THE UK BRIBERY ACT – Prevention is Better than the Cure

Businesses should be afraid, in fact, they should be very afraid. On the 1st July 2011, the new Bribery Act came into force. It takes no prisoners. No facilitation payments are tolerated. Any and all corrupt business conduct is criminalized. And the Bribery Act is international. It is, like Apple Corporation’s “Cloud”, criminal legislation, which hangs over the entire business world. And the consequence of a conviction for an offense is an unlimited fine. Like the “Cloud”, when it comes to the financial penalty the sky’s the limit.

Failure to Prevent Bribery – §7

§ 7 of the Bribery Act 2010 creates a new offense, which applies to commercial organizations that fail to prevent bribery. A conviction under this section carries a sentence of an unlimited fine.
§ 7(1) provides that a relevant commercial organization is guilty of an offense if a person associated with it bribes another person intending either to obtain or retain business for that organization or obtain or retain an advantage in the conduct of that organization’s business.
§ 7(2) provides that it will be a defense for the relevant commercial enterprise to prove that it had in place adequate procedures designed to prevent persons associated with it from undertaking such corrupt conduct.

What then is a “relevant commercial organization”?

The answer is provided in §7(5) and this “much-heralded” provision gives the Bribery Act its international bite. A relevant commercial organization is defined as

1. A body which is incorporated under the law of any part of the United Kingdom and which carries on a business (whether there or elsewhere),
2. Any other body corporate (wherever incorporated) which carries on a business, or part of a business, in any part of the United Kingdom,
3. A partnership which is formed under the law of any part of the United Kingdom and which carries on a business (whether there or elsewhere), or
4. Any other partnership (wherever formed) which carries on a business, or part of a business, in any part of the United Kingdom And, for the purposes of this section, a trade or profession is a business.

Who is an “associated person”?

The definition of an associated person is to be found in §8 of the Bribery Act and could not be more widely drawn. A person is associated with a commercial organization if he is a person who performs services for or on behalf of the commercial organization. The capacity in which he performs services for or on behalf of that organization does not matter. He may be an employee, agent or subsidiary. The Act further provides that the issue of whether a person is associated with a commercial organization is to be determined by all the circumstances and not just the nature of the relationship between the person and the commercial organization. However, if the person is an employee then it is to be presumed that he is a person who performs services for or on behalf of the commercial organization.

The Long Arm of the Law

Rarely can a criminal provision have been so widely drawn? The United Kingdom legislature has enacted a provision that takes effect worldwide, providing of course that the requirements of §7(5) are met. That definition does not require the corrupt act to have taken place in the United Kingdom. Nor does it require the commercial organization to have been incorporated here. Rather, any act of bribery meeting the definition of the offense in §7(1) will be justiciable in the United Kingdom if that organization carries out its business or even just part of its business in the United Kingdom.
And law enforcement in the United Kingdom intends to put a noose around the neck of business to ensure that corruption of any kind is stamped out from within. The Act will be enforced, certainly in the short term, by the Serious Fraud Office. The SFO’s existence, due to public expenditure cuts, was under threat. The SFO’s director, Richard Alderman, persuaded the government to permit the SFO to survive specifically on the basis of its role as the enforcer of these provisions.
Alderman has made it plain that he is not interested in pursuing companies for extravagant corporate hospitality. Rather he wants to focus on national and international businesses that use corrupt practices for commercial gain or advantage. It must be remembered that the Foreign Corrupt Practices Act permits, where necessary, “facilitation payments” to enable goods to be passed (for instance) through customs to permit performance of a contract otherwise lawfully entered into. But the Bribery Act does not. It is a zero-tolerance piece of legislation in the Giuliani mode of criminal enforcement.
And how do Alderman and the SFO intend to enforce? The Director of the SFO has indicated that the SFO will rely on “whistleblowers” and “self-reporting”. And Alderman means business, not least because the continued existence of the law enforcement agency, which he heads, depends on it.

Risk Mitigation

The consequences for incorporated businesses and partnerships, whether directly involved in trade and commerce, investment banks, hedge funds, private equity investment trusts, and professions are truly substantial. §7(2) of the Act provides a defense to an allegation of failing to prevent bribery.
But, to avail oneself successfully of the defense, the organization must prove that it had in place adequate procedures designed to prevent persons associated with it from undertaking such corrupt conduct. This requires a “top to bottom” review of corporate governance. The defense requires proof that policies are in place to prevent bribery, that employees and agents are educated as to those policies and the need to abide by them, it requires the organization to prove, at the highest levels of corporate responsibility, an awareness of the need to prevent bribery and the taking of positive steps continuously to ensure that it does not occur.

How Can We Help?

Whether you are a small, medium-sized or multi-national corporation, a hedge fund, investment bank or private equity investment vehicle it may be that, by virtue of your trade, persons associated on your behalf are in a position to expose you to the risk of prosecution by reason of corrupt practices.
The disruptive consequence to corporate governance requires you to formulate the adequate procedures contemplated in the defense to a criminal prosecution in the Bribery Act. But you must prove that you had the adequate procedures in place. Tim Kendal and GS2Law are able to provide international clients with unique insights and advice into how the laws apply both in the United Kingdom and the USA. We can help by:

• Assisting formulating policies and procedures;
• Identifying areas of risk;
• Educating employees and others persons associated with your business;
• Examining with you whether there has been or may have been a breach of the Act;
• Considering what evidence there may be of a potential criminal offense;
• Considering whether self-reporting is the appropriate action to take;
• Determining whether such policies and procedures as you have in place are sufficient to qualify under section 7(2) as a defense to a criminal allegation; mitigating any criminal conduct which might amount to an offense under the Bribery Act.

The Act came into force on the 1st July 2011. The UK government has made it plain there will be no period of grace. The entire business community is in the firing line and your alarm bells should be ringing. In other words: “Ask not for whom the bell tolls…”

This article is part of a series of “transatlantic” blogs by Tim Kendal in London and GS2Law in New York analyzing the present legislation touching upon national and international bribery and corruption.