25/06/2010

By Richard Burger and Christian Taylor

The Bribery Act 2010, which received Royal Asset on April 8, is a momentous step in updating the UK’s anti-bribery and corruption regime. While it cuts away at the mismatch of common law and ancient legislation, it also introduces additional risks to counter. The Act creates new corporate offences, so directors and senior officers require awareness training. It offers the Serious Fraud Office (SFO) a powerful legislative framework to build on its agenda of investigating and prosecuting corporate corruption. It may also allow the SFO greater ease in prosecuting corruption practices, placing less reliance on compromises and self-reporting.
Due to come into effect in October, it leaves little time for risk and compliance officers to assess its implementation, design and adapt staff training, or to develop and stress test anti-bribery and corruption systems and controls.
For Financial Services Authority (FSA)-regulated firms there is a double blow, as the FSA renews its interest in anti-bribery and corruption. The Authority recently published its review of anti-bribery and corruption systems and controls in the commercial insurance intermediaries sector, which insurers will wish to use as a benchmark. It also intends to extend the scope of its review to include investment banking. A firm that is unable to demonstrate adequate systems could face an FSA enforcement investigation, and incur associated costs and financial penalties.

Applying the Act
The Act creates five new key offences: giving a bribe; receiving a bribe; bribing a foreign public official; a corporate offence for failing to prevent bribery; and a directors and officers (D&O) offence. The remit of the first two is deliberately wide, the substance being any ‘financial or other advantage’, which may be offered or accepted with the intention of improper performance. The offences can be committed through direct contact or actions, or through a third party’s contact or actions. It does not matter whether the advantage is for the benefit of the person receiving the bribe or for another.
Key to understanding the impact of the first two offences is to understand the people and actions to which they will apply. A person will be subject to the scope of the offences if performing a function or activity of a public nature, or an activity connected with a business, or if the activity is performed in the course of employment, or by or on behalf of a body of persons (whether corporate or unincorporate). Further conditions of such a function or activity are that the person performing it is expected to perform it in good faith; expected to perform it impartially; and is in a position of trust by virtue of performing it.
The performance is improper if any person subject to the scope of the offence is deemed to have undertaken such function or performed any activity in breach of these expectations, in the eyes of a ‘reasonable person’ under the UK legal test. It does not matter if the function was undertaken or the activity performed has no connection with, or is performed/undertaken outside, the UK.
The elements of the bribing a foreign public official offence are: an intention to influence the Foreign Public Official in his official capacity; an intention to obtain or retain business, or an advantage in the conduct of business; and that the official is not permitted or required by written law to be so influenced. There is no requirement of improper performance, criminal intent or corruption. There is no exception for any facilitation payment, no matter its size, or if such payment is customary; all such payments are illegal. This goes beyond the US Foreign Corrupt Practices Act (FCPA).
On failing to prevent bribery; a commercial organisation is guilty of an offence if a person associated with it bribes another person, intending either to obtain/ retain business for such organisation or to obtain/ retain an advantage in business for the organisation.
An offence is committed if any director, employee or agent of a company bribes another person with the intention of obtaining/retaining an advantage in the conduct of business for the company, regardless of where the bribe takes place, if that organisation carries on any activity in the UK.
A defence to the offence is available if the organisation can prove that “adequate procedures” were in place to prevent such conduct. Without these, a UK business could be found criminally liable for an act of bribery of which it had no knowledge by an overseas director, employee or agent. The Ministry of Justice will provide guidance on “adequate procedures” within the next six months; however, the interaction of such guidance with the FSA anti-corruption controls remains uncertain.
Further concerns remain about criminal liabilities arising from joint ventures, sub-contractors and distributors where “adequate procedures” are not in place to prevent a counterparty incurring criminal liability under the Act that falls on an ‘innocent’ participant. Furthermore, any business guilty of an offence may, under the EU Public Procurement Directive, be prohibited from bidding for and entering into public contracts.
Senior management convicted of a principal offence are liable to up to 10 years’ imprisonment, a fine, or both. Additionally, if certain offences (giving or receiving a bribe and/or bribing a foreign official) are proved to have been committed with the consent or collusion of a senior officer, or person acting in such a capacity of the body corporate, the senior officer or person (also the entity) is guilty of the offence, provided that individual has a close connection with the UK. Directors may be liable for prosecution by giving tacit assent or failing to act where the breaches were known to them; such conduct is deemed consent. Civil claims remain a possibility for directors who fail to implement and maintain “adequate procedures” on behalf of the business.
The Act’s offence of failure to prevent a bribe will apply to any business in the public or private sector wherever registered, headquartered, incorporated or conducting its main or principal activity from, if such business additionally “conducts business” in the UK. In the US the FCPA requirements are narrower, so reliance on procedures compliant with the FCPA are not sufficient.

Preparing for the Act
Firms should examine the areas under which implications may arise. The GC100 has published a list, for the basis of any internal review:
l Board responsibility for the anti-corruption programme: Directors should take responsibility for establishing a company culture in which corruption is eradicated, and for effective design and implementation of the anti-corruption programme.
l Compliance function: A senior officer should be directly accountable for oversight of the anti-corruption programme.
l Ethical code of business conduct: An organisation should have a clear code of conduct, which includes an anti-corruption element and should publicise this internally, and on its website.
l Risk management: Procedures should be established to asses the risks of corruption arising in an organisation's business.
l Employment procedures: A commercial organisation should consider whether it needs to vet employees.
l Gifts and hospitality policy: A commercial organisation should develop and implement a gifts and hospitality policy providing guidance to employees on giving and receiving gifts and entertainment, and should monitor this activity.
l Training: Organisations should ensure their codes of conduct and other policies are properly embedded throughout their businesses.
l Due diligence: Before entering into any business relationship or project, the organisation should carry out due diligence on the country in which the business is to be conducted on its potential business partners, agents used and on the proposed project or transaction to identify as far as possible the risk of corruption.
l Decision-making process: An organisation should formalise its decision-making processes, so where a greater risk of corruption is perceived the decision is taken by a suitable senior individual.
l Financial controls: An organisation should put in place financial controls to minimise the risk of committing a corrupt act against another individual or organisation (e.g. employees, clients, business partners, sub-contractors or suppliers), or it being committed against the company.
l Supply chain management: An organisation should use procurement and contract management procedures to minimise opportunity for corruption by sub-contractors and suppliers.
l Reporting and investigation procedures: An organisation should develop and implement whistle-blowing procedures, enabling employees to report corruption in a safe, confidential manner to a responsible senior officer.
The Act was overdue, but the speedy enactment and the lack of guidance on “adequate procedures” places pressure on UK business in an area where criminal and/or regulatory sanctions can be imposed. Firms that do not already have anti-bribery and corruption systems and controls in place should move quickly to keep in line.

Richard Burger is a senior associate of the regulatory group at City law firm Reynolds Porter Chamberlain and Chritian Taylor a trainee solicitor with the firm