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Why foreign companies need to prepare for the UK Bribery Act
Transparency International Belgium
Roger Best
3 March 2011
Why do foreign companies need to be concerned by the UK Bribery Act? It creates a new corporate crime of failing to prevent bribery
The new corporate crime applies to all companies carrying on business in the UK in respect of activity throughout the world
There is a defence if the company can prove it had “adequate procedures” designed to prevent bribery
UK prosecutors and regulators have recently become more aggressive in prosecuting corporations for bribery and have announced their intention to prosecute foreign companies
Because the UK Bribery Act is broader in scope than the US Foreign Corrupt Practices Act anti bribery and corruption programmes may need to be updated
Why foreign companies need to prepare for the UK Bribery Act – 3 March 2011
Bribery and corruption – the current position in the UK Very old and inadequate legislation dating from 1889 onwards Amended in 2002 to have extraterritorial effect Historically a poor record of enforcement, especially in relation to
offences by corporates In January 2009, the UK’s Financial Services Authority fined Aon
£5.2 million for failings in its systems and controls to prevent bribery
In the last two years, the Serious Fraud Office (“SFO”) have obtained significant fines through settlements (e.g. £6.5 million, Mabey & Johnson) but the courts have said fines should match those in the US.
The Bribery Act 2010 will be brought into force in spring/summer 2011 replacing existing corruption law and opening the door for the aggressive criminal enforcement action against UK and overseas corporates involved in bribery
Why foreign companies need to prepare for the UK Bribery Act – 3 March 2011
The new Bribery Act offences
Active Bribery – Section 1 Passive Bribery – Section 2 Bribery of Foreign Public Officials – Section 6 Failure of Commercial Organisations to
prevent Bribery – Section 7
Why foreign companies need to prepare for the UK Bribery Act – 3 March 2011
Cases 1 and 2: Active Bribery Case 1: offering, promising or giving an
advantage to another person, with the intention of inducing or rewarding improper performance
Case 2: offering, promising or giving an advantage to another person knowing or believing that the acceptance of the advantage would itself “constitute the improper performance of a relevant function or activity”
Why foreign companies need to prepare for the UK Bribery Act – 3 March 2011
Cases 3-6: Passive Bribery Case 3: requesting or accepting an advantage with
the intention of performing a relevant function improperly
Case 4: requesting or receiving an advantage where that conduct in itself constitutes improper performance of a relevant function
Case 5: requesting or receiving an advantage as a reward for improper performance of a relevant function
Case 6: improper performance of a relevant function in anticipation of an advantage
Why foreign companies need to prepare for the UK Bribery Act – 3 March 2011
Improper performance of a relevant function or activity A relevant function or activity is one which:
Is of a public nature, connected with a business, performed in the course of employment or on behalf of a body of persons; and
The person performing it is in a position of trust or is expected to perform it in good faith or impartiality
Improper performance is: Breach of the relevant expectation (e.g. Breach of good faith
or trust) by reference to the expectations of a reasonable person in the UK (overseas, local custom or practice is to be disregarded unless permitted or require under “written law”)
Why foreign companies need to prepare for the UK Bribery Act – 3 March 2011
Bribery of Foreign Public Officials Active bribery offence in relation to foreign public officials has
wider application than the general offence The offence occurs when there is a bribe intended to influence a
foreign public official to obtain or retain business or an advantage in the conduct of business (there is no requirement of inducing or rewarding improper performance)
Wide but uncertain definition of “foreign public official” extends to officials of international organisations
Includes those who hold “legislative, administrative or judicial position of any kind”; or
Exercise a public function of a country or territory (or subdivision); or Is an official or agent of a public international organisation
Advantages permitted to be received by “written law” are permissible
Why foreign companies need to prepare for the UK Bribery Act – 3 March 2011
Territorial application of substantive offences These offences apply if any act or omission forming
part of the offence takes place in the UK The offences do not apply to acts outside the UK
unless committed by: British Citizens/Citizens of overseas territories; UK residents; UK incorporated businesses
The Act does not apply to non-UK subsidiaries of UK businesses, but other offences (e.g. Conspiracy) may be relevant
Why foreign companies need to prepare for the UK Bribery Act – 3 March 2011
Failure by commercial organisations to prevent bribery The corporate offence occurs where an employee or an “associated
person” bribes in connection with the company’s business It is a strict liability offence that is subject to a defence that the
company has adequate systems and controls to prevent the bribery “Associated Person” means any person who performs services for or
on behalf of the company (there is concern about the scope of the “associated person” link in relation to joint ventures and consortia)
The new offence applies to UK corporates and foreign companies carrying on any part of their business in the UK irrespective of where in the world the employee or “associated person” bribes
Guidance on procedures to prevent bribery is to be published by the Government in [March] 2011 (section 9). The Ministry of Justice published a consultation paper on 14 September 2010
Why foreign companies need to prepare for the UK Bribery Act – 3 March 2011
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).
Why foreign companies need to prepare for the UK Bribery Act – 3 March 2011 11
Business Relationships
Why foreign companies need to prepare for the UK Bribery Act – 3 March 2011 12
Company’s customers and clients
(may be subject to AML KYC)
Performers ofservices for or on
behalf of Company (agents, consultants, outsourced service
providers)
Other Third Parties(suppliers of goods,
remitters of payments)
Draft guidance from the Ministry of Justice
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
Status of Guidance
Why foreign companies need to prepare for the UK Bribery Act – 3 March 2011
Other risks Particular risks
Entertainment and hospitality Corrupt service providers Winning public sector business Acquisitions of emerging market companies
Other Consequences of involvement in bribery EU wide public procurement bars Long term money laundering issues Civil claims and contracts may be avoided Directors’ exposure to action for breach of duty Reputational risk and massive costs arise from enforcement actions Creates difficulties on exiting the investment (particularly if US
buyers) Credit implications – ratings may be impacted
Why foreign companies need to prepare for the UK Bribery Act – 3 March 2011
Bribery Act -v- US Foreign Corrupt Practices Act
Why foreign companies need to prepare for the UK Bribery Act – 3 March 2011
Bribery Act FCPA
Extra-territorial UK residents and legal persons, Corporate offence applies to all companies carrying on business in the UK
US residents and legal persons and US issuersNon-US persons where US connection or affect
Private Sector Yes Separate law
Facilitation Payments
Not permitted Exception for small scale payments
Third Parties Yes, if “associated persons” Yes, if knowing disregard
Books and Records
No – but separate false accounting charge
Yes for US companies and US issuers
Compliance Program
Yes, for adequate procedures defence
Yes, for mitigation under Criminal Sentencing Guidelines
www.cliffordchance.com
Speaker contact details:
Roger Best+44 (0)20 7006 [email protected]
Clifford Chance, 10 Upper Bank Street, London, E14 5JJ
© Clifford Chance LLP 2010Clifford Chance LLP is a
limited liability partnership registered in England and
Wales under number OC323571
Registered office: 10 Upper Bank Street, London, E14
5JJWe use the word 'partner' to refer to a member of Clifford
Chance LLP, or an employee or consultant with
equivalent standing and qualifications
UK/2690176