The Bribery Act 2010 came into force on 1 July 2011. It was not retrospective and therefore offences which occurred prior to this have been prosecuted under previous statutes.
There are four main offences under the Bribery Act. The first two are general offences involving offering, promising or giving an advantage (“active” bribery) and requesting, agreeing to receive or accepting an advantage (“passive” bribery). There is also a separate offence of bribery of a foreign public official, and the new “corporate” offence of the failure of a commercial organisation to prevent bribery committed by its associated persons.
Businesses must take the Act and corruption risks seriously for the following reasons:
The “corporate” offence contained in section 7 of the Act is committed by a relevant commercial organisation (RCO) where a person associated with it bribes another person, with the intention of obtaining or retaining business or a business advantage for the RCO. “Relevant commercial organisation” is widely drafted, to include any corporate bodies or partnerships which carry on business, or part of a business, in the UK. If an organisation meets that test, it does not matter where it is incorporated. It also does not matter where in the world the bribe takes place, so the organisation can be liable even if the actual criminal conduct takes place wholly outside the UK. There has as yet been no prosecution of a corporate body.
A person is “associated with” an RCO if he performs services for or on behalf of the RCO, irrespective of the capacity in which he does so. An associated person can be an employee, an agent, a subsidiary or any other service provider.
The combination of extra-territorial reach with liability for acts of associated persons beyond the usual liability for acts of directors and employees means that the corporate offence casts a very wide net.
The only defence available to an RCO is to show on the balance of probabilities, that it had in place “adequate procedures” to prevent bribery. It is accepted that any procedures, however good, may ultimately fail in the face of a determined offender.
The Ministry of Justice has published guidance on this which advises that adequate procedures should be informed by six principles:
Case studies – which do not form part of the guidance – are provided to illustrate the application of the principles for small, medium and large organisations. We give more elaborate guidance in part II of this series of articles.
One of the key difficulties for businesses in interpreting the scope of the duties in relation to the corporate offence is in understanding just who their “associated persons” are. Two tricky areas are extended contractual supply chains, and subsidiaries and joint ventures.
Contractors performing a service for or on behalf of an RCO could be included but how far might you have to look down the chain to determine the RCO’s associated persons?
The Government’s guidance provides some reassurance, suggesting that an organisation is only likely to be “associated” with its immediate contractual counterparty, because that is the only party over whom it can directly exercise control. But in higher risk situations it may be necessary to look further down the chain, bearing in mind that complex contractual structures are often used deliberately to disguise corruption.
Even if someone isn’t strictly an associated person, their corrupt activities may have a significant impact on the business, so it is advisable to look to the issue more broadly, rather than focusing on the letter of the law.
Similar questions arise in relation to subsidiaries and joint ventures which would be associated persons if performing services on behalf of their parent or investors.
If an associated person is in business on its own account and paying bribes for the benefit of its own business then this would not result in an offence by the parent or JV partners. However, this can still be a significant issue for the parent because dividends paid to shareholders in those circumstances may amount to the “proceeds of crime”.
The Serious Fraud Office has on a number of occasions used civil recovery powers under the Proceeds of Crime Act (POCA) to recover dividends on this basis and, where shareholders know or suspect that dividends represent the proceeds of crime, they and their directors may risk committing a criminal offence under POCA. So regardless of whether it is an associated person, shareholders should be concerned to ensure compliance by their subsidiaries or joint ventures with the Act, so far as it is in their power to do so.
Proposed new legislation to create an offence of failure to report economic climate is relevant here.
“Facilitation payments” made to obtain or accelerate performance of services to which the organisation is entitled are different from a “normal” bribe in that they are something paid to speed up a process rather than to change the result of the process. They are often paid overseas to government officials but also in the private sector, for example when importing goods into a country, when individuals are seeking entry to a country or when obtaining an electricity or telephone connection for new offices. Failure to pay can be commercially damaging if it results in delay or even inability to obtain the requested service.
Traditionally these have not been seen as bribes at all. The amounts are often small and there may be a perception that “everybody does it”. Some countries do not criminalise these types of payments to foreign public officials, subject to certain limits – an example is the US Foreign and Corrupt Practices Act and Australia’s equivalent laws.
However, under the UK Bribery Act there is no grey area and facilitation payments are treated in the same way as any other kind of bribe. The individual paying them commits an offence, and the company and its officers may commit offences if they permit them or fail to stop them. So a company needs to adopt a clear policy banning facilitation payments completely and to back it with procedures to support the policy. Specific measures might include training staff in resisting demands for payments of dubious legality and planning into your processes delays arising from non-payment.
Bona fide hospitality or promotional expenditure should not present a problem. However, there is still a line to be drawn and in the past “hospitality” has often been used as a cover for corruption.
Taking clients to dinner, or a sporting event, paying for travel expenses on fact finding visits, or exchanging appropriate gifts, if “reasonable and proportionate” is not caught by the Act. The Serious Fraud Office has also indicated that scrutinising business hospitality to see whether it just steps over the line is not going to be a top priority. David Green, the SFO Director, was quoted in September 2012 as saying “We are not the serious champagne office”.
Ultimately it is a question of judgment but in general terms the more lavish the hospitality, the more likely it is that this will be seen as attempting to corrupt the recipient and give rise to action under the Act.
So businesses should always consider whether particular elements of hospitality are reasonable and proportionate and the intention behind offering or receiving them.