UK: The Bribery Act 2010

Last Updated: 1 March 2011
Article by Adrian Wild

A risk management issue – immediate action required What is your organisation doing to mitigate the risks of the Bribery Act 2010?

When the Bribery Act 2010 (the Act) comes into force, it will affect every business in the UK irrespective of whether they are based purely in the UK or operate overseas. While the Act primarily consolidates existing law, it also introduces a new corporate offence of failure to prevent bribery. The possibility of unlimited fines for both corporate entities and board members means that the Act needs to be taken very seriously indeed.

Background

As well as codifying existing common law and consolidating existing statute, the Act also 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 RPs caught by this provision? The law applies to commercial organisations, which include UK corporate bodies which carry on a business. Whether the activities of RPs are business activities is, ultimately, a question that can only be determined by the courts. However, there is no doubt that new RPs run as profit making, rather than charitable, enterprises are businesses. It would be a brave board which decided that a charitable RP, undertaking the same activities, was not a business and was not subject to this section of the Act.

In any event, many RPs have activities which are undertaken for profit and are undoubtedly business activities.

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. However, the most significant issue for corporate entities is the definition of an associated person. This is defined as being 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 RP can direct or influence the activities – for example, employees, board members, subsidiaries and contractors appointed under framework agreements. However, it will also include those who operate at a more arms length basis, such as selling agents, land acquisition agents, consultants, surveyors 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 a very onerous obligation on RPs (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 RP and its board members 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 has yet to be issued. However, the Government has consulted on its draft guidance and we use 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 board 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 RP's associates.

4 Policies and procedures

olicies and procedures should be established which seek to prevent employees and associates from committing bribery on the association'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 organisation.

6 Monitoring and review S

ystems for monitoring and reviewing (and if necessary, improving) should be established.

Impact on RPs

RPs are fortunate that they have previously had to comply with the Housing Corporation's Good Practice notes (and the earlier determinations) and therefore should have many policies and procedures in place which will serve to prevent bribery. Therefore, it is likely that relatively few changes will be needed as a result of the Act with the majority of actions will arise from the need to control and monitor associates. Associations will nevertheless need to document how these policies and procedures help to ensure compliance.

Areas which we feel may need to be addressed include the following.

General

  • Ensure that your code of conduct refers to the Bribery Act and that it is readily accessible.
  • Perform a risk assessment to ensure you have considered how best to control any areas where there is the potential for bribery.

Suppliers, contractors and agents

  • 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 and 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.

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 the 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 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 RP and beyond to associates.

Timings

On 31 January 2011, the Ministry of Justice (MoJ) again postponed the implementation of The UK Bribery Act 2010. The Act was due to come into force this spring but will now not be implemented until three months after the MoJ has published clear guidance for companies. No date has currently been set for the publication of the guidelines.

The Bribery Act 2010 is one of the world's strictest pieces of anti-bribery legislation. When enacted, it will significantly increase the penalties for any Acts of bribery. To mitigate that risk, RPs need to take appropriate action now.

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.

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