The Act is arguably more draconian than even the US Foreign Corrupt Practices Act (FCPA) – for example, it prohibits bribery in the private sector; prohibits any form of facilitation payment and has no carve out for promotional expenditure. The Act represents a significant tightening of anti-corruption legislation in the UK.
After the publication of the Act in April 2010 and the draft guidance in autumn 2010, commentators and business leaders expressed concerns that some normal industry standard practices, including basic corporate hospitality, might fall foul of the Act; potentially putting UK business at a disadvantage to their US competitors. The biggest concern is that the new strict liability offence of failing to prevent a bribe might make companies liable for the acts of contractors, agents, joint venture partners and subsidiaries over which they have little control – no matter where in the world those acts take place.
While the Guidance has eased some of the concerns a degree of uncertainty remains as to when companies incorporated outside the UK might be subject to the Act and in what circumstances companies might be liable for bribes made by "associated persons".
Throughout the Guidance the MoJ emphasises that compliance is "largely about common sense, not burdensome procedures". Whilst this, and the related emphasis on proportionality, will offer reassurance to companies seeking to comply with the legislation, the MoJ also acknowledges that many of these issues are fact-sensitive and will ultimately need to be tested by the courts.
The basic offence
The basic offence of bribery applies across the board both in the UK and overseas and both in the public and private sector. Bribery is essentially defined as an intention to induce or reward improper conduct. This has quite a convoluted definition in the Act but it boils down to an intention that the "advantage" should cause the recipient to act in a way in which he would otherwise not be expected to act. There is no separate requirement of acting dishonestly or corruptly with the Act marking a conscious attempt to move away from such subject of concepts which are notoriously slippery and difficult to explain to juries.
Bribery of foreign public officials
The second basic offence applies specifically to foreign public officials. A foreign public official is essentially any civil servant or employee of a state run or state funded institution. This offence is easy to fall foul of as there is no requirement to show that there was an intention to induce "improper" conduct. The Act simply requires that the payment had the intention to "influence" the foreign public official. As such, hospitality for foreign public officials has been one of the biggest concerns for corporates. It is often the case that when dealing in countries such as China or in Central Asia for example many of the key enterprises are State owned or State run. On the face of it the Act prohibits any form of hospitality to employees of such entities. However, the guidance has provided some reassurance in this regard.
Failure to prevent bribery
The Act makes it an offence for a commercial organisation that is incorporated in, or carries on business in, the United Kingdom to fail to prevent bribery being committed on its behalf by "associated persons". However, the commercial organisation will be able to avoid conviction for failing to prevent bribery if it can show that it nonetheless had "adequate procedures" in place to prevent bribery, i.e. that the bribe was a one-off.
The Guidance
The Guidance has sought to clarify the application of the Act in the following key areas:
- When a non-UK incorporated company can be said to carry on business in the UK;
- When acts by "associated persons" may lead to liability;
- What bribery prevention measures need to be put in place ("adequate procedures"); and
- The extent to which corporate hospitality might incur liability under the Act.
Carrying on business in the UK
Whether bodies incorporated outside the UK might be subject to the Act on account of their carrying on business in the UK has become a cause of concern for companies worldwide. The Guidance has provided some assistance by stating that the question should be answered by applying a "common sense approach". However, it notes that the courts will be the final arbiter. Thus, until there is a corpus of binding court precedent there will remain a certain degree of uncertainty.
The "common sense approach" means examining whether or not the organisation has a demonstrable business presence in the UK. According to the MoJ, having a UK subsidiary or securities admitted to listing in the UK will not in itself mean that the company is carrying on business in the UK. In practice of course, a company will rarely be listed without having some other business presence.
Significantly, where an entity is found to carry on business in the UK, the Act will apply to worldwide acts of the company (and its "associated persons") irrespective of whether the conduct in question has any connection to the UK.
"Associated persons"
In defining "associated persons", the Act refers to persons who perform services for or on behalf of the company. The Guidance emphasises that this is intended to be broad in scope, and that "associated persons" can include anyone in the supply chain, including sub-contractors and agents, as well as joint venture partners and subsidiaries.
The inclusion of references to joint ventures ("JV") has caused significant concern for many multinationals whose only footprint in a particular jurisdiction is by way of an existing JV arrangement with a local/foreign company.
The guidance distinguishes between a contractual JV and a JV which is a distinct legal entity in which the members hold shares. The Guidance makes it clear that in the latter case a JV company that pays a bribe does not necessarily do so on behalf of its shareholders simply because they may benefit indirectly by way of a dividend. The suggestion in the Guidance is that the actions of a contractual JV are more likely to cause difficulty to its participants.
In the context of oil and gas exploration and extraction it is very common for a number of multinationals to participate in a Joint Operating Agreement ("JOA") whereby one participant will operate the project for all the participants. The participants may ultimately enjoy the fruits of the project for example by way of a Production Sharing Agreement because they take a portion of the oil or gas, i.e. more than just a dividend.
Depending on the factual circumstances and the level of control that a participant has over the activities of an Operator, there is a risk that the Operator is "performing services" for the participants in a JOA. The degree of control the participant has over the JOA may be an important factor in deciding if the person who pays a bribe in the conduct of the JOA business is doing so for the JOA, the Operator or a participant.
It may be, for example, that a bribe is paid by someone seconded to the Operator. In that case there is a rebuttable presumption it is paid for his employer – i.e. the participant. However, if the bribe is paid by a contractor/sub-contractor employed by the Operator it will be harder to show that it was paid for all the participants in a JOA not just the Operator.
In any case, participants in JOAs (especially in the developing world) will have to consider the extent to which they impose controls on the Operator to prevent bribery.
The Guidance makes it clear that any company entering into a joint venture must actively negotiate with its joint venture partners for the inclusion of specified bribery prevention procedures. These include insisting on parity of representation between parties, putting in place measures to ensure compliance with all applicable corruption laws and establishing an audit committee to view accounts and prepare reports on certain expenditure.
The Guidance suggests that failure of a joint venture partner to comply with corruption laws should constitute a material breach of the joint venture agreement and lead to termination or other similarly significant consequences.
"Adequate procedures"
If a bribe has been paid on behalf of a company, the Act provides that the company will be able to avoid conviction for failing to prevent bribery if it can show that it had "adequate procedures" in place to prevent bribery. In other words, the company is given the opportunity to demonstrate that any improper conduct was an isolated incident rather than an institutional failure.
The Guidance has provided six principles that are intended to guide companies in deciding what bribery prevention measures to put in place, placing an emphasis on proportionality, implementation and review.
The six principles are:
- Proportionate Procedures
- Top level commitment
- Risk assessment
- Due diligence
- Effective implementation
- Monitoring and review
Corporate hospitality under the Act
One of the main areas of concern for businesses before the publication of the Guidance was that corporate hospitality would constitute bribery under the Act. The Guidance has offered considerable reassurance by stating that the Act does not prohibit "bona fide hospitality and promotional, or other business expenditure which seeks to improve the image of a commercial organisation, better to present products and services, or establish cordial relations".
The Guidance makes it clear that the Act is not intended, for example, to prohibit businesses from taking clients or customers to Wimbledon, the Grand Prix or Twickenham with a legitimate business purpose. However, it does warn that in some sectors the lavish nature of corporate hospitality may put companies at risk of being perceived as using hospitality to have a "direct impact on decision making".
Conclusion
The Guidance will offer reassurance for companies in the energy sector grappling with the scope and impact of the Act. Nevertheless companies will still need to look carefully at the particular risks posed by their business operations and partners. In particular they must ensure that they implement appropriate procedures to prevent other parties making bribes on their behalf before the Act comes into force on 1 July 2011.
—– By Liam Naidoo, senior associate in Hogan Lovells’ litigation practice
