Extra-territorial in its application and aggressive and wide-ranging in its scope, the U.K. is introducing a new Bribery Act (the “Act”) designed to haul antiquated English law bribery and corruption offences into the modern era.
The new law represents a radical departure from prior practice, and as a result, presents significant challenges to corporations and individuals alike. The Act is being introduced against a background of increased international co-operation and almost unprecedented activity by U.K. regulatory authorities frustrated by the weakness of the existing legal regime. The Financial Services Authority (the “FSA”) has as one of its statutory objectives the obligation to prevent financial crime, a subject to which it has devoted considerable time and resources in recent years.
In a recent insurance industry example, Aon, the global insurance broker, was fined £5.25 million in 2009 for failing to take reasonable care to establish and maintain effective “systems and controls” to counter the risks of bribery and corruption associated with making US$7 million of payments to overseas firms.
Aon’s problems stemmed from the activities of a company it acquired. It is noteworthy, however, that Aon was fined not for breaches of a specific anti-bribery law, but for failing to maintain adequate systems and controls over its business, in breach of its obligations under the Financial Services and Markets Act 2000.
Regulatory intervention of this type creates the potential for double jeopardy for entities such as insurance companies, banks, investment houses and brokers — all regulated by the FSA — as they are exposed to regulatory action and penalties, as well as criminal sanction by prosecuting authorities enforcing the Act. Futher, and in contrast to the prosecution of offences under the Act, however, the FSA does not need to satisfy the criminal burden of proof of “beyond a reasonable doubt”.
Overview of the Act
The key features of the Act are:
- Its extra-territorial effect. It has serious implications not only for U.K. citizens and companies, but also for foreign companies, their employees and agents, joint venture partners and consortia which do business with, in or from the U.K.
- The introduction of a specific “Corporate Offence” of failing to prevent bribery. Strict liability applies to an organisation which fails to prevent bribery and corruption by those performing services on its behalf, including its employees, agents, business partners and even its subsidiaries.
- An obligation to put in place “adequate procedures” to prevent bribery. Such procedures are the only defence to the new Corporate Offence. Procedures already put in place to satisfy the U.S. Foreign Corrupt Practices Act (“FCPA”), for example, will not necessarily satisfy this requirement.
- Specific offences applicable to senior management of relevant organisations.
- A zero-tolerance approach to so-called “facilitation” payments and corporate hospitality. This contrasts with the exemption allowed by the FCPA. Payments made to speed up an administrative process or to encourage business will be caught and will be subject only to the discretion of the U.K. authorities as to whether to prosecute or not.
- Widened prosecution channels. The decision to prosecute the new offences will lie with a wider range of public officials than was previously the case: the Director of Public Prosecutions, the Director of the Serious Fraud Office or the Director of the Revenue and Customs Prosecutions Office.
What are the new offences under the Act?
The Act replaces the existing law with four related crimes — two “general” offences and two “discrete” offences — which criminalise the following activities:
- Bribing another person (Section 1)
This makes it an offence to offer, promise or give an advantage to another person with the intent to induce that person to perform, or to reward that person for performing, a function improperly.
- Being bribed (Section 2)
Any person who requests, agrees to receive or accept an advantage in exchange for, or as a reward for, improper performance commits the offence of being bribed.
- Bribery of foreign public officials (Section 6)
Wider in scope than a similar provision contained in the FCPA, this prohibits the bribery of foreign public officials, such as the holder of a legislative, administrative or judicial position of any kind, or someone who exercises a public function on behalf of a country, territory or public enterprise or is an official or agent of a public international organisation.
- Failure of commercial organisations to prevent bribery (Section 7) — the “Corporate Offence”
As discussed in more detail below, when a person commits one of the preceding offences under the new Corporate Offence his organisation is also guilty unless, by way of defence, it can prove that it had “adequate procedures” in place to prevent bribery.
Violations are punishable by up to 10 years in prison and unlimited fines.
The Corporate Offence
The Corporate Offence of failing to prevent bribery has attracted considerable adverse comment. When it was debated in Parliament as Clause 7 of the Bribery Bill, Lord Goshart said:
“ Clause 7 is a very important clause. Perhaps the most important in the Bill. This is because it is extremely difficult under the present law to prosecute a company for a failure to prevent bribery carried out on its behalf. Clause 7 will require all corporations conducting business to treat bribery as a serious issue and compel them to set up proper systems to prevent bribery on their behalf.” (Our emphasis).
The offence can only be committed by a “relevant commercial organisation” — an umbrella term encompassing companies and partnerships wherever formed or incorporated, which carry on business or part of a business, trade or profession in any part of the U.K.
The offence is committed by the organisation when a person — an employee, agent or third party or other organisation — performs services on the organisation’s behalf with the intention of obtaining or retaining business or a business advantage for that organisation.
The wording is broadly drawn so as to criminalise the payment of bribes by intermediaries. As it is a strict liability offence, an organisation may be liable even if it did not know of or sanction the act of bribery.
Again, the Corporate Offence is broadly drawn, with extra-territorial application, and applies potentially to the following entities:
- companies and partnerships established under the law of any part of the U.K.
- foreign companies, foreign subsidiaries of U.K. companies and foreign companies with no U.K. parent may each be liable as long as they carry on business or “part of a business” in the U.K. No explanation has been given as to what constitutes “part of a business”, but it is highly probable that it will apply to the U.K. branch of a U.S. or other foreign company.
- an overseas employee, agent or a foreign subsidiary of a U.K. company may also cause its U.K. parent company to become liable under the Act where the foreign subsidiary commits an act of bribery whilst performing services for the U.K. parent. In contrast, a foreign subsidiary acting entirely of its own account would not make the U.K. parent liable, as it would not then be performing services for its U.K. parent. The U.K. parent could, nonetheless, be liable for money laundering in the U.K. as bribes or profits derived from business secured through a bribe may constitute the proceeds of crime. Similarly, where the accounts of the subsidiary are consolidated with those of the parent, the parent could be liable for false accounting offences.
The Defence of “Adequate Procedures”
As noted above, companies are required under the Act to introduce and maintain adequate procedures to prevent corruption.
Leaving aside the apparent contradiction between an offence of bribery already having occurred and the contention that there were “adequate procedures” in place to prevent it, the defence is not entire. In particular, it is not available to an organisation if a “senior officer” of the business, or a person purporting to act as such, was negligent in failing to prevent the bribe.
A “Consultation on Guidance” document dealing with what constitutes “adequate procedures” was published by the U.K. Ministry of Justice on 14 September 2010. It indicates that the final Guidance, when published, is unlikely to be detailed but will focus instead on a generic set of principles to be followed by relevant organisations.
In the interim, the Guidance sets out six broad management principles to help commercial organisations decide what bribery prevention procedures they can put in place. Whilst the six principles are intended to reflect U.K. and international good practice and should be generally applicable, they are also intended to be used as a flexible guide to deciding what procedures are right for each organisation.
Offences by Senior Officers
When an offence under the Act is committed with the consent or connivance (“turning a blind eye”) of a senior officer of the organisation (or by a person purporting to be one), the officer is guilty of the same offence. Any member of senior management may commit this offence as long as they have a “close connection” to the U.K., whether by nationality, citizenship or residence, for example.
Facilitation payments and corporate hospitality
In contrast to the FCPA, which creates an exception to the usual rules on bribery by allowing payments to facilitate “routine governmental action”, the Act adopts a zero-tolerance approach and provides no specific defences or exceptions to permit facilitation payments or corporate hospitality.
In the debate on the Bribery Bill, a Government spokesman noted that:
“ …many UK businesses still struggle with petty corruption in some markets but the answer is to face the challenge head on rather than carve out exemptions that draw artificial distinctions, are difficult to enforce and have the potential to be abused. Providing exemptions for facilitation payments, as the US does, is not a universally accepted practice and is not something that we consider acceptable.”
However, whilst technically illegal it does not follow that every facilitation payment will be prosecuted. It is part of a prosecutor’s duty, when deciding to prosecute, to consider not only whether there is a realistic prospect of a successful conviction, but also whether it is in the public interest to prosecute.
Consequently, businesses and individuals making facilitation payments will have to rely upon prosecutorial discretion not to prosecute. Dissatisfied with the uncertainty created by these discretionary powers, leading companies in the U.K. are currently seeking clarification and greater certainty from the U.K. authorities.
Prosecutorial discretion also has to be relied upon to avoid prosecution in respect of corporate hospitality and promotional expenditure. This has also caused concern, as the general offences can be committed without the wrongdoer even realising that what he or she was doing was illegal.
If the promotional expenditure involves foreign public officials, it does not require any form of actual impropriety for the offence to be triggered.
The U.K. Government’s final word on the “adequate procedures” which must be put in place in order to establish the defence to the Corporate Offence is awaited with interest. It is, however, reasonably clear that it will involve more than a compliance tick-box exercise. Only an ingrained and documented anti-bribery and corruption culture is likely to suffice.
In its report on “Anti-bribery and Corruption in Commercial Insurance Broking” published in May 2010, the FSA identified a broad range of activities as relevant to establishing systems and controls necessary to combat bribery and corruption:
- governance and management information
- pro-active risk assessment and responses to significant anti-bribery and corruption events
- due diligence on business partners
- payment controls
- staff recruitment and vetting
- training and awareness
- risk arising from remuneration structures
- incident reporting and
- the role of compliance and internal audit.
It therefore seems clear that any anti-bribery programme should encompass each of these elements as a minimum for incorporation into the organisation’s internal procedures manual. The introduction of the Act adds a further layer of complexity to the in-house procedures that must be adopted by organisations based in the U.K. and elsewhere, alongside the procedures already required under anti-money laundering, and trading sanctions compliance procedures, as well as applicable overseas legislation such as the FCPA.
The full text of the Bribery Act 2010 can be accessed from the U.K. Ministry of Justice’s website (http://www.legislation.gov.uk/ukpga/2010/23/contents).