The Bribery Act 2010 – A Stay of Execution?

Procrastination, it has been said, is the thief of time. Judging from its recent decision to delay implementation of the Bribery Act 2010 from this year to April 2011, perhaps the UK Government needs to be reminded of poet Edward Young's immortal observation.

The Ministry of Justice's announcement on 20 July 2010 that "the UK will reinforce its reputation as one of the least corrupt countries in the world, when the Bribery Act comes into force in April 2011" rang a bit hollow. After all, the UK Foreign Bribery Strategy documentwas launched with a great fanfare in January; the act followed with overwhelming cross-party support in April 2010; and, more recently, Transparency International's May 2010 report Avoiding Corruption Risks in the City: The Bribery Act 2010 sounded a clarion call for businesses in the City of London to combat bribery and corruption or face potentially crippling sanctions.

The Transparency International report certainly made for alarming reading. Published in conjunction with the City of London Corporation, the report cautioned that according to a survey of City firms, 35% of respondents believed that businesses in the City would willingly pay bribes as standard practice; 23.3% considered their employer's due diligence on customers, business partners and transactions to be seriously inadequate; and 36.5% had no detailed knowledge of the UK's anti-bribery legislation.

In the light of these findings, and recent Financial Services Authority and Serious Fraud Office triumphs against Aon Limited, Mabey & Johnson Ltd and BAe Systems, it is indeed disappointing that the act will not come into force for another eight months. Both UK businesses and foreign companies with a presence in the UK would, however, be making a big mistake if they were to abuse this stay of execution.

The new corporate offence

The act sets out a radical corporate offence whereby commercial organisations could be found guilty where they fail to prevent persons acting on their behalf from paying bribes (although there is no corresponding offence of failure to prevent the taking of bribes).

The bribes should be given with the intention of obtaining or retaining business or other business advantage for the commercial organisation.

The corporate offence carries strict liability i.e. liability without the need to prove fault or to prove that the offence was that of a director or manager who controlled the company's actions.

It is important to note that, as a result, and subject to a vaguely-worded "adequate procedures" defence, businesses will be automatically liable as soon as either scenario occurs.

Extra-territoriality

The corporate offence applies to foreign companies with operations in the UK. European companies that carry on part of their business in the UK may therefore be prosecuted for failure to prevent bribery. The offence applies even where the bribery takes place outside the UK and the benefit or advantage to the company is intended to accrue outside the UK. For example, if a French company has a UK branch and engages in bribery in South America, that French company may have liability under the act. In this respect, the act's extra-territorial reach is broader than the US Foreign Corrupt Practices Act 1977.

European companies must, therefore, take local legal advice in each jurisdiction in which they operate. It will not be enough to continue to rely on Foreign Corrupt Practices Act-based compliance programmes. Rather, the onus is on businesses to institute new procedures to ensure compliance with the act. These procedures will be considered in greater detail below. The corporate offence does not affect European companies that have no UK presence.

Sanctions

Falling foul of the act could see a company facing an unlimited fine. Allied to this, managers who consent or connive in the bribery could be handed prison sentences of up to 10 years.

Furthermore, under the Public Contracts Regulations 2006 a company is automatically and perpetually debarred from competing for public contracts where it is convicted of a corruption offence. If these regulations are amended to include the crime of failure to prevent bribery then this could result in a severe sanction for miscreant companies.

Can a commercial organisation raise any defences?

The act provides that it is a defence for the commercial organisation to show, on the balance of probabilities, that it had "adequate procedures" in place to prevent associated persons from committing bribery. The meaning of "adequate procedures" is not specified, but the act does require the Justice Minister to "publish guidance about procedures that relevant commercial organisations can put in place to prevent persons associated with them from bribing". The Government has said it will launch a brief consultation exercise in September 2010, which will consider the procedures businesses can put in place.

While it is difficult to predict exactly what the Government's guidance will say, it is telling that numerous supranational bodies, including Transparency International and the OECD, have published their own recommendations. It requires no great leap of faith to say that the Government will borrow heavily from existing material. So what can UK plc do to ensure it does not fall foul of the new regime?

 Adequate procedures – some recommendations

• Risk assessment: The act does not aim to enforce a 'one size fits all' system of procedures. On the contrary, the explanatory notes to the Draft Bribery Bill indicated the Government's expectation that the courts, in determining whether the defence applies, would take into account the size and idiosyncrasies of the particular business. Businesses will need to carry out risk assessments of their operations and adopt procedures appropriate to their size, sector and business locations.
• Code of Business Conduct: Businesses must ensure they have Codes of Business Conduct, which do not languish in drawers out of sight and out of mind. There must be, among other things, robust procedures for the authorisation of third-party payments; clear policies on political donations, hospitality and sponsored travel; rigorously enforced procedures on whistleblowing; well-documented warnings of disciplinary action for breaches; and proper monitoring, particularly in jurisdictions where risks are high.
• Training and guidance: Organisations must guarantee the effective and on-going training of their management and staff. For national and international conglomerates this will include individuals employed in every subsidiary entity.
• Third parties: Businesses must also ensure that third parties, such as agents, consultants, advisers and key suppliers, are included in compliance programmes and audits. Key issues to consider include appointing representatives only after rigorous due diligence and risk assessments, and ensuring appropriate anti-corruption clauses are included in any agreements with third parties. It is particularly important to have a clear understanding of local laws in key countries regarding what is considered to be corruption or a bribe.

This is by no means an exhaustive list, and it will take time for businesses to implement compliant procedures. Failure to act promptly could have disastrous consequences. Is your house in order?