Feature

posted 22 Jun 2010 in Volume 12 Issue 12

Payback Time

The UK Bribery Act threatens crippling penalties for companies that fail to prevent bribery by employees and agents, says Partner Raj Chada of Hodge Jones & Allen.

The UK Bribery Act, which received royal assent on 8 April 2010, could have far-reaching consequences for the way that all domestic businesses are run. It consolidates and clarifies existing law on bribery and enacts two specific offences – the bribing of foreign public officials and the failure by commercial organisations to prevent bribery.

Bribing a foreign official

In terms of bribing a foreign official, a gift will be classified as a bribe if it is intended to obtain or retain a business advantage by influencing the recipient in his/her function as a public official. A financial or other advantage will constitute a bribe if it is not legitimately due to the official.

The judgement of what is legitimately due is based on local law but excludes local customs or tolerance. Hence, the notion that certain business practices are customary may not be sufficient to afford defence to an individual or corporation.

Corporate failure offence

However, by far the most interesting development in the legislation is that there is a new and clear emphasis on a proactive response to prevent bribery.

The Act makes it a criminal offence for a company to fail to prevent bribery on its behalf. This offence applies regardless of where in the world the bribes are offered, whether it is given by an employee or agent, or the size of the company.

Any defence to a charge of corporate failure offence will depend on whether or not the organisation can show that it had adequate procedures in place to prevent such bribery. The authorities will check not only that appropriate procedures are in place, but that they are being followed in practice.

Guidance will be published shortly to assist corporations in putting the relevant policies in place. However, it is likely to set out broad principles and examples of good practice for organisations rather than prescriptive standards. It will probably be based on Organisation for Economic Co-operation and Development or US equivalents.

Avoiding liability

Companies should start by carrying out a thorough assessment of current programmes to prevent bribery. This should be carried out by experienced individuals from internal audit departments. Some companies used to dealing with US regulations will already have some processes in place, but it should not be assumed that these will be sufficient for the new UK regulations.

Board members, including non executive directors, should have appropriate training about the new legislation.

Companies should also conduct an international risk assessment, giving particular focus to high-risk jurisdictions in which they are doing business.

Other factors to consider include the interaction of the company with public officials, how agents or intermediaries are used, and the level of gifts and hospitality events.

Those areas with the highest risk should be targeted for action first, with clear documentation on the assessment and risks identified. Obviously there should be a clear line of accountability as to who is responsible for compliance, training and monitoring.

Larger companies will need to look at incorporating the reporting of such risks into the relevant Board Committee too, with appropriate escalation to the Board itself if necessary. Even smaller companies should have someone with clear responsibility for this area.

That’s entertainment?

Companies should ensure they have updated codes of conduct and policies in place – in particular to deal with hospitality, gifts and entertaining. Policies in these areas should make clear what behaviour is deemed unacceptable and seek to distil the values that the organisation looks to uphold. The value of hospitality and gifts to public officials will need to be monitored and not deemed to be excessive. The general purpose of hospitality and/or gifts should also probably be specified.

Moreover, a general anti-bribery culture will need to be embedded throughout the organisation, and training will need to be provided to staff. Examples of some key ‘dos’ and ‘don’ts’ will help instil the values that employees can use for ethical decision-making.

Companies should be wary about training via circulars or email updates alone, however. This could be seen as evidence of a tick-box mentality, and the issues in this area are much more subjective. Discussion will be key to ensuring staff behave appropriately.

Companies will also want to think about a ‘helpline’ which staff can phone when appropriate. Most companies now have a whistleblowing policy in place, and this should be updated to deal with suspicions about corrupt practices. The policy should make clear who to contact with suspicions, confirmation that reports will be treated anonymously, and what will happen and what feedback will be given after reports are made.

Training, helplines and whistle-blowing mechanisms should be available to staff wherever they work, including at any branches or offices abroad.

Enforcement

As well as training and support, disciplinary and HR procedures will need to be amended to reflect the seriousness with which the company views corrupt practices.

Many of the recent high-profile cases have involved bribes paid via third parties. It is essential that due diligence is carried out before engaging any agents.

Formal contracts should be agreed, and there should be a specific term in the contract that requires the agent to behave in an ethical manner and be in compliance with all relevant legislation, specifically including anti-bribery legislation.

One issue that should be checked is that payments to agents appear to be reasonable in relation to the services performed.

The penalties

Companies should be aware of the new anti-bribery climate that seems to exist amongst law enforcement agencies. Notable UK cases include:

BAE paying £300 million in fines following a plea bargain in early 2010 with the UK’s Serious Fraud Office and the US’ Department of Justice;
the first prosecution in the UK of a company for corruption overseas, resulting in £6.5 million being paid by Mabey and Johnson;
Balfour Beatty paying £2.25 million to settle allegations of corruption; and
Aon being fined £5.25 million by the Financial Services Authority following an investigation.

However, none of that compares with the US record on enforcement, with £800 million being imposed on Siemens after a long corruption enquiry.

The new legislation allows for unlimited fines against companies, as well as unlimited fines or up to 10 years’ imprisonment of individuals.

– rchada@hja.net