The UK’s Bribery Act of 2010: The Obligations and Risks It Imposes on US Employers with Business in the UK
The UK Bribery Act is expected to come into force shortly. The Act was implemented in response to pressure on the UK to reform its outdated anti-corruption legislation. The scope of the Act is broader than that of the Foreign Corrupt Practices Act (“FCPA”). Whereas the FCPA only applies if the recipient is a foreign official, the Bribery Act 2010 will cover all bribes, regardless of the recipient’s status. The new Act has extra-territorial effect and has implications for any corporation or group carrying on part of its business in the UK, regardless of where it is incorporated.
The Serious Fraud Office (“SFO”), the UK agency charged with investigating and prosecuting corruption, has backed up its threats of real action to enforce the Act with a series of prosecutions in 2010 under the existing legislation. Companies based in the US also should be aware that US regulatory agencies have been achieving results working alongside the UK authorities in order to bring criminal proceedings on both sides of the Atlantic, leading to the prosecution of companies and individual officers.
The Act creates four new offenses. These are:
(1) Bribing, giving, promising or offering a bribe
(2) Being bribed, requesting, agreeing to receive or accepting a bribe
(3) Bribing a foreign public official
(4) Failing to prevent bribery where an associated person pays a bribe to obtain or retain a business advantage for a commercial organization.
The basic bribery offenses of bribing and receiving a bribe apply to acts or omissions that take place in the UK or outside it if one of the parties involved has a close connection with the UK (for example, if a party is a UK registered company or UK resident).
The Act also imposes strict liability on commercial organizations that fail to prevent payment of a bribe in connection with its business by those acting on their behalf (so called “associated persons”), where the bribery was intended to obtain or retain a business advantage for the company . “Associated person” includes people who perform services for, or on behalf of, the commercial organization regardless of their capacity. This covers employees, agents, subsidiaries and even joint venture partners.
The strict liability offense applies not only to bodies incorporated in the UK, but also covers foreign companies which conduct business there even if the offense occurs elsewhere. As a result, a US group with a UK subsidiary, could still incur UK liability for payments made by a sister company based in a third country to persons there. The offense applies to companies even if they only possess a minor presence in the UK. Furthermore, there is no requirement for the associated person to have any connection with the UK.
The Act allows commercial organizations a defense to the strict liability offense of failing to prevent payment of a bribe, namely that the organization had in place “adequate procedures” designed to prevent bribery. In September 2010 the UK’s Ministry of Justice (“MoJ”) published draft guidance for commercial organizations on preventing bribery and putting procedures in place. The draft sets out six general principles intended as a starting point for implementing and monitoring a bribery free environment. These are:
1. Risk assessment – related to the bribery risks in the industry and markets in which the business operates.
2. Top level commitment – management should work towards establishing a culture within the organization in which bribery is unacceptable.
3. Due diligence – on those with whom the organization is doing business with.
4. Clear, practical and accessible policies and procedures – applying policy and procedures to all employees and business partners.
5. Effective implementation – going beyond simple paper compliance to embed an anti-bribery culture in all aspects of the organization’s business.
6. Monitoring and review – comply with the continuing obligation to properly audit the organization’s finances.
A final version of the draft guidance was due to be published by in January 2011 but has been delayed for further government consideration.
Liability of Individuals
The Bribery Act applies not only to companies, but also their officers. Senior officers (directors, company secretaries and senior managers) of a corporation can be convicted of an offence where they have consented or connived in the bribery. Where a company operates in corrupt jurisdictions, the absence of corporate procedures to prevent bribery may itself constitute connivance in corruption by a senior officer.
Facilitation Payments & Hospitality
The Act makes facilitation payments unlawful. Facilitation payments are small payments made to foreign officials for performance of a routine action usually intended to influence timing rather than outcome. Such payments are permitted in the US if their purpose is to expedite or secure performance of some routine governmental action. No such exception exists in the UK. These payments are unlawful under the Act and can constitute a criminal offence.
The SFO have stated that each case will depend on its circumstances. No action is likely to be taken if the facilitation payment is a small one-off payment and the company has taken steps to address such practice in the future. However, large or frequent facilitation payments may lead the SFO to conclude it is in the public interest to prosecute the company, particularly if it does not have procedures addressing the problem.
Corporate hospitality is also at risk. The SFO’s approach is, the higher the expenditure and the more lavish the hospitality, the more likely it will be in the public interest to prosecute. The more lavish the hospitality, the more willing the SFO will be to infer that the company intended to influence the recipient, in order to grant a business advantage.
Sanctions & Enforcement
Bribery under the Act is a criminal offence for which both individuals and companies can be liable. Companies can receive an unlimited fine, while individuals may face up to ten years imprisonment and/or an unlimited fine on indictment. Directors may also be disqualified from acting as the director of a company for a period of up to 15 years.
The SFO has discretion to decide whether to pursue criminal proceedings or whether the case is suitable for civil disposal. In 2009 the SFO issued guidance which states that civil sanctions are more likely to be sought if the business self-reports instances of corruption and co-operates with the SFO’s investigations. If individuals or businesses fail to report or cooperate, they will be more likely to face criminal prosecution. Criminal conviction carries with it exclusion under European Union and World Bank rules.
International Plea Agreements
UK courts are not bound by plea agreements made with the prosecution, and tend to be less willing to defer to them than their US counterparts. This may be problematic if a company is prosecuted in both the US and the UK, and the parties sign a settlement agreement to be applied in both countries. Although the agreement may be binding in the US, this may not be the case in the UK. The English Court encountered this situation recently in R v. Innospec Limited. The judgment in that case may upset the SFO’s goals of encouraging more companies to self-report and enter into plea agreements.
The Securities and Exchange Commission (“SEC”) and Department of Justice (“DoJ”) commenced an investigation into Innospec, Inc. (a NASDAQ listed company) in 2005, and the SFO started an investigation into Innospec Limited in 2008. In 2008, discussions began between the US and UK prosecuting authorities with a view to achieving a “global settlement.”
Given the financial state of Innospec, Inc. and its subsidiaries, and Innospec’s full admission and cooperation, the US and UK authorities agreed to a global settlement of approximately $40 million. It was agreed that Innospec Limited would pay $12.7 million. The settlement was subject to US and UK court approval and involved Innospec Limited pleading guilty to a charge of conspiring to corrupt in March 2010. While the settlement deal was approved by the US court, it proved more of an issue in the UK.
Lord Justice Thomas acknowledged that while the SFO may discuss plea agreements with the defendant, it was in the interests of transparency, particularly in relation to the crime of corruption, to scrutinize the plea in open court.
The court stated that corruption of foreign government officials was at the “top end of serious corporate offending both in terms of culpability and harm” and that the settlement reached in this case was inadequate. Despite this, the agreement was allowed to stand, but only on the particular facts of the case.
The approach of the English judiciary to corporate corruption
In Innospec, Thomas LJ indicated criminal sanctions would be the most appropriate penalty in cases of serious corruption:
“It will rarely be appropriate for criminal conduct by a company to be dealt with by a civil recovery order… It is of the greatest public interest that the serious criminality of any, including companies, who engage in the corruption of foreign governments, is made patent for all to see by the imposition of criminal and not civil sanctions.”
In April 2010 Robert John Dougall a former executive of Depuy International Limited, a health equipment manufacturer owned by Johnson & Johnson, pleaded guilty to involvement in corrupt payments of around $4.5 million. Mr Dougall was sentenced to 12 months’ imprisonment despite a recommendation from the SFO that he be spared jail in return for his full cooperation. The Court of Appeal later suspended his sentence acknowledging that Mr Dougall deserved leniency but emphasized that his case was on the borderline between immediate and suspended imprisonment.
In October 2010, Julian Messent, former CEO of PWS Insurance, was sentenced to 21 months’ imprisonment, ordered to pay £100,000 in compensation and disqualified from being a company director for 5 years. The corruption involved 41 payments to three officials in Costa Rica totaling approximately $2 million.
In February 2010, BAE Systems reached a settlement as part of a global agreement with the SFO and US DoJ concerning contracts in a number of countries. The settlement with the SFO related to a contract involving the sale of a radar system to the Government of Tanzania. Under the settlement BAE agreed to make an ex-gratia payment for the benefit of the people of Tanzania of £30 million. The agreement was subject to court approval and in late December 2010 the Court fined BAE Systems Plc £500,000 after the company admitted that it had failed to keep adequate accounting records. The company also was ordered to pay £225,000 costs to the SFO. Despite the seriousness of the circumstances, in this case the court decided not impose a higher penalty as the SFO and BAE had agreed that any fine would be deducted from the £30m payout to Tanzania and the offense before the court was an accounting offense, not corruption.
Even though companies and individuals may be able to deal with prosecutors, they cannot be certain the extent to which cooperation will earn credit with the court, though it seems certain a failure to assist will result in greater penalties. The cases above are the result of increasingly aggressive anti-corruption policies by the authorities in the UK and the US, and companies operating internationally should work to ensure compliance with both the FCPA and the Bribery Act 2010.
There are several important risk management steps companies should take to ensure they are ready for the Act’s implementation. In deciding whether to prosecute, the SFO have stated they will consider whether a business has implemented a rigorous anti-bribery policy, and has adequate procedures in place. Indeed, the SFO’s message is unmistakable: companies must have in place a clear, written, anti-bribery policy. However, this alone may not be enough. Companies need to be able to demonstrate that they have in place a policy which is current and effective and compliant with the UK guidelines. They also need to be able to provide evidence that there exists a corporate culture completely opposed to corruption.