Karanovic/nikolic / UK Bribery Act 2010 Zagreb 19/03/2013 Patrick David Callinan

karanovic/nikolic

/ UK Bribery Act 2010

Zagreb 19/03/2013 Patrick David Callinan

karanovic/nikolic

2 Workshop: UK Bribery Act 2010

Spirit of the Bribery Act 2010

¾ Awareness of how the law applies to you¾ A culture of doing things the right way¾ A common sense approach

¾ ‘Not to bring the full force of the criminal law to bear upon well run organisations that experience an isolated incident of bribery on their behalf’

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Initial key points to note

¾ The Act deals only with bribery – not other forms of white collar crime

¾ Applies to private sector and public sector bribes¾ Your organisation may be liable for failing to prevent a

person from bribing on your behalf, but only if that person performs services for your business

¾ There is a full defence if you can show that you had adequate procedures in place to prevent bribery

¾ Hospitality is not prohibited by the Act¾ Facilitation payments are prohibited under the Act

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We’ll be looking at:

1. Brief introduction to the law past and the present

2. Since the Act’s introduction has anything actually happened?

3. Summary of the Act and its relevance to business people in Croatia

4. ‘Adequate procedures’ and what this means

5. Enforcement, penalties and other consequences of non compliance

6. Practical Examples

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Brief introduction to the law past and present

¾ Bribery and corruption was contained within a piecemeal framework including:

— Public Bodies Corrupt Practices Act 1889

— Prevention of Corruption Act 1906

— Bribery itself was essentially a common law offence

— Note: Common law offences are offences that exist as a result of legal developments arising from case law

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¾ Bribery Act finally introduced 1 July 2011¾ Following much pressure from the OECD and the

international community¾ Antiquated legislation was swept away¾ Simplified structure and broad jurisdictional scope¾ Addition of a new corporate offence for failure to prevent

bribery

Brief introduction to the relevant law past and present

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The Act, a year and a half later……¾ The UK Serious Fraud Office (SFO) is yet to take enforcement action under the

Act¾ Hardly a surprise for those familiar with the demands of an investigation into

complex economic crime¾ The Bribery Act is not retrospective. It is a criminal statute and criminal statutes

are not retrospective¾ Heavy commitment of resources and time¾ SFO – reported to spend an average of 3.5 years and GBP 1.5 million

investigating each bribery case¾ These are not the Munir Patel type prosecutions taken by the Crown prosecution

Service¾ Some commentators set unrealistic expectations for the speed at which

enforcement actions would appear¾ SFO likely to seek prosecutions and settlements in cases of clear criminal

culpability

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Summary of the Act, its key provisions and its relevance to Croatia

There are 4 main offences:

1. Offering, promising or giving a bribe (s1)

2. Requesting, agreeing to receive or accepting a bribe (s2)

3. Bribing a foreign public official (s6)

4. Corporate offence: failure to prevent bribes (s7)

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Giving and receiving bribes (s1 and s2)¾ Applies to both public and private sectors¾ Offence for a person to offer, promise or give a financial or

other advantage to another person in return for the “improper performance” by another person of a ‘relevant function or activity’

¾ In essence it means a performance which amounts to a breach of an expectation that a person will act in good faith, impartially or in accordance with a position of trust

¾ No need to demonstrate an “intention to corrupt”¾ Local custom or practice no defence unless permitted or

required by written law¾ UK “Reasonable Person” standard applies

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Giving and receiving bribes (s1 and s2)

¾ Corporate hospitality: must be reasonable and proportionate ¾ Hospitality that is overly ‘lavish’ and not of ‘genuine mutual

convenience’ to be avoided¾ Question: Would my competitors consider this hospitality to be

overly excessive or somewhat suspicious? ¾ Practical example: Football game and dinner for client whilst on

site visit on genuine business trip

¾ Facilitation payments: illegal with no exemption¾ Practical example: Small payment to speed up foreign work

permit application

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Giving and receiving bribes (s1 and s2)

Jurisdiction applies to:

¾ Anybody (including Croatian nationals and Croatian businesses) if the relevant conduct occurs in the UK; and

¾ UK nationals/Croatian UK residents/corporates regardless of where the bribery occurs

¾ Corporates (regardless of where they are located) if they have a ‘close connection’ to the UK regardless of where the bribery occurs.

(E.g. Croatian company that carries on any part of its business in the UK)

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Bribery of a foreign public official (s6)▬ Offence committed if a person offers or gives a financial or other advantage to a foreign

official and that person’s intention is to:

— influence the foreign official in his or her capacity as a foreign public official; and to

— obtain or retain business or an advantage

▬ Prosecution must show sufficient connection between advantage and intention to influence

— NB: No requirement of ‘improper performance’ by foreign public official

— Gives rise to concerns over corporate hospitality / promotional activity

▬ Who is a ‘foreign public official’?

— holds a “legislative, administrative or judicial position”; OR

— is an “official or agent of a public international organisation”; OR

— “exercises a public function … for any public agency or public enterprise”

▬ Companies partly state owned? Sovereign wealth funds? Not entirely clear cut!

▬ Jurisdiction the same as for s1 and s2 offences.

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The corporate offence (s7)▬ A commercial organisation (company) may be liable if a person performing services

for, or on behalf of the company (defined as an “associated person”) bribes a third party in order to obtain or retain business/a business advantage for the company

▬ The Corporate Offence is one of strict liability, meaning that the prosecution will not have to prove intention or negligence by the corporate, merely that the s1 or s6 offence occurred as a matter of fact (or would have occurred had it happened in the UK). So a s1 or a s6 conviction is not a prerequisite

▬ Key issues— Company is liable for bribes made by an ‘associated person’— Only defence is if the company had ‘adequate procedures’ designed to prevent

relevant conduct— Local custom and practice no defence: UK ‘reasonable person’ standard

applies— Extra-territorial application— Offence committed by corporates not individuals – but potential accessory

liability (senior officials with sufficient link to the UK)

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The corporate offence (s7)

▬ An ‘associated person’ performing services for a company could be an:

— Employee— Director or officer— Agent— Trustee— Subsidiary or Affiliate— Joint Venture (incorporated or unincorporated)— Supplier— Contractor

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The corporate offence (s7): extra-territorial application

▬ Extra-territorial application: corporate offence applicable to: — UK incorporated companies (or partnership)

wherever conduct occurred— Any entity carrying on business or part of

business in the UK— Extremely wide territorial effect

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The corporate offence (s7)▬ A bribe on behalf of a subsidiary by one of its employees or agents will not

automatically involve liability on the part of its parent company, or any other subsidiaries of the parent company, if it cannot be shown that the employee or agent intended to obtain or retain business or a business advantage for the parent company or other subsidiaries. The bribe must be intended to confer a direct benefit on the organisation.

▬ The Guidance states that “having a UK subsidiary will not, in itself, mean that a parent company is carrying on a business in the UK, since a subsidiary may act independently of its parent or other group companies”.

▬ For example: A multinational owns a construction company in Croatia, and the same multinational also owns a European wide mining business (including the UK), it will not be committing the corporate offence under the Act for failing to prevent bribery in the Croatian construction business. The business being carried on in the UK should be a related business to the business where the act of bribery has taken place.

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The corporate offence (s7):the “adequate procedures” defence

▬ “It is a defence... to prove that the corporate had in place adequate procedures designed to prevent persons associated with the company from undertaking such conduct.” s7(2)

▬ What are “adequate procedures”?— MoJ Guidance published 30 March 2011— Six principles:

– Proportionate procedures– Top-level commitment– Risk assessment – Due diligence– Communication (including training)– Monitoring and review

▬ Principles are ‘not prescriptive’ but ‘flexible and outcome focused’▬ Level of control over an associated person – a relevant consideration▬ Prosecutorial Guidance also published 30 March 2011

Workshop: UK Bribery Act 2010 17

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Proportionality

▬ Procedures must be proportionate to the bribery risks faced by that organisation.

▬ Small national organisations in low risk industries will not have to apply the same procedures as large international organisations in high risk industries.

Top Level Commitment

▬ The top level of any organisation (be it the Board of Directors, the owners, the partners or the sole practitioners) must be involved in determining and implementing the procedures on an ongoing basis.


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Risk Assessment Procedures.

▬ Organisations must know, and keep up to date with, the bribery risks they face in

their sector and market generally. Such risk assessments must be periodic, informed and documented. There are five main groups of risk: country, sector, transaction, business opportunity, and business partnership.

Due Diligence Procedures.

▬ Due diligence is risk assessment applied to an organisation’s particular business and business partners. Organisations must do such due diligence to find out who they are doing business with (for example why, when and to whom they are releasing funds). Background checks may need to be made, for example on agents and intermediaries, and target acquisitions clearly vetted.


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Communication and Training.

▬ Organisations must make it clear and unambiguous to all staff and business partners that bribery is unacceptable. Bribery prevention policies and procedures must be embedded and understood throughout the organisation, including by training that is proportionate to the risks faced.

Monitoring and Review.

▬ The procedures must be regularly monitored and reviewed, and improved where necessary to respond to any changes in risk. Systems such as financial control mechanisms, staff surveys and reports to top-level management


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Six principles: “adequate procedures”

What Sectors are you in?

Carry our risk assessment on the business areas

Issue a statement clearly committing to anti bribery

Appoint a board member to have responsibility for bribery compliance

What Transactions and with whom?

Business opportunity risk: tenders, new markets

Business partnership, agents, suppliers, JVs

Identify the level of risk for each area If all risks are low, record finding and take

no further action

Which Countries are you in?

Internal procedures – senior management involvementDue Diligence, vetting

procedures for third parties, e.g. suppliers, agents, sub contractors

Regularly review, obtain feedback, monitor risk, improve policies and procedures.

Hospitality, consider financial controls, purpose of hospitality, senior level sign off

Facilitation Payments, look at likely scenarios, local written laws, reporting procedures

Communicate and Train employees on policies. Implement whistle blowing policies.

Update existing or develop practical policies and procedures to cover bribery issues

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Issues of concern

Bribery Act

Facilitationpayments

“Associated

persons”

Extra-territorial

application

”Carrying on

business”

Strict liability for acts

beyond control

Gifts andhospitality


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Enforcement

Investigations under the Bribery Act are primarily carried

out the UK Serious Fraud Office (“SFO”).

▬ The Government has stated that there will be prosecutorial discretion in the enforcement of the new Bribery Act offences; freedom is given to the SFO and the Crown Prosecution Service in deciding whether or not to prosecute — Is there sufficient evidence to provide a realistic prospect of

prosecution?— If so, is a prosecution in the public interest?— In practice: Did the bribe disadvantage a UK competitor ?

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Penalties¾ Individuals: up to 10 years prison and /or

unlimited fine¾ Corporates: unlimited fine¾ Corporate organisation found guilty of

commercial offence could also have a senior manager, secretary or other senior officer convicted if such a senior officer gave their ‘consent or connivance’ to the offence

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Other consequences of non-compliance

¾ Aside from the statutory penalties, there are some other clear consequences of non-compliance:

— Organisations should also be mindful of the accompanying adverse publicity any bribery

— An investigation or conviction is likely to result in blacklisting, loss of customers, repudiation of certain contracts and revenue loss

— Unanticipated, unbudgeted costs of investigation, corrective action and legal costs

— Potential impact on loans, covenants and credit lines— Interruption of service, diversion of management focus, effort and resources

away from core focus— Under the EU Public Sector and Utilities Procurement Directives, public

authorities are required to exclude from public contracts all suppliers that have been convicted of a corruption offence.

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Example of liability▬ Possible scenario:

— Croatia JV provides UK Co with certain

services.

— In order to provide these services in a timely

manner, Croatia JV makes a facilitation

payment to a Chinese government official to

overcome a bureaucratic hold up.▬ Issues:

— Is Croatia JV an associated person?

— FP in connection with services?

— UK Co: direct benefit?

— if contractual: degree of control?▬ Potential offences:

¾ s6 – only if the employee making the payment has a close connection to the UK.

¾ s7 – UK co.

Services provided

UK Co

Croatia JV

Facilitation payment

Chineseofficial


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Example of liability▬ Possible scenario:

¾ The Romania Services Co provides excessive hospitality to a Local Introducer, in order to raise Croatia Co’s profile in Romania.

▬ Issues:¾ Is Croatia Co within the jurisdictional reach of the

Act?¾ In theory: potentially, yes – depending on whether

UK Branch constitutes a ‘demonstrable business presence’ for Croatia Co

¾ In practice: a SFO priority? Did the bribe disadvantage a UK competitor to Croatia Co?

¾ What if UK Branch was an incorporated subsidiary?→ cannot “structure out” of the Act→ depends on the factual reality→ however subsidiary, in and of itself – not

enough

▬ Potential offences: ¾ s7 – Croatia Co.

Croatia Co

Romania Services Co UK Branch

LocalIntroducer

Excessive hospitality


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Your ‘take home’ information sheet.

▬ I direct your attention to the useful information sheet that is contained in your documents pack

▬ This contains practical examples of how the Bribery Act could be applicable to Croatian companies in specific scenarios

▬ It also lists some of the differences between the UK and US legislation

▬ It contains a useful flow chart illustrating how a company ought to consider the ‘adequate procedures’ and the ‘six principles’

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/Thank you

Documents

Karanovic/nikolic / UK Bribery Act 2010 Zagreb 19/03/2013 Patrick David Callinan