London Market - August 2010
Guest article
We are delighted to have a guest article in
this edition from Euros Jones, an Associate in our London based
Regulatory Team. Euros’ article takes a look at The Bribery
Act 2010 and some of the implications for company directors,
officers and their insurers.
The Bribery Act 2010: are you ready for it?
Introduction
The UK’s most recent piece of anti corruption
legislation, The Bribery Act 2010 (“the Act”) received its’ royal
assent in April 2010. The Act signifies a move to consolidate the
law on corruption and is a very wide, tough piece of legislation
designed to facilitate the prosecution of corrupt practices.
The previous Government’s stated intention, with cross party
support, of combating corrupt practices moved a step closer with
it.
Whilst the current Government has recently
delayed the coming into force of the Act until April 2011 so as to
allow for a consultation process to be held with the intention of
assisting companies to understand what action should be taken to
ensure compliance with this new law, it is important that action
should be taken now by companies and senior company officers to
begin the process of compliance.
Recent enforcement action
This stated aim by Government is being
supported by the recent increase in enforcement action by enforcing
bodies. It is clear that the Serious Fraud Office (“SFO”) is
looking to enforce more as can be seen from recent enforcement
action it has taken. For example, take the prosecution of Mabey and
Johnson in 2009. That company agreed to pay £5.6m following a plea
bargain agreement with the SFO which included the requirement to
pay fines and reparations.
Another example is the civil recovery order
obtained by the SFO in 2008 against Balfour Beatty Plc under the
Proceeds of Crime Act 2002. In those proceedings, Balfour Beatty
Plc agreed to a settlement payment of £2.5m together with a
contribution towards costs and the agreement to the introduction of
certain compliance systems that were to be externally
monitored.
Richard Alderman, Director of the SFO
commenting on the Balfour Beatty Plc case at the time said:
“This is a highly significant
development in our efforts to reform British corporate behaviour.
We now have a range of enforcement tools at our disposal, and a
major factor in determining which of those tools is deployed will
be the responsibility demonstrated by the company concerned.”
The Financial Services Authority (“FSA”) is
also looking to crack down on corrupt practises. Traditionally, the
FSA has looked to enforce against individuals accused of insider
dealing and market abuse. However, in 2009 the FSA took the
step of taking enforcement action against Aon Limited
(“Aon”), imposing a fine of £5.25m on it “for failing to take
reasonable care to establish and maintain effective systems and
controls to counter the risks of bribery and corruption associated
with making payments to overseas firms and individuals”
Margaret Cole, the FSA’s director of
enforcement, said:
"This is the largest financial
crime related fine imposed by the FSA to date. It sends a clear
message to the UK financial services industry that it is completely
unacceptable for firms to conduct business overseas without having
in place appropriate anti-bribery and corruption systems and
controls.”
“The involvement of UK financial
institutions in corrupt or potentially corrupt practices overseas
undermines the integrity of the UK financial services sector.
The FSA has an important role to play in the steps being taken by
the UK to combat overseas bribery and corruption. We have
worked closely with other law enforcement agencies in this case and
will continue to take robust action focused on firms’ systems and
controls in this area."
“Aon assisted the FSA throughout
its investigation and secured a 30% reduction on the financial
penalty under the FSA’s settlement discount scheme as a
result. The FSA said that “the pro-active determination of
Aon Ltd’s current senior management to identify past issues and
improve the firm’s systems and controls in this area is a model of
best practice that other firms may wish to adopt”.
The above, together with additional
recruitment of staff into the FSA’s enforcement division
demonstrates that this regulator is taking steps to strengthen its
role in stamping out corrupt practices.
In seeking to do so, the Act is the newest
weapon in these enforcement bodies’
armouries.
Is it a simplified law?
Until recently the substantive law governing
bribery in the UK was, according to the Organisation for Economic
Co-Operation and Development (“OECD”), full of “complexity and
uncertainty”.
The Act is designed to simplify matters. Both
companies and company officers need to be aware of its existence
and to take adequate steps to ensure that there is compliance with
its provisions as failure to do so could lead to a criminal
prosecution.
The Act has extra jurisdiction application and
is more far reaching that the US’ Foreign Corrupt Practices Act
1977 in that it will apply to both public and private sector
corruption. Interestingly, unlike the US legislation, facilitation
payments are banned and there is a potential grey area of what is
acceptable as corporate hospitality. The Act also introduces a
number of new offences that have application to all areas of
business.
The offences
The Act’s primary offences are those of
bribing another person (Section 1) and of being bribed (Section 2).
The Act also introduces an offence of bribing a foreign public
official (Section 6) and a new corporate offence of failing to
prevent an associated person from committing bribery (Section
7).
The basic offences
An offence is committed under Section 1 if a
person offers, promises or provides a financial or other advantage
to another where as a result, that other person performs a function
improperly.
An offence is committed under Section 2 if a
person requests, agrees to receive or accepts a financial or other
advantage from another where as a result that person performs a
function improperly.
These two offences have an extra
jurisdictional application and the provisions of Section 3, 4 and 5
assist in the interpretation of these offences. A person improperly
performs a function if he/she breaches an expectation that the
function would be performed impartially, in good faith or as a
result of a position of trust.
However, the two offences that have caused the
most interest are those contained in Section 6 and Section 7 of the
Act.
The offence of bribing a foreign
public official
Section 6 creates an offence of bribing a
foreign public official. Such an offence is committed if a person
pays or offers an advantage to a foreign public official with the
intention of influencing that official so as to obtain or retain
business as a result and when that official is not allowed or
required to be influenced by that payment or advantage under local
law.
Companies therefore have to be careful when
dealing with foreign public officials, not least as facilitation
payments are banned under the Act. Whilst it is acknowledged that
there may be concerns with the competitiveness of companies in the
global market who are linked with our jurisdiction as a result of
this provision in the Act, this clear approach is intended to
demonstrate that there will be zero tolerance of bribery moving
forward.
The offence of failing to prevent
bribery
Section 7 creates the new corporate offence of
failing to prevent bribery. Such an offence is committed if a
person associated with a company, performs a service on behalf of
the company and that person bribes another with the intention of
obtaining or retaining business or an advantage in the conduct of
that company’s business. The offence is made out if the company is
then unable to make out the defence of having in place “adequate
procedures” which are designed to prevent associated persons from
engaging in bribery. An associated person includes an employee,
agent or subsidiary (See Section 8). This list is by no means
exhaustive.
A company linked to the UK through its’
business activities can therefore be prosecuted here for the acts
of its associated persons abroad. This has serious implications for
that company and its officers, not least as the maximum sentence
for a company convicted of this offence is an unlimited fine.
What are adequate
procedures?
It is therefore important to ensure that a
company with business links with the UK has in place adequate
procedures to ensure that bribery does not take place through the
company’s acts or that of its associates.
Unfortunately, the Act does not define what
“adequate procedures” are and the position is not made any easier
by the fact that the Government has not published its Guidance on
the matter. This is a concern given that the Act is to come into
force in April 2011 and that companies will be expected to have
these procedures in place before then. The Government’s recent
decision to postpone the implementation of the Act until April 2011
should assist companies to some degree. This decision was
made to allow for a consultation to be launched in September 2010
which will look at what companies need to do to ensure that they
comply with the law. A statement on the Ministry of Justice’s
website states:
“In September the Government will launch a
short consultation exercise on the guidance about procedures which
commercial organisations can put in place to prevent bribery on
their behalf.”
Whilst a number of companies will have
procedures in place to comply with the Foreign Corrupt Practices
Act 1977, those procedures will have to be reviewed in light of
this legislation and other companies will have to start from a
lower base.
How detailed will the Guidance
be?
The Guidance is unlikely to be detailed,
focussing more on a generic set of principles for companies to
follow. It will not be prescriptive in nature, and each company
will have to adapt its’ own procedures to its’ own specific
business and associated risks.
When will the Guidance be
published?
“This will be published early in the New Year
to allow businesses an adequate familiarisation period before the
Act commences.” – Ministry of Justice
What can companies therefore do in the
interim to ensure they are compliant with the
legislation?
As the publication of the Guidance in the New
Year will not allow for much time to implement procedures before
the Act comes into force, there are other sources available from
which indicators can be taken of what could be adequate procedures
within the context of the Act. Examples include:
The Serious Fraud Office’s
guidance on self reporting of corrupt practices;
The US sentencing guidelines for
breaches of the Foreign Corrupt Practices Act 1977; and
The Financial Services Authority’s
report on “Anti bribery and corruption in corporate insurance
broking” issued in May 2010.
This latter report is a good indicator of what
procedures should be adopted in the insurance broking context and
concluded “that many firms are not currently in a position to
demonstrate adequate procedures to prevent bribery”.
Immediate action to demonstrate
adequate procedures
What is clear from the above indicators is
that there should be acceptance and proactive development of anti
bribery procedures within companies and those procedures should be
implemented from Board level downwards.
The Board should develop an anti bribery
culture, and have a stated company ethics policy.
Directors and senior managers should take a
lead on implementing and reviewing that policy and the company
should conduct a risk and vulnerability assessment of the likely
difficulties to be encountered in its’ business line so as to
identify and manage those risks and prevent bribery.
Other suggested actions include the
implementation of financial and management controls and procedures
to limit the possibility of bribery together with the publication
of clear policies on topics such as gifts and corporate
hospitality.
Other procedures include staff training on
anti corruption policies and procedures, implementation of whistle
blowing procedures and the vetting of representatives and agents,
particularly those operating in different jurisdictions.
If not already doing so, companies need to
start work on these issues as soon as possible and seek
professional assistance in doing so.
What of senior officers?
Company senior officers must be active in
ensuring that the company is complying with the Act. This is
important because if it is shown that an offence under Section 1, 2
or 6 of the Act was committed with the consent or connivance of a
senior officer or a person purporting to act in such capacity then
that senior office may also be guilty of an offence (Section 14).
The importance of this is highlighter by the fact that the maximum
sentence for an individual convicted of an offence in such
circumstances could be a period of imprisonment of 10 years,
putting to one side ancillary action following conviction, such as
the imposition of confiscation and directors disqualification
orders.
A senior officer is defined as a director,
manager, secretary or any other similar officer of a body
corporate.
Conclusion
In summary therefore, not only does the Act
simplify the law but it also has wide reaching effect. It will
impact on all areas of business and both companies and corporate
officers will have to be alive to its provisions and ensure that
safeguards are implemented to ensure compliance by the company and
its’ associates. Only then will potential criminal sanction be
avoided. Preventative action must be taken now as there will be
little time to do so between the publication of the Government's
Guidance in the New Year and the Act coming into force in April
2011.
Euros Jones,
Associate
Weightmans
LLP
Euros.Jones@weightmans.com
020 7822 1928