UK: The Bribery Act 2010 - A Risk Management Issue

The possibility of unlimited fines for both corporate entities and trustees means that the Bribery Act 2010 needs to be taken very seriously.

With the new Bribery Act 2010 (the Act) coming into force on 1 April 2011, immediate action is required to mitigate the risks arising. While press comment has focused mainly on charities operating overseas, the Act potentially applies to all charities, including those which operate solely at a local level.

Background

As well as codifying existing common law and consolidating existing statute, the Act introduces certain new offences, including the failure by a commercial organisation to prevent bribery. The penalties for a breach of this provision are unlimited fines.

Are charities covered by this section of the Act? This has been subject to some comment in the press and a Ministry of Justice spokesman has apparently said that the Act does not apply to charities.

However, this does not appear to be correct. The law applies to commercial organisations, which includes UK corporate bodies that carry on a business. Many charities provide services for payment, for example, from public funds or from members of the public, which would appear to be a business activity. However, the question as to whether the activities of any particular charity constitute a business activity is a question that can only be determined by the Courts.

In any event, many charities have trading subsidiaries, which undoubtedly conduct business activities. As explained below, the existence of such subsidiaries is sufficient to bring a charity into the ambit of the Bribery Act.

What is the offence?

A commercial organisation commits the offence of failing to prevent bribery when an associated person 'bribes' another so as to obtain or retain a commercial advantage for the organisation.

This is incredibly widely drawn. An offence can be committed even if no money changes hands – providing that there was intent. It is enough that an offer or promise was made. Also, the person doing the bribing need not have been convicted under the Act.

The most significant issue for corporate entities is the definition of an associated person. This is a person who performs services for or on behalf of the commercial organisation – this represents a large number of organisations and individuals.

Associates include those where the charity can direct or influence the activities – for example, employees, trustees, subsidiaries, contractors and suppliers. However it will also include those who operate at a more arms-length basis, such as fundraisers, agents and even the auditors.

Therefore, even though you and your staff have the utmost integrity, you could be tainted by (and convicted from) the actions of someone over whom you have only a limited influence.

Your defence?

Clearly, this is an onerous obligation on charities (and all other commercial entities), made worse as it is a strict liability offence. That is, no element of negligence needs to be proved for the charity and its trustees to be found guilty. The only defence available is that the commercial organisation had in place 'adequate procedures' to prevent those associated with it from committing offences under the Act.

The Government is to issue guidance as to what the adequate procedures might be. Given the potential onerous nature of the obligations and the significant penalties, it is rather disappointing that the guidance is only expected to be issued in January 2011. However, the Government has consulted on its draft guidance and we've used this to highlight the possible actions.

Six principles

The draft guidance highlights six principles which give general guidance and are based on good practice, both from the UK and internationally. The procedures adopted to implement the principles are a matter for each entity and, ultimately, it is for the Courts to assess whether the procedures are adequate.

1. Risk assessment
   
   An assessment of the risk exposure should be undertaken, which will inform subsequent actions.
   
   Internal risks primarily arise from employees, whereas external risks will depend on the nature of transactions undertaken and the extent to which 'associates' are used.
2. Top level commitment
   
   The trustees should commit to a culture of integrity and be seen to make that commitment.
3. Due diligence
   
   Appropriate enquiries should be made regarding the specific risks associated with particular activities and the charity's associates.
4. Policies and procedures
   
   Policies and procedures should be established which seek to prevent employees and associates from committing bribery on the charity's behalf. Such policies and procedures should be clear, concise and accessible.
5. Effective implementation
   
   Once appropriate policies and procedures have been established they must be implemented, both internally and externally. The aim is for the policies and procedures to become embedded throughout the charity.
6. Monitoring and review
   
   Systems for monitoring and reviewing, and if necessary, improving, should be established.

Bribing a foreign public official

There has been much press comment about the impact of the Act on charities that operate overseas.

The Act has also introduced a new offence of bribing a foreign public official. For charities operating in the third world, this could cause significant issues, particularly where bribes are, or are assumed to be, culturally embedded.

However, like the offence of failing to prevent bribery, this offence is only committed where there is the intention to obtain or retain business or an advantage in the conduct of business. Whether a charity providing relief from poverty, emergency aid or the provision of education – to pick just three examples – meets the definition of business will be a matter for the Courts to decide. Common sense would indicate that charities providing famine relief are not undertaking a business activity and therefore cannot be obtaining any business advantage. Additionally, if every entity doing business must, for example, pay a bribe to enable goods to clear customs, the payment of the bribe, while distasteful, would not appear to confer any advantage, as every organisation is treated equally.

Therefore, although there is concern over this aspect of the Act – and worryingly little guidance from the Government – it does appear that in most instances charities will not be affected.

Impact on charities

Working on the assumption that charities operating in the UK do not pay bribes and that their employees conduct themselves in a professional and lawful manner, it is likely that relatively few changes will be needed as a result of the Act. The main issues for most organisations, including charities, will be the need to:

• control and monitor associates and
• document how policies and procedures help to ensure compliance with the Act.

Areas which may need to be addressed include the following.

General

• Ensure your code of conduct refers to the Bribery Act and that it is readily accessible. If you do not have a code of conduct, consider creating one.
• Perform a risk assessment to ensure you have considered how best to control any areas where there is the potential for bribery.

Suppliers/contractors/agents

• For major suppliers, include a process for assessing whether they have adequate procedures, as defined by the Act, in place.
• Revise contractual arrangements to include:
• • an explicit confirmation of compliance with the Act, with breaches permitting immediate contract termination, the right to withhold payment and the ability to recover any consequential fines and/or costs
  • a continuing commitment to maintain adequate procedures and to report to you any incidents or suspicions of bribery
  • prohibition on assignment or subcontract without permission.

Employees

• Contracts of employment and staff handbooks may need to be updated to reflect the new Act. In particular, an explicit statement that breaches of the Bribery Act may amount to gross misconduct would be appropriate.
• Ensuring that there are clear guidelines as to what entertaining, if any, can be provided to third parties.

Consultants/interim workers/agency workers

• Contracts should be reviewed/ amended as above.
• Individuals should be made aware of the code of conduct and should sign to confirm their awareness and compliance.

Volunteers

• Each volunteer should have a contract with the charity and these should be updated to reflect the new Act.
• Individuals should be made aware of the code of conduct and should sign to confirm their awareness and compliance.

Monitoring and review

• Ensure that acts of bribery and compliance with the Act are specifically within the risk management process.
• Whistleblowing procedures should be reviewed to ensure that they specifically cover acts of bribery.
• (Possibly) extend the work of any internal auditors to cover potential acts of bribery.
• (Possibly) survey staff, suppliers, agents etc. to obtain their views and comments, which could inform future reviews of risks.

Education and dissemination

• Ensure that the board of trustees is made aware of the Act.
• Once the Act comes into force, the board should make a short statement highlighting the new legislation and making it clear that acts of bribery are prohibited.
• Any new policies and procedures put in place as a result of the Act should be disseminated throughout the charity and beyond to associates.
  
  

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.