5 February 2014
The head of the UK's Serious Fraud Office has proposed a change to the Bribery Act 2010 (the "Act"), seeking broader powers to get tough with corporations who fail to prevent their staff committing financial crimes. If enacted, the measures could make it easier for the SFO to prosecute corporations, as opposed to individuals, under the Act. Considering the extraterritorial reach of the Act, the tabled change will have implications for corporations that, while not registered in the UK, conduct business in or through the jurisdiction.
The difficulty for the SFO in securing convictions on the basis of corporate liability is well known, and is in stark contrast to the comparative success rate (albeit, largely negotiated) enjoyed by the Department of Justice and Securities Exchange Commission in the United States in enforcing the Foreign Corrupt Practices Act. The difficulties in bringing successful prosecutions under the Act arise from the need for the SFO to demonstrate that the corporation in question had the requisite criminal intent of bribing another person or a foreign official. This means that the SFO must show that the "controlling mind" of the corporation - namely the board of directors of that corporation - knew of the bribery being perpetrated by its employees. In practice, it will often be the case that evidence cannot be secured to demonstrate that members of a corporation's board were cognisant of bribery being committed by workers at lower-levels within the corporation. Accordingly, the opportunities for pursuing corporations for apparent breaches of the Act are constrained by the controlling mind test.
The proposed amendment seeks to overcome this limitation by broadening the scope of Section 7 of the Act. Section 7 provides that it is an offence for a company to fail to prevent acts of bribery by its staff. The offence is one of strict liability, which means the SFO is not required to prove any mental element on the part of the corporation under scrutiny. It is proposed that the scope of Section 7 be expanded from one of failing to prevent bribery, to the wider offence of failing to prevent financial crime by its employees. The effect of this would be to broaden the range of offences for which a corporation may be held liable, without the SFO having to satisfy the onerous "controlling mind" test, which may increase the rate of prosecutions that can be brought against corporations.
While the offence under Section 7 is one of strict liability, it is subject to the statutory defence of "adequate procedures", and there has been no indication that the SFO is considering advocating a modification of this defence.
It is understood that the SFO envisages that the increased scope of Section 7 would only be used in exceptional cases, such as where a corporation profited from the criminal conduct of its employees, but it is not clear what other circumstances would be considered 'exceptional'.
The potentially broader scope of Section 7 would likely have a deterrent effect. Corporations convicted under a wider Section 7 may be blacklisted from bidding for European public contracts, which could prove fatal to the financial viability of many corporations. Further, with the expansion of Section 7 to include financial crimes, there may well be significant consequences for banks that are caught up in the LIBOR-rigging investigations.
At present the proposals have not been presented to Parliament, which will finally decide if the suggested amendments should be given effect in law.
The proposals remain in the nascent stages, but the sentiment expressed by the amendments indicates a desire on the part of the SFO to ensure that corporations are held accountable for the wrongs committed by those institutions, and to adopt a more aggressive stance when investigating corporations implicated in bribery and corruption.
As many of the corporations that are subject to the Act would also be subject to the FCPA, it remains imperative for companies to have a proper understanding of bribery and corruption issues, and how they can take steps to prevent themselves being subject to an investigation under either the Act or the FCPA.