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The Bribery Act 2010: a tough new anti-corruption regime or a step too far?

June 2010

The Bribery Act 2010 (the “Act”) is finally here; it received Royal Asset on 8 April 2010 and is expected to come into force later this year (although the recent change in Government may impact the timetable).

The UK’s current law on bribery is fragmented, inconsistent with the OECD Bribery Convention (which the UK ratified in 1998) and has frequently been criticised for being difficult to enforce. In particular, the UK faced high profile criticism (including from the OECD) when investigations into bribery allegations against BAE Systems were controversially dropped in 2006.

The Act forms part of the UK’s new hard line approach in the fight against corruption, which has also seen the Serious Fraud Office (“SFO”) be much more proactive in investigating corruption allegations and enforcing anti-corruption laws.

So what does the new Act mean for companies (both in the UK and abroad) and what do they need to do to prepare for it? And does the Act provide a welcome clamp down on corruption or does it go too far?

Overview

In summary, the Act:

completely replaces the UK’s existing bribery law, which is a welcome development given the current fragmented and outdated legislation;
sets out four offences, of which the last two are new offences:
- bribing another person;
- being bribed;
- bribing a foreign public official; and
- failure by a commercial organisation to prevent bribery (and it is this new offence that has, in particular, hit the headlines);

has an extremely wide territorial effect, particularly in relation to the offence of failing to prevent bribery which catches overseas companies with only a minor presence in the UK regardless of where the bribery was actually committed;
provides that senior officers may be found liable for bribery offences committed by their company;
prohibits facilitation payments;
requires companies to have ‘adequate procedures’ in place to prevent bribery, although exactly what constitutes ‘adequate procedures’ remains unclear.

The key message to companies is that they must, as a matter of urgency, carry out a full anti-corruption risk assessment and take steps to prepare for the new Act.

The offences are considered in more detail below, together with some suggested steps companies should take to prepare for the Act.

The General Bribery Offences: what constitutes bribery?

A person commits the offence of bribing or being bribed if:

a financial or other advantage is requested, offered, accepted or given to another person, either directly or through a third party; and
he intends or knows that the advantage constitutes, induces or rewards the improper performance of a relevant function by the person receiving the bribe or another person.

The general bribery offences therefore require some form of intention to induce or reward improper performance. Improper performance is widely defined and requires a failure to meet an expectation (on the basis of what a reasonable person in the UK would expect) of good faith, impartiality or the behaviour expected from a position of trust.

Notably, and in contrast to the US Foreign Corrupt Practices Act 1977 (“FCPA”), the general bribery offences can be committed in relation to both the public and private sectors.

Bribing a Foreign Public Official

This is a new offence which only applies to offering or giving bribes, and not to accepting them. An offence will be committed if:

the person giving the bribe intends to influence the foreign public official and to obtain or retain business or a business advantage; and
the bribe is not permitted by the local written law.

Failure to Prevent Bribery

The Act also introduces a new strict liability offence for commercial organisations failing to prevent bribery, and it is this offence which is of most concern to companies.

A company will be guilty of this offence if a person associated with it bribes another person intending to obtain or retain business or a business advantage for the company. The only defence is for the company to show (on the balance of probabilities) that it had adequate procedures in place to prevent bribery.

This offence raises two principal concerns:

An associated person is widely defined as anyone who performs services for or on behalf of the company (and, in contrast to the position under the FCPA, no element of control is required). This could include employees, agents, contractors, subsidiaries and even joint venture partners, in respect of whom the company may have little or no practical control.
It is as yet unclear what is required by ‘adequate procedures’. The Government is required to publish non-statutory guidance on what constitutes adequate procedures, and has promised that this guidance will be available “well before” the Act comes into force. A clear timetable has not yet been provided, however, and the election of a new Government may impact any previously proposed timetable. The Government has so far provided little indication of what this guidance may contain, but has confirmed that the guidance will set out principles rather than being prescriptive and that, in determining what is adequate in the circumstances, a company’s size, the business sectors it operates in and the risks that it is likely to be exposed to must be taken into account. The Government has also indicated that existing anti-corruption guidelines published by, for example, the OECD, Transparency International and the GC100 are likely to be reflected in the Government guidance (see further details of these guidelines below).

These uncertainties leave companies in a difficult position. They urgently need to review and update their compliance procedures to ensure they are in accordance with the Act, but, as yet, have no formal guidance as to what is required.

Territorial Effect

The general bribery and bribery of a foreign public official offences are committed if:

any act or omission forming part of the offence takes place in the UK; or
the offence takes place outside of the UK by a person who has a close connection with the UK (which includes UK incorporated companies, British citizens and individuals ordinarily resident in the UK).

The failure to prevent bribery offence applies to any corporate which carries on any business in the UK, regardless of where the bribery actually took place. An overseas company with even a minor business presence in the UK could therefore become liable under the Act if its agent, employee or other associated person is involved in bribery anywhere in the world, even if the bribery itself has no connection with the UK. It is therefore essential that overseas companies, as well as UK companies, are aware of the provisions of the Act and ensure they are adequately prepared for when it comes into force.

Facilitation Payments

Despite much debate as part of the consultation process, facilitation payments are prohibited under the Act. This is a notable difference to the position under the FCPA, which permits small facilitation payments. Facilitation payments are generally understood to be the payment of small sums of money to expedite the performance of certain administrative functions (e.g. the release of goods from customs), and are seen by many as a necessary part of business in some jurisdictions. The SFO has clearly stated that it considers that facilitation payments are unjustifiable and should not be made. While the SFO may decide it is not in the public interest to prosecute companies for small one-off facility payments, this gives companies caught by the Act little comfort.

Corporate Hospitality

Again unlike the FCPA, the Act does not exempt reasonable expenditure for corporate hospitality. There remains the risk, therefore, that ordinary corporate hospitality could be in breach of the Act. This is particularly the case in relation to the bribery of a foreign public official offence which requires an intention to influence a foreign public official to obtain or retain business or a business advantage.

The Government accepts that ordinary corporate hospitality may technically be in breach of the Act, but considers that it is sufficient to rely on the prosecutor to decide whether any corporate hospitality goes beyond what is legitimate and so should be prosecuted under the Act. This leaves companies in a position of uncertainty as to what level of corporate hospitality is acceptable and many may be uncomfortable relying on the prosecutor’s discretion, particularly given the seriousness of the penalties that may be imposed.

Senior Officer Liability

If a company commits one of the general bribery or bribery of a public foreign official offences, its senior officers will also be liable if they consented to or connived in the offence. Senior officers cannot, however, be held liable for the company’s failure to prevent bribery (an important contrast to the position in the US).

A senior officer is widely defined to include directors, company secretaries, managers or similar officers or any person acting in that capacity. However, where the offence is committed outside of the UK, the senior officer will only be liable if he has a close connection with the UK (which includes British citizens and individuals ordinarily resident in the UK).

Compliance with the FCPA

A company that complies with the FCPA will not automatically comply with the Act, which, in some ways, goes further than the FCPA. For example, the Act applies to both public and private sectors, there is no carve out to permit facilitation payments or reasonable corporate hospitality and there is no requirement for the bribery itself to be connected with the UK. Companies used to complying with the FCPA should therefore undertake a further review of their anti-bribery procedures to ensure they also comply with the Act.

Penalties

An offence under the Act is punishable by an unlimited fine or (for individuals) up to 10 years’ imprisonment (or both).

Companies convicted of an offence under the Act also risk being permanently debarred from tendering for public sector contracts under the Public Contracts Regulations 2006, as well as suffering severe reputational damage.

Acquisitions

Acquiring a target which has been involved in corrupt practices represents a substantial risk to the acquirer:

the value of the target may be significantly less than the price paid; future revenues may depend on continued corrupt practices and contracts may be subsequently lost as a result of debarment or where they were originally obtained by the use of corrupt practices;
fines or the disgorgement of profits may be imposed post completion due to the target’s previous corrupt actions;
substantial ‘clean up’ or integration costs may be incurred post completion;
significant reputational damage may suffered both by the target and by the acquirer’s group as a whole; and
the acquirer risks committing a criminal offence under the Proceeds of Crime Act 2002 if it acquires the target, knowing or suspecting that it is involved in corrupt practices.

It is therefore essential that the due diligence process includes a thorough assessment of corruption related risks that may affect the target company. The level of due diligence required will depend on the risk profile of the target company (including where and in what sectors it conducts its business) but should include identifying the compliance culture of the target and the approach adopted by management. Due diligence enquiries should include specific questions to identify the target’s anti-corruption policies.

The acquirer should also obtain appropriate contractual protection, including specific warranties and indemnities to cover, as far as possible, corruption risks. Immediately after closing, the acquirer should address any inadequacies raised through due diligence and harmonise the target’s anti-corruption policies with its own.

Steps to be taken

Although the Government guidance on adequate procedures is not yet in place, companies should, as a matter of urgency, review their existing procedures, carry out a risk assessment and put additional procedures in place as necessary to take account of the Act. The actions a company should take will depend on its size, the sectors and locations in which it operates and the risks it may be exposed to, but may include some or all of the following:

ensuring the board of directors and senior management are informed of the impact of the Act (including their risk of personal liability for offences committed by the company) and take responsibility for establishing a corporate culture where bribery is not acceptable;
implementing an anti-corruption policy (or updating existing regimes in the light of the Act), communicating it to employees and partners and appointing a senior individual or a committee of senior individuals to be responsible for overseeing compliance;
carrying out due diligence checks on business partners, agents and, in some circumstances, employees (as companies risk being liable for the actions of an “associated person”);
reviewing and, if necessary, amending standard form contracts for business partners and employees to include appropriate anti-corruption provisions; and
implementing clear codes of conduct to prevent bribery (including in relation to gifts, corporate hospitality and whistleblowing) and establishing anti-corruption training programmes for employees.

Existing Guidance

A number of bodies have published helpful guidelines which are likely to be taken into account in the preparation of the Government guidance and so should be considered by companies carrying out a review of their compliance policies. These include:

The OECD Good Practice Guidance on Internal Controls, Ethics and Compliance - http://www.oecd.org/document/13/0,3343,en_2649_34859_39884109_1_1_1_1,00.html;
The GC100 Guidance - http://www.practicallaw.com/2-386-2858;
Transparency International’s business principles for countering bribery (which also includes a version for SME’s who are likely to have more limited resources) - http://www.transparency.org/global_priorities/private_sector/business_principles; and
The SFO’s Guidance on Self Reporting (although not updated to cover the final Act, this does provide guidance on the factors the SFO will consider in determining whether a company has adequate procedures in place) - http://www.sfo.gov.uk/bribery--corruption/self-reporting-corruption.aspx.

Conclusion

While the Act represents a long needed overhaul of the UK’s anti-bribery laws, there remain some significant concerns. The Act is unclear in a number of respects, with important areas (such as corporate hospitality) being left to the discretion of the prosecutor thereby making it difficult for companies to assess whether or not they are complying with the Act and the procedures they need to put in place to ensure they are. Much depends on the Government guidance, which will hopefully clarify some of these uncertainties. What is clear, however, is that companies cannot afford to wait for this guidance before reviewing their anti-corruption procedures and, instead, must start taking action now to prepare for the introduction of the Act.

If you have any questions or would like to discuss anything in this article in more detail, please contact Charlotte Hawkins at Kemp Little LLP on 020 7600 8080.