The Ministry of Justice ("MoJ") today published its long-awaited guidance on the Bribery Act 2010 (the "Act") and confirmed that the Act will come into force on 1 July 2011.
The guidance offers comfort in a number of key areas which have been the subject of extensive debate and speculation over the past months. This includes:
- the extent of acceptable corporate hospitality;
- the meaning of "associated persons", including the application of the Act to subsidiaries and joint ventures;
- the jurisdictional scope of the Act, including the extent to which foreign parents will be subject to the Act simply by virtue of having a UK subsidiary; and
- the meaning of "adequate procedures" for the purposes of the new strict liability corporate offence.
Throughout the guidance, the MoJ emphasises that compliance is "largely about common sense, not burdensome procedures". Whilst this, and the related emphasis on proportionality, will offer reassurance to corporates seeking to comply with the legislation, the MoJ also acknowledges that many of these issues are fact-sensitive and will ultimately need to be tested by the courts.
In the meantime, businesses now have three months to review their policies and procedures and to ensure that they meet the standard being set by this new legislation.
The guidance makes clear that the Act is not intended to prohibit businesses from taking clients or customers to Wimbledon, the Grand Prix or Twickenham. These are just three of the specific examples given to illustrate that the Act does not prohibit "bona fide hospitality and promotional, or other business expenditure which seeks to improve the image of a commercial organisation, better to present products and services, or establish cordial relations."
The guidance still cautions that even "established norms" in some sectors may be "extravagant" and at risk of being perceived as intended to have a "direct impact on decision making". Nevertheless, the guidance offers considerable reassurance for those concerned about the impact of the Act on routine corporate hospitality.
The Act introduces a new strict liability criminal offence whereby corporates can be automatically liable for bribes paid by their "associated persons", which the Act defines as persons who "perform services" for the corporate or on its behalf. In a reversal of the ordinary burden of proof, the corporate can only avoid conviction if it can show that it had "adequate procedures" in place to prevent bribery. In other words, the corporate is given the opportunity to demonstrate that any improper conduct was an isolated incident rather than an institutional failure.
The MoJ's guidance recognises that the definition of "associated person" is intended to be broad, so as to embrace the full range of persons connected to an organisation which might be capable of committing bribery on its behalf. Nevertheless, the corporate will only be liable where the "associated person" acted with an intention to obtain or retain business (or a business advantage) for the corporate. This is emphasised as an important limiting factor.
Significantly, the MoJ states that parent companies will not automatically be liable for the acts of their subsidiaries on the basis that they ultimately benefit from those acts (e.g. in the form of dividends). Similarly, a joint venture company will not necessarily be "associated with" any of its members. In a clarification of the previous draft guidance, the MoJ also acknowledges that a mere supplier of goods is unlikely even to come within the scope of "associated person".
The new corporate offence applies to any entity incorporated in the UK or which "carries on a business or part of a business in the UK". Significantly, where that test is satisfied, the Act will apply to the worldwide acts of the company (and its "associated persons") irrespective of whether the conduct in question has any connection to the UK.
The guidance sets out the MoJ's view that the mere fact that a foreign corporate:
- has securities listed in the UK; or
- has a subsidiary in the UK
will not necessarily mean that the corporate itself will be subject to the Act. This is inevitably a fact-sensitive issue, which ultimately requires an examination of all of the corporate's ties to the UK (and, if appropriate, the relationship with any local subsidiary). Nevertheless, this clarification from the MoJ will offer some reassurance to foreign parents and issuers.
The guidance reaffirms that even small bribes paid to facilitate routine government actions, or so-called "facilitation payments", are prohibited under the Act (as they are under the existing law). Nevertheless, the guidance recognises the challenges faced by businesses operating in certain jurisdictions and offers some practical guidance for combating facilitation payments. The additional guidance published today by the Director of the Serious Fraud Office and the Director of Public Prosecutions, who share responsibility for the prosecution of corruption offences, also makes clear that prosecution will be much more likely where there is a repeated pattern of facilitation payments which are simply accepted as part and parcel of doing business. In other words, some credit will be given to those who are at least doing their best to avoid having to make such payments.
As was the case in the MoJ's consultation paper published in September 2010, the guidance on "adequate procedures" takes the form of six principles that are intended to guide corporates in deciding what bribery prevention measures to put in place. These principles have now been re-ordered and are supplemented with much improved case studies.
The principles are:
- Proportionate procedures
Although policy documents will be important, "procedures" extend further to the steps that an organisation takes to implement its policies and to embed an "anti-bribery culture.
- Top level commitment
A zero tolerance "tone from the top" must be clearly articulated both internally and externally and, in large multi-nationals, the Board must assume responsibility for setting bribery prevention policies.
- Risk assessment
Corporates should periodically review the bribery risks associated with their market, the countries in which they operate and the third parties with whom they interact. Risks may also be posed by internal structures or policies, which may require corporates to address matters such as whether bonuses encourage excessive risk taking.
- Due diligence
Businesses should take steps to understand who they are doing business with.
- Effective implementation
Policies need to be put into practice in all areas of the business, from recruitment to training.
- Monitoring and review
Auditing and financial controls should be put in place, and the company's procedures should be regularly reviewed, including externally, if appropriate.
This long-awaited guidance will offer reassurance for corporates grappling with the scope and impact of the Act. Nevertheless, corporates will still need to look carefully at the particular risks posed by their business operations and business partners and ensure that they implement appropriate, and tailored, procedures before the Act comes into force on 1 July 2011.