Lista M. Cannon, Chris Warren-Smith, Ian Michael Pegram and Richard Craig Smith
March 31, 2011
On 30 March 2011, the UK government published its long-awaited final form guidance to the Bribery Act 2010 (the “Act”) (the “Guidance”). The publication of the Guidance marks the commencement of the three-month period before the Act comes into force on 1 July 2011.
This Client Alert examines some of the following key themes. For a more detailed Briefing Paper on the Guidance, please click here.
The potential impact for foreign businesses of the corporate offence of failing to prevent bribery has been narrowed. The Guidance suggests that the focus will be on organisations which have a “demonstrable business presence in the UK”.
The Guidance appears to have restricted the scope of potential liability of commercial organisations for the activities of “associated persons”, providing specific guidance in relation to parent/subsidiary relationships, supply chains and joint venture arrangements.
- Businesses should adopt a “risk-based approach” in establishing “adequate procedures” as a defence to the corporate offence. Procedures ought to be “proportionate to risk” linked to the size, nature and complexity of an organisation. Six high-level, non-prescriptive principles should inform organisations establishing anti-bribery procedures.
- The UK government will not seek to use the Act to prohibit “reasonable and proportionate” hospitality and promotional or other similar business expenditure.
- Facilitation payments are not exempt under the Act, unlike under the US Foreign Corrupt Practices Act. Although the UK government recognises that the complete eradication of facilitation payments is a long-term objective, prosecution remains a possibility.
Commercial organisations in the UK and overseas, particularly those operating in high risk jurisdictions and sectors, should seek to establish appropriate compliance procedures to deal with bribery risks and to mitigate potential liability under the Act well in advance of 1st July 2011.
1. The corporate offence of failing to prevent bribery
“Carrying on business in the UK”
The corporate offence of failing to prevent bribery has a potentially broad territorial reach. A relevant commercial organisation will be strictly liable where it fails to prevent bribery by a person associated with the organisation. The Act defines a ‘relevant commercial organisation’ as a body or partnership incorporated or formed in the UK irrespective of where it carries on a business, or a body or partnership which carries on a business or part of a business in the UK “irrespective of the place of incorporation or formation”.
The application of the corporate offence to overseas companies will depend on the extent to which organisations have a “demonstrable business presence in the UK”. While the Guidance suggests that the trading of a non-UK company’s shares on the London Stock Exchange, or the simple fact of having a UK subsidiary, would not, in themselves, be enough to amount to carrying on business in the UK, it will be for the UK courts to determine whether an organisation ‘carries on a business’ in the UK, taking into account particular facts in individual cases.
The liability of commercial organisations for the corrupt activities of “associated persons” remains key. The Act defines an ‘associated person’ as one who ‘performs services’ for or on behalf of the relevant commercial organisation. However, the government makes certain distinctions. “Associated persons” can include contractors and suppliers of goods and services, to the extent that they are said to be performing services on behalf of an organisation. In the context of joint venture arrangements, for example, the Guidance suggests that a commercial organisation benefiting indirectly, through its investment or ownership, from a bribe paid by an employee or agent of a joint venture entity on behalf of that entity, is unlikely to be liable under the Act. Importantly in the context of the potential liability of parent companies for the offences of a subsidiary, “liability will not accrue through simple corporate ownership or investment, or through the payment of dividends or provision of loans by a subsidiary to its parent”.
As a defence to the corporate offence, businesses should adopt a “risk-based approach” in establishing “adequate procedures” that are “proportionate to risk” to prevent bribery within their organisation. The Guidance sets out six high-level, non-prescriptive principles, together with commentary and examples, which should inform organisations putting in place procedures to prevent bribery:
Communication (including training); and
Monitoring and review.
The government expects businesses to apply procedures to existing associated persons over time and where practicable.
2. Hospitality and promotional expenditure
The Guidance recognises that both hospitality and promotional expenditure are established and important parts of doing business, and states that the UK government will not seek to use the Act to prohibit “reasonable and proportionate” hospitality and promotional or other similar business expenditure. Nevertheless, the Guidance notes that “hospitality and promotional or other similar expenditure can be employed as bribes”, so businesses are not given carte blanche in this respect. The Guidance considers that an invitation to a sporting event, for example, “as part of a public relations exercise designed to cement good relations or enhance knowledge in the organisation’s field is extremely unlikely to amount to an offence”. That said, more lavish hospitality or expenditure is far more likely to raise concerns.
3. Facilitation payments
The Guidance states that facilitation payments, small bribes paid to facilitate routine government action, are not exempt from prosecution under the Act. This contrasts with the position under the US Foreign Corrupt Practices Act.
While facilitation payments are illegal, prosecution remains a possibility. The Serious Fraud Office (“SFO”) or the Director of Public Prosecutions (“DPP”) will decide whether to prosecute in accordance with further guidance also published on 30 March 2011 (the “Joint Prosecution Guidance”). Importantly, the Ministry of Justice's Guidance provides that businesses have a significant part to play in attempts to eradicate facilitation payments, not least by establishing adequate procedures to address the issue within their commercial organisations.
Businesses may have welcomed the Guidance, particularly the clarification on “reasonable and proportionate” hospitality, but a number of key elements of the Act remain subject to judicial interpretation.
The establishment by businesses of robust and effective anti-bribery procedures remains a key theme, but the question of whether procedures are “adequate” remains one for the UK courts, taking into account the particular facts of the case. The Guidance provides a potential narrowing of the exposure of foreign companies to the corporate offence. However, businesses must await judicial opinion on the extent to which a foreign company is deemed to be doing business in the UK. While the Guidance suggests that there has been a watering down of the potential exposure for joint venture parties and parent companies for the activities of subsidiaries, it remains for the UK courts to establish liability on the facts of the individual case.
In the meantime, commercial organisations both in the UK and overseas should review their existing anti-bribery procedures in light of the Guidance, using the six principles and related commentary as a benchmark. The UK prosecution authorities will no doubt be keen to chalk up their first successful prosecution under the Act once it is fully in force.
Lista Cannon (email@example.com or +44 207 832 3601) is a partner and Head of the International Regulatory Enforcement practice (and a former acting Head of Enforcement at the UK Securities Investment Board, now Financial Services Authority). Chris Warren-Smith (firstname.lastname@example.org or +44 207 832 3604) is a partner, and Ian Pegram (email@example.com or +44 207 832 3645) an associate in the International Regulatory Enforcement practice in London. Richard C. Smith (firstname.lastname@example.org or 202 662 4795) is a partner and chair of Fulbright’s White Collar Crime Practice Group and Fulbright's Investigations Practice Group and is based in Washington, D.C. Richard is a former Acting Chief and Principal Deputy Chief for Litigation of the Fraud Section of the U.S. Department of Justice, Criminal Division.
 http://www.legislation.gov.uk/ukpga/2010/23/contents. See also Fulbright Briefing dated 9 April 2010: “Bribery Act 2010: A New Era for UK Enforcement of Bribery and Corruption Offences?”
A “quick guide” to the Act, primarily targeted at small and medium sized enterprises (http://www.justice.gov.uk/guidance/docs/bribery-act-2010-quick-start-guide.pdf), and guidance from the Serious Fraud Office (“SFO”) and Director of Public Prosecutions (“DPP”) (the “Joint Prosecution Guidance”) (http://sfo.gov.uk/media/167348/bribery%20act%20joint%20prosecution%20guidance.pdf) who will bring prosecutions of individuals and companies under Act, accompany the Guidance.
 Serious Fraud Office and Director of Public Prosecutions Joint Prosecution Guidance: http://sfo.gov.uk/media/167348/bribery%20act%20joint%20prosecution%20guidance.pdf
Lista M. Cannon
Ian Michael Pegram
Richard Craig Smith