Bribery Act 2010 - July 2010
One of the last Acts of Parliament to be passed by the Labour Government was the Bribery Act 2010. It has recently been announced that implementation of the Act has been delayed to April 2011. When it is brought into force, the Act will repeal the common law offence of bribery as well as various statutory offences dating as far back as 1889. Although a relatively short piece of legislation by recent standards, it may have long reaching implications for businesses.
The Act creates four key offences: bribing another person, receiving a bribe, bribing a foreign public official, or (for commercial organisations) failing to prevent bribery.
This bulletin will give you an overview of the offences, the possible implications for your business, and what action you should consider taking.
The general offences
Bribery of foreign public officials (FPOs):
Failure of commercial organisations to prevent bribery
Paying bribes: it will be an offence to offer or give a financial or other advantage with the intention of inducing a person to perform a “relevant function or activity” “improperly” or to reward that person for doing so.
Receiving bribes: it will be an offence to receive a financial or other advantage with the intention that a “relevant function or activity” should be performed “improperly” as a result.
A “relevant function or activity” covers an activity in a business or of a public nature where the person is expected to perform the activity in good faith, impartially
or is in a position of trust. “Improperly” means a standard below that which a reasonable person would expect.
Basically the Act will cover situations such as:
• a salesman bribing or inducing another to buy his product (eg the old chestnut of having a drive laid or ‘work done’ free)
• a businessman paying a councillor to vote in a particular way
• offering a reward to a procurement manager for passing on information about competing tenders
The scope of these offences is intentionally broad and applies not only to cash inducements, but also to gifts and other advantages, and therefore may catch certain types of normal business conduct, eg corporate hospitality.
So, what about corporate hospitality?
The Government has made it clear that corporate hospitality will not be exempted from the new Act and the nearest it has come to placating concerns is an official letter, which does not actually make things much clearer. The letter draws the line between “routine and inexpensive hospitality” (allowed) and “lavish or extraordinary hospitality” (not allowed). But, at what point is the line crossed? Would a Christmas gift of fine wine now be covered? That might depend on how much and what price. Would a day at Brands Hatch be routine and inexpensive, whereas an all expenses paid trip to Monaco Grand Prix be lavish or extraordinary? What is ordinary hospitality in one sector might not be ordinary in another.
There is no minimum amount in the Act and the Act offers no guidance on these matters which means that UK corporates are left in the uncomfortable position of having to guess what level of “advantage” provided by way of corporate hospitality is “reasonable” and what may result in a prosecution.
2. Bribery of foreign public officials (FPOs):
This offence applies to bribes given with the intention of influencing the FPO in his official capacity. The definition of FPO includes anyone who holds a legislative, administrative or judicial position of any kind, or exercises a public function for any country, public agency or public enterprise, or is an official or agent of a public international organisation. So there is no territorial limitation.
It doesn’t matter whether the bribe was done with an improper purpose or an intention that the official exercise his or her powers improperly. All that is required is an intent to influence and an intent to obtain or retain business or an advantage in the conduct of business.
Again, there is a risk that normal business behaviour could be caught. Every businessman who travels abroad goes with the intention of influencing the target to obtain/retain business or get an advantage in the course of business; it is why he is there. The offence also requires that a financial or other advantage is promised or provided. This could potentially include provision of samples, marketing and other similar materials, hospitality.
3. Failure of commercial organisations to prevent bribery:
This new offence can only be committed by commercial organisations (ie companies and partnerships). It will be committed where:
• a person associated with a commercial organisation bribes another person 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.
This is a strict liability offence, meaning that there is no need for the prosecution to show that the company intended to make the bribe in bad faith, or that it was negligent as to whether any bribery activity took place. In order to succeed, however, the prosecution must be able to demonstrate that the bribe was paid not merely in connection with the business, but that it was paid with the intention to obtain/ retain business for the company itself. In its defence, the organisation will need to prove, not just that it had procedures, but that it had adequate procedures in place to prevent bribery.
One difficulty with the new legislation is that “associated person” is very loosely defined as a person who performs services on behalf of the organisation. This can include not only other entities within a group and their directors and employees, but also consultants and agents. Consequently, organisations will need to ensure that their anti-corruption procedures are sufficiently robust to stop not only employees, but agents or other third parties acting on their behalf from committing bribery. It is not at all clear what level of supervision by the principal would be necessary to help satisfy the adequate procedures defence in a case based on the acts of, say, a distributor, sub-contractor or joint venture.
A further problem is that the corporate offence applies to any corporate or partnership (wherever it is registered, incorporated or conducts its main activities) as long as it carries on a business in the UK. Crucially it does not matter where in the world the bribe takes place. This means that as long as it carries on business in the UK, a foreign company can commit the corporate offence in relation to conduct in a foreign country that is not connected with any business undertaken in the UK.
What are adequate procedures?
The Secretary of State is required to publish guidance on what is meant by “adequate procedures”, and the offence of failure to prevent bribery will not be brought into force until that guidance is available. However, the risks and issues for organisations will vary significantly according to the size of the company, the market sector, and the territory they are involved in and consequently it remains to be seen how valuable the guidance will be given the scope and range of issues it needs to cover.
Prior to the change in government and the legislation being given royal assent, the Conservatives indicated that they would wish to explore further the creation of a business advisory service to give guidance to business, even if on a non-statutory basis. If Ken Clarke, recently appointed as Justice Secretary and the new anti-corruption champion, intends to pursue this further, it is possible that the coming into force, at least of the failure to prevent bribery offence, may be delayed.
PENALTIES:
• The general offences and the offence of bribery of FPO are punishable with imprisonment for up to ten years and/or an unlimited fine
• The failure by a commercial organisation to prevent bribery carries an unlimited fine
• Importantly any corruption conviction could lead to other sanctions such as directors’ disqualification proceedings
Checklist - What do you need to do?
The Act is not expected to come into effect until October, but organisations need to assess their risks and systems now to ensure that they have an effective anti-corruption compliance programme in place before the law comes into force.
There is no set list of actions that a business should take and appropriate measures will depend upon factors such as business size, the countries and sectors in which the business operates and the third parties that it deals with. For some businesses, the risks may be relatively low and, accordingly, the procedures that they need to put in place may not be onerous.
However, we would expect commercial organisations to do some or all of the following:
Code of Conduct
• Publish a clear code of conduct and procedures to deal with bribes, gifts, political contributions, charitable donations, sponsorship, facilitation payments, corporate hospitality and expenses, solicitation and extortion. If such a code or procedures already exist, it should be reviewed in light of the new legislation. Bear in mind the potential need to prove that the procedures are adequate
• Publicise the code of conduct and procedures internally, and if appropriate externally on the organisation’s website
Establish a programme of measures to address the
new Act
• Establish a programme to monitor and audit compliance with the new law
• Ensure that the programme binds all individuals at the organisation as well as any entities over which it has control (such as subsidiaries)
• Board to take responsibility for establishing, developing and periodically reviewing the effectiveness of the programme
• Appoint a senior officer to oversee the programme
Employee issues
• Either review and amend current whistleblowing policies, or establish a confidential reporting procedure so that staff can report suspected bribery safely and confidentially
• Provide training on the programme for new and existing employees and, where appropriate, agents and other persons associated with the organisation, dealing with
eg
- the risks of engaging in corrupt activity
- gifts and hospitality
- facilitation payments
- commissions
• Review procedures for disciplinary action - these should entitle the company to take suitable action against an employee who commits a corrupt act
Dealings with other organisations
• Review procedures for carrying out due diligence of existing and potential business partners to identify risks of corruption
• Inform business partners about the programme and ask them to demonstrate that they have similar measures in place
• Take local law advice in each jurisdiction in which the organisation operates.
If you have any queries regarding the issues raised in this or any of our previous bulletins,
please contact:
Caroline Williams
caroline.williams@freethcartwright.co.uk
0845 274 6927
Philippa Dempster
philippa.dempster@freethcartwright.co.uk
0845 274 6901
Mary Mackintosh
mary.mackintosh@freethcartwright.co.uk
0845 634 9800
Whilst every effort has been made to ensure the accuracy of this bulletin, it does not provide complete coverage of the subjects referred to, and it is not a substitute for professional legal advice and should not be relied upon as such.
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