Legal Briefing

Bribery Act raises the bar for global compliance programmes

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Crime, Fraud and licensing | 01 September 2011

On the day that the Bribery Act 2010 (the Act) came into force, Richard Alderman, director of the Serious Fraud Office (SFO), gave an exclusive interview to the Daily Telegraph. In the interview, Mr Alderman set out his hard-line approach and highlighted the SFO’s intention to take a much stronger stance with enforcing the Act than had been expected.

The broad extra-territorial jurisdiction of the s7 corporate offence (failing to prevent bribery) has been a cause of significant concern to foreign companies since the inception of the Act. Any company that is deemed to be ‘carrying on a business or part of a business in the UK’ could be prosecuted for this offence. Of particular concern to some was whether this would include those companies that have no presence in the UK apart from a listing on the London Stock Exchange (LSE). The Ministry of Justice (MoJ) sought to alleviate this concern by clarifying in its statutory guidance, ‘Guidance about procedures which relevant commercial organisations can put into place to prevent persons associated with them from bribing (s9 of the Bribery Act 2010)’, that:

‘The government would not expect… the mere fact that a company’s securities have been… admitted to trading on the London Stock Exchange, in itself, to qualify that company as carrying on a business or part of a business in the UK and therefore falling within the definition of a “relevant commercial organisation”’.

This was met with criticism on the part of some UK companies and industry bodies that were outraged that unethical foreign companies would be able to secure the advantages of a UK listing while being beyond the jurisdiction of its prosecutors.

However, Mr Alderman has challenged the MoJ’s interpretation and has firmly put to bed the idea that foreign companies will be beyond his reach. In responding to a question on this issue, he said:

‘You bet we will go after foreign companies. This has been misunderstood. If there is an economic engagement with the UK then in my view they are carrying on business in the UK.’

This new approach will undoubtedly reignite the concern of foreign companies who have chosen to list their shares on the LSE, particularly if they have little or no further connection with the UK.

It is clear from Mr Alderman’s comments that he does not consider that the guidance from the MoJ is definitive and that it will not tie the hands of the SFO when it comes to enforcement.

IT’S A SMALL BUT COMPLEX WORLD

Bribery and corruption is, of course, commonplace in many parts of the world where large multinational businesses operate. It is often seen as the ‘cost of doing business’ in those countries but the Act makes no exception for local custom or practice. Mr Alderman’s comments have to be a wake-up call for any company with UK connections that tolerates or turns a blind eye to such activity.

The Act is the latest example of legislation designed to reach across borders. This is a trend which will inevitably continue as country lines blur with increasing cross-border business dealings and continued globalisation. There is also growing awareness among legislators and regulators of the need to control cross-border business activities.

The threat of prosecution in the UK may seem a distant possibility for many companies but the world will undoubtedly feel very small to the first foreign company that finds itself in the sights of the SFO. In the months and years to come, the SFO will be casting its net far and wide as it looks for its first high-profile catch overseas, and Mr Alderman has openly stated that he is on the lookout for ‘big companies with deep pockets’ that he can take to task for breaking UK law.

When considering the risks for your company, it is important to bear in mind that corporate prosecutions can be based on offences that have been carried out anywhere in the world, whether by the company itself or by a third party acting on its behalf. Most notably, perhaps, a company will be held liable for any bribes paid by any ‘associated person’ who performs services for, or on behalf of, the company (which could include employees, subsidiaries, agents, joint venture partners, distributors, suppliers and contractors), even if the company was unaware that bribes were being paid.

However, the implementation of the Act also brings into sharp relief the fact that anti-bribery and corruption legislation differs from country to country. This poses additional compliance challenges for the many different types of company that have to operate on a global scale, such as financial services, mining and resources, construction, defence, healthcare, hospitality and leisure, and life sciences. In these sectors there are many thousands of companies that have some sort of connection with the UK and that could potentially become a target for the SFO if they fail to take proper account of the existence of local and international laws. To take just one example, a few jurisdictions (including the US and Australia) have an exemption which allows facilitation payments, whereas others (including the UK and most of Europe) do not, and simply treat them as a form of bribe (in essence, a small (grease) payment made to a government official to facilitate approval of some routine business transaction or activity eg speeding up customs clearance for perishable goods).

WHAT CAN COMPANIES DO TO PROTECT THEMSELVES?

The penalties for a conviction under the Act are severe. If an individual commits an offence, the maximum penalty is ten years imprisonment and/or an unlimited fine. The penalty for a company is an unlimited fine. There can also be further damaging collateral consequences such as the disqualification of directors, draconian confiscation proceedings under the Proceeds of Crime Act 2002, being disbarred from tendering for public contracts or World Bank funding, not to mention the severe reputational damage that inevitably flows from a high-profile investigation or court case.

In-house counsel working for large multinational companies and those incorporated outside the UK have a key role to play in ensuring that their global anti-bribery policies and procedures are not only adequate for the purposes of the Act, but also that they are actively implemented, managed and monitored.

Compliance programmes are the key to avoiding prosecution under the Act as having ‘adequate procedures’ in place to prevent bribery provides the only avenue of defence for a company. Obviously no compliance programme can eliminate all risk, but companies have a complete defence if they can show that they took all reasonable steps to prevent bribery and that the bribe was paid in breach of its policies and procedures.

Adequate procedures are not defined in the Act but the government is obliged by statute to provide guidance on the types of procedure that can prevent bribery. The MoJ’s guidance explains the policy behind the s7 offence and is intended to help commercial organisations of all sizes and sectors understand what sorts of procedures they can put in place to prevent bribery. It is not prescriptive but it sets out the six principles of good compliance that companies are expected to take on board, namely:

  1. Proportionate procedures: having procedures in place that are proportionate to your bribery risks and to the nature, scale and complexity of your business.
  2. Top-level commitment: establishing a culture across your organisation in which bribery is unacceptable.
  3. Risk assessment: regular assessment of the nature and extent of the risks your business faces.
  4. Due diligence: a risk-based approach to knowing who you do business with; knowing why, when and to whom you are releasing funds and seeking reciprocal anti-bribery agreements.
  5. Communication (including training): embedding policies and procedures throughout your business, communicating internally and externally, including the provision of appropriate training appropriate to the level of risk your business faces.
  6. Monitoring and review: auditing and financial controls, regularly reviewing your policies and procedures, and considering whether external verification would help.

The process that many foreign and multinational companies with interests and/or operations in the UK now face, is understanding how the arrival of the Act means that there might be gaps in their global policies, procedures and training, which need to be addressed. Many global compliance programmes have been designed to ensure that companies do not fall foul of the US Foreign Corrupt Practices Act (FCPA), which also has extra-territorial reach. However, it is important to recognise that even ‘gold standard’ FCPA programmes will not ensure full compliance with the Act.

Fighting bribery and corruption has become a political and enforcement priority in recent years and if companies are to remain well-regarded and respected in the global business world, they need to show that they take a zero-tolerance approach. It is hoped that responsible foreign companies will take this on board, rather than seeing this legislation as being yet another compliance burden. As the Secretary of State for Justice says about the Act in his foreword to the MoJ guidance:

‘These are certainly tough rules. But readers should understand too that they are directed at making life difficult for the mavericks responsible for corruption, not unduly burdening the vast majority of decent law-abiding firms… And, as I hope this guidance shows, combating the risks of bribery is largely about common sense, not burdensome procedures. The core principle it sets out is proportionality.’

Any business that has a UK connection cannot afford to ignore the potential reach of the Act but the compliance solutions do not need to be over-engineered. The key to a robust but workable and cost-effective compliance programme is a properly focused risk assessment followed by the creation and implementation of policies and procedures that are proportionate to the particular organisation and the risks that it faces, wherever in the world it does business.