The UK Bribery Act

The new UK Bribery Act comes into force in April 2011. It has been described by some as the most draconian anti-corruption law in the world. It reflects a tough new stance from UK enforcement agencies that within the last two years have ratcheted up their activity. Multi-million-dollar fines, settlements and a prison sentence have been handed out.

What It Means

While the new law is similar to the U.S. Foreign and Corrupt Practices Act (“FCPA”), companies should not be lulled into thinking that the new UK Bribery law is the same. It isn't.

The law can be summarized into four key crimes:

1. Bribing;
2. Receiving a bribe;
3. Bribing a foreign public official; and
4. Failing to prevent bribery.

Directors and officers of a company will be guilty of these offenses if they are implicated either actively or passively. I recently spoke with the general counsel to the UK's Serious Fraud Office, Vivian Robinson QC, about the new law. His view was that it brings responsibility for violations straight into the boardroom.

Failure to Prevent Bribery

The UK's Serious Fraud Office (SFO) has identified the new offense of failure to prevent bribery as one of the key weapons in its arsenal in the war against corruption. This is one of the main differences between the UK and the U.S.. The good news: There is a defense. Broadly stated, organizations that have “Adequate Procedures” to prevent bribery will not be guilty of an offense under the new law.

The UK government is currently running a guidance consultation program to educate companies on what they need to consider in the context of putting into place Adequate Procedures, but it ends on Nov. 8. This guidance is not proscriptive and companies will need to assess themselves what is appropriate.

Six Key Principles

The guidance recently published by the UK Ministry of Justice identifies six key principles that should be embodied in organizations' anti-bribery compliance programs.

1. Risk Assessment: Know and keep up to date with the bribery risks you face in your sector and market.
2. Top-level Commitment: Establish a culture across the organization in which bribery is unacceptable. If your business is small or medium-sized, this may not require much sophistication, but the purpose is to make the message clear, unambiguous and regularly repeated to all staff and business partners.
3. Due Diligence: Know who you do business with; this includes why, when and to whom you are releasing funds and seeking reciprocal anti-bribery agreements. Be in a position to feel confident that business relationships are transparent and ethical.
4. Create Clear, Practical and Accessible Policies and Procedures: Ensure that you have them and that they apply to everyone you employ, and to business partners under your effective control. Cover all relevant risks such as political and charitable contributions, gifts and hospitality, promotional expenses, and appropriate responses to demands for facilitation if an allegation of bribery comes to light.
5. Effective Implementation: Go beyond “paper compliance” to embed anti-bribery into your organization's internal controls, recruitment and remuneration policies, operations, communications and training on practical business issues.
6. Monitoring and Review: Ensure that you have audit and financial controls that are sensitive to bribery and are transparent. Consider how regularly you need to review your policies and procedures, and whether external verification would help.

The SFO's View

In addition to the six principles published by the Ministry of Justice, last year the SFO published its own list of materials on Self Reporting and what it expects to see in organizations' “Adequate Procedures.” The SFO's list included the requirement for:

• Principles that are applicable regardless of local laws or culture;
• Individual accountability;
• A policy on gifts and hospitality and facilitation payments;
• A policy on outside advisers/third parties, including vetting, due diligence and appropriate risk assessments;
• A policy concerning political contributions and lobbying activities;
• Training to ensure dissemination of the anti-corruption culture to all staff at all levels within the corporation;
• A helpline within the corporation that enables employees to report concerns;
• Appropriate and consistent disciplinary processes; and
• The effect of any remedial action taken if there have been previous cases of corruption within the corporation.
  

Does the New Law Affect Your Business?

The UK has adopted the U.S. long-arm jurisdiction. If your company conducts business in the UK, then it is subject to the new law. In practice, any business with UK connections is at risk. It is anticipated that the meaning of “doing business” is likely to be interpreted broadly by the UK courts. The UK has followed the U.S. “global cop” approach. The new law contains no safe harbor for facilitation or “grease” payments (the payment of small sums of money to ensure someone performs his/her duty, either more promptly or at all). The legal position is therefore very clear. However, how this will work in practice is less so.

The SFO has communicated that it expects companies to adopt a zero tolerance approach to such payments, and prohibit them as part of their “Adequate Procedures.” However, at the same time the SFO recognizes that stopping facilitation payments overnight is unlikely to happen and that businesses should do their best. It is hoped that the position on this area will be made clearer and we await the publication of further guidance around the prosecution of offenses under the new laws, which may throw more light on this difficult topic. At least the UK is not alone. Even with the FCPA exemption, such payments remain a thorny issue.

No Safe Harbor

Unlike the U.S. FCPA, there is no safe harbor for corporate hospitality. The SFO has said that it will be looking at examples of lavish hospitality. Corporate hospitality will need to be for an obvious and legitimate commercial purpose. What will be considered “lavish” will be a question of degree. When I interviewed Vivian Robinson, I asked him about this. He used the example of the Ryder Cup. Broadly, an organization that entertained a client at the Ryder Cup would not violate the “lavish” definition. However, if at the Ryder Cup the client was given a Rolex watch, that would be considered lavish.

Mr. Robinson emphasized that it will be critical for businesses to maintain a clear policy. The amounts spent on corporate hospitality are likely to need to be subject to upper limits. Proper books and records will also need to be kept to ensure total transparency of hospitality given and received.

What Are the Penalties?

Bluntly, if you get it wrong you risk prison. Your business risks unlimited fines, blacklisting from EU and U.S. government contracts and the forfeiture of the value of illegal deals under related money-laundering laws. Contracts obtained through a corrupt act will also be at risk of being unenforceable through illegality.

The SFO is anxious to encourage businesses to self-report and potentially avoid the harshest consequences. In light of the possible ramifications (which include serious consequences in other jurisdictions where different rules apply), a decision to report should only be made after proper investigation of the facts and specific external legal advice. This will all need to be done expediently and quickly.

The SFO adopts a carrot and stick approach to “Self Reporting.” The carrot is the possibility (but no guarantee) that businesses may achieve a better outcome if they self-report. If the SFO uncovers corruption on its own (which they say is much more likely with current cooperation among authorities and better detection techniques), companies should not expect lenient treatment.

I am often asked for more generic guidance about when businesses should self-report. This will be fact-specific and is a very big step. I would not advocate that any organization self-report without having obtained independent legal advice. However, it is worth noting one aspect of the effect of the new law, which has gone largely unnoticed. That is its Trojan horse effect in respect of UK money laundering legislation.

Conclusion

The Bribery Act will require organizations to root around in the closet and conduct due diligence to engage the defense of “Adequate Procedures.” If the organization suspects that a contract was obtained through a corrupt act, it could trigger a new offense under the UK's Proceeds of Crime legislation, which has even harsher sentencing penalties (14 years). There is a defense. However, broadly, it is only available if the problem is reported to the police.

As the Director of the UK's SFO, Richard Alderman, put it earlier this year: “Someone said to me ' that there seems to be little downside in not coming to the SFO and in hoping that we do not find out what has happened. I could give you a number of reasons why I think that that would be wrong. Let me, though, just give you one. Which of you would like to go and visit your CEO and CFO in a police station where they are being held following arrest on money-laundering charges? Those charges will be based upon decisions by the CEO and CFO on your advice that disclosure will not be made to the SFO and that the benefit of the corruption will therefore be retained within the [corporation]. I can imagine some difficult discussions.”

Barry Vitou is a partner with Winston & Strawn LLP in London, and leads the UK regulatory practice. Vitou represents clients on regulatory matters with a focus on ethics, anti-corruption and money-laundering issues. He has dealt with civil and criminal regulators in jurisdictions all over the world and has advised extensively in relation to government and criminal investigations. He is also co-author with Richard Kovalevsky QC, of www.thebriberyact.com.

The new UK Bribery Act comes into force in April 2011. It has been described by some as the most draconian anti-corruption law in the world. It reflects a tough new stance from UK enforcement agencies that within the last two years have ratcheted up their activity. Multi-million-dollar fines, settlements and a prison sentence have been handed out.

What It Means

While the new law is similar to the U.S. Foreign and Corrupt Practices Act (“FCPA”), companies should not be lulled into thinking that the new UK Bribery law is the same. It isn't.

The law can be summarized into four key crimes:

1. Bribing;
2. Receiving a bribe;
3. Bribing a foreign public official; and
4. Failing to prevent bribery.

Directors and officers of a company will be guilty of these offenses if they are implicated either actively or passively. I recently spoke with the general counsel to the UK's Serious Fraud Office, Vivian Robinson QC, about the new law. His view was that it brings responsibility for violations straight into the boardroom.

Failure to Prevent Bribery

The UK's Serious Fraud Office (SFO) has identified the new offense of failure to prevent bribery as one of the key weapons in its arsenal in the war against corruption. This is one of the main differences between the UK and the U.S.. The good news: There is a defense. Broadly stated, organizations that have “Adequate Procedures” to prevent bribery will not be guilty of an offense under the new law.

The UK government is currently running a guidance consultation program to educate companies on what they need to consider in the context of putting into place Adequate Procedures, but it ends on Nov. 8. This guidance is not proscriptive and companies will need to assess themselves what is appropriate.

Six Key Principles

The guidance recently published by the UK Ministry of Justice identifies six key principles that should be embodied in organizations' anti-bribery compliance programs.

1. Risk Assessment: Know and keep up to date with the bribery risks you face in your sector and market.
2. Top-level Commitment: Establish a culture across the organization in which bribery is unacceptable. If your business is small or medium-sized, this may not require much sophistication, but the purpose is to make the message clear, unambiguous and regularly repeated to all staff and business partners.
3. Due Diligence: Know who you do business with; this includes why, when and to whom you are releasing funds and seeking reciprocal anti-bribery agreements. Be in a position to feel confident that business relationships are transparent and ethical.
4. Create Clear, Practical and Accessible Policies and Procedures: Ensure that you have them and that they apply to everyone you employ, and to business partners under your effective control. Cover all relevant risks such as political and charitable contributions, gifts and hospitality, promotional expenses, and appropriate responses to demands for facilitation if an allegation of bribery comes to light.
5. Effective Implementation: Go beyond “paper compliance” to embed anti-bribery into your organization's internal controls, recruitment and remuneration policies, operations, communications and training on practical business issues.
6. Monitoring and Review: Ensure that you have audit and financial controls that are sensitive to bribery and are transparent. Consider how regularly you need to review your policies and procedures, and whether external verification would help.

The SFO's View

In addition to the six principles published by the Ministry of Justice, last year the SFO published its own list of materials on Self Reporting and what it expects to see in organizations' “Adequate Procedures.” The SFO's list included the requirement for:

• Principles that are applicable regardless of local laws or culture;
• Individual accountability;
• A policy on gifts and hospitality and facilitation payments;
• A policy on outside advisers/third parties, including vetting, due diligence and appropriate risk assessments;
• A policy concerning political contributions and lobbying activities;
• Training to ensure dissemination of the anti-corruption culture to all staff at all levels within the corporation;
• A helpline within the corporation that enables employees to report concerns;
• Appropriate and consistent disciplinary processes; and
• The effect of any remedial action taken if there have been previous cases of corruption within the corporation.
  

Does the New Law Affect Your Business?

The UK has adopted the U.S. long-arm jurisdiction. If your company conducts business in the UK, then it is subject to the new law. In practice, any business with UK connections is at risk. It is anticipated that the meaning of “doing business” is likely to be interpreted broadly by the UK courts. The UK has followed the U.S. “global cop” approach. The new law contains no safe harbor for facilitation or “grease” payments (the payment of small sums of money to ensure someone performs his/her duty, either more promptly or at all). The legal position is therefore very clear. However, how this will work in practice is less so.

The SFO has communicated that it expects companies to adopt a zero tolerance approach to such payments, and prohibit them as part of their “Adequate Procedures.” However, at the same time the SFO recognizes that stopping facilitation payments overnight is unlikely to happen and that businesses should do their best. It is hoped that the position on this area will be made clearer and we await the publication of further guidance around the prosecution of offenses under the new laws, which may throw more light on this difficult topic. At least the UK is not alone. Even with the FCPA exemption, such payments remain a thorny issue.

No Safe Harbor

Unlike the U.S. FCPA, there is no safe harbor for corporate hospitality. The SFO has said that it will be looking at examples of lavish hospitality. Corporate hospitality will need to be for an obvious and legitimate commercial purpose. What will be considered “lavish” will be a question of degree. When I interviewed Vivian Robinson, I asked him about this. He used the example of the Ryder Cup. Broadly, an organization that entertained a client at the Ryder Cup would not violate the “lavish” definition. However, if at the Ryder Cup the client was given a Rolex watch, that would be considered lavish.

Mr. Robinson emphasized that it will be critical for businesses to maintain a clear policy. The amounts spent on corporate hospitality are likely to need to be subject to upper limits. Proper books and records will also need to be kept to ensure total transparency of hospitality given and received.

What Are the Penalties?

Bluntly, if you get it wrong you risk prison. Your business risks unlimited fines, blacklisting from EU and U.S. government contracts and the forfeiture of the value of illegal deals under related money-laundering laws. Contracts obtained through a corrupt act will also be at risk of being unenforceable through illegality.

The SFO is anxious to encourage businesses to self-report and potentially avoid the harshest consequences. In light of the possible ramifications (which include serious consequences in other jurisdictions where different rules apply), a decision to report should only be made after proper investigation of the facts and specific external legal advice. This will all need to be done expediently and quickly.

The SFO adopts a carrot and stick approach to “Self Reporting.” The carrot is the possibility (but no guarantee) that businesses may achieve a better outcome if they self-report. If the SFO uncovers corruption on its own (which they say is much more likely with current cooperation among authorities and better detection techniques), companies should not expect lenient treatment.

I am often asked for more generic guidance about when businesses should self-report. This will be fact-specific and is a very big step. I would not advocate that any organization self-report without having obtained independent legal advice. However, it is worth noting one aspect of the effect of the new law, which has gone largely unnoticed. That is its Trojan horse effect in respect of UK money laundering legislation.

Conclusion

The Bribery Act will require organizations to root around in the closet and conduct due diligence to engage the defense of “Adequate Procedures.” If the organization suspects that a contract was obtained through a corrupt act, it could trigger a new offense under the UK's Proceeds of Crime legislation, which has even harsher sentencing penalties (14 years). There is a defense. However, broadly, it is only available if the problem is reported to the police.

As the Director of the UK's SFO, Richard Alderman, put it earlier this year: “Someone said to me ' that there seems to be little downside in not coming to the SFO and in hoping that we do not find out what has happened. I could give you a number of reasons why I think that that would be wrong. Let me, though, just give you one. Which of you would like to go and visit your CEO and CFO in a police station where they are being held following arrest on money-laundering charges? Those charges will be based upon decisions by the CEO and CFO on your advice that disclosure will not be made to the SFO and that the benefit of the corruption will therefore be retained within the [corporation]. I can imagine some difficult discussions.”

Barry Vitou is a partner with Winston & Strawn LLP in London, and leads the UK regulatory practice. Vitou represents clients on regulatory matters with a focus on ethics, anti-corruption and money-laundering issues. He has dealt with civil and criminal regulators in jurisdictions all over the world and has advised extensively in relation to government and criminal investigations. He is also co-author with Richard Kovalevsky QC, of www.thebriberyact.com.