We review below the Bribery Act 2010 (Act) which became law in April 2010 and will come into effect in April 2011, probably in stages – see here for further information.
The Act replaces existing UK law with a new statutory code. In broad terms the Act creates two primary offences - bribing and receiving a bribe. It also introduces new offences of bribing a foreign public official and (for commercial organisations only) of failing to prevent bribery. The new offence of failure to prevent bribery is likely to be of greatest concern to companies as it will be a strict liability offence, under which companies will be liable unless they can show that they had adequate procedures in place to prevent the offending conduct.
Why was the Act Introduced?
The increase in prosecutions in major industrial countries – in particular the UK, USA and Germany - in the last two years has been exponential. The UK authorities have over 35 ongoing cases involving bribes in 12 countries in 20 business sectors, have arrested over 25 individuals and prosecuted several. There are also more than 150 ongoing investigations in Germany (a country where, until recently, as in many Organisation for Economic Cooperation and Development (OECD) countries pre-1996, bribes were tax deductible as an "ordinary and necessary business expense").
Many countries (including the UK) have signed up to the International Convention on Combating Bribery of Foreign Officials (OECD Convention) but it is the US Foreign Corrupt Practices Act (FCPA) which has clearly been an influence in bringing the issue into high focus. The US Department of Justice prosecuted more FCPA violations in 2007 and 2008 than in the preceding 20 years and collected over a billion and a half dollars in fines; there are over 120 companies currently under investigation by the DOJ and Securities and Exchange Commission (SEC). In relation to our sector, in a speech in November 2009, an official at the Justice Department alerted drug makers that it would be focusing on the drug industry. The Wall Street Journal duly reported on 13 August 2010 that at least a dozen major drug and device makers (including GSK and AstraZeneca) are currently under federal investigation in a broadening bribery inquiry into whether the companies made illegal payments to doctors and health officials in foreign countries.
In the UK, responsibility for bribery and corruption lies with the Ministry of Justice. Under the Act, any proceedings will require the personal approval of the Director of Public Prosecutions, the Director of the Serious Fraud Office (SFO) or the Director of Revenue and Customs Prosecutions. The principal enforcement agencies in the UK are the SFO and the police.
The Primary Offences for Individuals
The primary offences created by the Act are as follows:
- offering or giving an advantage to a person intending either to induce that person to perform a function improperly or to reward that person for improper performance;
- offering an advantage where the payer knows or believes that accepting the inducement would amount to improper performance of a relevant function or activity;
(The above two offences apply whether or not the person offered the advantage is the same as the one exercising the function)
- requesting, receiving or agreeing to accept an advantage intending that a relevant function or activity should thereby be performed improperly (whether by the recipient or another);
- requesting, agreeing to receive or accepting an advantage when such request etc. itself constitutes the improper performance of a relevant function;
- requesting, agreeing to accept or receiving an advantage as a reward for improper performance (whether by the recipient or another) of a relevant function;
- in anticipation of or in consequence of the request, agreeing to receive or accepting a financial or other advantage, so that a relevant function is performed improperly by the recipient or by another person with the recipient’s assent or acquiescence;
(With the above four offences, it does not matter whether the request is made directly or through a third party or whether the advantage is to the benefit of the recipient or another person).
- bribing a foreign public official intending to influence the official and to obtain or retain business or a business advantage. Foreign official includes anyone holding a legislative, administrative or judicial position of a country or territory outside the UK but unlike the FCPA, it does not extend to political parties, except to the extent that that official is performing a public function, such as might occur in a one party state.
(A bribe is defined as an offer or promise of giving an advantage to the official or to another at the official's request or assent and the official is neither permitted nor required by applicable written law to be influenced in the performance of his function or omission to exercise such function. Unlike the FCPA, the Act fails to distinguish bribes from 'facilitation payments' (those payments which are accepted practice in other jurisdictions) so that any payment or act of hospitality may be caught).
The above offences cover a wide range of functions or activities (public functions, business, trade or profession functions, any function performed as an employee and activities performed by or on behalf of a body of persons) provided the function would reasonably be expected to be performed in good faith or impartially or the person performing the function is in a position of trust by virtue of performing it. Procuring and prescribing drugs and devices would clearly fall within this definition.
The offences apply even if the function or activity has no connection with the UK and is carried out in a country or territory outside the UK. "Local custom" is to be disregarded unless permitted or required by "written law".
Targets under the Act will include the company itself involved in corruption, affiliates and subsidiaries where there is a failure to prevent a subsidiary bribing another person, the Board of Directors and Senior Management who will be liable for an offence committed with their consent or connivance and employees who perhaps should have been given proper training in the issues. In addition there may be exposure to investors where there is failure to conduct due diligence, investigate red flags and satisfy themselves that the investee is compliant with all the relevant laws and also to agents and advisers, for example, where acting as agent in connection with any corrupt payment, in which case they will have the same liability as any other agent.
Corporate Offence - Intermediaries and Agents
Intermediaries are an obvious area of risk where they make corrupt payments on behalf of principals, and as mentioned above, they are a specific target of the new corporate offence under the Act. If an agent of a company makes a corrupt payment, the agent may be personally liable as well as potentially making the company engaging the agent and its officers liable.
Companies should consider good practice in the appointment of intermediaries including specific contractual provisions against illegal payments, audit rights, termination rights for non-compliance and even, in sensitive cases, an obligation to provide employee training, to carry through and accept the appointer's own corporate governance on the issues and to report any suspicions.
Various “Red Flags” are suggested where suspicion about the intermediary may be appropriate such as: a history of corruption in the territory; no significant business presence of the adviser within the country; the adviser represents other companies with a questionable reputation; refusal by an adviser to sign an agreement to the effect that he has not and will not make a prohibited payment; the adviser states that money is needed to "get the business"; the adviser request "urgent" payments or unusually high commissions; the adviser requests payment by paid in cash, use of a corporate vehicle such as equity, or be paid in a third country, to a numbered bank account, or to some other person or entity; the adviser requires payment of the commission, or a significant proportion thereof, before or immediately upon award of the contract by the customer to the company; the adviser claims he can help secure the contract because he knows all the right people; the adviser is recommended by a government official or customer.
Corporate Offence - Lack of Adequate Procedures
There is also a specific corporate offence where a person performing services for a business established or doing business in the UK bribes another person (whether in the UK or elsewhere) intending to win or keep business or an advantage in the conduct of business for the commercial organisation.
A company will have a defence if it is able to show that it had ‘adequate procedures’ in place designed to prevent persons associated with it from bribing. The government is obliged to publish guidance on what will constitute adequate procedures, and a draft has been published for consultation which ends on 8 November 2010 (Guidance) - see here for further information. The Guidance addresses how to develop procedures rather than the content of those procedures.
The six principles that the Guidance propose are as follows:
- Risk assessment - regular and comprehensive assessment of the nature and extent of the risks relating to bribery to which they are exposed;
- Top level commitment - a top level management commitment to preventing bribery, establishing a culture in which bribery is never acceptable and taking steps to ensure that the policy is clearly communicated to the workforce and any relevant external people;
- Due diligence - due diligence policies and procedures which cover all parties in a business relationship and all markets in which business is done;
- Clear, practical and accessible policies and procedures - policies/procedures to prevent bribery being committed should be clear, practical, accessible and enforceable;
- Effective implementation - anti-bribery policies and procedures which are embedded to address seeking to conduct business without bribery;
- Monitoring and review - monitoring and review mechanisms to ensure compliance with relevant policies and procedures. Improvements should be implemented where appropriate.
In developing anti-corruption policies, the Guidance suggests companies might consider producing rules on the giving of political or charitable contributions and the provision of corporate hospitality generally.
Based on the Guidance, companies should already be putting procedures in place, and the responsibility for introducing and enforcing an anti-corruption culture rests with the Board or other governing body.
The SFO has provided a list of factors that it will consider when determining the adequacy of a company’s risk management and thus whether it has sufficient anti-bribery procedures in place including:
- a clear Code of Ethics reflecting an anti-corruption culture;
- policies on gifts, hospitality, political contributions and lobbying activities, facilitation payments and outside advisers including vetting and due diligence and appropriate risk assessments;
- training to ensure dissemination of the anti-corruption culture to all staff at all levels;
- regular checks and auditing in a proportionate manner;
- a helpline;
- individual accountabilities and appropriate and consistent disciplinary processes.
Jurisdiction, Penalties and Sanctions
Penalties and sanctions are serious for the company and individuals involved including imprisonment (up to 10 years), fines (unlimited) and disqualifications.
Conviction of bribery or corruption may also lead to the company being precluded from future public procurement contracts under the UK, EU and the US rules.
As regards individuals, the UK currently has extradition arrangements with more than 100 countries.
The Act means that a person who offers a bribe or inducement/other advantage will be liable under the Act and the new offences will cover a company’s employees and sales people in the UK or elsewhere, overseas agents and any overseas entities in which a company participates. A company’s potential exposure under the Act is therefore very far reaching.
The SFO has indicated that whilst having procedures in place is important to any decision to prosecute, its attitude may well vary depending on whether the matter was self-reported rather than as a result of an SFO investigation. The incentive to self report is the prospect of being dealt with more leniently: the SFO say that they will resolve such cases through a civil settlement “wherever possible”.
However there may be problems. In R. v. Innospec Limited  EW Misc 7 (EWCC ) a plea agreement was reached with the US and UK authorities. The settlement involved a guilty plea by Innospec of conspiracy to corrupt and payments of $40 million in fines to the US and UK authorities. The settlement was subject to court approval. Lord Justice Thomas reluctantly approved the settlement terms but emphasised that “the SFO had no power to enter into the arrangements made and no such arrangements should be made again”. The Court of Appeal affirmed this in considering R. v. Dougall  EWCA Crim 1048 (13 May 2010), when, despite Mr Dougall being a middle manager at dePuy who cooperated fully with the SFO, the court declined to endorse the 12-month suspended prison sentence agreed by the SFO. Although his sentence was reduced on appeal, management of pharmaceutical and device companies still need to be aware that assisting authorities in the UK will not necessarily reduce a sentence or fine imposed under the Act.
How Does the Act Affect the Industry?
The industries which are most prone to bribery and corruption are those with a high value and dependency on public sector contracts or governmental or ministerial discretion. The pharmaceutical industry generally is vulnerable to bribery as it is heavily regulated and both sells in, sources API from, and conducts trials in, markets which may be perceived to have public sector corruption (such as China, India, Brazil, Mexico, Russia and Turkey).
For UK-based activities, the ABPI has stressed the value of compliance with the ABPI's Code of Practice (“ABPI Code”) which sets out what is and is not permissible in terms of financial inducements. Whilst the ABPI Code may be a good starting point, it principally only sets standards in relation to advertisement and promotion of prescription medicines and the Act’s potential ambit is wider and it goes some way beyond the ABPI Code’s requirements. Additionally, unlike the ABPI Code, the Act has no de minimis approach for low value gifts and hospitality and any financial or other advantage can trigger liability if it is linked to improper performance. There is also a danger that if the ABPI Code does not mirror what would objectively be considered as “improper” under the Act, simply complying with the ABPI Code might not always exclude liability under the Act. Government guidance on the interaction between industry codes and the Bribery Act would be helpful.
Similarly ABHI Code of Business Practice will be a helpful starting point in assisting in protecting the medical devices industry from corruption accusations of this type – respectively found here and here.
Beyond UK shores, the pharmaceutical industry can to a like degree look to the EFPIA Code and the IFPMA Marketing Code for guidance. Similarly the devices sector can refer to the EUCOMED Code of Ethical Business Practice.
However in addition to the obvious fact that, unlike the Act, the above Codes are not legally binding, drug and device companies, especially those with a global presence, will be well advised to consider the adequacy of these and other industry codes and develop tailored anti-bribery and anti-corruption policies based on the draft risk assessment Guidance discussed above, so as to optimize the chances of being found to have "adequate procedures" in place. In particular it should be noted that a number of activities along a product's life-cycle which fall outside the sales and marketing scope of the above Codes, such as approval of clinical trials, product registration and other approvals, procurement and distribution, could be susceptible to offences of bribery and therefore caught by the Act.