April 4, 2011
The U.K. Ministry of Justice has now published guidance on the Bribery Act 2010, which will come into effect on July 1, 2011. An organization that fails to prevent an act of bribery occurring will automatically become liable if any of its employees, contractors or agents pays a bribe to win or retain business for the organization. As anticipated, the Act itself remains as before and, contrary to some reports in the press, has not been “watered down” or amended.
The U.K. government has, however, attempted to address concerns and criticism raised by business leaders during the consultation period. In particular, the guidance stresses proportionality. It advocates a risk-based approach that is targeted at key areas of bribery risk that may occur. It also stresses that corporate hospitality and gifts are acceptable but should be proportionate and transparent. The guidance is not binding and the offenses created by the Act will remain, but it does set out the government’s intentions behind the Act.
Some parts of the Act, such as jurisdiction, are likely to be subject to legal interpretation and it is possible that prosecution authorities will want to test the law. Companies will need to exercise caution to avoid becoming that first test case, given the legal costs and adverse publicity, even if they eventually win on a point of law.
The following observations should be read in conjunction with comments in our 5/6/2010 Flash Report, “U.K. Bribery Act: Important Implications to Doing Business in the United Kingdom,” available at www.protiviti.com:
Hospitality: The guidance makes clear that offering a client reasonable and proportionate corporate hospitality will not be an offense; however, overly lavish hospitality could be considered an offense if there is no clear business purpose.
Associated persons: The guidance states that it is unlikely an organization would be liable for the actions of a basic service provider – the corrupt party must be performing services on behalf of the business for it to be held liable. The business does, however, have a responsibility to perform due diligence and communicate its policies to third parties that provide direct services.
Facilitation payments: These payments will remain illegal under the Act. The surrounding circumstances leading up to the payments being made and whether it is in the public interest to prosecute will determine prosecutorial actions.
Joint ventures: Prosecutors will have to show that the corrupt business partner was performing a service for the defendant company. One joint venture partner may not be held liable for bribes committed by the other partner if it can be shown that it did not know about the bribe and did not directly benefit from the bribe.
The Six Guiding Principles
The guidance remains nonprescriptive and follows the general principles set out in the consultation document except for Principle 1, which now emphasizes proportionality. These six principles are:
- Proportionate procedures – A commercial organization’s procedures to prevent bribery by persons associated with it are proportionate to the bribery risks it faces and to the nature, scale and complexity of the commercial organization’s activities. They are also clear, practical, accessible, effectively implemented and enforced.
- Top-level commitment – The top-level management of a commercial organization (be it a board of directors, the owners or any other equivalent body or person) are committed to preventing bribery by persons associated with it. They foster a culture within the organization in which bribery is never acceptable.
- Risk assessment – The commercial organization assesses the nature and extent of its exposure to potential external and internal risks of bribery on its behalf by persons associated with it. The assessment is periodic, informed and documented.
- Due diligence – The commercial organization applies due diligence procedures, taking a proportionate and risk-based approach, in respect of persons who perform or will perform services for or on behalf of the organization, in order to mitigate identified bribery risks.
- Communication (including training) – The commercial organization seeks to ensure that its bribery prevention policies and procedures are embedded and understood throughout the organization through internal and external communication, including training, that is proportionate to the risks it faces.
- Monitoring and review – The commercial organization monitors and reviews procedures designed to prevent bribery by persons associated with it and makes improvements where necessary.
The guidance acknowledges that “adequate procedures” will depend upon the size of the business and the level of bribery risk it is likely to incur. As industry and geographic profiles vary, some organizations will be more at risk than others. The guidance makes it clear that an organization does not necessarily need to have all six principles in place – it can select those it deems necessary for its business, depending on risk exposure and size. It is for a company to decide what is right for its organization.
As a minimum requirement, every organization should undertake a review of the bribery risks it is likely to face. This should be used as the basis for defining adequate procedures. Although small companies probably would not need to do much if they are confident that their exposure is minimal, the majority of midsized enterprises and larger corporations will need to make adjustments to deal with the risk.
Recent comments from the U.K. Serious Fraud Office (SFO) seem to indicate that their own interpretation of some issues raised by the guidance notes differs in some key areas, particularly on the liability of foreign corporations under the Act and on the level of influence the guidance will have on the court’s own interpretation of the law. The SFO will continue to use its own guidance when deciding whether to prosecute.
The guidance also refers to government taking a “common sense” approach to dealing with bribery. Genuinely honest businesses that conduct themselves properly, act in good faith and have a clear stance on bribery should have nothing to fear. Our view is that if you have serious concerns about how the Act will affect your business, you probably have something to worry about. If that is the case, your enterprise’s policies and procedures regarding bribery risk are worth evaluating.
United Kingdom (London)