Brown paper bags and the Bribery Act 2010

The Bribery Act is arguably one of the most significant pieces of corporate governance legislation in years with wide reaching implications for companies and their boards alike, says Julie Davies.

Whilst some believe that UK businesses are rarely involved in corrupt activities, the combination of globalisation and emerging markets plus a more difficult and competitive economy, signals perhaps a potential increase in under the counter activities.

After all, a bribe need not be as obvious as cash changing hands in a brown paper bag. Paying a third party to speed up an installation of a business phone line may not ever be called a facilitation payment and may in fact be the norm in the country it is given, but nevertheless the Bribery Act makes it an offence.

Flying potential customers over first class, putting them up in a swish hotel and reserving them tickets for the Italian Grand Prix before taking them to see your new factory installation may be routine and expected for high net worth customers, but these circumstances could quite easily lead to allegations of securing an advantage.

In light of the government’s guidance recently published, we examine how businesses with any number of staff can begin their preparations for the Bribery Act that will now come in to force from 1 July 2011.

Offences
The act provides for four bribery offences:

• Bribing – that is the offering, promising or giving of an advantage;

• Being bribed – such as requesting or agreeing to receive or accepting an advantage;

• Bribing a foreign official; or

• Failing to prevent associated persons committing any form of bribery.

The last category of offence, known as the "corporate offence", will be of particular concern to employers as it will cover every member of staff, agent and consultant. An offence can be committed in the UK and overseas meaning those organisations with staff/offices abroad face an increased risk from remote and perhaps unsupervised workers securing/accepting a commercial advantage.

Further still, "associated persons" will be any other person or corporate entity which performs services for the business or on their behalf including suppliers.

The penalties for non-compliance are serious. If a company is found guilty of corporate bribery, both the company and its directors could be subject to criminal sanctions including unlimited fines and imprisonment of the directors for up to 10 years, or both. In addition, the corporate activity of the business could be curtailed as it may be permanently disbarred from tendering for public sector contracts.

Of course, there is also the adverse publicity that goes with a prosecution to note. So what needs to be done to mitigate risks of corruption?

Defences
A business will not commit an offence for failing to prevent bribery if it can show that it had in place "adequate procedures" designed to prevent those persons performing services on its behalf from committing bribery.

What will constitute "adequate procedures" will very much depend on the bribery risks a company faces - its size, where it does business, the complexity of its corporate structure and the markets it is in will all help determine this. The government's guidance however sets out six principles which it believes should be the minimum action companies should take to ensure compliance with the Bribery Act.  

• Proportionality - the steps any company should take to minimise its risks of bribery should very much be proportionate to those risks. Its size and functions should indicate a risk level so that a small company only doing business in the UK on a regulated sector should not need to do as much to minimise risk that say a large corporate with a complex structure, subsidiaries overseas and which contracts in a number of high risk jurisdictions.

• Top level commitment - boards and/or senior managers should set the tone and show unconditional support of the company's anti-bribery undertakings. An anti-corruption/bribery officer should perhaps be appointed whose role it is to assess risk, undertake due diligence, train staff and to be on hand to receive reports/suspicions from staff.

• Risk assessment - companies should assess their corporate activities and highlight areas of risk such as overseas operations, performance/reward based business development roles, cash handling, third party agents and over zealous client entertainment.

• Due diligence - companies should vet their business partners for compliance and perhaps even insist on the contractual right to audit accounts and transactions.

As companies will be liable for all "associated persons" and their activities to the extent that these have provided services and benefit to the company, it’s right that relationships and terms of engagement with the likes of suppliers, agents, sub-contractors and joint venture partners may have to be assessed for risk.

• Communication - companies should have clear polices and procedures on anti-corruption/bribery including gifts and hospitality, charitable donations and political contributions.

These should be clearly communicated to staff and 'associated persons' and should cover what is required unlawful conduct is suspected and the penalties for breaking the rules. More bespoke policies should deal with areas of particular risk such as those staff working in isolation or those responsible for business development and whose remuneration depends on lead and business generation.

• Monitoring and Review - a monitoring and review programme should be put in place to regularly ensure that a company's corruption risk remains low.

Communication strategies and anti-bribery programmes may have to be tweaked from time to time as a company develops and grows.  

Next steps
There is no guarantee that undertaking these steps will prevent corrupt activity nor absolve a company or its directors of responsibility if faced with an investigation by the SFO.

However there is no doubt that these steps can only help and the more prepared and thought out the company's Bribery Act awareness approach is, the less likely corrupt activities will take place in the first place.

Julie Davies is a partner and Head of the Employment Team at Veale Wasbrough Vizards