The Bribery Act 2010
Although the Bribery Act 2010 (the Act) is due to come into effect in three months’ time (April 2011), there are calls for the Justice Secretary to reconsider the Act (as reported in the Evening Standard 07.01.11). There are concerns that the Act is draconian and the Government has itself admitted that its provisions could harm British business (for example, there is no exception for facilitation payments, unlike the position under the US Foreign Corrupt Practices Act 1977 (FCPA)).
So what is the Act all about?
The Act is criminal legislation and replaces three pieces of anti-corruption legislation dating from 1889, 1906 and 1916 which will be repealed in their entirety. The Ministry of Justice states that “the Act will ensure the UK is at the forefront of the battle against bribery and paves the way for fairer practice by encouraging businesses to adopt anti-bribery safeguards.” The Act extends to both Scotland and Northern Ireland as well as England and Wales.
What are the main features of the Act?
The Act was a response to the various investigations by the Serious Fraud Office into BAE Systems which have taken place in the last 10 years and which culminated in a hearing at Southwark Crown Court on 20 December 2010. There has also been significant international activity against bribery and corruption led by organisations such as Transparency International and the Office for Economic Co-operation and Development (OECD).
The main features of the Act are:
• it will be an offence to give or receive a bribe (sections 1 and 2);
• it will be an offence to promise, offer, request or agree to receive a bribe (sections 1 and 2);
• it will be an offence to bribe a foreign public official (section 6);
• both the public and private sectors are covered. The new law is not just about bribing public officials; bribery in the private sector is also criminalised (section 3);
• if a senior officer of a commercial organisation, or a person purporting to act in such a capacity, consents to (is aware and agrees) or connives in (turns a blind eye to) the commission of any of the above bribery offences, that senior officer or person is also guilty of the offence. The senior officer or person must have a connection with the UK, e.g. be a British citizen or ordinarily resident in the UK (sections 7, 8, 14 and 15);
• a new corporate offence is introduced, which will apply to a commercial organisation that fails to implement adequate procedures, where an act of bribery is committed in connection with its business (section 7). This is a strict liability offence which does not require intent.
The Act has a global reach (section 12), which means that:
• any individual ordinarily resident in the UK (whether or not a British national) can be prosecuted for bribery offences committed anywhere in the world; and
• any partnership or corporate (whether or not incorporated in the UK) can be prosecuted if it does business in the UK (e.g. through a permanent establishment, subsidiary or other operation), even if the offence was committed outside the UK.
The penalties are set out in section 11:
• the maximum penalty for individuals will increase from seven years’ to ten years’ imprisonment and/or a fine (this compares to five years’ imprisonment under the FCPA);
• the maximum penalty for a commercial organisation will be an unlimited fine.
There will be consequences associated with any conviction under the 2010 Act, including:
• the disqualification of directors;
• the organisation will be barred from future public procurement; and
• the confiscation of assets.
Failure of a commercial organisation to prevent bribery
The section 7 offence of failure to prevent bribery applies to “relevant commercial organisations”. Section 7(1) states that: “A relevant commercial organisation (“C”) is guilty of an offence under this section if a person (“A”) associated with C bribes another person intending to (a) obtain or retain business for C, or (b) to obtain or retain an advantage in the conduct of business for C.”
Relevant commercial organisations (C) are defined in section 7(5) and include:
• a body incorporated under UK law and carrying on business either in the UK or elsewhere;
• any other body corporate, wherever incorporated and carrying on business, or part of a business in the UK;
• a partnership formed in the UK and carrying on business either in the UK or elsewhere; or
• any other partnership wherever formed and carrying on business, or part of a business in the UK.
A partnership means a partnership formed under the Partnership Acts or a firm or similar entity formed outside of the UK. Finally, a business includes a trade or profession. Thus the definition of “relevant commercial organisation” is extremely wide-ranging and potentially includes anyone carrying on any business anywhere in the world.
An associated person (A) is defined in section 8 as a person who performs services for or on behalf of C. The capacity in which A performs those services is irrelevant and A can include C’s employee, agent or subsidiary.
The “adequate procedures” defence
The only defence available to commercial organisations charged with the section 7 offence will be for the organisation to show that it had “adequate procedures” in place to prevent an act of bribery being committed in connection with its business (section 7(2)). Adequate procedures are not defined in the Act but are subject to guidance to be published by the Secretary of State. At the time of writing the guidance is expected in Spring 2011. In the meantime, the draft guidance published in September 2010 is based on six general principles. These are intended to be of general applicability across all sectors and for all types and size of business. Within the recruitment industry some sectors may be more susceptible to corruption and bribery including construction, otherwise high value contracts may be susceptible.
The six principles are not intended to be prescriptive or to impose any direct obligation on business.
The six draft principles
1. Risk assessment: the commercial organisation regularly and comprehensively assesses the nature and extent of the risks relating to bribery to which it is exposed. Small and medium sized enterprises will face different challenges and risks than large multi-national organisations.
This means that it is vital that organisations understand where the corruption risks lie and the potential impact on the business by conducting thorough risk assessments and understanding the law in every country where they have operations. When supplying to clients overseas get advice on corruption and anti-corruption policies in the relevant country. Members can conduct preliminary enquiries via websites such as the Global Advice Network or Transparency International but should take specialist legal advice before contracting with a prospective overseas client.
2. Top level commitment: the top level management of a commercial organisation (be it a board of directors, the owners or any other equivalent body or person) are committed to preventing bribery. They establish a culture within the organisation in which bribery is never acceptable. They take steps to ensure that the organisation’s policy to operate without bribery is clearly communicated to all levels of management, the workforce and any relevant external actors.
This means that if allegations emerge against individuals or the organisation, the top level management needs to be prepared to act. It is no longer acceptable to turn a blind eye.
3. Due diligence: the commercial organisation has due diligence policies and procedures which cover all parties to a business relationship, including the organisation’s supply chain, agents and intermediaries, all forms of joint venture and similar relationships and all markets in which the commercial organisation does business.
The Global Advice Network has produced a number of due diligence tools which are available here. These include tools to screen agents, consultants, contractors and joint venture consortia, as well as a public procurement tool.
4. Clear practical and accessible policies and procedures: the commercial organisation’s policies and procedures to prevent bribery being committed on its behalf are clear, practical, accessible and enforceable. Policies and procedures take account of the roles of the whole work force from the owners or board of directors to all employees, and all people and entities over which the commercial organisation has control.
This means that companies need well-designed, comprehensive and targeted programmes to ensure compliance with relevant anti-corruption laws. This will include an appropriate whistle blowing policy written to protect individuals as well as the organisation itself. A senior individual should be appointed to lead the process with the backing of a compliance team depending on the company’s size and resources. The programme then needs to be implemented and embedded into the company processes, including the disciplinary procedures. Disciplinary sanctions should be enforced in a swift, consistent, open and transparent process.
5. Effective implementation: the commercial organisation effectively implements its anti-bribery policies and procedures and ensures they are embedded throughout the organisation. This process ensures that the development of policies and procedures reflects the practical business issues that an organisation’s management and workforce face when seeking to conduct business without bribery.
This means that organisations should communicate their anti-corruption and bribery policy to employees, stakeholders and business partners. Companies need to ensure that the programme is properly implemented and that there is continuous communication at every stage – it will not be enough merely to have policies which are never adhered to. There should be a comprehensive local training programme for all employees, not just head office, compliance or legal staff.
6. Monitoring and review: the commercial organisation institutes monitoring and review mechanisms to ensure compliance with relevant policies and procedures and identifies any issues as they arise. The organisation implements improvements where appropriate.
It should be clear from these six principles that it will not be enough for any commercial organisation merely to have anti-corruption and bribery policies and procedures on paper. An organisation that finds itself caught up in an investigation or prosecution will find it difficult to show that it has adequate procedures if they have neglected the basic step of educating and training their staff. The guidance suggests that businesses should consider using and modifying existing audits and disciplinary procedures to deal with anti-corruption.
Recruitment companies might look again at their commission structures – whilst it is recognised that commission and bonus structures are designed to incentivise staff, they must not encourage illegal behaviour or activity.
Hospitality
Recruitment businesses, just as any other commercial organisation, use corporate hospitality and promotional expenditure to promote their business.
The draft guidance looks at length at hospitality and promotional expenses in the context of bribery and anti-corruption. On page 21 it states that “reasonable and proportionate hospitality or promotional expenditure which seeks to improve the image of a commercial organisation, better to present products and services, or establish cordial relations, is recognised as an established and important part of doing business.”
Furthermore, the question as to whether a particular item of expenditure constitutes a bribe will depend on the circumstances “but it is unlikely, that a routine and incidental business courtesy where the advantage involved is of small value, or where hospitality is standard, will have any impact on decision making in the context of a business opportunity of high value and therefore engage section 6 (bribery of foreign officials).
Generally, the higher the expenditure and the more lavish the hospitality or expenditure provided to a public official the greater the inference that it is intended to influence the official to grant business or a business advantage in return. But reasonable and proportionate hospitality in itself is unlikely to trigger the section 1 offence (offence of bribing another person).
Penalties and Contractual Provisions
As mentioned at the beginning of this article the penalties for breach of the Act are severe for both individuals and organisations. BAE Systems paid £290 million in fines to both the US and UK authorities (£30 million was subject to a plea bargain in the UK which was criticised by the court in its judgment of 21 December 2010). In recent years other companies have been heavily fined for corrupt activities including Balfour Beatty in 2008 and Amec in 2009 (£2.25 million and £5 million respectively).
The vast majority of public procurement contracts now impose contractual obligations on suppliers (including recruitment businesses) regarding the provision of gifts and hospitality to public officials, and regarding anti-corruption and bribery in general. It is possible that public contracts will impose more onerous obligations on suppliers to reflect the provisions of the Act.
The REC has to date seen few private sector contracts where there are specific anti-corruption and bribery provisions but this is likely to change with the Act. Clients will contractually expect suppliers not to engage in such activity. In addition, suppliers frequently give clients indemnities for breach of statutory obligations as well as for any civil or criminal actions taken against the client (though such indemnities are not always reasonable). Given that there are penalties for breach of the Act, for both individuals and organisations, including unlimited fines for the latter, it is recommended that members reject any indemnities to clients which indemnify those clients for their breach of their own statutory obligations under the Act or for their own acts or omissions in relation to the Act.
Lewina Farrell, Head of Professional Services, REC