Bribery Act  - what's new?

1. AN INTRODUCTION TO COMPLIANCE

The Ministry of Justice (MoJ) published the final version of its guidance ("the Guidance") on what companies will need to do to comply with the Bribery Act 2010 ("the Act").  

The Guidance is a marked improvement on the previous draft published by the MoJ in September 2010, which was criticised by many (including B&ES) as unworkable and detrimental to the competitiveness of UK companies.The Act is significant in a number of respects, not least because it includes a new corporate criminal offence of failing to prevent bribery.  

This new offence is in keeping with recent legislation, such as The Corporate Manslaughter and Corporate Homicide Act 2008, which is aimed at holding corporations to account for the illegal actions or omissions of employees.The publication of the Guidance marks the start of the "lead in" time for commercial organisations to prepare for the Act’s implementation on 1 July 2011. Only by demonstrating that you have in place "adequate" anti-bribery procedures will you be protected from liability under the corporate offence.

This note is intended to introduce the key bribery offences and provide guidance on the steps HVCA members can take to achieve compliance with the Act.

2. WHAT ARE THE OFFENCES UNDER THE ACT?

(i) General offences:

Under sections 1 and 2 of the Act, it an offence for a person to:- Promise, offer or give (active)
OR
Request, agree to receive or accept (passive) an advantage (financial or otherwise), in circumstances involving the improper performance of a relevant function or activity.

[POINTS TO NOTE: "Relevant function or activity" means a public or business activity, which a reasonable person in the UK would expect to be performed in good faith or impartially. "Improper performance" means a breach of that expectation.]

(ii) Corporate offence:

This offence applies where a commercial organisation fails to prevent bribery being committed by an "associated person" in connection with its business.

[POINTS TO NOTE: "Associated person" is defined in the Act as any person performing services for or on behalf of a commercial organisation¹.]

According to the Guidance, this definition is deliberately broad and could include contractors and suppliers where they are performing services for a commercial organisation. However, with regard to supply-chains, it is likely that only the contractor or supplier with whom the commercial organisation has a contractual relationship will constitute an "associated person" (i.e. not sub-contractors).

3. PENALTIES

Penalties under the Act are severe. There is a maximum penalty of 10 years imprisonment for all offences, except the corporate offence under section 7, which carries an unlimited fine.  There is also a risk that companies convicted could be debarred from tendering for public contracts².

4. THE DEFENCE OF ADEQUATE PROCEDURES

(i) Adequate procedures

A commercial organisation will have a defence to this new criminal offence if it can show that adequate procedures to prevent bribery have been put in place.  No definition of "adequate procedures" is provided. Rather, the Government agreed to provide guidance in order to enable companies to determine what sort of bribery-prevention procedures should be introduced.  

The Guidance is designed to be of general application (and is therefore not prescriptive). To achieve this, the Guidance is formulated around six guiding principles.

(ii) The 6 principles

The six principles for bribery prevention that a company should apply to assist it in establishing ‘adequate procedures’ have been slightly revised from the form they took in the draft guidance previously published. These principles are:

(1) Proportionate procedures. A commercial organisation should have in place clear, practical, accessible, effectively implemented procedures that are proportionate to the bribery risks it faces and to the nature, scale and complexity of its activities.  It follows that SMEs are unlikely to need procedures that are as extensive as those of a large multi-national organisation.  

Smaller organisations may even be able to rely heavily on periodic oral briefings to communicate its policies while a large one may need to rely on extensive written communication.

(2) Top-level commitment. The top-level management are committed to preventing bribery and foster a culture within the organisation in which bribery is never acceptable.  Whatever the size, structure or market of a commercial organisation, top-level management commitment to bribery prevention is likely to include (a) communication of the organisation’s anti-bribery stance, and (b) an appropriate degree of involvement in developing bribery prevention procedures.

(3) Risk assessment. The commercial organisation assesses the nature and extent of its exposure to potential external and internal risks of bribery. Commonly encountered external risks would include risks inherent in construction contracts, particularly where you are delivering a high value project involving many contractors or intermediaries.  Internal risk factors may include lack of financial controls, deficiencies in employee training and/or a bonus culture that rewards excessive risk-taking.

(4) Due Diligence. Applying due diligence procedures to those persons who perform or will perform services for or on behalf of the organisation, taking a proportionate and risk-based approach.  For example, the organisation may wish to incorporate in its recruitment procedures an appropriate level of due diligence to mitigate the risks of bribery being undertaken by employees which is proportionate to the risk associated with the post in question.  Due diligence is unlikely to be needed in relation to lower risk posts.

(5) Communication (including training). The commercial organisation should ensure that its bribery prevention policies and procedures are embedded and understood throughout the organisation. The nature of communication will vary between commercial organisations in accordance with the different bribery risks faced, the size of the organisation and the scale and nature of its activities. Here are some examples:

Internal communications should convey the ‘tone from the top’ but are also likely to focus on the implementation of the organisation’s policies and procedures and the implications for employees.  For example, policies on decision-making, financial control, hospitality and promotional expenditure.

External communications should involve dissemination of bribery prevention policies through a statement or codes of conduct.  For example, sanctions for non-compliance, results of internal surveys and rules governing recruitment, procurement and tendering.

Training may take the form of raising awareness of the threats posed by bribery in general and in the sector or areas in which the organisation operates in particular and the various ways it is being addressed.

(6) Monitoring and review. The procedures designed to prevent bribery are monitored and reviewed using existing internal checks and balances and improvements are made where necessary.  Examples include financial monitoring and periodic reviews.

(iii) Case study

The following case study demonstrates the application of the six principles:

An SME H&V Installer assesses the nature and extent of its exposure to potential external and internal risks of bribery including lack of financial controls, deficiencies in employee training and/or a bonus culture that rewards excessive risk-taking. One of the risks it identifies is that it relies to varying degrees on independent consultants to enhance the company’s prospects of being included in tender and pre-qualification lists and of being selected as main or sub-contractors. These consultants are engaged on an arms-length-fee-plus-expenses basis. They are engaged by sales staff and selected because of their extensive network of business contacts and the specialist information they have.

The reliance on consultants and, in particular, difficulties in monitoring expenditure which sometimes involves cash transactions has been identified by the SME as a source of medium to high risk of bribery being undertaken on the company’s behalf. In seeking to mitigate these risks, the SME could consider any or a combination of the following:

• Communication of a policy statement/code of conduct  by top level management committing it to transparency and zero tolerance of bribery in pursuit of its business objectives. The statement could be actively communicated to the SME’s employees, known consultants and external contacts and attributed to the top level management of the SME thus demonstrating top level commitment within meetings (as opposed to passively disseminated by email);
• Performing due diligence checks before engaging consultants. This could include making enquiries through business contacts, local chambers of commerce, business associations, or internet searches and following up any business references and financial statements;*considering revising the terms of the consultants’ contracts so that they reflect a commitment to zero tolerance of bribery through incorporation by reference to a code of conduct/policy which  set clear criteria for provision of bona fide hospitality on the company’s behalf and define in detail the basis of remuneration, including expenses;
• Consider making consultants’ contracts subject to periodic review and renewal;
• Drawing up a code of conduct on preventing bribery for its sales staff and all other staff involved in bidding for business and when engaging consultants;
• Periodically emphasising these policies and procedures at meetings – for example, this might form a standing item on meeting agendas every few months;
• providing a confidential means for staff and external business contacts to air any suspicions of the use of bribery on the company’s behalf via the SME’s HR function.

5. WHAT IS THE POSITION WITH REGARDS TO CORPORATE HOSPITALITY?

The Guidance acknowledges that hospitality is an established and important part of doing business. It also highlights that corporate hospitality will not fall foul of the Act unless all of the elements of an offence are proven.

By way of illustration, in order to proceed with a case under the section 1 offence based on an allegation that hospitality was intended as a bribe, the prosecution would need to show that the hospitality was intended to induce the recipient of the bribe to breach an expectation (ie, that a person will act in good faith, impartially, or in accordance with a position of trust).  

This would be judged by what a reasonable person in the UK thought.  Therefore, for example, an invitation to a client to attend a Six Nations match at Twickenham as part of a public relations exercise designed to cement good relations is extremely unlikely to engage section 1, as there is unlikely to be evidence of an intention to induce improper performance of a relevant function.

Although this may provide some degree of comfort to companies, this would only apply to hospitality that is considered "reasonable and proportionate". In this regard, the standards or norms applying in a particular sector may be relevant. It follows that the more lavish the hospitality or expenditure, the greater the inference that it is intended to encourage or reward improper performance.

6. SUMMARY

The Act has understandably created much concern amongst the business community in the UK since it received royal assent in April of last year. In particular, the Act was criticised for the ambiguous and potentially far-reaching nature of many of its provisions.

The Guidance has clearly addressed some of these concerns (raised during consultation) and provided some much needed clarity on a number of areas, including corporate hospitality.  The reality is, however, that it will not be until cases begin to go to court that some of the more difficult questions on interpretation of the Act will be answered.

What is clear is the need for companies to begin to assess their levels of exposure to bribery risks and put in place appropriate procedures to ensure compliance from July 2011 when the Act comes into force.

The commercial and legal department have prepared the following documents* to help members achieve compliance with the Act:

1. Bribery Act 2010 - checklist
"Check-list" of anti-bribery procedures to consider in managing the risk of bribery.
Download

2. Bribery Policy
Anti-corruption and bribery policy precedent (to be communicated to staff and "associated persons")
Download

3. Bribery Act 2010 - supplier questionnaire
Due diligence questionnaire (to be issued to third parties performing services on your behalf).
Download

¹ Bribery Act 2010: Section 8 

² Under the Public Contracts Regulations 2006

*Please note the guidance will be updated with the new B&ES branding following the name change on 1 March 2012.