UK: The Bribery Act 2010 - Impact On The Investment Funds Sector

Last Updated: 18 April 2011
Article by Eve Ellis


The Bribery Act 2010 (the "Act") is scheduled to come into force on 1 July 2011. This note summarises the provisions of the Act and discusses in particular its effect on the investment funds industry. For a more general overview of the Act, please click here.

Overview of the main offences

The Act introduces four main offences and several sub offences. The first two offences involve the making and receiving of bribes, the third the bribery of foreign public officials and the fourth the corporate offence of failing to prevent bribery - the fourth proving to be the most controversial provision of the new Act, especially for the investment funds industry. As a consequence, the remainder of this note focuses on this offence.

Under the fourth offence, a commercial organisation will be guilty of failing to prevent bribery if an 'associated' person performing services on the organisation's behalf offers, promises or gives a financial or other advantage to another person with the intention of obtaining or retaining business or a business advantage for the organisation. An associated person could include employees, agents, joint venture partners, franchisees, introducers or subsidiaries. This is a strict liability offence and the organisation could be found guilty even where it played no role in, and had no knowledge of, the bribery. Organisations will however have a defence of proving that they had 'adequate procedures' in place designed to prevent bribery by those performing services on their behalf.

What is meant by 'adequate procedures'?

The Ministry of Justice (the "MOJ") has recently set out guidance on what procedures a commercial organisation can put in place to prevent it breaching the strict liability offence. These procedures must be based on six principles which should be considered and applied using a risk-based approach to management of the risk of bribery by a person associated with the organisation.

Of particular significance to the investment funds industry is principle 3, which requires an organisation to assess the nature and extent of its exposure to potential external and internal risks. External risks are categorised into 5 groups, including country risk and sectoral risk, which will require particular consideration by a fund manager in relation to the jurisdictions and markets it invests in.

Further details of the six principles set out by the MOJ are in Charles Russell's main client alert on the MOJ guidance which is available here.

What does this mean for the investment funds industry?

Whilst all financial institutions need to review their policies against the new Act (including any corporate hospitality and entertainment policies), investment funds and fund managers in particular, as well as reviewing their investment policies and portfolios generally, should consider which persons are 'associated' with them for the purposes of the Act.

UK funds (or funds connected with the UK) should bear in mind that a fund manager providing management services will be a person 'associated' with the fund for the purposes of the Act, potentially leaving the fund open to liability should it be prosecuted under the fourth offence of failing to prevent bribery committed by the manager. In order for a fund to avail itself of the 'adequate procedures' defence, it should ensure that the manager has adequate anti-bribery policies in place.

Equally, funds and their managers should be cautious when entering into contractual arrangements with 'associated persons' performing services for the manager or the fund, for example placement agents and ensure that such persons have policies and procedures in place which are of the same standard as the manager's own.

The implications for a fund manager found guilty under the Act are particularly serious. The manager could have its authorisation removed by the FSA and the relevant individuals could be imprisoned and/or prevented from working in the UK financial services industry.

The investment funds sector, in particular private equity funds and managers should also consider the potential implications of the Act in relation to portfolio companies. A portfolio company is subject to the Act if it is based in or is carrying on business in the UK. However, even where a portfolio company has no place of business in the UK, there is a risk that services performed for the portfolio company by a UK manager might lead to the portfolio company being categorised as carrying out business in the UK and therefore expose it to prosecution under the Act in its own right. For bribery at the portfolio company level to put a fund or manager at risk of failing to prevent bribery under the Act, the portfolio company would need to be performing services for the fund/manager (in order for it to be deemed an 'associated person') and this will need to be analysed on a case by case basis. In any event, a bribery investigation into a portfolio company is likely to have a negative impact on the value of a fund's interest in such portfolio company (as a result of possible criminal fines and/or costly civil litigation). In addition, bribery at the portfolio company level may be damaging to a fund manager's reputation. Funds and managers alike therefore have an interest in satisfying themselves regarding the adequacy of a portfolio company's anti-bribery compliance programme.


Fund managers should ensure that they have a good understanding of the requirements of the new Act which is broader in scope than existing bribery laws. Adequate compliance procedures should be established at the fund, the manager and (if necessary) the portfolio company level, so as to be able to mitigate the risk of breaching the Act.

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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