The UK Bribery Act will have a significant impact on many foreign companies when it comes into force in July 2011 because of its extra-territorial reach. A foreign company which carries on any "part of a business" in the UK could be prosecuted under the Bribery Act for failing to prevent bribery committed by any of its employees, agents or other representatives, even if the bribery takes place outside the UK and involves non-UK persons.
For example, a Dutch oil and gas exploration company, which happens to have a UK subsidiary, appoints an intermediary to facilitate business in Africa, and the intermediary pays a bribe to a local official. Whether or not the Dutch parent or the UK subsidiary were aware of the actions of the intermediary, or whether any benefit accrues to the UK subsidiary, in some circumstances, the Dutch parent could be liable under the UK Bribery Act for failing to prevent bribery. The Act is engaged simply by virtue of the existence of a UK operation.
Also, using the same example, the UK subsidiary is itself at risk of prosecution if a person or company associated with it is involved in bribery, as are any Dutch nationals working for the UK subsidiary and therefore "ordinarily resident" in the UK, if they are found to have paid or received a bribe.
"Part of a business" is not defined in the Act, but even a UK representative office or agent may be sufficient for the purposes of the corporate offence. However, a London listing without any demonstrable UK business presence will not be sufficient to trigger liability under the Bribery Act, in contrast to the FCPA, which may be engaged simply by a US listing. It is worth noting that the Bribery Act is wider than the FCPA in some respects so an FCPA-compliant company may not be Bribery Act-compliant. For more on the extra-territorial application of the Bribery Act, see below.
Companies which are able to demonstrate that they had "adequate procedures" in place to prevent bribery occurring, and legitimately attribute bribery to "rogue elements" in the organisation, may have a defence to the corporate offence of failing to prevent bribery, and this defence will be equally available to foreign entities. What this means is that overseas companies caught by the UK Bribery Act should be reviewing their business operations with a view to implementing "adequate procedures" to prevent bribery, just as many UK-incorporated companies are doing.
Last autumn, the UK Ministry of Justice published draft guidance on the Bribery Act. During the consultation on the draft, the UK business community conducted a vociferous press campaign of opposition to the Bribery Act, lobbying for a clearer steer on the more difficult issues such as corporate hospitality and facilitation payments, liability for the actions of suppliers, sub-contractors, joint ventures and investee companies, and the extent of a UK business presence required to trigger liability under the Act. The guidance has now been issued in final form, signalling the UK Government's intention to press ahead with implementation of the Act in July 2011, giving the business community three months to consider the guidance and assess what steps they need to take to avoid falling foul of the Act.
The MoJ guidance can be accessed here. It is fair to say that the guidance is more helpful overall than the draft published last year, and as expected the UK Government has bowed to pressure to clarify the thinking behind the more contentious issues, as explained below.
To help companies who are in the process of implementing new bribery-prevention measures, the six fundamental principles on which "adequate procedures" should be based have been reformulated and explained in more detail as compared with last year's draft guidance. They are also summarised below with a short practical commentary on each.
At the same time, the Serious Fraud Office and the Director of Public Prosecutions published joint guidance on their approach to bringing prosecutions under the Bribery Act. In view of the level of discretion given to them under the Act in deciding whether or not to bring a prosecution in any given case, the SFO/DPP guidance will also help companies to determine where to draw the line between lawful and unlawful activity and in shaping their anti-bribery policies and procedures accordingly. One thing is clear from the SFO/DPP guidance: the existence (or not) of robust bribery-prevention procedures will be a key factor influencing the decision to prosecute. The practical implications of the SFO/DPP guidance are discussed in more detail in the commentary below and the guidance itself can be accessed here.
Extra-territorial application – what is "part of a business"?
A foreign company which carries on any "part of a business" in the UK could potentially be prosecuted under the Bribery Act for failing to prevent bribery committed by any of its employees, agents or other representatives, even if the bribery takes place outside the UK and involves nonUK persons. Clearly, the definition of "part of a business" will be crucial for foreign companies deciding whether or not they are caught by the Bribery Act. The MoJ guidance does not provide a complete answer, deferring to the courts as the final arbiter, but suggests a common-sense approach in assessing whether an organisation has a demonstrable business presence in the UK. The guidance acknowledges that a UK listing of itself is unlikely to be sufficient, in contrast to the FCPA, the US equivalent of the Bribery Act, which may be engaged simply by a US listing. It also suggests that having a UK subsidiary does not automatically mean that a foreign parent is carrying on a business in the UK since the subsidiary may act entirely independently of its parent. This will be a question of fact and we would suggest that overseas companies with any UK presence exercise caution and take steps to assess their potential exposure to the Bribery Act on a case-bycase basis.
Corporate hospitality and gifts
Some of the UK press reports in recent months to the effect that routine corporate hospitality will be illegal under the Bribery Act were misleading and the UK Government has tried to inject a dose of realism into the debate, confirming in both sets of guidance that the Act does not prohibit reasonable and proportionate corporate hospitality or promotional expenditure. As the UK Justice Minister, Ken Clarke, states in the MoJ guidance, "no one wants to stop firms getting to know their clients by taking them to Wimbledon or the Grand Prix".
There is a key dividing line between legitimate hospitality and a bribe, which many of the press reports have failed to appreciate. Unless the recipient is a foreign public official (where a different test applies – see below), in order to constitute a bribe, hospitality must be intended to induce improper behaviour (i.e. it must come with strings attached). Even lavish hospitality may not induce improper behaviour if it is offered in a business context in which it will simply not influence the recipient to do anything improper. In designing a UK Bribery Act-compliant gifts and corporate hospitality policy, consider, for example:
- disproportionate and inappropriate lavishness: whether the recipient would feel under any sense of obligation as a result of a gift or hospitality;
- seniority: is the recipient in a position to influence a relevant decision?
- industry comparators: what is the norm in the relevant industry or business sector?
- country comparators: gifts and hospitality which are considered modest in developed nations may be seen as more lavish elsewhere and therefore more likely to be seen to be "buying" influence;
- timing: is the hospitality/gift timed so as to affect the outcome of a particular event or decision?
- transparency: was the hospitality/gift declared? The SFO/DPP guidance draws attention to concealment as an indicator of impropriety;
- the "newspaper test": how would a newspaper report the gift or hospitality and what would the public perception be?
- business reason: can you identify a specific business justification for the gift or hospitality? Hospitality involving friends or family of a business contact or where the host is not present may raise particular suspicion.
If the recipient is a foreign public official, a stricter standard of behaviour applies. Any payment to, or benefit conferred on, a foreign public official which is intended to gain a business advantage may constitute a bribe unless written local law expressly permits or requires it. It will be fairly easy to trip over this hurdle in practice so businesses should take particular care when entertaining foreign public officials, and may need to carry out some due diligence on local law. If local law is silent, prosecutors will consider the public interest in prosecuting. The written local law test is also of particular relevance to facilitation payments – see below.
Companies will take some comfort from the express acknowledgment in the guidance of the problems that businesses face in some parts of the world and in certain sectors where bribery is rife and that the eradication of facilitation payments is a "long-term" objective requiring collaboration between governments and other international bodies. To address the widespread concern over the zero-tolerance approach to facilitation payments under the Act, the guidance highlights the public interest test to be applied before a prosecution will be brought, which will be relied upon to ensure the Act is enforced in a "just and fair" manner. According to the SFO/DPP guidance, relevant factors will include:
the size of the payment(s);
- whether it was a one-off incident or part of a "standard way of conducting business";
- the options facing the payer (i.e. whether the circumstances were tantamount to extortion); and
- whether the company had existing procedures in place to root out bribes and the individual concerned simply ignored the relevant policy and procedures.
The SFO's self-reporting guidelines suggest that action taken by the company to selfreport the problem and co-operate with the investigation will also be viewed favourably. Despite its comforting words, the UK Government is clearly keen that businesses themselves play their part in global anti-bribery efforts by implementing bribery prevention procedures. Many of the case studies used in the MoJ guidance contain helpful suggestions for mitigating exposure to liability for payments made by overseas agents and intermediaries, including:
- carrying out due diligence on overseas agents and intermediaries and who their contacts are;
- researching local bribery and corruption law. The MoJ guidance acknowledges that foreign governments often require some form of investment in the local economy or community as a condition of a tender for publicly-funded contracts and if this is set out in written local law it will not present a problem;
- communicating a zero-tolerance policy on facilitation payments to agents and intermediaries and requiring them to train their staff on how to resist demands for bribes;
- laying down procedures for agents and intermediaries to follow, for example:
- question the legitimacy of the demand and request a receipt of the payment and identification details of the person making the demand;
- ask to consult superior officials;
- avoid paying in cash and directly to officials; and
- threaten to report those demanding payments to the authorities;
- monitoring the activities of agents and their staff; and
- using UK diplomatic or other channels to apply pressure on the local authorities to take action.
Potential liability for the actions of joint venture partners, suppliers, sub-contractors and other "associates"
The scope of the corporate offence of failing to prevent bribery committed by business associates raises difficult questions, particularly in the context of supply chains, joint ventures and corporate investments. The MoJ guidance provides some helpful hints as to the manner in which "associate" will be interpreted. For example, it confirms that, where in practice a company only exercises control over its relationship with its own contractual counterparty, it will not normally incur liability for the actions of sub-contractors and those further down the supply chain. Indeed it suggests that an effective means of managing risk down the chain would be to require the counterparty to agree on bribery prevention measures with the next party in the chain.
As regards joint ventures, the guidance states that a bribe paid by an employee or agent of the JV will not trigger liability for its members simply by virtue of them benefiting indirectly from the bribe through their investment in the JV. The guidance also confirms that liability will not accrue through simple corporate ownership or investment, so, for example, a bribe paid by an employee or agent of a subsidiary will not automatically involve liability on the part of its parent company unless it can be shown that the relevant individual intended to obtain or retain business for the parent company. On the other hand, the guidance also highlights the significance of the degree of control over the activities of the associate. For investors, the provisions of a shareholders' agreement documenting control mechanisms and/or board representation are likely to be taken into account in determining whether an investee company is an "associate" of the investor.
What does "adequate procedures" mean?
Although following the MoJ guidance will not be a safe harbour from prosecution, it will be a good starting point, particularly for businesses without existing UK Bribery Act-compliant policies and procedures. Equally, departing from the guidance will not lead to a presumption that a company does not have adequate procedures in place if it has sound reasons for doing so. The "adequate procedures" defence is, in effect, designed to effect a change of behaviour among businesses with any presence in the UK, by incentivising them to carry out a thorough risk assessment in light of their potential liability under the UK Bribery Act, and to beef up their internal controls and procedures so that they are in a position to detect and deal with incidents of bribery in their organisation.