The corporate community has become accustomed to the US authorities frequently investigating and prosecuting offences under the US Foreign Corrupt Practices Act (FCPA). Until recently, the same could not be said about investigations and prosecutions by the UK authorities. In part, the historic failure to investigate and prosecute corruption offences has been attributed to a lack of impetus by the Serious Fraud Office. However, to some extent, the lack of action has been a result of the antiquated and piecemeal nature of the UK law on bribery and corruption.
However, with the proposed enactment of the Bribery Bill (the Bill), with its wide-ranging changes and significant extra-territorial reach, one of the impediments to the bringing of successful prosecutions will be reduced.
The Bill is wider in scope than the FCPA in a number of respects. Below are some key points that all corporates should be aware of in relation to the Bill, which is expected to be enacted in the course of 2010.
The Bill creates a new strict liability offence for corporates and partnerships of failing to prevent bribery occurring within the organisation. The only defence is if the corporate had put in place “adequate procedures” designed to stop incidences of corruption.
The meaning of “adequate procedures” is not defined in the Bill; as with many issues, context is all. The standards that are expected of a small private company will not be the same as those expected of a large multi-national.
The Secretary of State is required to provide formal guidance on the extent and meaning of “adequate procedures”. However, this will not be prescriptive, and will not set out a fail-safe check list of requirements for corporates to implement. There is likely to be a focus on the “culture” of an organisation, and it will be expected that there is a “tone from the top” of zero tolerance to bribery and corruption, which is adopted at all levels within the organisation.
Extra territorial jurisdiction
The failure to prevent bribery offence applies to any corporate or partnership (wherever it is registered, incorporated or conducts its main activities) as long as it carries on a business, or part of a business, in the UK. It also applies to conduct that takes place outside of the UK. This means that, as long as it carries on business in the UK, a foreign company can commit the failure to implement “adequate procedures” offence in relation to conduct in a foreign country that is not connected with any business undertaken in the UK. The Bill’s extra territorial reach is broader that that of the FCPA.
Extra territoriality in matters relating to financial crime more generally will become increasingly common throughout the world as time passes. It is therefore imperative that corporates take local law advice in each jurisdiction in which they operate. Corporates should seek to apply, as a bench mark, the most stringent applicable standards. “FCPA compliance” alone will not be sufficient.
Corporate entities can be guilty of an offence of bribery under the Bill. They can also be guilty of a failure to prevent bribery offences if an “associated person” carries out an act of bribery on their behalf. Unlike under the FCPA, an “associated person” is not defined by reference to the nature of the relationship with, or control exercised over, the associated person.
In the Bill, an “associated person” is one which performs services on behalf of the principal. The definition of performing services is vague; the Bill states that it will be determined by reference to all the relevant circumstances. It is far from clear what level of supervision by the principal would be necessary to help satisfy the adequate procedures defence in a case based on the acts of a distributor, sub-contractor or joint venture. There is, and will continue to be, much debate on this subject.
What this means is that where a company has operations carried out by another individual or entity on its behalf, even in small part, particularly in difficult jurisdictions, it is important to ensure that the third party is aware of and commits itself to the anti-bribery policies of the principal, that it is made aware of a zero tolerance culture within the organisation, and that it is subject to appropriate due diligence and monitoring.
Private bribery and bribery of a foreign public official
UK law has, for over 100 years, outlawed bribery of private persons. The Bill continues to make such conduct illegal. The Bill also includes a separate offence of bribery of a Foreign Public Official.
A key element of the new bribery offences is that the intention of the briber is that the person being bribed improperly performs his/her duties. Improper performance is defined by reference to a failure to perform one’s duties in line with a relevant expectation. These relevant expectations are:
- that the function will be performed in good faith;
- that the function will be performed impartially; or
- that the function imports a position of trust.
Improper performance will arise if it is intended that, by paying the bribe, the recipient of the bribe would be expected to act otherwise than in good faith, an impartial manner or in accordance with a position of trust. Expectations are judged by UK, not local, standards.
Influencing a person to perform their duties improperly, for example by behaving partially, is a low threshold to meet, and would cover a wide range of scenarios (for example, inducing the recipient to breach his contract with a third party). This has been raised in the course of Parliamentary debate. The Government’s response has been to maintain that prosecutorial discretion would prevent “non-criminal” cases being prosecuted. Whilst this filtering system may work in practice, it does not give much comfort to corporates, and underscores the need to adopt a zero tolerance attitude to corrupt behaviour.
Foreign public officials
By contrast, bribery of an FPO does not need to include an intention that the FPO will improperly perform his duties, nor does the payment need to be made “corruptly” as required by the FCPA. The elements of this offence are:
- an intention to influence the FPO in his official capacity;
- an intention to obtain/retain business, or an advantage in the conduct of business; and
- the act is not permitted by local written law.
Like the FCPA, the Bill prohibits all corrupt payments, regardless of whether they are paid directly by the corporate, or on its behalf by a third party.
It is not just corporates who need to fear prosecution under the Bill. Individuals guilty of one of the principal offences are liable on conviction to imprisonment for up to 10 years, or to a fine, or to both. The Bill also penalises those senior officers of the corporate with whose “consent or connivance” the bribery was committed (although where the bribery takes place overseas, they must have a “close connection with the UK”). This could be committed by the passive acquiescence of a director, if in practice that amounted to consent to the bribery. In addition, failure to maintain “adequate procedures” could render directors vulnerable to civil claims.
The FCPA makes an exception for small facilitation, or “grease”, payments paid to officials to smooth relevant processes of official actions. The Bill makes no such exception; all payments, no matter how small or routine, or expected by local customs, would be illegal.
It is often commented that this is impractical; in some jurisdictions it is impossible to get business done without these types of payment. However, other organisations have commented that this state of affairs makes it easier to present a zero tolerance culture within their organisation. This provides for clearer policies and greater understanding amongst employees as to what constitutes compliance.
It is currently a point for debate whether a corporate convicted of a bribery offence, particularly the failure to implement adequate procedures offence, will be debarred from participating in future public contracts in light of the EU Public Procurement Directive. Although the answer is not yet certain, it is a serious potential risk that should not be discounted or under estimated, and is yet another reason to prepare fully for the Bill.