Implications for the insurance sector

 The Bribery Act 2010 (“the Act”) came into force on 1 July 2011. It applies to all companies incorporated in the UK, their employees, agents, contractors and subsidiaries performing services, (whether in the UK or abroad). The new laws make it easier to investigate and prosecute offences relating to bribing, being bribed and failing to prevent bribery. The penalties are harsh – substantial fines and up to 10 years imprisonment, or both for individuals.

The offences

The scope of the Act widens the previous anti-corruption and bribery legal framework. There are four categories of offences:

  • offering, promising or giving a bribe (section 1);
  • requesting, agreeing to receive or accepting a bribe (section 2);
  • bribing a public official (section 6); and
  • a commercial organisation failing to prevent a bribe being paid (section 7 – the “corporate offence”).

Corporate entertainment and gifts

There has been much hype about the extent to which the Act clamps down on corporate hospitality. To the contrary, when Justice Secretary Kenneth Clarke presented a guide to the Act in March 2011 (the “Guidance”), he stated that a "common sense" approach should be adopted that is “reasonable and proportionate”.

The Guidance explains that hospitality, promotional and other business expenditure to establish and foster good relations is a recognised part of doing business. That said, companies will need to put in place and adhere to a policy setting out "adequate procedures" to account for corporate entertainment and gifts.

"Corporate offence" and "associated persons".

A corporate offence under Section 7 can be committed by an act of bribery of an associated person anywhere in the world. For example:

  • if an employee of a (re)insurance company, or an agent, bribes a public official to procure an insurance contract abroad and the official is convicted of having received a bribe, then the (re)insurance company (and its directories) face liability under the Act, subject to the “adequate procedures” defence;
  • UK placement brokers may not always know the true nature of business dealings between producing brokers abroad and the local insured, thereby putting themselves at risk of prosecution under the Act;
  • a joint venture company situated in a country where it might be acceptable to “facilitate” business arrangements with financial payments to individuals will by so doing commit a corporate offence under the Act; and
  • (re)insurers could fall foul of the Act where an act of bribery is committed by an employee or agent retained to carry out legal, loss adjusting or claims handling services.

"Adequate procedures" in the insurance sector

Evidence of an organisation having “adequate procedures” in place to prevent bribery is a defence to the corporate offence under Section 7. The Guidance sets out six principles to assist organisations to put in place appropriate compliance procedures. It is important that:

  • international organisations adopt greater controls over employees and agents; and
  • (re)insurers and brokers review all contracts regarding exclusions for bribery and corruption..

D&O policies

The Act provides greater potential liabilities for directors and officers, demonstrating the need for company executives to take out D&O insurance. An increased demand may give rise to increased D&O policy premiums. Again, it is an opportune time for insurers to check, at the very least, the insured’s operations and in particular its “adequate procedures” to counter any claim under the Act.