"Combating bribery is about common sense ........" - UK Lord Chancellor, Kenneth Clarke
On 1st July, 2011, the long awaited Bribery Act will come into force. The Act, together with its Guidance Notes represents a major overhaul of the UK's anti bribery legislation and creates one of the most comprehensive anti-corruption regimes anywhere in the world.
The Offences – Sections 1 to 8:
The Act creates four offences, specifically: giving or receiving a bribe to induce a person to improperly perform a relevant function (Sections 1 and 2), bribery of a foreign public official with the intention of obtaining a business advantage (Section 6) and, as a new strict liability corporate offence, failing to prevent bribery (Section 7). The test of what is and what is not "improper performance" to which the Sections 1, 2 and 6 offences relate is to be objectively assessed by reference to the expectations of a 'reasonable person' in the United Kingdom (Section 5(i)). Where the breach occurs outside the UK, 'any local custom or practice' of the place in which it is alleged the bribery has taken place is to be disregarded unless it forms part of the written law of that jurisdiction.
The prohibitive scope of the Bribery Act is thus much wider than that of the Foreign Corrupt Practices Act ("FCPA"), in that it is an offence to receive as well as to give a bribe. Further, unlike the FCPA, the Bribery Act does not exempt facilitation payments, (generally small payments to lower level officials for expediting government actions), and bona fide payments to promote products or services, (often referred to as commercial bribery).
The penalties for bribery under the Act are severe, with a maximum of 10 years imprisonment for conviction on indictment, and/or an unlimited fine (Section 11).
The Defence: "Adequate Procedures"
The new offence of 'failing to prevent bribery' has far reaching effects, particularly for international companies, and will initially be a cause of concern for compliance officers and management globally.
The Act does, however, provide a defence to "failing to prevent bribery" in circumstances where commercial organizations can show that they had "adequate procedures" in place to prevent an act of bribery being committed by 'associated persons' in connection with its business. "Adequate procedures" is not defined in the Act, but on 31st March, 2011 the Ministry of Justice published its Guidance notes ("the Guide") to assist practitioners and industry members alike (See:www.justice.gov.uk/guidance/bribery.htm).
The Guidance notes identify six key principles:-
The bribery prevention procedures to be put in place by commercial organizations are expected to be proportionate to the bribery risks they face by reference to the nature, complexity and scale of the business concerned. The Guide suggests that to be considered 'adequate' procedures should be 'clear, practical, accessible, effectively implemented and enforced', evince a clear 'top down' zero tolerance of bribery, and be designed to "identify risks and to prevent deliberate and unethical conduct". They should address reporting obligations for suspected bribery, and provide a clear management reporting line for this purpose. The expected standards of behaviour for employees, managers and agents, (together "associated persons") should be defined, along with the consequences of failing to observe them.
b) Top level commitment
The procedures are to be adopted at the highest level of decision making within the commercial organization to emphasize its commitment to eliminating bribery. The key individuals responsible for the implementation and supervision of the organisation's bribery prevention procedures should be identified.
c) Risk Assessment
The commercial assessment of bribery risk will necessarily vary from business to business, but the Guide requires that commercial organizations adopt risk assessment procedures that reflect the size, structure, business activities and locations of their operations. Risk assessment is also a function of due diligence, and to be effective it will require appropriate rules, resourcing and to be supported by appropriate risk assessment documentation which will need to be maintained as proof of the existence and implementation of such procedures.
d) Due diligence
Due diligence procedures will include assessment of country risk, business opportunity risks, sector and transactional risk and the existing or prospective 'associated persons' with whom the organisation is to conduct business. They will extend to all areas of business, particularly recruitment, financial controls, business acquisitions, bonus policies and, indeed, any aspect of a commercial organization whose function is to 'win' business.
e) Communication and training:
The "adequate procedures" will necessarily need to be pro-actively implemented and overseen by management. To ensure that its bribery prevention policies and procedures are properly understood, the commercial organization should educate through training to enable staff to identify corruption concerns and to be aware of and understand the availability of internal procedures to deal with them. The training should be ongoing, properly documented and current.
f) Monitoring and Review
Potential bribery situations will continue to evolve as, indeed, must the policies and procedures designed to address them. It will not be sufficient simply to ensure that the new employees are given an induction to the policy or access to a website, continuous training, monitoring and updating of procedures will be required if the defence is to be effective.
Extra jurisdictional application
'What then is needed to trigger this extended jurisdiction? ...... you need to be carrying on business or part of your business in the UK..... That is all it takes'
Richard Alderman – Director of the SFO.
Perhaps of greatest concern to international business is the broad territorial scope of the Bribery Act. It applies to companies operating in the UK and also to overseas companies with business operations in the UK. Its extra territorial application will have important implications for Chinese and Asian companies with operations in the United Kingdom. These businesses will now not only have to comply with their own domestic legislation with regard to bribery and corruption, (such as the Prevention of Bribery Ordinance in Hong Kong) and the known extra territorial reach of the FCPA, but will also need to be mindful of their responsibility to monitor the activities of 'associated persons' with whom they conduct business around the world so as to avoid circumstances which could lead to contravention of the Bribery Act.
Time will tell whether the UK Courts will operate the extra-territorial provisions of the Act with the same enthusiasm that American Courts have embraced the FCPA, and clearer indications of this will emerge when matters are tested before the UK Courts. In light of the somewhat relaxed attitude towards bribery generally in some parts of Asia, however, and the international communities' propensity to cooperate in anti corruption matters, particularly with regard to FCPA investigations post the Dodd Frank Act, a strong position can be expected to be adopted by the SFO. The need for commercial organizations to set in place 'adequate procedures' is therefore paramount.
What should you do?
The practical steps to be taken to ensure the availability of an 'adequate procedures' defence will vary from company to company, but the absence of any such procedures will obviously deny a defence to what is a strict liability offence with high value adverse consequences.
A starting point would be to conduct an operational review of your business, and thereby to identify possible business situations in which the issue of bribery could arise. Thereafter, a code of conduct should be composed and implemented, and reporting lines created and publicised. This will need be followed by training of staff, and the implementation of clear policies on corporate hospitality and third party due diligence.
'Failure to prevent bribery' is a strict liability offence, and the burden of proof will rest with the commercial organization to prove the existence and effectiveness of its 'adequate procedures'. As with earlier legislation, such as Hong Kong's anti discrimination legislation, or the FCPA, to be entitled to rely upon the 'adequate proceedings' defence, a clear and focused effort will be required on the part of the commercial organization to address bribery concerns. Given that the alternative is the potential exposure to criminal conviction, multi million pound penalties and the possible imprisonment of management, it is an exercise that all commercially exposed businesses with interests in the UK should address as a matter of some urgency.