The 2010 Bribery Act
In 2010, the UK government passed a new Bribery Act, which is due to come into effect in April 2011. This Act, which is an attempt to bring together all existing legislation, has attracted a lot of attention. In the main this is because of the breadth of the legislation, which will make companies liable for the conduct of those “associated” with their business. And that can mean not just employees, but maybe agents, partners or subsidiaries. Jeremy Glover looks at the new Act and also sets out some practical advice on the steps a company can take to both detect corruption and provide a defence against the new legislation.
First, do not be under any illusion. The government is serious. Richard Alderman, Director of the Serious Fraud Office, who will be tasked with enforcing the new legislation, said:
“Society is entitled to expect of the corporates these days that they have adequate anti-bribery processes and that those processes are carried out throughout the corporation. If there is a significant failure, then it is a board level failure.”
The Standard Forms - FIDIC and the World Bank
The standard forms do of course deal with corruption. Clause 15.6 of the FIDIC Pink Book1 notes that the Employer shall be entitled to terminate the Contract if the Contractor:
“If the Employer determines that the Contractor has engaged in corrupt, fraudulent, collusive or coercive practices, in competing for or in executing the Contract, then the Employer may, after giving 14 days notice to the Contractor, terminate the Contractor’s employment under the Contract and expel him from the Site, and the provisions of Clause 15 shall apply as if such expulsion had been made under Sub-Clause 15.2 [Termination by Employer].
Should any employee of the Contractor be determined to have engaged in corrupt, fraudulent or coercive practice during the execution of the work then that employee shall be removed in accordance with Sub-Clause 6.9 [Contractor’s Personnel]”.
Note that this sub-clause is widely drawn, as it refers to both “competing for” and “executing” the Works. The Multilateral Development Bank (MDB) FIDIC contract is particularly pertinent as during 2010, the World Bank revised its Guidelines for the “Selection and Employment of Consultants” to reflect an agreement amongst the MDBs to cross-debar firms and individuals found to have violated the fraud and corruption provisions of their respective procurement guidelines. Paragraph 1.11(e) states that:
“A firm or an individual sanctioned by the Bank in accordance with subparagraph (d) of paragraph 1.22 of these Guidelines or in accordance with the World Bank Group anti-corruption policies and sanction procedures shall be ineligible to be awarded a Bank-financed contract, or to benefit from a Bank-financed contract, financially or otherwise, during such period of time as the Bank shall determine.”
The World Bank duly keeps an open register of debarred firms on its website.
The Bribery Act 2010
This was passed on 8 April 2010 and comes into force in April 2011. It is very widely drawn and is not just restricted to the UK or UK companies. It seems that the UK courts will have jurisdiction if an offence is committed by someone with a close connection with the UK or by a corporation that does business in the UK regardless of where the alleged offence was carried out. The new Act covers the following offences:
Section 1: Bribery - the offering, promising or giving of an advantage;
Section 2: Being bribed - requesting, receiving or agreeing to receive an advantage;
Section 6: Bribery of foreign officials; and
Sections 7-9: Corporate offence of failing to prevent bribery.
Potential penalties range from unlimited fines for companies to 10 years’ imprisonment and unlimited fines for individuals. For companies there is another potential penalty. Regulation 23(1)(c) of the Public Contracts Regulations 2006 in the UK states that a public authority shall treat as ineligible and shall not select a contractor if that public authority has actual knowledge that the contractor or any of its directors or any other person who could be said to represent the contractor has been convicted of bribery. That said, it is the new offence of failing to prevent bribery that has attracted the most comment, mostly along the lines of what does it actually mean?
What does this mean?
On 14 September 2010, the Ministry of Justice launched a consultation about the make-up of the proposed Guidance about procedures which commercial organisations can put in place to prevent bribery. It is intended that this Guidance will assist companies with putting proper bribery prevention procedures into place, in other words providing a defence to the section 7 offence of failing to prevent bribery. The consultation runs until 8 November 2010 and the Government will then publish the guidance as section 9 of the Bribery Act 2010 before the Act comes into force in April 2011. The Consultation Paper confirms how seriously the Government takes the new legislation, noting that the new criminal offence of a failure to prevent bribery under section 7 of the Act:
“reflects a general recognition that there is an important role to be played by business itself in ensuring that commerce is undertaken in an open and transparent manner. The new law will introduce a clear and robust approach and is intended to encourage commercial organisations to take steps to address the risks of bribery.”
Unfortunately the Guidance, in its current form, is pitched at quite a high level. The use of “may” rather than “should” suggests that it is not intended to provide an exhaustive prescriptive set of rules. The reason given for this is the wide variety of type and size of organisations which the Guidance needs to address. In particular the Guidance provides no answer to the question of when, under section 7, a person will be considered to be “performing services on behalf of the organisation”. In other words, it does not explicitly address the parent/subsidiary or joint venture partner difficulty caused by the new offence of failing to prevent bribery. What the Consultation Paper does do is to provide details of Six Principles for Bribery Prevention. These are:
(i) Risk Assessment
This is the key part of the Guidance. Items 2-6 are in actuality part of the risk assessment process. This process is stated to mean that organisations should “regularly” and comprehensively” assess the nature and risks relating to bribery to which they are exposed. What does this mean? They key is perhaps to understand your own business profile and the associated risks. For example, the construction industry is deemed a high-risk area, particularly where public procurement and the need to obtain licences and permits are involved. It is also the case that transactions involving political or charitable contributions can be an area where corruption is an issue.
Equally, what about where a company operates? How transparent is the government? It is possible to find out where there are perceived high levels of corruption and therefore risks from league tables and indexes published by organisations such as Transparency International - www.transparency.org.uk. You also need to consider the type of work your company does. If you enter into partnerships or joint ventures, how well do you know those partners? What about suppliers? Where do they operate? So having carried out your risk assessment, what do you do next to ensure that you have “adequate procedures” in place to act as a defence? This is, at least in part, answered by the final five principles which deal with the development and maintenance of effective anti-bribery policies.
(ii) Top level commitment
This is a fairly simple process, namely the establishment of a culture across the entire organisation which makes it clear that bribery is never acceptable. The first step is the establishment of a code of conduct, the second is of course ensuring that it is enforced.
(iii) Due diligence
The Guidance describes “due diligence” as ensuring that you know and understand the extent of your business relationships. What are the risks that a particular business opportunity might raise? What are the locations of the business opportunity and potential business partners? Do your partners have their own anti-bribery codes of conduct? Does your joint venture agreement address anti-corruption procedures?
(iv) Clear, practical and accessible policies and procedures
The Guidance recommends that the policy documentation could2 include guidance on, political and charitable contributions, gifts, promotional expenses and hospitality and on what to do if faced with blackmail or bribery. The policy should also include commitment to the Public Interest Disclosure Act 1998 which gives protection to whistle-blowers.
The question of gifts is always a tricky one. Here the Appendix to the Guidance says that “reasonable and proportionate hospitality and promotional expenditure which seeks to improve the image of a commercial organisation, better to present products or services, or establish cordial relationships, is recognised as an established and important part of doing business.” To amount to a bribe, such hospitality must be intended to induce a person to perform a function improperly. It is interesting here that these policies are stated to take account of “all employees, and all people and entities over which the commercial organisation has control.” This is as close as the Guidance gets to answering the question as to when a person can be said to be “performing services on behalf of” an organisation when it comes to mounting a prosecution for a Section 7 breach.
(v) Effective implementation
The Guidance specifically and unsurprisingly says that it is not enough to leave the procedures on the shelf. The implementation of the strategy needs to be brought to life. This means that thought must be given to communicating policies (both internally and externally, for example as part of the tender process), setting up training and putting in place proper reporting structures.
(vi) Monitoring and review
Here the Guidance draws attention to the need to ensure effective financial monitoring and auditing. Following the money, and being able to spot unexpected variations, is not just sound accounting practice, it may expose corruption. However, to ensure that proper “adequate procedures” are put in place, milestones need to be set up and a formal process put in to place to review what has happened and see what lessons can be learnt for the future, particularly if there is a change in the nature of your company’s business which might be said to introduce new risks.
Conclusions
As can be seen, the Guidance does not provide any detailed mandatory assistance, or get-out-of-jail-free card, in establishing what procedures need to be in place to provide a defence in the event of a section 7 prosecution. The Guidance is set at a high level, dealing in principles, not details. In particular, it is silent on the key question as to when a person can be said to be “performing services on behalf of the organisation”. It provides no guidance on whether, or at least in what circumstances, a parent of a joint venture partner might find itself liable for the actions of others. The only help can be found in Principle 4 which refers to the concept of “control”. There is also reference in Principle 5 to the provision of support to external business partners, even to the extent of sharing in training.
Once the Government consultation period comes to an end, it is possible that the Guidance will be modified before the Bribery Act comes into force in April 2011. However, it seems unlikely that there will be any significant change. What is important, therefore is that any company that has any dealing with the UK, takes steps to ensure that, at the least, it has an Anti-Corruption Policy in place - and that it is one which is monitored, implemented, revised and reviewed.