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The Bribery Act 2010 - are your policies still fit for purpose?
The Financial Conduct Authority (‘FCA’) published its business plan for the 2015/16 year on 24 March 2015, announcing that ‘Financial Crime’, encompassing bribery and corruption prevention, will constitute one of its ‘seven forward-looking areas of focus’. Most firms scrambled to introduce various measures in 2010 and 2011, before the Bribery Act 2010 (‘the Act’) came in to force, but given developments throughout 2014, are these policies still fit for purpose?
The Act came into force on 1 July 2011, following publication by the Ministry of Justice of final guidance about procedures which businesses can put into place to prevent persons associated with them from bribing (‘the MoJ Guidance’).
The Act provides a revised framework to combat bribery in the public and private sectors, removing the need to prove acts were done corruptly or dishonestly.
The corporate offence means a business can be held strictly liable for bribes paid by “associated” persons. The offence of bribing a public official contains no requirement for the prosecution to show that a person behaved “improperly”.
The Act is jurisdictionally far-reaching, which has caused concern both for UK businesses with overseas operations and for overseas business with operations in the UK. Please see further below for more details of the Act.
Developments since the introduction of the Act
The Serious Fraud Office (‘SFO’) secured its first conviction under the Act during December 2014. Two businessmen, Gary West and Stuart Stone were convicted of bribery offences in relation to the selling and promotion of investment products based on biofuel plantations in Cambodia. Mr Stone was sentenced to 6 years imprisonment and Mr West was sentenced to 4 years. This was seen as a big step forward for the prosecutor and emphasised the tougher stance it had promised to take in relation to breaches of the Act. Also the current Director, David Green QC, has stated that the SFO has over 60 cases in the pipeline concerning the 2010 Act. This is in addition to the publicly reported bribery and fraud investigations involving numerous UK and global companies and undeclared investigations into other well-known UK companies. This suggests that a significant number of enforcement actions can be expected.
The powers of the SFO were also enhanced significantly throughout the course of 2014 with the introduction of a number of new investigative and prosecutorial powers. These included the introduction of Deferred Prosecution Agreements (‘DPAs’) These have been available to the SFO since February 2014 and allow the SFO to enter in to a ‘plea bargaining’ type arrangement with parties to an offence under the Act. Under a DPA, a company that admits certain economic and financial offences will be able to avoid prosecution if it complies with set conditions, including the payment of financial penalties. The DPA effectively allows the SFO to initiate charges but defer them if the person agrees to comply and assist with their investigation. In the UK a DPA must be approved by a judge who is in agreement that a prosecution would not be in the public interest and once the DPA is formalised it will be made public. The SFO has outlined that the decision to grant a DPA will be significantly influenced by the level of cooperation they receive and whether the company has self-reported at an early date.
The Act creates two general offences covering the offering, promising or giving of a bribe; and the requesting, agreeing to receive or accepting of a bribe at sections 1 and 2 respectively.
It also sets out two offences which specifically address commercial bribery. Section 6 creates a discrete offence of bribery of a foreign public official in order to obtain or retain business or an advantage in the conduct of business. Section 7 creates a commercial liability where commercial organisations fail to prevent bribery by persons “associated” with them.
In order to be liable under section 7, a business must have failed to prevent conduct that would amount to the commission of an offence under sections 1 or 6. The section 7 offence is in addition to, and does not displace, liability which might arise under sections 1 or 6 of the Act. In addition, section 14 provides that senior officers of a corporate body may be personally prosecuted if an offence is proved to have been committed by a corporate body with their consent or connivance.
The Act provides a maximum penalty of 10 years’ imprisonment or an unlimited fine for individuals, and an unlimited fine for commercial organisations.
Section 1: Offences of bribing another person
Section 1 makes it an offence for a person (‘P’) to offer, promise or give a financial or other advantage to another person in one of two cases:
- Where P intends the advantage to bring about the improper performance by another person of a relevant function or activity or to reward such improper performance; and
- Where P knows or believes that the acceptance of the advantage offered, promised or given in itself constitutes the improper performance of a relevant function or activity.
For the purposes of deciding what is “improper”, the test is what a reasonable person in the UK would expect in relation to the performance of that function or activity. Where it takes place in a country outside UK jurisdiction then any local practice must be disregarded unless permitted by the written law of that country.
Section 6: Bribery of a foreign pubic official
Section 6 concerns the standalone offence of bribery of a foreign public official. The offence is committed where a person offers, promises or gives a financial or other advantage to a foreign public official with the intention of influencing the official in the performance of his or her official functions. The person offering, promising or giving the advantage must also intend to obtain or retain business or an advantage in the conduct of business by doing so. However, the offence is not committed where the official is permitted or required by the applicable written law to be influenced by the advantage.
Richard Alderman, who was the Director of the SFO at the time the Act was introduced, acknowledged that the question of who is a foreign public official can be tricky, for example with regards to banking officials in countries where the state has a major interest in the bank and exercises that interest very actively. He said if the commercial organisation is being run by the state, the individual is likely to be a foreign public official.
Hospitality, promotional and other business expenditure
The impact of the Act on promotional expenses has raised concerns because the offences are so broadly drafted that, at first glance, it appears that providing and accepting many types of promotional expense may be illegal. However, according to the current MoJ Guidance, the UK Government does not intend for the Act to prohibit reasonable and proportionate promotional expenditure. The question is whether there is a sufficient connection between the advantage and the intention to influence and secure business.
Unless there is direct evidence, this will depend on the circumstances. The more lavish the hospitality or expenditure, then, generally, the greater the inference that it is intended to influence the recipient to grant a business advantage. The then Director of the SFO, Richard Alderman, said that “They [a company] know as well whether they would like to see details of the expenditure on the front-page of newspapers, always a very good test”. Simply demonstrating that promotional expenditure is commensurate with standards within a certain industry would not be, of itself, evidence that no bribe was paid if there is other evidence to the contrary.
Section 7: Failure of commercial organisations to prevent bribery
A “commercial organisation” will be liable to prosecution if a person “associated” with it bribes another person intending to obtain or retain business or a business advantage for the commercial organisation. The commercial organisation will have a full defence if it can show that despite a particular case of bribery it nevertheless had adequate procedures in place to prevent persons associated with it from bribing. In accordance with established case law, the standard of proof which the commercial organisation would need to discharge in order to prove the defence, in the event it was prosecuted, is the balance of probabilities.
A business will fall within scope of the section 7 offence if it is:
- A body or partnership incorporated or formed in the UK irrespective of where it carries on a business; or
- An incorporated body or partnership which carries on a business or part of a business in the UK irrespective of the place of incorporation or formation.
Entities incorporated or formed outside the UK are unlikely to be regarded as carrying on a business or part of a business “in any part of the United Kingdom” unless they have a “demonstrable business presence” in the UK.
According to the MoJ Guidance, the fact that a company’s securities have been admitted to the UK Listing Authority’s Official List and to trading on the London Stock Exchange would not, in itself, qualify that company as carrying on a business or part of a business in the UK. Likewise, having a UK subsidiary will not, in itself, mean that a parent company is carrying on a business in the UK, if the subsidiary acts independently of its parent. These will be matters for the courts, which is not ideal for businesses seeking certainty.
Carrying on a business or part of a business has potential for wide application within the scope of the Act. However, until the UK courts give guidance, foreign entities with any UK presence may wish to assume for the sake of caution they are within scope and introduce anti-bribery provisions.
A person “associated” with a commercial organisation is one who “performs services” for or on behalf of it. The person can be an individual or an incorporated or unincorporated body. This broad scope means that employees, agents, subsidiaries could be included, as could contractual counterparties to the extent that they are performing services for or on behalf of a fund business.
Associated persons: delegation
Where a supply chain involves several entities or sub-contractors, a business is likely only to exercise control over its contractual counterparty. Businesses may consider employing anti-bribery procedures in the relationship with their contractual counterparty and requesting that counterparty to adopt a similar approach with the next party in the chain.
Associated persons: subsidiaries
As to whether a subsidiary can be an “associated person”, the MoJ Guidance states that a bribe on behalf of a subsidiary by one of its employees or agents will not automatically involve liability on the part of its parent company, or any other subsidiaries of the parent company, if it cannot be shown the employee or agent intended to obtain or retain business or a business advantage for the parent company or other subsidiaries. This is so even though the parent company or subsidiaries may benefit indirectly from the bribe.
While having a UK subsidiary will not, in itself, mean that an offshore parent company is carrying on a business in the UK, offshore companies with subsidiaries in the UK should bear in mind that there may be additional factors to indicate that the offshore parent is carrying on business in the UK through the UK subsidiary and that the SFO may regard a subsidiary as not having sufficient independence for its parent to escape liability.
Bribes paid to facilitate routine government action could trigger either the section 6 offence or, where there is an intention to induce improper conduct, including where the acceptance of such payments is itself improper, the section 1 offence and therefore potential liability under section 7. The Act does not provide any safe harbour for such payments.
Facilitation payments are common practice in many countries and business have been concerned that the absence of an exemption for facilitation payments puts them at a competitive disadvantage. In the United States, under the Foreign Corrupt Practices Act (‘FCPA’), there exists an exception that may permit the use of a facilitation payment in certain circumstances. However, in practice, the FCPA’s facilitation payment exception is considered unreliable and many companies subject to it have policies in place forbidding facilitation payments.
It is important for businesses to be aware that agents who may be regarded as “associated persons” might make facilitation payments and consider having procedures to prevent such payments.
The courts will have jurisdiction over section 1, 2 and 6 offences committed in the UK. They will also have jurisdiction over section 1, 2 and 6 offences committed outside the UK where the person committing them has a “close connection” with the UK by virtue of being, among others, a British citizen; British overseas territories citizen; person who under the British Nationality Act 1981 was a British subject; British national (overseas); British overseas citizen; individual ordinarily resident in the UK; body incorporated in the UK; or Scottish partnership.
As regards section 7 of the Act, the requirement of a “close connection” with the UK does not apply. A business can be liable for conduct amounting to a section 1 or 6 offence on the part of a person who is neither a UK national or resident in the UK, nor a body incorporated or formed in the UK. In addition, it does not matter whether the acts or omissions which form part of the section 7 offence take part in the UK or elsewhere. So, provided the business is incorporated or formed in the UK, or it carries on a business or part of a business in the UK (wherever in the world it may be incorporated or formed) then UK courts will have jurisdiction.
Procedures for preventing bribery: the six principles
The MoJ Guidance sets out six principles which should inform a business’s procedures for preventing bribery being committed on its behalf. It is required reading for all companies wishing to reduce their exposure to Section 7 prosecutions. It provides commentary and guidance to accompany each principle and also contains a series of case studies.
Conclusion and action points
In summary, businesses should consider, while using a risk-based and proportionate approach, the following steps:
- Ensuring they have top-level management commitment to preventing bribery;
- Conducting regular internal and external bribery risk assessments;
- Having appropriate anti-bribery policies and procedures that are reviewed and updated on a regular basis;
- Ensuring contractual terms with counterparties and employees include relevant anti-bribery provisions;
- Applying due diligence procedures on existing and potential associated persons;
- Providing communications, training and avenues for “whistle-blowing” and feedback;
Much has changed since the majority of businesses introduced anti-bribery policies and procedures in 2010 and 2011. Businesses will have had staff turnover, so need to ensure new recruits are properly trained on anti-bribery policies and procedures. However, although induction sessions are a useful grounding, experience shows that firmwide or workshop sessions are best at encouraging staff members to engage and interact.
Moreover, businesses may have altered or added to their products, services or geographical reach. It is vital that anti-bribery policies and procedures are reviewed and updated on a regular basis to ensure they are still appropriate and fit for purpose.
For further information, or to discuss, any of the matters raised above please contact the Financial Regulatory team at Kemp Little.
 Speech by Richard Alderman, Director, SFO, on 21 June 2011 on Private Equity and the UK Bribery Act.