|October 19, 2012|
Previously published on October 2012
The UK Serious Fraud Office has issued new guidance which states that it will prosecute companies which make facilitation payments where there is a realistic prospect of conviction and prosecution is in the public interest. The new guidance makes it clear that there will be no presumption in favour of civil settlements in any circumstances. This applies to any company which carries on a business or part of a business in the UK, notwithstanding that there is currently a defence for facilitation payments under Australia legislation (which is under review). The UK Regulator has also released new guidance on corporate hospitality and self-reporting.
UK Serious Fraud Office sets up to clamp down on facilitation payments
Under the UK Bribery Act a facilitation payment is a type of bribe and is illegal. That is confirmed by the new guidance now in force.
A facilitation payment is a payment made for the dominant purpose of securing or expediting a routine government function of a minor nature. The previous SFO guidelines, which acknowledged that facilitation payments were endemic in some regions, provided that the SFO would consider matters including internal company policies on these payments, and the scale of payments, in making a decision whether or not to prosecute. The new guidance instead reaffirms that facilitation payments are illegal and state that the decision to prosecute will be governed by the general test in the Code for Crown Prosecutors and the Joint Prosecution Guidance of the Director of the SFO and the Director of Public Prosecutions on the Bribery Act 2010 (and, where relevant, the Joint Guidance on Corporate Prosecutions). In essence, the SFO will prosecute where:
- there is a realistic prospect of conviction; and
- it is in the public interest to do so.
Australian companies, and their directors and officers, should take careful note of this stricter approach, since the SFO can bring a prosecution under the UK Bribery Act against any company or partnership (wherever registered) which carries on a business, or part of a business, in the UK (even if the offending conduct is not connected with any business undertaken in the UK) and the conduct occurs outside the UK.
The reach of the UK Bribery Act therefore needs to be considered by Australian companies and their directors and officers notwithstanding there presently remains a defence for facilitation payments under Australian law (see further below) and they may have put in place “adequate procedures” as necessary to have a defence under the UK legislation.
Australian Government review of foreign bribery laws and facilitation payments defence
Whilst there currently remains a defence for facilitation payments under Australian legislation, the Australian Government is currently reviewing its bribery laws with regard to the use of facilitation payments to conduct international business. As part of the Australian Government’s current review of bribery laws, a consultation paper was launched in 2011 proposing to remove the existing defence for facilitation payments from Australia’s foreign bribery provisions. This review prompted strong resistance, particularly from small and mid-tier mining companies who argue facilitation payments are necessary to effectively conduct business in regions such as Africa. Submissions in response to the consultation paper have closed and are currently being considered by the Australian Government.
The OECD has placed particular focus on eliminating the use of facilitation payments. Whilst Australia was initially praised for its quick ratification of the Convention and subsequent changes to domestic legislation it has since been criticised for the fact that the defence for facilitation payments is still in force.
Given the global developments in anti-corruption, it is anticipated new legislative changes in Australia will follow the UK approach, and may impose strict penalties on the use of facilitation payments. Whilst any legislative change should take place over a transitional period, Australian corporations should be prepared to adapt where necessary. This may involve changing operating practices in countries where facilitiation payments are common. A number of Australian companies have already banned such payments.
The new guidance confirms that the SFO will prosecute offenders who disguise a bribe as corporate hospitality, and acknowledges that bona fide hospitality, promotional and other legitimate business expenditure is recognised as an established and important part of doing business. There remains no further guidance on what may be considered bona fide.
The UK Bribery Act will apply and the SFO will determine whether to prosecute based on the same tests as mentioned above.
It is therefore important to review entertainment policies to ensure they satisfy the requirement for “adequate procedures” to provide a defence under the UK legislation.
The new guidance makes it clear that self-reporting is no guarantee that a prosecution will not follow and there will be no presumption in favour of civil settlements in any circumstances. This is an important change: the SFO had previously provided guidance that its preference was civil proceedings and civil settlements where voluntary disclosure was made.
The SFO has also stated that it is not the role of the SFO to provide corporate bodies with advice on their future conduct.
There is presently no guidance on the topic of self-reporting in respect of Australian foreign bribery laws.
Deferred Prosecution Agreements
The OECD Working Group, in its Phase 2 Report on the UK’s anti-corruption laws, expressed its support of the use of plea agreements, including Deferred Prosecution Agreements (DPAs) and recommended that the UK continue efforts to establish a solid legal framework for DPAs. Whilst there is no reference to DPAs in the new guidance issued by the SFO, the UK Ministry of Justice published a consultation paper on the introduction of DPAs in May 2012. Consultation closed in August 2012 and a response is awaited.
DPAs allow an organisation suspected of engaging in illegal activity to negotiate an agreement with the prosecutor whereby it agrees to conditions such as payment of a fine and monitoring for a set period of time in lieu of prosecution (provided the organisation complies with the conditions). Criticism of traditional case settlements dealing with corporate corruption suggests that they lack transparency and reinforces the need for the use of DPAs.
DPAs are commonly used by the United States Department of Justice where the prosecution of a company on filed charges will be deferred for a certain period, normally two to three years, during which time the company must meet its obligations under the agreement (which can be burdensome and invasive both for the company and for those who provide it with services). Provided the terms of the agreement are fulfilled, the authority agrees not to prosecute the organisation. However, they do not automatically exclude liability of individual directors and officers who may have breached bribery laws.
The Australian Government may consider including DPAs as part of the review and implementation of any legislative change in relation to foreign bribery laws.