Copyright 2011, Blake, Cassels & Graydon LLP
Originally published in Blakes Bulletin on Business, May 2011
On March 30, 2011, the U.K. Ministry of Justice (MOJ) announced that the U.K. Bribery Act 2010 (the Act) will enter into force on July 1, 2011.
This article is an update of our October 2010 Blakes Bulletin: U.K. Bribery Act 2010: Extending the Long Arm of Global Anti-Corruption Enforcement. Since then, some notable developments have occurred, including the now definitive in-force date and the release of the MOJ's Guidance (MOJ Guidance) and the Serious Fraud Office's Joint Prosecution Guidance (Prosecution Guidance).
Since the last Blakes Bulletin, the Act has been subject to criticism by U.K. and multinational businesses as lacking sufficient certainty around the rules of the game. The areas of the Act generating the most interest are:
- Applicability of the Act: What constitutes "carries on a business" in the U.K.
- Corporate Hospitality
- Facilitation Payments
- Corporate Liability for "Associated Persons"
- Adequate Procedures Defence
Rather than provide bright-line legal tests, the MOJ has favoured leaving the Act as a broadly drafted text, tempered by broad prosecutorial discretion whether or not to prosecute.
The MOJ Guidance is meant to provide businesses with guidance on how the Act is to be interpreted, while the Prosecution Guidance is meant to provide prosecutors with guidance as to when it is appropriate to prosecute.
Businesses should be aware of the guidance provided by the MOJ Guidance and Prosecution Guidance in the following areas.
Applicability of the Act: What constitutes "carries on a business" in the U.K.?
The Act is extraterritorial, meaning that, in addition to U.K. individuals and businesses, it will also apply to a non-U.K. entity that "carries on a business, or part of a business, in any part of the United Kingdom".
The MOJ Guidance advises that the courts will ultimately interpret what it means to carry on business in the U.K. The MOJ Guidance suggests that a London Stock Exchange listing by a foreign company would not in itself be a sufficient connection to constitute carrying on business in the U.K. Additionally, the MOJ Guidance advises that having a U.K. subsidiary will not in itself mean that the parent company is carrying on business in the U.K. Nevertheless, it remains to be seen how the courts will interpret "carries on a business, or part of a business". While a London listing or U.K. subsidiary may not by themselves constitute sufficient connections, it would be prudent to view these as relevant indicia that may form part of a larger fact-dependent inquiry.
The MOJ Guidance clarifies that it is not the intention of the Act to criminalize bona fide hospitality or other customary business development expenditures. Thus, under the Act, businesses can continue to offer corporate hospitality such as taking clients to sporting events, picking up dinner tabs and providing for reasonable travel and accommodation.
However, with respect to public officials, the MOJ Guidance advises that businesses may also provide "reasonable" hospitality or promotional expenditure. There will clearly be a higher level of scrutiny applied when public officials are involved versus private clients (to whom the Act also applies). Reasonableness is defined by reference to examples in the MOJ Guidance and is largely fact-dependent.
In addition, the MOJ Guidance recognizes that corporate hospitality can also be used to disguise bribes. Accordingly, the MOJ Guidance advises that such expenditures should be reasonable and commensurate with industry norms.
The Prosecution Guidance suggests that relevant factors in assessing whether corporate hospitality is actually a covert bribe include: lavishness; connectivity of the expense to a legitimate business activity; and whether or not the hospitality or expenditure was concealed.
Facilitation payments are unofficial payments made to public officials in order to secure or expedite the performance of a routine or necessary action. Such payments remain prohibited under the Act. The MOJ takes every opportunity to note that facilitation payments were illegal under previous legislation and the common law. Nevertheless, this is an important contrast to the U.S. Foreign Corrupt Practices Act (FCPA) and the Canadian Corruption of Foreign Public Officials Act (CFPOA), which permit such payments.
While the MOJ Guidance states that facilitation payments are illegal, it also acknowledges that eradication of facilitation payments is a "long-term objective", perhaps implying that a small, one-off facilitation payment is unlikely to result in heavy sanction.
The Prosecution Guidance notes the following factors favouring prosecution:
- large or repeated payments
- payments that are a planned or accepted way of conducting business
- payments that indicate an element of active corruption of a public official
- cases where a business has a policy for dealing with such payments and the same has not been followed
Conversely, factors noted as tending against prosecution are:
- a single small payment
- a payment that came to light via self-reporting
- a business has a policy for dealing with such payments and the same has been followed
- circumstances where the payer was in a vulnerable position
Corporate Liability for "Associated Persons"
Under the Act, a business is liable for bribes made by "associated persons" which are intended to benefit the business. The MOJ Guidance acknowledges that there may be a broad scope of persons who constitute "associated persons", including contractors, suppliers and joint venturers.
The MOJ Guidance suggests that the degree of control that a business has over the associated person will likely be determinative of whether a person is an "associated person". Additionally, the MOJ Guidance suggests that control will usually extend to contractual counterparties. Regarding supply chains, the MOJ Guidance suggests that it is unlikely that a business will be in a position to control persons in the chain beyond the counterparty; however, it notes that businesses may request that counterparties impose similar anti-bribery measures on those down the supply chain. Regarding joint ventures, the MOJ Guidance notes that the existence of a joint venture will not in itself result in a finding that it is "associated" with any of its members.
Adequate Procedures Defence
Under the Act, a business is strictly liable for failures to prevent bribery. However, a business will not be considered to have committed an offence if it can demonstrate that it implemented "adequate procedures" to prevent bribery.
The MOJ Guidance suggests that what constitutes "adequate" will be relative to the nature, size and complexity of the business. Accordingly, for small businesses that face few bribery risks, minimal procedures may be adequate. Conversely, for large businesses operating in regions or industries where bribery is common, the content of what constitutes "adequate" is likely to be much higher.
The MOJ Guidance suggests six principles to help businesses assess their anti-bribery policies and procedures, including:
- top-level commitment
- risk assessment
- due diligence
- monitoring and review
What Should Businesses Do To Prepare for July 1?
In preparation for the July 1, 2011 in-force date, businesses should review their anti-bribery policies and procedures to ensure they are compliant and sensitive to the Act's requirements.
Businesses that are either unsure whether they are captured by the Act's jurisdiction, or that contemplate future operations in the U.K., should consider bringing their policies into compliance with the Act.
Additionally, businesses that are subject to the FCPA, the CFPOA and the Act should consider implementing policies that comply with the stricter of these standards.
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.