The UK Bribery Act (the "Act"), born out of a perceived need by the UK government to comply with the Organizations for Economic Co-operation and Development's ("OECD") Convention Combating Bribery of Foreign Public Officials in International Business Transactions, will impact on the compliance and business strategies of UK companies operating around the world - especially in Asia.
On 8 April 2010, following considerable debate as to its contents, the Act received Royal Assent and is expected to be brought into force in stages from the summer of 2010. Similar to the United States' Foreign Corrupt Practices Act (the "FCPA"), the Act has material consequences for UK nationals and commercial organisations which operate there.
Consequently, those commercial organisations which also operate in jurisdictions which have widespread corruption issues, but who have not already started to ensure they understand their potential areas of risk, trained their employees and put systems in place to avoid breaching the provisions of the Act, need to do so quickly. No one will want to be the poster child for the first commercial organisation to be found guilty under the Act for bribery abroad.
This article looks at the provisions of the Act, the offences and defences relevant to commercial organisations and provides some commentary on them, including some comparisons with the FCPA.
Even for those who are familiar with the FCPA, there are important differences and in some respects the Act is stricter. Companies with existing FCPA compliance procedures should not assume their existing programmes are adequate, and will need to ensure they do not leave the door open to liability under the Act.
The following key points arise for businesses in Asia from the passing of the Act:
- it is extra-territorial and covers UK nationals, commercial organisations (including partnerships), and potentially their, their agents' and their subsidiaries' activities abroad;
- it covers foreign commercial organisations with business operations in the UK;
- there is a new specific offence relating to bribery of "foreign public officials";
- there is no de minimis exemption and, in contrast to the FCPA, there is no defence for "facilitating payments";
- the failure of commercial organisations to prevent bribery is a strict liability offence, for exAampripl l2e9,,a2c0o1m0 pany may be liable where an employee offers or gives a bribe without its knowledge;
- the only available defence for commercial organisations is that they had "adequate procedures" in place to prevent bribery occurring;
- senior officers of commercial organisations may also be found personally liable.
Provisions of the Act1
The Act contains four main categories:
- the general offence of bribing another person;
- the general offence of being bribed (together with (a), described as the "general bribery offences");
- the bribery of foreign public officials; and
- failure of commercial organisations to prevent bribery.
The maximum penalties for offences under the Act include 10 years' imprisonment and unlimited fines.
It should be noted that the bribery offences under the Act also apply to acts committed outside the UK if the person committing such offences at that time had a close connection with the UK, including among others:
- a British citizen;
- an individual ordinarily resident in the UK;
- a national of a UK overseas territory; and
- a body incorporated in the UK.
See also in respect of subsidiaries in the section on commercial organisations below.
The general bribery offences
As one would expect, the Act makes an offence the offering, giving and receiving of bribes with the intention, for example, to induce a person to perform a relevant function improperly or reward them for doing so. It uses an almost formulaic approach to building the constituent parts of the offence by reference to "Cases" and "Conditions".
Rather than using the undefined term of "corruptly" which appeared in the previous legislation, the Act breaks down the relevant conduct into concepts of "relevant functions or activities", "improper performance" and an "expectation test". These are discussed below in sequence as they appear in the Act.
There are some additional important points to note:
- the advantage (financial or otherwise) offered, given or received does not need to be offered or given to the person actually performing the relevant function or activity;
- the advantage may be offered or given directly or indirectly through a third party;
- given the inclusion of "offer", even where an attempted bribe ultimately was not accepted or paid, this could still give rise to anoffence.
What are "relevant functions or activities"?
The Act states a function or activity is relevant if:
- it is a function of a public nature; an activity connected with business; performed in the course of a person's employment; or performed by or on behalf of a body of persons (incorporated or unincorporated); and
- that a person performing the function or activity is expected to perform it in good faith, impartially, or is in a position of trust.
Further, a function or activity is relevant even if it has no connection to the UK and is performed outside of the UK.
What is "improper performance"?
Improper performance of a relevant function or activity occurs where the person performs it in breach of a "relevant expectation" and is to be treated as improperly performed if:
- there is a failure to perform the function or activity; and
- that failure is itself a breach of a relevant expectation, i.e. not in good faith; not impartially; or not in the manner in which or the reasons for which the function or activity arises from the relevant position of trust.
Anything that a person does (or fails to do) arising from or in connection with the person's past performance of a relevant function or activity is to be taken into account under the Act.
What is the test for "relevant expectation"?
This is an objective test of what a reasonable person in the UK would expect in relation to the performance of the type of function or activity concerned.
Importantly, where the performance of the relevant function or activity takes place outside of the UK, if there is no relevant written law of the UK, then any local custom or practice is to be disregarded unless it is permitted or required by the written law of the place of performance. Written law includes a constitution, legislation and case law.
Although unsurprising it is notable that the Act makes specific reference to the "reasonable person in the UK". Clearly this and the reference to exclusion of local customs and practice is aimed at differentiating between practices at home and abroad. Customs such as "lai see" (or red packets) and "tea money", which are often used as cover for bribes in Asia, are likely to be covered by the Act where the appropriate intent can be shown. Where there is no de minimis exemption, it will be interesting to see how the Courts deal with concepts and issues such as the giving of mooncakes at Chinese New Year which still cause concerns for foreign entities operating in China for example.
A key distinction between the FCPA and the Act, is the lack in the latter of any exemption for "facilitating payments". These are payments to facilitate or expedite performance of a "routine governmental action" which are legal in the jurisdiction of performance. The FCPA lists the following examples: obtaining permits, licenses, or other official documents; processing governmental papers, such as visas and work orders; providing police protection, mail pick-up and delivery; providing phone service, power and water supply, loading and unloading cargo, or protecting perishable products; and scheduling inspections associated with contract performance or transit of goods across country.
The lack of reference to such exempted payments has caused significant concern for businesses in the UK. Several attempts were made during the Bill process to add amendments dealing with them because of the perceived disadvantage it would put UK businesses to in jurisdictions where such payments are "routine". However, the Government took the view that, in essence, a small bribe was still a bribe and to allow such payments would run a coach and horses through the intention of the legislation. Instead it will be left to prosecuting authorities to decide whether such activities are to be actionable in each particular case. Having said that, many U.S. businesses have attempted to implement a zero tolerance policy given facilitating payments are in a grey area and can easily lead down a slippery slope.
Bribery of foreign public officials
Who is a "foreign public official"?
A "foreign public official" is defined in the Act as anyone in a foreign country (or territory) who:
- holds a legislative, administrative or judicial position of any kind (elected or appointed);
- can exercise a public function for or on behalf that country or for any public agency or enterprise of that country;
- is an official or agent of a public international organisation.
What constitutes an offence?
A person is guilty of an offence if he intends to obtain or retain business or an advantage in the conduct of business; and
- directly or indirectly offers, promises or gives any financial or other advantage;
- to a foreign public official, to another person at the foreign public official's request or with the foreign public official's assent or acquiescence; and
- the foreign public official is neither permitted nor required by written law applicable to the foreign public official to be influenced in that person's capacity as a foreign public official by the offer, promise or gift (this is further clarified to include any omission to exercise the foreign public official's functions or the use of his position as an official even if the particular matter is not within his authority).
The definition of "foreign official" under the FCPA is "…any officer or employee of a foreign government or any department, agency or instrumentality thereof…or any person acting in an official capacity for or on behalf of any such government, department, agency, or instrumentality…"
The above causes significant problems for companies covered by the FCPA operating in countries such as China, where huge numbers of people are employed by the State or State Owned Enterprises, including in sectors such as health and education. Whether the UK prosecuting authorities adopt as broad approach to the U.S. prosecuting authorities under the FCPA remains to be seen. However, it would be advisable for commercial organisations affected by the Act to err on the side of caution.
This potentially gives rise to the need for careful monitoring of the activities of a commercial organisation's entities, agents and employees in these countries (see further below), in particular relating to gifts and entertainment. For example, such an organisation will need to be aware of local daily practices, the different standards of living which exist between the UK and some jurisdictions, as well as the potential cumulative effect of multiple small gifts and entertainment events.
Liability of commercial organisations for failure to prevent bribery
What constitutes an offence?
A commercial organisation (which includes partnerships) will commit the offence of bribery if:
- a person associated with that commercial organisation;
- bribes another person intending to:
- obtain or retain business; or
- obtain or retain an advantage in the conduct of business for the commercial organisation.
The above is a strict liability offence which means that even though the commercial organisation is not directly at fault, it may still be guilty of an offence under the Act.
Who is an "associated person"?
A person is associated with a commercial organisation if that person performs services for or on behalf of the commercial organisation. This is to be decided from all the relevant circumstances and not merely by the nature of the relationship between the person and the commercial organisation.
Further, the capacity in which the person performs the services does not matter and the person may be the commercial organisation's employee, agent or subsidiary. In respect of an employee, there is a rebuttable presumption that the person performs services for or on behalf of the commercial organisation.
The Act does not expressly cover bribery committed by a subsidiary of a UK company in its own capacity. However, it can be foreseen, that in reality, contentious points will arise relating to the question as to whether a subsidiary was acting on behalf of a parent company. UK nationals working for such a subsidiary would be caught by the Act in any event. Local laws on corruption obviously would be relevant also.
Is there a defence?
The Act provides a specific defence for a commercial organisation if it had in place "adequate procedures" designed to prevent persons associated with the commercial organisation from undertaking the conduct in question. However, the defence will not be available if the offence was due to the fault of a senior officer within the company, such as a director, company secretary, or manager.
In fact, the Act extends the law to hold such senior officers individually liable if they conspired or consented to the commission of the bribery offence. Although bribery must first be established on the part of the commercial organisation before such senior officers can be held liable.
What are "adequate procedures"?
Again this was the subject of considerable debate and although guidance will be published by the Secretary of State, there is no definition in the Act of what is adequate. The Government (whether from the present party or new) has been repeatedly urged to provide practical assistance for companies prior to and following the implementation of the Act. It has also been suggested that an advisory service similar to the U.S. Department of Justice's referral procedure be adopted.
Business stakeholders in the UK have already been consulted and the process is ongoing to prepare the necessary guidance. A letter2 dated December 2009 between members of the House of Lords, included reference to some of the issues considered to be relevant such as board responsibility for the anti-corruption programme, appropriate compliance functions, codes of conduct, risk management, employment procedures, gifts and hospitality policies, training, due diligence, decision making processes, financial controls, supply chain management and reporting and investigation procedures. The letter also makes specific reference to publications by Transparency International3 and the Global Infrastructure Anti-Corruption Centre4.
This section of the Act gives rise to a strict liability offence for a commercial organisation in contrast to the "negligence" requirement that appeared in drafts of the Bill. Unlike the FCPA, there is no separate offence against relevant certain entities (such as U.S. listed companies) for failing to have adequate books and records. However, practically the strict liability nature of the offence means that every UK business should make sure that their internal policies, procedures and/or protocols could adequately prevent any of their personnel from engaging in bribery on behalf of the business. Not only that, the procedures and their implementation must be regularly tested and updated.
It is a defence if it could be proven that a commercial organisation did indeed have an adequate procedure at the time such offence was committed, but such procedure had only failed in that individual instance. If there are several breaches this could indicate a systemic problem and possibly neutralise the availability of the defence. Obviously, the guidance will be important for businesses but none of the issues likely to be raised (and mentioned in their Lordships' letter) should be unfamiliar, particularly to those companies already having to deal with FCPA compliance. However, the guidance will not provide a "tick box" approach. What is of the company and the resources available to it.
It will be interesting to see whether the UK prosecuting authorities adopt the recent apparent approach of their U.S. counterparts to use the threat of personal liability of individuals in aid of the prosecution of the commercial organisations. Additionally, given the strict liability nature of the offence, we wait to see whether self-reporting by commercial organisations and deals with the prosecuting authorities become common or the norm in an effort to minimise potential penalties.
Often it is much harder in practice to prove bribery took place rather than showing books and records were inadequate as is possible under the FCPA and time will tell how effective the provisions of the Act will be. However from the author's experience there is no shortage of disgruntled (former) employees, competitors, journalists and more recently authorities in Asia willing to whistleblow on corrupt activity undertaken (knowingly or otherwise) by Western companies, their agents and/or employees. Additionally co-operation between prosecuting authorities in different jurisdictions may mean some global companies are subject simultaneously or consecutively to investigation and sanctions locally, in the UK and/or the U.S. Therefore if UK commercial organisations are not already prepared they should take steps now to implement appropriate or enhance (and test) existing anticorruption measures.