First published in Ethisphere, January 27, 2012
1. 2011 HIGHLIGHTS
Coming into force in July 2011, the UK Bribery Act 2010 (the "Act") brings corruption in international business to the forefront as corporations endeavour to remain compliant with varied anti-corruption legislation around the world. Although only recently effective, the Act is perhaps the most far-reaching anti-corruption legislation enacted to date, and already has caused and is expected to continue to cause corporations in the UK and elsewhere to reconsider internal policies and procedures designed to detect and prevent corrupt conduct. This article considers the developments in anti-corruption legislation in the UK in 2011 and looks ahead to 2012 to discuss what may be still to come.
(a) The Bribery Act 2010
The Act, which came into force on 1 July 2011, is similar to other world-wide anti-corruption legislation in that it makes it an offence to give or offer a bribe to foreign public officials. Beyond the conduct captured by other legislation, however, the Act also criminalizes the giving or offering of bribes to private individuals and also makes it an offence for any person, whether public official or private citizen, to solicit or receive a bribe.
In addition, Section 7 of the Act introduces a new corporate offence, providing criminal liability for failure to prevent an "associated person" (who may be an employee, agent, contractor, partner or any similar person) from making a bribe on the organizations' behalf. An organization can defend itself from any claims under the corporate offence by establishing adequate procedures to prevent or detect the giving or receiving of bribes by such associated person.
(b) Adequate Procedures and the Ministry of Justice Guidance
The concept of adequate procedures is quite vague, and continues to be so despite being addressed by the "Ministry of Justice Guidance on procedures which relevant commercial organisations can put into place to prevent persons associated with them from bribing" (the "Guidance"). The much anticipated Guidance, which was published in March 2011 after a prolonged consultation period with representatives of numerous entities, including significant UK and international corporations, law firms and lobbying groups, and transparency organizations, is widely thought to have failed in its principal goal of clarifying the meaning of adequate procedures effectively.
The Guidance establishes six key principles to consider when creating procedures to tackle corruption:
(i) Proportionate Procedures: Proportionality is said to be central to the Guidance, and businesses are encouraged to first assess their exposure to potential bribery and implement appropriate procedures to address risks.
(ii) Top-Level Commitment: High level management must lead by example to eradicate bribery throughout an organization.
(iii) Risk Assessment: Businesses must periodically assess their exposure to bribery and corruption both internally and externally and document these assessments.
(iv) Due Diligence: This principle ensures businesses have a risk-based approach in determining who will perform services on behalf of the business.
(v) Communication (including training): Training has been expressly included in this principle, recognizing its importance in preventing bribery.
(vi) Monitoring and Review: Corporations must continually
evaluate compliance efforts.
Despite the actual terms in the Act, the Guidance attempts to provide corporations with some assurance that certain activities traditionally considered part of normal business development, such as expenditures for hospitality and promotional activities, are not intended to be criminalized. Despite the potential for the Guidance to narrow the application of the Act, due to the broad manner in which the legislation is drafted, the lack of precedent from which to predict the Act's enforcement, corporations are well advised to assure that they have a thorough and effective anti-bribery policy in place. The Guidance similarly stresses the need to review and monitor conduct to assure that compliance programs are effectively implemented and that personnel remain attuned to red flags that could put the company on notice of potential compliance concerns.
Like the U.S. government, the UK government has stated that there is no one compliance program that will work for all corporations. Indeed, complete certainty as to what will constitute adequate procedures may never be possible as adequacy is dependant upon surrounding circumstances, greater clarity is expected in the form of judicial rulings in the coming years. In the meantime corporations should consider other areas of anti-corruption enforcement, which is likely to impact the UK government's enforcement of the Act.
(c) The Financial Services Authority (the "FSA")
While the FSA are not authorised to implement the Act, they have their own set of anti-corruption regulations established in various handbooks that apply to the entities which they regulate, including banks, investment firms, credit unions, mortgage and finance providers and brokers, insurers, stockbrokers, asset managers, and other financial advisors. The FSA have taken the new dawn in UK anti-corruption to stress the importance of their anti-bribery regulations, and highlighted them in various newsletters to their members throughout the year, as well as publishing "Financial Crime, a guide for firms" in June 2011.
The FSA's activities are mainly relevant only to those
entities they regulate, however, given the Act and the FSA
regulations both require the active implementation of anti-bribery
policies, some lessons may be taken from FSA decisions. In July
2011 the FSA published a decision relating to Willis Limited, in
which Willis had established working relationships with third
parties. Willis had a policy in place to address the potential
risks of corruption and some due diligence was carried out on the
third party involved. However, the policy in place was found
insufficient to comply with FSA requirements because, among other
failings, the policy was not adequately implemented, involved no
management oversight, there was no training provided, and the
company did not take steps to ensure the policy was followed by the
staff. Although not binding on the Serious Fraud Office and the UK
courts in their application of the Act, such decisions provide some
insight into what may be viewed within the confines of adequate
procedures and serve as an interesting backdrop to future
prosecutions under section 7 of the Act.
A copy of the decision in Willis can be found here: [www.fsa.gov.uk/pubs/final/willis_ltd.pdf]
(d) The Act and the FCPA
The U.S. unquestionably remains the worldwide leader in anti-corruption enforcement, with U.S. regulators recording over $270 million in criminal fines in just the first nine months of 2011 alone. And while the U.S. Foreign Corrupt Practises Act of 1977, as amended (the "FCPA") was previously viewed as one of the most extensive and wide-reaching anti-bribery measures globally, this status may have been usurped by the new Act. While the Act and the FCPA have some similarities, such as their extra-terrestrial application, there are some major differences that must not be forgotten (and the SFO have been at pains to ensure this), which include:
(i) Commercial Bribery: the Act (as did the UK law the Act replaced) applies to bribes given or received by commercial persons as well as public officials.
(ii) Receiving Bribes: the Act makes it an offence to solicit and receive bribes;
(iii) Strict Liability Corporate Offense and Defense to the Same: the Act creates a new stand-alone corporate offense and provides an available defense to companies for bribes made on behalf of the entity;
(iv) Facilitation Payments: the Act (like the UK law the Act replaced) considers facilitation payments (those being payments made to speed up or secure routine and non-discretionary actions, for example for routine governmental inspections) as unlawful bribes;
(v) No Defense for Reasonable and Bonafide Expenditures: the Act does not contain a parallel defense to the FCPA for reasonable and bonafide expenditures on behalf of government officials in the performance of a contract or the promotion of goods and services.
Similar to the FCPA, the extraterrestrial application of the Act is a factor in the perception that it is one of the most significant anti-corruption legislations globally. The Act's main bribery offences apply to UK citizens and companies incorporated in the UK as well as individuals who reside in the UK. The corporate offence however, applies to any organization that "carries on business in the UK" wherever that company is incorporated and irrespective of where the bribe occurs. Although SFO flexed their muscles prior to the publication of the Guidance, claiming that the application of the corporate offence would be imposed as broadly as possible, the Guidance reigned back on this decree, suggesting that while the application of the Act will be determined by courts on a case by case basis, the fact a company is listed on the London Stock Exchange for the purposes of raising finance or a company has a UK incorporated subsidiary will not automatically qualify as "carrying on business" in the UK. It remains to be seen how the courts will interpret this provision and looking ahead to 2012 there is much anticipation as to whether any judicial guidance, in the form of prosecutions, will be provided, as discussed below, the SFO clearly intend it to be.
(e) First Prosecution under the Act
Despite the SFO's extremely aggressive stance in the lead up
to the implementation of the Act, it was the Crown Prosecution
Service (the "CPS") who brought the first prosecution
under the Act. On 31 August 2011, the CPS brought a case against
Munir Patel, a court worker, for requesting and accepting a
Ł500 bribe to keep a traffic offence off the register. The
charge was brought under section 2 of the Act and Mr. Patel was
eventually sentenced to six years imprisonment (although only three
years of this sentence related to offences under the Act, Mr. Patel
was also charged for misconduct in a public office).
Despite being the first prosecution under the new Act, it was by no means groundbreaking. The UK has long had laws dealing with accepting bribes while in a public office, and should the bribe have been paid prior to 1 July 2011, a prosecution would no doubt have been brought under common law bribery offences. Some see this case as rather a disappointment given that the eyes of the world were on the first prosecution under the Act. It should come as no surprise, however, the CPS are expected to bring far a greater quantity of cases under the Act as it focuses on low value domestic bribery meaning investigation is quicker and cheaper. The SFO however investigate high value, sophisticated international bribery for which investigations take more time, meaning the wait for an SFO prosecution of violations under the Act could be lengthy.
2. LOOKING AHEAD TO 2012
There was a flurry of activity in 2011 in the anti-corruption world in the UK and elsewhere in the world and 2012 is expected to be no different. The SFO continue to flex its muscles and threatens enforcement actions, and ongoing discussions with the U.S. over the potential introduction of plea bargaining agreements may see a major change in the way in which prosecutions are brought in the UK.
(a) SFO Enforcement
Despite some uncertainty earlier in 2011 as to the future of the
SFO, their existence and enforcement capabilities are here to stay
following the appointment of a new director for a four year term.
David Green CB QC is set to replace Richard Alderman in April 2012
and his approach to enforcement of anti-corruption laws is expected
to be just as stringent of that of Mr. Alderman.
As a result of the SFO being beaten to the first prosecution under the Act, they maybe keen to ensure their enforcement powers are not forgotten. The SFO have spent 2011 pursuing and publicising a number of their prosecutions under the old law and continuing to stress, despite the Guidance reigning in the breadth of the Act, that they intend to enforce the Act as widely as possible.
It remains to be seen when the SFO will bring its first prosecution under the Act and what it shall entail, but given the anticipation and the eyes of the world upon it, it is expected to be a major case of sophisticated international bribery.
(b) Deferred Prosecution
Despite its popularity as a means to resolve corruption enforcements in the U.S., it was not until 2009 that the SFO first introduced deferred prosecution agreements in civil proceedings, and only 10 companies had self-reported by mid-2011. Self-reporting is still being encouraged by the SFO and Richard Alderman, the SFO's outgoing director, made it clear self-reporting will be a consideration when the SFO decide whether to prosecute and whether to make use of the civil penalties under the Proceeds of Crime Act 2002.
Nevertheless, corporations remain uneasy at the prospect of self-reporting when there is no certainty that criminal proceedings will not be initiated under the Act, meaning the ability to make use of deferred prosecution agreements is extinguished. Due to this the SFO have had informal discussions with the US Department of Justice, who have a long standing plea bargaining procedure in place in the case of criminal proceedings.
The introduction of plea bargains in the UK is not however, a
newly mooted idea. In 2008 the Attorney General published the
results of a consultation on the topic, determining that the
justice system is the proper body to determine criminal
convictions, and this should not be a role handed to a regulatory
The introduction of such plea bargains would, no doubt, take time and the introduction of new primary legislation, but would be expected provide companies with greater control as to the outcome of their fate, thereby encouraging self-reporting.
What will be expected in 2012, even if plea bargaining is not
introduced, is an overhaul of the 2009 deferred prosecution
guidance in order for it to recognise the existence of the new
2011 has been an active year in global anti-corruption efforts, particularly for those representing and defending companies and individuals with some connection to the UK. With the first Act prosecution in the rear view mirror, and continued pronouncements about aggressive prosecution to come, we expect that 2012 will follow this trend.
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