Do you have adequate procedures in place to avoid the risk of prosecution?
The UK’s Bribery Act has been in force since July 2011 and while many companies have taken steps to ensure that they have what the Act calls ‘adequate procedures’ in place to reduce the risk of prosecution, a survey by Ernst & Young published in April suggested that some 72% of middle managers were still unaware of the existence of the law.
Although there has only been one reported successful prosecution under the Act, this is likely to change. When David Green, the new head of the Serious Fraud Office, was interviewed recently by the Financial Times, he made it clear that he is going to take a more aggressive approach to financial crime than his predecessor, remarking that “crooks are crooks no matter what colour their collar is.”
Under the Bribery Act there are four new offences:
- Bribery of another person
- Accepting a bribe
- Bribing a foreign official
- Failing to prevent bribery (a corporate offence)
Key facts include the following
- Companies as well as individuals can be prosecuted.
- The only defence to the new offence of failing to prevent bribery is to show you have ‘adequate procedures’ in place to prevent such corruption.
- A person can be guilty under the Act even if he commits the offence abroad and he is either a British subject, ordinarily resident in the UK or in some other way has a close connection with this country.
Failing to prevent bribery
Perhaps the biggest risk for a company with international business is the new corporate offence of failing to prevent bribery. If one of your employees or overseas associates pays a bribe with the aim of getting business for your company, your company as well as the individual employee or agent could be prosecuted.
The only defence would be to show you have ‘adequate procedures’ in place designed to prevent this sort of thing. Government Guidance on what is meant by ‘adequate procedures’ was issued before the Act came into effect. Just as every employer needs a Health & Safety Policy, so every company now also needs to have a Code of Conduct to guard against corruption, including undertaking proper risk assessment and due diligence in your contractual arrangements, and proper training for your personnel.
You should also ensure that your associates at home and abroad agree not to indulge in any corrupt activity, and, at the very least, your contracts with them should contain terms under which they undertake to comply with the new law and do nothing to prejudice you, with termination of the contract as the ultimate sanction if they fail to comply.
Most countries in the Middle East have laws requiring a foreign company to have a local agent or partner in order to do business there. Since the agent does not always do a lot for his money, the arrangement is, in the view of some, a form of legalised bribery: you pay a local a fee and you will get some business. In such countries, especially if the agency agreement is registrable, the agency fees should not be caught by the Bribery Act, even if the agent is a public official. But you need to be careful about the term of the agreement and level of the fees and it is sensible to include a duty on the agent to comply with your own company’s code of practice as well as the law.
Gifts and hospitality are another area of potential risk, especially in an area where these are part of the way of life. The key element here is proportionality: your corporate policy can usefully indicate what the acceptable limits are and if these are exceeded, there should be some justification. Maintaining a hospitality/gifts register can also be helpful.
If, for example, you are negotiating a contract in London for a sale to a Gulf government department, it may be perfectly reasonable to entertain the visitors to a good dinner, but you could well be going too far if you then pick up a tab of several thousand pounds for their after dinner revelry at a nightclub or casino.
As for facilitation payments, if you find that these are demanded, e.g. when clearing goods through customs in a foreign country, the bribery act is clear – they are illegal. The safest solution is a zero-tolerance approach but the SFO appreciate it is not always easy and they encourage companies which face a problem to talk to them about it. There have been instances where their co-operation with the authorities in another country has led to such practices being dealt with. Turning a blind eye is no longer a solution.
An Organisation Can Commit an Offence
Failure to prevent bribery applies to commercial organisations: the organisation can itself be guilty of an offence if it fails to have adequate procedures in place to prevent bribery and someone associated with the organisation bribes a third party with the aim of getting an advantage for the organisation.
If you run a business and have not yet got an anti-bribery Code of Conduct in place, your company could be prosecuted if one of your employees commits an offence of bribery.
On July 1st 2011, the Bribery Act comes into force in the UK. This new legislation is broad-ranging in its language and it covers corruption occurring abroad as well as at home. It is essential for companies to get a policy in place to show they are complying and avoid prosecution.
But many businesses have been slow to adopt appropriate policies and procedures, as they have yet to fully appreciate the seriousness of the Act’s implications.
“Every business should have a Code of Conduct in place which is compliant with the Act and the Guidance issued by the UK Government. Training of personnel is another important aspect of the compliance procedure.”
Giles Dixon, ContractStore