By Adrian Eissa
This article first appeared on Corporate Live Wire on 24th July 2015.
Adrian Eissa argues that UK businesses and those who perform services for them need to ensure that they take steps to comply with the Bribery Act.
The foreword to the United Nations Convention against Corruption(1) declares that: “Corruption is an insidious plague that has a wide range of corrosive effects on societies. It undermines democracy and the rule of law, leads to violations of human rights, distorts markets, erodes the quality of life and allows organised crime, terrorism and other threats to human security to flourish.”
Bribery is seen as a serious international problem which requires a concerted international response. Given the global nature of the problem, domestic legislation without extra territorial reach is unlikely to prove effective. In the UK, The Bribery Act 2010(2) extends, in certain circumstances, the jurisdiction of UK criminal courts to offences committed overseas, and makes UK companies criminally liable for offences committed abroad by foreign third parties, even where those acts of bribery occur without the knowledge or approval of the UK company.
Offences under the Bribery Act 2010
The Bribery Act creates four offences:
i.) S1 “Active bribery”: The Act defines bribery as the offering, promising or giving of a financial advantage or other reward with intent to induce another to perform improperly a relevant function or activity, or to reward such improper function or activity, or where the mere acceptance of the offer or promise itself constitutes improper performance of a function or activity. The function or activity can be of a public nature or business activity.(3)
ii.) S2:“Passive Bribery”: the request for, or acceptance of, a bribe as defined above, intending that a relevant function or activity be performed improperly.
iii.) S6: Bribery of a foreign public official with intent to obtain or retain business or an advantage in business.
iv.) S7: The failure of commercial organisations or partnerships to prevent bribery. This offence is committed where an “associated person” commits an offence under S1 or S6, intending thereby to obtain or retain business, or an advantage in the conduct of business. An associated person is broadly defined as a person who performs services on behalf of commercial organisations(4).
Unlike the US Foreign and Corrupt Practices Act 1997, the Bribery Act is not confined to the bribery of public officials, but extends to bribery of businesses or private individuals. Depending on the circumstances, excessive corporate hospitality may be construed as bribery.
A person convicted of an offence contrary to s1, 2 or 6 faces up to 10 years imprisonment. Companies convicted under s7 face an unlimited fine.
Offences with extra territorial reach:
i. In respect of offences contained in Sections 1, 2 and 6, where the offence is committed abroad, proceedings in the UK may be brought against any person with a “close connection”(5) with the UK. The definition includes, but is not limited to, British citizens, and persons who are “ordinarily resident” in the UK.
ii. S7 applies to corporations or partnerships which are incorporated or formed in the UK or which carry on “a business or part of a business” (6)in the UK. The offence is committed irrespective of whether it took place outside of the UK(7) and may be prosecuted in any part of the UK.
iii. In order to be guilty of an offence contrary to s7 it is not necessary for a UK company to even be aware of the bribe, let alone approve of it. Once the underlying s1 or s6 offence is proved to have been committed by the associated person(8), the only defence available to the UK company is that they had in place “adequate procedures” designed to prevent associated persons from committing bribery offences.
The Role of associated persons
Experience has shown that agents or associated persons are known to be frequent conduits for the payment of bribes(9). No UK company will relish the prospect of being convicted by virtue of the unilateral actions of its agents. Common sense dictates that such companies will wish to mitigate that risk by using the services of third parties who are demonstrably committed to anti-bribery measures; by using such persons, the UK company can go a long way in showing that it “adequate procedures” in place to prevent that risk. That common sense approach is reflected in the Guidance issued under the Act.
Guidance to the Act issued by the Ministry of Justice(10) identifies six key principles which should inform the compliance procedures of commercial organisations, one of which is that of “due diligence”. UK Companies should conduct due diligence on associated persons in order to mitigate the risk that such persons may commit the offence of bribery. This may include “appraisal and continued monitoring of recruited or engaged associated persons” and requesting copies of the AP’s anti-bribery policies and reporting procedures and records.(11) Precisely what is required will depend on all the circumstances, including the risk presented by the sector and the country in which the business is taking place; some are more high risk than others.
Similarly, the Organisation for Economic Co Operation and Development (“OECD”) Good Practice Guidance on Internal Controls Ethics and Compliance recommends the implementation of ethics and compliance programmes designed to prevent bribery by agents and similar persons(12).
In deciding where to place their business, will UK companies opt for associated persons who have no commitment to anti-bribery measures, or with those who do? If the answer seems all too obvious, third parties offering services to UK companies who remain unconvinced of the need for active anti bribery compliance measures should next consider the risks of self-reporting.
Should a UK company suspect a bribe by a third party it will have to decide whether to report the matter to the authorities. Associated persons who engage in bribes would be wrong to assume it is in the interests of the UK Company with whom they are doing business to keep the matter buried. Far from it.
Joint guidance on corporate prosecutions issued by the Director of Public Prosecutions, (“DPP”), and the Serious Fraud Office, (“SFO”), makes clear that: “Failure to report wrongdoing within reasonable time of the offending coming to light” is a factor which makes it more likely that a company will be prosecuted and conversely, a factor against prosecution, is that the matter was self-reported.
The coming into force of Deferred Prosecution Agreements (“DPA’s”) will further incentivise self- reporting.(13) Only certain offences may be the subject of a DPA, including offences under section 1, 2, 6 and 7 of the Bribery Act 2010. A company is more likely to be offered a DPA if it self-reports the offence (14)
In the event of a prosecution, self-reporting is a statutory mitigating feature under the Sentencing Council Guideline for Bribery.(15)
Even if management do not report the matter, “whistle blowers” within the UK company may do so. There is also an ever present risk that competitors might become aware of the bribe and report the matter, thereby effectively removing a rival from the market place.
But surely no one will get prosecuted?
In May 2015 Mr Morgan,the SFO Joint Head of Bribery and Corruption, speaking at a Global Anti-Corruption and Compliance Conference said: “We will soon have convictions of major organisations under the Bribery Act – the kind of work the SFO exists to do, and the public expect us to deliver. So if you try to hide a problem, or engage with us in anything less than a full and frank way, if the evidence is there you can expect to be prosecuted.”
Only time will tell, but to my mind, those who fail to take active measures to comply with the Bribery Act appear to be running very considerable risks of both a legal and commercial nature.
(1) Ratified by 140 countries including the UK.
(2) The Act came into force on 1st July 2011.
(3) S3 Bribery Act 2010
(4) S8 Bribery Act
(5) As defined by Sections 12(3) and (4) of the Bribery Act
(6) Section 7(5)
(7) S12(5) Bribery Act 2010
(8) The Act does not require an actual prosecution of the associated person in order to prove it for the purposes of a S7 offence; see Section 7 (3) (a).
(9) For details see the Foreign and Corrupt Practices Resource Guide issued by the US Department of Justice and Enforcement Division of the UK Securities and Exchange Commission p60 et seq
(10) Issued under section 9 (1) of the Bribery Act
(11) See pages 28 and 38 of the Guidance.
(12) At paragraph 6 as Issued in February 2010
(13)Schedule 17 of the Crime and Courts Act 2013. It came into force on 24th February 2014.
(14) See the Code for DPAs, see section 2 (b) (i), paragraph 11. The Code is issued pursuant to Schedule 17 paragraph 6 of the Crime and Courts Act 2013.
(15) In force from 1st October 2014.