Bribery Act 2010. By Bill Gornall-King, Partner at Boyes Turner
- INTRODUCTION – HISTORY AND BACKGROUND
1.1 The Bribery Act 2010 received the Royal assent in April 2010, shortly before the General Election. The Act will come into force in April 2011. Up until then, the UK had had to rely upon the Common Law and two or three very elderly pieces of legislation which had been aimed at combating, in particular, bribery and corruption in the public sector. The existing laws were considered too outdated to meet the UK’s international obligations and, indeed, there was a perceived need for a legislative shake-up as far back as 1989 when the UK signed up to the OECD’s Anti-Corruption Convention. The Law Commission released a new draft Bribery Bill in 1988, but there was little consensus as to the legislative approach that should be taken.
1.2 The UK authorities have over 35 ongoing cases involving bribes in 12 countries in 20 business sectors, have arrested over 25 individuals and prosecuted several. In addition, the US Foreign Corrupt Practices Act has clearly had a major influence; the US Department of Justice’s willingness to launch prosecutions is demonstrated by there having been a greater number of prosecutions in 2007 and 2008 than in the preceding 20 years put together.
1.3 Perhaps the greatest impetus for UK reform came about from several high profile corruption cases, most infamous of which was the BAE Systems Al Yamamah fighter jet deal which led to Britain plunging to an embarrassing 17th place in the Transparency International 2009 “Corruption Index”.
1.4 The Act replaces existing UK law with a new statutory code creating two primary offences, one of bribing and the other of receiving a bribe. It also introduces new offences of bribing a foreign public official and, for commercial organisations, failing to prevent bribery. The last offence is one of strict liability under which companies will be liable, unless they can show they had adequate procedures in place to prevent the offending conduct.
- WHY IS IT IMPORTANT?
2.1 The creation of both individual and corporate offences means that there is personal responsibility which could lead to imprisonment of directors and their disqualification from holding the position of a director, as well as the jeopardy of companies of having large fines imposed on them. The Act also seeks to catch conduct outside the UK if the person engaging in it has a close connection with the UK (e.g. is British resident or domiciled).
2.2 This new piece of legislation is aimed at driving behaviours as a part of the compliance culture and it is quite likely that there will be some high profile cases targeted in the first few months after it comes into effect next April; particularly as there is no grace period for achieving compliance. It is, therefore, crucial for companies and other bodies to take notice of the Act now and begin preparing themselves by creating and putting in place appropriate policies and procedures in order to avoid liability, where at all possible.
- WHAT IT SAYS
3.1 The Act creates four distinct statutory bribery offences:
3.1.1 a general offence covering offering, promising or giving a bribe;
3.1.2 a general offence covering requesting, agreeing to receive or accepting a bribe;
3.1.3 a distinct offence of bribing a foreign public official to obtain or retain business;
3.1.4 a new strict liability offence for commercial organisations where they fail to prevent bribery by those acting on their behalf.
3.2 The Corporate Offence under Section 7 of the Act represents the most significant departure from the old law on bribery and will place the onus on the commercial organisation to ensure that their anti-bribery procedures are robust – hence it is the offence which has attracted the most attention.
3.3 Section 7(1) provides that a relevant commercial organisation is guilty of an offence if a person associated with that organisation bribes another person, intending to obtain or retain business or a business advantage for the organisation. The offence can be committed in the UK and overseas. However, the organisation has a defence if it can show that it had in place adequate procedures designed to prevent any employees, agents or other third parties acting on the organisation’s behalf from committing bribery.
3.4 The definition of a “commercial organisation” is very wide and catches:
3.4.1 a body corporate or partnership incorporated in the UK and which carries on a business anywhere in the world; and
3.4.2 any other body corporate or partnership incorporated outside the UK which carries on business (or part of a business) in the UK;
and for the purpose of Section 7 a trade or profession is deemed to be a business.
3.5 The definition of “associated person” is set out in Section 8 of the Act and provides that a person is associated with a commercial organisation if he performs services for or on behalf of that organisation. It does not matter in what capacity that person is acting – he could be an agent, employee, a subsidiary company or even a joint venture partner.
3.6 Section 14 of the Act creates “consent and connivance” provisions which set out circumstances in which organisations may be found guilty of the “individual” offences under the Act. If a body corporate commits an offence and the offence has been committed with the consent or connivance of a director, partner or similar senior manager (including the company secretary), that person is also guilty of an offence.
3.7 In practice, this will also catch any person who is aware of the offence taking place and who subsequently ignores it – so potentially this provision has far reaching consequences.
3.8 Bribing Foreign Public Officials
3.8.1 It is an offence to bribe a foreign public official. “Foreign public official” is broadly defined to include legislative, administrative and judicial officials and employees, and the law is triggered when an individual:
(a) intends to influence the official in the official’s relevant capacity;
(b) intends to get or keep business or business advantage; and
(c) offers or promises, directly or indirectly any financial or other advantage to the official (or another person at the official’s request or with agreement), and the written law that applies to the official does not allow or require him to be influenced.
3.8.2 This offence has caused consternation amongst businesses with international reach.
- DEFENCES TO THE CORPORATE OFFENCE
4.1 As already mentioned, a commercial organisation has a defence to the Section 7 offence if it can prove it had adequate procedures in place to prevent bribery.
4.2 As part of the preparation for its introduction, in the Autumn of 2010, the Ministry of Justice consulted on draft Guidance in relation to the procedures which can be implemented by commercial organisations to prevent bribery. The final version of the Guidance is expected early in 2011.
4.3 The consultation was designed to help commercial organisations of all sizes and sectors understand the types of procedures that can be implemented to prevent bribery from occurring. The Guidance, which comprises six principles, each followed by commentary and an explanation, is not prescriptive and the question of whether an organisation has adequate systems in place to prevent bribery will depend on the particular facts and circumstances of the case.
4.4 The Ministry of Justice believes that by adhering to the general principles and implementing and maintaining policies and procedures in accordance with the principles, commercial organisations lessen the risk of bribery taking place on their behalf.
- SIX PRINCIPLES
5.1 The six principles that the Guidance proposes are as follows:
5.1.1 Risk Assessment – regular and comprehensive assessment of the nature and extent of the risks relating to bribery to which they are exposed;
5.1.2 Top Level Commitment – a top level management commitment to preventing bribery, establishing a culture in which bribery is never acceptable and taking steps to ensure that the policy is clearly communicated to the workforce and any relevant external people;
5.1.3 Due Diligence – due diligence policies and procedures which cover all parties in a business relationship and all markets in which business is done;
5.1.4 Clear, Practical and Accessible Policies and Procedures – policies/procedures to prevent bribery being committed should be clear, practical, accessible and enforceable;
5.1.5 Effective Implementation – anti-bribery policies and procedures which are embedded to address seeking to conduct business without bribery;
5.1.6 Monitoring and Review – monitoring and review mechanisms to ensure compliance with relevant policies and procedures. Improvements should be implemented where appropriate; in other words, a “living” document is needed.
5.2 In developing anti-corruption policies, the Guidance does suggest that companies should consider producing rules on the giving of political or charitable contributions and the provision of corporate hospitality generally. Some examples are given in the Guidance.
5.3 Based on the Guidance, companies should already be putting procedures in place in readiness for April 2011, and the responsibility for introducing and enforcing an anti-corruption culture rests with the Board or other governing body.
5.4 The Serious Fraud Office (SFO), which is one of the statutory prosecuting authorities, has provided a list of factors that it will consider when determining the adequacy of a company’s risk management and thus whether it has sufficient anti-bribery procedures in place, including:
5.4.1 a clear Code of Ethics reflecting its anti-corruption culture;
5.4.2 policies on giving or accepting gifts, hospitality, making political contributions and conducting lobbying activities, making facilitation payments to outside advisers, including vetting and due diligence and appropriate risk assessments;
5.4.3 training to ensure dissemination of the anti-corruption culture to all staff at all levels;
5.4.4 regular checks and auditing in a proportionate manner;
5.4.5 a helpline;
5.4.6 individual accountabilities and appropriate and consistent disciplinary processes.
- JURISDICTION, PENALTIES AND SANCTIONS
6.1 Penalties and sanctions are serious for the company and individuals involved, including imprisonment (up to 10 years), fines (unlimited) and disqualifications.
6.2 Conviction of bribery or corruption may also lead to the company being precluded from future public procurement contracts under the UK, EU and the US rules.
6.3 As regards individuals, the UK currently has extradition arrangements with more than 100 countries. These were used in the high profile extradition to the USA of the “Nat West Three”.
6.4 The Act means that a person who offers a bribe or inducement/other advantage will be liable under the Act and the new offences will cover a company’s employees and sales people in the UK or elsewhere, overseas agents and any overseas entities in which a company participates. A company’s potential exposure under the Act is therefore very far reaching.
6.5 The SFO has indicated that whilst having procedures in place is important to any decision to prosecute, its attitude may well vary depending on whether the matter was self-reported rather than as a result of an SFO investigation. The incentive to self report is the prospect of being dealt with more leniently; the SFO say that they will resolve such cases through a civil settlement “wherever possible”.
6.6 However, the judiciary are less enthusiastic about such “civil settlements”. In R v. Innospec Limited , a plea agreement was reached with the US and UK authorities. The settlement involved a guilty plea by Innospec of conspiracy to corrupt and payments of $40 million in fines to the US and UK authorities. The settlement was subject to court approval. Lord Justice Thomas reluctantly approved the settlement terms, but emphasised that “the SFO had no power to enter into the arrangements made and no such arrangements should be made again”. The Court of Appeal affirmed this in consideration R v. Dougall  when, despite Mr Dougall being a middle manager at dePuy who cooperated fully with the SFO, the court declined to endorse the 12-month suspended prison sentence agreed by the SFO. Although his sentence was reduced on appeal, management of pharmaceutical and device companies still need to be aware that assisting authorities in the UK will not necessarily reduce a sentence or fine imposed under the Act.
6.7 It has also been recommended that detailed checks are carried out on any new organisations with whom a business intends to contract and when processing payments. Parallels have been drawn to an organisation’s existing anti-money laundering regime which, according to the circumstances, should be in place.
- PENALTIES AND SANCTIONS
7.1 As regards penalties for a breach of Section 7, a person or body corporate found guilty of failing to prevent bribery will be liable to a fine (up to an unlimited amount) although no guidance has yet been published for the courts as to how to approach the levels of fines. If the same line is taken as that followed by the EU with regards to its competition provisions regime, we could see fines imposed up to 10% of a company’s turnover.
7.2 Organisations should also note that a contract obtained following a bribery offence is likely to be void and under the Public Contracts Regulations 2006 public authorities are required to exclude from public contracts any suppliers which have been convicted of a corruption offence and in certain circumstances organisations could face permanent exclusion from all government contracts.
Such a conviction will also have a reputational impact and for listed companies potentially a detrimental impact on its share price.
The information included in this Newsletter is intended for guidance purposes only and should not be regarded as a substitute for taking proper legal advice.
Author: Bill Gornall-King Partner at Boyes Turner