May 6, 2010
Last month, the U.K. Parliament passed the country's first major overhaul of its anti-corruption laws in more than a century, putting companies operating in the United Kingdom under very stringent anti-corruption regulation and going even further than the requirements set down by the Foreign Corrupt Practices Act (FCPA) in the United States. This so-called Bribery Act (the Act) introduces a new offense that makes corporations operating in the United Kingdom automatically liable for bribes paid on their behalf. Corporations now could face criminal sanctions if management fails to demonstrate that adequate procedures designed to prevent bribery have been implemented within their organizations.
The Act also introduces new statutory bribery offenses for activities in the public or private sector and a specific offense for bribery of foreign public officials. Penalties are severe, including unlimited fines or imprisonment for up to 10 years. The new offenses contained in the Act are expected to be in force before the end of 2010.
The Bribery Act is likely to have a major impact on how companies doing business in the United Kingdom operate. The new legislation contains an affirmative defense that will allow an organization to avoid prosecution if it can demonstrate that it had implemented “adequate” anti- corruption compliance procedures. The legislation is also relevant to U.K. companies’ overseas activities, including those activities related to, and initiated through, supply chains, intermediaries, agents, joint venture partners and other business relationships. The Act brings the United Kingdom into line with the Organization for Economic Co-operation and Development’s (OECD) recommendations in dealing with bribery and corruption. However, it also goes a great deal further, creating some of the strictest anti-corruption regulations in the world.1
The Act broadens the jurisdictional reach of the U.K. anti-bribery laws to cover bribery committed worldwide by individuals who are U.K. nationals or are ordinarily resident in the United Kingdom, as well as organizations that conduct some portion of their business in the United Kingdom. It will enhance the ability of U.K. law enforcement, including the Serious Fraud Office (SFO), to take a much more robust approach to investigating and prosecuting corporations and individuals involved in wrongdoing both in the United Kingdom and abroad.
There is little doubt the SFO will use its expanded enforcement powers proactively. It is becoming increasingly active in bringing enforcement actions and has had some notable successes in the past two years. Furthermore, any increase in SFO investigations also may increase the risk of parallel investigations in other jurisdictions. This risk is particularly evident for companies with significant presence in both the United Kingdom and the United States, as there is a close working relationship between the SFO and the U.S. Department of Justice. Therefore, companies with operations in the United Kingdom should consider whether their current compliance programs merit reconsideration in view of these new anti-bribery standards.
Below are some questions companies that operate in the United Kingdom should be evaluating in light of the new legislation:
- Can your company distinguish gifts, hospitality and goodwill gestures from bribes? Would you know when a goodwill gesture could be interpreted as a bribe?
- Are your company’s officers aware of their personal statutory liability if a bribery offense has taken place in their company or on behalf of their company?
- Is management, or the supervisory board (assuming a two-tiered board structure), taking tangible measures to prevent, detect, investigate and report bribery? Has it made a clear policy statement on bribery and corruption?
- Are your corporate governance and compliance procedures up-to-date? Would they cover the additional requirements under the Act to ensure fulfillment of SFO expectations?
- Do you have adequate levels of controls over the activities of employees, agents and third parties? Are such activities properly evaluated?
- Do you have measures in place to identify, prevent and investigate bribery? If so, how are they tested to ensure they are designed and operating effectively and comply with the minimum standards under the Act?
- Do you have suitable awareness training in place for your employees and agents?
The Bribery Act Reaches Beyond the Scope of the FCPA
U.K. companies that are aware of, or comply with, the FCPA should bear in mind that the provisions of the Bribery Act are not the same and the penalties for violation of the latter are more severe.
The Bribery Act is significantly broader than the FCPA and features stricter scrutiny and enhanced criminal penalties. It is important to note that U.S. companies with U.K. offices will be responsible for complying not only with the FCPA, but also with the Bribery Act. Consequently, U.S. companies will need to revise their FCPA compliance programs to take into account the U.K. Bribery Act provisions.
Following are the key differences between the Bribery Act and the FCPA:
- The FCPA focuses on anti-corruption of foreign governmental officials, whereas the Bribery Act also covers nongovernmental officials (i.e., private citizens). The Bribery Act makes any bribery illegal – not just the bribing of a foreign government official (or the attempt thereof).
- In addition to banning the actual or attempted bribery of private individuals and public officials, the Bribery Act also prohibits the receipt of bribes. The FCPA contains no such provision.
- Unlike the FCPA, the Bribery Act does not have a facilitation payments defense. Under the Act, certain types of corporate hospitality are prohibited if they are “intended to subvert the duties of good faith or impartiality that the recipient owes his or her employer.”
- The FCPA has no strict liability either written directly into the statute or interpreted by judicial review. The Bribery Act creates a new strict liability of corporate offense for the failure of a corporate official to prevent bribery. Under the Bribery Act, a company will be liable if anyone acting under its authority commits a bribery offense, including employees, agents, subsidiaries, joint venture partners and consultants. The only satisfactory defense is where a company has adequate procedures in place to prevent bribery offenses.
- The FCPA has criminal penalties of five years per offense. Companies may be fined up to $2 million per violation, while individuals may be fined up to $100,000 per violation and/or receive five years in prison. Fines may be higher under the Alternative Fines Act. Also, it is important to note that companies may not pay fines on behalf of an employee. The Bribery Act has penalties of up to 10 years per offense and unlimited fines for companies that fail to implement “adequate procedures.”
- The FCPA requires that the company’s books and records provide reasonable detail so that transactions and disposition of assets are reflected accurately and fairly. A “reasonableness” standard, rather than a materiality standard, is applied. This means that bribes and kick-backs, if made, must be accounted accurately by the organization. These provisions provide yet another prosecutorial tool to prosecutors to combat alleged bribery activity. The Bribery Act has no equivalent provision (except insofar as companies are required to maintain accounts in accordance with the U.K.’s Companies Act 2006).
The Bribery Act – An Overview
A high-level summary of the four categories of offenses contained in the Bribery Act is provided below.
- Bribing another person
It will be an offense to offer, promise or give an “advantage” to someone:
- With the intention of inducing that person to behave improperly;
- As a reward for that person to behave improperly; and
- Knowing or believing that the recipient’s acceptance of the “advantage” would constitute improper behavior.
- Being bribed (as the recipient of the bribe)
It will be an offense for a person to receive a bribe if that person requests, agrees to or receives an “advantage” to act in an improper manner. It does not matter whether the recipient receives or accepts the advantage directly or through a third party or whether it is for the recipient’s benefit or that of another. It also does not matter, in most cases, whether the recipient even knows his or her acceptance constitutes a bribe.
- Bribing a foreign public official
It will be an offense to bribe a foreign public official by offering an “advantage” to the official, which is not permitted or required by the written law applicable to that official, with the intention of obtaining or retaining a business advantage. Unlike the above offenses, there is no requirement that the advantage offered or given was “improper.”
- Failure to prevent bribery
A company or partnership will be automatically liable for any bribe offered or given in connection with its business unless it can effectively demonstrate that it has in place adequate procedures designed to prevent such bribery.
The Bribery Act is far reaching. An offense under the Act does not need to take place within the United Kingdom and companies not domiciled within the United Kingdom are covered by the Act if they have a U.K. office, operate in the United Kingdom or employ a U.K. resident. Simply having a U.K. presence creates jurisdiction. Therefore, companies with U.K. offices, or those that employ U.K. citizens, should amend their current anti-bribery or anti-corruption policies to take account of the Bribery Act.
What Companies Need to Do
Under the Act, organizations can avoid criminal liability if they can establish that they have “adequate procedures” in place designed to prevent bribery. The burden of proof falls to the organization to establish that its anti-corruption compliance procedures meet the “adequacy test.”
The term “adequate procedures” is left undefined in the Act. At present, it is unclear if the U.K. government will produce guidance; if it does, guidance is expected to be issued by summer 2010. It is, however, unlikely that the guidance will be very prescriptive. The guidance more likely will be sufficiently broad and general enough so that it can be applied to every kind of company. Meanwhile, the SFO, which has primary responsibility for investigating and prosecuting corruption, already has indicated the types of policies and measures it expects to see when determining whether a business’s procedures are adequate. These policies and measures include:
- A clear statement of an anti-corruption culture supported at the highest levels of management
- A code of ethics
- Clear and proper accountability
- Processes for auditing the anti-bribery program
- Adequate training
- A system of reporting
- Investigation and disciplinary processes
- Suitable policies to define the organization’s stance on gifts and hospitality, facilitation payments, offset arrangements, payments to outside advisers/agents, and political contributions
Due to the expansive nature of the U.K. Bribery Act, companies need to re-evaluate, and perhaps “retrofit,” their existing anti-corruption compliance programs. Companies need to ensure that they have policies, procedures and internal controls to address all aspects of the Act. Although the FCPA allows for hefty fines and lengthy jail time that is dependent upon the type of violation incurred, U.K. prosecutors will be allowed to impose unlimited fines and prison sentences of up to 10 years. These more severe penalties for noncompliance may warrant a business case for management to support investment in proactive anti-corruption compliance programs.
For U.S. companies, facilitation payments – a narrow exception under the FCPA and often discouraged because they can create a “slippery slope” in practice – require attention because they are not permissible under the U.K. Bribery Act. Based upon what we are seeing in the marketplace, this restriction in the U.K. bill is going to be very difficult for global companies to address, as many allow facilitation payments (with proper authorization and approval) in permissible jurisdictions and are not set up to either readily identify such transactions or monitor them. There may be legal issues, as well. For example, if facilitation payments are allowed under U.S. law, can a U.S. company make them where permissible in other countries, even though the U.S. company has operations in the United Kingdom?
Anti-corruption is a major global initiative, as evidenced by efforts of organizations such as the OECD, World Trade Organization, European Union, Organization of American States, Association of Southeast Asian Nations, Caribbean Community and African Union, among others, to require their members to address it. The U.K. Bribery Act is certain to raise the bar.
There are many questions that are likely to be raised during the comment period the U.K. government has promised to interested parties before final guidance interpreting key provisions of the Act is released. While there currently are many unanswered questions pertaining to the Bribery Act, one thing is clear: The new legislation gives the SFO an expanded range of tools to prosecute bribery and corruption. It is realistic to expect an increased number of SFO enforcement actions as well as parallel investigations in other jurisdictions, particularly in the United States.
Accordingly, we recommend that companies pay heed to these new requirements and evaluate the effectiveness of their anti-corruption compliance programs. At a minimum, companies need to be sure they have sufficient grounds for an affirmative defense under the Act. From an enterprise value perspective, companies need to ensure that the conduct of their employees does not jeopardize their reputation and brand image, not to mention create an environment that can result in costly fines and penalties.