The UK Bribery Act 2011 (the "Act") which came into force on 1 July 2011, does not just apply to UK corporations and UK residents, it consolidates existing legislation and also creates new offences covering bribery in the United Kingdom and overseas. Offshore businesses and entities cannot afford to ignore the Act given the close ties that many such businesses have with the UK.
There are four offences in the Act: the general offences of paying a bribe (Section 1) and receiving a bribe (Section 2); the bribery of foreign officials (Section 6), and the failure of commercial organisations to prevent bribery (section 7). The corporate offence represents the most significant departure from the old law on bribery and will place the onus on commercial organisations to ensure that their anti-corruption procedures are robust.
There are two key features that offshore commercial organisations (including both corporate and partnerships) and individuals need to consider:
- "Connected persons" (see below) can be prosecuted in the UK for offences committed anywhere in the world.
- Commercial organisations which carry out part of their business in the UK can be prosecuted for Section 7 offences (see below) committed anywhere in the world.
It is therefore possible for both individuals and commercial entities based offshore and who carry out any amount of business in the UK, no matter how small, to be prosecuted under the Act.
Failure of Commercial Organisations to Prevent Bribery
The effect of the Section 7 offence is to place a burden on businesses to ensure that their anticorruption procedures are sufficiently robust to stop any employees, agents or other third parties acting on behalf of the business from committing bribery. An offence will be committed where:
- a person associated with a relevant commercial organisation (which includes not only employees, but agents and external third parties) bribes another person (i.e. commits one of the offences in the Act) intending to obtain or retain a business advantage; and
- the organisation cannot show that it had adequate procedures in place to prevent bribes being paid.
Section 7 provides that it is a defence for an organisation to provide that it had adequate procedures in place to prevent persons associated with it from undertaking bribery.
Who May be Caught by the Act?
Offshore commercial organisations which may be caught by the Act include: offshore companies or partnerships with activities and/or subsidiaries in the UK. Companies or partnerships which fall into one these categories should consider putting into place anti-bribery procedures, so they can avail themselves of the Section 7 defence if needed. Where companies or partnerships believe that there is a real risk of being caught by the provisions of the Act, they should consider seeking both legal and tax advice, with a view to altering their legal and operational structure to protect the rest of the group from the activities of the UK operation.
The penalties can be severe. The Act raises the previous maximum jail term for bribery by an individual from seven years to ten years. A corporate vehicle or partnership convicted of failing to prevent bribery under section 7 could receive an unlimited fine. There may of course also be damaging collateral consequences such as disqualification of directors. The Guidance The Ministry of Justice has published guidance on what is considered to be "adequate procedures" to prevent bribery at (www.justice.gov.uk/guidance/docs/bribery-act-2010-guidance.pdf ). Whether an organisation has "adequate procedures" in place will be a question for the courts to decide and for the corporate vehicle/partnership to prove that it has such procedures in place.
The guidance sets out the following six principles around which procedures should be based:
- Proportionate procedures: procedures adopted by a commercial organisation are proportionate to the bribery risks it faces, taking into account the nature, scale and complexity of its activities. The procedures should be clear, practical, accessible, effectively implemented and enforced.
- Top-level commitment: top-level management, such as the board of directors or owners, are committed to foster a culture in which bribery is considered unacceptable. This should be communicated both internally and externally.
- Risk assessment: the commercial organisation periodically assesses the nature and extent of its exposure to potential internal and external risks of exposure to bribery (i.e., country risk, sectorial risk). The risk assessment should consider the nature of the business, its size, structure, and location.
- Due diligence: the commercial organisation undertakes due diligence on the individuals and entities who perform services on behalf of the company. Employees are considered as "persons associated" with the company and therefore the company should also conduct due diligence on its employees.
- Communication (including training): anti-bribery policies and procedures are embedded, communicated and understood throughout the organisation. Training is proportionate to the risks faced.
- Monitoring and review: the commercial organisation monitors and review its antibribery procedures in order to ensure that it adapts to changes that the business may face.
Clearly, the Act puts pressure on all offshore organisations doing business in the UK, to ensure that they have appropriate anti-corruption policies and procedures in place to avoid prosecution under the Act.
The Justice Secretary Kenneth Clarke has tried to reassure companies that the Act will be enforced with common sense, but it is clear that this approach will only apply to those organisations who have taken the Act seriously and have reviewed and amended their contracts and policies accordingly.
The Act has already kicked into action - an Administrative Clerk at Redbridge Magistrate's Court in London is the first person to be prosecuted under the Act, following allegations of misconduct during his employment. It is alleged that he promised an individual, summonsed for a motoring offence, that he could influence the course of criminal proceedings in exchange for £500. This first prosecution is a timely reminder to all organisations of the importance of ensuring that they have appropriate procedures in place to prevent bribery.
As originally appeared in Finance, Offshore – Autumn 2011
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.