Preparing Russian Companies for UK Bribery Act Enforcement -The Defence of“Adequate Procedures”

Nicholas Munday

14 December 2010

Moscow

The corporate offence – failing to prevent bribery

The new corporate offence of failure to prevent bribery arises if an “associated person” of a relevant commercial organisation (“C”) bribes another person intending to obtain or retain business for C or to obtain or retain an advantage in the conduct of business for C.

It is a defence to the corporate offence for C to prove that it had in place “adequate procedures” designed to prevent the associated person’s misconduct.

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Does the UK Bribery Act require a review of your compliance programme?

UK companies are subject to the corporate offence.

Russian companies will also be subject to the corporate offence if they carry on any part of their business in the UK.UK branchesForeign companies with UK securities listings?Foreign companies with UK agents?

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What does the anti-bribery programme need to address in order to provide a defence?

It must be designed to prevent persons associated with the Company (“C”) bribing another person in connection with C’s business.

The focus is on the prevention of active bribery.Active bribery may be of two types (bribery of

foreign public officials or bribery of another person)Bribery of another person includes private sector

bribery.Bribery includes overseas conduct which would be

bribery if it occurred in the UK

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Who are the “associated persons” who need to be prevented from bribing in connection with your business? Persons who perform services for or on behalf of the

company. Employees are presumed to be associated persons Other examples include agents and subsidiaries

Others providing services for or on behalf of C could include: Consultants Joint venture partners Members of consortia Franchisees

Business partners that do not perform services are not associated persons (e.g. investee companies, borrowers, purchasers and suppliers of goods and assets).

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Draft guidance from the Ministry of Justice about commercial organisations preventing bribery The draft guidance (which will be finalised in January 2011) is

intended to support businesses determining what procedures to employ. It is not a list of mandatory procedures and does not provide a safe harbour.

Six Principles for Bribery Prevention: Risk assessment Top level commitment Due diligence Clear, practical and accessible policies and procedures Effective implementation Monitoring and review

Includes case studies and “further information about the Act” The draft guidance suggests the procedures should address bribery

of the company’s own employees even though this would not give rise to the corporate offence.

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Ten points for compliance programmes

Companies should take steps to assess what bribery risks they are exposed to by reason of the jurisdictions and markets in which they operate;

They should have an anti-bribery programme which addresses both public sector and private sector corruption;

Policies should prohibit facilitation payments; Companies should be able to demonstrate they have carried out due diligence on key

third party business partners, or be able to show why greater scrutiny was not deemed necessary;

Companies should consider what further action may be necessary in relation to third parties, such as review of their anti-bribery policies, anti-bribery declarations; and contractual anti-bribery warranties;

Review corporate hospitality and gifts policies for both private and public sectors; Review provisions relating to dealings with FPOs, foreign governments and

intermediaries; Consider whether policies on charitable and political donations need to be reviewed; Companies should ensure that their employees, particularly those at most risk, are

fully aware of the implications of relevant anti-bribery laws, and the requirements of their corporate compliance programme.

Companies should monitor compliance with their anti-bribery programme and regularly revise as appropriate.

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Private sector hospitality and promotional expenditure Prohibit hospitality that is known to be in excess

of what the recipient is permitted to receive under his employer’s own policies

Consider whether controls on gifts and hospitality are adequate, and whether they need to be extended to the private sector or have a bifurcated policy preventing inferences being drawn that expenditure on private sector business is linked to misconduct by the recipient

Absolute limits - v - approvals process referencing relevant factors

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Prohibition of facilitation payments

UK hard line creates difficulties for operations in some emerging markets

Indications by the UK authorities that they will not prosecute isolated facilitation payments do not amount to a charter for a carve out of facilitation payments from a UK Bribery Act compliance programme

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Subsidiaries, joint ventures and third parties

Extend programmes to non-UK subsidiaries carrying on business in the UK.

The draft guidance suggests the programme should be extended to subsidiaries under the Company’s control which have no UK connection.

The Company’s vicarious liability for associated persons dictates a risk based approach to due diligence, training and monitoring of joint venture partners and other service performers and contractual warranties where such service performers may assist C’s business

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Other measures for third parties

Because of the risks to which third parties expose a company for which they are performing services, companies may wish to consider requiring a third party:to comply with company’s anti-bribery policy;to provide a copy of its anti-bribery policy;to declare it complies with relevant anti-bribery laws; and/orto provide anti-bribery warranties in respect of public and private sector bribery.

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Do you tighten your programme for dealing with FPOs and foreign governments? There is no requirement that the “bribe” benefit

the FPO or a political party or candidate – it suffices to establish an intention to influence the FPO and his acquiescence in an advantage to a third party.

Where is the line to be drawn between a legitimate advantage or concession requested by an FPO for the benefit of his country and a bribe?

Advantages permitted by foreign written law are legitimate

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Preparing Russian Companies for UK Bribery Act Enforcement -The Defence of“Adequate Procedures”