The United Kingdom Ministry of Justice (the MoJ) has published the long awaited guidance (the Guidance) in relation to the Bribery Act 2010 (the Bribery Act). The MoJ have confirmed that the Bribery Act will come into force on 1 July 2011. The Guidance specifies the procedures and safeguards required to be put into place by commercial organisations in order to prevent bribery. The Bribery Act has wide ranging extra-territorial application that extends to both UK commercial organisations and foreign commercial organisations carrying on activities outside the UK. Individuals and commercial organisations operating in the Middle East now have a three month period to amend their procedures to ensure they do not fall foul of an Act that has been described as the toughest anti-corruption legislation in the world.
Brief Overview of the Bribery Act
The Bribery Act replaces the UK's existing common law and statutory anti-corruption laws with four new offences:
- a general offence of offering, promising or giving a bribe (Section 1, Bribery Act);
- a general offence of requesting, agreeing to receive or accepting a bribe (Section 2, Bribery Act);
- a distinct offence of bribing a foreign public official to obtain or retain business (Section 6, Bribery Act); and
- a new strict liability offence for commercial organisations that fail to prevent bribery by those acting on their behalf (their associated persons), where the bribery was intended to obtain or retain a business advantage for the commercial organisation (Section 7, Bribery Act).
The Bribery Act extends the crime of bribery to cover all private and public sector transactions (previously bribery offences only applied to transactions involving public officials and their agents). The Bribery Act does not apply retrospectively, therefore corrupt conduct that takes place before 1 July 2011 shall be prosecuted under the UK's existing bribery laws.
The Guidance
The publication of the Guidance was delayed as a result of the significant concerns businesses had raised with the UK Government regarding the practical implications of the Bribery Act. The Guidance has gone some way to addressing those concerns. The Guidance is non-prescriptive and it specifically notes that it is not a "one-size-fits-all" solution. The Guidance offers greater clarity on the following issues:
- Hospitality
The Guidance recognises that bona fide hospitality that is reasonable and proportionate is an important part of doing business and will not breach the Bribery Act. - Facilitation Payments
Facilitation payments are unofficial payments made to public officials in order to secure or expedite the performance of a routine or necessary action i.e. an application for a licence or permit to carry out a particular activity. The Guidance confirms that there is no exemption under the Bribery Act for facilitation payments. The Serious Fraud Office and the Director of Public Prosecutions in the UK offer further guidance on the issues that they will consider when deciding to prosecute in relation to facilitation payments. Those issues include (amongst other things):
- the value of the payment;
- whether the payment is an isolated incident or part of a systemic failure; and
- whether or not the payment is planned or premeditated.
- Foreign Public Officials
The Guidance acknowledges that certain governments allow or require those tendering for publicly funded contracts to offer, in addition to the tender offer, an additional investment in the local economy or benefit to the local community. The additional investment must be a legitimate part of the tender exercise and the relevant local "written law" must permit or require the official to be influenced by the additional investment. If local law does not allow an official to be so influenced then an offence may have been committed under the Bribery Act. It is clear that businesses who regularly tender for public contracts will have to ensure that they carry out due diligence covering the relevant regulatory framework before including additional incentives as part of a bona fide tender. - Corporate Offence
Section 7 of the Bribery Act provides that a commercial organisation will be guilty of an offence if a person associated with the organisation bribes another person with the intention of obtaining or retaining business or an advantage in the conduct of business for that organisation (the Corporate Offence).
Of significance for companies based in the Middle East, the Corporate Offence applies to commercial organisations incorporated or formed outside the UK if they carry on business, or part of a business, in the UK (irrespective of where the conduct which has led to the offence takes place). This leaves commercial organisations with two difficult questions:
- which of the myriad of parties commercial organisations do business with may be considered as "associated persons" for the purposes of the Bribery Act?; and
- what will constitute carrying on business, or part of a
business, in the UK for the purposes of the Bribery Act?
- Associated Persons
The Guidance provides some welcome clarity with regard to those who may be considered as being associated with a commercial organisation for the purposes of the Corporate Offence. The issue of whether or not a person is associated with a commercial organisation is of particular relevance to businesses in the Middle East, where business is often carried out through, or with the involvement of, third party agents. Section 8 of the Bribery Act defines an Associated Person as one who "performs services" for the commercial organisation. The Guidance confirms that suppliers simply acting as a seller of goods to a commercial organisation will not be an Associated Person for the purposes of the Bribery Act. However, if the supplier also performs services in addition to the supply of goods they may be an Associated Person.
The Guidance also clarifies the situation with regards to joint venture partners of commercial organisations. Incorporated joint ventures, where the joint venture is operated through a separate legal entity, may attract attention if the joint venture is performing services for one of its members and a bribe is paid by the joint venture entity with the intention to benefit that member.
When entering into any type of joint venture arrangement commercial organisations will need to include specific contractual protections and carry out due diligence to ensure they are not exposed to liability in respect of corrupt activity carried out by those involved in the joint venture. - Carrying on business in the UK
The Guidance confirms that a commercial organisation which is incorporated or established in the Middle East and is listed on a UK stock exchange is not deemed to be carrying on business in the UK by reason solely of its listed status. Likewise, a Middle East based company that has a UK subsidiary is not deemed to be carrying on business in the UK by reason solely of it having a UK subsidiary. It will be for the UK courts to decide whether or not a commercial organisation is carrying on business in the UK, taking into account the particular facts in individual cases and applying a "common sense" approach as to whether or not an organisation has a "demonstrable" business presence in the UK. - Adequate Procedures
The Guidance details six non-prescriptive principles which are intended to help organisations put in place policies and procedures to prevent bribery by persons associated with them. The Guidance recognises that smaller commercial organisations may not need sophisticated procedures given the nature and size of their business, whilst at the same time acknowledging that the size of a business should not be the only factor considered; procedures should be proportionate to the risks faced by an organisation. The Guidance recognises that bribery risks will vary depending on the jurisdiction, business sector, business partners and transactions involved in each particular case.
The six principles are:
- Proportionate procedures - procedures put in place by organisations should be proportionate to the bribery risk that the organisation will face. As noted earlier, risk will vary depending on the jurisdiction, business sector, business partners and transactions the organisation undertakes;
- Top level commitment – top level management should be committed to the design and implementation of appropriate risk assessment and bribery prevention procedures;
- Risk assessment – bribery risk assessment that is proportionate to the organisation's size and structure, and the scale, nature and location of an organisation's activities. Risk assessment should evolve as the organisation evolves and changes i.e. when the organisation moves into a new territory such as the Middle East;
- Due diligence – organisations should carry out due diligence proportionate to the level of risk associated with persons who perform or will perform services on behalf of the organisation. This is of particular importance where local law requires the use of local agents in certain commercial organisations, as is the case in many countries in the Middle East;
- Communication – organisations should ensure its bribery prevention policies and procedures are clearly and effectively communicated both within the organisation itself and externally. Regular training should be undertaken;
- Monitoring and review – as with risk assessment, the bribery prevention policies and procedures should evolve and adapt to the changing nature, scope and location of the organisation's business.
Conclusion
The Guidance provides some welcome clarity on some of the issues surrounding the Bribery Act that had given commercial organisations some cause for concern. Whilst there are still many issues that remain, the Guidance goes some way to alleviating those concerns.
What is certain is the fact that UK prosecuting authorities intend to actively prosecute oversees corruption and that the fines for such corruption will be similar in level to the substantial fines already imposed by US authorities. UK citizens/commercial organisations and non-UK commercial organisations operating in the Middle East need to be acutely aware that they are doing business in a region that has a high bribery risk and the potential liability that may follow that risk under the Bribery Act. Those affected should immediately implement an extensive bribery risk assessment to facilitate the implementation of bribery prevention procedures that are appropriate to the size, nature and scope of their operations in the Middle East.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.