On March 30, 2011, the United Kingdom’s Ministry of Justice issued Guidance on the Bribery Act of 2010 (the “Bribery Act”), setting the stage for the statute to take effect on July 1, 2011. This alert is intended to provide corporate clients with an understanding of the Bribery Act in light of the new Guidance.
The primary purpose of the Ministry of Justice Guidance is to elaborate on what the government considers to be “adequate procedures” implemented by companies to prevent people associated with them from making bribes – which is a defense to liability under this section of the Bribery Act. The Ministry of Justice Guidance recommends that companies structure anti-corruption compliance procedures around the following six principles:1
- Top-Level Commitment
- Risk Assessment
- Due Diligence
- Monitoring and Review
The Bribery Act and the New Guidance
The main provisions of the Bribery Act are discussed here, along with related portions of the new Guidance from the Ministry of Justice. The Guidance attempts to address the concerns expressed by business groups that the Act would prohibit several common business activities.
The following sections of the Bribery Act contain anti-corruption provisions:
- Section One prohibits making bribes to any person.
- Section Two prohibits receiving bribes.
- Section Six prohibits bribing foreign officials.
- Section Seven imposes criminal liability upon companies that fail to prevent bribery by persons associated with them (i.e., employees, agents and subsidiaries).
Section One prohibits offering, promising and giving money or “other advantage” to a person to induce the person to “improperly perform” a “relevant function or activity” or reward the person for that improper performance. This section prohibits both commercial bribery and bribery of government officials. “Improper performance” involves doing or failing to do something in breach of good faith, or something that violates a position of trust. “Relevant function or activity” includes public functions, business activities, activities performed within the course of a person’s employment and activities performed on behalf of a company.
Section Two applies to the recipient of the bribe. It prohibits receiving, requesting and agreeing to accept a bribe or reward intending to improperly perform a relevant function or activity. It usually does not matter whether the bribe/reward is requested or accepted through an agent, or whether the advantage is for the benefit of the recipient or another person.
Section Six prohibits bribery of foreign officials (including employees of state-owned enterprises and international organizations) with the intent to influence the official in order to obtain or retain business or an advantage in the conduct of business. It covers payments made directly or indirectly through a third party. The Act prohibits payments not only for acts within the scope of an official’s job, but also for inducing the official to influence other governmental functions not within his authority. There is a narrow exception where the payments are expressly permitted or required by the written laws of a country.
Violations of Sections One, Two and Six can be prosecuted in the U.K. where (1) acts or omissions related to bribes occur in the U.K., or (2) the acts occur elsewhere but the person committing the act has a “close connection” to the U.K. The phrase “close connection” includes U.K. citizens, residents and corporations.
Section Seven makes it a crime for a company to fail to prevent persons “associated with” the company (i.e., employees, agents and subsidiaries) and acting for or on its behalf from making bribes to obtain or retain business or a business advantage for the company. In effect, this provision imposes criminal liability on a company for the illicit conduct of third parties, such as agents and consultants. However, this section provides a defense if the company has “adequate procedures” in place to prevent the unlawful conduct. Accordingly, the adoption and implementation of an effective anti-corruption compliance program will provide a defense to potential liability under this section. Violations under this section also have broader extraterritorial application; it applies to foreign companies that “carry on a business, or any part of a business” within the U.K.
Particular Areas of Concern
The Ministry of Justice Guidance sought to bring greater clarity to and provide some examples regarding the application and scope of Section 7. The Guidance asserts a common sense approach in evaluating whether conduct comes within the jurisdiction of this Section – whether a foreign company may “carry on a business or part of a business” in the U.K. The Guidance states:
[t]he Government anticipates that applying a common sense approach would mean that organizations that do not have a demonstrable business presence in the United Kingdom would not expect, for example, the mere fact that a company’s securities have been admitted to the U.K. Listing Authority’s Official List and therefore admitted to trading on the London Stock Exchange, in itself, to qualify that company as carrying on a business or part of a business in the U.K. .... Likewise, having a U.K. subsidiary will not, in itself, mean that a parent company is carrying on a business in the U.K., since a subsidiary may act independently of its parent or other group companies.2
A person is “associated with” a company if that person performs services for or on behalf of the company. The Guidance notes that an evaluation of whether a person or entity is an “associated person” for purposes of determining liability “is to be determined by reference to all the relevant circumstances and not merely by reference to the nature of the relationship between that person and the organization.”3 The Guidance explains that contractors could be associated persons, but suggests that is less likely to be true of other subcontractors with which the company has little contact and over which the company has little control.
The Guidance indicates that suppliers that are simply acting as the seller of goods are unlikely to be treated as “associated persons.”4 Suppliers are “very unlikely” to actually perform services on a company’s behalf, and “[i]t is very unlikely, therefore, that you will need to consider doing due diligence on persons further down a supply chain.”5
The Guidance states that “the existence of a joint venture entity will not itself mean that it is associated with any of its members.”6 It explains that liability will not be triggered for joint venture members “simply by virtue of them benefiting indirectly from the bribe through their investment in or ownership of the joint venture.” In deciding whether a person making a bribe acted on behalf of a joint venture participant, the Guidance instructs that the “relevant circumstances” to consider include “the degree of control that a participant has over that arrangement.”
Hospitality, Promotional and Other Business Expenditures
The Guidance also seeks to bring some clarity to companies that provide business entertainment to customers or prospective customers. It distinguishes between “bona fide hospitality and promotional or other business expenditure which seeks to improve the image of a commercial organization, better to present products and services, or establish cordial relations” and expenditures that are intended to secure business or a business advantage by influencing an official in his or her official role.7 The Guidance explains, for example, that inviting foreign clients “to attend a Six Nations match at Twickinham as part of a public relations exercise ... is extremely unlikely ... to be evidence of an intention to induce improper performance of a relevant function.”8 The Guidance explains that an intent to influence is more likely to be inferred as the lavishness of the hospitality increases.9
The Guidance clarifies that a company “can continue to provide tickets to sporting events, take clients to dinner, offer gifts to clients as a reflection of [its] good relations, or pay for reasonable travel expenses in order to demonstrate [its] goods and services if that is reasonable and proportionate for [its] business.”10
Six Principles for Adequate Compliance Procedures
The Ministry of Justice Guidance provides Six Principles on which companies should model anti-corruption compliance policies and procedures in order to qualify for the “adequate procedures” defense under Section Seven of the Act. The Six Principles – summarized below – are:
- Top-Level Commitment
- Risk Assessment
- Due Diligence
- Monitoring and Review
The degree to which businesses need extensive written policies – or policies at all – addressing the six principles will vary greatly according to the size, complexity and risk areas present in a particular business operation.11 The anti-corruption policies and procedures a company adopts should be proportionate to the risks that it must deal with. For example, the Guidance contrasts a small organization, where oral briefings to communicate policies may be appropriate, with large, complex, multinational corporations that will need to adopt written policies and procedures.
The Guidance recommends adopting policies and procedures that demonstrate the company’s commitment to bribery prevention, establish a corporate anti-bribery culture, and set forth procedures to mitigate specific bribery risks.
The Guidance discusses procedures aimed at ensuring that top management officials foster “a culture of integrity where bribery is unacceptable.” It provides suggestions for effective internal and external communication of a company’s commitment to “zero tolerance” for bribery, along with common elements for top-level management involvement in bribery prevention.
The Guidance categorizes commonly encountered risks into five categories: Country, Sectoral (including “extractive industries and the large scale infrastructure sector”), Transactional, Business Opportunity, and Business Partnership risks. The Guidance suggests basic characteristics for procedures to identify and prioritize those risks, including top-level management oversight of a risk assessment, appropriate resourcing and due diligence inquiries. It points out that a company’s risks evolve over time, and recommends that companies ensure that their risk assessments do so as well.
The Guidance encourages companies “to put in place due diligence procedures that adequately inform the application of proportionate measures designed to prevent persons associated with them from bribing on their behalf,” and explains that “the level of due diligence ... will vary enormously depending on the risks arising from the particular relationship” with third parties. The Guidance calls particular attention to mergers, acquisitions and situations “where local law or convention dictates the use of local agents in circumstances where it may be difficult for a commercial organization to extricate itself from a business relationship once established.” It explains that high-risk situations might require direct questions posed to the third party, direct investigations, research, and continued appraisal and monitoring.
The Guidance discusses internal and external communications designed to ensure that anti-corruption policies and procedures are understood throughout the organization. Internal communications, including training, should focus on policies that address particular risks, such as decision making, financial controls, hospitality and facilitation payments. Internal communications should also describe reporting procedures and disciplinary consequences for employees who violate the company’s policies. External communications should affirmatively state a company’s anti-corruption stance and commitment to ethical conduct, and might include a written code of conduct. The Guidance recommends mandatory training “tailored to the specific risks associated with specific posts,” and suggests that training be provided to certain “associated persons” as well as to employees.
Monitoring and Review
The Guidance explains that companies should continue to monitor and evaluate the effectiveness of their anti-corruption procedures. It explains that there is a “wide variety” of ways to do so, including internal controls, employee questionnaires, formal periodic reviews and reports for top-level management, and external verification.
Companies should consider the extent to which their current anti-corruption policies and procedures address each of the Six Principles in the Ministry of Justice Guidance. There is significant overlap between the U.K.’s Six Principles and concepts addressed in anti-corruption policies and procedures designed to ensure compliance with the U.S. Foreign Corrupt Practices Act.