.
The Ministry also recognized that “reasonable and proportionate hospitality or promotional expenditure[s]” are “established and important” means of conducting business. Nonetheless, it warned that “the higher the expenditure and the more lavish the hospitality . . . the greater the inference that it is intended to influence the official to grant business or a business advantage.” Lastly, the Ministry commented that when considering whether to file charges, prosecutors must consider whether doing so would be in the public interest. “The more serious the offence, the more likely it is that a prosecution will be required.”
In its “consultation paper,” the Ministry cautioned that its principles, and the commentaries and explanations accompanying them, are not “prescriptive” or “one-size-fitsall.” Rather, “[t]hey are intended to be used as a flexible guide to deciding what procedures are right for an organisation.” Although the principles are subject to revision prior to the Ministry’s release of its final guidance in early 2011, they provide a useful framework for companies to identify and address potential internal control and compliance weaknesses prior to the Act’s entry into force.