The UK's Impending Power Play and Why It Matters to You

The Bribery Act's effective date was initially this fall, but has been delayed until April 2011 because of concerns raised by the business community about the difficulty of compliance with what has been characterized by many as broad and vague provisions. During the period leading up to implementation, the Ministry of Justice is hosting a series of events to raise awareness about its expectations. It is also publishing guidance about the bribery prevention procedures it expects commercial organizations to have in place.

The Bribery Act Compared With the FCPA

There are several important differences between the FCPA and the Bribery Act. First, under the Bribery Act, in addition to making it an offense to bribe a public official, it is an offense to give or receive a bribe to or from anyone (emphasis added). This includes commercial bribes (both local and foreign). In contrast, the FCPA prohibits bribes only to foreign officials; it does not reach commercial bribes or the act of receiving a bribe.

Second, under the Bribery Act there is no need to prove corrupt intent. All that is required is intent to influence a public official in his official capacity and intent to obtain or retain business or another advantage from the payment. In contrast, the FCPA requires proof of corrupt intent and that the bribe was intended to induce a public official to misuse his official position to direct business wrongfully. Under the FCPA, without proof of corrupt intent, there is no liability. Therefore, it is easier to violate the Bribery Act.

Third, unlike the FCPA, there is neither an exception for facilitation payments nor an affirmative defense for bona fide business expenditures. Although debate in the House of Lords indicated that “the Government is not seeking to penalize expenditure on corporate hospitality for legitimate commercial purposes,” language regarding the bona fide business expenditures defense was deliberately excluded from the Act itself. Thus, while promotional expenses may technically violate the Bribery Act, the government is expected to issue a guidance indicating that it will not come after companies making reasonable and modest corporate hospitality expenditures. It remains to be seen exactly how the UK will treat this area.

Regarding facilitation payments, the UK Serious Fraud Office (SFO) has recently stated that it expects companies to adopt a “zero-tolerance” policy: Any company policy that allows facilitation payments will be treated as not constituting “adequate procedures” (a defense to the Bribery Act discussed below) even if the company is predominantly U.S.-based. However, the SFO noted that companies may address the possibility of emergency facilitation payments to which it will look upon sympathetically. Further guidance on this topic is expected in the coming months from the Ministry.

Fourth, under the Bribery Act, companies (but not individuals) are strictly liabile for failing to prevent an “associated person” from offering, promising or committing bribery when such a person is “performing services” on its behalf. An “associated person” is defined broadly to include any person who performs services for or on behalf of a company. It can include not only employees and subsidiaries, but even third parties with no legal connection to the company. The Bribery Act does not define “performing services,” but rather states that a determination must be made through an evaluation of “all relevant circumstances” and not merely based on the nature of the relationship between the company and the “associated person,” leaving room for liability in unknown situations. In contrast, under U.S. law, while corporations may be held responsible for certain criminal acts of their employees and third parties where a legal agency relationship is established, such liability does not automatically extend to any party performing services on its behalf. The failure-to-prevent-bribery standard under the Bribery Act is the most troubling requirement for companies, as it imposes an affirmative duty to prevent bribery and imposes greater responsibility on corporations regarding the activities of their third-party intermediaries. As a result, effective compliance programs are becoming even more important than before the Act.

Fifth, the Bribery Act introduces criminal liability for senior company management whenever their companies have committed corrupt acts with their consent or assistance. Although senior company management have increasingly been held responsible for the corrupt acts of their companies under the FCPA, the Bribery Act goes one step further by creating statutory liability explicitly applicable to company executives.

Sixth, the SFO does not provide official opinions under the Bribery Act, in contrast to the procedure for requesting an opinion from the Department of Justice about whether a contemplated company activity would violate the FCPA. Therefore, companies do not have the comfort of seeking official guidance from the SFO if they are unsure about the proper course of action in any particular scenario. Nevertheless, the SFO has welcomed public input as it drafts the implementation guidelines.

Finally, the penalties under the Bribery Act include up to 10 years' imprisonment and disqualification orders (restricting individual corporate powers such as the power to act as a director) for individuals and unlimited fines for both individuals and corporations. Corporations also face the possibility of confiscation as well as the possibility of automatic debarment from public contract tenders. The reach is broad and the stakes are high.

Affirmative Defense

Corporations accused of failing to prevent bribery can avoid conviction by showing that there were “adequate procedures” in place to prevent bribery. While the Act does not define adequate procedures, the Secretary of State is required to issue guidance on how corporations can meet this standard. On Sept. 14 of this year, the Ministry of Justice finally began this process by launching an eight-week consultation with the public, which included the publication of proposed guidance on the “adequate procedures” defense. The guidance covers the following areas:

• Risk Assessment: Businesses should identify and keep up to date with bribery risks facing their sector and market.
• Top-level Commitment: A culture of zero tolerance for bribery should be established and regularly communicated.
• Due Diligence: Businesses should know their customers as well as why, when and to whom they are releasing funds.
• Clear, Practical and Accessible Policies and Procedures: Policies and procedures should be communicated and applicable to all employees as well as business partners and should cover all relevant risk areas identified.
• Effective Implementation: Businesses are expected to go beyond “paper compliance” and fully integrate policies and procedures into practice.
• Monitoring and Review: Auditing and financial controls should be in place and regularly monitored and reviewed.

Submitting Comments

The public is invited to submit comments to the 35-page guidance through Nov. 8, 2010. Subsequently, the Ministry is expected to publish a final version in early 2011. Additionally, the SFO and the Director of Public Prosecutions plan to publish further guidance on the Act around the same time.

Jurisdictional Reach

The Bribery Act applies to both UK and foreign companies with presence in the UK (subsidiaries, offices or any other operations), even when corrupt activities, whether direct or indirect, take place outside the UK and are unrelated to UK operations. It also applies to any covered acts that take place in the UK even if the company or individual involved does not ordinarily have presence in the UK. As a result, U.S. parent companies with UK subsidiaries, U.S. companies with affiliates or parent companies in the UK, and U.S. companies working with intermediaries or transactions taking place in the UK may very well find themselves subject to the Bribery Act.

If you have reason to think the Bribery Act may apply to your clients or your company, it may be wise to consider how to adjust existing FCPA compliance policies and procedures to cover additional requirements under the Bribery Act.

Recommended Modifications
To Existing Compliance Policies

As the effective date of the Bribery Act fast approaches, here are some tips regarding how to modify existing anti-corruption compliance programs to incorporate its requirements without writing a separate policy for the UK Bribery Act:

• Expand anti-bribery policies to apply to all transactions and not just transactions involving foreign officials;
• Consider prohibiting, limiting or strictly controlling (through implementation of prior approval mechanisms) use of facilitation payments as a matter of corporate policy;
• Implement prior approval mechanisms for corporate hospitality; and
• Expand anti-bribery policies and requirements in third-party agreements to prohibit not only giving, but also receiving bribes.

This list can serve as a starting point as you revisit existing controls.

Conclusion

While the Bribery Act has yet to be fully implemented, we know it is coming, equipped with an arsenal of laws that have the potential of being applied even more broadly and strictly than the already powerful FCPA. It will be a force to be reckoned with. In the mean time, companies should keep an eye on guidance issued and enforcement activities undertaken by the UK government and remain resilient in their compliance tactics.

Over the past several years, the United Kingdom (UK) has been flexing its muscles in the global anti-corruption arena with the imposition of large penalties against companies involved in foreign-bribery offenses, focusing on individual accountability for corporate officials, close coordination with U.S. prosecutors in parallel investigations, and enforcement tools such as self-disclosures, settlements and negotiated plea agreements.

The UK added major artillery to its arsenal with the enactment of the UK Bribery Act on April 8, 2010. The new law, which replaces the UK's current piecemeal anti-corruption laws found both at common law and in a statute dating back to 1889, is both broader and stricter than the Foreign Corrupt Practices Act (FCPA). Companies with international operations are on high alert to see how the new laws will be enforced.

Effective Date

The Bribery Act's effective date was initially this fall, but has been delayed until April 2011 because of concerns raised by the business community about the difficulty of compliance with what has been characterized by many as broad and vague provisions. During the period leading up to implementation, the Ministry of Justice is hosting a series of events to raise awareness about its expectations. It is also publishing guidance about the bribery prevention procedures it expects commercial organizations to have in place.

The Bribery Act Compared With the FCPA

There are several important differences between the FCPA and the Bribery Act. First, under the Bribery Act, in addition to making it an offense to bribe a public official, it is an offense to give or receive a bribe to or from anyone (emphasis added). This includes commercial bribes (both local and foreign). In contrast, the FCPA prohibits bribes only to foreign officials; it does not reach commercial bribes or the act of receiving a bribe.

Second, under the Bribery Act there is no need to prove corrupt intent. All that is required is intent to influence a public official in his official capacity and intent to obtain or retain business or another advantage from the payment. In contrast, the FCPA requires proof of corrupt intent and that the bribe was intended to induce a public official to misuse his official position to direct business wrongfully. Under the FCPA, without proof of corrupt intent, there is no liability. Therefore, it is easier to violate the Bribery Act.

Third, unlike the FCPA, there is neither an exception for facilitation payments nor an affirmative defense for bona fide business expenditures. Although debate in the House of Lords indicated that “the Government is not seeking to penalize expenditure on corporate hospitality for legitimate commercial purposes,” language regarding the bona fide business expenditures defense was deliberately excluded from the Act itself. Thus, while promotional expenses may technically violate the Bribery Act, the government is expected to issue a guidance indicating that it will not come after companies making reasonable and modest corporate hospitality expenditures. It remains to be seen exactly how the UK will treat this area.

Regarding facilitation payments, the UK Serious Fraud Office (SFO) has recently stated that it expects companies to adopt a “zero-tolerance” policy: Any company policy that allows facilitation payments will be treated as not constituting “adequate procedures” (a defense to the Bribery Act discussed below) even if the company is predominantly U.S.-based. However, the SFO noted that companies may address the possibility of emergency facilitation payments to which it will look upon sympathetically. Further guidance on this topic is expected in the coming months from the Ministry.

Fourth, under the Bribery Act, companies (but not individuals) are strictly liabile for failing to prevent an “associated person” from offering, promising or committing bribery when such a person is “performing services” on its behalf. An “associated person” is defined broadly to include any person who performs services for or on behalf of a company. It can include not only employees and subsidiaries, but even third parties with no legal connection to the company. The Bribery Act does not define “performing services,” but rather states that a determination must be made through an evaluation of “all relevant circumstances” and not merely based on the nature of the relationship between the company and the “associated person,” leaving room for liability in unknown situations. In contrast, under U.S. law, while corporations may be held responsible for certain criminal acts of their employees and third parties where a legal agency relationship is established, such liability does not automatically extend to any party performing services on its behalf. The failure-to-prevent-bribery standard under the Bribery Act is the most troubling requirement for companies, as it imposes an affirmative duty to prevent bribery and imposes greater responsibility on corporations regarding the activities of their third-party intermediaries. As a result, effective compliance programs are becoming even more important than before the Act.

Fifth, the Bribery Act introduces criminal liability for senior company management whenever their companies have committed corrupt acts with their consent or assistance. Although senior company management have increasingly been held responsible for the corrupt acts of their companies under the FCPA, the Bribery Act goes one step further by creating statutory liability explicitly applicable to company executives.

Sixth, the SFO does not provide official opinions under the Bribery Act, in contrast to the procedure for requesting an opinion from the Department of Justice about whether a contemplated company activity would violate the FCPA. Therefore, companies do not have the comfort of seeking official guidance from the SFO if they are unsure about the proper course of action in any particular scenario. Nevertheless, the SFO has welcomed public input as it drafts the implementation guidelines.

Finally, the penalties under the Bribery Act include up to 10 years' imprisonment and disqualification orders (restricting individual corporate powers such as the power to act as a director) for individuals and unlimited fines for both individuals and corporations. Corporations also face the possibility of confiscation as well as the possibility of automatic debarment from public contract tenders. The reach is broad and the stakes are high.

Affirmative Defense

Corporations accused of failing to prevent bribery can avoid conviction by showing that there were “adequate procedures” in place to prevent bribery. While the Act does not define adequate procedures, the Secretary of State is required to issue guidance on how corporations can meet this standard. On Sept. 14 of this year, the Ministry of Justice finally began this process by launching an eight-week consultation with the public, which included the publication of proposed guidance on the “adequate procedures” defense. The guidance covers the following areas:

• Risk Assessment: Businesses should identify and keep up to date with bribery risks facing their sector and market.
• Top-level Commitment: A culture of zero tolerance for bribery should be established and regularly communicated.
• Due Diligence: Businesses should know their customers as well as why, when and to whom they are releasing funds.
• Clear, Practical and Accessible Policies and Procedures: Policies and procedures should be communicated and applicable to all employees as well as business partners and should cover all relevant risk areas identified.
• Effective Implementation: Businesses are expected to go beyond “paper compliance” and fully integrate policies and procedures into practice.
• Monitoring and Review: Auditing and financial controls should be in place and regularly monitored and reviewed.

Submitting Comments

The public is invited to submit comments to the 35-page guidance through Nov. 8, 2010. Subsequently, the Ministry is expected to publish a final version in early 2011. Additionally, the SFO and the Director of Public Prosecutions plan to publish further guidance on the Act around the same time.

Jurisdictional Reach

The Bribery Act applies to both UK and foreign companies with presence in the UK (subsidiaries, offices or any other operations), even when corrupt activities, whether direct or indirect, take place outside the UK and are unrelated to UK operations. It also applies to any covered acts that take place in the UK even if the company or individual involved does not ordinarily have presence in the UK. As a result, U.S. parent companies with UK subsidiaries, U.S. companies with affiliates or parent companies in the UK, and U.S. companies working with intermediaries or transactions taking place in the UK may very well find themselves subject to the Bribery Act.

If you have reason to think the Bribery Act may apply to your clients or your company, it may be wise to consider how to adjust existing FCPA compliance policies and procedures to cover additional requirements under the Bribery Act.

Recommended Modifications
To Existing Compliance Policies

As the effective date of the Bribery Act fast approaches, here are some tips regarding how to modify existing anti-corruption compliance programs to incorporate its requirements without writing a separate policy for the UK Bribery Act:

• Expand anti-bribery policies to apply to all transactions and not just transactions involving foreign officials;
• Consider prohibiting, limiting or strictly controlling (through implementation of prior approval mechanisms) use of facilitation payments as a matter of corporate policy;
• Implement prior approval mechanisms for corporate hospitality; and
• Expand anti-bribery policies and requirements in third-party agreements to prohibit not only giving, but also receiving bribes.

This list can serve as a starting point as you revisit existing controls.

Conclusion

While the Bribery Act has yet to be fully implemented, we know it is coming, equipped with an arsenal of laws that have the potential of being applied even more broadly and strictly than the already powerful FCPA. It will be a force to be reckoned with. In the mean time, companies should keep an eye on guidance issued and enforcement activities undertaken by the UK government and remain resilient in their compliance tactics.