The Bribery Act 2010

July 01, 2011

NOTES OF SEMINAR ON THE BRIBERY ACT 2010 GIVEN BY SPRATT ENDICOTT, 24 JUNE 2011 AT THE CRICKET CLUB, BANBURY

These notes are the salient points raised during the seminar, and are not intended to be a comprehensive account of the law, nor to constitute any advice to any person. If you have any questions on the Bribery Act or on any other commercial matter, please do not hesitate to contact John Spratt (jspratt@se-law.co.uk); Hitendra Patel(hpatel@se-law.co.uk) or Carol Shaw (cshaw@se-law.co.uk) at Spratt Endicott, 52-54 The Green, Banbury, Oxon, OX16 9AB.

1 THE BACKGROUND TO THE BRIBERY ACT 2010

1.1 History

The law in this country on bribery had remained substantially unchanged over 100 years. Companies could not be liable for acts of bribery unless the company had acted with the “guiding will” of its senior directors. Accordingly, there were few prosecutions, because companies could avoid responsibility by turning a blind eye to the actions of their representatives especially overseas. Indeed over the period of 10 years from 1997 whereas in the USA there were 103, in Germany 43 and in France 19 prosecutions, over that period in the UK there were only 2 prosecutions for bribery.

1.2 International Pressure

In the meantime, pressure built up on behalf of the emerging economies, who have suffered and continue to suffer the detrimental effects of a corrupt business environment, to bring about change. The Organisation for Economic Co-operation and Development, and Transparency International, both waged persuasive campaigns for a change in the law on a global basis. Matters came to a head in this country when in 2006 the UK Government refused to allow the prosecution of British Aerospace for alleged bribery in connection with the Saudi arms deal, culminating in a hard-hitting report by the OECD working party on bribery which was published in 2008.

1.3 Purpose

Against an increasing willingness on the part of companies worldwide to act together, perhaps to some extent engendered by the necessary global response to climate change and even perhaps banking problems more recently, the UK Government took steps to bring in the new Bribery Act. Elsewhere, there has been a response in a similar direction by other countries for example Russia and China plan to join the OECD Convention immediately, and India and Indonesia plan to join in 2012.

The purpose of the new Bribery Act 2010 is to address these global concerns. There has been a great deal of hysteria in the press about this Act, largely around the thought that ordinary business hospitality is to be outlawed. That is not the purpose of the Act, nor do we think that it will be its effect. Ordinary business entertainment will continue to be entirely lawful.

1.4 New Corporate Offence

The significant change in the law made by the Act is the introduction of the new corporate offence of failing to prevent bribery by an associated person. This is an offence of strict liability, and the only defence to it is that the person accused had put in place adequate procedures to prevent the bribery.

1.5 Commencement Date

The Act comes into force on 1 July 2011. It is not retrospective: anything that occurred before 1 July 2011 will be dealt with under the old law.

2 THE OFFENCES

2.1 The offences under the Act are as follows:

2.1.1 The active offence under section 1: offering, promising or giving a bribe;

2.1.2 The passive offence under section 2 of requesting, agreeing to receive or accepting a bribe;

2.1.3 The offence of bribing a foreign public official (“FPO”) to obtain or retain business or an advantage in the conduct of business. These are commonly described as facilitation payments. In this case it is not necessary for any improper purpose to be involved, all that is required is that any financial or other advantage is offered or given by the FPO by the use of his influence. Unlike the law of the USA (the US Foreign Corrupt Practices Act 1977 – “FCPA”) facilitation payments are illegal no matter how small or routine. However, Government guidance gives comfort that there is no intention to prosecute in trivial cases;

2.1.4 The new corporate offence under section 7: failure to prevent bribery by associated persons acting on behalf of a business;

2.1.5 Personal liability (under section 14.2) of senior officers of a company consenting or conniving in the commission of an offence.

2.2 There are a number of points to make in general about the offence of bribery.

2.2.1 It does not matter whether the bribe is actually made: a promise or agreement to bribe is sufficient.

2.2.2 It does not matter that the person bribed is not the person who is to provide the benefit to the briber or the person on whose behalf the bribe is promised or given.

2.2.3 It does not matter whether the bribe is given directly or through a third party.

2.3 The bribe must relate to one of the following functions and activities:

2.3.1 Any function of a public nature;

2.3.2 Any activity connected with a business;

2.3.3 Any activity performed in the course of a person’s employment;

2.3.4 Any activity performed by or on behalf of a body of persons whether corporate or unincorporated (see later).

2.4 The essence of bribery is to procure the improper performance of a function or activity. The act of bribery can be committed in respect of a function or activity even if it has no connection with the United Kingdom and is performed outside the United Kingdom. Performance of that function or activity is improper if it falls below the standard that a reasonable person in the United Kingdom would expect in relation to performance of the type of function or activity concerned. In considering whether an act is improper, where the performance is not subject to the law of any part of the United Kingdom, any local custom or practice is to be disregarded unless it is permitted or required by the written law applicable to the country or territory concerned.

2.5 Government guidance demonstrates that there is no intention to stop reasonable and proportionate corporate hospitality.

3 THE PENALTIES

3.1 Fines and Prison

Penalties under the Act are heavy and serious. Individuals can be imprisoned for up to 10 years. Fines are unlimited. Directors can be disqualified and companies can be debarred from public contract tenders (the EU Public Procurement Directive).

3.2 Confiscation Orders

It is important to bear in mind that involvement with the offence of bribery can lead to very severe penalties under the Proceeds of Crime Act 2002, and huge fines have been imposed, and confiscation orders involving more than £70m have been levied upon companies in an aggregate dozen or more cases since 2008.

3.3 Prosecutorial Discretion

Prosecution of an offence of bribery requires consent of either the Director of Public Prosecutions, the Director of the Serious Fraud Office or the Director of Revenue & Customs Prosecutions. When determining whether or not to prosecute these officers, they must first consider whether there is sufficient evidence to successfully prosecute and once that hurdle has been satisfied, they must decide if it is in the public interest to so do.

3.4 Self Reporting

There is the facility in the Act for companies to voluntarily report to the Serious Fraud Office incidents of bribery. Then the FSO will “whenever possible” seek a civil solution rather than pursue a criminal prosecution. But there is no guarantee of this.

4 RISK ASSESSMENT, ANTI BRIBERY POLICIES AND STAFF TRAINING

4.1 The Bribery Act 2010 is important for employers and commercial organisations because for the first time it is an offence to fail to prevent bribery by an “associated person” for the organisation’s benefit. “Associated person” can have a wide meaning and covers the employer’s agents, subsidiaries in certain circumstances, consultants, agency workers and volunteers. The company or organisation is therefore responsible for the actions of a wide range of individuals, some of whom the company or organisation may have minimal control over.

4.2 If the organisation is in breach of the new law it can receive an unlimited fine and be prevented from tendering for public contracts. Just as importantly perhaps it can suffer adverse publicity which could seriously affect its business.

4.3 Protection

4.3.1 An employer or organisation has a defence if it can show that it had in place “adequate procedures” designed to prevent bribery. The Act itself does not explain or define adequate procedures but since the Act was passed guidance has been published setting out six principles which are intended to assist commercial organisations to plan, implement, monitor and review a bribery-free business regime.

4.3.2 Principle 1 – Proportionate Procedures

a) An employer should have an anti-corruption bribery policy and related policies and procedures in place.

b) The procedure should be:

i Clear;

ii Easy to read;

iii Accessible to every “associated person”.

c) Consideration must be given to the following aspects in a company setting its policies and procedures:

i Statement of organisation’s commitment to bribery prevention

ii General approach to reducing bribery risks

iii Overview of implementation strategy

iv Expressly prohibit all forms of corruption

v Explain why necessary to prohibit corruption from both a legal and moral perspective

vi Commit the organisation to conduct its business and affairs so as to ensure that it does not engage in or facilitate any form of corruption

vii Give guidance on action to be taken when faced with blackmail or extortion, including clear escalation process, outline expected standards of behaviour and emphasise individual accountability

viii Set out procedures for carrying out due diligence on outside advisors, third parties and on acquisitions

ix Set out clear rules on matters such as giving and receiving political donations, gifts, hospitality and facilitation payments

x Set out procedures for whistleblowing

xi Support anti-corruption action by others in the sector

xii Procedures should be proportionate to bribery risks an organisation faces and might cover:

1) Involvement of top level management

2) Risk assessments

3) Due diligence of existing or prospective

associated persons

4) Gifts, hospitality, promotional expenditure, charitable and political donations, demands for facilitation payments

5) Direct and indirect employment, recruitment, terms and conditions, disciplinary action and remuneration

6) Business relationships including pre and post contractual arrangements

7) Financial and commercial controls such as adequate bookkeeping, auditing and approval of expenditure

8) Transparency of transactions and disclosure of information
9) Decision making, separation of functions and the avoidance of conflicts of interest

10) Enforcement – disciplinary processes and sanctions for breaches of the organisations anti-bribery rules

11) Reporting of bribery and whistleblowing procedures

12) Details of the process by which organisation plans to implement its bribery prevention procedures

13) Communication of organisation’s policies and procedures and training in their application

14) Monitoring, review and evaluation of bribery prevention procedures

4.3.3 Principle 2 – Top Level Commitment

a) Top level management should set and publicise the anti-corruption ethos and demonstrate personal support and a commitment to a zero tolerance towards bribery

b) Management must ensure policy communicated to all workers and those they do business with

4.3.4 Principle 3 – Risk Assessment

a) Employers should carry out regular and comprehensive assessments of the nature and extent of the risks relating to bribery and corruption

b) Internal Risks

c) Examples of common internal risks

i Deficiencies in employee training, skills and knowledge

ii Bonus culture that rewards excessive risk taking

iii Lack of clarity in the policies and procedures relating to hospitality and promotional expenditure and political or charitable contributions

iv Lack of financial controls

v Lack of a clear anti-bribery message from top level management

d) High risk factors include:

i Recent merger or acquisition activity

ii History of bribes/facilitation payments

e) External Risks

f) Jurisdiction

i Some jurisdictions perceived as higher risk than others

ii However, ensure policies and procedures are not based on racial stereotyping of certain nationalities which would give rise to discrimination issues but base policies and guidance on evidence of risk of bribery in relevant regions e.g. by reference to the Transparency International Corruption Perceptions Index

g) Providing services to high risk sectors - Defence, construction and natural resource sectors often identified as being high risk

h) Dealing with public officials

i) Transactional risks e.g. charitable and political donations, obtaining licences, permits and other approvals, public procurement contracts, high value projects or projects which involve large numbers of contractors or intermediaries

j) Working on government sponsored projects

k) Partnership risks – lack of control over intermediaries, joint venture partners

4.3.5 Principle 4 – Due Diligence on Entering into and Ongoing Business Relationships

a) Know who they are doing business with

b) Know why, when and to whom they release funds

c) Seek reciprocal anti-bribery policies from business partners

d) Ensure those working for them are aware of potential risks and comply with their procedures

4.3.6 Principle 5 – Communication

a) Paper compliance not sufficient

b) Must embed anti-bribery principles with internal controls, recruitment and remuneration policies, operations and in training that is proportionate to risks faced

c) Training should be continuous, regularly monitored and evaluated

d) Higher level of training according to jurisdictions in which employees work or where employees are exposed to higher risk of corruption

4.3.7 Principle 6 – Monitoring and Review

Commercial organisations will wish to consider how to monitor and review effectiveness of bribery prevention procedures and allow for review in response to changes e.g. regime change in a jurisdiction in which they operate

4.4 What should companies do?

4.4.1 Undertake risk assessment

4.4.2 Put policies and procedures in place in proportionate response to risk

4.4.3 Inform and train workers and embed anti-corruption into your company culture

5 KEY ISSUES FOR COMPANIES

5.1 Corporate Offence

The new corporate offence under section 7 is the mere failure by a relevant commercial organisation to prevent bribery for its benefit carried out by an associated person (rather than an offence based on vicarious liability for the act of another person).

5.2 Relevant Commercial Organisation

Bearing in mind the global purpose of this legislation, the Act provides that a relevant commercial organisation is not only a UK incorporated entity or a UK citizen or national, but extends also to any overseas entity which carries on business wholly or partly in the UK. The activity by the overseas entity in this country must be regular, continuous and of a serious nature to qualify it as a relevant commercial organisation which is subject to the UK Bribery Act. Overseas companies which trade in the UK by a branch, agency or office would fulfil this test and be subject to the Act. But an overseas entity would not be a relevant commercial organisation for the purposes of the Act merely because it has a subsidiary company based in this country provided that this subsidiary was a separate and truly independent company, rather than one controlled day to day by the overseas parent. Similarly, an overseas entity which merely invests in companies in this country, but has no control over them, would not be made a relevant commercial organisation purely by that investment.

5.3 Jurisdictional Reach

Again bearing in mind the global purpose of the Act, there is significant jurisdictional reach. The crime can be committed anywhere. In the case of bribery committed by an associated person under section 7, that act of bribery does not have to be prosecuted to render the company liable. It is sufficient that it would have been prosecuted had the same act taken place in the UK.

5.4 Associated Persons

Associated persons include anyone who performs services on an organisation’s behalf. See paragraph 4 above. There is normally only one link in the supply chain for this purpose. So whereas a company’s agent is an associated person, that agent’s sub-agent is probably not. Again, a subsidiary company will not be an associated person unless it provides services to the organisation. If instead it trades entirely on its own behalf, it is not an associated person.

5.5 Adequate procedures Defenc

The adequate procedures defence (see paragraph 4 above) only requires that pragmatic and proportionate procedures are put in place. This decision is to be based on the size, structure and risk involved of the organisation in question. In our opinion it is worth every company carrying out a risk assessment and documenting the result, so that whatever is thought to be a proportionate set of procedures is justified by that assessment, and put in place (or not as the case may be) on a properly documented and justified basis.

5.6 Due Diligence

When approaching a new relationship with an associated person, for example a consultant, agent or distributor, whether in this country or overseas, separate due diligence ought to be carried out on that person, in a way analogise to the usual practice already in this country often contained in Invitations to Tender, where a significant questionnaire has to be completed by the tenderer dealing with its financial structure, practices and policies.

5.7 Terms of Business and Contracts

Anti-bribery clauses should be included in all standard terms of business and all commercial contracts. When entering into a contract with an associated person, the answers to your due diligence enquiries should be made the subject of warranties. There should be an acknowledgement of your organisation’s anti-bribery policies and an acceptance by the associated person of zero tolerance of breach of those policies, and undertakings backed by indemnities again themselves backed by appropriate security, not to infringe them. You should insist on the right to carry out audits upon request, and the agreement should be able to be terminated in the event not only of breach of the undertakings but also of reasonable belief of breach.

6 INSURANCE

6.1 Most companies will have in place comprehensive policies of insurance cover covering directors’ and officers’ liabilities, professional indemnity, crime and employment practices liability. These policies are likely to be for the cost of defending a prosecution only, and those costs would be repayable if the insured is found guilty.

6.2 Your existing policies may already cover liability arising under the Bribery Act, but they should be checked specifically for this purpose and indeed also in general to make sure that their terms are the best in the market. There will commonly be exclusions of the insurers’ liability in the event of fraud of the insured. This exclusion may apply at any stage that the insurer forms the view that there has been fraud or bribery on the part of the insured, and should instead state that the exclusion only applies on a final judicial adjudication on the subject. This is just an example of the way in which these policies are not all the same.

6.3 If you have put in place good anti-bribery policies (and of course have other procedures in place in respect of other liability as for example employment practices) then premiums are likely to be lower.

7 THE GOVERNMENT'S VIEW

7.1 The Government’s view on the Bribery Act 2010 is best expressed in the Ministry of Justice guidance notes.

7.2 It has never been the Government’s intention to penalise ordinary law-abiding firms, but instead to affect only the “mavericks” who have a detrimental effect in the market place against the interests of the majority.

7.3 Tony Baldry would be happy for companies to write to him with any questions about Government policy, and Tony will do his best to obtain helpful answers from the Serious Fraud Office.

8 LINKS

8.1 The following links are recommended for further reading:

8.1.1 Ministry of Justice

a) Bribery Act Guidance:

http://www.justice.gov.uk/guidance/docs/bribery-act-2010-guidance.pdf

b) The Bribery Act 2010: Quick Start Guide:

http://www.justice.gov.uk/guidance/docs/bribery-act-2010-quick-start-guide.pdf

8.1.2 Transparency International

a) Adequate Procedures:

http://www.transparency.org.uk/publications/114-adequate-procedures

b) Corruption Perceptions Indices:

http://www.transparency.org/policy_research/surveys_indices/cpi