With Publication of Final Guidance, UK Bribery Act to Go Into Effect on July 1, 2011
With Publication of Final Guidance, UK Bribery Act to Go Into Effect on July 1, 2011
Despite repeated delays and some question as to whether the UK would bow to pressure from the business community to water down the Bribery Act 2010 ("the Act"), on March 30, 2011, the UK Ministry of Justice released its final guidance (the "Final Guidance") on the Act, which leaves the import of the Act as a significant and expansive piece of anti-corruption legislation largely intact.1 The Final Guidance provides insights and clarifications on key issues raised by businesses since the Act's passage in April 2010, as well as guidance for companies on what constitutes "adequate procedures" for preventing bribery. Ultimately, however, the Final Guidance also makes clear that much remains at the discretion of the courts. Likewise, prosecutors will continue to have great flexibility in assessing whether cases should be brought, as emphasized in joint guidance issued by the Serious Fraud Office (the "SFO") and the Crown Prosecution Service (the "Joint Prosecution Guidance" and, together with the Final Guidance, "the Guidance") on the same day as the Final Guidance.2 Thus, for those individuals and companies that fall within the scope of the Act, it will be critical to understand its provisions and take measures to prevent violations by both themselves, and, for companies, by those acting on their behalf, prior to the Act's implementation on July 1, 2011.
Summary Overview of the Act
The Act replaced UK existing common law offenses with two general bribery offenses, a specific offense of the bribery of foreign government officials, and a specific offense of corporate negligence.3 It also allows for the imposition of criminal liability against senior officers (including directors, company secretaries, managers or those purporting to act as such) who "consented or connived" in any commission of the general bribery offenses or the bribery of foreign official offense by the corporate entities.
Giving, Promising, Offering, Accepting or Receiving Bribes (Sections 1 and 2)
While both the FCPA and the Act prohibit bribery of foreign government officials, the Act goes further and imposes criminal liability for "business to business" or commercial bribery, as well as liability for receiving or accepting bribes. Section 1 makes it an offense for a person (or their agent) to offer, promise or give "a financial or other advantage" to another person with the intent to induce that person to perform "improperly" a function or activity.4 Conversely, Section 2 states that a person is guilty of an offense if that person requests, agrees to receive, or accepts an "advantage" under the same circumstances.5 Although the Act has a separate offense for bribes paid or offered to foreign government officials, such conduct may also be prosecuted under Sections 1 and 2, albeit using a lower standard of scrutiny. Similar to the FCPA, "financial or other advantage" is not clearly defined. However, a "function or activity" is defined broadly in that it applies equally to public and private sector business and includes all activities performed either in the course of employment or on behalf of an individual.6
Not every improper performance of a function or activity will violate the general bribery offense. Rather, the Act distinguishes between a function or activity that is performed in good faith, which is akin to the US notion of acting in good faith except that a reasonable person in the UK test will be applied in determining whether the performance was improper.7
Bribery of a Foreign Public Official (Section 6)
The separate offense of bribery of a foreign public official requires the bribe payer to intend to influence the recipient of the bribe in order to obtain or retain business or an advantage in conducting such business.8 Unlike the FCPA, there is no "corrupt" intent requirement. Rather, liability is determined by whether the advantage is permissible under the law applicable to the foreign public official (and not merely customary or widely accepted practices).9 The definition of "foreign public official," which has recently been the subject of much debate and litigation in the US with regard to the term's meaning under the FCPA, is consistent with the OECD Anti-Bribery Convention and, among others, covers agents of the foreign public official and individuals working for international organizations, as well as persons who perform public functions in a public enterprise.10 It is unclear to what extent the UK will interpret "public enterprise" similar to how the US has interpreted "instrumentality" of a foreign government. However, the Final Guidance does cite, as an example of a "foreign public official," "officers exercising public functions in state-owned enterprises," as well as professionals working for public health agencies.11 In recent remarks by Vivian Robinson, QC, General Counsel for the SFO, at ACI's 25th National Conference on the FCPA held in New York on April 12 and 13, 2011 ("Robinson's Remarks"), he noted that the SFO's enforcement strategy will be to look at both the "letter and spirit" of the law. Thus, it is not a stretch to assume that the SFO will likely take an aggressive approach to the definition of a foreign public official similar to what US authorities have done when it comes to how they view employees of state-owned or controlled companies.
Failure of a Commercial Organization to Prevent Bribery (Section 7)
The most striking difference between the Act and the FCPA, as well as the provision of the Act which has caused the most consternation for non-UK entities having global operations, is the new offense targeting commercial organizations that fail to prevent bribery committed on their behalf. Under Section 7, a commercial organization12 commits a crime if a person associated with the organization (including employees, agents, or employees or agents of a subsidiary) bribes another person with the intent to obtain or retain business, or an advantage in business, for the organization and the bribe is in connection with the organization's business.13 Individual prosecution for bribery is not necessary for this offense to apply to an organization, provided that the agent or employee is or would be guilty of the offense of giving or offering a bribe under UK law.14 Additionally, as further discussed below, the offense applies to both UK companies as well as foreign companies carrying on at least part of their business in the UK. Section 7 amounts to a strict liability offense that is not found in the FCPA or most other anti-corruption statutes. For example, whereas the FCPA limits liability for the conduct of third parties to situations where an organization had "knowledge" of the likelihood of improper payments being made on its behalf, under the Act, an organization will be liable if an associated person bribes on its behalf irrespective of its level of knowledge. The sole defense to prosecution is for the organization to demonstrate that it implemented "adequate procedures" to prevent bribery.15
To address long-standing concerns of the OECD Working Group on Bribery, the Act extends its provisions beyond its borders. Under the Act, UK courts have jurisdiction over Sections 1, 2 or 6 offenses committed in the UK, as well as outside the UK where the person committing them has a close connection with the UK by virtue of being a British national or resident, or an entity incorporated in the UK or a Scottish partnership.16 Notably, whereas extraterritorial jurisdiction for these offenses is limited to "persons" that have a close connection to the UK, the reach of Section 7 is even broader and extends to any organization "carrying on a business or part of a business in the UK" even if the bribery at issue has no other UK connection.17 Thus, for example, if a US company carries on part of its business in the UK, and fails to prevent bribery by its agent in Russia in connection with the US company's business, the UK may be able to assert jurisdiction.
Prosecution of Senior Officers
Section 14 of the Act allows for prosecution of senior officers of a corporation or partnership under Sections 1, 2 or 6, if misconduct was committed by the entity with their "consent or connivance."18 Bringing charges against a senior officer first requires convicting the entity of the same conduct. This has historically proven difficult for UK prosecutors because they must prove that the controlling mind of the entity had the requisite knowledge and intent to commit the offense. However, once accomplished, it is likely that it would not be too difficult to then prove "connivance," which, while undefined by the Act, likely falls somewhere between negligence and recklessness.
Key Points from the Guidance
Scope of Section 7
The Final Guidance seeks to provide further clarity on the Act's jurisdictional reach over non-UK organizations by addressing the meaning of "carrying on a business or part of a business" in the UK. According to the Final Guidance, the Government's intention was to provide a "common sense" approach such that non-UK organizations that do not have a "demonstrable business presence" in the UK would not be covered by Section 7.19 Unfortunately, "demonstrable business presence" was left undefined. Moreover, although the Final Guidance states that simply being listed on the London Stock Exchange or having a UK subsidiary should not, in itself, confer jurisdiction, the Final Guidance also emphasized that ultimately the decision is one for the courts.20 Moreover, the SFO was quick to caution companies against relying on "over-technical" interpretations of the Act. According to Richard Alderman, Director of the SFO, the Act provides the UK with "very wide" jurisdiction (comments repeated by Robinson in his April 12, 2011 remarks), and prosecutors will pursue UK-listed foreign companies who engage in bribery.21 Likewise, although the Final Guidance and Act appear to recognize and place emphasis on corporate identity, it is likely that the UK will continue to mirror successful elements from US enforcement practices in the FCPA arena, such as piercing the corporate veil and construing subsidiaries as agents of the parent, when it comes to asserting jurisdiction, particularly where UK companies have been harmed by the bribery at issue. The SFO has repeatedly stated that UK commercial enterprises should not be disadvantaged by the Act's provisions. Thus, it is unclear how much comfort foreign companies can derive from the Final Guidance when it comes to the meaning of "carrying on a business or part of a business" in the UK.
With regard to the scope of Section 7, the Final Guidance also provides clarification on the meaning of an "associated" person. The Act defines a person associated with a commercial organization as a person who "performs services" for or on behalf of the organization, without limiting the association to the capacity or nature of the relationship. Thus, as stated in the Final Guidance, contractors may be "associated" persons to the extent they are performing services for or on behalf of a commercial organization.22 Likewise, where a supplier can 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.23 The Final Guidance does, however, clarify that the liability analysis hinges largely on the level of control. For example, when it comes to a supply chain that involves multiple entities aside from the contracting counterparty (such as sub-contractors), the Final Guidance states it is likely that those entities will be deemed to be performing services on behalf of the counterparty, and not the commercial organization, due to a lack of control.24 However, to address any requisite bribery risks, the Final Guidance recommends that commercial organizations employ robust risk-based due diligence on all contracting counterparties and to request that they adopt a similar approach with the next party in the supply chain.25 It is unclear to what extent prosecutors will accept this approach, or what else a company will have to demonstrate beyond requests to adopt due diligence processes similar to its own. However, the Final Guidance does at least appear to recognize that at a certain point, where control or ability to control is lacking, an "association" ceases.
The Final Guidance is also instructive in that it further highlights the import of the connection between the bribe paid or offered and the benefit to be received by the organization for purposes of Section 7 liability. For example, according to the Final Guidance, the mere existence of a joint venture will not mean that one member is necessarily "associated" with the joint venture entity for purposes of Section 7.26 In other words, a bribe paid on behalf of the joint venture entity by one of its employees or agents will not trigger liability for members of the joint venture simply by virtue of them benefitting indirectly from the bribe. Similarly, whether a bribe on behalf of a subsidiary by one of its employees or agents will result in liability to the parent company, or any other subsidiaries of the parent company, turns on whether the employee or agent intended to obtain or retain business or a business advantage for the parent company or other subsidiaries.27 According to the Final Guidance, it will not be enough to simply establish that the parent company or other subsidiaries benefitted indirectly from the bribe.28 Despite these proclamations, only time will tell how much emphasis prosecutors (and the courts) will place on the connection of the benefit to the bribe, as well as the criteria for such a connection to exist.
The Final Guidance makes clear that - unlike the FCPA - the Act does not provide any exception for facilitation payments, namely, unofficial payments to foreign officials made to expedite the performance of a non-discretionary, routine governmental action.29 Despite rumors of any weakening of the Act in this area, the Final Guidance (and the SFO) have emphasized that such payments remain illegal under UK law and subject to prosecution under Sections 1 and 6 of the Act (and therefore may result in potential liability under Section 7).30 Nonetheless, the Final Guidance does acknowledge that such payments are a fact of doing business in certain parts of the world, and that eradication of such payments will take time and collaboration between international bodies, governments, and industry.31 Thus, for those entities subject to the Act, it will be important to explicitly and clearly identify how such payments should be handled, if requested, as the payments remain subject to prosecution. Whether a prosecution will be brought is of course within the prosecutor's discretion and the Joint Prosecution Guidance is instructive in that regard. It provides factors for and against prosecution of such payments, including, among others, the amount, frequency, and whether the commercial organization had a clear and appropriate policy setting out procedures an individual should (and did or did not) follow if facilitation payments are requested.32 In Robinson's Remarks, he further commented that it will be important for companies to show that they have taken affirmative measures to discourage such payments.
Hospitality, Promotional, and Other Business Expenditures
Aside from the scope of Section 7, much of the concern expressed by businesses with regard to the Act's prohibitions focus on the provision of business courtesies and promotional expenses. Unlike the FCPA, the Act does not carve out a specific legal defense for reasonable and bona fide promotional expenditures, and thus companies sought clarification on how such activities would be viewed under the Act. In this area, perhaps more than any other, the Final Guidance does seek to provide assurances with regards to the Government's intent. The Final Guidance makes clear that:
Bona fide hospitality and promotional, or other business expenditure which seeks to improve the image of a commercial organization, better to present products and services, or establish cordial relations, is recognized as an established and important part of doing business and it is not the intention of the Act to criminalize such behaviour. The Government does not intend for the Act to prohibit reasonable and proportionate hospitality and promotional or other similar business expenditure intended for these purposes.33
The Final Guidance also clarifies, however, that in certain circumstances, hospitality and promotional or other similar business expenditures may be prosecuted as they "can be employed as bribes."34 According to the Final Guidance, whether hospitality or promotional expenditures will constitute a bribe for purposes of Section 1 depends on whether they were intended to induce "improper performance" as judged by a reasonable person in the UK.35 For example, taking clients to events like Wimbledon or the Grand Prix to "cement good relations" would not likely trigger liability as the requisite intent would be missing.36 Similarly, for purposes of liability under Section 6, a financial or other benefit must be conferred or offered to the foreign official in order for there to be a bribe. Thus, paying for travel or hospitality for which the official would have been reimbursed would not likely trigger liability as no "advantage" is being provided.37 In determining whether specific hospitality, promotional, or other business expenditures would constitute the basis for prosecution, the Joint Prosecution Guidance instructs prosecutors to consider such factors as whether they were of a lavish nature, whether they were transparently reported, and whether they were clearly connected with legitimate business activity.38 In Robinson's Remarks, he reiterated the Joint Prosecution Guidance but also identified two "safety nets" that companies may use to protect against potential violations of the Act: (1) companies should have a clearly defined policy on such activities that is communicated internally and externally, and (2) total transparency of the expenditures in the company's books and records.
As noted above, the Act provides a legal defense to prosecution under Section 7 of the Act if a commercial organization can show it had "adequate procedures" in place to prevent persons associated with it from bribing. Although the Final Guidance provides no prescriptive approach to adequate procedures, it does identify six high-level "principles" to be used as a guide by organizations when implementing their own anti-bribery programs. These principles are not significantly different from principles articulated in prior draft guidance issued last year.39 However, the Final Guidance does place further emphasis on proportionality. The six principles are as follows:
- Proportionate procedures. A company's anti-bribery procedures must be proportionate to the bribery risks it faces and to the nature, scale and complexity of the company's activities.40 They should be clear, practical, accessible, effectively implemented and enforced.41 This theme of risk-based proportionality appears throughout the Final Guidance, and it replaces two of the principles that appeared in the draft guidance - namely "clear, practical and accessible policies and procedures" and "effective implementation." It appears to indicate an acknowledgement that a company's level of risk is not necessarily proportionate to its size, while at the same time recognizing that smaller companies may require less sophisticated compliance programs than larger ones. Numerous "procedures" designed to mitigate risks as well as to prevent deliberate unethical conduct are articulated, the majority of which were previously set forth in Principles 4 and 5 of the draft guidance.42
- Top-level commitment. Top-level management must be committed to preventing bribery by persons associated with it, and must foster a culture in which bribery is never acceptable.43 "Tone at the top" is nothing new for US companies that have already implemented effective FCPA compliance programs but the Final Guidance does state its own interpretation of the concept and articulates examples and suggestions for how this tone can be achieved.44
- Risk assessment. The Final Guidance emphasizes the need to constantly refresh such assessments as the business (and its classes of associated persons) evolve and identifies a need to focus on both external and internal risks. The overall process should be adequately resourced, well-documented, and top-level leadership engaged.45
- Due diligence. The Final Guidance makes clear that the role of due diligence in bribery risk mitigation justifies the inclusion of due diligence as a stand-alone principle. Just as a company should assess its own risk, it should take adequate measures to identify and mitigate bribery risks in respect of persons who perform services on the company's behalf, and in particular, on those who are used due to local law requirements.46 In addition, the Final Guidance emphasizes the importance of conducting diligence in connection with mergers and acquisitions, although silent on the concept of successor liability.47 Diligence is also recommended for a commercial organization's employees in high-risk positions.48
- Communication (including training). This is another new principle that did not appear in the draft guidance. It states that a company's anti-bribery policies and procedures should be communicated internally and externally, including training its personnel.49 Internal communications should convey the "tone from the top," and should include policies on areas such as decision making, financial controls, hospitality and promotional expenditures, facilitation payments, training, charitable and political donations, and penalties for breach of rules and the articulation of management roles at different levels.50 External communications should include codes of conduct.51 The Final Guidance suggests that training should be proportionate to risk but that some training is likely to be effective in establishing an anti-bribery culture. In addition, "[e]ffective training is continuous, regularly monitored and evaluated."52
- Monitoring and review. Under the last principle, companies should constantly monitor and review their anti-bribery procedures and make improvements when necessary.53 As risks change over time, so should procedures designed to mitigate those risks.54 Internal control systems must be robust, and the Final Guidance suggests that staff surveys, questionnaires and feedback from training can be important gauges of the effectiveness of internal policies.55 Consistent with the recent revisions to the U.S. Sentencing Guidelines, the principle also notes that external verification or assurance of the effectiveness of anti-bribery procedures should also be considered.56
Ultimately, whether an organization has adequate procedures for purposes of the Act's affirmative defense is a matter "that can only be resolved by the courts taking into account the particular facts and circumstances of the case."57 However, the existence of adequate procedures may also prove essential before matters ever even appear in court. Undoubtedly, the existence, or lack thereof, of adequate procedures will be a key factor for prosecutors in determining whether to even bring charges in the first instance. For example, in Robinson's Remarks, he stated that it would be highly significant to the determination of whether to bring charges if the bribery at issue was an isolated instance that occurred despite an adequate program, and even more so where a company subsequently tried to close the gaps or strengthen the program. Prosecutors have a large amount of discretion, which according to Robinson, is to be used to ensure that a fair and just result is reached, including, in appropriate cases, a limitation to civil proceedings or no action at all. In this regard, Robinson also reiterated the SFO's position, as well as the position of the Guidance, namely that companies should self-disclose violations and such disclosures will be taken into account in determining an appropriate resolution.58
Although the Guidance fails to provide clarity on many aspects of the Act and the enforcement thereof, it has tried to shed some further light on the current Government's intentions and proposed direction. In Robinson's Remarks, he noted that the law was not meant to be unduly burdensome for "well-run organizations" that are making an effort to comply but rather to focus on the "mavericks" and "real offenders." Indeed, given resource constraints, any other focus seems counter-productive. Obviously, how the Act is implemented remains to be seen. One thing that is for certain, however, is that global companies need to be vigilant with regard to establishing an effective, anti-corruption compliance program. In that regard, the Final Guidance does articulate what is expected while recognizing that companies need to have the flexibility of meeting these expectations in different ways based on the profile of their organization.
The editors would like to thank Joseph V. Moreno for his contribution to this FCPA Advisor.
1 Ministry of Justice, "Guidance about procedures which relevant commercial organizations can put into place to prevent persons associated with them from bribing (section 9 of the Bribery Act 2010)," available at www.justice.gov.uk/guidance/bribery.htm.
2 "Bribery Act 2010: Joint Prosecution Guidance of the Director of the Serious Fraud Office and the Director of Public Prosecutions," available at www.sfo.gov.uk/press-room/latest-press-releases/press-releases-2011/bribery-act-prosecution-guidance-published.aspx.
3 For a more complete discussion of the Act, see Cadwalader's April 2010 FCPA Advisor, available at http://www.cadwalader.com/list_newsletters.php?newsletter_type_id=8.
4 See Bribery Act 2010, available at www.opsi.gov.uk/acts/acts2010/ukpga_20100023_en_1. The requisite showing of intent in the Act is an easier standard for prosecutors than the showing of "corrupt" intent as required by the FCPA.
5 See id.
6 See id.
7 See id.
8 See id.
9 See id.
10 Unlike the FCPA, the definition does not include foreign political parties or candidates for foreign political office.
11 Final Guidance at ¶ 22.
12 As defined in the Act, "relevant commercial organization" is a company or partnership that conducts any part of its business in the UK, whether they are incorporated in the UK or abroad. See Bribery Act 2010.
13 See id.
14 See id.
15 See id.
16 See id.
17 See id.
18 See id. There is no personal liability for officers if the corporation or partnership is guilty of failing to prevent bribery under Section 7.
19 Final Guidance at ¶ 36.
21 See "SFO Chief Richard Alderman interview: 'It's time to get on and enforce the Bribery Act'" available at
22 Final Guidance at ¶ 38.
24 Id. at ¶ 39.
26 Id. at ¶ 40.
27 Id. at ¶ 42.
29 Id. at ¶ 44.
30 The Final Guidance does distinguish situations where payments are required in order to protect against loss of life, limb or liberty. In such instances, the Final Guidance states the common law defense of duress is likely to be available. Id. at ¶ 48.
31 Id. at ¶¶ 46, 48.
32 Joint Prosecution Guidance at p. 9.
33 Final Guidance at ¶ 26
36 Id. at pp. 2, 20.
37 Id. at ¶ 27.
38 Joint Prosecution Guidance at p. 10.
39 For a full discussion of the draft guidance, see Cadwalader's September 2010 FCPA Advisor, available at http://www.cadwalader.com/list_newsletters.php?newsletter_type_id=8.
40 Final Guidance at p. 21.
42 See Cadwalader's September 2010 FCPA Advisor, available at http://www.cadwalader.com/list_newsletters.php?newsletter_type_id=8.
43 Final Guidance at p. 23.
46 Id. at p. 27.
47 Id. at p. 28.
49 Id. at p. 29.
52 Id. at p. 30.
53 Id. at p. 31.
57 Id. at p. 6.
58 Id. at p. 12.