Anti Corruption Measures: the UK Bribery Act 2010 and Guidance Update
Dr. Linda S. Spedding comments on the various updates and clarifications regarding the delayed Bribery Act, 2010 which was releases recently by the UK Ministry of Justice.
|The UK Ministry of Justice has very recently released the awaited final guidance on the delayed Bribery Act 2010 (the Act) which covers the adequate procedures required to defend a prosecution for failing to prevent bribery. The Act has been discussed in an earlier interview to India Law Journal. Essentially, in April 2010, the UK demonstrated its commitment to tackle bribery and corruption by passing this legislation which is due to come into effect on the 1st July 2011. As has been indicated, the Act:
In view of the additional reach of this legislation experts have also noted that, for example, Asian companies would be concerned that there was now a broader range of entities or vehicles that might be considered "relevant commercial organisations" in the context of breaching the new legislation. As a preliminary comment, such organisations doing business in Asia should:
- replaces the UK’s existing fragmented and complex offences listed under the Common Law and in the Prevention of Corruption Acts 1889 -1916;
- creates a platform for what some commentators have described as the toughest enforcement regime in any jurisdiction; and
- has extensive implications for every company doing business in the UK and UK companies operating internationally.
The awaited relevant guidance was necessary for clarity and understanding in order to achieve the effective implementation of the legislation, especially in view of the controversy surrounding the provisions. As a result, essentially any commercial organisation which fails to comply with the Act will automatically become liable if any of its employees, contractors or agents pays a bribe to win or retain business for the organisation. In an attempt to balance OECD and business demands, the UK government has said that the Act aims to ensure that the UK can clamp down on corruption without being burdensome to business. The intention is that, for example, anti-bribery procedures are proportionate to the bribery risks firms’ face and to the nature, scale and complexity of its activities.
- carry out proper due diligence and risk assessments; and
- consider entering some form of contractual arrangements or securing some other form of comfort in respect of compliance, particularly from their trading partners.
Commentators have largely agreed that the UK Government has tried to soften the implications of the legislation following criticism from business leaders that the Act is too draconian and could affect competition. Much emphasis has been placed upon proportionality. Indeed the Justice Secretary, Kenneth Clarke, has commented: “I have listened carefully to business representatives to ensure the Bribery Act is implemented fully and in a workable, common sense way – this is particularly important for small firms that have limited resources. I hope this guidance shows that combating the risks of bribery is largely about common sense, not burdensome procedures” However, businesses should note that the guidance is pure guidance and is not binding. The wording of the Act is broad, and clearly it remains to be seen what sort of cases will be prosecuted under the Act.
Small and Medium Enterprises (SMEs) have been particularly concerned about the repercussions for their sector and representatives have lobbied in this regard (see also below). Therefore the Justice Secretary has stressed his understanding that a practical solution is “particularly important for small firms that have limited resources. He has also stated: "Some have asked whether business can afford the Bribery Act legislation – especially at a time of economic recovery. But the choice is a false one. We don't have to decide between tackling corruption and supporting growth. Addressing bribery is good for business because it creates the conditions for free markets to flourish."
Furthermore Business Secretary Vince Cable has stated: "Bribery has no place in British business, at home or abroad. The Bribery Act reflects the UK's leading role in the fight against bribery, updates regulation dating back to 1906 and paves the way for competitive but fair practice." We have listened to the concerns from business. That's why today we are minimising regulatory burdens and publishing easy-to-understand guidance and a guide for small and medium-sized companies three months before the Bribery Act will come into force. This will give these businesses time to prepare."
SME Key Concerns
Widespread concerns had been raised over the legality of corporate hospitality under the Act, with questions over whether or not business owners could breach the new provisions simply by entertaining their clients. If found guilty of an offence through the Bribery Act, company directors could be jailed for up to 10 years and the business itself can be hit with an unlimited fine. Many business owners were also worried that they may have had to put in place time-consuming internal procedures in order to comply with the new legislation and guard against prosecution, irrespective of the nature of their business. An SME Forum raised concerns that the Act itself could have a disproportionate impact on smaller firms due to the costs associated with ensuring compliance. While larger businesses often have in-house legal and HR expertise which can be used to interpret and implement their requirements under the Act, smaller companies rarely enjoy such resources, placing them at a competitive disadvantage.
However, the guidance for businesses - which should make it easier for smaller companies to understand their obligations under the new Act - states that these concerns are unfounded. It explains that normal methods of entertaining clients will not become illegal and SMEs only need to put new anti-bribery processes in place if they believe they are at high risk of exposure to bribery – for example, if they carry out a lot of overseas work in countries with a known culture of corruption. Nevertheless it is important that SMEs owner-managers to familiarise themselves with the guidance and take any necessary steps to ensure they do not fall foul of the new legislation.
In brief, as has been noted previously, the Bribery Act:
Practical Implications of the Bribery Act:
- Introduces a corporate offence of failure to prevent bribery by persons working on behalf of a business. A business can avoid conviction if it can show that it has adequate procedures in place to prevent bribery.
- Makes it a criminal offence to give, promise or offer a bribe and to request, agree to receive or accept a bribe either at home or abroad. The measures cover bribery of a foreign public official.
- Raises the maximum penalty for bribery from seven to ten years imprisonment, with an unlimited fine.
- Your business may be liable for failing to prevent a person from bribing on your behalf if that person performs services for you in business. This means that it is not likely that you will be liable for the actions of someone who simply supplies goods to you;
- There is a clear defence if you can establish that you had adequate procedures in place to prevent bribery and bribery-prevention procedures are not required if there is no risk of bribery on your behalf;
- Hospitality is not prohibited by the Bribery Act but needs caution; and
- Facilitation payments are bribes under the Act just as they are under the old law
While the guidance does not alter the wording of the Act, as indicated above it does clarify the UK Government’s objectives behind the Act as regards certain areas that have been regarded as key issues:
- ‘Associated persons’ – the guidance makes it clear that it is unlikely an organisation would be liable for actions of a basic service provider – the corrupt party must be performing services on behalf of your business for you to be held liable;
- Joint Ventures – in any prosecution the prosecutors will have to show that the corrupt business partner was performing a service for the defendant company. One joint venture partner may not be held liable for bribes committed by the other partner if it can show that it did not benefit from the bribe.
- Hospitality – offering a client reasonable and proportionate corporate hospitality does not become an offence. The guidance does, however, indicate that lavish hospitality - where there is no clear business purpose- could amount to a breach of the Act; and
- Facilitation Payments – these will be illegal under the Act. However, as seen further below, prosecutors will consider the surrounding circumstances and whether prosecution is in the public interest.
The UK Government announced six principles in its guidance on the Act that will be taken into account when considering the approach of a commercial organisation. The six key principles (mentioned in previous articles and referred to in alphabetical sequence below) stress the proportionality principle and a proactive risk management approach. They are:
The commercial organisation aims to ensure that all bribery prevention policies and procedures are embedded and understood throughout the organisation through internal and external communication, including training proportionate to the risks faced.
The commercial organisation applies due diligence procedures, taking a proportionate and risk based approach, in respect of persons who perform or will perform services for it or on its behalf, in order to mitigate identified bribery risks.
The commercial organisation monitors and reviews procedures designed to prevent bribery by persons associated with it and makes any required improvements.
A commercial organisation’s procedures to prevent bribery by persons associated with it are proportionate to the bribery risks it faces and to the nature, scale and complexity of its activities, as well as being clear, practical, accessible, effectively implemented and enforced.
The commercial organisation assesses the nature and extent of its exposure to potential external and internal risks of bribery on its behalf by persons associated with it, such assessment being periodic, informed and documented.
The top-level management of a commercial organisation (be it a board of directors, the owners or any other equivalent body or person) are committed to preventing bribery by persons associated with it. They foster a culture within the organisation in which there is zero tolerance to bribery.
- Communication (including Training)
The Role of Risk-based Compliance Programmes
It has been noted that many companies are increasingly looking to adopt a risk-based approach when developing their compliance programmes. This also reflects the risk assessment principle — one of the six principles set out above. Implementing a compliance programme entails:
Risk is dynamic and needs to be monitored and reviewed. Evidently when doing business in a high-risk country with high-risk counterparties in a high-risk industry, the procedures that are implemented must be different in focus to those in lower risk environments. In the context of the Act third-party agents may be one of the main challenges to firms when they put in place processes and procedures to prevent bribery, This is consistent under the principles of the guidance and would require proper due diligence. Meanwhile, as noted above, Equally important is the tone of the management in compliance programmes and its strong position against corruption Therefore it is important to emphasise the principle that the guidance has identified relating to top-level commitment. Compliance programmes will not be effective unless there is proper tone at the top. It is important that the senior management instil a culture within the organisation of zero tolerance where bribery is concerned.
- establishing a culture on what is considered behaviour that will not be tolerated; and
- sending a message to employees that actions will be taken if they are caught in acts of bribery.
It is also important to understand that corporate failure to prevent bribery and absence of ‘adequate procedures’ could also lead to significant liability for those companies that are more exposed through their international relations. As noted, the primary defence available to commercial organisations facing bribery allegations is to demonstrate that the organisation has in place “adequate” anti-bribery procedures. Indeed during the consultation period the guidance attracting most attention was what was described as “the section 7 guidance” in which lawyers focused on ensuring that an organisation could be protected from the corporate offence of “failing to prevent bribery”. This means ensuring that the company has the appropriate defence to such a failure which is to have “adequate procedures”. Comparisons have been made with the US’s Foreign Corrupt Practices Act (FCPA) and that multinationals in particular have had policies and procedures to cope with the demands of that legislation. Yet even they have to fine tune their practices in view of the broader UK legislation. Moreover given the reference to “associated persons” it has become important not only to get one’s own house in order but also that of business partners, which can be a challenge where very different business cultures are involved. For instance, Asian commercial organisations are likely to find that increasingly they will be expected to provide more information about themselves to their foreign partners. The latter might also ask for certain contractual undertakings in respect of their conduct to give them comfort.
As a result of its extraterritorial reach, the legislation will have an impact on the way companies operate in Asia where corruption remains endemic in a number of countries. Accordingly, Asian companies seeking foreign investments, financing or commercial partnerships with overseas companies may find that they are burdened by compliance requirements from their foreign counterparts. For instance, with a reasonable amount of companies in India and the UK doing business with each other, directly or through third parties, they will both be subjected to the Act’s provisions. Therefore Asian and foreign firms alike are paying close attention to the legislation, particularly as regards the adequate procedures, which, when properly implemented, could potentially help companies avert a prosecution for failure to prevent bribery. Putting in place a compliance programme to prevent bribery is now a standard practice for many companies operating across jurisdictions Companies need to be particularly cautious about falling prey to corruption and bribery risks through:
- Third parties acting on their behalf (including regulatory liaison and contract bidding work);
- Mergers/ acquisitions - thereby taking on successor liability; and
- Transactions within the private sector.
It is clear that being proactive is advantageous in any event now that the legislation is coming into force on July 1, 2011. If a business reviews its activities and considers that it may be at risk, it should take effective steps as soon as possible. Depending upon their scope and sector of activities some organisations will of course be more at risk than others and small companies may not require costly procedures to be put in place. It is, however, still the case that most organisations should, at the very least, undertake a review of the bribery risks it faces. As with other aspects of risk management, a full understanding of the risks should form the foundation of any effective effort to prevent bribery. Moreover, it has been suggested by risk experts that, following a review of the risks, there are three options open to commercial organisations:
- No action – This option may be suitable for small businesses operating solely within the UK and engaging very few, if any, contractors or agents to perform business services on their behalf;
- Moderate action – This is likely to be the most sensible option for most organisations as it covers an assessment of the bribery risks faced by the organisation and making any necessary adjustments applicable to combat these risks. This may include:
- reviewing existing policies and procedures;
- putting in place a simple anti coruption policy if necessary;
- determining sanctions for breach; and
- providing appropriate training programmes for staff.
- Comprehensive action – This option is unlikely to be necessary for most small organisations, whereas it may well be sensible for large, multinational businesses. Such an approach includes the implementation of detailed anti bribery procedures, ensuring these are understood and complied with by all agents and contractors.
According to commentators and lawyers one of the challenges concerns facilitation payments, which many companies operating in Asia have long considered necessary to expedite bureaucratic processes when doing business. The two main problems are:
While the US FCPA allows such an exception, there is none in the UK legislation. However, it should be noted that although facilitation payments have not been exempted from the law, the UK prosecuting authorities have indicated that they will exercise a common sense approach in deciding whether it is in the public interest to take action over any such payment.
- The difficulty in identifying a genuine facilitation payment; and
- the fact that such payments are not exempted under many local laws and so will still be considered a form of bribery.
Another major area of concern is hospitality, which is well known to be a common feature of building business relationships in Asia. The UK Government has confirmed that reasonable promotional expenditure incurred to generate good will and in the context of business contacts should be acceptable. Nevertheless, while the Act has put the onus primarily on UK firms and individuals, Asian commercial organisations will have to help their foreign partners avoid liability for bribery by assisting them to establish the so-called "adequate procedures" defence if they intend to continue with the commercial partnerships or arrangements. Experts have also indicated that companies that have established international codes of conduct for doing business will also have higher expectations on Asian third-parties.
Anti-corruption regulation and the rise in enforcement is a growing trend in which the US had been leading the charge. Even with a number of conventions and international agreements on anti-corruption already in the works, the UK Bribery Act has been widely seen as providing a catalyst for change in combating corruption. In other major economies across the world corruption prosecutions have begun to emerge, for instance the prosecution of four Rio Tinto employees last year in China (though the motivation may have been questioned). Indeed China's recent amendment to Article 164 of the Criminal Law of the People's Republic of China, which seeks to counter corruption involving foreign public officials and international public organisations, has been seen as a move in response to international calls for anti-corruption. Time will tell whether the enforcement bodies in the UK – in particular the Serious Fraud Office (SFO) will rise to the occasion to enforce the provisions of the new legislation effectively.
|DR. LINDA S. SPEDDING is an International Lawyer and Advisor. She may be contacted at email@example.com.