UK: Full Steam Ahead For The Bribery Act

Last Updated: 6 April 2011
Article by Maurice Kenton

Following much press speculation and debate on the issue, the Government has announced that the Bribery Act 2010 will come into force on 1 July 2011. It has published the final version of its guidance on procedures that commercial organisations can put into place to prevent bribery, as well as a "quick start guide". At the same time the Serious Fraud Office (SFO) and the Director of Public Prosecutions (DPP) have published prosecution guidance. What does this mean for business in the UK and abroad, and have concerns surrounding the Act now been addressed?

Recap

The Bribery Act contains four offences: bribing another person, offences relating to being bribed, bribery of foreign public officials and failure of commercial organisations to prevent bribery. The last offence is of particular interest. A commercial organisation will be guilty of an offence ("the corporate offence") if a person with whom it is associated bribes another person intending to obtain or retain business for the organisation, or to obtain or retain an advantage in the conduct of business for the organisation. "Associated with" is defined broadly to mean a person who performs services for or on behalf of the organisation and will therefore encompass employees, subsidiaries and agents. The corporate offence is committed irrespective of whether the acts or omissions which form the offence take place in the UK or elsewhere. Therefore, a UK corporation may be held responsible for the acts of their foreign agents (who may only have a remote connection to them).

If it is determined that a commercial organisation has committed the offence of failing to prevent bribery, it will be a defence for the organisation to show that it had in place "adequate procedures" to prevent their associates from paying bribes. Notably, the term adequate procedures is not defined by the Act, but the Ministry of Justice (MoJ) has published guidance on procedures that can be put in place.

New guidance

The final MoJ guidance remains in the principles based form consulted on last year, and is expressed to be flexible and outcomes focussed. It is followed by a number of case studies that illustrate how the principles may be applied. These illustrations now focus on what businesses can do to assess risks and situations in advance, where as the previous draft involved examples where bribery had already occurred.

There are a number of key differences and additions, which seek to address some of the issues and concerns that have been raised about the new regime by professional commentators and in the popular press. Some of the key issues are discussed below:

Proportional and risk based approach

Firstly, the guidance seeks to make it clear with a new first principle, that a proportionate approach can be taken by businesses to implementing procedures to prevent bribery. The guidance notes that small organisations are unlikely to need such extensive procedures as a large multinational organisation, and makes clear that risk assessment procedures should be proportionate to the organisation's size and structure and nature, scale and location of its activities. It is also clear that procedures can be proportionate to the risk that a business faces of bribery, recognising that the threat of bribery varies across jurisdictions, business sectors, business partners and transactions. Principle 3 sets out commentary on the risk assessment process that a business should carry out.

This is something to be welcomed, as it makes it clearer that organisations will not be required to carry out the expensive exercise of putting together lengthy belt and braces policies and procedures where the risk of bribery is objectively speaking very low.

Having said that, it remains the case that where an associated person has committed a bribery offence, the statutory onus of establishing that its procedures were adequate rests on the company. In those circumstances all companies will wish to be able to point to a well considered and proportionate policy and the guidance will not alter that requirement.

Corporate hospitality

The guidance addresses in more detail the issue of corporate hospitality and promotional and business expenditure. The fact that this could be caught by the Act is something that has been the subject of much concern, although in fact under the outgoing law prosecutors commonly scrutinised corporate hospitality as part of any wider investigation into suspected corrupt practices. The guidance expressly states: "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 part of doing business and it is not the intention of the Act to criminalise such behaviour."

The guidance indicates that reasonable and proportionate expenditure is not intended to be prohibited, but at the same time such expenditure can be used as a bribe. In relation to a section 1 bribery offence the guidance sets out that in order to proceed with a conviction the prosecution would need to show that hospitality was intended as a bribe, and this would be judged by what a reasonable person in the UK thought.

In the context of the offence of bribing a foreign public official, the guidance states that the prosecution must be able to prove a sufficient connection between the financial or other advantage given and the intention to influence and secure business or advantage. Relevant evidence will include matters such as the type and level of advantage offered, the manner and form in which it is provided, and the level of influence the official has over awarding the business. It is unlikely the incidental provision of routine business courtesy will raise an inference that it was intended to have a direct impact on decision making particularly where it is commensurate with the reasonable and proportionate norms for the industry. Examples of what may or may not be considered acceptable are included in the guidance.

Although this commentary is very much to be welcomed and means that organisations can be more relaxed about its normal client entertaining, it remains the case that there are some shades of grey as to what will be considered by the SFO and courts to be caught by the Act.

Jurisdiction

The Act has a wide territorial reach capturing organisations formed outside the UK if they carry on business in the UK. The guidance states that whether a business is carried on in the UK will be a matter of common sense. It is specifically stated that the Government would not expect that the mere fact that a company's securities have been admitted to trading on the London Stock Exchange would in itself mean that the company would be caught by the Act. Similarly, having a UK subsidiary will not in itself mean that a parent company is carrying on business in the UK.

Facilitation payments

The guidance is expressly clear that small bribes paid to facilitate routine Government action, known as "facilitation payments" can trigger an offence. This is in contrast to the position under US legislation. The point has been raised in the press that prohibition of such payments may put UK businesses at a disadvantage compared to foreign counterparts when doing business abroad.

The guidance simply accepts that the eradication of such payments is a long-term goal. The SFO has stated prior to the guidance coming out that it will seek to address this issue by prosecuting businesses from outside the UK but which are caught by its wide jurisdiction (as discussed above). However, whether the SFO will have the resources to do so, and how the courts will interpret the jurisdiction provisions in the Act remain to be seen.

Contractors and joint ventures

The broad scope of persons committing bribery for whom the organisation could be liable was another subject of concern. The guidance now clarifies the application of the Act to members of supply chains, joint venture entities, and joint ventures conducted through contractual arrangements.

SFO guidance

A further check on the Act, to ensure that the Act is applied justly and fairly, is the SFO and DPP's prosecution guidance. In common with other criminal offences, prosecutors will only proceed with a case if it passes the evidential stage (a case that does not have sufficient evidence will not proceed, no matter how serious or sensitive it is), and secondly the public interest stage. The prosecution guidance sets out factors that will be considered at the public interest stage, and a prosecution will proceed unless the prosecutor is sure that factors against prosecution outweigh factors in favour.

Factors in favour are: a conviction is likely to attract a significant sentence; the offence is pre-meditated and may involve corruption of the person being bribed; the offence is committed to facilitate more serious offending; and those involved in the bribery take advantage of their position of authority or trust. Factors against are: the court is only likely to impose a minor penalty; the harm was minor and the result of a single incident; and there was a genuine proactive approach including self-reporting and remedial action. The MoJ guidance specifically states that where hospitality, promotional expenditure, or facilitation payments on their face trigger the Act, prosecutors will consider very carefully the public interest test.

Once again, this guidance is something to be welcomed, as it makes it clearer that one bad apple will not necessarily upset the cart. However, it is notable that self-reporting is something flagged up by the guidance. The notion of self-reporting in return for a reduced sentence is not something that sits easily with the UK courts, as has been demonstrated by recent case law (for example in the BAE Systems case).

Conclusion

The final guidance is undoubtedly an improvement on the draft and is to be welcomed, particularly in its recognition that a risk-based and proportionate approach can be taken to preventing bribery. However, Kenneth Clarke's statement that "bribery is one of those things we all know when we see it" rather leaves UK PLC to exercise its own discretion in respect of conduct that is strictly prohibited by the statute but apparently tolerable under the guidance. Whilst it may be clear what is and is not bribery at either end of the scale, there are still shades of grey in between, and no business will want to find that its interpretation of what was required of it or what it did falls on the other side of the line from the SFO. Perhaps inevitably, the guidance does not make everything completely clear. We will have to wait to see how actively the SFO pursue prosecutions under the Act in the current climate, as well as what guidance is produced by the courts in case law.

Summary of the principles:

1. Proportionate procedures – the organisation's procedures to prevent bribery must be proportionate to the risks it faces and the nature, scale and complexity of the organisations' activities. They must be clear, practical, accessible, effectively implemented and enforced.

2. Top level commitment – top-level management are committed to preventing bribery and foster a culture in which bribery is never acceptable.

3. Risk assessment – the organisation periodically assesses the nature and extent of its exposure to risks of bribery on its behalf by persons associated with it on an informed and documented basis.

4. Due diligence – the organisation applies due diligence procedures taking a proportionate and risk based approach in respect of persons who perform or will perform services on its behalf to mitigate identified risks.

5. Communication (including training) – the organisation seeks to ensure its prevention policies and procedures are embedded and understood through communication and training that is proportionate to the risks it faces.

6. Monitoring and review – the organisation monitors and reviews procedures designed to prevent bribery by persons associated with it and makes necessary improvements.

Takeaway points on the new guidance

  • A proportionate and risk based approach is appropriate for organisations implementing adequate procedures to prevent bribery.
  • It is stated the objective of the Act is not to bring the full force of the law to bear on well run organisations that experience an isolated incidence of bribery.
  • There is a recognition that no prevention regime can prevent bribery at all times.
  • Departures from the guidance will not of itself give rise to a presumption that an organisation does not have adequate procedures (although where bribery has taken place the onus is on the organisation to show it had adequate procedures).
  • The Government states that it does not intend to prohibit bona fide reasonable and proportionate hospitality.
  • The jurisdictional reach of the Act is wide, but is not intended to capture companies due to the mere fact that they have securities trading on the London Stock Exchange or that a foreign parent has a UK subsidiary.
  • Facilitation payments are expressly prohibited by the Act.
  • In circumstances where individuals have no alternative to make payments to protect against loss of life, limb or liberty the defence of duress is likely to be available.

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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