The UK Bribery Act 2010 and its implications for businesses

Transcription

1 17. The UK Bribery Act 2010 and its impications for businesses John Rupp, Robert Amaee and Ian Redfearn, Covington & Buring LLP There was a time in the not so distant past when the US Foreign Corrupt Practices Act was the ony game in town for prosecuting those who bribed foreign government officias. Athough many other countries had criminaised such conduct, many others had not and most of the anti-bribery aws on the books of countries other than the US were not enforced. One of the most striking deveopments of the past few years has been the extent to which countries other than the US have increased their investigation and prosecution of domestic and foreign bribery in both the pubic and private sectors. Athough there was a debate in the UK more than a decade ago about the extent to which UK aw prohibited bribery outside the UK, that debate was setted by the entry into force of the Anti-Terrorism, Crime and Security Act 2001 in that year. The patchwork of appicabe aws and a number of other factors nevertheess discouraged prosecutions in particuar, prosecutions for bribery outside the UK. The UK Bribery Act 2010, which came into force on Juy 1, 2011, is a powerfu new too for prosecuting bribery within and outside the UK in the pubic and private sectors. The Bribery Act reformed the crimina aw of bribery in the UK, simpified the process for prosecuting bribery offences, and provided for increased penaties for those who are convicted of such offences. Athough ony one prosecution under the Bribery Act has been competed so far, it shoud be on the radar of a UK commercia organisations, as we as a commercia organisations that do business in the UK. Jurisdictiona reach The Bribery Act has broad extra-territoria effect. The offences of bribing another person, being bribed and bribing a foreign pubic officia can be committed by any individua or commercia organisation if an act or omission forming part of the offence takes pace in the UK. If that jurisdictiona test is not satisfied, the Bribery Act nonetheess may be triggered if any of those invoved in the bribery are found to have a cose connection to the UK. British citizens, British nationas, individuas ordinariy resident in the UK, UK-incorporated companies and UK partnerships are a deemed to have that cose connection to the UK. The offence of faiing to prevent bribery, which appies ony to commercia organisations, has an even broader jurisdictiona reach. Whie that offence can obviousy be committed by commercia organisations incorporated or formed in the UK, it aso can be committed by commercia organisations incorporated or formed outside the UK if the commercia organisation is carrying on a business, or part of a business, in the UK. The Adequate Procedures Guidance pubished by the Ministry of Justice recommends that non-uk companies and partnerships take a commonsense approach to deciding whether they are carrying on a business, or part of a business, in the UK. The guidance suggests that a non-uk organisation woud need to have a demonstrabe business presence in the UK to be covered by the Bribery Act. There has been some debate about whether a isting on the London Stock Exchange woud in itsef mean that a company has a demonstrabe business presence in the UK. The Adequate Procedures Guidance states that the UK government does not expect a securities isting aone to constitute carrying on a business or part of a business in the UK. But it notes that the fina arbiter, in any particuar case, wi be the [UK] courts, and Richard Aderman, the former director of the Serious Fraud Office (SFO), the UK s ead anti-bribery enforcement authority, decared that the SFO woud not be impressed with overy technica interpretations of the Bribery Act. The Adequate Procedures Guidance is not binding on either the SFO or the UK courts, and the SFO has discretion to decide which cases it wishes to prosecute. As the Adequate Procedures Guidance points out, the courts wi be responsibe for deciding whether a commercia organisation fas within the scope of the Bribery Act. For the time being, therefore, a prudent company with a isting on the London Stock Exchange woud be we advised to assume that it is subject to the Bribery Act, at east unti such time as the courts rue to the contrary. Offences Genera offences Bribing another person A person commits an offence under Section 1 of the Bribery Act if he or she offers, promises or gives a financia or other advantage to another person and he or she: intends the advantage to induce a person to perform a reevant function or activity impropery; intends the advantage to reward a person for the improper performance of a reevant function or activity; or knows or beieves that acceptance of the advantage woud constitute improper performance of a reevant function or activity. References in this chapter to persons incude both natura and ega persons. In the first two circumstances, it does not matter whether the person to whom the advantage is offered, promised or given is the same as the person who is being induced to perform or rewarded for performing a reevant function or activity impropery. In each case, the advantage may aso be offered, promised or given through a third party. The term reevant function or activity is defined broady in Section 3 of the Bribery Act to incude any function of a pubic nature, any activity connected with a business, any activity performed in the course of a person s empoyment, and any activity performed by or on behaf of a body of persons (whether corporate or incorporate). The person performing the reevant function or activity must be expected to do so in good faith or impartiay or be in a position of trust by virtue of performing it. A reevant function or activity may be performed outside the UK, however, and it is not necessary for it to have a connection to the UK. A person wi be deemed to have performed a reevant function or activity impropery if he or she performed it in breach of a reevant expectation that is, an expectation that it woud be performed in good faith or impartiay or if the person faied to perform the reevant function or activity, which in itsef woud constitute a breach of a reevant expectation. The reevant expectation wi be assessed by reference to what a reasonabe person in the UK woud expect in reation to the performance of the reevant function or activity. If performance of the function or activity is not subject to Engish, Scottish or Northern Irish aw, oca customs or practices must be disregarded uness they are expressy permitted or required by the written aw of the country concerned. Page 128 The UK Bribery Act 2010 and its impications for businesses The UK Bribery Act 2010 and its impications for businesses Page 129

2 Being bribed A person commits an offence under Section 2 of the Bribery Act if he requests, agrees to receive or accepts a financia or other advantage: intending as a consequence for a reevant function or activity to be performed impropery (whether or not by the same person who requested, agreed to receive or accepted the advantage); when the request, agreement or acceptance woud constitute improper performance of a reevant function or activity; or as a reward for improper performance of a reevant function or activity. It does not matter whether the person requests, agrees to receive or accepts the advantage directy or through a third party. Neither does it matter whether the advantage benefits the recipient (or intended recipient) or another person. The terms reevant function or activity and improper performance have the same meaning with respect to Section 2 of the Bribery Act as they have with respect to Section 1. It does not matter whether the person who requests, agrees to receive or accepts an advantage knows or beieves that the performance of a particuar function or activity is improper. Bribery of foreign pubic officias A person commits an offence under Section 6 of the Bribery Act if he bribes a foreign pubic officia with the intention of: infuencing the foreign pubic officia in his or her capacity as a foreign pubic officia; and obtaining or retaining business or an advantage in the conduct of business. For purposes of this offence, a person bribes a foreign pubic officia if: he or she, directy or through a third party, offers, promises or gives a financia or other advantage to a foreign pubic officia or to another person at the request of, or with the assent or acquiescence of, the foreign pubic officia; and the foreign pubic officia is neither permitted nor required by the written aw appicabe to him or her to be infuenced in his or her capacity as a foreign pubic officia by the offer, promise or gift. The term foreign pubic officia is defined broady in the Bribery Act to incude any individua who: hods a egisative, administrative or judicia position of any kind in a country or territory outside the UK; exercises a pubic function for or on behaf of a country or territory outside the UK, or for any pubic agency or pubic enterprise of that country or territory; or is an officia or agent of a pubic internationa organisation that is, an organisation whose members are countries or territories, governments or other pubic internationa organisations. Faiure of commercia organisations to prevent bribery A commercia organisation commits an offence under Section 7 of the Bribery Act if an associated person bribes another person with the intention of obtaining or retaining business or an advantage in the conduct of business for that commercia organisation. Athough positioned in the Bribery Act as a separate offence, the SFO woud not ook at what a commercia organisation had done or not done to combat bribery uness it concuded that a bribe had been offered, promised or paid by or on behaf of the commercia organisation or for the organisation s benefit. An associated person is one who performs services for or on behaf of a commercia organisation that is subject to the Bribery Act. When assessing whether a person is performing services for or on behaf of a commercia organisation that is subject to the Bribery Act, prosecutors and the courts must take into account the circumstances informing the reationship between the person and the commercia organisation. They woud consider, among other factors, the degree of contro that the UK commercia organisation exercised over the non- UK person who actuay offered, promised or paid the bribe. It is a defence to Section 7 for a commercia organisation to prove that it had adequate procedures to prevent associated persons from bribing another person for or on behaf of the commercia organisation. The key aspects of the adequate procedures defence are summarised ater in this chapter. Penaties The maximum penaties for Bribery Act offences are severe. An individua convicted of bribing another person, being bribed or bribing a foreign pubic officia is iabe to imprisonment for a term not exceeding 10 years, an unimited fine or both. Commercia organisations convicted of bribing another person, being bribed, bribing a foreign pubic officia and faiing to prevent bribery are iabe to an unimited fine. Impications for senior officers If a commercia organisation commits an offence under Sections 1, 2 or 6 of the Bribery Act with the consent or connivance of a senior officer of the commercia organisation or a person purporting to act in such a capacity, that senior officer or person coud face persona crimina iabiity. The term senior officer is defined broady to incude a director, manager, secretary or simiar officer. Increasingy, the UK courts are taking a hard ine against senior officers who are compicit in corruption. In sentencing three former executives of a company that had engaged in bribery, one judge said in 2011: When a director of a major company pays even a sma part [in a bribery scheme], he can expect to receive a custodia sentence. Impications for pubic procurement The Pubic Contracts Reguations 2006 (the Reguations) prevent pubic authorities from seecting as a contractor any commercia organisation that has been convicted of bribing another person in vioation of Section 1 or bribing a foreign pubic officia in vioation of Section 6 of the Bribery Act. This mandatory debarment rue appies in a other EU states under Artice 45 of the EU Pubic Procurement Directive (2004/18/EC). The Reguations aso give contracting authorities discretion to excude from seection any commercia organisation that has been convicted of having vioated Section 7 of the Bribery Act, which unike Sections 1 and 6 does not require actua knowedge by the commercia organisation that a bribe has been paid on its behaf or for its benefit. The UK government confirmed in March 2011 that a conviction under Section 7 wi attract discretionary rather than mandatory excusion from pubic procurement under the Reguations. Impications for insurance coverage In the absence of specific agreements with underwriters, directors and officers (D&O) iabiity insurance does not typicay cover iabiity for bribery-reated offences. Those within a commercia organisation having responsibiity for its insurance arrangements shoud therefore speak with the organisation s underwriters to ensure that those arrangements address the risk that senior officers may be found personay iabe under the Page 130 The UK Bribery Act 2010 and its impications for businesses The UK Bribery Act 2010 and its impications for businesses Page 131

3 Bribery Act. Simiary, they shoud consider whether the organisation s insurance arrangements need to provide protection against the risk of civi caims being brought by sharehoders and others against senior officers in the event that the commercia organisation is convicted of having faied to prevent bribery by associated persons. Underwriters are unikey to extend D&O insurance coverage to Bribery Act iabiities uness commercia organisations have aready impemented adequate anti-bribery procedures. In the absence of such procedures, underwriters may decide to restrict the scope of the coverage or, at the very east, increase the premiums for that coverage. We therefore consider in the next section the steps that commercia organisations shoud consider taking to prevent the commission of bribery offences by associated persons. Adequate Procedures Guidance The guidance focuses on six principes that, in the UK government s view, shoud be refected in a commercia organisation s anti-bribery procedures. The practica impementation of these principes wi vary depending on the risk profie of a particuar commercia organisation. Nongovernmenta organisations such as Transparency Internationa, as we as trade bodies and industry groups, have provided further hepfu guidance. Proportionate procedures A commercia organisation s procedures to prevent bribery by persons associated with it are proportionate to the bribery risks it faces and to the nature, scae and compexity of the commercia organisation s activities. They are aso cear, practica, accessiby, effectivey impemented and enforced. A mutinationa commercia organisation with operations in countries presenting a high risk of bribery is ikey to require more extensive antibribery procedures than a commercia organisation whose operations are imited to countries presenting a ow bribery risk. Simiary, the nature of a commercia organisation s operations can affect its bribery risk profie. Other things being equa, a commercia organisation that depends on government authorisations of one sort or another, or that ses extensivey to government entities, woud generay require more extensive antibribery procedures than a commercia organisation seing ony within the private sector. The Adequate Procedures Guidance provides a non-prescriptive and non-exhaustive ist of subjects that commercia organisations shoud consider addressing in their anti-bribery procedures, incuding: due diigence for existing and prospective associated persons ; the imposition of imits on gifts, hospitaity and other reated promotiona expenditures, as we as charitabe and poitica donations; the deveopment and impementation of financia and commercia contros; the impementation of appropriate empoyee discipinary processes; the utiisation of contractua anti-bribery provisions; and the provision of anti-bribery training. The manner in which a commercia organisation addresses the foregoing issues shoud be dictated by the specific risks that the organisation faces. For exampe, an organisation that routiney invites customers or others to major sporting events shoud consider adopting detaied hospitaity procedures that: expain when current and potentia customers or others can be invited to such events; restrict the cost of the hospitaity that is provided; specify who within the organisation must approve any hospitaity that has been proposed; and estabish a register that records, among other things, the cost of the hospitaity provided and the identity of the recipients. In contrast, an organisation that does not routiney offer corporate hospitaity may be abe to contro any risks with ess burdensome procedures. Top-eve commitment The top-eve management (be it a board of directors, the owners or any other equivaent body or person) are committed to preventing bribery by persons associated with it. They foster a cuture within the organisation in which bribery is never acceptabe. According to the Adequate Procedures Guidance, top-eve management commitment is ikey to invove seecting and training senior managers to ead the organisation s anti-bribery efforts; eading key initiatives such as the preparation of an appropriate code of conduct; giving instructions for undertaking bribery-reated risk assessments; reviewing the resuts of such assessments; monitoring breaches of the organisation s anti-bribery poicy and procedures; and paying an active roe in making key decisions reating to the bribery risks affecting the organisation. The Adequate Procedures Guidance aso encourages the periodic issuance by top-eve management of statements confirming the organisation s zero-toerance poicy on bribery. Risk assessment The commercia organisation assesses the nature and extent of its exposure to potentia externa and interna risks of bribery on its behaf by persons associated with it. The assessment is periodic, informed and documented. An effective risk assessment shoud consider both interna and externa risks. Interna risks incude deficiencies in empoyee training; a ack of carity regarding an organisation s anti-bribery procedures; an approach to remuneration that encourages excessive risk-taking; and deficiencies in an organisation s financia contros. Externa risks can stem from a range of factors, incuding the countries in which an organisation operates, the peope with which it does business and the types of transaction in which it engages. A hepfu starting point for any assessment of externa risk is the corruption perceptions index pubished by Transparency Internationa, which ranks countries from east corrupt to most corrupt, based on the perceptions of a reasonaby broad-based sampe of those having knowedge of the particuar country. The index is updated annuay, so it can be used by a commercia organisation to assess how the risks that the organisation encounters in a particuar country have changed over time. With regard to the assessment of interna risks, an organisation ought to consider the possibe anti-bribery impications of any significant changes in the nature of its business. For exampe, if an organisation decides to start seing products or services to pubic sector organisations or to impement a commission-based remuneration programme for its empoyees, those changes are ikey to affect the organisation s bribery-reated risk profie. Due diigence The commercia organisation appies due diigence procedures, taking a proportionate and risk based approach, in respect of persons who perform or wi perform services for or on behaf of the organisation, in order to mitigate identified bribery risks. The greater the bribery risk posed by a person who is performing or wi perform services on behaf of or for the benefit of a commercia organisation, the more extensive the due diigence that wi be required. In ow-risk situations, it may be sufficient to rey on pubic sources such as company registrar fiings or media artices. In higher-risk situations, however, a more resource-intensive process wi generay be required, perhaps incuding interviews with prospective intermediaries. It is advisabe to conduct due diigence at the outset of a reationship and intermittenty during the course of the reationship. Page 132 The UK Bribery Act 2010 and its impications for businesses The UK Bribery Act 2010 and its impications for businesses Page 133

4 Communication and training The commercia organisation seeks to ensure that its bribery prevention poicies and procedures are embedded and understood throughout the organisation through interna and externa communication, incuding training, that is proportionate to the risks it faces. Commercia organisations shoud seek to provide anti-bribery training to a new and existing empoyees who are or wi be engaged in activities that may present bribery risks. Effective training shoud be continuous, reguary monitored and evauated. Commercia organisations shoud aso consider providing anti-bribery training to associated persons, particuary if the associated persons are operating in high-risk countries or engaging in high-risk activities such as interacting with pubic officias. For instance, if an organisation engages an agent to obtain government icences or permits in a country that presents a high risk of corruption, the organisation shoud consider providing face-to-face training to the agent to ensure that he or she fuy understands the organisation s ega and ethica requirements. Monitoring and review The commercia organisation monitors and reviews procedures designed to prevent bribery by persons associated with it and makes improvements where necessary. As noted in the Adequate Procedures Guidance: The bribery risks that a commercia organisation faces may change over time, as may the nature and scae of its activities, so the procedures required to mitigate those risks are aso ikey to change. That means, among other things, that periodic risk assessments shoud be buit into a commercia organisation s antibribery procedures. Additiona rues for reguated commercia organisations in the financia services industry Additiona rues appy to organisations that are reguated by the Financia Services Authority (FSA). Athough the FSA does not enforce or provide guidance on the Bribery Act, organisations reguated by the FSA have separate obigations to estabish and maintain effective systems and contros to mitigate the risks of financia crime, incuding bribery and other forms of corruption such as money aundering. A March 2012 FSA thematic review into the investment banking sector suggested that many reguated organisations have inadequate anti-bribery systems and contros. Of the 15 reguated firms that the FSA visited for its review, incuding eight major goba investment banks, most, according to the FSA, had not propery taken account of [the FSA] rues covering bribery and corruption. As the then FSA acting director of enforcement and financia crime said: The investment banking sector has been too sow and too reactive in managing bribery and corruption risks. The FSA has broad powers over organisations in the financia services sector. That incudes power to impose significant, muti-miion-pound financia penaties on firms that are found to have deficient systems and contros, even if such deficiencies have not ed to actua corrupt conduct. Severa recent cases iustrate that risk. In 2009 and 2011, the FSA fined two insurance brokers that it deemed to have defective systems and contros. The first was fined 5.25 miion and the other was fined 6.89 miion. The FSA did not prove that the firms had actuay engaged in corrupt conduct. Neither did it prove reckessness on the part of the firms. Simiary, in August 2012, the FSA fined Turkish Bank 294,000 for breaching the Money Laundering Reguations 2007, which impose anti-money aundering due diigence obigations on reguated financia institutions. As with the earier cases against the insurance brokers, the FSA did not find evidence of deiberate or reckess wrongdoing. To assist reguated commercia organisations in deveoping robust systems and contros, the FSA has pubished Financia crime: a guide for firms, which incudes a section on bribery-reated risks. The guide addresses many of the same compiance programme features as the Adequate Procedures Guidance, incuding top-eve engagement in managing financia crime risks, continuous risk assessment and monitoring, and proportionate due diigence focusing on agents and other intermediaries. The Proceeds of Crime Act 2002 and the prosecution of bribery offences The fu impications for UK commercia organisations, and organisations carrying on a business, or part of a business, in the UK, cannot be understood without taking into account the requirements of the UK Proceeds of Crime Act 2002 (POCA). Athough the Bribery Act does not require commercia organisations to report to aw-enforcement authorities bribes that have been or may have been paid by or on behaf of the organisation, the organisation may have a mandatory reporting obigation under POCA. Most bribery that occurs is intended to generate, and does generate, revenue for the organisation on whose behaf the bribe has been paid. If such revenue is transferred to the UK and some additiona conditions are satisfied, the organisation possessing the revenue may be deemed to be in possession of crimina property under POCA. The receipt, possession or disposition of crimina property in or from the UK may be prosecuted in the UK if the organisation has not fied a suspicious activity report (SAR) with the Serious Organised Crime Agency (SOCA) and SOCA s consent to the receipt, possession or disposition of the crimina property is not obtained. Even if SOCA does grant consent, that does not prevent the SFO or the Crown Prosecution Service from prosecuting the underying bribery. The SFO encourages commercia organisations to sef-report bribery or suspected bribery to the SFO simutaneousy with the submission of a SAR to SOCA. The SFO has aso encouraged organisations to discose bribery or suspected bribery vountariy in appropriate cases, even if the fiing of a SAR is not required. An SFO guidance document, The Serious Fraud Office s Approach to Deaing with Overseas Corruption, states that: The benefit to the corporate [of vountariy discosing bribery or suspected bribery to the SFO] wi be the prospect (in appropriate cases) of a civi rather than a crimina outcome as we as the opportunity to manage, with us, the issues and any pubicity proactivey. Whether a commercia organisation wi avoid prosecution under the Bribery Act by sef-reporting wi depend, of course, on a range of factors, incuding the seriousness of the aeged conduct, the extent of the organisation s cooperation with the SFO, and the organisation s commitment to effective remediation. POCA contains broad powers aowing enforcement authorities, incuding the SFO, to confiscate or recover crimina property. Part 5 of POCA, for exampe, aows enforcement authorities to recover in civi proceedings property that is or represents property obtained through unawfu conduct. That incudes conduct that (a) occurred in the UK and is unawfu under UK crimina aw, or (b) occurred in a country outside the UK and is unawfu under that country s crimina aw and woud be unawfu in the UK if it occurred in the UK. The SFO has used its civi recovery powers periodicay in cases invoving bribery and other forms of corruption in the Page 134 The UK Bribery Act 2010 and its impications for businesses The UK Bribery Act 2010 and its impications for businesses Page 135

5 most prominent cases, recovering severa miion pounds from the defendant companies. In Juy 2012, for exampe, the SFO recovered more than 1.8 miion from Oxford Pubishing Limited by means of a civi recovery order. Concusion Commercia organisations that have not aready done so shoud review their existing poicies and procedures to take into account their potentia exposure under the Bribery Act and other reevant egisation such as POCA. The consequences of non-compiance both financia and reputationa can be devastating. Page 136 The UK Bribery Act 2010 and its impications for businesses