The extraterritorial reach of the new UK Bribery Act (the “Act”) signals an aggressive new approach in combating bribery and corruption. Even companies that benchmark their antibribery and corruption standards with the requirements of the US Foreign Corrupt Practices Act 1977 (“FCPA”) would be well advised to review their procedures, as the UK legislation is broader in scope than the FCPA.
The new UK law applies to both public and private sector corruption and introduces a new corporate offence of “failing to prevent bribery”. The new corporate offence of failing to prevent bribery applies not just to companies incorporated in the UK but also those with business interests in the UK, thus allowing enforcement action to be pursued against foreign companies. In addition, the new Act substantially increases both financial and imprisonment penalties for offences.
The Bribery Act 2010, which will come into force, in stages, within the next five months, creates:
- offences of bribing another person — where a person (directly or through a third party) offers, promises or gives a financial or other advantage to another person (i) with the intention to induce or to reward another person for performing improperly a relevant function or activity; or (ii) knowing or believing that the acceptance of the advantage would constitute an improper performance of a relevant function or activity. It does not matter whether the person given the bribe will perform the function or activity concerned themselves or arrange for someone else to do so.
- offences relating to being bribed — where a person requests, agrees to receive or accepts a financial or other advantage with the intention or as a reward for a function or activity to be improperly performed (whether it is improperly performed by the recipient or by another party) or where the request, agreement or acceptance itself constitutes an improper performance of a relevant function or activity. Again, it does not matter whether the recipient of the bribe receives it directly or through a third party, or whether it is for the recipient’s benefit or not.
- an offence of bribery of a foreign public official — where a person directly or through a third party offers, promises or gives any financial or other advantage to a foreign public official with the intention to influence them and to obtain or retain business or an advantage in the conduct of business. The offence does not require any intention to bribe.
- a corporate offence of failing to prevent bribery — a commercial organisation may be guilty of an offence where a person associated with the organisation bribes another person with the intention of obtaining or retaining business for the organisation or to obtain or retain an advantage in the conduct of business for the organisation. A person “associated with the organisation” may include employees, agents, subcontractors, distributors, outsourcing companies, joint venture partners and employees of a subsidiary company. Liability is strictly subject to the due diligence defence.
For the first three offences the new legislation increases penalties to 10 years (increased from the current seven years) imprisonment and the new corporate offence is punishable by an unlimited fine.
As noted above, the Bribery Act has international reach. For the first three types of offences set out above either the person offering the bribe or the recipient of the bribe must have a “close connection” with the UK — so a British citizen or corporation or an even an individual ordinarily resident in the UK would be caught — or the act or omission forming part of the offense must have taken place in the UK.
The global reach of the Act is even greater in respect of the corporate offence, which catches not just companies incorporated in the UK but also those with business interests in the UK. The Act provides that any company, “wherever incorporated,” that “carries on a business, or part of a business, in any part of the United Kingdom” faces strict criminal liability for failing to prevent an “associated person” from paying a bribe for the benefit of the company.
Due Diligence Defence
The corporate offence of failing to prevent bribery is a strict offence and thus prosecutors do not have to show there was a directing mind; that is to say, there is no need for knowledge by any senior official or any negligence. The only defence is the “due diligence” defence: a company must be able to demonstrate it had in place adequate procedures designed to prevent bribery. If a senior officer has consented or connived to commit the offence, not only would that individual be guilty of an offence but the company may not be able to use the defence.
What procedures are adequate will be set out in guidance to be issued by government. Although the “failure to prevent” offence will not be binding until after guidance has been published, organisations should already be starting to put in place stringent antibribery initiatives. Management boards must face the challenge of mitigating risks by introducing procedures for preventing bribery, training staff and monitoring compliance. A proactive approach will be key to utilising the defence if a company is faced with the offence.
The corporate offence relates to a person “associated with the organisation,” which is defined as a person that performs services for an organisation and so includes not just employees but may extend to agents, subcontractors, distributors, outsourcing companies, joint venture partners and employees of a subsidiary company. Due diligence in relation to “associates,” especially third parties or joint venture partners, will inevitably increase. A higher level of due diligence will mean an increased burden of costs and administration and sometimes may mean companies walk away from associations with third parties that fail to pass due diligence checks, despite the commercial advantages of working with them. Nevertheless, such an approach will mitigate the risks of committing the offence and will assist in demonstrating robust practices if a company ever has to rely on the due diligence defence.
Promotional activity is an inevitable part of doing business, but, unlike the FCPA, the UK legislation does not include exclusion for “facilitation”. Though the UK government’s response to concerns is that discretion and common sense will prevail with a “reasonableness test” being applied, businesses will need to consider carefully policies on the provision of gifts, hospitality, lobbying and political contributions. In any event US companies, accustomed to the exclusion in the FCPA, may need to reconsider if the UK law may apply to their activities.
Whilst the Bribery Act provides robust enforcement tools, regulatory bodies such as the Serious Fraud Office and the Financial Services Authority will still retain the option to seek civil remedies and the attendant advantages of reducing complex investigation, negating the need for a criminal trial and requiring the company in question to make a substantial payout.
Finally, companies should have an eye to the reputational damage caused by high-profile allegations of bribery and corruption. In this global business environment the views of shareholders and contracting parties with exacting procurement procedures may have a significant impact on the bottom line of companies that are not seen to play by the rules.