20/01/2012

Putting Bribery Act safeguards in place now may just save your business

When the Bribery Act 2010 (“the Act”) first appeared on the statute books, it sparked a considerable amount of concern within the business community, the flames of which were fanned to some degree by the huge numbers of commentators who saw the act as heralding the end of Christmas presents and corporate hospitality.

Once the initial furore had died down, the real issues started to become apparent. Many were at a loss as to how their business, or large parts of it, could continue. After all, it was de rigueur in some countries that facilitation payments were made, simply to make business there possible. In fact, until 1993, bribes were tax deductible expenses in the UK and even the notoriously strict Americans had included an exception under their anti-bribery legislation, the Foreign Corrupt Practices Act 1977. Surely the same would have to happen in the UK.

Then, when the date of implementation was put back, many saw it as a sign that it may never actually come into force – reform had been on the agenda since the 1970s and, with difficult economic times, additional regulatory burden was the last thing that businesses needed. Some wondered whether, even if it did come into force, it would ever be used: there had been anti-bribery laws in the UK for decades that had not been used very often or to especially great effect, having been reserved for the most serious cases.

But, in force since 1 July 2011 and with one successful prosecution already, businesses are coming to terms with the fact that compliance is not an option: it is an imperative. No-one wants to be the first big corporate scalp to be prosecuted, so businesses are now updating existing, or implementing new, anti-bribery policies and procedures, to do their best to provide themselves with a defence.

So, what does the Act do? It creates four offences:

  • Offering, promising or giving a bribe (often referred to as “active bribery”);
  • Requesting, agreeing to receive, or accepting a bribe (“passive bribery”);
  • Bribing a public official; and
  • Failing to prevent bribery.

The most controversial aspect of the Act is undoubtedly the offence of failure of a commercial organisation to prevent bribery. Its consequence is that a business is criminally liable for a Bribery Act offence, committed by anyone associated with it (such as an agent or third party), if it was intended that by doing so it would obtain, or retain, an advantage for the business. So intermediaries, go-betweens, brokers and consultants committing bribery, if acting on behalf of a business, not only face prosecution themselves, but risk dragging the business into the criminal courts as well. The Act makes no distinction between the giver and recipient of a bribe: regardless of who initiates the transaction, the moment that there is agreement, both parties are tarnished and, if caught, will be dealt with equally severely.

The main purpose of this part of the Act is to place an obligation upon businesses to take a proactive approach to bribery prevention, by ensuring there are systems in place to promote a positive anti-bribery corporate culture, and procedures to avoid practices that could amount to an offence under the Act.

No business would ever choose to face an allegation of criminal behaviour – the cost involved to the business (in time as well as money) in trying to deal with the investigation can be colossal and that takes no account of the considerable inconvenience and reputational damage that can ensue. The effects of a prosecution actually being brought are often even worse. It can be years before proceedings are concluded and, even if an acquittal follows, it is sometimes more than a business can bear. Now, under the Bribery Act, if a business is to stand any chance of defending an allegation of bribery that may be made against it, as an absolute minimum, it will need to be able to evidence the “adequate procedures” it has in place to prevent it. If it cannot show such procedures, a business will automatically be guilty.

Measures such as conducting risk assessments, demonstrating top level commitment to tackling bribery, undertaking due diligence, putting in place policies and procedures and training staff are widely accepted as appropriate methods of bribery prevention and, if properly implemented, should a criminal investigation begin, can go a long way to heading that investigation off at the pass at an early stage. In short, they could prove to be a very wise investment.

Crucially, the Act captures activities that may have very little connection indeed with the UK. The bribery offence need not take place in the UK at all, but if a business has any sort of UK presence (and that need not necessarily be a physical one, just supplying into the UK would be enough for example), the Act applies. Equally, a business may have little or no connection with the UK but if, for example, a payment goes through a UK bank account or is given by a director of a non-UK business who ordinarily resides in the UK, again, the Act will apply. Many US businesses have for years bemoaned the constraints of the US domestic legislation and the impact that it had on US businesses operating internationally, but now US commentators are indicating that it is the UK that is setting the standard for anti-bribery in international trade.

The importance of rigorous anti-bribery due diligence cannot be overstated. Merger and acquisition transactions generally result in a commercial entity acquiring new “associated persons” and their conduct, even prior to the acquisition, can bring criminal liability to the feet of the acquiring entity. Furthermore, it is likely that joint venture partners will be “associated persons” for the purpose of the Act, meaning that each could be liable for the criminal acts of the other. Furthermore, criminal liability cannot be contracted out. Warranties and indemnities may be able to compensate for the financial fallout of bribery but cannot hope to negate the reputational damage and inconvenience of an investigation, nor for the criminal conviction that the business will carry and the consequent debarment from EU procurement contracts.

Richard Alderman, Director of the Serious Fraud Office (SFO) said, on Friday 13 January 2012: “Shareholders and investors in companies are obliged to satisfy themselves with the business practices of the companies they invest in…where issues arise, [the SFO] will be much less sympathetic to institutional investors whose due diligence has clearly been lax in this respect.”

Furthermore, there is a now regularly used power for the courts to confiscate what they deem to be the realisable assets of the business that form the proceeds of criminal conduct. It is a complex area of law and is considered to be very draconian, not least because it is now commonplace for prosecutors to obtain restraint orders which freeze the assets of businesses under investigation, pending a decision as to confiscation. How these powers will be applied to prosecutions under the Bribery Act will be clarified as and when the first big corporate prosecutions take place. However, some guidance can be taken from recent prosecution by the SFO of Mabey & Johnson Ltd. In that case, the bribes totalled around €420,000 and were paid in return for contracts valued at around €4.2 million (around £3.5million today). The total penalties imposed by the court, in fines, reparation, confiscation and prosecution costs were £6.6 million. The costs to the company of defending the matter were in addition to that and would have been significant.

On 13 January 2012, Mabey Engineering (Holdings) Ltd, the parent company, also agreed to pay the SFO a further £133,641 by way of civil recovery of its dividend from the contract. Richard Alderman, the director of the SFO, hailed the case as “an exemplary model of corporate self-reporting and co-operative resolution” but what is of particular importance is that this was a case in which the company had voluntarily reported the matter to the SFO, having made the discovery in the course of an internal investigation. In those circumstances, the sentencing court is likely to have applied a significant discount to the penalties it would have imposed, had the matter been detected by the SFO and defended by the business.

It is true that not all cases will be prosecuted and there is guidance as to when that is likely to happen. All prosecuting bodies are also obliged to apply a two-stage test before bringing a criminal prosecution: whether there is enough evidence to support a prosecution and whether it is in the public interest to do so.

In the case of low level offending, it is likely to be the case that the offender will have to try to argue a lack of public interest in prosecuting but as you might imagine, this is very uncertain because what is in the public interest is very much dependent on the particular circumstances of any case. Consequently, it is difficult to challenge a decision to prosecute on that basis.

With potentially unlimited fines for businesses, up to 10 years in prison for individuals, disqualification from tendering for public contracts and the potential confiscation of company assets on conviction, the issue is not whether your business needs to take action but how much. Prevention is always better than cure and a little investment now could pay dividends later on: it might even save the business completely.