Ten years have passed since the introduction of the UK’s primary anti-corruption law, the Bribery Act 2010 (“the Act”). This article examines the extent to which the Act has lived up to its billing as the international “gold standard”1 for bribery legislation and looks ahead to future trends in UK economic crime enforcement.
Introduction of Bribery Act Prompted Compliance Overhaul
Section 7 of the Act, which criminalises the failure of a commercial organisation to prevent bribery, has had a significant impact on corporate culture in the UK.
Whereas corporate criminal liability is ordinarily attributed through the ‘identification principle’, where a company’s state of mind is determined by reference to the actions of its senior officers, a section 7 offence is made out if a person associated with the corporate bribes another person and the corporate cannot prove on the balance of probabilities that it had in place ‘adequate procedures’ to prevent bribery. Section 7 therefore lowers the evidential bar for prosecution and reverses the burden of proof.
This fundamental change prompted many organisations to completely overhaul their compliance programmes, with a view to preventing bribery by associated persons, and therefore being able to rely on the adequate procedures defence provided by the Act should they fail to do so. As the OECD noted, the Bribery Act has “prompted substantial progress” in the adoption of anti-corruption measures, which are “well advanced” in UK companies.2 On that measure, before assessing prosecutions and convictions under the Act, it may be judged a success.
Weak Enforcement Figures May Encourage Companies to Cut Corners
Whether this positive impact on corporate culture can be sustained is open to question, however. Over the past decade, only two companies have been convicted of section 7 offences.3 In light of these figures, companies that spent significant sums adopting stronger anti-bribery programmes ten years ago might reconsider whether the cost of maintaining or improving these programmes is proportionate to the risk of prosecution.
In an OECD study on the drivers of anti-corruption compliance internationally, over 80% of respondents stated that avoiding prosecution or protecting their company’s reputation was a “significant” or “very significant” factor in their decision to adopt an anti-bribery programme.4 If prosecution does not appear to be a realistic prospect, motivation to maintain high standards in such programmes may start to wane, particularly among smaller organisations.
A March 2012 survey by FTI Consulting found that 29% of respondents were “risk takers” who were prepared to contravene the Act to win new business, while 20% of respondents were “confident” that they could do so “without getting caught.”5 These more cavalier companies and individuals are unlikely to have been cowed into compliance by prosecution figures to date.
Adequate Procedures Inadequately Defined
For most companies that strive to comply with the Act, there is limited official guidance on how to achieve this and, crucially, adequate procedures are not defined in the Act or in any Government guidance.
Guidance published by the Ministry of Justice in March 2011, which sets out high-level principles for the adoption of adequate procedures rather than describing specific measures,6 has attracted criticism.7 For example, Transparency International UK described the guidance as “more like a guide on how to evade the Act, than how to develop company procedures that will uphold it.”8
One confusing example from the guidance is the suggestion that “flights and accommodation to allow foreign public officials to meet with senior executives of a UK commercial organisation in New York… and some reasonable hospitality… such as fine dining and attendance at a baseball match” are unlikely to fall within the scope of the Act.9 The OECD noted that this was “this is a high-risk activity under almost all circumstances”.10 In other words, the guidance is not only vague but also potentially unreliable. Commercial organisations seeking to comply with the Act are left unable to ascertain whether their existing or proposed compliance programmes meet the required standard.
DPAs Compensate for Paucity of Corporate Convictions
In contrast to the low figures for section 7 convictions, since their introduction in 2014 six Deferred Prosecution Agreements (“DPAs”) have been approved in cases involving section 7 offences11 – two-thirds of all the DPAs approved by the courts to date. If we accept the premise that a DPA, often described as the carrot offered against the stick of prosecution, is a generally desirable outcome for a corporate and wider society, then section 7 has been remarkably successful. On that view, it is unsurprising that the offence was used as the template for the offence of failure to prevent tax evasion and received praise in the 2019 House of Lords’ report on the Bribery Act.12
SFO Lags Behind CPS in Bribery Act Prosecutions
Prosecution of the other offences under the Act has met with mixed success. There have been no prosecutions under section 6, bribery of a foreign public official, probably because that offence substantially overlaps with Section 1, bribing another person, which is easier to prove.
The Crown Prosecution Service (“CPS”) and, to a lesser extent, the Serious Fraud Office (“SFO”) have brought a steady drip of prosecutions under section 1 and section 2, being bribed, but the available total figures are unimpressive.
A response to a freedom of information (“FOI”) request showed that from the Act’s introduction in July 2011 to February 2015, the CPS instituted criminal proceedings in 16 cases under the Act.13 Of these, 13 were under section 1, two under section 2, and one unknown as the case file was lost.
The SFO revealed that as of March 2020 it had brought four cases to court under sections 1 and 2.14 Of these, two involved guilty pleas and one resulted in an acquittal. The only successful SFO prosecution of individuals under sections 1 and 2 dates back to a single 2014 trial.
Successful DPAs Fail to Produce Individual Convictions
Perhaps the most striking aspect of the Act’s application is the disconnect between corporate resolutions under the Act and the subsequent prosecution of individuals connected to the corporate misconduct. The SFO prosecuted three individuals connected to the misconduct described in each of the Güralp Systems Ltd and Sarclad Ltd DPAs. All were acquitted.15 The DPAs with Airline Services, Rolls-Royce and Standard Bank did not lead to the prosecution of any individuals. To date, no individuals have been successfully prosecuted under the Bribery Act for conduct linked to a DPA. Given that the underlying premise of the DPAs is that offences have been committed under sections 1 or 6, this lack of convictions is noteworthy.
SFO to Continue Focus on DPAs in Complex Cases
The numbers described above indicate that the SFO has shifted its focus under section 7 away from the courtroom and into the boardroom, but the numbers only paint a partial picture. Equally instructive is the contrast between the scale of cases that have been prosecuted and those that have been addressed by DPA.
The six section 7 DPAs have resulted in financial sanctions totalling over a billion pounds. In contrast, one of the two section 7 convictions resulted in a financial penalty of £2.25 million following a guilty plea and the other, prosecuted by the CPS, resulted in an absolute discharge – the only outcome possible against a dormant company. The authorities appear content to reserve their prosecutorial teeth for the lowest-hanging fruit.
It would be surprising to see the SFO deviate from this pattern. Against the vulnerable, it can afford to expend the energy required for the hunt, confident of the kill or of finding its prey dead on arrival. Against more robust targets, a more circumspect approach is required. Through the DPA process, the SFO can hedge against the risk that a lengthy and expensive investigation will fail to yield results by passing the investigative burden to the company and, on current form, securing lucrative financial penalties, never mind the lack of convictions.
Multi-Jurisdictional Investigations Will Dissuade Companies from Contesting DPAs
The status quo gives the appearance of a win-win situation: the SFO can mitigate against unsuccessful prosecutions, while companies can mitigate against the reputational damage of a conviction and the uncertainty and length of a full criminal prosecution. However, this raises the question of whether some brave company might decide the risk is worth taking. If the prospect of a conviction continues to recede, then the potentially enormous financial impact of submitting to a DPA could start to look like a poor business decision.
However, investigations on this scale, as we have seen with recent DPAs, often involve multiple jurisdictions and multiple prosecutors. Standing up to the SFO may require a parallel stance against foreign prosecutors that have a better track record in securing corporate convictions.
Ultimately, companies answer to their shareholders and shareholders crave certainty. The damage a DPA will do to the company’s balance sheet will usually prove more palatable than having its reputation dragged through the courts, especially if the cost can be passed on to the consumer.
UK Inches Closer to Offence of Failure to Prevent Economic Crime
For almost four years commentators awaited with bated breath the outcome of a January 2017 call for evidence for reform of corporate liability for economic crime. At its heart was the debate over whether a failure to prevent offence analogous to section 7 should be applied to the full gamut of economic crime.16
The response, published in November 2020, was something of an anti-climax.17 The Government was “not persuaded that a sufficient evidence base had been provided on which to make immediate legislative change”. Accordingly, the Government instructed the Law Commission to undertake a detailed review of corporate liability for economic crime. After a three-year wait, this is an underwhelming conclusion to say the least and questions may be asked as to why the government did not take this step sooner.
In January 2021, the House of Commons debated the proposal to introduce a broad failure to prevent economic crime offence for fraud, false accounting and money laundering.18 Tantalisingly, the proposal was rejected while the Law Commission review is underway.
The result of the Law Commission review is anticipated in early 2022 and we can expect the issue to be put back before Parliament in the near future. Given the cross-party support it received during the debate, the implementation of a failure to prevent economic crime offence may soon finally come to fruition.
The dearth of convictions of individuals under the Act suggests that it may be, to that extent, an ineffective and underused piece of legislation. Likewise, the scant number of corporate convictions under section 7 suggests that a universal failure to prevent regime for corporate criminal liability is unlikely to result in a large increase in corporate criminal convictions. However, the comparatively large number of lucrative DPAs involving section 7 offences shows that if its status as a legislative gold standard is equivocal, the Act’s role as a gold mine is clear.
This article was first published by Fraud Intelligence on May 19, 2021.
1 Lord Thomas of Gresford, Hansard (2018) Universal Sustainable Development Goals, Volume 794: debated on Thursday 22 November 2018.
2 OECD (2017) Implementing the OECD Anti-Bribery Convention, Phase 4 Report: United-Kingdom, March 2017. Para 209, page 78.
3 SFO v Sweett Group plc (unreported) & R v Skansen Interiors Limited (unreported).
4 OECD (2020), Corporate Anti-Corruption Compliance Drivers, Mechanisms, and Ideas for Change, Page 15.
5 FTI Consulting, March 12, 2018, “The Realities of the New Bribery Act”.
6 Ministry of Justice (2011) The Bribery Act 2010, Guidance about procedures which relevant commercial organisations can put into place to prevent persons associated with them from bribing, (the “Bribery Act Guidance”).
7 See for instance the evidence cited in Select Committee on the Bribery Act 2010 (2019).Report of Session 2017–19, HL Paper 303, The Bribery Act 2010: post-legislative scrutiny, page 37-40.
8 Transparency International UK (2011), UK: Government Guidance ‘Deplorable’ And Will Weaken Bribery Act.
9 The Bribery Act Guidance, p.14.
10 OECD (2012) Implementing the OECD Anti-Bribery Convention, Phase 3 Report: United-Kingdom, March 2012 para 25, page 13.
11 SFO v Standard Bank plc ; SFO v Sarclad Ltd. ; SFO v Rolls Royce plc ; SFO v Güralp Systems Ltd ; SFO v Airbus SE ; and SFO v Airline Services Limited .
12 The Bribery Act 2010: post-legislative scrutiny, House of Lords, 14 March 2019, page 108.
13 ‘Freedom Of Information request shows more Bribery Act 2010 prosecutions’ by Mark Dunn, Lexis Nexis, 1 October 2019.
14 ‘2020-040 – Bribery Act 2010’, SFO, 1 March 2020.
15 In Güralp’s case, the individuals were prosecuted under previous legislation.
16 An offence of failing to prevent the facilitation of tax evasion is already in place under section 45 of the Criminal Finances Act 2017.
17 Ministry of Justice (2020) Corporate Liability for Economic Crime, Call for Evidence: Government Response.
18 Hansard (2021) Financial Service Bill, Volume 687: debated on Wednesday 13 January 2021.