The UK Bribery Act

The MoJ published draft guidance last year that was open to consultation until Nov. 8, 2010. Duane Morris and a number of other interested organizations made representations to the MoJ as part of that consultation process, and the final guidance was due to be published in January of this year. It was delayed while the government responded to criticisms of the draft guidance, but in light of at least one freedom of information request and disapproval from campaign groups, the go-live date has now been set.

In general, the new guidance tempers some of the directives given in the earlier draft. It also offers a little more comfort than before to those engaged in international business.

Kenneth Clarke's announcement indicates that the representations made have influenced the guidance. He said when launching the guidance, ” ' the guidance I am ' publishing today underlines ' after helpful consultation with businesses, and NGOs ' ' that combating bribery is about common sense, not bureaucracy.” Clarke also emphasized, however, that the guidance is not intended to dilute the legislation, which includes penalties of up to 10 years in jail.

What Does the New MoJ Guidance Say?

While technically the guidance speaks only to the new offense of failure to prevent bribery, the guidance goes through most of the main provisions of the Act, expanding on its principles, and also contains examples at the end of the document following the same format as the draft guidance. Some of its language is legalistic, and in places, it does not appear as clear as it could have been. The six principles of compliance that were in the draft guidance are retained, but have been altered slightly. Those six principles and the short explanatory notes given by the MoJ are as follows:

1. Proportionate procedures ' “A commercial organization's procedures to prevent bribery by persons associated with it are proportionate to the bribery risks it faces and to the nature, scale and complexity of the commercial organization's activities. They are also clear, practical, accessible, effectively implemented and enforced.”

2. Top-level commitment ' “The Top-Level management of a commercial organization (be it a board of directors, the owners or any other equivalent body or person) are committed to preventing bribery by a person associated with it. They foster a culture within the organization in which bribery is never acceptable.”

3. Risk assessment ' “The commercial organization assesses the nature and extent of its exposure to potential external and internal risks of bribery on its behalf by persons associated with it. The assessment is periodic, informed and documented.”

4. Due diligence ' “The commercial organization applies due diligence procedures, taking a proportionate and risked based approach, in respect of persons who perform or will perform services for or on behalf of the organization, in order to mitigate identified bribery risks.”

5. Communication (including training) ' “The commercial organization seeks to ensure that its bribery prevention policies and procedures are embedded and understood throughout the organization through internal and external communication, including training, that is proportionate to the risks it faces.”

6. Monitoring and review ' “The commercial organization monitors and reviews procedures designed to prevent bribery by persons associated with it makes improvements where necessary.”

Key Areas of Interest

The three main areas of key interest to multinational businesses are all covered.

Hospitality

It is clear that in contrast to equivalent legislation in other countries, hospitality is clearly within the scope of the Act. The MoJ's draft guidance had made it clear that hospitality is fully within the ambit of the new law, saying, “Hospitality and promotional expenditure can be employed improperly and illegally as a bribe.” It seems to be the view of the UK government and the prosecutors that hospitality is often just the first act in a bribery play. One of the prosecutors, for example, said during the guidance process that hospitality is “used ' to groom employees ' into a position of obligation and thereby prepare the way for major bribery.” Against this backdrop, it was natural that hospitality was one of the main areas of concern in submissions to the MoJ consultation. Earlier guidance from the MoJ did not shed sufficient light on the level of hospitality that would be permitted and how that value would be determined. Clarke commented on this specifically in his announcement, stating, “The guidance makes clear that no one is going to try to stop businesses getting to know their clients by taking them to events like Wimbledon, Twickenham or the Grand Prix. Reasonable hospitality to meet, network and improve relationships with customers is a normal part of business.” The MoJ's guidance also says that the sector of business could be taken into account. What is viewed as normal entertaining in some industries would likely appear lavish in others. The MoJ's guidance says: “The standards or norms applying in a particular sector may also be relevant ' . However, simply providing hospitality or promotional, or other similar business expenditure which is commensurate with such norms is not, of itself, evidence that no bribe was paid if there is other evidence to the contrary; particularly if the norms in question are extravagant.” The guidance also explains that travel and hospitality connected with the service offered is unlikely to be prosecuted ' for example, a trip to see a hospital necessary to show the efficiency of its management and standards of care is likely to be acceptable to a potential buyer of those services.

Facilitation Payments

These are facilitation (or facilitating) payments or small payments to government officials to expedite an official act. In some circumstances they are permitted under the U.S. Foreign Corrupt Practices Act (FCPA), the U.S. equivalent legislation.

The MoJ guidance has a slightly changed tone on facilitation payments from the earlier draft. While emphasizing that they are not permitted, the guidance does state that the eradication of facilitation payments is a long-term objective. This echoes the comments of Vivian Robinson QC, the general counsel of the Serious Fraud Office (SFO), when he spoke on a panel this author organized in London on March 18. Mr. Robinson said then that no one would expect facilitation payments to stop overnight. The MoJ's guidance also appears to build on Mr. Robinson's comments at the London meeting that duress would be a factor taken into account when considering prosecutions for making facilitation payments. The MoJ guidance says: “It is recogni[z]ed that there are circumstances in which individuals are left with no alternative but to make payments in order to protect against loss of life, limb or liberty. The common law defen[s]e of duress is very likely to be available in such circumstances.”

Associated Persons

Another area of special difficulty for multinational corporations has been the fact that a corporation can be liable under Section 7 of the Act if a person “associated” with it bribes another person with the intent to obtain or retain business or a business advantage for the organization. The definition of who is an associated person is deliberately wide. The investigatory firm Control Risks have called associated persons “the single most important risk companies need to manage” and have said that all of the major corruption cases in recent years have involved bribes paid by third parties such as commercial agents. The MoJ guidance makes it clear that an associated person can be an individual, or an incorporated or unincorporated body. The capacity in which a person performs services for and on behalf of the organization does not matter so employees, agents, and subsidiaries will be included. At the London event, Vivian Robinson also felt that the definition was wide enough to include an obligation on franchisors to make sure that their franchisees comply. The MoJ guidance would seem to confirm that: “this broad scope means that contractors could be 'associated' persons to the extent that they are performing services for or on behalf of a commercial organization. Also, where a supplier can properly be said to be performing services for a commercial organization rather than simply acting as the seller of goods, it may also be an 'associated' person.” The MoJ guidance does, however, seem to give more comfort than was previously thought, saying that where a supply chain involves several entities or a project is to be performed by a prime contractor with a series of subcontractors, an organization is unlikely to be prosecuted for failure to exercise control over those further down the chain than its own contractual reach. This means then that a prime contractor will be liable for the acts of his subcontractor, but not his subcontractors contractors. The contractor would still need to explain its anti-bribery policy to those it contracts with and ask them also to pass compliance obligations down the chain.The discussion concludes in next month's issue with a look at what prosecutors are thinking, and what U.S. businesses should do.

Jonathan P. Armstrong ([email protected]) is a partner in the London office of Duane Morris LLP. He practices in the area of corporate law with a concentration in technology and compliance, counseling multinational companies on matters involving risk, technology and compliance across Europe.

All General Counsel should reach for their calendars now and circle July 1. That's the date when the new UK Bribery Act will take effect. The Act has extra-territorial reach and will impact almost every corporation doing business internationally.

The UK's Lord Chancellor and Secretary of State for Justice Kenneth Clarke announced the start date for the new legislation on March 30. On the same day, the Ministry of Justice (MoJ) issued its final guidance on how a company should comply with the new legislation. At the same time, joint prosecutorial guidance was issued indicating who should feel the full weight of the legislation. The documents are lengthy. The MoJ's guidance stretches to 45 pages, with the prosecutors' guidance a further 12 pages. While much of the concentration has been on the MoJ guidelines, it is likely that the prosecutors' guidelines may have the most lasting significance.

Background

The MoJ published draft guidance last year that was open to consultation until Nov. 8, 2010. Duane Morris and a number of other interested organizations made representations to the MoJ as part of that consultation process, and the final guidance was due to be published in January of this year. It was delayed while the government responded to criticisms of the draft guidance, but in light of at least one freedom of information request and disapproval from campaign groups, the go-live date has now been set.

In general, the new guidance tempers some of the directives given in the earlier draft. It also offers a little more comfort than before to those engaged in international business.

Kenneth Clarke's announcement indicates that the representations made have influenced the guidance. He said when launching the guidance, ” ' the guidance I am ' publishing today underlines ' after helpful consultation with businesses, and NGOs ' ' that combating bribery is about common sense, not bureaucracy.” Clarke also emphasized, however, that the guidance is not intended to dilute the legislation, which includes penalties of up to 10 years in jail.

What Does the New MoJ Guidance Say?

While technically the guidance speaks only to the new offense of failure to prevent bribery, the guidance goes through most of the main provisions of the Act, expanding on its principles, and also contains examples at the end of the document following the same format as the draft guidance. Some of its language is legalistic, and in places, it does not appear as clear as it could have been. The six principles of compliance that were in the draft guidance are retained, but have been altered slightly. Those six principles and the short explanatory notes given by the MoJ are as follows:

1. Proportionate procedures ' “A commercial organization's procedures to prevent bribery by persons associated with it are proportionate to the bribery risks it faces and to the nature, scale and complexity of the commercial organization's activities. They are also clear, practical, accessible, effectively implemented and enforced.”

2. Top-level commitment ' “The Top-Level management of a commercial organization (be it a board of directors, the owners or any other equivalent body or person) are committed to preventing bribery by a person associated with it. They foster a culture within the organization in which bribery is never acceptable.”

3. Risk assessment ' “The commercial organization assesses the nature and extent of its exposure to potential external and internal risks of bribery on its behalf by persons associated with it. The assessment is periodic, informed and documented.”

4. Due diligence ' “The commercial organization applies due diligence procedures, taking a proportionate and risked based approach, in respect of persons who perform or will perform services for or on behalf of the organization, in order to mitigate identified bribery risks.”

5. Communication (including training) ' “The commercial organization seeks to ensure that its bribery prevention policies and procedures are embedded and understood throughout the organization through internal and external communication, including training, that is proportionate to the risks it faces.”

6. Monitoring and review ' “The commercial organization monitors and reviews procedures designed to prevent bribery by persons associated with it makes improvements where necessary.”

Key Areas of Interest

The three main areas of key interest to multinational businesses are all covered.

Hospitality

It is clear that in contrast to equivalent legislation in other countries, hospitality is clearly within the scope of the Act. The MoJ's draft guidance had made it clear that hospitality is fully within the ambit of the new law, saying, “Hospitality and promotional expenditure can be employed improperly and illegally as a bribe.” It seems to be the view of the UK government and the prosecutors that hospitality is often just the first act in a bribery play. One of the prosecutors, for example, said during the guidance process that hospitality is “used ' to groom employees ' into a position of obligation and thereby prepare the way for major bribery.” Against this backdrop, it was natural that hospitality was one of the main areas of concern in submissions to the MoJ consultation. Earlier guidance from the MoJ did not shed sufficient light on the level of hospitality that would be permitted and how that value would be determined. Clarke commented on this specifically in his announcement, stating, “The guidance makes clear that no one is going to try to stop businesses getting to know their clients by taking them to events like Wimbledon, Twickenham or the Grand Prix. Reasonable hospitality to meet, network and improve relationships with customers is a normal part of business.” The MoJ's guidance also says that the sector of business could be taken into account. What is viewed as normal entertaining in some industries would likely appear lavish in others. The MoJ's guidance says: “The standards or norms applying in a particular sector may also be relevant ' . However, simply providing hospitality or promotional, or other similar business expenditure which is commensurate with such norms is not, of itself, evidence that no bribe was paid if there is other evidence to the contrary; particularly if the norms in question are extravagant.” The guidance also explains that travel and hospitality connected with the service offered is unlikely to be prosecuted ' for example, a trip to see a hospital necessary to show the efficiency of its management and standards of care is likely to be acceptable to a potential buyer of those services.

Facilitation Payments

These are facilitation (or facilitating) payments or small payments to government officials to expedite an official act. In some circumstances they are permitted under the U.S. Foreign Corrupt Practices Act (FCPA), the U.S. equivalent legislation.

The MoJ guidance has a slightly changed tone on facilitation payments from the earlier draft. While emphasizing that they are not permitted, the guidance does state that the eradication of facilitation payments is a long-term objective. This echoes the comments of Vivian Robinson QC, the general counsel of the Serious Fraud Office (SFO), when he spoke on a panel this author organized in London on March 18. Mr. Robinson said then that no one would expect facilitation payments to stop overnight. The MoJ's guidance also appears to build on Mr. Robinson's comments at the London meeting that duress would be a factor taken into account when considering prosecutions for making facilitation payments. The MoJ guidance says: “It is recogni[z]ed that there are circumstances in which individuals are left with no alternative but to make payments in order to protect against loss of life, limb or liberty. The common law defen[s]e of duress is very likely to be available in such circumstances.”

Associated Persons

Another area of special difficulty for multinational corporations has been the fact that a corporation can be liable under Section 7 of the Act if a person “associated” with it bribes another person with the intent to obtain or retain business or a business advantage for the organization. The definition of who is an associated person is deliberately wide. The investigatory firm Control Risks have called associated persons “the single most important risk companies need to manage” and have said that all of the major corruption cases in recent years have involved bribes paid by third parties such as commercial agents. The MoJ guidance makes it clear that an associated person can be an individual, or an incorporated or unincorporated body. The capacity in which a person performs services for and on behalf of the organization does not matter so employees, agents, and subsidiaries will be included. At the London event, Vivian Robinson also felt that the definition was wide enough to include an obligation on franchisors to make sure that their franchisees comply. The MoJ guidance would seem to confirm that: “this broad scope means that contractors could be 'associated' persons to the extent that they are performing services for or on behalf of a commercial organization. Also, where a supplier can properly be said to be performing services for a commercial organization rather than simply acting as the seller of goods, it may also be an 'associated' person.” The MoJ guidance does, however, seem to give more comfort than was previously thought, saying that where a supply chain involves several entities or a project is to be performed by a prime contractor with a series of subcontractors, an organization is unlikely to be prosecuted for failure to exercise control over those further down the chain than its own contractual reach. This means then that a prime contractor will be liable for the acts of his subcontractor, but not his subcontractors contractors. The contractor would still need to explain its anti-bribery policy to those it contracts with and ask them also to pass compliance obligations down the chain.The discussion concludes in next month's issue with a look at what prosecutors are thinking, and what U.S. businesses should do.

Jonathan P. Armstrong ([email protected]) is a partner in the London office of Duane Morris LLP. He practices in the area of corporate law with a concentration in technology and compliance, counseling multinational companies on matters involving risk, technology and compliance across Europe.