The UK Bribery Act 2010 came into force on 1 July 2011, creating for businesses operating in the UK the most stringent and far reaching anti-bribery legal regime in the world. In particular, it imposed strict criminal liability on corporates that fail to prevent bribery. On the other hand, UK companies may be able to avoid prosecution by being invited to agree a "Deferred Prosecution Agreement" (DPA) with the Serious Fraud Office (SFO). A DPA requires civil court approval which will only be provided if the company can demonstrate that it has, amongst other things, provided the SFO with full co-operation in relation to the matter.
No equivalent legislation currently exists in the Czech Republic. Instead, anti-bribery laws are fragmented among various statutes, namely the Criminal Code, the Criminal Proceedings Code and, more recently, the Act on Criminal Liability of Corporates effective from 1 January 2012.
Even though the concept of criminal liability of legal entities has been introduced, it is not yet effectively enforced by Czech courts and prosecutors. The sanctions imposed by courts currently are only a small fraction of what was hoped for under the new act. Nevertheless, the number of prosecuted and convicted legal entities rises every year, so the situation is slowly, but constantly improving, especially when comparing the Czech Republic with other CEE countries.
Equally, bribery of individuals, especially public officials, has become a widely discussed topic in recent years. After an era of post-communist "wild privatisation", represented by high levels of corruption and strong ties between public prosecutors and the political leadership, judges and prosecutors are no longer afraid to open high-profile cases targeting top political representatives.
Notable bribery-related cases include the Pandur case, whose key player is influential lobbyist Marek Dalík, as well as former Minister of Health David Rath and his CZK 7 million bribe, which was stashed in a wine crate.
In this article, Thomas Webb of Burges Salmon and Jitka Logesova of Kinstellar compare the UK and the Czech Republic's anti-corruption regimes.
1. What are the offences?
In the UK, the Bribery Act 2010 sets out four offences: three "general" offences and one "corporate" offence.
The general offences
The first two general offences are:
(a) Offering, promising or giving a bribe (Section 1); and
(b) Requesting, receiving or accepting a bribe (Section 2).
The underlying principle of these offences is that a financial or other advantage must be offered or provided to, or requested or received by, a recipient in order to induce that recipient to perform his or her duties improperly.
Key points to note are that:
(a) It does not matter whether the provider or recipient is in the private or public sector, as the offences apply equally to both sectors.
(b) The advantage provided to the recipient need not be purely financial (e.g. cash in an envelope or lavish corporate hospitality); it may be something more subtle (e.g. promoting an employee who is the son or daughter of a potential customer's CEO beyond that employee's ability, in order to obtain orders from that customer).
(c) The concept of "impropriety" is key. Importantly, whether the recipient of the advantage has acted improperly is judged in accordance with an objective "reasonable person in the UK" test. Consequently, the local customs or practices of overseas countries, including routine bribery, are irrelevant and will provide no defence.
(d) Similarly, there is no exception for "facilitation" or "grease" payments. These are illegal under the Act.
The third "general" offence is bribing a foreign public official (Section 6), and it is a discrete offence. There must be an intention to influence the official's performance and to obtain a business advantage in doing so. In all likelihood, commission of this offence will also constitute the commission of the Section 1 offence of giving or offering a bribe.
The "Corporate Offence" (Section 7)
This is the offence that has caused the most controversy amongst businesses operating in the UK. This is because the offence is one of strict liability i.e. the corporate can be criminally liable even if it and its senior management had no knowledge of the wrongdoing.
Here, a commercial organisation (any business with all or part of its operations in the UK) will be guilty of the corporate offence if any of its associated persons (e.g. employees, agents, sub-contractors, etc.) give bribes to others in order to obtain or retain business or an advantage in the conduct of business for the commercial organisation.
There is no requirement that the commercial organisation knew or actively participated in the bribes. The only defence available to the organisation is to prove that it had in place "adequate procedures" designed to prevent its associated persons from giving bribes. The Ministry of Justice has published guidance on what "adequate procedures" means in practice: https://www.gov.uk/government/publications/bribery-act-2010-guidance.
Under Czech law, a bribe is defined as an unjust benefit consisting of direct material enrichment or other advantage provided to the bribed person, or to another person with the bribed person's consent, to which they are otherwise not entitled. Three different crimes of corruption are recognised:
(a) Passive bribery: a person commits the crime of passive bribery if he/she requests or accepts, either by themselves or through another person, a bribe (or the promise of a bribe) for themselves or for another person, in connection with (i) an activity of public interest, or (ii) a business.
(b) Active bribery: a person commits the crime of active bribery if he/she provides, offers or promises a bribe to another person in relation to (i) an activity of public interest, or (ii) a business.
(c) Indirect bribery: a person also commits the crime of indirect bribery if he/she requests or accepts a bribe in return for using his/her influence or the influence of a third party to influence the performance of the public powers of a public official. A person who provides, promises or offers a bribe for this purpose also commits indirect bribery.
Bribery of foreign public officials is punishable in the same manner as bribery of domestic public officials, although there is no special criminal offence for it in the Criminal Code. Instead, in order to conform to the OECD Convention, the lawmakers decided to extend the definition of a public official in relation to bribery offences so that it now also covers persons who have a position in a legislative, judicial or other public authority of a foreign country, persons who act or are employed in an international judicial authority or in an international or supranational organisation and also persons who act in the capacity of a legal person in which the Czech Republic or a foreign country has a decisive influence.
Regarding corporate criminal liability, the Czech legal framework does not include "corporate offence". The legislators have chosen a different approach: the Corporate Criminal Liability Act applies to all crimes listed in the Criminal Code unless it is specifically excluded (Section 7 of the Act).
The list of excluded crimes comprises mainly crimes that by their nature can be committed only by an individual (e.g. assault). This means, that a legal entity may be prosecuted and convicted both for active and passive bribery as defined in the Criminal Code.
2. Who can commit such offenses?
The general offences can be committed by individuals and also corporate bodies where sufficiently senior persons in the corporate (i.e. those constituting its "directing mind and will”) actively participated in the bribery.
Where a corporate or partnership is found guilty of one of the general offences, senior officers will also be guilty of the offence if they "consented or connived" during the offense.
A corporate offence can only be committed by a "commercial organisation". This is defined as any corporate body or partnership which carries on a business, or part of a business, in the UK. Therefore, overseas companies and partnerships that have operations in the UK can be caught by the Act.
Both offences can be committed by individuals as well as by legal entities.
Under the Corporate Criminal Liability Act, a corporate can be criminally liable for acts committed in its interest, or in the course of its activities, if the act was committed by:
(a) the executive body (or a member of that body);
(b) any other person in a managerial position authorised to act on behalf of the corporate;
(c) a person performing managing or supervisory activity in the company (e.g. a member of the supervisory board or certain managing employees);
(d) a person or entity exercising a decisive influence over the management of the corporate entity (e.g. a majority shareholder); or
(e) an employee while carrying out tasks, or a person in a similar position (while the law is not clear on what persons this category includes, we are of the view that it could include certain individual agents or subcontractors).
A corporate will be liable for crimes committed by persons stated in (e) only if:
(f) the employee or a person in a similar position was acting on the basis of a decision, an approval or an order of a person stated in (a) to (d) above; or
(g) persons stated in (a) to (d) above did not implement measures to prevent the crime.
3. Who enforces the laws?
The Serious Fraud Office (SFO) is the UK’s lead agency in bribery and anti-corruption. It is separate from the government and, uniquely, both investigates and prosecutes cases under the Bribery Act 2010. The SFO will often work alongside the National Crime Agency and individual police forces.
The SFO actively enforces the Act. There have been four very high-profile cases in recent years:
(a) Sweett Group (2015).
Sweett Group PLC is the first company to be convicted under the "corporate offence".
One of Sweett's subsidiaries won a contract with an insurance company to manage the construction of a hotel in the UAE. The subsidiary subcontracted hospitality services to another company, NPM. Payments were made to NPM, but no material services were received.
It became apparent that the hospitality contract in question was in effect a sham and that NPM was a vehicle for paying a bribe to NPM's ultimate owner, an officer of the insurance company who had decision-making power over the award of the construction contract.
Sweett was not eligible for a Deferred Prosecution Agreement (a DPA – dealt with below), primarily because it only self-reported to the SFO once the Wall Street Journal proposed publishing an article exposing the bribe.
Sweett was fined £1.4million, £850,000 in disgorgements, and £95,000 in prosecution costs.
(b) Standard Bank (2016)
Standard Bank (a UK-regulated bank) and its sister company, Stanbic Bank Tanzania, pitched for a joint contract from the Government of Tanzania, who wanted to issue sovereign notes to raise funds.
The fee for the work was 2.4% of whatever the Government raised. However, two senior officers in Stanbic arranged (without Standard Bank's knowledge) for 1% of that fee to go to a local company, EGMA. Again, no material services were provided by EGMA. And, again, the ultimate owner of the company was a high-ranking member of the Tanzanian Government with decision-making power over the award of the contract.
Standard Bank and Stanbic won the pitch and raised USD 600 million for the Government. Stanbic paid 1% to EGMA, whose owner withdrew it in cash. This event set off a number of risk-related flags that made their way back to Standard Bank, who promptly self-reported to the SFO. In accordance with a DPA, Standard Bank was fined USD 16.8 million (after a 33% discount), disgorged USD 8.4 million in profits, compensated the Tanzanian government for USD 6 million, and paid the SFO's costs.
(c) XYZ Ltd (2016)
The real name of the company has been anonymised because the individuals involved are still under investigation.
XYZ's US parent company conducted a large internal review after a new global compliance programme was implemented in 2011. When XYZ conducted the review, they found evidence of systematic bribery being used to secure contracts in foreign jurisdictions. Bribery had been used to procure 28 out of 74 contracts. When XYZ discovered this, lawyers were instructed within a week, and a self-report made less than a month later. In accordance with a DPA, XYZ was fined £352,000 (after a 50% discount) and disgorged profits of £6.2 million.
(d) Rolls-Royce (2017)
This represents the largest corporate criminal fine in UK history. Over a 24-year period, the Rolls-Royce group paid bribes, utilising a number of intermediaries, in order to secure lucrative engine and technology supply contracts in seven different jurisdictions. Rolls-Royce's wrongdoing included multiple counts of:
(i) conspiracy to corrupt, namely by using intermediaries to pay bribes in order to obtain contracts in Indonesia, Thailand, India and Russia
(ii) the "corporate offence", namely by failing to prevent intermediaries from paying bribes in order to obtain contracts in Indonesia, Nigeria, China and Malaysia.
The previous senior management had been aware of the conduct in 2010, two years before the investigation started, but they had not notified the SFO. The SFO first became aware of concerns from allegations posted on the internet. They contacted Rolls-Royce, who then provided full co-operation.
Despite failing to self-report to the SFO, Rolls-Royce was permitted to enter into a DPA, principally because of its "extraordinary" co-operation following the SFO's involvement. Under the DPA, Rolls-Royce was fined £239 million (after a 50% discount), disgorged profits of £258 million, and paid fines of USD 170 million in the USA and USD 25 million in Brazil. They paid the SFO's £13 million costs as well as incurring well over £100 million of their own.
There is currently no specialised prosecution branch in the Czech Republic focused on corruption-related crimes. Therefore, "general" public prosecutors are responsible for the prosecution of both individuals and corporates.
Nevertheless, there is a police branch which specialises in investigating organised and financial crime: the National Centre Against Organised Crime. This new body was created by merging two special police offices: the Anti-Corruption Office and the Office for Fighting Organised Crime. Given the recent adoption of the Corporate Criminal Liability Act, and the fact that the branch tasked with its enforcement is relatively new, there are to date relatively few successful convictions of corporates for corruption-related crime.
Prosecution of individuals for bribery is still common in the Czech Republic. A famous recent case is the so-called Pandur case. As mentioned above, Marek Dalík is an influential Czech lobbyist with strong ties to the government at that time. In November 2003, the Czech government decided to buy 240 armoured vehicles, and in 2006, an Austrian company, Steyr, was chosen in the tender. The number of vehicles required changed to 200 and the price was negotiated to CZK 23.6 billion.
However, after the media reported that the vehicles had failed military tests, the government began to back out of the deal. This is when Dalík offered to persuade the government to proceed with the deal as planned in exchange for approximately CZK 500 million from Steyr’s management.
Ten years after the deal, Dalík was finally charged with bribery, but the appellate court was of the opinion that he did not have enough influence to prevent the government from rejecting the deal. Eventually, he was found guilty of attempted fraud and sentenced to five years in prison.
4. What are the penalties?
Imprisonment and fines
Individuals found guilty of the general offences may be subject to unlimited fines and up to 10-year custodial sentences. Commercial organisations may also be subject to unlimited fines. Moreover, the court has the power to order confiscation, prohibitions preventing or restricting activities, and debarment from competing for public procurement contracts.
Deferred Prosecution Agreements
As shown in three of the four cases above, an organisation may be able to avoid a criminal conviction by entering into a deferred prosecution agreement (DPA). A DPA is a civil agreement between the SFO and an organisation (DPAs are not currently available to individuals) which is approved by the Court. The agreement effectively suspends the prosecution pending the organisation's compliance with the conditions contained in it. Such conditions typically include the payment of a discounted fine (typically between 33%-50%), disgorging profits, implementing compliance improvements and undergoing external monitoring for a fixed period of time, for example three or five years.
The SFO has made it clear that an organisation will only be potentially eligible for a DPA if it reports the wrongdoing as soon as it has been identified and provides full co-operation thereafter.
Imprisonment and fines
Individuals found guilty of offering, promising or giving a bribe may be subject to a fine or up to six years' imprisonment. In cases of requesting, receiving or accepting a bribe, the sanctions are even more stringent – a fine or up to 12 years' imprisonment.
The Corporate Criminal Liability Act recognises a broader scale of sanctions. The Act provides for:
(a) dissolution of the company;
(b) forfeiture of all of its property;
(c) fine (up to CZK 1,460,000,000 (approx. EUR 56,000,000));
(d) forfeiture or seizure of assets;
(e) prohibition of certain activities;
(f) prohibition from taking part in public procurement, concession proceedings or competitive bidding;
(g) prohibition from receiving grants or subsidies; and
(h) publication of the judgment.
Czech criminal law does not recognise DPAs. The only legal instrument incorporated in the Criminal Procedure Code is a plea bargain agreement, which can be entered into between a prosecution authority and a legal entity. However, unlike DPAs, a final conviction is still imposed on guilty legal entities, with the obvious potential detrimental impact upon its business activities and reputation.
5. Where can they be committed?
The Act has extra-territorial effect. The general offences can be committed in the UK. They can also be committed abroad if by a person with a "close connection" to the UK (e.g., a UK citizen, resident, or company etc.). Therefore, UK individuals and organisations "carry" the Act with them anywhere they are in the world.
The corporate offence can also be committed by an overseas entity or partnership as long as it carries on a business, or part of a business, in the UK. The "associated persons" giving the bribes can be situated anywhere in the world.
General territorial provisions of the Criminal Code and of the Corporate Criminal Liability Act apply. As regards individuals, general criminal law jurisdictional principles apply, i.e. territorial principle, active/passive personality principle, universal jurisdiction and subsidiary universal jurisdiction.
The Corporate Criminal Liability Act applies to corporates which:
(a) have their registered office in the Czech Republic;
(b) have a business or branch in the Czech Republic;
(c) carry out activities in the Czech Republic; or
(d) have assets in the Czech Republic.
6. How do we avoid committing offences?
In order for an organisation operating a business in the UK to avoid the corporate offence of failure to prevent bribery, it has to demonstrate that it has "adequate procedures" in place to prevent acts of bribery by its associated persons.
There is no one-size-fits-all approach to designing and implementing adequate procedures. The Ministry of Justice has published a guidance on what such procedures will mean in practice. In summary, a business will need:
(a) Proportionate Procedures: Clear, practical and accessible procedures should be proportionate to the bribery risks that the organisation faces and to the nature, scale and complexity of the organisation's activities.
(b) Top-level Commitment: The top-level management (i.e. directors and shareholders) should foster a culture that does not tolerate bribery within the organisation.
(c) Risk Assessment: The organisation should periodically assess the nature and extent of its exposure to both internal and external risks of bribery.
(d) Due Diligence: Proportionate and risk-based due diligence procedures should be carried out in order to mitigate identified bribery risks.
(e) Communication (including training): Policies and procedures should be embedded and understood through communication and training.
(f) Monitoring and review: The organisation should monitor and review its procedures and make improvements wherever and whenever necessary.
A corporate can discharge itself from criminal liability if it has implemented all necessary measures that could be reasonably required in order to prevent the crime (the "compliance defence").
Similarly to the UK, it is unclear what "reasonably required measures" really means and how the courts will interpret this relatively vague definition. Unfortunately, the Czech Ministry of Justice has not provided any related guidance. Therefore the only hint so far as to what we can expect from the courts is the Supreme Public Prosecutor's Office Guidance, which provides limited practical assistance.
The Guidance provides brief information about the standard compliance measures, such as an anti-corruption programme, regular training of staff, and internal guidelines. It also provides guidance as to how prosecutors will assess such compliance programmes, with a focus on the firm's culture and employee engagement in practice, not just on paper.
However, both the courts' and the Ministry of Justice's view remains unclear.