22 Jul 2010

Businesses must take care and ensure that senior managers are not committing offences created by the Bribery Act 2010 (“the Act”), in particular the new corporate offence of failing to prevent bribery and ensure that there are adequate compliance programmes in place.

Financial misconduct has been the subject of high profile attacks, severe criticism and regulatory crackdown in recent months. The FSA has substantially strengthened its strategy of credible deterrence and anti-compliant behaviour is now actively sought out. The law of bribery is no exception to this trend with high-profile cases such as Innospec and Robert Dougall/DePur International confirming that “regulation” is the buzzword of the moment. A criminal layer has been added to this with the introduction of the Act which consolidates and codifies the legal minefields of bribery and corruption. It is now law although all the offences under it will not be in force until April 2011.

What does the Act do?

The Act introduces two new general offences:

  • the offence to offer, promise or give a financial or non-financial advantage (a “bribe”); and
  • the offence to request or agree to receive or accept a financial or non-financial advantage.

Further new offences include:

  • the bribing of a foreign public official (“a FPO”); and
  • for commercial organisations only, the failure to prevent a bribery being paid on its behalf.

On par with the current financial regulatory focus on the competence and responsibility of senior management, the new laws on bribery and anticorruption will directly affect those who occupy positions of seniority both at board level and lower down the spectrum – it are those who will bear the responsibility for ensuring that internal compliance policies and procedures conform with the requirements of the Act. The Energy sector should pay particular attention to these legal developments as it is widely identified as being at a high risk of exposure to domestic and international corrupt practices.

The Act has a broad extra-territorial application (i.e. it covers offences in the UK as well as overseas). It is not limited to acts of bribery committed in the UK by British citizens or commercial organisations but extends to acts committed anywhere in the world by UK corporates or individuals if the act of bribery would amount to an offence in the UK. Dealings done in countries where bribery is an accepted commercial and cultural norm will ultimately be caught out and the corporate or individual will be left to suffer the consequences. The specific offence of bribing a FPO (which helps to harmonise UK domestic law with its OECD international obligations) exemplifies the Act’s overseas jurisdiction and note-worthy application to the Energy sector which operates vastly in Asian, Middle Eastern and African countries.

How to prevent a Serious Fraud Office prosecution against you.

The only defence to a criminal offence under the Act is for a UK corporate to show that they have in place adequate procedures, systems and controls to prevent bribery and corruption. Businesses need to effect a thorough anti-bribery and corruption risk assessment of their business, involving:

  • the identification of risks faced at various stages; and
  • the appropriateness and effectiveness of all internal policies, procedures and training in helping to mitigate those risks.

The training of employees, subsidiaries, agents, contractors and suppliers to name but a few on anti-bribery measures will be essential, as well as even corporate hospitality policies. A depth of understanding of the Act by and seamless teamwork amongst all departments of a business including Compliance, Legal, HR and Accounts will be essential to its smooth integration.

Who is ultimately responsible for this? Senior management. The sanctions in place? Ten years imprisonment and/or an unlimited fine for individuals and unlimited fines for a UK corporate.

If areas are found to be inadequate in light of the new Act, it will be necessary to enact robust anti-corruption compliance procedures that are appropriate to the circumstances of your business and your industry sector, taking into account:

  • your size;
  • the extent of your operations; as well as
  • political, economic and social risks to which you may be exposed.

Business ethics, codes of conduct and any anti-bribery policies must be updated as soon as possible. The Ministry of Justice will be issuing guidance as to what “adequate” means although to wait for this may prove to be a little too late for most organisations as they risk lagging behind compared to competitors and may not have a strong “adequate procedures” defence if they need to rely on it. A consultation paper on the draft statutory guidance is expected in September 2010, with the final guidance expected to be published early in 2011, thus providing companies with a few months in which to prepare and implement “adequate procedures” before the Act is brought into force in April 2011.

Comparison with the U.S. FCPA

The differences that exist between the United States’ Foreign Corrupt Practices Act (“the FCPA”) and the Act mean that a FCPA compliant compliance procedure may not necessarily offer complete protection against offences under the Act. The Department of Justice has recorded a significant number of prosecutions under the FCPA which was passed in 1977 and almost half a billion US dollars has been collected in fines and prosecutions.

The offence of bribing a public official under the Act does not cover the recipient of the bribe, which is the same position under the FCPA. The FCPA does not include a specific corporate offence, but a company may be responsible under the FCPA for the actions of its employees if an employee carries out a bribe.

UK organisations are subject to requirements for accurate accounting provisions contained in other legislation, notably the Companies Act 2006. There is no equivalent in the Act of the FCPA’s “Books and Records” offence. Furthermore, the Act does not make any distinction for “facilitation payments” (for example, paying for an official to stamp a passport or provide some paperwork normally within their power). Under the Act such payments would be caught, even though they might not be thought of as being corrupt. Unlike the Act, the FCPA does not cover the recipient of the bribe.

UK and international businesses must be aware of the subtle differences between the Act and the FCPA. For US clients operating in the UK, a compliance programme compliant with both the Act and the FCPA is needed.

Governmental Guidance

To make companies and their employees aware of the importance and serious nature of bribery and corruption, the Government has stated that any guidance issued will stress the following to ensure it achieves its objective:

  • the need for board-level responsibility for anti-corruption programmes;
  • the appointment of a designated senior officer accountable for the oversight of anti-bribery policies;
  • an assessment of risks that are specific to the company and its business, including risks linked to the nature or location of its activities;
  • reporting lines of communication and whistle blowing procedures in place so that employees can report bribery and corruption in a safe and confidential environment;
  • internal financial controls and record keeping to minimize the risk of bribery; and
  • clear policies and procedures and training of new and existing staff in anti-bribery procedures.

The message is clear, bribery and corruption will be taken seriously. Just as policies such as “Treating Customers Fairly” and “Anti-Money Laundering” have become an embedded and inherent part of corporate culture, anti-bribery must and will become so too. It is highly likely that best practice will be to communicate this to staff both on induction and regularly as part of training sessions, to designate a single responsible person to oversee anti-bribery compliance matters and to set out clear reporting lines to senior management. However, all this is subject to your own business, its needs, its size and its domestic and international operations.


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