Following on from our e-bulletin regarding the announcement of the implementation date of the UK Bribery Act 2010 (see Herbert Smith e-bulletin dated 1 April 2011) we set out below a commentary on the final version of the adequate procedures guidance published by the Ministry of Justice ("MoJ") on 30 March 2011 (the "Guidance").

As noted in our previous e-bulletin, the corporate offence under the Bribery Act not only applies to UK incorporated companies but is also applicable to companies incorporated outside the UK that carry on business or any part of a business in the UK. Therefore, the Act is potentially applicable to many businesses operating in South East Asia.

The Director of the Serious Fraud Office and the Director of Public Prosecutions have also published guidance on prosecutions under the Act the "Prosecution Guidance"

The Bribery Act 2010 ("the Act") creates a new "strict liability" offence for companies and partnerships ("organisations"). The offence applies where a person providing services on their behalf commits either the active offence of bribery or bribery of a foreign public official (Section 1 and Section 6 of the Act), intending to either obtain or retain business or to obtain or retain an advantage in the conduct of business for that organisation.

The defence for the organisation will be to prove that it had "adequate procedures" designed to prevent the bribery. An organisation's policies and procedures will, in effect, be its only line of defence where its employees, agents or others pay bribes on its behalf.

There has therefore been significant concern in industry and commerce to ensure that the guidance produced by Government under Section 9 of the Act provides sufficient certainty as to what organisations need to do to ensure they have adequate procedures in place.


  • The Act will come into force on 1 July 2011.
  • The Guidance clarifies the jurisdictional reach of the Act and the scope of "associated persons".
  • A listing on the LSE or a UK subsidiary is not sufficient, per se, to bring foreign companies within the scope of the Act.
  • The Guidance does not operate to create carve outs from the Act.
  • Organisations may be liable for bribes paid by their employees, agents and contractors (providing those persons intend to benefit the organisation) but are unlikely to be liable for companies further down a supply chain.
  • The Guidance provides useful examples of what hospitality and promotional expenditure may be permitted as regards foreign public officials.
  • Companies' anti-bribery policies and procedures should be proportionate to the size of the organisation and the particular bribery risks they face.  

Key points

Nature and status of the guidance

  • The MoJ is at pains to stress that the Guidance is not prescriptive, not "one size fits all" and not exhaustive. The focus in the final form of the Guidance is much more risk based. Any departure from the Guidance will not therefore of itself give rise to a presumption that an organisation does not have adequate procedures.
  • The Prosecution Guidance confirms that Prosecutors must take account of the Guidance when considering the adequacy of organisations' procedures.
  • A separate "quick start guide" has also been published to provide a concise introduction for small businesses on how to comply with the Act.

Key changes to principles

  • The Guidance sets out a new Principle 1: Proportionate Procedures. Companies should carry out a risk assessment in order to determine the bribery risks that they face and should develop proportionate procedures in response to these risks. This is significant because the draft guidance had been criticised for being too inflexible and setting the bar too high.  
  • The principle relating to due diligence has been amended so as to limit its scope. The original draft guidance required an organisation to have due diligence policies to cover "all parties to a business relationship, including the organisation's supply chain, agents and intermediaries, all forms of joint venture and similar relationships…". This raised concern as to its potentially broad scope. The new due diligence principle makes clear that the requirement to undertake due diligence is limited to persons performing services and does not, for example, require an organisation to perform checks of its entire supply chain. Instead due diligence should concentrate on those performing services on a risk assessed basis.

Jurisdictional scope

  • The corporate offence of failing to prevent bribery also applies to companies, wherever incorporated, which conduct part of their business in the UK. Once that test is satisfied the Act then applies in relation to the company's non-UK business.

The Guidance provides some clarification on what should constitute carrying on part of a business in the UK noting, in particular, that the mere fact that a company's shares are traded on the London Stock Exchange should not, in itself, be enough to bring that company within the scope of the Act. Similarly, having a UK subsidiary will not, of itself, mean that a parent company is itself carrying on business in the UK.

However, the Guidance states that it will be for a Court to make the final judgement on this issue and companies will need to look carefully at what they do in the UK.

Associated Persons

  • The second concern about the Act's scope was in relation to the definition of "associated persons". A commercial organisation commits an offence if a person associated with it bribes another person intending to obtain or retain business or a business advantage for that organisation. An associated person is defined as someone who provides services for or on behalf of the commercial organisation.
  • Employees are presumed to be performing services for their employer but the broad scope of this definition can also encompass agents, subsidiaries, contractors and suppliers where they can be said to be performing a service rather than, for example, simply acting (in the case of a supplier) as the seller of goods.

The Guidance recognises this broad scope and notes that, where a supply chain involves several entities or a project involves a contractor and a number of sub-contractors, a commercial organisation is likely only to exercise control over its relationship with its own counterparty. The Guidance therefore suggests that the main way to manage bribery risk in such a situation is by requesting its counterparty to adopt a similar approach with the next party in the chain rather than expecting the commercial organisation to exercise due diligence on all parties in the chain, however remote.

Joint Ventures and subsidiaries

  • The Guidance also clarifies the position in relation to joint ventures. Simply being a member of a joint venture entity does not create an "association" with other joint venture parties and so a bribe paid on behalf of the joint venture entity by one of its employees will not trigger liability for the joint venture members simply because they benefit indirectly through their investment in the joint venture. A member will incur liability here if the joint venture entity is performing services for that member and the bribe was offered or paid with the intention of benefitting that member. The key focus will be on the intention: did the associated person intend to benefit the organisation?

Where a joint venture operates through a contractual arrangement (as opposed to a separate legal entity as described above), the level of control will be one of the circumstances that will be taken into account in deciding whether a person offering or paying a bribe on the joint venture's behalf was performing services for that participant. However, even in this situation the Guidance makes clear that it will be the intention to benefit the organisation that is relevant.

A parent entity will not be liable where a subsidiary pays a bribe just as a result of receiving dividend income from the subsidiary.

Other issues covered by the guidance

Foreign public officials

  • The offence of bribing a foreign public official (section 6) prohibits the offer or provision of a financial or other advantage to a foreign public official with the intention of influencing that official in the performance of his or her official functions. The Act does not seek to prohibit bona fide hospitality and promotional or other business expenditure which seeks to improve the image of a commercial organisation.

The offence will only be made out where there is evidence to show a connection between the advantage and the intention to influence the official and secure a business advantage. The circumstances which will be taken into account will include the type of advantage and therefore, the more lavish the hospitality or the higher the expenditure, the easier it may be to infer this connection. The provision of reasonable travel and accommodation expenses to allow foreign public officials to attend a site visit in the UK should be permissible.  

  • Section 6 offence also requires that the applicable written law neither permits nor requires the official to be influenced by the offer or promise of the gift. Examples of applicable written laws could include where local planning law permits community investment, or requires a foreign public official to minimise the cost of public procurement administration through cost sharing with a contractor (e.g. free training to officials).

Where local law is silent on whether an official is permitted or required to be influenced, prosecutors will consider the public interest in prosecuting. It is said that this will provide a backstop in circumstances where the evidence suggests that the offer of additional investment is a legitimate part of a tender exercise. Organisations will therefore need to consider carefully the provision of all advantages where the position under local law is unclear.

The key is to look at whether the advantage is intended to influence decision making by the public official through personally enriching the official or others at his request. Such activity is, according to the Guidance, in any event, very likely to involve conduct which amounts to improper performance of a relevant function or activity (as provided under the section 1 offence). Given the difficulties in securing evidence, however, the Guidance states that the Act would be deficient if a prosecutor only had section 1 available. This Guidance is helpful, given the broad drafting of the section 6 offence, but organisations will still need to be more prudent as regards their interactions with public officials to ensure that inferences cannot be drawn from conduct, even where there is no intention to influence improperly. The old adage "how would this be perceived by joe public" remains therefore a very useful test.

Directors' Prosecution Guidance

The Prosecution Guidance sets out the various public interest factors for and against a prosecution in respect of each of the offences as well as offering clarification on certain aspects of the Act.

Facilitation payments

  • The Prosecution Guidance confirms that the Government recognises the problems that organisations face in some parts of the world and in certain sectors and that the eradication of such payments is a long term objective.
  • The Prosecution Guidance confirms that there is no exemption from the Act in respect of facilitation payments and that a prosecution will usually take place unless the prosecutor is sure that the public interest factors tending against prosecution outweigh those tending in favour.
  • The public interest factors against a prosecution include circumstances in which there is a single small payment which is likely only to result in a nominal penalty; the payment came to light as a result of a genuinely proactive approach involving self reporting and remedial action; the organisation has a clear and appropriate policy setting out procedures an individual should follow if facilitation payments are requested and these have been correctly followed; or the payer was in a vulnerable position arising from the circumstances in which the payment was demanded. Factors in favour of prosecution include large or repeated payments, a suggestion of active corruption of the official, payments which are planned for or accepted as part of a standard way of conducting business (indicating that the offence may have been premeditated) and/or a failure to follow the organisation's procedures.

Hospitality and promotional expenditure

  • The Prosecution Guidance re-iterates that the Act does not seek to penalise legitimate hospitality and promotional expenditure but, the more lavish the hospitality, the greater the likelihood of an inference being drawn that, for example, it was intended to influence a foreign public official. This could be the case where the hospitality is not clearly connected with legitimate business activity or an attempt has been made to conceal the expenditure or activity.

What should organisations therefore be doing next?

Organisations should either put in place procedures which satisfy the six principles or do a "health-check" of existing procedures to ensure they are fit for purpose:

The Six Principles

The Six Principles, in full, are:  

  1. A commercial organisation's procedures to prevent bribery by persons associated with it are proportionate to the bribery risks it faces and to the nature, scale and complexity of the commercial organisation's activities. They are also clear, practical, accessible, effectively implemented and enforced.

The first step in developing adequate anti-bribery policies and procedures is to carry out a risk assessment. Procedures should then be developed which are a "practical and realistic" means of achieving the anti-bribery policy objectives. The Guidance provides an indicative but non-exhaustive list of the areas which policies may cover. It is recognised that it is difficult to apply procedures retrospectively to associated persons, and this should be done over time on a risk-based approach.  

  1. The top level management of a commercial organisation… are committed to preventing bribery by persons associated with it. They foster a culture within the organisation in which bribery is never acceptable.

Top-level commitment is likely to include the communication (both internally and externally) of the organisation's anti-bribery stance and an appropriate degree of involvement in developing anti-bribery procedures. In a small organisation, this may require top-level managers to be directly involved in developing and implementing polices and procedures and, in larger organisations, the board may be responsible for setting policies and delegating to management to operate and monitor these policies. Top-level management should be informed of any breaches of procedure and receive feedback on levels of compliance. Medium and large organisations need to give careful consideration as to how and what information needs to be reported back to them in order to monitor levels of compliance.  

  1. The commercial organisation assesses the nature and extent of its exposure to potential external and internal risks of bribery on its behalf by persons associated with it. The assessment is periodic, informed and documented.

There is some overlap between this principle and the requirement to carry out due diligence in Principle 4.

The risk assessment should be proportionate to the size and structure of the organisation and the nature, scale and location of its activities. It should include both external (e.g. jurisdictional, transaction and entity-related) and internal (e.g. risk arising from deficiencies in employee training, skills and knowledge or the organisation's remuneration policy) risks.  

  1. The commercial organisation applies due diligence procedures, taking a proportionate and risk based approach, in respect of persons who perform or will perform services for or on behalf of the organisation in order to mitigate identified bribery risks.

These procedures should be proportionate to the risk inherent in the particular relationship. Due diligence should not only include measures carried out prior to entering into a relationship but may also involve continued monitoring of associated persons with, in general, more information being required from incorporated entities than individuals.  

  1. The commercial organisation seeks to ensure that its bribery prevention policies and procedures are embedded and understood throughout the organisation through internal and external communication, including training that is proportionate to the risks it faces.

This principle is categorised as 'Communication', however it replaces the principle of effective implementation from the original draft guidance. The focus of this principle has moved from the means by which policies and procedures can be implemented to ensuring that policies are understood and applied by employees within the company through communication and training.

Communications should include both: (i) internal communications focusing on implementation of particular policies and procedures and the establishment of a means for employees and third parties to raise bribery concerns; and (ii) external communications such as a code of conduct provided to associated persons and, if appropriate and proportionate, to the general public.

Companies should consider whether to provide specific tailored training to employees in particular roles and whether it is appropriate to require associated persons to undergo training.  

  1. The commercial organisation monitors and reviews procedures designed to prevent bribery by persons associated with it and makes improvements where necessary.

This may include both regular monitoring of the effectiveness of bribery policies and procedures and periodic reviews in response to other stimuli such as governmental changes in relevant jurisdictions or incidents of bribery. External verification or assistance may be of assistance for higher risk and larger organisations.  


  • Commercial organisations now have until 1 July 2011 to ensure that their internal policies and procedures are "adequate" before the Act comes into force.
  • Organisations should therefore be reviewing their existing policies to ensure they are fit for purpose or alternatively putting in place such policies and procedures.