UK: Bribery Act - General And Insurance Market

Last Updated: 26 June 2011
Article by Stephen Browning and Simon Gamblin

The much-delayed Bribery Act 2010 (the Act) will finally come into force on 1 July 2011, having received Royal Assent as long ago as April 2010. Guidance concerning the Act has now been issued, both generally and specifically for the insurance market.

In summary, the Act replaces the previous common and statute law by creating four offences:

  • bribing another person;

  • being bribed;

  • bribery of a foreign public official; and

  • the new corporate offence of a company's failure to prevent a bribe being paid on its behalf in the UK or elsewhere by a person with whom it is associated (which term includes employees and agents), subject to a defence of "adequate procedures" being in place to prevent a bribe.

Guidance concerning the Act has been issued by the Ministry of Justice (MoJ), the Serious Fraud Office (SFO) and the Director of Public Prosecutions (DPP). The guidance is intended to allay fears that the Act is a trap for the unwary, which could too easily result in strict liability for the bribery activities of a company's agents (including those outside the UK) and the criminalisation of everyday corporate activities, such as routine client entertainment.

The MoJ guidance helpfully makes clear that, in relation to having "adequate procedures" in place to prevent bribery, a company's procedures are expected to be proportionate to the risks that it faces and to the nature, scale and complexity of the organisation's activities. This is to be welcomed as recognising that, for example, small UK organisations are very unlikely to need such extensive procedures as multi-nationals. Nevertheless, it remains the case that where an associated person has committed a bribery offence, the burden of proof is on the company to show that it had adequate procedures in place, so all companies will wish to be able to point to a well-considered and proportionate anti-bribery policy.

The MoJ guidance also makes clear that it is not the Government's intention to criminalise reasonable and proportionate corporate hospitality expenditure. For such expenditure to be caught, the prosecution would need to show that the hospitality was intended as a bribe and this would be judged by the objective standard of a reasonable person in the UK. Clearly, all companies should have in place appropriate corporate gifts and hospitality policies.

The SFO and DPP guidance makes clear that prosecutions will only proceed if a case passes both the evidential stage and the public interest stage. Regarding the latter, factors in favour of prosecution would be:

  • conviction would be likely to attract a significant sentence;

  • the offence is pre-meditated and may involve corruption of the person being bribed; or

  • the offence is committed to facilitate more serious offending.

Factors against prosecution would be:

  • the court is only likely to impose a minor penalty;

  • the harm was minor and the result of a single incident; or

  • there was a genuine proactive approach including self-reporting and remedial action.

The guidance is to be welcomed, particularly that a risk-based and proportionate approach can be taken to preventing bribery. However, Justice Secretary Kenneth Clarke's characteristically breezy assertion that "bribery is one of those things we all know when we see it" leaves companies having to exercise their own discretion in respect of conduct that appears to be prohibited under the Act, but to which the guidance suggests that a blind eye may be turned.

Implications for the insurance sector

The insurance sector has of course been addressing anti-bribery issues for some time before the Act. Firms regulated by the FSA are expected to have anti-bribery controls in place. There is the overriding principle that firms must conduct their business with integrity (PRIN 2.1.1). Specifically, a firm's senior management is responsible for taking reasonable steps to prevent financial crime risks (including bribery) from crystallising (FSA Handbook, SYSC 3.2.6R).

The FSA has also given anti-bribery guidance to the insurance broking community in May 2010. Whilst the report is primarily concerned with the commercial brokerage market, it is also relevant to insurers and reinsurers and contains many examples of what the FSA considers to be good and bad practice in relation to anti-bribery and anti-corruption systems and controls.

Insurance market participants incorporated in the UK will be subject to the Act, as will non-UK companies if they participate in an act of bribery that involves a UK element. Non-UK companies, if they carry on business or part of a business in the UK, will be at risk of prosecution for the corporate offence if bribery is committed anywhere in the world on their behalf.

In relation to the corporate offence, it is worth bearing in mind that a company's associated person would have to be shown beyond reasonable doubt to have bribed another person with the intention of obtaining or retaining business or an advantage in the conduct of business for that company. A discussion between employees over placing an insurer's risk with a reinsurer might take place at a corporate hospitality event arranged by the insurer's employee, and the risk might subsequently be placed with the reinsurer. An offence may potentially have been committed only if it was the intention of the employee that the placement of the risk would be accepted because of the hospitality and not for a proper reason (such as that the risk was acceptable on its merits and its acceptance would be commercially remunerated).

In short, the new guidance makes clear that, like other business sectors, insurance market participants are not, as a result of the Act, at greater risk of prosecution in respect of their normal commercial behaviour. Bribery has always been unlawful and the MoJ is encouraging a common sense approach to concerns about the breadth of the Act. It will though be of even greater importance for companies to be able to point to well-documented and publicised policies and procedures on areas such as corporate hospitality and gifts.

On 17 May 2011, Lloyd's issued Market Bulletin Ref: Y4492 to update managing agents on the implementation of the Act and to give guidance on the key points that managing agents may need to review.

The guidance advises managing agents to review their relationships to determine who may be their associated persons for the purposes of the Act. These could include:

  • employees;

  • subsidiaries;

  • coverholders;

  • brokers acting on their behalf;

  • third party loss adjusters;

  • external advisors;

  • joint venture parties; or

  • other third party service providers

In addition to brief sections on corporate hospitality and facilitation payments, the Lloyd's guidance contains more detailed analysis of the position of coverholders and brokers. It recommends appropriate due diligence procedures and the use of anti-bribery terms and conditions in contracts between managing agents and their coverholders and brokers, where the latter are acting on behalf of the managing agents rather than the insured. Of course, where a broker is not an associated person of the managing agent, it is still necessary for the managing agent to consider whether any payment arrangements with the broker would constitute bribery under the Act.

Regarding commissions, the guidance states that Lloyd's is of the view that (i) payment of normal commission, generally paid to a broker (including as coverholder) out of the premium payable by its client, should not constitute an offence under the Act, provided it is reasonable and commensurate with the work involved, and (ii) other forms of remuneration paid by insurers to insurance intermediaries need to be considered on a case by case basis to check that they do not fall foul of the Act.

Lloyd's is engaged in a series of workstreams in relation to the Act, including:

  • publishing guidance for coverholders;

  • adding a financial crime binding authority clause to the standard binding authority wording (LMA 3019) to serve, inter alia, as an anti-bribery warranty with which coverholders must comply;

  • extending the scope of the coverholder audit to include compliance with the Act; and

  • writing to all Lloyd's accredited brokers asking them to confirm their compliance with the Act.

In addition, the LMA and IUA are reviewing the model TOBA wordings and, if considered appropriate, will publish an addendum in relation to financial crime prevention by 1 July 2011.

Lloyd's recommends that where there are any uncertainties arising from, inter alia, risk reviews, new business arrangements or relationships with, or remuneration payments to, third parties, managing agents should seek legal advice.

The IUA and LIIBA have also issued to their members guidance concerning the Act. Members can obtain copies of the guidance from the associations

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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