PREPARING FOR THE UK BRIBERY ACT 2010
Publication of Guidance on Adequate Procedures; Implementation Date for the Act Set For 1 July 2011
Earlier this year, implementation of the UK Bribery Act 2010 (the Bribery Act), which was originally scheduled for April 2011, was delayed pending publication of the Ministry of Justice (MoJ) guidance on the "adequate procedures" that businesses should put in place to prevent bribery. Under the Bribery Act, "adequate procedures" could provide a defence to the new section 7 offence under the Bribery Act of failure of a commercial organisation to prevent bribery. The MoJ said that it aimed to make the guidance as "practical and comprehensive" as possible: it will apply to UK commercial organisations as well as any non-UK commercial organisation that carries on a business or part of a business in the UK.
The MoJ published its final guidance on 30 March 2011 (Guidance) and businesses have three months before the Bribery Act comes into force on 1 July 2011 to review and implement anti-corruption procedures to ensure that they do not fall foul of the new section 7 offence. The MoJ has also published a short "Quick start guide” specifically aimed at smaller businesses.
In the introduction to the Guidance the UK Secretary of State for Justice, Ken Clarke, says: "the UK wants to play a leading role in stamping out corruption and supporting trade-led international development.” However, he also emphasises that "combating the risks of bribery is largely about common sense, not burdensome procedures. The core principle [the Guidance] sets out is proportionality.”
Common sense and proportionality are therefore common themes throughout the Guidance. Also, some highly publicised problem areas have been clarified after substantial lobbying from industry; for example, what is meant by carrying on business in the UK. In addition, various statements are made reinforcing the point that reasonable and bona fide hospitality is considered an acceptable business practice (even with references to particular sporting events) in order to reassure the corporate community that hospitality is a normal part of doing business.
The Guidance opens by saying that it is designed to be of general application, not prescriptive and not a one-size-fits-all policy document. Businesses should adopt a risk-based approach. Where the risk of corruption faced by a business is low, not all the procedures in the Guidance may be relevant and so businesses must implement procedures proportionate to the risks that they face. Whether the procedures adopted are in fact adequate can only be resolved by the courts, taking into account the facts and circumstances of the case. The Guidance provides a best practice for commercial organisations to adopt.
The Guidance first addresses the key sections of the Bribery Act, and then suggests procedures that should be adopted to deal with the prevention of bribery around six key principles. The Guidance states that these principles are not prescriptive but are intended to be flexible and "outcome focused”. This allows for the variety of circumstances that commercial organisations will find themselves in.
The Six Principles
The six principles set out in the Guidance are:
- Proportionate procedures – The need for procedures to prevent bribery that are proportionate to the risks faced by the organisation and to the nature, scale and complexity of its activities. This principle sets the tone for the other five principles (which provide guidance on how to implement proportionate procedures) with the statement that "the procedures should seek to ensure there is a practical and realistic means of achieving the organisation’s stated anti-bribery policy objectives across all of the organisation’s functions”.
- Top-level commitment – It has been an important and consistent theme throughout consultation on the Guidance that responsibility to promote an anti-corruption culture should exist at the very top of a commercial organisation and the anti-bribery culture should be communicated from the top level down.
- Risk assessment – Each organisation should assess the risks it faces in relation to its activities and those of persons associated with it for the purposes of the Bribery Act. This principle categorises the risks that an organisation should be aware of, for example, the country risks of doing business in a particular overseas jurisdiction.
- Due diligence – The Guidance explains that proper due diligence procedures are both a form of bribery risk assessment and a means of mitigating risk. The purpose of due diligence is to ascertain the level of proportionate measures that require to be put in place by an organisation in order to prevent bribery.
- Communication (including training) – Making sure that an organisation’s anti-corruption culture is known and understood throughout the organisation by way of internal communication and internal training. There should also be put in place help lines within an organisation for the confidential communication of bribery concerns.
- Monitoring and review - Anti-bribery procedures should evolve and remain appropriate to the extent that an organisation’s business develops or external circumstances change and should therefore be regularly reviewed.
There are also case studies in the Guidance which, although not forming part of the Guidance itself, are intended to assist organisations in determining what might be most appropriate for them when developing their own procedures. The case studies are not intended to set minimum standards or provide actual advice but rather, through possible scenarios, give guidance as to what procedures may be suitable. They concentrate on overseas risks, which is consistent with the UK Government’s determination to stamp out bribery occurring abroad by businesses over which the UK Courts have jurisdiction.
As mentioned above, the Guidance includes a number of clarifications to deal with problems raised by industry on the scope of the section 7 corporate offence. The Guidance states that it is taking a common sense approach on the meaning of carrying on business in the UK and sets out guidance on whether liability for the offence can attach in instances such as joint venture situations or via a subsidiary.
Carries on a business in any part of the UK
The approach of the Guidance to the question of whether an overseas company can be regarded as carrying on business, or part of a business, in the UK is that this would not cover situations where organisations do not have a "demonstrable business presence” in the UK although the question is ultimately one for the courts. More specifically, the Guidance states that:
- the mere fact that a company’s securities have been admitted to a UK Listing would not, in itself, qualify that company as carrying on a business or part of a business in the UK thereby differentiating the Bribery Act the US Foreign Corrupt Practices Act, which asserts jurisdiction over any company listed on a US exchange.
- having a UK subsidiary will not, in itself, mean that an overseas parent company is carrying on a business in the UK, since a subsidiary may act independently of its parent or other group companies.
The Guidance confirms that the definition of a person being "associated” through performing services for a relevant commercial organisation is broad so "as to embrace the whole range of persons connected to an organisation who might be capable of committing bribery on the organisation’s behalf.” The Guidance includes some helpful analysis as to whether suppliers in a supply chain, contractors and joint ventures fall within this definition but also puts forward a new concept (which does not feature in the Bribery Act itself) of the level of control exercised over a person as being a relevant issue in deciding whether the person is "associated”.
Suppliers and contractors
Contractors could be "associated” persons to the extent they perform services for and on behalf of the organisation. An ordinary supplier of goods would not be, but where a supplier performs services for an organisation, it may also be an "associated” person.
In relation to multi-layered supply chains or a project involving a prime contractor and a number of sub-contractors, the Guidance takes a contract by contract approach applying the concept of exercise of control. There is recognition that an organisation is likely only to exercise control over its immediate contractual counterparty. Persons who contract with that counterparty and below should be viewed as performing services for the counterparty and not for the organisation or other persons in the contractual chain. However, as part of risk assessment based due diligence for such a supply chain, the Guidance recommends that the organisation should use anti-bribery procedures (and anti-bribery terms and conditions) in the relationship with its contractual counterparty and should request that the counterparty adopt a similar approach with the next party in the chain.
For joint ventures involving a separate legal entity, a bribe paid by one of the employees or agents on behalf of the joint venture company should not trigger liability for the members of the joint venture company simply by virtue of the members benefiting indirectly from the bribe through their investment in the company. The existence of a joint venture entity will not of itself mean that it is "associated” with its members. Liability depends on the joint venture company performing services for the member, and the bribe being paid with the intention of obtaining or retaining business for that member.
In the situation of a contractual joint venture, the degree of control that a participant has over a joint venture arrangement is one of the "relevant circumstances” likely to be taken into account to decide whether a person who paid a bribe in the conduct of the joint venture business was "performing services for or on behalf of” a participant in that arrangement. Therefore, an employee of one participant who had paid a bribe in order to benefit his employer would, ordinarily, be presumed to be performing services on behalf of his employer only and not all the other participants in the joint venture.
The business advantage linkage
The Guidance points out (as is set out in the Bribery Act itself) that a section 7 offence will only arise if the payer of the bribe intended to obtain or retain business or an advantage in the conduct of business for the organisation. The relevant intention here is of the associated person. The fact that an organisation may benefit indirectly from a bribe through an investment or through receipt of dividends from a subsidiary, will be unlikely (in itself) to amount to proof of the specific intention required for the offence. A bribe on behalf of a subsidiary by one of its employees will not automatically involve liability for the parent company or the other subsidiaries of the parent company.
Facilitation payments remain illegal under the Bribery Act as under previous UK law and there has been no change to the zero-tolerance position under the Bribery Act. The Guidance notes the long-term objective of the Government to eradicate such payments from business transactions. The Guidance suggests a number of set procedures to deal with the issue of facilitation payments which are set out in one of the Guidance case studies.
In circumstances where a failure to make a payment may be a matter of life, limb or liberty, the Guidance recognises that the common law defence of duress is likely to be available to defend any bribery charge. The Guidance makes reference to the joint prosecution guidance issued by the Director of the Serious Fraud Office and the Director of Public Prosecutions which considers the approach of the departments to prosecution in relation to such payments. Importantly this document highlights the public interest framework in any decision on bringing prosecutions. It also makes the significant statement that the Bribery Act "is not intended to penalise ethically run companies that encounter an isolated incident of bribery”.
The Champagne Can Still Flow
There is much emphasis in the Guidance on reassuring the business community that bona fide reasonable and proportionate corporate hospitality and promotional or other business expenditure, intended to promote the image of a commercial organisation, cement good relations, or to market or present its products or services, is legitimate under the Act. The Guidance recognises that such expenditure plays an important role in commercial relations, both in the private and the public sectors. In relation to private corporate hospitality, such as an invitation for clients to a rugby international or to Grand Prix racing, the Guidance makes it clear that this is highly unlikely to be considered bribery unless the intention was to influence someone to perform his or her relevant function improperly. Proportionality is a key factor.
The Guidance covers public sector considerations when analysing bribery offences under section 6 of the Act (bribery of foreign public officials). With regard to gifts or hospitality given to foreign public officials, an offence would only be committed where it was intended that the advantage conferred on the official (or another person at his request) would influence him in his decision-making process. Generally, the greater and more lavish the hospitality or gift, the greater is the inference that it was intended to influence. However, the Guidance surprisingly endorses the concept of flights and hotels for officials if required for a genuine and justifiable business meet-up with executives from a commercial organisation, or for flights to a trip to distant mining installations in order to verify the organisation’s safety requirements which the Guidance also says will fall outside the scope of the Act. On the other hand a five-star holiday for a foreign public official, to a destination unrelated to the organisation’s activities, is more likely to give rise to the inference that the trip was intended to influence.
The Guidance tells us that the more lavish the hospitality or the higher the expenditure in relation to travel accommodation which is provided to a foreign public official then the greater the inference that it is intended to influence the official to grant business or a business advantage in return.
A strong message is given to companies in the business world to review their policies on hospitality and promotional expenditure as part of their anti-bribery procedures leaving it to corporates to decide what are reasonable and proportionate standards. Again, the theme is common sense not burdensome procedures.
The Way Forward
It is clear that the Government has responded to the concerns of industry and other interested stakeholders raised during the consultation period for the Guidance. Significant clarification has been made on problem areas such as the meaning of carrying on business and what is, or is not, an "associated” person, both of which are important concepts in relation to the section 7 offence. A strong endorsement of the legality of hospitality and promotional activities features, together with particular examples of what would be reasonable and proportionate although an expected clarification concerning hospitality at the forthcoming 2012 London Olympics was not included.
It is now for commercial organisations both in the UK and outside the UK to work on and implement their procedures ahead of the implementation date for the Act on 1 July 2011. Many have prepared their policies already, with some companies awaiting final Guidance. The Guidance will allow for more meaningful interpretation of the legislation, particularly regarding the level of hospitality which is acceptable and lawful, so that corporates can conclude that they have in place "adequate procedures” for the purposes of the Act.