On 8 April 2010, the Bribery Act became law. The Act will come into force in April 2011 and will radically transform the existing UK anti-corruption legislative framework. It will have far-reaching compliance consequences for many public and private organisations and its reach will even extend to the practices of sponsoring employers and trustees of pension schemes.
The Bribery Act introduces a very broad definition of bribery which considers the cause and effect of the bribe in question. In general terms, bribery offences are linked with inducing or rewarding a person with a financial or other advantage (or accepting such an inducement or reward) to perform a relevant activity or function “improperly”. No technical breach of legislation is required for the improper conduct test to be met, just that the person has failed to meet expectations regarding his behaviour where he is held in a position of trust or expected to act impartially or in good faith. In some cases, the person does not even have to know that what he is doing is “improper”.
Bribery offences may initially seem unlikely to apply to trustees of pension schemes, who are already bound by strict fiduciary duties to act in the best interests of scheme members and held to account by reams of regulation and the scrutiny of the Pensions Regulator. However, if trustees fail to meet the high expectations and duties placed on them, and it can be shown that they received a reward or inducement to act “improperly”, the Bribery Act may come into play. Given their potential vulnerability to allegations of bribery and the heavy penalties which can be imposed for breaching the Bribery Act – up to ten years in prison or an unlimited fine – trustees and employers should ensure that they have procedures in place to guard against and potentially defend bribery allegations.
In summary, relevant offences under the Act include:
- The active offence of bribing another person. Offering, promising or giving a financial or other advantage intending to induce another person to act improperly or reward him for doing so, or in the knowledge that the providing of the advantage would itself be improper.
- The passive offence of being bribed. Requesting, agreeing to receive, or accepting a financial or other advantage intending that a relevant function or activity should be performed “improperly”, or where the advantage is a reward for the improper performance. Alternatively, requesting, agreeing to or accepting the advantage, where that action itself constitutes the improper act. In the latter case, or where the advantage is a reward for the improper act, it does not matter whether the recipient knows that what he is doing is improper.
- Failure by a commercial organisation to prevent bribery. This is a new strict liability offence of a commercial organisation, which will occur when a person who performs services for or on behalf of that organisation (an ‘associated person’) commits the active offence of bribing another person and the bribe was intended to obtain or retain business, or a business advantage, for the commercial organisation. The commercial organisation will have a defence if it can show that it had adequate procedures in place to prevent its associated persons from committing bribery. Whilst “adequate procedures” is not defined in the Bribery Act, the Ministry of Justice provided draft guidance on the extent and meaning of such procedures in September 2010.
Implications for sponsoring employers and trustees of pension schemes
So what do these offences mean for those connected with pension schemes? As mentioned above, all pension scheme trustees are bound by strict fiduciary duties and rules regarding their behaviour and are therefore particularly vulnerable to allegations of improper conduct when things go wrong or their conduct falls short of the required standards. If the person has benefited from or has been promised a financial or other advantage connected with the possible wrongdoing then he may also be exposed to allegations of bribery.
Allegations under the Bribery Act may arise where a trustee has a conflict of interests. For example, a trustee may stand to gain financially (perhaps due to a bonus or other incentive from his employer) if the pension scheme enters into a particular course of action which may be of benefit to the employer but is not in members’ best interests. Conflicts of interests are not a new issue and trustees should already have procedures in place for managing such situations. The Pensions Regulator has also issued detailed guidance on this subject. However, the Bribery Act gives trustees and employers another incentive to review their conflicts of interest policies to ensure that they contain adequate measures to guard against bribery.
Trustees should also make sure that the procedures associated with awarding contracts and negotiating terms with third parties on behalf of the pension scheme are transparent and open. This is to demonstrate that the trustees have negotiated the best possible terms for the scheme and avoid allegations that they may have been induced to contract with those third parties as a result of benefits that they received personally. It may, for example, be appropriate to introduce a policy for disclosing incentives or hospitality offered to trustees by third party providers.
Bribery is not just a “trustee issue” – commercial organisations commit an offence if they fail to prevent bribery. This is a strict liability offence, which means that the organisations could be held liable for the actions of their “associated persons”, even if the organisation itself was not complicit in the wrongdoing. To guard against allegations of this offence, employers should have “adequate procedures” in place. This may, for example, include reviewing the inducements and benefits they or their associated persons offer trustees, particularly where those trustees are also employees of the organisation.
In conclusion, the Bribery Act should prompt trustees and employers to assess their policies and procedures and ensure that their conduct is transparent, open and beyond reproach. Doing this will help avoid, and potentially defend, serious allegations under the Bribery Act that trustees have been induced to act “improperly” as a result of incentives which fall foul of the Act.