News and Updates
THE BRIBERY ACT
2010
Introduction
Traditionally under English law, bribery was "the receiving or
offering of any undue reward by or to any person whatsoever in
order to influence their behaviour in their position of authority
and incline them to act contrary to known rules of honesty and
integrity".
Over the years, such payments have become commonplace in some
under-developed countries to secure favourable decisions for
British companies in the award of overseas contracts in the gift of
Government officials. The classic British comedy film
about British industry in the 1950's and 60s "I'm alright
Jack" contains both this theme as a plot and the classic
bribe scene in the mind of most ordinary people Here
the rival business owner, a character played by Richard
Attenborough (Cox) presents a suitcase full of cash to the
gullible junior employee of another weapons manufacturer
played by the Ian Camichael ( Stanley Windrush) with the
accompanying the message that he is sure
Stan will make the right decision in the circumstances!
(Sadly Ian Carmichael died but his acting career playing the
British gent struggling to adapt to new circumstances and ethical
standards was a rich source of material for many films of this post
Second World War era as Britain adjusted to "the Wind of
Change").
In this climate such payments were often styled as "facilitation
payments" and were suggested to be morally permissible in securing
work and employment for English companies overseas on substantial
projects where Britain no longer had a captive customer (the
British Empire which had covered approximately 25% of the
world).
As is self evident, a "facilitation payment " is simply another
name for a bribe, and the payment of such sums in the modern world
is no longer considered acceptable. The Organisation for
Economic Co-Operation and Development (OECD) published
recommendations following a conference on the 21st
November 1997 specifically designed to combat the bribery of
foreign public officials in international business transactions,
and the Bribery Act 2010 that became effective in England from the
1st July 2011 seeks to implement the objectives of this
convention.
As the aim of the convention is to eliminate bribery in business
transactions, the new law imposes corporate responsibility on
Directors and senior Managers to eliminate bribery in their
businesses. It is now an offence for a senior Officer of the
company to have allowed bribery to take place, and a commercial
organisation is liable for prosecution if a person associated with
it bribes another person to obtain an advantage in the conduct of
business for that organisation. As the penalty for bribery is
imprisonment for up to 10 years and possible disqualification as a
Company Director under the Director Disqualification Act business
is deeply concerned.
This article summarises briefly the main area to exposure and
what companies can do to endeavour to minimise these.
Significant Government guidelines have been issued on the
legislation. This article briefly identifies these.
What is a bribe?
A bribe is not simply the payment of money. It is giving a
financial or other advantage to another person with the intention
to induce that person to improperly performing their duties.
Thus, the advantage may not simply be a cash payment, but expensive
gifts or payment of expenses for an official and his wife.
Thus, the business who gives an all expenses paid trip to the
Contracts Officer and his wife to secure a business contract with
the company concerned are as much guilty of a bribe as if they had
actually paid cash in a suitcase.
The legislation has raised concerns for business concerning how
far a business may go to entertain potential customers. The
concept of corporate hospitality the Press have suggested is itself
contrary to the Act. The definition of bribery certainly
permits this to be a threat for a business that has not thought out
its handling of its commercial relationships and does not manage
its staff properly.
The areas of illegality
The offences
- It is an offence to bribe another person.
- It is an offence to request a bribe.
- It is an offence to bribe a foreign public official to
influence that official's capacity. For this person, foreign
public official is a person holding any legal, administrative or
judicial position of any kind, or he exercises a public function,
or he is an official or agent of a public international
organisation.
- Failure by a commercial organisation to prevent a person
associated with it bribing another person.
For the purposes of Section 6 the offence of bribery of foreign
public officials, it is essential for the overseas law to be
considered. For instance, if the overseas law allows for an
expedition payment to be made to process an application through
Customs of goods or, say, a Visitors' Visa for a business
traveller, then the payment of this sum would not be a bribe.
Indeed, we have a similar situation in Britain where a higher scale
of fees is payable to Government Departments for processing
Passport or Visa applications speedily. Payment of such fees
is authorised by the law of the country and does not represent a
bribe.
Thus, to use a simple example, if an English company employs an
overseas agent and that agent regularly makes payments to others to
influence their decisions to obtain contracts or other business
advantages for that company then the company who uses that agent is
itself guilty of an offence and the Directors and Officers of the
company concerned are liable for prosecution.
The definition of an associated person is very wide and covers
anyone who performs services for the company concerned.
Consequences of the new law
As the law is trying to stamp out bribery in business, it is the
ethics of the business that the law is concerned with.
Businesses are expected now to operate to a standard of ethics that
meets the standard of the reasonable man. It is perhaps this
that poses the greatest risk for businesses.
The legislation expects a person performing a function to
perform in good faith, impartially and having regard to his
responsibilities to his employer.
If the function is not performed in accordance with the relevant
expectations set out above, it will be for a jury to determine
whether an official who has performed his functions improperly
having been influenced by the company's conduct.
The test set out in the Act at Section 5 is "what a reasonable
person in the United Kingdom would expect in relation to the
performance of the type of function or activity concerned".
In arriving at this decision the jury man is required to disregard
any local custom or practice of the place concerned unless there is
a written law in that country or territory concerned that covers
the practice.
A good example is a recent practical example encountered by a
foreign client. The client returning to their home
country in Asia was stopped by an immigration official because her
exit visas when she left the country were not in order. She
was required to make a payment by the official to facilitate her
admission on her return to her country of origin with
her husband and children. The alternative to making this cash
payment was a long period of detention in an Asian prison without
trial pending further investigation. The payment
requested was not authorised by any local law, but was requested
and paid in accordance with the local custom and practice.
Both the client and the official committed offences under the
Bribery Act 2010. The Official by requesting a bribe and the client
by making the payment. However, if the client had been
prosecuted in England and there been a written law in that
country allowing spot fines for immigration infringements by
a written local law, then the client charged for the offence of
bribery of a foreign public official under Section 6 of the Bribery
Act 2010 would have been entitled to have this relevant fact
considered by a jury under Section 5.
Penalties
A commercial organisation faces an unlimited fine for itself for
breach of the bribery legislation. An officer of the company
convicted of one of the offences outlined, including one failing to
prevent bribes by a person for whom they are responsible, faces
imprisonment for up to 10 years.
Recent penalties imposed for breach of bribery legislation on
well known companies make this an area that the companies can ill
afford to ignore. In a recent case, in Southwark Crown Court
in September 2009 the company, Mahey & Johnson Limited, were
fined £6,600,000 for the bribery of officials in Africa and the
West Indies. This is a case under the old law where
conviction was generally more difficult than under the new law but
this case shows the business climate for companies operating
overseas in Britain has not changed a lot from
the1950's and 60's!
Not only is the risk of imprisonment and heavy fines a
serious risk, but other adverse consequences may
flow. For instance, a company convicted of a bribery offence
will automatically be excluded from public procurement lists
to obtain public sector contracts.
A company regulated by the Financial Services Authority is
required by Principle 3 of the FSA's Statement of Business
Principles to "take reasonable care to organise and control its
affairs responsibly and effectively with adequate risk management
systems". In January 2009 the international insurance
company, Aon, were fined £5,250,000 for alleged illicit payments to
overseas intermediaries.
What should a business do?
It is a defence for a company to seek to defend a prosecution of
permitting bribes by a person associated with it to show, under
Section 7.2 of the Bribery Act 2010 that the company "had in place
adequate procedures designed to prevent persons associated with it
for undertaking such conduct".
The principle focus for a business is therefore under this
section and what procedures it should put in place.
There are a number of Government guidelines that have been
published which have a bearing on this. Probably the most
important is the Ministry of Justice Guidance published at the end
of March 2011 under Section 9 of the Bribery Act 2010 which is
intended to enable companies to decide what steps it needs to put
in place to meet the Section 7.2 defence.
However, it is important to understand that simply downloading
this guidance and calling it company policy will not suffice.
All businesses are different, and company policy must fit the
circumstances of the business concerned. For instance, a
business that does very little work overseas will have far less
concerns than one that regularly has to do business in third world
and South American countries or places of political turmoil and
unrest where the local Governments are unstable, such as many parts
of the Middle East at the current time.
The starting point for a business will be the six principles
which any company policy is required to satisfy if it is seen to be
committed to avoiding bribery as a commercial organisation.
These six principles, by their very nature, indicate that the
company policy for a large company and a small company may vary
enormously in detail and ambit. The larger the business, the
wider the delegation of authority and the more important it is for
senior management to spell out what is expected of its staff.
Where senior management are themselves taking all business
decisions in a small company, the level of detail of the company's
policy needs will be considerably less.
The six principles are :-
- The company has in place procedures to prevent the bribery by
persons associated with it and are proportionate to the bribery
risks it faces and to the nature, scale and complexity of the
commercial organisation's activities. The procedures have to
be clear, practical and accessible, effectively implemented and
enforced.
- A commercial organisation is expected to have top level
management committed to prevent bribery by a person associated with
it. They foster a culture where any form of bribery is
unacceptable.
- The commercial organisation has to assess the nature and extent
of exposure to potential external and internal risks of bribery by
persons associated with it, which assessment is to be conducted at
regular intervals and is documented.
- A company has to have due diligence procedures taking a
proportionate and risk based approach in respect of persons who
performs the services on its behalf to mitigate identifying bribery
risks. This can include procedures for the reporting and
guidance. Almost certain, a company should have a Compliance
Officer who will maintain records and provide guidance to other
staff on difficult situations.
- The commercial organisation should, through internal or
external communication, ensure that staff understand the risks it
faces and how to deal with them.
- There must be monitoring and review procedures designed to
prevent by a person associated with it and implement improvements
as and when required.
Prosecution
The prosecution of an offence under the Bribery Act may take
place in Britain even though the bribery occurred elsewhere as long
as the bribery involves a person associated with Britain.
However, the one bit of good news is a prosecution for bribery
has to be authorised either by the Director of the Serious Fraud
Office or the Director of Public Prosecutions or the Director of
Inland Revenue & Customs. Small offences by private
individuals travelling for pleasure are unlikely to
merit their attention.
Businessmen who have to travel frequently abroad are
likely to be carefully scrutinised and payments made in the
past for unspecified reasons claimed by companies as
deductible for tax purposes to overseas officials are liable to be
particularly challenged by the HM Revenue and Customs.
The Directors have published a joint prosecution guidance on the
Bribery Act 2010 which recognises this, and requires any
Prosecutors to follow the relevant internal procedures for
submitting paper cases for consideration for prosecution.
Generally, normal prosecution principles apply, and in order for
a prosecution to proceed, there must firstly be :-
1. Sufficient
evidence available to secure a conviction.
2. The
prosecution must be in the public interest.
Public interest will involve the consideration of over a dozen
factors by the prosecution, including the seriousness of the
offence and the likelihood of its repetition. There are also
a number of factors that the prosecution may consider mitigating
against any penalty being sought through the Courts. One of
these is where an offence has only come to light as a result of
self reporting by a business organisation of the relevant
circumstances. Thus, the role of the whistle blower company
is enhanced. Companies who review past activities and report
the steps that they have taken to eliminate corruption in the
future as a result of such investigations within the company are
less likely to be prosecuted by putting their own house in
order.
Overview
Every company is different and will need to discuss with their
lawyers how best to deal with this legislation for their
organisation. The company which fails to act is that which is
the greatest risk of problems as it will be unable to demonstrate
it has any procedures in place to prevent bribery.
For more information please cotnact Christopher Atkinson