24 February 2011
For a new piece of legislation that was written in modern English and takes up comparatively few column inches, the Bribery Act 2010 (the “Act”) has created a furor, especially in relation to its new corporate offence and extraterritorial scope. Indeed, the Act has been branded as one of the toughest pieces of anti-bribery legislation in the world, leading many business groups to complain that UK trade overseas will be seriously disadvantaged. This article takes a closer look at the new corporate offence, the Act’s extraterritorial scope and what the Act means for business in the wider context.
The Act received Royal Ascent in April 2010 and was due to come into force in April 2011. However, the implementation of the Act has now been delayed, seemingly as a result of concerns raised by business groups that it imposed too great a burden and would disadvantage UK corporates in their overseas dealings. Although the implementation of the Act has been delayed, we expect it to come in to force, most likely in its current form, during 2011.
The current law that prohibits bribery and corruption in the United Kingdom can be found in several pieces of legislation, some of which date back to the late 19th century; there is also a common law offence of bribery. The Act will, for all future purposes, repeal and replace the current UK anti-bribery laws by introducing four new offences. Two of them are general offences: one of bribing another person and the other of receiving a bribe. The others are bribery of a foreign public official and, potentially the most relevant and controversial, the failure of a commercial organisation to prevent bribery by its representatives acting in the course of its business.
The Act will apply to bribery in both the public and private sectors and, the UK government has indicated that they will take a zero-tolerance approach to bribery in all of its forms. Although some other jurisdictions have adopted a different approach (for example low value exemptions) the general trend (which is supported by the OECD) is to move to a similar zero-tolerance approach.
For a commercial organisation to be liable for the new offence, the organisation’s representative (a person who provides services on behalf of the commercial organisation) must bribe another person with the intention of obtaining or retaining business or a business advantage for that organisation. But before considering the corporate offence any further, it is necessary to first take a brief look at the two new offences of bribing another person and bribing a foreign public official. In each of these, although a conviction of the representative is unnecessary, the prosecution will need to establish, on the evidence available, that the representative has committed one of these two new bribery offences before it can establish whether the corporate offence has been committed.
The offence of bribing another person requires there to be an offer, a promise or the giving of some financial or other advantage to the recipient with the intention of inducing, or rewarding, the improper performance of a function or activity. The offence is also committed where it is known or believed that the acceptance of the advantage would in itself constitute an improper performance of a relevant function or activity (for example, the value of corporate hospitality exceeded the value that applicable internal rules and policies allowed the recipient to accept).
The offence of bribing a foreign public official requires there to be an offer, a promise or the giving of a financial or other advantage to such an official with the intention of influencing that person in his or her capacity as a foreign public official. There must also be an intention to obtain or retain business or a business advantage. It will be a defence if local written laws allow the official to receive such an offer, promise or gift and be so influenced, though it is unlikely to be the case in any jurisdiction. In contrast to the general bribery offences where an intention to induce improper performance is necessary, this offence has a much lower requirement as the intention to influence the official in the performance of his or her duties does not require any criminal impropriety.
It should be noted that what constitutes improper performance is to be determined by an objective test against standards applicable to a reasonable person in the United Kingdom. The fact that a gift or payment may accord with local custom and practice will be of no assistance unless it is also permitted by the local written laws. In China, for instance, great importance is placed on the development of business relationships ( the concept of “Guanxi”). Guanxi involves the complex and lifelong exchange of favours and development of influence which exposes those involved to an increased risk of corruption. This is especially so in business sectors that include government- and state-owned entities.
Bribery can take many forms in different parts of the world: from unassuming small gifts and low-value facilitation payments, to lavishly sponsored travel and corporate hospitality. One school of thought is that the majority of such payments, gifts, hospitality etc., are, in fact, provided with the intention of inducing, rewarding or influencing, subliminally or otherwise, the recipient: why offer it otherwise? However, those who are engaged directly or via a third party, in the provision of any form of corporate hospitality will need to look carefully at why the hospitality is being provided in the first place. The fact that such hospitality is expected in a certain industry or such payments are necessary and an accepted local practice or custom in certain jurisdictions, are unlikely to find favour with the UK courts.
Ordinarily, for a corporate offence to be committed there needs to be the requisite degree of knowledge, intent or acquiescence by the “directing mind” of the organisation, which usually means by the most senior of their personnel. This has been notoriously difficult to prove and is reflected by the low number of corporate convictions in the United Kingdom. However, the Act turns this long-standing proposition on its head and looks at the acts, omissions and intent of the organisation’s representatives: namely those that perform services for or on behalf of the organisation. Not only will this include employees, agents, contractors and the organisation’s own subsidiaries, but also those with whom the organisation may have no direct contractual relationship or ownership rights such as, subcontractors, joint venture partners and consortium members.
The new corporate offence introduced by the Act will certainly make it easier for UK law enforcement agencies to secure a greater number of corporate convictions. Indeed, commercial organisations may very well find themselves being charged with an offence where the underlying bribery has been promulgated by one of their more junior staff members or, remarkably, by someone with whom they may have no direct contractual relationship.
Consider the position of the UK hotel owner: it has retained a contractor for a major refit and a number of subcontractors have been brought in to deal with specific parts of the job. Unknown to the hotel owner, one of the subcontractors pays a sum of money to an employee of a supplier to expedite the delivery of certain products. This may give rise to a bribery offence against the hotel, regardless of the hotel owner’s lack of knowledge or intent.
It is important to note that the corporate offence can be enforced against organisations (both companies and partnerships) that are not incorporated or formed in the United Kingdom. The jurisdiction of the UK courts is determined by whether the organisation carries on a business or part of a business in any part of the United Kingdom. The Serious Fraud Office (the UK’s lead law enforcement agency in cases involving overseas bribery) have indicated repeatedly that they intend to take a very broad approach to jurisdiction under the new corporate offence. Therefore, although businesses may be compliant with anti-bribery and corruption legislation in the jurisdiction in which they are incorporated or formed, they may not necessarily be compliant with the Act; if they are not compliant, and they carry on a business in the United Kingdom, they are exposed to the risk of prosecution in the UK courts.
The extraterritorial scope of the Act will have significant implications for businesses with global interests. Take, for example, the hotel developer whose parent company is located in the United States, its subsidiary is in the United Kingdom, and it is developing a hotel in an emerging market in Asia. In addition to the planning and zoning consents required for the development, the developer could require a dozen or more other approvals, certificates and the like to set up a single purpose company and have the land registered. These approvals are commonly part of the developer’s bureaucratic dealings with state-owned entities and it is not uncommon for some public officials, in their capacity as such, to request expedition fees to speed up the delivery of the approvals or otherwise smooth over any difficulties. These practices may be condoned or tolerated. However, the UK law enforcement agencies will be taking a different view. The payments, if given with the intention of influencing a foreign public official in the performance of his or her official duties, may constitute an offence under the Act and expose the US parent to the risk of prosecution in the UK courts.
The sanctions for non-compliance with the Act are severe and include the possibility of unlimited fines and, for individuals, up to 10 years’ imprisonment.
The onerous nature of the new corporate offence is countered by one specific statutory defence. In order to take advantage of that defence, the organisation must have had adequate procedures in place to prevent bribery from occurring. The UK government has a statutory duty to issue guidance as to what constitutes “adequate procedures” and whilst a draft of that guidance was circulated as part of a mini consultation exercise in September of 2010, the guidance has yet to be finalised and published. But do not fall into the trap of thinking that the guidance will be an interpretation of the law or that it will set out a precise list of procedures which will allow all to avoid prosecution. Rather, the guidance will simply provide a set of principles that should be considered when determining the procedures that each organisation should put in place, possibly with illustrations as to how those principles might be applied.
The position in Germany is not too dissimilar to that which will exist in the United Kingdom once the Act comes into force. Most of Germany’s anti-bribery legislation can be found within its Criminal Code, which also recognises similar general offences of giving and receiving bribes as well as the bribery of foreign public officials. In contrast, though, the failure of a commercial organisation to prevent bribery can only be enforced where the bribery itself takes place within Germany or is made by a German resident outside of Germany. German commercial organisations can also take advantage of a similar defence to that found in the Act if they are able to show that they had in place adequate procedures to prevent bribery occurring.
Business should be taking advantage of the delay in the implementation of the Act and now be putting in place adequate procedures to mitigate against the risk of prosecution under the Act. Once the guidance has been issued, the UK government has indicated that there will be a three-month period before the Act becomes operative—not much time if a wholesale review and revision of an organisation’s policies and procedures is required.
Your business may be able to pay any fines imposed, but the damage to your reputation is going to be far more significant and potentially devastating.