Legal Briefing

Bribery Act 2010: a guide for in-house lawyers

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Crime, fraud and licensing | 01 June 2010

The Bribery Act 2010 (the 2010 Act) is expected to come into force in October, but it is clear that many companies and their in-house legal teams still have a lot of work to do before they are ready to comply with the new law.

At the end of March, with the new law on the horizon, DLA Piper’s corporate crime and investigations team conducted a Bribery Bill Awareness Survey. The aim of the survey was to accurately gauge whether companies had taken any steps to prepare themselves for the changes to the UK bribery laws. The survey produced some disconcerting results about the awareness of companies for the challenges ahead.

What are the main features of the 2010 Act?

The main features are outlined below:

  • It will be an offence to give or receive a bribe.
  • It will be an offence to promise, offer, request or agree to receive a bribe.
  • It will be an offence to bribe a foreign public official, laying to rest any lingering doubts about overseas jurisdiction.
  • Both the public and private sectors are covered. The new law is not just about bribing public officials; commercial bribery is also criminalised.
  • If a senior officer, or person purporting to act in such a capacity, consents to (is aware and agrees) or connives in (turns a blind eye to) the commission of any of the above bribery offences, the senior officer or person is also guilty of the offence. The senior officer or person must have a connection with the UK, eg a British citizen or ordinarily resident in the UK.
  • A new corporate offence is introduced, which will apply to a commercial organisation that fails to implement adequate procedures, where an act of bribery is committed in connection with its business.
  • The position regarding jurisdiction has also been clarified by the 2010 Act. It has a broad scope and extraterritorial reach, which means that:
  1. any individual ordinarily resident in the UK (whether or not a British national) can be prosecuted for bribery offences committed anywhere in the world; and
  2. any partnership or corporate (whether or not incorporated in the UK) can be prosecuted if it does business in the UK (eg through a permanent establishment, subsidiary or other operation), even if the offence was committed outside the UK.
  • There is no exception for facilitation payments (unlike the position under the US Foreign Corrupt Practices Act 1977).
  • The maximum penalty for individuals will be ten years’ imprisonment and/or a fine.
  • The maximum penalty for a corporate will be an unlimited fine. (The highest fine imposed to date in the UK for a corruption case is £8.5m.)
  • All existing anti-bribery and corruption laws will be repealed.

There will also be collateral consequences associated with any conviction under the 2010 Act, including:

  • director disqualification;
  • company debarment from public procurement; and
  • asset confiscation.

What changes does the 2010 Act bring?

The 2010 Act signals a complete reform of corruption law to provide a modern and comprehensive scheme of bribery offences that will enable courts and prosecutors to respond more effectively to bribery at home or abroad.

For companies, the most important point to note is that there is a new strict liability corporate offence of failing to prevent bribery, which does not require any corrupt intent. This offence will make it easier for the Serious Fraud Office (SFO) to prosecute companies when bribery has occurred. With recent court cases casting doubt on the SFO’s negotiated settlement and plea process, a new opportunity to pursue companies for a specific corporate offence may well be an attractive proposition for the organisation to show its prosecution mettle when the 2010 Act comes into force.

The only defence available to commercial organisations charged with the corporate offence will be for the organisation to show that it had adequate procedures in place to prevent an act of bribery being committed in connection with its business. The fact that adequate procedures are not defined in the 2010 Act led to a great deal of debate in Parliament about how businesses would be able to determine whether or not their procedures were, in fact, adequate. As a result, the draft Bribery Bill was amended so that there is now, at s9, a statutory obligation for the government to issue guidance on what constitutes adequate procedures. The pre-election government pledged to issue the first set of guidelines before the new law comes into force so that businesses will know what is expected of them and the Ministry of Justice is consulting on what guidance to give.

Businesses that do all they can to stay on the right side of the law should have nothing to fear from this legislation. The pre-election government’s overriding objective in introducing the new law was to make companies and individuals take the issue of anti-bribery and corruption compliance seriously.

DLA Piper Survey results

Are companies prepared for the challenge?

The simple answer is that many are not yet ready and some are even unaware that the 2010 Act applies to their business.

DLA Piper sent the survey to over 2,000 people in a wide cross-section of industry sectors. The responses provide a snapshot of the confidence levels of people in senior positions and how ready they feel to start business under the new law.

Which business sectors responded and what was the initial reaction?

The highest number of replies was received from the manufacturing and chemicals industry (11.6%), closely followed by banks and building societies (10.3%). Respondents were asked to comment on the size of their company and 63.7% described their company as large (more than 1,000 employees).

The respondents themselves were predominantly in legal roles: chief or sole legal counsel (25.3%), or in-house legal adviser (37.7%). Other respondents included those in compliance, risk and senior management roles.

Awareness of the new law was mixed, with 37.8% of respondents admitting that their company was either unaware of the Bribery Bill or had not taken much notice of it so far. A few respondents (2.5%) even thought that the Bribery Bill was not applicable to their business.

It is perhaps surprising that although 90% of respondents thought that the board of directors at their company took the issue of anti-bribery and corruption compliance seriously, 40.3 % felt that their company was not ready for the changes and might benefit from external assistance. It appears that even if the tone from the top is good, some companies are failing to follow through at an operational level.

Reactions about awareness and training

Compliance measures will be under the spotlight when the new law comes into force. There are encouraging signs that unauthorised payments to third parties would not go undetected in most companies, with over 75% feeling confident that senior management would be alerted.

However, when it came to the issues of awareness and training the results were mixed, with 44.6% of respondents unable to agree that they already have procedures in place to ensure that employees, subsidiaries, agents and other business partners are ready to comply with the new law. It is somewhat disconcerting that there was a small number (5.9%) who thought that this issue was not applicable to them, perhaps not realising that it also applies to conduct in the UK. Given these responses it may not be surprising that 42.8% of respondents were not confident that their colleagues would know what to do if an allegation of bribery or corruption surfaced at their company.

Policies, procedures and training are all part of an effective anti-bribery and corruption programme. Any company that finds itself caught up in an investigation or prosecution will find it difficult to show that they have adequate procedures if they have neglected the basic step of educating and training their staff.

Far-reaching consequences

An absence of compliance measures could also affect a company’s ability to do business with others. An increasing number of international businesses are requiring reciprocal contractual undertakings that neither they nor anyone who they assign to do work on their behalf will engage in corrupt practices. When the new law comes into force there will be even more incentive for anyone doing business in the UK to comply with the 2010 Act. In some cases companies will even be asked by prospective customers or clients to provide documentary evidence of the steps they have taken to prevent bribery and corruption.

Those companies doing business overseas will perhaps face the strongest challenges under the new law, with 60.5% of respondents still having the perception that there are places in the world where it would be difficult to do business without paying a bribe.

Self-reporting

Finally, the survey also asked whether companies that discover corruption within their operations should always come clean and self-report to the SFO. In the light of the SFO’s call for companies to come forward and co-operate, it was interesting to see that 63% of respondents feel that this would be the right course of action. However, a significant number thought that you should not be so keen to co-operate in this way or thought it was not applicable to their business. Companies who encounter this type of dilemma are often faced with a difficult decision and it is important that they are fully aware of the risks in both situations:

  • Regulators have more ways than ever before of finding out about criminal behaviour and there is always the danger of someone in the company blowing the whistle. Deciding not to self-report can bring greater disruption to the business (for example search and seizure raids) and greater punishment.
  • Self-reporting can bring benefits, such as a civil settlement, rather than a prosecution, but this is by no means guaranteed.

When faced with self-reporting issues companies should ensure that they are fully informed at the earliest opportunity about the options and consequences by taking specialist legal advice from those who are used to dealing with the SFO and other regulators.

Summary of results

The DLA Piper survey has revealed that, with just five months to go until the 2010 Act comes into force, there are many companies out there that are not yet fully prepared for the introduction of the new legislation and there are some who do not yet acknowledge that this legislation is of relevance to the way they do business. For many companies there is significant work to be done before they are in a position to demonstrate that they take anti-bribery and corruption compliance seriously, and have the necessary procedures, systems and controls in place to prevent bribes being paid in connection with their business.

Although the pre-election government was set to issue guidance on what constitutes adequate procedures in due course, companies must start reviewing their practices and procedures as a matter of priority, especially as no-one knows what lies ahead in the now uncertain political arena.

What do companies need to do now?

If companies want to avoid falling foul of the new law they will have to develop compliance procedures appropriate to their own circumstances and business sectors, taking into account their size, their area of operations and the particular risks to which they might be exposed.

The guidance on adequate procedures is expected before Parliament’s summer recess begins on 22 July. It will give general guidance, not rigid rules, which will set out several key principles to help commercial organisations to prevent bribery. A key focus for larger organisations will be the responsibility of a corporate board of directors to design, implement and regularly review policies for preventing bribery. The pre-election government expressed views that adequate procedures means:

  • a board of directors taking responsibility for anti-corruption programmes and appointing a senior officer accountable for its oversight;
  • assessment of risks specific to the company and its business, including risks linked to the nature or location of the organisation’s activities;
  • establishing clear policies and procedures, and training new and existing staff in anti-bribery procedures;
  • having robust internal financial controls and record-keeping to minimise the risk of bribery; and
  • establishing whistleblowing procedures so that employees can report corruption safely and confidentially.

What are the features of an effective anti-corruption compliance programme?

As globalisation continues and companies seek to maintain market share, looking to new and emerging markets overseas, exposure to legal, reputational and financial risks has risen sharply. Global regulatory enforcement action for bribery and corruption has increased in the past five years, and this trend looks set to increase, with regulators and prosecutors using all the powers at their disposal. Enforcement action has also raised the profile of compliance programmes, with compliance monitors being imposed on companies by some prosecutors and regulators as part of negotiated settlements.

Although many in-house lawyers are involved in various aspects of compliance, there will be many in the UK for whom this is a new responsibility or area of expertise. Companies will be expected to have an anti-bribery and corruption programme that is tailored to and appropriate for its size and risk profile. What does this mean in practice? How does a company start from scratch? How does a company start to review its existing programme?

There are five main steps to building an effective compliance programme:

  1. Gaining board and senior management commitment to conducting business in a fair, honest and ethical manner:
    • As with most management challenges companies will need clear leadership from the highest level.
    • The tone must come from the top, with a clear statement that the company is taking an ethical stance and will not tolerate bribery and corruption in any form, whether direct or indirect.
    • If allegations surface, the board and senior management need to be prepared to act. It is no longer acceptable to turn a blind eye.
  2. Understanding where the corruption risks lie and the potential impact for the business:
    • Companies needs to conduct a thorough risk assessment.
    • They must understand the law in every country where they have operations and should take specialist legal advice, where necessary, to understand compliance obligations at a local and international level.
    • Risk assessments should also address ethical, reputational and cultural implications.
  3. Developing well-designed policies, procedures and controls tailored to the current business environment:
    • Companies need well-designed, comprehensive and targeted programmes to ensure compliance with relevant anti-corruption laws.
    • A senior individual (with a dedicated compliance team, depending on the size of the organisation) should be appointed to lead the process.
    • The programme then needs to be implemented and embedded into the company processes, including the disciplinary procedures. Disciplinary sanctions should be enforced in a swift, consistent, open and transparent process
  4. Communicating the policy to employees, stakeholders and business partners:
    • Companies need to ensure that the programme is properly implemented and that there is a continuous communication at every stage.
    • Passive publication of an anti-corruption policy is never enough.
    • There should be a comprehensive local training programme for all employees, not just head office, compliance or legal staff.
  5. Continuing to monitor, evaluate, reassess and take remedial action where required:
    • Companies cannot afford to sit back and think that the job is done. There needs to be an ongoing plan to keep the programme alive going forward.
    • As different real life situations emerge, the strengths and weaknesses in the programme need to be identified and analysed.
    • Action needs to be taken to respond to legislative or business developments.

What if a company already has anti-corruption measures in place?

Even if companies have anti-corruption measures in place there are some key questions that should be asked:

  • When were the anti-corruption policies written? Do they need to be updated?
  • Are the anti-corruption policies adapted for the various jurisdictions in which the company conducts business?
  • Are due diligence procedures conducted on all people that the company deals with, whether they are employees, agents, contractors, suppliers or new business partners? Does the company have anti-corruption clauses in contracts? Does it monitor what is paid and how, whether the fees are proportionate to what they do or how they were introduced to the company?
  • Does the company regularly monitor current trends and recent investigations into bribery and corruption-related activities?
  • Does the company have a process in place to monitor and evaluate the effectiveness of its policies, systems and procedures?
  • Has the company commissioned an independent audit of its systems and controls for detecting improper payments?
  • Does senior management communicate a positive message concerning anti-corruption?
  • Do employees and business partners know what is expected of them?
  • How often are employees required to participate in training?
  • Do employees know how to report suspicions of corruption? Can whistleblowers feel confident that reporting improper payments or other illegal activities will not result in repercussions for them personally?
  • And, finally, if the worst should happen and the company becomes the subject of a corruption allegation, does it have a crisis management plan? Would personnel know what to do if the SFO decided to raid and search the premises?

Whether setting up a new programme or reviewing an existing one, it is important to remember that an effective anti-corruption programme should be capable of persuading a regulator or prosecutor that the company is taking the issue seriously and has addressed all of these questions.

clock is ticking

Many companies will have been monitoring the development of the 2010 Act as it progressed through Parliament and will have already set the review process in motion. Others who have been biding their time or have been largely unaware of the need for enhanced anti-corruption compliance must take action now. In-house lawyers have a vital role to play in raising internal awareness of the new law and stressing the importance of reviewing training programmes, procedures, systems and controls. It is only by taking steps to mitigate the risks of employees, subsidiaries and agents paying bribes on their behalf, that companies can hope to remain out of the corruption spotlight.