The Bribery Act 2010 (the 2010 Act) is due to come into force in April 2011. The potential commercial impact of the 2010 Act is something that many organisations will have to face and businesses should start their preparations for putting in place appropriate compliance systems.
The Ministry of Justice’s initial assessment of the Bill, which became the 2010 Act, suggested the possibility that there could be one-off business compliance costs from upgrading internal accounting and auditing systems. In theory compliance costs should be low, given that bribery is already a criminal offence in the UK and organisations should already have such systems in place. But is this the reality? A significant change under the 2010 Act is that businesses will need to demonstrate that they had ‘adequate procedures’ in place to prevent bribery in the event that they face a charge under the 2010 Act of paying or promising to give a bribe or failing to prevent a bribe being paid for it, or on its behalf. The measures that businesses should be considering will take time and effort (and cost). The measures could comprise:
- compiling a specific code of conduct to complement or replace any existing ethics policy, according to a globally adopted standard to apply equally to all of the entities in the group;
- organising compulsory anti-bribery training for employees and agents, wherever located;
- encouraging staff to report concerns to the parent entity by easily accessible and confidential means, such as a dedicated telephone number or e-mail address;
- implementing effective internal monitoring procedures to deter and detect any breaches of the law, and to report them internally (this could be part of the audit committee’s remit or be delegated to a new risk committee); and
- including standard clauses prohibiting bribery and corruption in commercial contracts.
Additionally, in commercial transactions, particularly those involving takeovers, specific focus will be required at the due diligence stage to ensure that there are no bribery-related issues within the target group, which could present problems in the future. There will also need to be an assessment of whether the target has adequate anti-bribery procedures in place. If not, the targets’ internal systems and controls will need to be revised post-completion to ensure that the post-takeover enlarged group is still able to demonstrate that it has adequate anti-bribery procedures in place.
Loss of business
The other cost noted by the Ministry of Justice was that it would be possible that UK organisations could lose out on business. Will the coming into force of the 2010 Act therefore weaken the commercial position of a UK company trying to do business abroad? Although most organisations will never be involved in a blatant attempt to influence a deal through bribery, in some jurisdictions ‘facilitation payments’ are accepted parts of doing business and are made, for example, to speed up transactions or to obtain permits. These payments will be caught by the new offences provided by the 2010 Act and as the 2010 Act has an extraterritorial reach, a payment made on the ground in South-East Asia, for example, on behalf of a foreign subsidiary, could mean that its UK parent company would be liable. The fact that making such payments is customary in a foreign jurisdiction will not be a defence under the 2010 Act.
In a competitive bid scenario, if a UK organisation or a subsidiary is unable to make a such a payment that is expected locally, then conceivably it could lose out to a local or foreign competitor that is not subject to the extra-territorial scope of the 2010 Act, even if that UK organisation is objectively the best bidder.
However, in the long run, UK businesses should arguably benefit as a whole. Once the 2010 Act comes into force, the UK will have one of the most stringent anti-bribery regimes in the world. This should enhance the UK’s reputation as a safe place to do business and may also have the effect of encouraging other countries to adopt similar measures. If the global standard of anti-bribery and corruption legislation rises to meet, or even exceed, the provisions of the 2010 Act, then UK businesses should find doing business abroad simpler, cheaper and with less risk attached.
Compliance is particularly important when the adverse publicity caused by bribery is considered. The damage to brand and market valuation can be long lasting. There are many examples of mergers and takeovers that have collapsed in the due diligence stage when evidence of bribery has been uncovered. For some companies, the threat that they could be barred from competing for government contracts if found guilty of breaching the 2010 Act should be a powerful incentive to ensure that their operations are as clean as possible.
As an example, Macmillan Publishers Ltd was banned by the World Bank from taking up contracts financed by the bank in 2010 for a six-year period, after it admitted paying bribes to attempt to secure a deal to supply textbooks in Sudan. The payments did not even lead to Macmillan winning the contract. Had the offence taken place with the 2010 Act in force, then it is entirely possible that Macmillan would have faced prosecution in the UK.
Prior to the 2010 Act coming into force, UK organisations will have to assess their internal checks and controls to ensure that all of their staff, contractors and agents across all jurisdictions in which they operate understand what their responsibilities are in respect of the 2010 Act. Preparing an organisation properly should ensure that it is able to show that there are adequate procedures in place to combat bribery if ever a charge is brought against it of failing to prevent a bribe being paid by it, or on its behalf. Watch out for the Ministry of Justice guidance on compliance due in January 2011.
Speechly Bircham LLP has a dedicated financial investigations team that comprises specialists from its commercial dispute resolution, intellectual property, technology and commerce, financial services, and employment departments, who have experience in providing advice to UK and foreign corporations, partnerships and other entities in relation to the 2010 Act, corporate ethics and governance policies, anti-corruption provisions for commercial contracts, as well as internal fraud and external regulatory investigations.