As explained in our Law-Now yesterday, the Ministry of Justice has published its guidance for corporates on putting in place “adequate procedures” to prevent bribery, as required under the Bribery Act 2010 (the “Guidance”). This follows a consultation last year (see our Law-Now), and the Government’s announcement that the implementation of the Act would be delayed until three months after the Guidance is published (see our Law-Now), to give corporates time to consider its implications and take any further steps required to design and implement compliance programmes.

The Directors of the Serious Fraud Office (“SFO”) and Department for Public Prosecutions (“DPP”) have also published joint guidance on prosecutorial decision-making under the Act (the “Prosecution Guidance”) to coincide with the Guidance here.

The Bribery Act 2010 (the “Act”) will now come into force on 1 July 2011.

The Guidance is a more pragmatic, common-sense and clearer set of pointers as to the steps businesses should take to prepare for the Act, than the draft published last year. Most interesting are the parts where the Government seeks to re-interpret the Act to sound less onerous, offering views on corporate hospitality, facilitation payments and when a foreign corporate will be caught by the Act. It is unclear what weight the courts will give to this, given the Act only requires the Government to publish guidance on procedures. These views also highlight a tension between the Government and the SFO as to how the Act should be interpreted and enforced.

To view the Guidance, click here, and to view the executive summary “Quick Start Guide”, click here.

The Guidance is split into two sections: (1) the Government’s intended interpretation of, and policy regarding, certain key elements of the Act; and (2) the statutory guidance on steps corporates can take to put in place adequate procedures, organised under six key principles.

The broad thrust of the Guidance is to reassure the business community that the Act is not about to change the world. Normal and legitimate business practices will not suddenly be outlawed, the corporate hospitality industry will not be killed-off and UK-listed foreign corporates will not automatically be subject to our criminal laws.

By including a detailed section on policy and interpretation in these areas, the Government has gone beyond what was required under the Act and has sought to provide general guidance on the more controversial aspects of the legislation, something the previous Government who enacted the legislation had been unwilling to do. But as a result, the different parts of the Guidance may not be given equal weight. For example, the Prosecution Guidance differentiates between the two sections of the Guidance – while prosecutors “must” take the Guidance into account when considering whether a corporate has a defence to the corporate offence, they are not required to do so in respect of the Government’s explanation of its policy and intention, although they “may find this helpful”.

The Act – Government Policy and Intention

While noting that it will be for the courts to interpret the Act, the Government sets out how it intends the Act should apply and illustrates this with examples that try to respond to the criticisms levelled at the legislation.

“Relevant commercial Organisation”

One particular area of uncertainty is when a foreign corporate with some presence in the UK will be a “relevant commercial organisation” for the purpose of the corporate offence. The Government advocates “a common sense approach” so that “organisations that do not have a demonstrable presence in the United Kingdom would not be caught”. It would not expect, therefore, the mere fact of a company’s securities being traded on the London Stock Exchange as being sufficient to qualify that entity as “carrying on a business” in the UK.

This is indicates a difference of view between the Government and the SFO. Both the Director and General Counsel of the SFO have recently indicated that they consider a UK listing would suffice for these purposes and that it was difficult to understand how a company could list in the UK and not, in some way, be carrying on business there. The Director of the SFO advises companies not to rely on an overly-technical interpretation to escape being caught by the Act.

This is an important difference of view. Part of the SFO’s justification for taking an aggressive approach to interpreting and policing the Act, particularly in analysing when a foreign corporate is “a relevant commercial organisation”, was that it enabled the SFO to ensure there was a level playing field in anti-corruption enforcement. The SFO expect the courts to give the Act the widest possible interpretation. Time will tell whether the SFO will be willing to test this view in the face of the Guidance.

The Government also considers that “having a UK subsidiary will not, in itself, mean that a [foreign] parent company is carrying on a business in the UK, since a subsidiary may act independently of its parent or other group companies.” This approach is consistent with normal corporate law principles. However, it does suggest that the manner in which corporate groups structure themselves – through branches, subsidiaries or other corporate arrangements – may affect whether they are caught by the Bribery Act. Again, the SFO have indicated that they may take a more aggressive approach to jurisdiction.

“Associated Person”

An “associated person” is a person who performs services for a corporate and can make the corporate automatically liable for their corrupt acts. The Guidance notes that this creates a very broad scope for the corporate offence. However, that scope is not unlimited. For example, the Guidance notes that a supplier of goods (without services) will not be an associated person under the Act. The Guidance also helpfully explains the Government’s view on supply chain transactions in this context – a particular concern in the insurance broking industry where back-to-back broking arrangements are very common: “Where a supply chain involves several entities or a project is to be performed by a prime contractor with a series of sub-contractors, an organisation is likely only to exercise control over its relationship with its contractual counterparty”. Bribery risk can be mitigated by the principal employing appropriate procedures with respect to his counterparty and this can include asking that counterparty to adopt appropriate procedures with the next party in the chain.

Joint Ventures

The Guidance differentiates between joint ventures conducted through a legal entity and contractual joint ventures and notes: “a bribe paid by the joint venture entity may lead to liability for a member of the joint venture if the joint venture is performing services for the member and the bribe is paid with the intention of benefiting that member” – a joint venture entity is not automatically presumed to be associated with its members in the way that an employee is presumed to be associated with his employer.

Similarly, a “bribe paid on behalf of the joint venture entity by one of its employees or agents will…not trigger liability for members of the joint venture simply by virtue of them benefiting indirectly from the bribe through their investment in or ownership of the joint venture.”

However, an agent employed by a participant in a contractual joint venture (i.e. where there is no separate JV entity) will likely be regarded as a person associated only with the participant “in the absence of evidence that the agent is acting on behalf of the contractual joint venture as a whole”.

The person performing the services for the joint venture who commits a bribe must also intend to obtain or retain business or a business advantage for the joint venture – “Without proof of the required intention, liability will not accrue through simple corporate ownership or investment, or through payment of dividends or provisions of loans by a subsidiary to its parent.”

In the same way, bribes paid by an employee or agent of a subsidiary company will not, according to the Guidance, automatically trigger liability on the part of the parent company or other subsidiaries within the group, even if those entities retain some indirect benefit from the bribe (such as through the payment of a dividend), unless the employee or agent intended to obtain or retain business for the parent or those other subsidiaries.

However, what the Guidance does not mention is that, in those circumstances, entities retaining some form of indirect benefit from a bribe (such as a dividend) could become liable for money laundering offences under the Proceeds of Crime Act if they were aware (or merely suspected) that the dividend represented, at least in part, the profits obtained from the bribe.

Corporate hospitality

Corporate hospitality is not outlawed by the Act; bona fide hospitality and promotional expenditure is permitted, provided that it is proportionate and reasonable relative to the type of business being conducted.

Responding to calls from the business community to provide clearer guidance on permitted levels of corporate hospitality, the Guidance includes some reassuring illustrative examples. For example, “…an invitation to foreign clients to attend a Six Nations match at Twickenham as part of a public relations exercise designed to cement good relations and enhance knowledge in the organisation’s field is extremely unlikely… to be evidence of an intention to induce improper performance of a relevant function.” In his Foreword to the Guidance, Kenneth Clarke goes further, saying that corporates can “Rest assured – no one wants to stop firms getting to know their clients by taking them to events like Wimbledon or the Grand Prix”.

The Guidance recognises that whether hospitality given to a foreign public official amounts to an improper inducement, might have to be inferred from all the circumstances: “the more lavish the hospitality... then, generally the greater the inference that it is intended to influence the official to grant business or a business advantage in return.” Nevertheless, bribes can also be based on “relatively modest expenditure”. Therefore, while consideration of what is normal or expected in a particular sector or country is relevant in assessing whether the hospitality falls the wrong side of the line, it is not conclusive, particularly if those norms are extravagant.

Like the Guidance, the Prosecution Guidance is very clear that hospitality which is “reasonable, proportionate and made in good faith” will not be penalised. However, if the hospitality had no clear connection with legitimate business activity or had been concealed in some way, this would increase the likelihood of an inference that it was a bribe. Transparency will be key.

Much of this is common-sense and to be welcomed. However, occasionally the illustrations are particularly broad. In one example, a foreign public official and his partners are flown to New York, provided with accommodation and given reasonable hospitality “such as fine dining and attendance at a baseball match” by a UK company. New York is apparently chosen as the venue for the meeting because it is the most genuinely convenient place for the parties to meet (the company’s operations in the UK being inconvenient). According to the Guidance, this arrangement would be “unlikely” in itself “to raise the necessary inferences”.

One of the criticisms levelled at the Act by commentators is that its provisions are so onerous that it puts UK businesses at a competitive disadvantage as against foreign competitors. Critics have cited the lack of exceptions or defences for facilitation payments and corporate hospitality and noted that even the US Foreign Corrupt Practices Act (“FCPA”) allows for these. However, the exceptions provided by the FCPA are very narrow. The Government’s interpretation in the above example, if accepted by the Courts, would put very clear water between the UK and the more aggressive approach taken by US prosecutors as to what amounts to legitimate business expenditure. If UK businesses were looking for a more pragmatic approach, this Guidance certainly delivers.

Facilitation Payments

Facilitation payments are illegal under the current law and will continue to be illegal under the Act. However, the Guidance accepts that it will not always be in the public interest to prosecute and refers to the Prosecution Guidance.

The Prosecution Guidance looks more closely at the public interest factors in favour of or against prosecution of facilitation payments where there is sufficient evidence to prosecute. The Prosecution Guidance advises that if there are large or repeated payments, they are planned for or accepted as a standard practice, or the corporate policy regarding facilitation payments has not been followed, this would suggest that a prosecution should be brought. On the other hand, if the wrongdoing was a single, small payment which came to light due to a genuinely proactive approach involving self-reporting and remedial action, the corporate’s policy was followed even though the payment was ultimately made and/or the payer was under duress in making the payment, these would be factors tending against prosecution. In other words, where it can be shown that reasonable steps were taken to try to avoid paying facilitation payments and they were not simply accepted as part of doing business, a prosecution is less likely to be in the public interest.

One of the case studies attached to the Guidance also looks at this issue and suggests a range of practical steps that businesses may take when faced, for example, with a demand by foreign customs officials to pay “inspection fees” on the import of goods. These include: questioning the legitimacy of the demands; requesting receipts and identification details of the official making the demand; asking to speak with more senior officials; trying to avoid paying “inspection fees” in cash and directly to the official demanding them; informing the official demanding those payments that this may involve the company committing an offence under UK law; and informing the official that it will be necessary to report his/her demands to the UK embassy.

The Six Principles – Statutory Guidance

Like the draft guidance published in September last year (the “Draft Guidance”), the Guidance is based around six principles for bribery prevention, which are not prescriptive and not intended to be “one size-fits-all” (the “Six Principles”).

The Six Principles, as summarised in the Quick Start Guide, are:

  1. Proportionate Procedures – “The action you take should be proportionate to the risks you face and the size of your business”.
  2. Top-level commitment – “Those at the top of an organisation are in the best position to ensure their organisation conducts business without bribery”.
  3. Risk Assessment – “Think about the bribery risks you might face. For example, do some research into the markets you operate in and the people you do business with…”
  4. .Due diligence – “Knowing exactly who you are dealing with can help to protect your organisation from taking on people who might be less than trustworthy”.
  5. Communication (including training) – “Communicating your policies and procedures to staff and to others who will perform services for you…”.
  6. Monitoring and review – “The risks you face and the effectiveness of your procedures may change over time”.

The Six Principles have been repackaged and re-badged and adopt a less forceful tone, down-playing what corporates will be expected to do. The key emphasis is on “Proportionality”. This principle encapsulates and summarises all of the others.

In terms of implementing adequate procedures, there is also particular emphasis on “Communication”, with a focus on training: “like all procedures training should be proportionate to risk but some training is likely to be effective in firmly establishing an anti-bribery culture whatever the level of risk”. The Guidance suggests that general training could be made mandatory for new employees or for agents (on a weighted risk basis) as part of an induction programme. In any event, training will need to be specifically tailored to address “specific risks associated with specific posts.” Different formats of training may be used in this regard, including e-learning and other web-based tools.

Case Studies

The appended case studies are expressly not part of the Guidance, so their status is unclear. Nevertheless, they provide the most practical examples as to what putting adequate procedures in place really involves, covering all the key areas (such as corporate hospitality, charitable donations, joint ventures and facilitation payments). Instead of providing high-level, generic questions (the approach taken in the draft guidance – literally asking more questions than they answered), the case studies provide a more focussed list of matters that organisations may wish to consider in the context of each scenario.

The case studies focus more on small and medium-sized entities than multi-national corporates; the inference being that the larger multi-nationals would likely be expected to do more than the Case Studies suggest. That said, the case studies show that the lengths to which the business should go in order to develop appropriate procedures depend more on the level of risk a business faces than its size.

Comment

The Guidance, as finally published, is clearer, more pragmatic and more business friendly than its previous incarnation. It reflects a more commercial and commonsense compromise between the need for robust anti-corruption laws and the need for clear and practical guidance for businesses to understand how to stay on the right side of the law. Many of the concerns raised about the Act may now be allayed. The Government has clearly listened and responded to the fears of the business community, particularly in respect of corporate hospitality, facilitation payments and jurisdiction.

However, its apparent softening of approach exposes tensions between the Government and the SFO, particularly in the context of foreign corporates and when they will be “relevant commercial organisations” subject to the corporate offence. Added to that, doubts remain as to what effect the courts will give to the Guidance, particularly those parts that are not required by the statute.

The SFO is currently facing tough times in terms of funding, defections and the threat to its very existence. Therefore, there is a question mark over whether it will be able to enforce the Act as aggressively as its Director would like. Without the resources required to empower the SFO to enforce the Act, as well as changes to the criminal procedure to enable it to pursue and close down prosecutions more effectively, the impact of the Act in terms of convictions may be quite limited. Whether that will be the result of poor resourcing of the SFO or good corporate cultures permeating throughout UK businesses, is an interesting question for the future.

In the meantime, we now have the Guidance and we know when the Act will come into force. Those corporates that have not already done so should waste no time in assessing their bribery risks and instigating proportionate procedures.