6 January 2011
The UK bribery laws have long been criticised, both domestically and internationally, for their complexity and uncertainty. These concerns have, in turn, given rise to enforcement difficulties. All that is set to change, however.
The Bribery Act 2010 (the Act) was enacted on April 8, 2010. And, while it was originally envisaged that the Act would become operative in October 2010, the change in government following the UK General Election in May 2010 caused this to be delayed. In July 2010, it was announced that the Act would now become operative in April 2011.1 For many, the extra time was very welcome because once the Act is operative, there will be no grace period to enable those who are subject to it to get their houses in order. If you need a wake-up call, now is the time to act before it is too late.
Why Is the Act So Important?
The Act marks a radical change to the existing UK bribery laws and has wide extra-territorial reach. It has been described by The Wall Street Journal as a “…caffeinated sibling of the Foreign Corrupt Practices Act…”2 and is potentially a far more aggressive statute with far-reaching implications not only for UK citizens and UK-registered companies, but also for all other commercial organisations that have a business presence in the United Kingdom, irrespective of where they may be formed or incorporated.
The new bribery offences introduced by the Act include the following:
- Two general offences of bribing another person and being bribed
- A discrete new offence of bribing a foreign public official
- A wholly new offence if a commercial organisation fails to prevent bribery by persons associated with it acting in the course of its business
The Act recognises that a bribe may take many different forms (it is referred to in the Act as “…a financial or other advantage…”) and is not limited to the archetypal brown envelope stuffed with bank notes. Indeed, overly extravagant corporate hospitality and promotional activities are likely to fall afoul of the Act and this is particularly so where that corporate hospitality or promotional activity is directed at a foreign public official. Great care must be taken as it will be very easy to commit an offence contrary to the Act; whether or not a prosecution will ensue is left to an exercise of prosecutorial discretion.
Understandably, this is considered by many to be an unsatisfactory state of affairs and it is hoped that before the Act comes into force, guidance will be issued to clarify what conduct falls on which side of the line of acceptability.3
The Two General Offences
The first general offence focuses on the conduct of the person who offers, promises or gives a bribe; the second general offence focuses on the conduct of the person who requests, agrees to receive or accepts a bribe. In both offences, it is immaterial whether the bribe is offered or requested directly or through an intermediary or whether it is actually given or accepted.
Both general offences involve an improper performance of a relevant function or activity, which, in the context of the Act, may be of a public or private nature. As the definition of what constitutes a relevant function or activity is so widely drawn, it is difficult to conceive of any function or activity that will not fall within the operation of the Act. It should also be noted that the function or activity need have no connection whatsoever with the United Kingdom and may be performed wholly outside the United Kingdom.
The Act provides that a relevant function or activity may be performed improperly if the person performing it is in breach of an expectation that it will be performed impartially, in good faith or in accordance with an obligation of trust. This expectation is to be assessed by what is considered reasonable in the United Kingdom and without regard to any local custom or practice (unless forming part of the written law) of the jurisdiction in which the relevant function or activity is performed. So, for example, a lavish gift provided as a mark of respect that is given in accordance with local custom in one jurisdiction may still contravene the first general offence, giving rise to the risk of prosecution in the United Kingdom.
For the first general offence of bribing another person, in contrast to the existing UK bribery laws, there is no requirement to establish an intention to corrupt. It is sufficient if there is an intention to induce a person to act improperly, or to reward improper performance. In the case of the second general offence of being bribed, in certain cases it is not even necessary to establish any knowledge by the person who is committing the offence (the person being bribed) that what he/she is doing constitutes improper performance.
The Discrete Offence of Bribing a Foreign Public Official
A person will be guilty of this offences if he/she offers a “…financial or other advantage…” to a foreign public official with the intention of influencing that official in his/her capacity as a foreign public official, thereby obtaining or retaining either business or a business advantage. In contrast to the first general offence, no intention to induce improper performance is required—indeed, no dishonesty or criminal impropriety need be established. In this respect, this offence is more stringent than the equivalent contained in the Foreign Corrupt Practices Act (FCPA) and the requirements of the OECD Anti-Bribery Convention of which the United Kingdom is a signatory.
A foreign public official includes: (i) a person holding a legislative, administrative or judicial post (whether appointed or elected) in a country or territory outside the United Kingdom; (ii) a person who exercises a public function on behalf of a country or territory outside the United Kingdom or for a public agency or public enterprise of that country or territory and (iii) a person who is an agent or official of a public international organisation.
In certain jurisdictions, small facilitation (or “grease”) payments to foreign public officials to ensure the timely completion of routine administrative tasks are part of the local custom and culture, even if not permitted by the local written law. However, the UK government has signalled a zero-tolerance approach to bribery in all its forms—a bribe is a bribe no matter what its value. A facilitation payment made to a foreign public official therefore gives rise to the risk of prosecution for this offence.
Failure of a Commercial Organisation to Prevent Bribery
The Act makes it an offence for a commercial organisation to fail to prevent bribery by persons associated with it acting in the course of its business. An “...associated person...” includes those persons who provide services for or on behalf of the relevant commercial organisation. This will include employees, subsidiaries and agents but is not limited to these and may include persons, natural or legal, over whom the commercial organisation has no direct control (for example, joint venture partners or consortium members) or even with whom it has no direct contractual relationship (for example, a sub-contractor).
The term “…commercial organisation…” is defined in the Act as including those companies or partnerships incorporated or formed in the United Kingdom and that carry on business in the United Kingdom or elsewhere, and those companies and partnerships incorporated or formed overseas that “…carry on a business or part of a business in the UK….” The Act does not clarify the meaning of these terms and it will be left to the UK courts to determine on a case-by-case basis. It is likely, however, that this business presence test will be very easily satisfied (for example, by having a UK subsidiary or branch office or even a UK agent or distributor) and therefore this new offence should be a concern for all non-UK commercial organisations that are or may become subject to this part of the Act. The Serious Fraud Office (SFO), the lead UK law enforcement agency in cases involving overseas bribery, has indicated that it intends to take broad jurisdiction in respect of this new offence. Indeed, as Richard Alderman, the current Director of the SFO, recently stated in a speech to members of the Commerce & Industry Group:
For the first time, non-UK companies will be brought within the jurisdiction of the SFO if they have some business presence in the UK. What this will mean is that a foreign corporate which is involved in corruption anywhere in the world will be within the SFO’s jurisdiction if it has a business presence here even if the corruption has no connection with that business presence. This is a very important provision for us. I believe that foreign corporates are waking up to the significance of this.4
The bribery by the person associated with the commercial organisation may take place wholly outside the United Kingdom and it is irrelevant whether the commercial organisation is aware or has any knowledge of it. Indeed, for this reason the new offence has been described as being one of strict liability, but the Act does provide that it is a defence if the commercial organisation can establish that it had “adequate procedures” in place to prevent such bribery from occurring. This, however, is the only defence to this new bribery offence.
Although there is no statutory definition of adequate procedures, the UK government accepted a statutory duty (incorporated into the Act) to issue guidance as to what commercial organisations could do to ensure that bribery by persons associated with it did not occur. That guidance is expected to be finalised and published in January 2011, three months before the Act becomes operative. That leaves very little time for commercial organisations to consider and implement any necessary changes to their existing policies and procedures.
In September 2010,5 the UK government issued a draft of the guidance it proposed to issue (focusing on Section 9 of the Act) and commenced a mini-consultation exercise to seek comments on it. As expected, that draft guidance is principles-based and is neither prescriptive nor standard-setting, the view being that it was not appropriate to take a “one size fits all approach.” Instead, the guidance sets out six management principles that all commercial organisations might use when considering whether its procedures are adequate: (i) risk assessment, (ii) top-level commitment, (iii) due diligence, (iv) clear, practical and accessible policies and procedures, (v) effective implementation and (vi) monitoring and review.
The draft guidance does not specify the particular policies and procedures that should be introduced—that is left for determination by each individual commercial organisation that is subject to the Act. This is a potentially difficult and time-consuming exercise, and those that operate in what are perceived to be high-risk geographies, that use third-party intermediaries, local agents or consultants, that conduct business through joint ventures or other commercial structures which they may neither own nor control, and that regularly interface, directly or indirectly, with foreign public officials, may find that they have a steep hill to climb by April 2011.
Penalties for the New Bribery Offences
Individuals who are convicted may face up to 10 years imprisonment and/or an unlimited fine. Companies face an unlimited fine. In addition to the penalties provided in the Act, there is a wide array of other penalties that may be imposed both before and after conviction, including an order to disgorge any benefits that may have accrued from the bribery offence6 (the starting point for this will be the value of any business obtained by bribery which will not be limited to the net profits made or the value of the bribe that is paid) and, if convicted, debarment from tendering for public sector contracts in the European Union.7
Liability of Senior Officers
If a commercial organisation commits one of the two general bribery offences or the discrete offence of bribing a foreign public official, then a “…senior officer…” (including a director, manager, secretary or partner of that commercial organisation as well as a person who purports to act in any of those capacities) who has “…consented or connived…” in the commission of that offence is liable as if he/she had committed the offence. While the phrase “consented or connived” is not defined in the Act, both terms require some awareness of the material facts. While “consent” requires some agreement to the course of action followed, “connive” requires only tacit agreement or the turning of a blind eye.
If the act or omission constituting either of the general bribery offence or the discrete offence of bribing a foreign public official occurs in the United Kingdom, then the UK courts will have jurisdiction whatever the nationality or origin of the person committing the offence.
A person who is “closely connected” to the United Kingdom may also be prosecuted for a bribery offence that occurs overseas, provided it would have constituted an offence if it had occurred in the United Kingdom. The Act provides that persons who are closely connected to the United Kingdom include, among others, British citizens, those who have British citizenship rights or are considered British subjects or British protected persons, and those of whatever nationality who are ordinarily resident in the United Kingdom as well as UK-incorporated companies.
As outlined above, however, where the Act has the greatest extra-territorial reach is in relation to the new offence of a commercial organisation failing to prevent bribery by associated persons in the course of its business. The SFO has signalled its intentions in relation to enforcement and, as there is only one available defence, it is important to take all necessary action now to ensure that you are best prepared for when the Act comes into force next April.
If you don’t take action now, the consequences could be very costly indeed.
1.Bribery Act Implementation—Written Ministerial Statement from the Lord Chancellor and Secretary of State for Justice, Kenneth Clarke QC MP (20 July, 2010).
2. “SFO Anti-Corruption Chief Talks Grease Bribes” by Joe Palazzolo, The Wall Street Journal, September 23, 2010.
3. Joint Guidance from the Director of Public Prosecutions and the Director of the Serious Fraud Office to those involved in the investigation and prosecution of bribery offences is in the course of preparation and is expected to be available early in 2011; also, a Circular providing further information on the Act is expected to be published by the Ministry of Justice in early 2011.
4. Speech by Richard Alderman, Director of the Serious Fraud Office to members of the Commerce & Industry Group (in association with Mayer Brown LLP), London, October 13, 2010.
5. Guidance about commercial organisations preventing bribery (section 9 of the Bribery Act 2010) (reference number: CP11/10).
6. Parts 2 and 5 of the Proceeds of Crime Act 2002.
7. EU Public Sector and Utilities Procurement Directives as implemented in the United Kingdom by the Public Contract Regulations 2006 (SI 2006 No 5) and the Utilities Contracts Regulations 2006 (SI 2006 No 6).