The new Bribery Act 2010 (the 'Act') comes into force on 1 July 2011. In the run-up to its introduction, there has been a great deal of uncertainty surrounding how the Act will affect businesses. In particular, there are concerns about how the Act will impact business hospitality and how risk can be managed to avoid the new corporate offence where bribes are given by persons associated with a company. The Ministry of Justice has now issued Guidance to explain the thinking behind the legislation and to set certain principles designed to assist companies in managing the risk of contravening the Act.
Offences under the Act
The Act has expanded the range of bribery offences for which individuals and organisations can be prosecuted. The offences under the Act are now: giving bribes, accepting bribes, bribing foreign public officials, the corporate offence of failing to prevent bribery and a senior company officer offence of consenting to, or conniving in, bribery by the company.
The concept of a bribe under the Act is very broad and includes the giving or receiving of an advantage, financial or otherwise, intended to induce the improper performance of a business activity or public function. In practice, it could include the payment or receipt of commission or other noncash benefit.
Hospitality
There has been consternation that providing and receiving hospitality, which has in the past been an important part of building and sustaining business relationships, may now constitute an offence. There are concerns that the Act will affect ticket sales to fundraising events and income from the hiring of art spaces for corporate events, if companies hesitate to entertain clients in this way for fear of contravening the Act.
In order to constitute an offence, a prosecutor will have to show that the 'hospitality was intended to induce conduct that amounts to a breach of an expectation that a person will act in good faith, impartially or in accordance with a position of trust'. The Guidance recognises that 'bona fide hospitality and promotional or other business expenditure which seek to improve the image of a commercial organisation, better to present products and services or establish cordial relations, is recognised as an established and important part of doing business'. It has confirmed that it is not the intention of the Act 'to criminalise such behaviour' and that, for example, a trip to Wimbledon or the Grand Prix will not generally constitute an offence.
However, the Guidance does not go any further in drawing the line between hospitality that is acceptable and hospitality that constitutes bribery. Whilst entertaining private collectors or donors is unlikely to be an issue if you seek to attract their personal business or donations, lavish hospitality extended to trustees or Board members could potentially fall within the Act, if the prosecution can show that such hospitality was intended to induce them to act improperly as trustee or director.
Facilitation payments
The payment of small sums of money to facilitate routine government action in developing countries is not unusual. These facilitation payments could amount to the offence of bribing a foreign public official under the Act. The Guidance states that whilst the Government recognises the existence of this type of payment and that it will take a period of international collaboration in private and public sectors to eradicate the practice, such payments 'perpetuate an existing culture of bribery and have the potential to be abused'; therefore, no exemption will be made for them under the Act. The only exception is in acutely threatening circumstances where payments are to prevent 'loss of life, limb or liberty'.
New corporate offence
The introduction of a new strict liability offence for companies of 'failure to prevent bribery' in s7 of the Act is a significant departure from the current law. An organisation will commit the offence if a person performing services on its behalf bribes another person to secure a business advantage for that organisation. The organisation commits the offence if the individual acting for it bribes another; the corporate offence is not committed if the individual receives a bribe.
The Guidance provides that:
- this is a strict liability offence, meaning that the prosecution does not have to prove fault, negligence or intent on the part of the company;
- the organisation will commit the corporate offence irrespective of the legal status of the person giving a bribe; the person may be an employee, agent, representative, intermediary, introducer or a legal person such as a subsidiary company. In fact, there is no requirement for any form of contract between the representative and the organisation, nor any requisite degree of control over the representative by the organisation. The Guidance states that the intention of the legislation is to give s7 'broad scope' and 'to embrace the whole range of persons connected to an organisation';
- in a transaction which involves a number of parties subcontracting their services, an organisation will only be associated with a party with which it is directly contracting and not others further down the contractual chain. The Guidance advises including anti-bribery provisions in its contractual terms and obliging the other contracting party to include anti-bribery provisions in its own contractual arrangements;
- an organisation may be liable even if the person making the bribe on its behalf is neither a UK national nor based in the UK and, in the case of a legal person, is neither registered, incorporated nor situated in the UK;
- the fact that bribery is not illegal in the country where the bribe is paid, or that it is standard practice, is no defence under the Act.
The Guidance states that the main objective of the Act is to prevent rather than punish bribery; it provides a defence to the strict liability offence if an organisation is able to demonstrate that it had adequate procedures in place designed to prevent bribery by those performing services on its behalf. Such procedures will be of 'significant interest to those investigating bribery' and will be relevant when considering whether to prosecute an organisation.
The 'adequate procedures' defence will be particularly important to art market businesses using the services of representatives over whose business practices they have little control or oversight. A UK gallery operating as a limited company, relying on a representative abroad to drum up business, will commit the corporate offence if the representative is found to have been paying bribes, unless the gallery can rely on the 'adequate procedures' defence.
The Guidance has recognised that what constitute 'adequate procedures' will vary from organisation to organisation. It sets out six guiding principles. It makes clear that these six principles are not prescriptive and will vary according to circumstance and the size and nature of the organisation involved:
- proportionate procedures – procedures in place should be 'proportionate to the bribery risk faced' and to the 'nature, scale and complexity of the commercial organisation's activities'. The size of the organisation is therefore not key, as a small art dealer may still undertake activities that put it at a high risk of contravening the Act. Procedures should be effectively implemented and enforced;
- top level commitment – a culture needs to be established across the organisation in which bribery is considered unacceptable. The message needs to be made clearly and unambiguously to staff and business partners and reinforced by senior management;
- risk assessments – assessments of the extent and nature of the business's exposure to the risk of bribery need to be recorded in writing and updated regularly;
- due diligence – companies need to know as much as possible about who they are doing business with, particularly where intermediaries and agents are being used. Again, undertaking due diligence is not sufficient in itself; bribery risks must be mitigated against or avoided. Due diligence will be of particular importance to art market businesses who regularly use agents and intermediaries. The Guidance suggests that businesses obtain and verify as much information as possible about individuals with whom the company has dealings and that a clear written statement is made of the way in which that individual will work on behalf of the company, and how and when fees and commission may be paid;
- communication and ongoing training – to be provided, and all policies and procedures to be made available to staff in a practical manner; and
- regular monitoring and review of procedure.
For art market businesses, which are often small and regularly use and have dealings with independent associates, the challenge is how to communicate a strong anti-bribery stance to such associates without damaging often delicate personal relationships.
Before the Act comes into force on 1 July 2011, organisations should consider how to adopt and implement anti-bribery policies and procedures. When considering policies and procedures, it will be essential to think globally, because foreign operations of UK-based businesses may be caught by the Act. Foreign companies operating in the UK may also be caught.
Charitable organisations
There has been significant concern in the charitable sector as to whether and how far the 'failure of commercial organisations to prevent bribery' offence applies to charities. The Guidance has clarified that incorporated charities (for example those limited by guarantee, Royal Charter bodies and statutory corporations) that carry on businesses will be caught as commercial organisations, irrespective of whether their aims are charitable and of the purpose for which profits are made. Unincorporated charities and associations will not be caught.
Neither the Act nor the Guidance defines 'business' but the Guidance provides that a common sense approach will be adopted; where a charity engages in commercial activities, it is likely to be caught. As many charities carry out their commercial activities through incorporated trading subsidiaries to which the Act will apply, it is sensible for charitable art organisations to take a cautious approach and assume that they could be liable under s7 of the Act.
Penalties
There is a maximum penalty of 10 years' imprisonment for all the offences other than the corporate offence, which will carry an unlimited fine. The Courts have indicated that they view bribery as an extremely serious offence and, although the Guidance sets out that prosecution will only occur if either the Director of Public Prosecutions or the Director of the Serious Fraud Office is satisfied that a conviction is more likely than not and that the prosecution is in the public interest, it remains to be seen how rigorously enforcement powers will be used.
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.