How far will the Bribery Act 2010 go in prohibiting what may have been accepted until now as normal business practice? Sebastian McMichael looks at the points of difficulty and the procedures that may be needed for a business to minimise the risk of prosecution.
The Bribery Act 2010, due to come into force in April 2011, replaces the current statutory and common law rules prohibiting corrupt practices with broadly drafted offences backed up by the possibility of unlimited fines and imprisonment.
The Act has provoked a great deal of controversy, culminating in the coalition Government's decision in January to review its potential impact on UK business, which may well impact on when the Act comes into force. Meanwhile, both the public and private sector await governmental and prosecutorial guidance which it is hoped will provide greater clarity as to the Act's application and the approach the prosecuting authorities will take to key issues.
This article provides a brief refresher of the offences under the Act, identifying key areas of uncertainty, and highlights the measures that organisations need to consider putting in place to protect themselves (and their staff) from potential criminal liability.
The Act creates three principal criminal offences: (i) bribing another person; (ii) being bribed; and (iii) bribing a foreign public official.
The key idea behind the first two offences is that the “bribe”, the promise or advantage offered, is made with the intention that a business activity or public function is performed improperly. The offence of bribing a foreign public official (FPO) is included to comply with the UK's international obligations. A distinguishing feature of this offence is that liability is triggered even where there is no intention that the FPO performs their duties improperly. It is sufficient that the FPO is provided with an advantage to which there is no entitlement under local written law with the intention of influencing the official in their capacity as an FPO in order to obtain a business advantage.
For each offence liability can be triggered even where the activity takes place outside the UK. What is critical here is whether the accused has a "close connection" with the UK, which includes British citizens, individuals ordinarily resident in the UK, UK incorporated companies and Scottish partnerships. However, what is improper is judged against what would be expected by a reasonable person in the UK. Local customs in other jurisdictions are disregarded unless permitted under local written law.
The offences can be committed by bodies corporate and by individuals, with breaches punishable by unlimited fines, and/or up to 10 years’ imprisonment in the case of individuals. Where committed by a corporate body, "senior officers" (such as directors) can be prosecuted where it can be demonstrated that the offence took place with their consent or connivance.
Other consequences should not be forgotten. Quite aside from the adverse publicity that would result from a conviction, there is the risk of director disqualification orders and automatic blacklisting from public tenders under the public procurement rules.
Evidently the greatest exposure will be in dealings with public officials, and the offences evidently cover the classic bribery scenarios, such as backhanders paid to a public official to secure a licence. However, the Act also captures conduct that takes place purely in the private sector, where it will often be less clear, and ultimately a question for a jury, as to what is and what is not acceptable.
Particular concerns have surrounded the provision of corporate hospitality and gifts, especially as the Act (unlike legislation in other jurisdictions) does not include a <de minimis> exception, and especially in relation to FPOs given the low trigger for criminal liability. The authorities have stressed that routine and inexpensive hospitality is unlikely to raise concerns, and upcoming guidance from the Serious Fraud Office in conjunction with the Director of Public Prosecutions is expected to acknowledge that corporate hospitality that is transparent, within industry norms and done in good faith will not fall under the Act. Ultimately, what is and what is not acceptable will often be a question of common sense, both in terms of what should be provided and when. However, especially in relation to FPOs, the provision of hospitality, gifts, and reimbursement of third party expenses will need to be carefully considered going forward.
Another area of concern is in relation to facilitation payments: small sums of money paid to, generally, a public official as a way of ensuring that they perform their duties, either more promptly or at all. Facilitation payments are often viewed as a cost of doing business in many countries, and US law, for instance, permits such payments where they merely expedite the performance of a function that an official is already obligated to perform. However, the Act contains no such exception and, absent local written law permitting such payments, they are illegal.
It is clear that a zero tolerance approach requires to be taken. However, circumstances can be envisaged where an individual is placed in a very difficult position, e.g. where there are perishable goods sitting on a dock that will not be cleared through customs without greasing some hands. The SFO has indicated that it will take a pragmatic approach to facilitation payments and prosecution is unlikely in the case of small value and infrequent payments. However, companies will need to manage carefully any incidence of faciliation payments in order to mitigate the risk of criminal exposure under both the Bribery Act and, for example, the Proceeds of Crime Act.
Failure by commercial organisation to prevent bribery
Under s 7 of the Act a relevant commercial organisation can face prosecution and be subject to an unlimited fine for failing to prevent bribery by an "associated person" which benefits their business. The term "relevant commercial organisation" captures UK incorporated companies and partnerships as well as non-UK corporate bodies and partnerships that carry on business in the UK. The term "associated person" is widely defined and includes any person who performs services for or on behalf of a relevant commercial organisation, the Act specifically noting that this can include an employee, agent or subsidiary.
There remains considerable uncertainty as to the breadth of this strict liability offence. For instance, the Act does not define what it means by "carries on a business", and questions remain as to the extent to which commercial organisations will be found liable for the actions of, for example, joint venture, consortium or supply chain partners. The potential breadth of the offence has led the Scottish Government to propose that there should not be automatic debarment under the procurement rules where a potential tenderer has been convicted of the s 7 offence.
It is a defence under the Act for a commercial organisation to demonstrate that it had adequate procedures in place to prevent unlawful conduct, and the Government is required to publish guidance on the procedures that can be put in place.
In draft guidance the Government has outlined six general principles that it considered should form the basis of adequate procedures:
- a regular and comprehensive risk assessment;
- senior management commitment to preventing bribery;
- appropriate due diligence of the risks posed by business partners and markets with whom and in which the organisation does business;
- anti-bribery policies and procedures; which are
- effectively implemented and embedded throughout the organisation; and are
- continually monitored and reviewed.
The draft guidance does not contain prescriptive rules, nor does it impose any direct obligations on organisations. Rather it envisages that what constitutes adequate procedures will depend on the circumstances and may differ depending on the size of an organisation and the nature of its activities.
The final guidance was due to be issued in January. It is hoped that it will provide more detailed guidance on, for example, the level of due diligence required in relation to business partners. It is likely, though, that the final guidance, while offering a useful template and necessary scheme of reference for commercial organisations, will not provide a detailed ready-made compliance programme that obviates the need for rigorous self-assessment.
However, there is general consensus as to the types of measures that a commercial organisation should take to ensure it has in place adequate procedures. In particular, a comprehensive anti-bribery policy, endorsed by senior management, should be established which provides clear rules on key risk areas, such as:
- promotional expenses;
- political and charitable contributions/sponsorship;
- facilitation payments;
- interaction with public officials;
- the procedures in place for carrying out due diligence on new (and existing) business partners, particularly agents and other intermediaries engaged by the commercial organisation.
The policy should be supported by an effective training programme, clear reporting lines and supervisory responsibility, internal financial controls, disciplinary sanctions for non-compliance, and whistleblowing procedures.
The direction the Act takes will ultimately depend on the approach adopted by the prosecuting authorities. The SFO already has in place guidance that encourages businesses to self-report corrupt practices, in exchange for potential leniency in the form of civil rather than criminal proceedings. This is due to be buttressed by the guidance to be issued in conjunction with the DPP, aiming to ensure consistency of approach between the police, the Crown Prosecution Service and the SFO.
In Scotland prosecution will be the responsibility of the Lord Advocate. Given the pan-UK nature of the legislation, it can be hoped that the authorities collaborate to ensure a uniform (and proportionate) approach to the legislation north and south of the border.