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New Bribery Act Creates Additional Liability Risk for Corporations Doing Business in the U.K.

April 22, 2010

 

Overview of the Law

On April 8, 2010, the United Kingdom’s Bribery Bill received Royal Assent, becoming the Bribery Act of 2010.[1] The new law, which will take effect in stages between now and October, has serious implications not only for U.K. citizens and companies, but also for U.S. and other foreign companies and persons operating in the U.K. The Bribery Act replaces bribery offenses at common law and under the Public Bodies Corrupt Practices Act 1889, the Prevention of Corruption Act 1906 and the Prevention of Corruption Act 1916 with four discrete bribery-related crimes:

  • Bribing Another Person. The first offense, defined in Section 1, covers the offering, promising or giving of an advantage to another person[2] with the intent to induce the person to perform a function improperly or to reward a person for performing a function improperly.
  • Being Bribed. The second offense, described in Section 2, deals with the requesting, agreeing to receive or accepting of an advantage in exchange for or as a reward for improper performance.
  • Bribing Foreign Public Officials. The third offense, outlined in Section 6, prohibits bribery of foreign public officials; this offense is the most similar to the prohibition contained in the U.S. Foreign Corrupt Practices Act (FCPA).[3] Per Section 14, corporate bodies commit an offense under Section 1, 2 or 6 where the offense “is proved to have been committed with the consent or connivance” of a director or senior officer of the corporation with a close connection with the United Kingdom.[4]
  • Failing to Prevent Bribery. The fourth and most novel offense, set forth in Section 7, imposes strict criminal liability on “commercial organizations” that fail to prevent bribery. If a person associated with the corporate entity is, or would be, guilty of an offense under Section 1, bribing another person, or 6, bribing a foreign public official, then so too is the corporation, unless it can prove it had in place “adequate procedures” to prevent bribery. (A violation of Section 2 (being bribed) does not constitute a predicate offense under Section 7.) The Secretary of State is to provide guidance on what constitutes “adequate procedures.”[5]

Prosecutions under the Act can be brought only with the consent of the Director of Public Prosecutions, the Director of the Serious Fraud Office or the Director of Revenue and Customs Prosecutions.[6] Violations are punishable by fines (corporations and individuals) and up to 10 years imprisonment for individuals.[7]

Key Differences Between the Bribery Act and the FCPA[8]

The coverage of the new Act will overlap significantly with that of the FCPA. Yet it would be a mistake for covered persons or corporations to assume that existing FCPA compliance policies will be sufficient under the Bribery Act. The Bribery Act diverges from the FCPA in numerous material respects:

  • Broader Corporate Jurisdiction. The Bribery Act purports to cover all commercial organizations, wherever incorporated, that carry on a business or a part of a business in the U.K.[9] With that jurisdictional threshold passed, the location of the acts or omissions constituting the offense is irrelevant. In theory, at least, this jurisdiction goes beyond the territorial or nationality principles of the FCPA.[10] The Bribery Act could reach a private company with employees in the U.K. even if the U.K. employees were not factually connected to the bribery.
  • Commercial Bribery Also Prohibited. Section 1 of the Bribery Act covers bribery of private citizens, wherever located. The criminalization of foreign commercial bribery significantly expands the scope of prohibited conduct relative to the FCPA. Many types of payments exchanged between business people are potentially subject to scrutiny by prosecutors. In addition, corporations face corresponding additional risk, as an offense under Section 1 can be a predicate for corporate liability under Section 7 of the Act. Corporations that will be subject to the Bribery Act now have an added incentive to monitor closely all payments to and from consultants, commercial representatives, agents and other third-parties.
  • No Explicit Knowledge Requirement for Payments Made Through Intermediaries. Under both the FCPA and the Bribery Act, payments to foreign officials made through third-parties can form the basis of an offense.[11] Unlike the FCPA,[12] however, the Bribery Act does not spell out of the extent of knowledge of the third-party’s subsequent payment to the foreign official is required to establish criminal liability. It will likely be left to British courts to determine whether to import a knowledge and/or conscious avoidance standard into Bribery Act prosecutions involving payments through intermediaries.
  • Broader Business Nexus Language. To be guilty of the offense of bribing a foreign public official under the Bribery Act, a person must intend to “obtain or retain business or an advantage in the conduct of business.”[13] This phrasing is broader than the FCPA’s “obtain or retain” business formulation.[14] Thus, the Bribery Act more clearly covers payments made to secure favorable treatment beyond the award of a particular contract; e.g., payments to reduce tax liability or to obtain favorable regulatory treatment, etc. U.S. courts have struggled with whether such payments are covered by the FCPA. The lead case holds that it must be shown that any allegedly improper payment assisted — directly or indirectly — in obtaining or retaining business.[15]
  • No Statutory Defense for Legitimate Promotional Activities. The FCPA provides for an affirmative defense for reasonable and bona fide business expenditures directly related to certain promotional activities.[16] The Bribery Act contains no such defense, although to be guilty of an offense under Section 6, a person must intend to influence the foreign public official in the performance of their functions. The House of Lords considered and rejected proposed statutory language that would have clarified that legitimate commercial conduct is permissible, leaving individual determinations to prosecutorial discretion.[17] This aspect of the Bribery Act makes it important for corporations to review their travel and entertainment expense policies to ensure that they clearly draw a line between acceptable and unacceptable corporate hospitality.
  • No Exception for Facilitating or “Grease” Payments. There is also no carve-out in the Bribery Act for facilitating or expediting payments to foreign officials.[18] Corporations that will be subject to the Act may therefore wish to take a fresh look at payments made when the corporation interacts with local regulators — e.g., clearing customs, renewing licenses or visas, obtaining permits, passing annual inspections, etc.
  • Absence of Accounting and Internal Controls Provisions; No Civil Enforcement Authority. A major difference between the Bribery Act and the FCPA is that the Bribery Act does not contain equivalents for the FCPA’s books and records or internal controls provisions.[19] Nor does the Bribery Act provide for civil enforcement. The absence of such provisions will likely streamline corporate prosecutions, making the existence of “adequate procedures” the critical issue on which most turn.

How to Prepare Your Business

The Secretary of State has not yet published guidance on adequate procedures under the Bribery Act, but that does not mean it is too soon to start thinking about how to comply with the new law. The first step is to conduct a separate Bribery Act risk assessment to evaluate existing compliance controls against corporate conduct that may be proscribed by the Act. A second step is to look more broadly at the corporate compliance program. During debate in the House of Lords, Lord Willy Bach, Parliamentary Under Secretary of State and one of the Bribery Act’s sponsors, wrote a public letter indicating that published guidance on adequate procedures would not be prescriptive in nature; rather it would set out “relevant principles backed up by illustrative good practice examples.”[20] Lord Bach’s letter specifically referenced the OECD “Good Practice Guidance on Internal Controls, Ethics and Compliance” as well as Transparency International and Global Infrastructure Anti-Corruption Centre anti-bribery strategies.[21] These materials emphasize the following components of an effective compliance program:

  • Individualized risk assessments
  • Clear policies regarding bribery, gifts, hospitality, entertainment expenses, other business expenses, political contributions, charitable donations, facilitation payments, solicitation and extortion
  • Tone at the top
  • Formal compliance function and responsible compliance officer
  • Proper vetting of business partners, agents, representatives, etc.
  • Training
  • Reporting mechanisms
  • Disciplinary consequences
  • Financial and accounting procedures
  • Effective monitoring and periodic re-assessment

Because having adequate procedures to prevent bribery in place will provide a complete defense to corporate liability under the Bribery Act, corporations subject to the Act have even greater incentive than before to develop a robust anti-corruption program.


[1] Bribery Act 2010, 2010 Chapter 23, available at http://www.opsi.gov.uk/acts/acts2010/pdf/ukpga_20100023_en.pdf.

[2] Under U.K. law, person includes a “body of persons corporate or unincorporate.” Interpretation Act, 1978, c. 30.

[3] 15 U.S.C. § 78dd-1, et seq.

[4] See Section 14, cross-referencing Section 12(4)’s definition of persons with close connections with the United Kingdom.

[5] See Section 9.

[6] See Section 10.

[7] See Section 11.

[8] For a more fulsome comparison, see Richard W. Grime and Katherine L. Buchanan, Implications of the U.K. Bribery Bill for Individuals and Corporations Already Subject to the FCPA, Apr. 2, 1010, available at http://www.omm.com/files/upload/Anti-Corruption-and-Bribery-2010-Annual-Seminar.pdf.

[9] See Section 7(5)(b).

[10] See DOJ, LAY-PERSON’S GUIDE TO THE FCPA, http://www.justice.gov/criminal/fraud/docs/dojdocb.html. (“A foreign company or person is now subject to the FCPA if it causes, directly or through agents, an act in furtherance of the corrupt payment to take place within the territory of the United States. There is, however, no requirement that such act make use of the U.S. mails or other means or instrumentalities of interstate commerce.”)

[11] Compare Bribery Act, Section 6(3)(a) with 15 U.S.C. § 78dd-3(a)(3).

[12] The FCPA provides that “[a] person’s state of mind is ‘knowing’ with respect to conduct, a circumstance, or a result if — (i) such person is aware that such person is engaging in such conduct, that such circumstance exists, or that such result is substantially certain to occur; or (ii) such person has a firm belief that such circumstance exists or that such result is substantially certain to occur.” 15 U.S.C. § 78dd-3(f)(3). In United States v. Bourke, the federal district court in the Southern District of New York explained how conscious avoidance of actual knowledge might satisfy this standard. See Jury Charge, United States v. Bourke, No. 05-CR-518 (S.D.N.Y. 2009).

[13] Section 6(2).

[14] See 15 U.S.C. § 78dd-3(a).

[15] In United States v. Kay, the Fifth Circuit considered whether the FCPA is limited to payments intended to secure a government contract. Pointing to the addition of the words “improper advantage” to the statute in 1998, the Court concluded that “Congress intended for the FCPA to apply broadly to payments intended to assist the payor, either directly or indirectly, in obtaining or retaining business for some person.” However, while the court was clear that payments to reduce taxes could fall within the scope of the statute, it was equally clear that paying bribes to reduce taxes “does not automatically constitute a violation of the FCPA: It must still be shown that the bribery was intended to produce an effect here, through tax savings, that would “assist in obtaining or retaining business.” 359 F.3d 738, 754-56 (5th Cir. 2004).

[16] 15 U.S.C. § 78dd-1(c) states: “It shall be an affirmative defense [to a potential violation of the antibribery provisions]…that…the payment, gift, offer or promise of anything of value that was made, was a reasonable and bona fide expenditure, such as travel and lodging expenses, incurred by or on behalf of a foreign official, party, party official, or candidate and was directly related to (A) the promotion, demonstration, or explanation of products or services; or (B) the execution or performance of a contract with a foreign government or agency thereof.”

[17] See Letter from Lord Tunnicliffe to Lord Henley, House of Lords, Jan. 14, 2010, available at http://www.justice.gov.uk/publications/docs/letter-lord-henley-corporate-hospitality.pdf (“The Joint Committee which scrutinized the Bill considered suggestions to add ‘corrupt’ or a similar adverb to the offense specifically to exclude legitimate commercial conduct but concluded…that any concerns about criminalizing reasonable corporate hospitality would be addressed by prosecutorial discretion.”)

[18] Cf. 15 U.S.C. § 78dd-1(b): “Subsections (a) and (g) of this section shall not apply to any facilitating or expediting payment to a foreign official, political party, or party official the purpose of which is to expedite or secure the performance of a routine governmental action by a foreign official, political party or party official.”

[19] 15 U.S.C. § 78m(b)(2)(A-B).

[20] Letter from Lord Bach to Lord Henley, House of Lords, Dec. 2009, available at http://www.justice.gov.uk/publications/docs/bach-letter-adequate-procedures-guidance.pdf.

[21] Id.