The Bribery Act 2010 (Act), which creates a new and consolidated scheme of bribery offenses, is just months away from coming into force in the UK.1 If the UK Ministry of Justice (MOJ) holds to its current timeline, the Act will come into force in April 2011.2 Given the Act's broad reach, its impact is expected to be felt not just within UK borders and not just by UK nationals or UK businesses. Businesses worldwide should ascertain the Act's applicability to their operations and take appropriate preparatory steps.
This newsletter provides an overview of the Act's key provisions. It then discusses the consultation process that is currently underway to define procedures that commercial organizations should have in place to prevent bribery and take advantage of a defense available to them under the Act. Finally, it discusses four issues that arise in relation to the Act: its extraterritorial reach, facilitation payments, promotional expenses, and top level commitment.
Overview of the Act and Guidance for Commercial Organizations
The Act creates a new and consolidated scheme of bribery offenses that will replace bribery offenses currently in effect in the UK.3 Sections 1 and 2 of the Act contain two general offenses that prohibit the giving and taking of bribes in the public and private sectors.4 Section 6 creates a discrete offense that prohibits bribery of a foreign public official. When an offense under Section 1, 2, or 6 is committed by a body corporate or a Scottish partnership, any senior officer of the entity with whose "consent or connivance" the offense was committed is also liable.5 Finally, Section 7 creates liability for "commercial organizations" that fail to prevent bribery.6 This occurs when a person associated with a commercial organization commits bribery intending to obtain or retain business or a business advantage for the organization.7 An organization can avoid liability under Section 7 if it can prove that it had adequate procedures in place to prevent bribery.
As required by the Act, on September 14, 2010, the MOJ published proposed Guidance concerning procedures that organizations can implement to prevent persons associated with them from committing bribery on their behalf.8 The MOJ also commenced a consultation period which continues until November 8, 2010.9 During this time, the public can submit feedback regarding the proposed Guidance to the MOJ in writing or share its views during seminars that are taking place in various locations in the UK between September 30 and October 21.
As was expected, the proposed Guidance is general in nature and is similar to best practices in the US and elsewhere for anticorruption compliance programs. The final draft of the Guidance is not expected to vary substantially from the current draft.10 To help organizations decide what procedures to implement, the MOJ has outlined six principles: risk assessment; top level commitment; due diligence; clear, practical and accessible policies and procedures; effective implementation; and monitoring and review.
The proposed Guidance cautions that whether an organization's procedures are adequate "can only be resolved by the courts taking into account the particular facts and circumstances of the case." To take advantage of the defense available under Section 7, an organization will have to prove the adequacy of its anticorruption procedures in court. To do so, it will likely have to show not only that it has policies and processes on paper but also that its procedures work in practice.11
Four Key Issues
1. Extraterritorial Reach
The jurisdictional reach of the Act extends beyond the UK, and Serious Fraud Office (SFO) officials who will be prosecuting violations of the Act have signaled their intention to assert broad jurisdiction under the Act.12 The offenses that prohibit bribe giving and bribe taking in Sections 1, 2, and 6 embody territorial and nationality jurisdiction. First, UK courts will have jurisdiction "if any act or omission which forms part of the offense takes place in [the UK]."13 Explanatory Notes that accompany the Act, but are not part of the law, state that this occurs "if any part of the conduct element" takes place in the UK.14 Second, UK courts will have jurisdiction when the person committing the offense is a British national, a person ordinarily resident in the UK, a body incorporated in the UK, or a Scottish partnership, even when all the actions in question take place abroad.15
This use of territorial and nationality jurisdiction resembles the principles embodied in the US Foreign Corrupt Practices Act (FCPA), which reaches, among others, foreign persons and companies that act while in the US, as well as US citizens and residents, US-based companies, and issuers (both foreign and domestic) registered on a US exchange.16 While the jurisdictional reach of the FCPA has not been tested in US courts, the US Department of Justice's (DOJ) position appears to be that almost any contact with the US is sufficient to establish territorial jurisdiction over foreign persons and companies that act while in the US, as well as foreign issuers. Cases resolved through settlements with the DOJ suggest that as little as a wire transfer that, at some point, flowed through US banks, as well as an email sent into the US containing information on corrupt payments could satisfy this low jurisdictional threshold.17 It remains to be seen whether UK enforcement authorities and courts will take a similarly expansive view of the UK statute.
The extraterritorial reach of the UK Act's new Section 7 offense that punishes commercial organizations for failure to prevent bribery appears similarly broad on its face. Under this provision, an offense is committed "irrespective of whether the acts or omissions which form part of the offence take place in the [UK] or elsewhere."18 In addition to having jurisdiction over bodies incorporated or partnerships formed under UK law, UK courts will have jurisdiction over any body corporate or partnership that "carries on a business, or part of a business, in any part of the [UK]," wherever it is incorporated or formed.19 The term "carries on business, or part of a business" is not defined and it is unclear what magnitude of contacts with the UK will suffice to trigger the Act's jurisdiction. It is also uncertain whether jurisdiction will exist merely as a result of presence in the UK of third parties related to the organization such as subsidiaries, agents, joint ventures, or even distributors.
Robert Amaee, the SFO's Head of Anti-Corruption, Proceeds of Crime & International Assistance, has stated that what this provision means in practice is that "a company registered anywhere in the world and having part of its business in the UK could be prosecuted for failing to prevent bribery on its behalf wherever in the world that bribe was paid."20 SFO Director Richard Alderman has emphasized the importance of this provision because, thanks to the Act, "[c]orruption by [a] foreign entity abroad will be within [the SFO's] jurisdiction even if it has nothing to do with UK activities."21 He believes that this will provide "a level playing field between UK and foreign corporates [and will ensure] that good ethical UK corporates are not placed at a competitive disadvantage by the activities of unethical corporates wherever."22
2. Facilitation Payments
Unlike the FCPA, the Act does not provide any exception for facilitation or expediting payments—small payments to induce routine government action. The Act's treatment of facilitation payments supports the Organisation for Economic Co-operation and Development's (OECD) efforts to encourage countries to eliminate solicitation and facilitation payments.23 This is in contrast to the FCPA's treatment of such payments, which exempts facilitating or expediting payments intended to "expedite or to secure the performance of a routine governmental action by a foreign official, political party, or party official."24
Although prosecutorial discretion will provide a degree of flexibility, UK officials have made clear that facilitation payments are illegal under the Act. The MOJ's proposed Guidance states that facilitation payments are likely to trigger Section 1 and Section 6 offenses of bribe-giving and bribery of foreign public officials.25 The MOJ further noted that the Act provides no exemption for these payments, as is the case under related US law.
In a recent speech, the UK Attorney General stated that "if small bribes are paid to facilitate certain business transactions there is clearly a risk of prosecution."26 He also noted that this is not a change in law because "the law has never exempted such payments."27 It may be the case that not all facilitation payments will be subject to prosecution. Amaee has stated that the SFO will consider whether facilitation payments are "significantly serious" so as to warrant prosecution.28 However, SFO staff has encouraged companies to employ a "zero tolerance" policy for facilitation payments stating that any policies allowing for such payments will not be considered as "adequate procedures."29 The SFO staff has noted that a small, one-off payment, particularly in emergency situations, may not be subject to prosecution, but warned that a series of such payments may signal a course of conduct not allowed under the Act.30 Not surprisingly, there remains a demand for greater clarification concerning the risk of prosecution for small facilitation payments.31
Because all facilitation payments are in principle prohibited under the Act, commercial organizations that do business in the UK need to consider whether and how to adjust their existing practices related to facilitation and expediting payments to address the risk of prosecution by UK authorities.
3. Promotional Expenses
The Act does not specifically address hospitality, gifts, travel, or other promotional expenses. Therefore, these expenditures will be subject to the main provisions of the Act, including the adequate procedures defense, and prosecutorial discretion will likely dictate what is a reasonable expenditure.32 UK officials have stated that expenses that are both reasonable and proportionate to the nature of the organization's business may not require prosecution.33 The Attorney General addressed concerns related to these expenses by stating that "[t]he starting point is that these activities are not illegal per se and the Act is not intended to clamp down on legitimate expenditure[s] of this type. It is clear, however, that lavish hospitality and similar expenditure[s] can be used as a bribe intended to induce a public official to award business."34
In its proposed Guidance, the MOJ encourages organizations to consider providing policies that address gift-giving, hospitality, and promotional expenses "to ensure that the purposes of such expenditure are ethically sound and transparent."35 The proposed Guidance acknowledges that reasonable and proportionate business promotion expenditures are an established part of conducting business, and that some expenses, such as costs that would otherwise be borne by the foreign government, may not even amount to an "advantage" under the Act. The MOJ noted that surrounding circumstances will inform whether a particular action constitutes a bribe, and that routine or incidental business courtesies of small value may not violate the Act. The MOJ distinguished a five-star holiday from "ordinary" travel for a promotional visit to a company site.36 The proposed Guidance also notes that prosecutorial discretion will allow flexibility for promotional expenses that, on their face, trigger the Act.37
The extent to which promotional expenses will violate the Act remains unclear. Because commercial organizations may use the "adequate procedures" defense to avoid liability, it will be important that corporate policies and guidelines address such expenditures. Specifically, organizations should consider taking the following steps to avoid liability:
a. Maintain a formal policy on hospitality, gifts, travel, or other promotional expenses.
b. Communicate the policy throughout the organization and consider related training programs.
c. Define the scope of appropriate expenses that are reasonable, taking into account the size and nature of the organization's business practices.
d. Avoid lavish travel arrangements, and ensure that activities related to promotional trips maintain a legitimate business purpose.
e. Require transparency with the government employer of the officials who are receiving the benefit.
f. Develop transparent internal accounting procedures to account for all expenditures.
In formulating these policies, the FCPA can provide useful guidance. The FCPA provides an affirmative defense for "reasonable and bona fide" expenditures directly related to business promotion or contract performance.38 Generally, reasonable travel expenses for educational or promotional programs are appropriate under the FCPA, such as educational trips to a business facility.39 Organizations must remain careful, however, to avoid expenses that are lavish or not connected to legitimate business promotion. For example, expensive entertainment or sightseeing excursions with no business purpose have been subject to scrutiny under the FCPA.40
4. Top Level Commitment
As noted above, the MOJ's proposed Guidance specifically identifies "top level commitment" as one of its principles.41 Because commercial organizations may be liable under Section 7 of the Act, it is important for organizations to consider how to effectively demonstrate the right "tone at the top" as part of their "adequate procedures." Section 7 requires an organization to focus closely on the procedures it intends to implement, and companies should consider maintaining substantial responsibility over these programs from the highest levels in the organization.
The proposed Guidance suggests that top officials consider making a top-level statement of commitment internally, to counteract bribery within the organization, as well as externally, to its subsidiaries and business partners.42 The MOJ further suggests that organizations consider demonstrating their commitment by including top-level managers in the development of a code of conduct or appointing a senior management official to oversee the development and implementation of the organization's antibribery program. Moreover, the SFO Director has suggested that the SFO would negatively view an organization that did not, at a minimum, identify a specific board member to oversee all antibribery policies and be responsible for ensuring that antibribery topics be addressed at every full board meeting.43 The MOJ's emphasis on top level commitment to antibribery compliance is similar to the expectations of US authorities, which have also faulted organizations for failing in this regard.
As part of an organization's efforts to comply with the top level commitment aspect of the Act, organizations should make efforts to demonstrate commitment to antibribery from the highest levels of the organization, including from the board of directors and the CEO. Organizations should consider taking the following steps to demonstrate this type of commitment:
a. Creating a robust antibribery policy and communicating the policy in a formal statement issued by the board and/or CEO to employees, related business entities, and business partners.
b. Assigning ownership of compliance to a senior officer in the company and assuring there are adequate personnel and resources devoted to compliance.
c. Assigning ownership of compliance issues to an appropriate board committee that reports to the full board regularly.
d. Including antibribery among the topics discussed periodically at full board meetings.
The requirements of the UK Act are similar in most ways to the FCPA and other anticorruption legislation, and sound compliance practices, consistent with those that have been recommended in the US for some time, will be critical for complying with the Act. While similar, the UK Act does have some nuances that must be analyzed and addressed. In particular, the Act does not exempt facilitation payments and UK authorities may take a stricter approach to what are acceptable promotional expenses. The SFO clearly plans to devote significant energy to enforcing the Act and pushing its boundaries. Companies that carry on "part of a business" or more in the UK would be well-served to review their policies and procedures and prepare as the Act comes into force.
1 The Act received Royal Assent, the final step necessary for a bill to become an Act of Parliament, on April 8, 2010. The Act will come into force pursuant to an order made by the Secretary of State. Bribery Act 2010, c. 23, § 19 (UK) (hereinafter "Act").
2 Press Release, Ministry of Justice, The UK will reinforce its reputation as one of the least corrupt countries in the world, when the Bribery Act comes into force in April 2011 (July 20, 2010), www.justice.gov.uk/news/newsrelease200710a.htm.
3 Act, § 17.
4 Section 1 prohibits the offering, promising or giving of a financial or other advantage to another person. Section 2 prohibits requesting, agreeing to receive or accepting of an advantage.
5 Act, § 14. Section 14 defines "senior officer" to mean a director, manager, secretary or other similar officer of the body corporate or a partner in a Scottish partnership.
6 Section 7 defines a "relevant commercial organization" to include a body incorporated or a partnership formed under UK law and any other body corporate or partnership, wherever incorporated or formed, "which carries on a business, or part of a business, in any part of the [UK]."
7 Act, § 7. An "associated person" is a person who performs services for or on behalf of an organization and could be, for example, its employee, agent, or subsidiary. Act, § 8.
8 Act, § 9.
9 Information concerning the consultation as well as the proposed Guidance and other related documents can be found at www.justice.gov.uk/consultations/briberyactconsultation.htm.
10 In addition to the Guidance on adequate procedures, the Director of Public Prosecutions and the Director of the Serious Fraud Office are drafting joint legal guidance for prosecutors, which will be published and publicly available early in 2011. Dominic Grieve, Attorney General, Speech at the World Bribery & Corruption Compliance forum (Sept. 14, 2010), www.attorneygeneral.gov.uk/NewsCentre/Speeches/Pages/Attorney%20General%20World%20Bribery%20and%20Corruption%20Compliance%20forum.aspx (hereinafter "Grieve Speech").
11See Report to Standards Committee at ¶¶ 18, 19, Sandra Stewart – Borough Solicitor, The Bribery Act 2010 (Aug. 31, 2010), tameside.gov.uk/standardscommittee/31aug10/item10.pdf.
12 Richard Alderman, Director, Serious Fraud Office, Speech at the 28th Cambridge International Symposium on Economic Crime (Sept. 6, 2010), www.sfo.gov.uk/about-us/our-views/speeches/speeches-2010/the-28th-cambridge-international-symposium-on-economic-crime.aspx (hereinafter "Alderman Speech").
13 Act, § 12.
14 Bribery Act 2010 Explanatory Notes ¶ 58.
15 Act, § 12.
16 US issuers, businesses, and persons can be liable under the FCPA when they corruptly "do any act outside the United States...irrespective of whether [they make use of] interstate commerce." 15 U.S.C. §§ 78dd-1(g), 78dd-2(i). All issuers, including foreign issuers, can be liable under the FCPA when they "make use of the mails or any means or instrumentality of interstate commerce." 15 U.S.C. § 78dd-1(a). Finally, the FCPA makes it unlawful for foreign persons that are not issuers "while in the territory of the United States, corruptly to make use of the mails or any means or instrumentality or interstate commerce...or to do any other act..." 15 U.S.C. § 78dd-3(a).
17See Superseding Indictment, United States v. Sapsizian, No. 06-cr-20797-PAS (S.D. Fla. Mar. 22, 2007); Information, United States v. DPC (Tianjin) Co. Ltd., No. 05-cr-482 (C.D. Cal. May 20, 2005). See also Roger M. Witten, Kimberly A. Parker & Jay Holtmeier, Complying with the Foreign Corrupt Practices Act § 2.09 (2010).
18 Act, § 12(5).
19 Act, § 7.
20 Robert Amaee, Under Britain's new bribery act, the buck stops with company directors, TRUSTLAW (last visited Oct. 1, 2010), www.trust.org/trustlaw/news/viewpoint-under-britains-new-bribery-act-the-buck-stops-with-company-directors.
21 Alderman Speech.
23 The OECD Convention does not provide an exception for facilitating payments, and the 2009 OECD Anti-Bribery Recommendations discouraged such payments by "urg[ing] all countries to raise awareness of their public officials on their domestic bribery and solicitation laws with a view to stopping the solicitation and acceptance of small facilitation payments." OECD, Working Group on Bribery in International Business Transactions, Recommendation of the Council for Further Combating Bribery of Foreign Public Officials in International Business Transactions, ¶ 7 (Nov. 26, 2009), www.oecd.org/dataoecd/11/40/44176910.pdf (hereinafter "OECD Recommendations").
24 15 U.S.C. §§ 78dd-1(b), 78dd-2(b). Typically, the FCPA allows for small payments to expedite routine government services, such as processing visas or other government papers. See 15 U.S.C. §§ 78dd-1(f)(3)(A), 78dd-2(h)(4)(A). The FCPA does not allow payments for discretionary government actions, such as awarding new business. While the FCPA allows facilitation payments, such payments generally are not allowed under the local laws of the countries where they are made.
25 Guidance, Annex at p. 22.
26 Grieve Speech.
28 Richard Tyler, SFO to prosecute 'serious' overseas bribes, Telegraph.co.uk (Sept. 23, 2010), www.telegraph.co.uk/finance/newsbysector/banksandfinance/8019024/SFO-to-prosecute-serious-overseas-bribes.html. UK prosecutors are required to apply a two-stage test when deciding whether to prosecute: "firstly, whether there is sufficient evidence to provide a realistic prospect of conviction; and secondly, if there is sufficient evidence, whether a prosecution is in the public interest." Grieve Speech.
29UK Serious Fraud Office Discusses Details of UK Bribery Act with Gibson Dunn (Sept. 7, 2010), www.gibsondunn.com/publications/Pages/UKSeriousFraudOfficeDiscussion-RecentlyEnactedUKBriberyAct.aspx (hereinafter "Gibson Dunn Alert").
30Id. Further, the SFO staff indicated that a small, one-off facilitation payment should be detected by an organization's internal procedures and that the organization should explain to those involved that such payments are unacceptable. Id.
31 Richard Tyler, FTSE 100 seeks guidance on 'minor bribes' prosecution, Telegraph.co.uk (Sept. 22, 2010), www.telegraph.co.uk/finance/newsbysector/banksandfinance/8016817/FTSE-100-seeks-guidance-on-minor-bribes-prosecution.html.
32See Letter of Lord Tunnicliffe to Lord Henley of the House of Lords, January 14, 2010 ("We share the Joint Committee's conclusion that, for the purpose of the clause 6 offence, it is sufficient to rely on prosecutors to differentiate between legitimate and illegitimate corporate hospitality and to decide whether or not it would be in the public interest to bring a prosecution.").
33 Guidance, Annex A at p. 22.
34 Grieve Speech. The Attorney General went on to state that he does "not believe it will be difficult to distinguish what is bribery and what is not, but ultimately of course it will be a matter for the jury to decide." Id.
35 Guidance, Annex A at p. 15.
36Id. at p. 22.
37Id. at p. 23.
38 15 U.S.C. § 78dd-1(c).
39 FCPA Opinion Procedure Release No. 07-02 (Sept. 11, 2007) (approving a US company's request to pay domestic expenses, including lodging, transportation and meals for several junior and mid-level government officials to visit the company's US headquarters).
40See Complaint, SEC v. UTStarcom, Inc., No. 09-CV-6094 (N.D. Cal. Dec. 31, 2009) (charging a telecommunications company for providing sightseeing trips to employees of a state-owned Chinese company); Information, United States v. Control Components, Inc., No. 09-CR-0062 (C.D. Cal. July 22, 2009) (charging company for holding frequent lavish sales events for government customers).
41 This is consistent with the view taken by the OECD's Good Practice Guidance, which encourages companies to consider adopting practices that demonstrate top level commitment by suggesting practices such as commitment from senior management for compliance programs, "a clearly articulated and visible corporate policy prohibiting foreign bribery," and vesting oversight responsibility with senior management officials "with an adequate level of autonomy from management resources, and authority." See OECD Recommendations, Annex II at 29-30. See also US Sentencing Guidelines Manual § 8B2.1.
42 Guidance, Annex A at p. 13.
43 Gibson Dunn Alert.