UK: Charities And The Bribery Act 2010

The Bribery Act 2010 (the 'Act') comes into force on 1 July 2011. The Act simplifies and expands the range of bribery-related offences for which organisations and individuals can be prosecuted.

The offences will be:

1. Giving bribes ('active offence') - to promise, offer or give a bribe (whether directly or through a third party).
2. Receiving bribes ('passive offence') - to request, receive or agree to receive a bribe.
3. Bribery of a foreign public official ('public offence') - to bribe a foreign public official (the definition of a foreign public official covers both foreign government officials and individuals working for international organisations).
4. Failure of commercial organisations to prevent bribery ('corporate offence') - a commercial organisation may be guilty of an offence if someone acting on its behalf commits an active offence or a public offence.

In addition, a senior officer of a corporate body will be personally guilty of an offence if he or she consents to or connives in an active, passive or public offence by the organisation.

The concept of a 'bribe' is broad. A bribe can mean any financial or other advantage which is intended to induce or reward the improper performance of a business activity or public function. Improper performance is performance (or non-performance) that breaches the expectation of good faith or impartiality, or breaches a position of trust.

Implications for charities

The first three offences could be committed by any person, which would include charity employees, trustees, an incorporated charity or a charity's subsidiary trading company.

There was some uncertainty about whether a charity could commit the offence of 'failure of commercial organisations to prevent bribery'. The Ministry of Justice has now issued guidance (the ' Guidance') which is clear that an incorporated charity which carries on a 'business' would be a 'commercial organisation'. Unfortunately neither the Act nor the Guidance contains a definition of 'business', so many charities will need to take a cautious approach and assume that they could be caught by this offence.

In his introduction to the Guidance the Secretary of State for Justice writes that:

'...combating the risks of bribery is largely about common sense, not burdensome procedures. The core principle [the Guidance] sets out is proportionality.'

We recommend in response to the Act that most charities should in particular analyse their current activities to establish whether there are any particular risk areas, and to assess the strength of measures they have in place to prevent bribery.

Hospitality

There has been some discussion about the possible impact of the Act on hospitality, but in most circumstances it seems very unlikely that the hospitality offered by a charity would constitute a bribe.

The Guidance is clear that:

'bona fide hospitality and promotional, or other business expenditure which seeks to improve the image of a commercial organisation, better to present products and services or establish cordial relations, is recognised as an established and important part of doing business and it is not the intention of the Act to criminalise such behaviour'.

Further, in order to proceed with a case under the first offence based on an allegation that hospitality was intended as a bribe, prosecutors would need to show that 'the hospitality was intended to induce conduct that amounts to a breach of an expectation that a person will act in good faith, impartially, or in accordance with a position of trust'.

For a charity to commit an offence under the Act in relation to hospitality the charity would probably need to do something that it should not be doing anyway for other reasons, such as:

• giving an extra benefit to a decision maker during a tender process, above what can be legitimately offered as part of a tender process; or
• offering lavish hospitality to public officials to help win public funding or contracts or to donors who may be considering making a gift to the organisation.

Some concern has been raised that charities might lose income from selling tickets to fundraising events to corporate organisations, because the corporate organisation may no longer wish to entertain clients in this way because of the risk of committing a bribery offence. The Foreword to the Guidance states that the purpose of the Act is not to prevent corporate hospitality, such as taking clients to Wimbledon or the Grand Prix.

Facilitation payments

Offences under the Act can be committed abroad - in the case of the first three offences, provided that the person committing them has a close connection to the UK, such as a British national or a body incorporated in the UK. The requirement for a close connection to the UK does not apply to the corporate offence (on which, see below), so the UK courts will have jurisdiction over a charity irrespective of whether the act or omission took place in the UK or overseas.

Facilitation payments are small payments which may be made to public officials in certain countries as a way of ensuring that duties are properly or promptly performed. The Guidance is clear that the Act does not provide an exemption for facilitation payments.

However, there may be circumstances in which charities working internationally are faced with difficult situations where such a payment may be requested - the Guidance provides that 'It is recognised that there are circumstances in which individuals are left with no alternative, but to make payments in order to protect against loss of life, limb, or liberty' and:

'In cases where hospitality, promotional expenditure or facilitation payments do, on their fact, trigger the provisions of the Act prosecutors will consider very carefully what is in the public interest before deciding whether to prosecute. The operation of prosecutorial discretion provides a degree of flexibility which is helpful to ensure the just and fair operation of the Act.'

Application of the corporate offence to charities

The introduction of the corporate offence is a significant departure from the current law.

The Guidance is clear that the offence of 'failure of commercial organisations to prevent bribery' could be committed by incorporated charities:

'So long as the organisation is incorporated...it does not matter if it pursues primarily charitable or educational aims...It will be caught if it engages in commercial activities, irrespective of the purpose for which profits are made.'

Accordingly, this offence could be committed by charitable companies (for example, companies limited by guarantee, Royal Charter bodies and statutory corporations), but it could not be committed by unincorporated charities (such as charitable trusts and unincorporated associations).

To commit this offence the charity would need to be carrying on a 'business', but this term is not defined and legislation applies different tests to determine whether or not an activity is regarded as a business - for example VAT rules, Non-Domestic Rates rules and landlord and tenant law all apply different meanings. If there is any doubt, charities will need to take a cautious approach and assume that this offence may apply.

The offence will be committed where:

• the bribery is committed by a person performing services on behalf of the commercial organisation;
• the person performing services intends to secure a business advantage for the organisation; and
• the bribery is either an active offence (giving bribes) or a public offence (bribing a foreign public official) (this offence does not apply where the individual commits a passive offence (i.e. requests or receives a bribe)).

The scope of this offence is wide. The person committing the bribery may be an employee, agent or subsidiary or the charity, or any third party who performs services for the charity on its behalf - and the person does not need to be prosecuted successfully for the corporate offence to apply.

The only defence available to a charity is to prove on the balance of probabilities that it had adequate procedures in place designed to prevent bribery from being committed by those performing services on its behalf.

The Guidance recognises that the steps to be taken to ensure that there are 'adequate procedures' will vary from organisation to organisation. It adopts a 'principles-based' approach and the six principles are set out in the Appendix to this note.

The steps taken to prevent bribery will vary from charity to charity, but a charity may consider the following to ensure that it has adequate procedures in place:

• Risk assessment and due diligence - Consider whether any relationships with third parties, including joint ventures, need to be reviewed and whether the organisation's anti-bribery policies should be notified to the third parties. When entering into new relationships, consideration should be given to what contractual protections should be included in any written agreement. These might include, where the arrangements are perceived to carry a degree of risk, a requirement for the counterparty to certify annually that it has complied with agreed form undertakings regarding compliance with anti-bribery policies. The contract would then provide that a breach of the ongoing anti-bribery undertakings would constitute a material breach of the contract and an indemnity for any loss would be included. Even in low risk situations, it may be prudent to include anti-bribery undertakings in contracts as a matter of course even if the counterparty is not required to produce a compliance certificate each year.
• Senior/responsible officers - The new law should be emphasised to senior officers and trustees of charity, who should take responsibility for implementing effective anti-bribery measures. The Guidance states that 'Those at the top of an organisation are in the best position to foster a culture of integrity where bribery is unacceptable'. It may be appropriate to designate somebody to oversee and monitor compliance with the anti-bribery measures.
• Anti-bribery policy and employment contracts - Put in place an anti-bribery policy (or update any existing policy), which covers bribery generally as well as concerns specific to the organisation (including rules on gifts, entertainment, expenses, sponsorship and charitable donations) and monitor compliance with the policy. Emphasise that compliance is mandatory and set out actions that are prohibited, but also address the question of what to do if an individual comes across bribery within the charity. Ensure the anti-bribery policy is communicated and readily available to all employees at all levels (eg by e-mail, in the appropriate section of a staff handbook and/or on an intranet) and that it is endorsed and promoted from the highest levels in the organisation. Ensure employees are aware that breach of the policy may give rise to disciplinary action (including possibly summary dismissal). The policy must also be communicated to all other persons who perform services for or on behalf of the organisation, including consultants, contractors and agency staff.
• Whistleblowing procedure - Ensure there is an adequate whistleblowing procedure in place (and readily available), so that staff feel confident that they can report bribery or suspected bribery safely and confidentially. It is important that staff members are encouraged not just to avoid participating in bribery but to report bribery by others. Contracts with staff, contractors and consultants should, if possible, impose a general obligation to report wrongdoing.
• Implementation, induction and training - The anti bribery policy should be an integral part of any induction process and training. Training, appropriate to the organisation's size and the extent of bribery risk, should be given to all staff where appropriate, not just new joiners.
• Monitoring procedures - Ensure that relevant financial (and other) procedures contain adequate safeguards to identify irregular activity. Ensure that acts in breach of the anti-bribery policy are dealt with appropriately (eg in accordance with any disciplinary procedure for employees) and are not condoned or overlooked.
• Business dealings in certain countries - For charities doing business in countries which have a low rating in Transparency International's Annual Corruption Perceptions index, review areas such as dealings with state enterprises and dealings through agents. Any subsidiaries or other controlled organisations should adopt the same anti-bribery measures.

Trading subsidiaries

Where a charity carries out non-primary purpose trading via a limited company which is formed as a wholly-owned subsidiary of the charity, this company will fall within the definition of 'relevant commercial organisations' and will fall within the scope of the corporate offence in its own right.

Trading subsidiaries will therefore need to be included in any policy and procedural changes made.

Consequences of committing a bribery offence

On conviction for any of the bribery offences, the penalty is up to ten years' imprisonment and/or an unlimited fine for an individual; or an unlimited fine for a company. Further consequences of a conviction would be that directors are likely to be disqualified from acting as directors for substantial periods and charity trustees would be unable to act as trustees. In addition, a charity could be barred from applying for public contracts and funding streams.

There is some uncertainty about the extent to which the Act will be enforced against charities because several matters are left to prosecutorial discretion. The summary of the Guidance provides:

'It is important to note that no one can be prosecuted in England and Wales unless one of the two most senior prosecutors (the Director of Public Prosecutions or the Director of the Serious Fraud Office) is personally satisfied that a conviction is more likely than not, and that the prosecution is in the public interest'

However, it remains to be seen how the enforcement powers will be used.

Conclusion

We recommend that most charities should, in the period before the commencement of the Act on 1 July 2011, analyse their current activities to establish whether there are any particular risk areas, and to assess the strength of measures in place to prevent bribery.

Incorporated charities which carry out 'business activities' will in particular need to focus on their relationship with those who perform services for them to ensure there are adequate procedures in place to prevent the charity committing the new corporate offence of failing to prevent bribery.

Appendix

'Guidance about procedures which relevant commercial organisations can put in place to prevent persons associated with them from bribing'

The Government has adopted principles-based guidance, which will allow a commercial organisation to tailor its polices and procedures so that they are appropriate to its size and resources. The principles are, in summary:

• Proportionate procedures: the procedures in place 'should be proportionate to the bribery risk faced' and to 'the nature, scale and complexity of the commercial organisation's activities'. The procedures must be clear, practical, accessible, effectively implemented and enforced. The size of the charity will not be the determining factor as a small charity may undertake high risk activities.
• Top-level commitment: this concerns the establishment of a culture across the organisation in which bribery is considered unacceptable. In small or medium sized charities this may be relatively straightforward to achieve - the message should be clear, unambiguous and regularly made to all staff and business partners. Larger charities may need to take further steps to emphasise their commitment to creating a culture of integrity, by ensuring high level management take active involvement in reviewing and enforcing the policies. A public statement may be appropriate, together with clear internal communication of the charity's stance and procedures.
• Risk assessment: this requires an assessment of the nature and extent of the charity's exposure to potential risks of bribery. Charities need to ensure that they keep up to date with the risks facing their sector. An accurate record of the risk assessment should be kept.
• Due diligence: this is about knowing who the organisation is doing business with and who is performing or will perform services for or on behalf of the organisation. Due diligence should be used to mitigate identified bribery risks and should be proportionate to those risks.
• Communication (including training): this demands that the organisation goes beyond paper compliance and ensures that its anti-bribery policies and procedures are embedded and understood throughout the organisation using communication and training measures that are proportionate to the risks identified. This may include the creation of a Code of Conduct and specific training on the anti bribery procedures. However, the guidance is clear that training should be proportionate to the risks faced; therefore charities may only need to provide training to those in high risk positions. Training should be monitored and provided on an ongoing basis. The policy and procedures documentation should be accessible to all staff.
• Monitoring and review: this requires policies and procedures to be monitored and reviewed to ensure compliance. The guidance suggests that financial controls which are sensitive to bribery may be a useful tool in measuring effectiveness of procedures.