The Briefing

www.inhousecommunity.com1 ASIAN-MENA COUNSEL

The UK Bribery Act 2010 (Bribery Act) received Royal Assent in April 2010 and will come into force on July 1 this year. The UK Ministry of Justice (MoJ) recently published guidance on the Bribery Act aimed at helping organisations to establish and maintain policies for the prevention of brib-ery. Draft guidance was previously published in September 2010 but was called in for review by the UK Government following extensive lobbying by corporates concerned at the lack of prescriptive information and the potential impact of the Bribery Act on their ability to compete.

The Bribery Act is more extensive in its application than the US Foreign and Corrupt Practices Act (FCPA) and the penalties for violations are potentially more serious than under the FCPA. Further, when viewed in conjunction with European anti-money laundering laws, the Bribery Act adds another layer of complexity to an already burgeoning global anti-corruption regime. The risks posed to Asian corporates and their employees by the Bribery Act are very real and not hypothetical. It is, therefore, important that Asian corporate counsel appreciate the wide-ranging jurisdictional reach of the Bribery Act. They should also be alert to the new era of increased activism amongst global enforcement agencies as they share information in striving towards a ‘zero tolerance’ approach to corruption.

Increased growth in Asia and scrutiny by enforcement agencies In response to the global financial crisis, companies have looked to Asia as a source of potential growth and capi-tal. Certain industries suffering from scarce resources have been seeking alternative sources of capital, such as sovereign wealth funds (SWFs). Approximately 40 per-cent of assets in SWFs are held by Asian countries, with China and Singapore managing some of the largest asset holdings. Although SWFs have existed at least since the 1950s, they have increased in size dramatically in recent

N E W S F O C U S

The UK Bribery Act –the risks for Asian corporations

years. This increasing growth and focus on Asia and SWFs makes Asian corporates a prime target for foreign enforcement agencies.

In conjunction, a large number of recent, high-profile, anti-corruption cases, such as BAE Systems and Innospec, has increased awareness and levels of compliance in the US and UK. This will, in turn, result in a tougher environment for enforcement agencies. In the UK, where the Serious Fraud Office (SFO) has been subject to drastic funding cuts, it will inevitably make more effective use of intelligence and concentrate on ‘low hanging fruit’ to maintain conviction rates. It is, therefore, likely that the SFO and other foreign enforcement agencies will increase their scrutiny of high-value, international targets, where awareness of the US and UK anti-corruption regime is typically less but the potential rewards are substantial.

Transparency International’s Bribe Payers Index ranked 22 countries in terms of how likely corporations from those countries are to pay bribes overseas, placing China and India as most likely to bribe overseas, with Hong Kong, South Korea and Taiwan not far behind. It is not difficult to see that, whatever the merits of such assess-ments, there is a per-ception in the US and UK that corruption in Asia is a problem. This perception, and the

By James Kitching and Nick Cherryman, litigation partners in Fried, Frank, Harris, Shriver & Jacobson’s London office.

James Kitching

2Volume 9 Issue 2, 2011

james.kitching@friedfrank.comnick.cherryman@friedfrank.com

still converging anti-corruption regime in Asia in relation to the US and UK, only increases the prospects of foreign enforcement agencies targeting Asian corporations. That said, it seems likely that the SFO will still require a real nexus between the offending conduct and the UK before exercising its discretion to prosecute.

The Bribery Act offences and territorial jurisdictionThe Bribery Act creates the following basic criminal offences: (i) offering, promising or giving a bribe or other advantage; (ii) requesting, agreeing, receiving or accepting a bribe or other advantage; (iii) bribery of a foreign public official (FPO); and (iv) failure of a commercial organisation to prevent bribery. The UK courts will have jurisdiction if an alleged offence, or any part of it, occurs in the UK, or, takes place outside of the UK but is committed by a person with a “close connection” to the UK. Jurisdiction is established over commercial organisations where they are incorporated under the law of any part of the UK, or carry on business in any part of the UK.

Liability for the corporate offence is established where any person “associated with” a relevant commercial organisation bribes another person with the intention of obtaining or retaining business, or a business advantage, for that organisation. An associated person is broadly defined as anyone who performs services on behalf of the principal. It encompasses employees, agents and sub-sidiaries but may conceivably extend to affiliates and joint ventures. Thus, an Asian corporate with a UK office can be held liable for bribery committed anywhere in the world by an agent who intends to obtain a business advantage for it. The new corporate offence is strict liability and does not require proof of any knowledge on the part of the corporate through its officers or employees. However, a corporate’s senior officer who has a “close connection” to the UK can be held liable if a principal bribery offence is committed with the consent or connivance (wilful blind-ness) of that senior officer.

Ensuring complianceIt is a complete defence to a charge of failing to prevent bribery for a corporate to establish that it had in place “adequate procedures” designed to prevent its employees, and other associated persons, from committing bribery. The MoJ’s guidance provides six ‘best practice’ principles aimed at preventing bribery: (i) proportionate procedures;

(ii) top-level commitment; (iii) risk assessment; (iv) due diligence; (v) communication (including training); and (vi) monitoring and review. These principles underscore the importance of corporates undertaking a thorough review of their global and local compliance policies, and, ensuring that procedures exist to monitor and test their effectiveness.

A new ‘gold standard’The Bribery Act expands significantly beyond the reach of the FCPA. It prohibits all forms of bribery (including the business-to-business context); bans facilitation pay-ments; and maximum penalties include imprisonment of up to 10 years and/or unlimited fines, debarment from public procurement contracts, director disqualification, and, confiscation of assets under the Proceeds of Crime Act 2002. Compliance with the Bribery Act is, therefore, the new ‘gold standard’ for international organisations, and the SFO will no doubt aim to lead the enforcement initiative against global corruption. Asian corporates, even those with robust FCPA-compliance programs, must therefore reassess their procedures to ensure that they comply with the Bribery Act.

Additional input by litigation associate Jennifer Kim

Nick Cherryman