BERMUDA BRITISH VIRGIN ISLANDS CAYMAN ISLANDS CYPRUS DUBAI HONG KONG LONDON MAURITIUS MOSCOW SÃO PAULO SINGAPORE conyersdill.com June 2011 Bribery Act 2010 The Bribery Act 2010 ( the Act ) comes into force on 1 st July 2011. While the Act concerns UK criminal offences for which prosecutions can only be brought in the UK, the Act has implications for international businesses and will impact the offshore world. Why has it been introduced? The UK has been criticised for a lack of effective anti corruption laws and the Act is the result. The Act provides a tough new anti corruption code. What does the Act do? The Act has three key features. First, it clarifies and places on a statutory footing the common law offences of bribery. Secondly, the Act introduces a number of novel corporate offences. Thirdly, it provides for long arm jurisdiction for offences committed abroad. It is this third, extra territorial, feature which makes the Act particularly relevant to the offshore world. The UK Government has published Guidance Notes to help companies ensure they are in step with the new requirements ( the Guidance ). Individual Bribery Offences There are three primary bribery offences for individuals: the offence of bribing another person ( Section 1 offence ); the offence of being bribed ( Section 2 offence ) and the offence of bribing a foreign public official ( Section 6 offence ). These place on a statutory footing the common law offences of bribery and can be considered a refinement of the current law.
A Section 1 offence is committed if a person offers, promises or gives a financial or other advantage to another person intending to induce the improper performance of any business or governmental function. Improper performance means performance which is in breach of a relevant expectation, which expectation is determined according to what would be reasonably expected by UK standards. A Section 2 offence is the receipt of a bribe 1. A Section 6 offence is committed if a person offers, promises or gives any financial or other advantage to a foreign public official intending (1) to influence a public official and (2) to gain a business advantage. There is, however, no offence if the foreign official is required or permitted by written law to take the advantage on offer. Section 6 does not permit for exceptions such as facilitation payments 2, in contrast to the USA s Foreign Corrupt Practices Act. Corporate Offences A major innovation of the Act is the introduction of new corporate offences. At common law, in order to establish the commission of an offence by a company, prosecutors had to prove mens rea on the part of a high level employee/agent of the company what was often termed the controlling mind test. The Act makes prosecutions of companies far easier by introducing the new offence of failing to prevent bribery (the Section 7 offence ). A UK company, or a company doing business in the UK, commits a Section 7 offence if a person associated with it commits bribes or receives a bribe (anywhere in the world) intending to obtain an advantage for the company. A UK company, or a company doing business in the UK, will therefore be guilty of an offence if an act of bribery is committed by anyone associated with it whether or not the company asked that person to do so. The associated person does not need to be a controlling mind, nor an employee or agent. An associated person is anyone who performs services for or on behalf of the company a wide definition, which is not specifically delineated by the Act, or indeed the Guidance. The Guidance does provide some assistance by delineating who is not an associated person e.g., a subsidiary will not always be the associated person of its parent company (for example, if it merely remits dividends to its parent). It also explains that an organisation is only liable for the actions of its associated person if the bribe was intended (by such an associated person) to benefit the organisation directly. It 1 The Sections are exhibited in the schedule. 2 Payments made to facilitate routine governmental actions. Page 2 of 15
clarifies that a bribe paid by an employee of a subsidiary is normally intended to benefit the subsidiary and not the parent company, even though the parent may benefit indirectly. Thus a parent will not always be caught by bribes paid by or on behalf of a subsidiary. The Act offers a complete defence to Section 7 offence if the company can show that it had in place adequate anti bribery policies and procedures at the time. Sensible UK companies will therefore be putting in place such policies and procedures in time for the 1 July 2011 deadline. The Guidance provides a list of six governing principles, alongside case studies, for anti bribery policies and procedures and is required reading for all companies wishing to reduce their exposure to Section 7 prosecutions. Senior Officer Connivance A further innovation of the Act is the offence of connivance by a senior officer pursuant to Section 14. If a company commits any offence under Sections 1, 2 or 6, then a senior officer commits a separate offence if it is proved that (s)he consented to or connived in the company s actions, either actively or by his/her inaction to prevent bribery. This brings liability directly inside the board room. Importantly, there is no offence in conniving in or consenting to a failure by a company to prevent bribery by an associated person the company with which the senior officer is related must have actually bribed or been bribed. Penalties The penalties under the Bribery Act are up to ten years in jail (for individuals) and unlimited fines (for companies). In addition, the UK authorities have at their disposal the Proceeds of Crime Act which provides for additional fines and penalties calculated on the basis of the value of a contract which was obtained through bribery. The Bribery Act: Implications for offshore jurisdictions There has been a lot of press attention in the UK on the Bribery Act but little attention on its offshore implications. Page 3 of 15
Extra-Territorial Effect While UK criminal laws are generally domestic, the Bribery Act does not just apply to UK corporations and UK residents. The Act has broad extra territorial effect. There are two primary extra territorial features: (1) Connected persons can be prosecuted in the UK for offences committed anywhere in the world. (2) Companies which carry out part of their business in the UK can be prosecuted for Section 7 offences committed anywhere in the world. Personal liability Under the Act, an offence is committed if any act or omission forming part of the offence is committed in the UK, but Section 12 of the Act provides that an offence is also committed if a person does something abroad which would be an offence if committed in the UK and that person has a close connection with the UK. A close connection with the UK exists where a person (legal or natural) committing the acts, in the UK or in other jurisdictions, is domiciled or incorporated in the UK or is a UK citizen. This has implications for all British citizens, UK residents and for nationals of overseas territories such as Bermuda. Under the Act, Bermudians have close connections with the UK and, accordingly, can be prosecuted in the UK if they bribe, or accept bribes, anywhere in the world. The Act therefore impacts the offshore world. Many offshore centres are British overseas territories. The citizens or nationals of those overseas territories are caught by the Act. To give a concrete example, if a Bermudian director of an offshore company was himself/herself implicated in bribery, anywhere in the world for example by arranging payment of a bribe then the director could potentially be prosecuted. In practice, the Serious Fraud Office ( SFO ) and other UK prosecution authorities may not prioritise investigating or prosecuting minor cases of local bribery committed in overseas territories, leaving the policing and prosecution of these offences to local prosecutors and courts. The risks to the offshore world presented by the Act cannot, however, be dismissed. In jurisdictions where it is commonplace for offshore citizens to act as directors of Page 4 of 15
companies, there is a risk of prosecution in the UK if those offshore citizens carry out offences under the Bribery Act in the course of their directorships. An example may assist in terms of illustration. A Bermudian sits on the board of a construction company. The company is incorporated in Bermuda but its operations are in Azerbaijan, where corruption is endemic. The company needs to make a payment to secure a contract. The Bermudian arranges the payment to be made in Azerbaijan. The payment is a bribe. Under Bermuda law, since the payment was made in Azerbaijan, it is unlikely an offence has been committed in Bermuda. The Bermudian could, however, be prosecuted in the UK. Whether the Bermudian had the necessary knowledge, or mens rea, and should, for example, have known that the payment was a bribe will be a question for a UK jury. The Act may have another, more local, impact upon offshore centres. In cases involving alleged high level corruption in overseas territories, where local prosecutors are either unwilling or unable to act, the British authorities now have the power to prosecute or threaten prosecution. In summary, nationals of overseas territories and UK nationals who sit on the boards of offshore companies now have a direct interest under the Bribery Act in minimising the risks of those offshore companies engaging in bribery. Going forward, prudent directors of offshore companies will likely undertake additional due diligence when carrying out corporate acts. Corporate Liability Unless an offshore company commits a bribe, or receives a bribe, within the UK, or that company also carries on business in the UK, the offshore company does not itself have the required close connection. The UK authorities have no jurisdiction to prosecute under the core offences of Section 1, 2 and 6 of the Act where there is no close connection. Further, in terms of senior officer connivance, senior officers of offshore companies cannot be prosecuted for Section 14 offences unless their company commits an offence within the UK. Nevertheless, offshore companies do have exposure under the Act. This is because Section 7 applies to any company, wherever incorporated, which carries on business in the UK. The UK criminal courts, accordingly, have wide extra territorial jurisdiction over companies failures to prevent bribery. Any foreign company carrying on business or part of a business in the UK can be prosecuted for a failure to prevent bribery under Section 7. Page 5 of 15
Carrying on a business or part of a business has the potential for wide application. As a result, until the UK courts give guidance, foreign companies with any UK presence may wish to err on the side of caution and assume that they are caught within the ambit of the Act and, if any associated person pays a bribe, the company is liable to prosecution for failing to prevent it. The implications of Section 7 for offshore companies depend upon the relationship between the offshore company and the UK. It is helpful to consider such relationships under three broad headings: (1) Offshore companies with UK activities An offshore company, wherever located, which carries on operations in the UK (and these may be quite nominal in practice for example there is a debate as to whether a website pointed to the UK generating UK revenues would meet the criteria) should consider putting in place anti bribery procedures. Such a company can now be prosecuted under Section 7 if an associated person pays a bribe on its behalf anywhere in the world. Such companies may also want to consider altering their legal and operational structure to insulate the rest of the group from the UK operation. To minimise risk it may be advisable to incorporate a subsidiary and run UK operations through it, instead of using, say, a branch structure. (2) Offshore companies with subsidiaries in the UK Offshore holding companies which own UK operating companies may take comfort from the Guidance which stresses that having a UK subsidiary does not itself mean that the holding company will be itself carrying on business in the UK. However, they will need to keep in mind the following: (i) First, there may be additional factors to indicate that the holding company is carrying on business in the UK via its operating company. (ii) Secondly, the SFO appears to be sceptical that subsidiaries will demonstrate the necessary level of independence required for an affiliated company (e.g., the parent) to escape liability under the Act. Whether the SFO is right or wrong on this will ultimately be decided by the courts, but it does highlight that it will be critical to ensure that the UK operation is legally and operationally independent. Page 6 of 15
In many cases it may be prudent for the holding company, rather than perpetually scrutinising its relations with its UK subsidiary, to adopt anti bribery policies for itself. (3) Offshore companies with subsidiaries in the UK and subsidiaries in high risk territories Many offshore holding companies have subsidiaries in the UK and others in other jurisdictions, including high risk territories such as Azerbaijan or Russia. What would the position be if the Russian operating subsidiary committed a bribe? Could this be laid at the door of the offshore holding company under the Bribery Act? In most cases, the person paying the bribe in Russia will be doing so as part of providing a service to the Russian operating subsidiary and to benefit the Russian operating subsidiary. In the majority of cases, no service is being provided to the offshore holding company. In our view the holding company should, in most cases, be protected from prosecution under the Act by a properly set up group structure and using legally separate companies that are also operationally and financially independent 3. The offshore parent should, however, ensure that its group structure is set up to operate completely independently to successfully argue that the UK operation does not equate to the offshore company (or any of its affiliates) carrying on business in the UK. Introduction of anti bribery provisions is prudent precaution. The safest course will in most cases be for the holding company, at a minimum, to put in place an anti bribery policy (if only for itself) to minimise such risks. Some multi national companies will no doubt go further and put in place group wide anti bribery policies, despite the costs and difficulties of their implementation. The SFO have highlighted that they are interested in prosecuting overseas parent companies and testing the limits of the jurisdiction of the Bribery Act. The use of any structure to insulate a group from Bribery Act liability is at 3 There remains a US prosecution risk if the Foreign Corrupt Practices Act is engaged. The US prosecutors, in the well publicised case of Mr Tesler, who pleaded guilty this year to paying bribes in Nigeria, did not appear interested about legal niceties of the corporate structure. Page 7 of 15
risk of being subjected to UK court scrutiny. Careful consideration will need to be given to it. Pending guidance from the UK courts, offshore holding companies with UK operating companies seeking to minimise risks under the Bribery Act should consider implementing protective measures such as: (1) Extending any anti bribery procedures to the holding company. (2) Ensuring that the holding company is run entirely independently from its operating subsidiaries. Ben Adamson Associate +1 (441) 298 7824 ben.adamson@conyersdill.com This article is not intended to be a substitute for legal advice or a legal opinion. It deals in broad terms only and is intended to merely provide a brief overview and give general information. About Conyers Dill & Pearman Conyers Dill & Pearman advises on the laws of Bermuda, British Virgin Islands, Cayman Islands, Cyprus and Mauritius. Conyers lawyers specialise in company and commercial law, commercial litigation and private client matters. Conyers structure, culture and expertise enable responsive, timely and thorough service. Conyers provides clients with the highest quality legal advice from strategic global locations including offices in the world s leading financial centres in Europe, Asia, the Middle East and South America. Founded in 1928, Conyers comprises 600 staff including more than 150 lawyers. Affiliated companies (Codan) provide a range of trust, corporate secretarial, accounting and management services. For more information please contact: Naomi Little +1 (441) 298 7828 naomi.little@conyersdill.com www.conyersdill.com Page 8 of 15
SCHEDULE Bribery Act 2010 Pertinent Sections 1 Offences of bribing another person (1) A person ( P ) is guilty of an offence if either of the following cases applies. (2) Case 1 is where (a) P offers, promises or gives a financial or other advantage to another person, and (b) P intends the advantage (i) to induce a person to perform improperly a relevant function or activity, or (ii) to reward a person for the improper performance of such a function or activity. (3) Case 2 is where (a) P offers, promises or gives a financial or other advantage to another person, and (b) P knows or believes that the acceptance of the advantage would itself constitute the improper performance of a relevant function or activity. (4) In case 1 it does not matter whether the person to whom the advantage is offered, promised or given is the same person as the person who is to perform, or has performed, the function or activity concerned. (5) In cases 1 and 2 it does not matter whether the advantage is offered, promised or given by P directly or through a third party. 2 Offences relating to being bribed (1) A person ( R ) is guilty of an offence if any of the following cases applies. (2) Case 3 is where R requests, agrees to receive or accepts a financial or other advantage intending that, in consequence, a relevant function or activity should be performed improperly (whether by R or another person). (3) Case 4 is where Page 9 of 15
(a) R requests, agrees to receive or accepts a financial or other advantage, and (b) the request, agreement or acceptance itself constitutes the improper performance by R of a relevant function or activity. (4) Case 5 is where R requests, agrees to receive or accepts a financial or other advantage as a reward for the improper performance (whether by R or another person) of a relevant function or activity. (5) Case 6 is where, in anticipation of or in consequence of R requesting, agreeing to receive or accepting a financial or other advantage, a relevant function or activity is performed improperly (a) by R, or (b) by another person at R s request or with R s assent or acquiescence. (6) In cases 3 to 6 it does not matter (a) whether R requests, agrees to receive or accepts (or is to request, agree to receive or accept) the advantage directly or through a third party, (b) whether the advantage is (or is to be) for the benefit of R or another person. (7) In cases 4 to 6 it does not matter whether R knows or believes that the performance of the function or activity is improper. (8) In case 6, where a person other than R is performing the function or activity, it also does not matter whether that person knows or believes that the performance of the function or activity is improper. 6 Bribery of foreign public officials (1) A person ( P ) who bribes a foreign public official ( F ) is guilty of an offence if P s intention is to influence F in F s capacity as a foreign public official. (2) P must also intend to obtain or retain (a) business, or (b) an advantage in the conduct of business. (3) P bribes F if, and only if Page 10 of 15
(a) directly or through a third party, P offers, promises or gives any financial or other advantage (i) to F, or (ii) to another person at F s request or with F s assent or acquiescence, and (b) F is neither permitted nor required by the written law applicable to F to be influenced in F s capacity as a foreign public official by the offer, promise or gift. (4) References in this section to influencing F in F s capacity as a foreign public official mean influencing F in the performance of F s functions as such an official, which includes (a) any omission to exercise those functions, and (b) any use of F s position as such an official, even if not within F s authority. (5) Foreign public official means an individual who (a) holds a legislative, administrative or judicial position of any kind, whether appointed or elected, of a country or territory outside the United Kingdom (or any subdivision of such a country or territory), (b) exercises a public function (i) for or on behalf of a country or territory outside the United Kingdom (or any subdivision of such a country or territory), or (ii) for any public agency or public enterprise of that country or territory (or subdivision), or (c) is an official or agent of a public international organisation. (6) Public international organisation means an organisation whose members are any of the following (a) countries or territories, (b) governments of countries or territories, (c) other public international organisations, (d) a mixture of any of the above. (7) For the purposes of subsection (3)(b), the written law applicable to F is (a) where the performance of the functions of F which P intends to influence would be subject to the law of any part of the United Kingdom, the law of that part of the United Kingdom, Page 11 of 15
(b) where paragraph (a) does not apply and F is an official or agent of a public international organisation, the applicable written rules of that organisation, (c) where paragraphs (a) and (b) do not apply, the law of the country or territory in relation to which F is a foreign public official so far as that law is contained in (i) any written constitution, or provision made by or under legislation, applicable to the country or territory concerned, or (ii) any judicial decision which is so applicable and is evidenced in published written sources. (8) For the purposes of this section, a trade or profession is a business. 7 Failure of commercial organisations to prevent bribery (1) A relevant commercial organisation ( C ) is guilty of an offence under this section if a person ( A ) associated with C bribes another person intending (a) to obtain or retain business for C, or (b) to obtain or retain an advantage in the conduct of business for C. (2) But it is a defence for C to prove that C had in place adequate procedures designed to prevent persons associated with C from undertaking such conduct. (3) For the purposes of this section, A bribes another person if, and only if, A (a) is, or would be, guilty of an offence under section 1 or 6 (whether or not A has been prosecuted for such an offence), or (b) would be guilty of such an offence if section 12(2)(c) and (4) were omitted. (4) See section 8 for the meaning of a person associated with C and see section 9 for a duty on the Secretary of State to publish guidance. (5) In this section partnership means (a) a partnership within the Partnership Act 1890, or (b) a limited partnership registered under the Limited Partnerships Act 1907, or a firm or entity of a similar character formed under the law of a country or territory outside the United Kingdom, relevant commercial organisation means Page 12 of 15
(a) a body which is incorporated under the law of any part of the United Kingdom and which carries on a business (whether there or elsewhere), (b) any other body corporate (wherever incorporated) which carries on a business, or part of a business, in any part of the United Kingdom, (c) a partnership which is formed under the law of any part of the United Kingdom and which carries on a business (whether there or elsewhere), or (d) any other partnership (wherever formed) which carries on a business, or part of a business, in any part of the United Kingdom, and, for the purposes of this section, a trade or profession is a business. 12 Offences under this Act: territorial application (1) An offence is committed under section 1, 2 or 6 in England and Wales, Scotland or Northern Ireland if any act or omission which forms part of the offence takes place in that part of the United Kingdom. (2) Subsection (3) applies if (a) no act or omission which forms part of an offence under section 1, 2 or 6 takes place in the United Kingdom, (b) a person s acts or omissions done or made outside the United Kingdom would form part of such an offence if done or made in the United Kingdom, and (c) that person has a close connection with the United Kingdom. (3) In such a case (a) the acts or omissions form part of the offence referred to in subsection (2)(a), and (b) proceedings for the offence may be taken at any place in the United Kingdom. (4) For the purposes of subsection (2)(c) a person has a close connection with the United Kingdom if, and only if, the person was one of the following at the time the acts or omissions concerned were done or made (a) a British citizen, (b) a British overseas territories citizen, (c) a British National (Overseas), (d) a British Overseas citizen, (e) a person who under the British Nationality Act 1981 was a British subject, Page 13 of 15
(f) a British protected person within the meaning of that Act, (g) an individual ordinarily resident in the United Kingdom, (h) a body incorporated under the law of any part of the United Kingdom, (i) a Scottish partnership. (5) An offence is committed under section 7 irrespective of whether the acts or omissions which form part of the offence take place in the United Kingdom or elsewhere. (6) Where no act or omission which forms part of an offence under section 7 takes place in the United Kingdom, proceedings for the offence may be taken at any place in the United Kingdom. (7) Subsection (8) applies if, by virtue of this section, proceedings for an offence are to be taken in Scotland against a person. (8) Such proceedings may be taken (a) in any sheriff court district in which the person is apprehended or in custody, or (b) in such sheriff court district as the Lord Advocate may determine. (9) In subsection (8) sheriff court district is to be read in accordance with section 307(1) of the Criminal Procedure (Scotland) Act 1995. 14 Offences under sections 1, 2 and 6 by bodies corporate etc. (1) This section applies if an offence under section 1, 2 or 6 is committed by a body corporate or a Scottish partnership. (2) If the offence is proved to have been committed with the consent or connivance of (a) a senior officer of the body corporate or Scottish partnership, or (b) a person purporting to act in such a capacity, the senior officer or person (as well as the body corporate or partnership) is guilty of the offence and liable to be proceeded against and punished accordingly. (3) But subsection (2) does not apply, in the case of an offence which is committed under section 1, 2 or 6 by virtue of section 12(2) to (4), to a senior officer Page 14 of 15
or person purporting to act in such a capacity unless the senior officer or person has a close connection with the United Kingdom (within the meaning given by section 12(4)). (4) In this section director, in relation to a body corporate whose affairs are managed by its members, means a member of the body corporate, senior officer means (a) in relation to a body corporate, a director, manager, secretary or other similar officer of the body corporate, and (b) in relation to a Scottish partnership, a partner in the partnership. Page 15 of 15