- Bribery Act 2010
- September 24, 2010
- Law Firm: Withers Bergman LLP/Withers LLP - New Haven Office
The Bribery Act 2010 comes into force in April 2011. All UK businesses and overseas businesses carrying on activities in the UK need to be aware of its provisions, which simplify and expand the range of offences for which individuals and organisations can be prosecuted.
Why has the Act been introduced and what action do businesses need to take?
The Act reforms the existing bribery laws and provides for a consolidated scheme of criminal offences. It covers bribery both in the UK and abroad, and in both the private and public sectors. The Act also introduces a new ‘corporate' offence of failing to prevent bribery.
We recommend that all businesses analyse their current activities to establish whether there are any particular risk areas, and to assess the strength of the measures in place to prevent bribery. It takes only one act of corruption to bring a business and its staff into disrepute and bring exposure to prosecution. Having the right policies and procedures in place will help mitigate this risk.
The Government has announced that it intends to issue guidance on compliance with the new law at least three months before the implementation of the Act, ie by January 2011. It has now commenced consultation on draft guidance and a summary of its proposals is set out in the Appendix to this note.
We recommend that you start planning now so you are in a position to train staff and update your staff handbook and compliance procedures during February or March 2011. See ‘What precautionary measures should be taken to prevent bribery?' below.
What constitutes an offence?
Giving bribes (‘active offence'): It will be an offence to promise, offer or give a bribe (whether directly or through a third party).
Receiving bribes (‘passive offence'): It will be an offence to request, receive or agree to receive a bribe.
Bribery of a foreign public official (‘public offence'): It will be an offence to bribe a foreign public official. The definition of a foreign public official covers both foreign government officials and individuals working for international organisations.
Failure of commercial organisations to prevent bribery (‘corporate offence'): A commercial organisation may be guilty of an offence if someone acting on its behalf commits an active offence or a public offence.
Liability of senior officers: A senior officer of a corporate body will be personally guilty of an offence if he consents to or connives in an active, passive or public offence by the company.
The concept of a ‘bribe' is broad. It covers the offer, promise or giving of any financial or other advantage which is intended to induce or reward the improper performance of a public function or business activity (or is done in the knowledge or belief that acceptance of the advantage itself constitutes the improper performance of a public function or business activity).
‘Improper performance' covers any act or omission that breaches an expectation of good faith or impartiality, or an expectation arising from a position of trust. This is an objective test based on what a reasonable person in the UK would expect in relation to the performance of the relevant activity.
What about corporate hospitality?
The UK Government's position on corporate hospitality is that ‘to the extent that reasonable hospitality is a normal part of business, we are not seeking to discourage such practices...'.
Nevertheless, certain forms of hospitality will fall within the definition of ‘bribe'. Considerations such as the timing and lavishness of corporate hospitality and the intention behind the giving of it will be key in deciding on which side of the line an activity falls.
For example, particular care needs to be taken where corporate hospitality is offered to a customer at a time when a new contract is in the process of being awarded and/or when the hospitality is otherwise out of the ordinary. Secretive or unauthorised hospitality risks being considered a bribe.
The new corporate offence: failure of commercial organisations to prevent bribery
The Act introduces a new corporate offence of ‘failing to prevent bribery'. The new corporate offence can be committed by ‘relevant commercial organisations', a broad definition which includes:
any body which is incorporated under, or a partnership which is formed under, any UK law (wherever it carries on business); and
any body corporate or partnership (wherever incorporated or formed) which carries on business in the UK.
The corporate offence will be committed if:
the bribery is committed by a person associated with the relevant commercial organisation;
the person intends to secure a business advantage for the organisation; and
the bribery is either an active offence (giving bribes) or a public offence (bribing a foreign public official). The individual committing the bribery does not need to be prosecuted successfully for the corporate offence to apply. The corporate offence does not apply where the individual commits a passive offence (ie requests or receives a bribe).
‘Associated' has a broad meaning and will cover not only employees, agents and subsidiaries of the organisation, but also third parties who perform services for it or on its behalf (regardless of their capacity).
It is irrelevant where the bribery is committed, which means a foreign corporate entity can be prosecuted in the UK in respect of a foreign bribe merely by virtue of having a business presence in the UK (even if the bribe is unrelated to the UK business).
It is, however, a defence for the organisation to demonstrate that it had in place adequate procedures designed to prevent persons associated with it from bribing others on its behalf. The Secretary of State is required by law to publish guidance about such procedures. As mentioned above, the Government is now consulting on draft guidance. See the Appendix for a summary of the draft guidance. In the meantime, see ‘What precautionary measures should be taken to prevent bribery?' below for some immediate thoughts on this issue.
The new offence of failing to prevent bribery means that a corporate entity can be prosecuted in respect of bribery even if senior management were entirely unaware that the bribery had taken place, and even if the bribery was committed by a third party (acting on its behalf). The only way it can avoid liability is if it had in place adequate procedures to prevent such bribery. This is a marked change from the existing law and distinguishes this particular offence from the others under the new Act.
To whom do the other offences apply?
A person or entity can be prosecuted in the UK for giving or receiving bribes or bribing foreign public officials (the active, passive and public offences) if:
any part of the offence takes place in the UK; or
the offence takes place abroad but the person or entity is: a British citizen; or an individual ordinarily resident in the UK (whether or not a British citizen); or a body which is incorporated under any UK law.
Overseas corporate bodies will not therefore be liable to prosecution in the UK for active, passive and public offences committed abroad although they may be caught by offences committed in the UK and, as mentioned above, they may face prosecution for failing to prevent bribery.
Senior officers of an organisation can also be held personally liable under the Act for bribery offences committed by the organisation (ie active, passive or public offences). ‘Senior officers' is widely defined in the Act to include directors, managers, company secretaries and other similar officers, as well as those purporting to act in such a capacity. The provision will therefore catch a wider group than statutory office holders such as directors and company secretaries. However, it only extends to British citizens and those ordinarily resident in the UK.
For senior officers to be found liable, they must have ‘consented to' or ‘connived in' the offence committed by the organisation. This may include failing to act. In practice, it will be difficult to establish corporate liability without evidence of active participation, consent or connivance by senior officers. This is different from the position in respect of the corporate offence of failing to prevent bribery, where the organisation may face prosecution regardless of whether any senior employee is liable to individual prosecution.
What are the penalties?
The Act provides for significant penalties on conviction for any of the bribery offences: up to 10 years' imprisonment and/or an unlimited fine for an individual; or an unlimited fine for a company. Directors convicted of bribery offences are likely to be disqualified from acting as directors for substantial periods.
What precautionary measures should be taken to prevent bribery?
The steps to be taken to prevent bribery will vary from organisation to organisation. The following are some suggestions although, as indicated above, we recommend you delay final implementation of new policies until the final Ministry of Justice guidance has been issued.
- Risk assessment and due diligence
Undertake a review of all the organisation's activities in order to identify where a risk of bribery may arise. Pay particular attention to all arrangements conferring financial and/or non-financial benefits. Undertake appropriate enquiries into new and existing business and strategic partners. Consider whether any commercial deals or relationships with third parties need to be reviewed in the light of the anti-bribery policy (see below).
- Senior / responsible officers
The new law should be emphasised to senior officers. Consider forming an internal committee of relevant senior people to oversee and monitor compliance (and ensure it has the resources to carry out its responsibilities).
- Anti-bribery policy and employment contracts
Put in place an anti-bribery policy (or update any existing policy), which covers bribery generally as well as concerns specific to the organisation (including rules on gifts, entertainment, expenses, sponsorship and charitable donations). Highlight actions that are prohibited, but also address the question of what to do if an individual comes across bribery within the business.
Ensure the anti-bribery policy is communicated and readily available to all employees at all levels (eg by e-mail, in the appropriate section of a staff handbook and/or on an intranet) and that it is endorsed and promoted from the highest levels in the organisation.
Ensure employees are aware that breach of the policy may give rise to disciplinary action (including possibly summary dismissal). The policy must also be communicated to all other persons who perform services for or on behalf of the organisation, including consultants, contractors and agency staff.
- Whistleblowing procedure
Ensure there is an adequate whistleblowing procedure in place (and readily available), so that staff feel confident that they can report bribery or suspected bribery safely and confidentially. It is important that staff are encouraged not just to avoid participating in bribery but to report bribery by others. Contracts with staff, contractors and consultants should, if possible, impose a general obligation to report wrongdoing.
- Implementation, induction and training
The anti bribery policy should be an integral part of any induction process and training. Training should be given to all staff where appropriate, not just new joiners.
- Monitoring procedures
Ensure that relevant financial (and other) procedures contain adequate safeguards to identify irregular activity.
Ensure that acts in breach of the anti-bribery policy are dealt with appropriately (eg in accordance with any disciplinary procedure for employees) and are not condoned or overlooked.
- Business dealings in certain countries
For organisations doing business in countries which have a low rating in Transparency International's Annual Corruption Perceptions index, review areas such as dealings with state enterprises and dealings through agents.
How will FSA authorised businesses be affected?
FSA authorised businesses are more likely to be put under the spotlight by the relevant enforcement agency. The FSA has a regulatory objective to reduce financial crime. In January 2009, Aon was fined £5.25 million for failings in its anti-bribery and corruption systems and controls.
Draft ‘guidance about procedures which relevant commercial organisations can put in place to prevent persons associated with them from bribing'
The Government is proposing (and consulting on) principles-based guidance. Consultation on the guidance remains open until 8 November 2010.
The ‘principles-based' approach, according to the consultation paper, will allow a commercial organisation to tailor its policies and procedures so that they are ‘proportionate to the nature, scale and complexity of its activities'.
The consultation paper summarises the six principles as follows:
- Risk assessment: This requires knowing and keeping up to date with the bribery risks faced in the organisation's sector and market.
- Top level commitment: This concerns the establishment of a culture across the organisation in which bribery is considered unacceptable. In small or medium-sized businesses this may not require much sophistication but the message should be clear, unambiguous and regularly made to all staff and business partners.
- Due diligence: This is about knowing with whom the organisation is doing business and why, when and to whom funds are being released. It also concerns the need to seek reciprocal anti bribery agreements and to ensure that business relationships are transparent and ethical.
- Clear, practical and accessible policies and procedures: This requires the application of the relevant policies and procedures to all employees and business partners under the effective control of the organisation and the extension of these policies and procedures to all relevant risks such as political and charitable contributions, gifts and hospitality, promotional expenses, and responding to demands for facilitation payments.
- Effective implementation: This demands that the organisation goes beyond ‘paper compliance' to ensure that anti-bribery measures are embedded in the organisation's internal controls, recruitment and remuneration policies, operations, communications and training on practical business issues.
- Monitoring and review: This requires transparent auditing and financial controls that are sensitive to bribery, as well as a consideration of how regularly the organisation should review its policies and procedures and whether external verification would help.
The draft guidance goes on to explain and illustrate each of the principles in turn, with recommended action in each category.
The guidance then sets out a series of case studies, to illustrate how the principles are engaged in different types of situation such as:
- Dealing with intermediaries and agents
- Hospitality and promotional expenditure
- Dealings with business and joint venture partners and consorti
- Facilitation payments
- Political and charitable donations