Guy Bastable
With the Bribery Act coming into force on 01 July, Construction Manager asks Partners Guy Bastable and Richard Sallybanks of Criminal Defence lawyers BCL Burton Copeland about the main points of the incoming law, general legal guidance and what to do if ‘adequate procedures’ fail.
In the past, the UK has been criticised for its lack of commitment to fighting corruption. With the introduction of the Bribery Act 2010, which comes into force on 1 July 2011, this is set to change. The UK is pitching, in the words of Richard Alderman (the Director of the Serious Fraud Office), to lead anti-corruption enforcement with “the toughest legislation in the world”. The Act will replace existing bribery laws, some of which are over 120 years old.
The Act has wide application. It applies to those conducting business in the UK, including international companies. It also applies to those conducting business elsewhere in the world where they have “a close connection with” the UK, which includes bodies incorporated in the UK, Scottish partnerships, British citizens, British nationals and UK residents.
Bribing and Being Bribed
The main offences under the Act are:
- offering, promising or giving a bribe – i.e. a financial or other advantage – (section 1);
- requesting, agreeing to receive or accepting a bribe (section 2); and
- bribing a foreign public official – note that this offence does not cover the acceptance of such a bribe (section 6).
These offences can all be committed by organisations, as well as individuals. An individual found guilty of any of these offences faces a maximum sentence of 10 years’ imprisonment and/or an unlimited fine; a convicted organisation will be liable to an unlimited fine.
Secondary Liability of Senior Officers
If any of these three offences is committed by an organisation with the “consent or connivance” – i.e. knowledge and positive or tacit agreement respectively – of a “senior officer” (or a person purporting to act as such) who has “a close connection” with the UK, the senior officer can also be prosecuted for the offence and punished accordingly. The maximum sentence, 10 years’ imprisonment and/or an unlimited fine, is the same as for principals.
This form of secondary liability only applies in relation to offences committed by the organisation contrary to sections 1, 2 and 6 of the Act, but not in relation to an offence under section 7 (see below: “Failing to Prevent Bribery”).
Significantly, offences under section 1, 2 or 6 require a mental element, rather than being offences of strict liability. This raises a novel and legally complex situation – historically, secondary liability by way of consent or connivance (and, often, neglect) has been employed almost exclusively in relation to regulatory offences of strict liability committed by organisations (e.g. offences under trading standards, environmental, and healthy and safety legislation).
Ordinarily, a company can only be convicted of an offence requiring a mental element by implementation of the “identification doctrine”. The prosecution must first establish that an individual who was a “directing mind” of the company (i.e. a senior individual who could be said to embody the company in his actions and decisions – usually a director) committed the offence by proving each element of the offence against him (although, not necessarily actually successfully prosecuting him). His guilt is then attributed to the company without the need to prove anything further against the company. In the past, this doctrine has caused the prosecution great difficulty when the organisation is substantial in size – in a large or medium-sized organisation, a “directing mind” is often far removed from the events surrounding the offence, making establishing the guilt of the “directing mind” very challenging.
This is in contrast to an offence of strict liability, where there is no mental element requirement – an organisation can be prosecuted in its own right, with the actions of its employees, etc (no matter how junior) being taken as its own actions and aggregated.
Accordingly, in a consent/connivance prosecution of a “senior officer” in relation to an organisation breaching section 1, 2 or 6 of the Act, the prosecution would first need to establish the guilt of a “directing mind” to be attributed to the organisation and then go on to prove the consent/connivance of the “senior officer”. In practice, this would most probably involve prosecuting the “directing mind” for the principal offence at the same time as the “senior officer” for the secondary offence.
As such, the consent/connivance provision in the Act could only sensibly be used to prosecute those other senior officers (most probably, the co-directors of the “directing mind”) against whom the requisite mental or physical elements of the principal offence could not be proved. Interestingly, the Joint Prosecution Guidance of the Director of the SFO and the Director of Public Prosecutions (the “SFO/DPP Guidance”) is silent on this issue.
One would have thought that the classic case where this secondary liability provision would be useful is in relation to an offence under section 7, which is a strict liability offence. However, as mentioned above, the Act confirms that the consent/connivance provision does not apply in respect of section 7 offending.
It may well be that the SFO hopes that the express reference in the Act to the liability of organisations and the acres of Press coverage will encourage organisations to “self report” or plead guilty without the need for the SFO to deal will these significant legal hurdles. Organisations would do well to seek out expert criminal legal advice from experienced practitioners, as the practical implications of the Act go far beyond just the rudimentary interpretation of its wording and require an in depth understanding of the criminal law as a whole, as well as the evidential hurdles that the prosecution needs to surmount.
“Failing to Prevent Bribery”
Section 7 of the Act introduces for the first time an offence of strict liability whereby a “relevant commercial organisation” (i.e. one incorporated/formed in the UK or one that is incorporated/formed elsewhere, but carries on business in the UK) is guilty of an offence if a person “associated” with it offers, promises or gives a bribe to another or offers, promises or gives a bribe to a foreign public official (with the intention to obtain or retain business or an advantage in the conduct of business for that organisation). Significantly, there is no corresponding offence in relation to being bribed – the relevant commercial organisation would not be guilty of this offence if an “associated” person requested, agreed to receive or accepted a bribe. At the very least, that should put to rest any concerns by UK business about their employees being taken out to lunch; just be careful as to how you return the favour!
An “associated” person is someone performing services for and on behalf of the commercial organisation, as determined by all the relevant circumstances and not merely by reference to the nature of the relationship. Also, there is no requirement for the “associated” person to have been convicted of the underlying bribery. In reality, however, the prosecution would either have to prosecute successfully the “associated” person or prove each element against them to the criminal standard.
The offence applies to a UK corporate/partnership (whether it “carries on a business” in the UK or elsewhere) and any other corporate/partnership (wherever incorporated/formed, where “it carries on a business, or part of a business, in any part of the UK”). It is clear that the Court will be the final arbiter of whether an organisation has sufficient business presence in the UK to be caught by section 7. However, the Ministry of Justice has stated in its issued guidance (see below) that it does not expect a company to be caught merely because it has a UK Listing.
Unlike all other offences under the Act, the offence only applies to specific organisations and can only be tried in the Crown Court on indictment. A convicted organisation is liable to an unlimited fine. And, as mentioned above, no senior officer can be prosecuted/convicted of secondary liability by way of consent or connivance.
Arguably, this offence has been mischaracterised as an offence of failing to prevent bribery; indeed, the heading of section 7 is “Failure of commercial organisation to prevent bribery”. Strictly speaking, the offence is not the failure to prevent bribery, but an offence of strict liability where bribery of a specific type by an “associated” person has occurred – the prosecution need prove no more.
Thankfully, an organisation will have a complete defence if it can prove that it “had in place adequate procedures designed to prevent persons associated with [it] from undertaking such conduct” (i.e. offering, promising or giving a bribe). In essence, it is for the defendant organisation to prove that it had in place adequate procedures, not for the prosecution to prove that the organisation failed to prevent bribery.
Additionally, the SFO/DPP Guidance acknowledges that the Act “is not intended to penalise ethically run companies that encounter an isolated incident of bribery” and confirms that “Prosecutors must look carefully at all the circumstances … including the adequacy of any anti-bribery procedures”. It goes on to confirm that a “single instance of bribery does not necessarily mean that an organisation’s procedures are inadequate” and cites an example where “the actions of an agent or an employee may be wilfully contrary to very robust corporate contractual requirements, instructions or guidance”.
Finally, the SFO/DPP Guidance confirms that the section 7 offence “does not replace or remove direct corporate liability for bribery” and that, “[i]f it can be proved that someone representing the corporate ‘directing mind’ bribes” another, “it may be appropriate to charge the organisation” with the principal offence.
The Ministry of Justice Guidance
UK business has raised grave concerns about the scope of the Act and how it could harm their competitiveness as against businesses beyond the Act’s reach. Unsurprisingly, the section 7 offence has provoked much controversy.
The Ministry of Justice has recently introduced long awaited guidance on the Act, which is intended to help commercial organisations understand the types of procedures that they can put in place to prevent bribery by “associated” persons. However, while the guidance suggests areas that should be covered by appropriate procedures, it acknowledges that the challenges faced by SMEs will differ from those of large multi-national enterprises. Rather than adopting a prescriptive, one-size-fits-all approach, it incorporates flexibility by being based on six core principles:
- Proportionate procedures: maintaining bribery prevention policies that are proportionate to the nature, scale and complexity of the organisation’s activities, as well as to the risks that it faces
- Top level commitment: ensuring that senior management establishes a culture across the organisation in which bribery is unacceptable, which may include top-level communication of the organisation’s anti-bribery stance and being involved in the development of bribery prevention policies
- Risk assessment: conducting periodic, informed and documented assessments of the internal and external risks of bribery in the relevant business sector and market
- Due diligence: applying due diligence procedures that are proportionate to the risks faced by the organisation; since an organisation’s employees are “associated” persons, appropriate due diligence may become part of recruitment and HR procedures
- Communication and training: ensuring that bribery prevention policies are understood and embedded throughout the organisation through education and awareness
- Monitoring and review: putting in place auditing and financial controls that are sensitive to bribery, including consideration of obtaining external verification of the effectiveness of an organisation’s anti-bribery procedures
The guidance includes a number of illustrative case studies, and businesses would be well advised to review these and the guidance closely. Ultimately, however, the question of whether an organisation has adequate procedures will turn on the particular facts of the case; ambiguities surrounding “adequate procedures” will gradually be resolved by the Court, as the authorities prosecute organisations that fall foul of the legislation.
There remains the larger ambiguity of what constitutes a bribe. Much has been made of the threat to corporate hospitality and “harmless entertainment”. The guidance attempts to reassure business that the Act “is not intended to prohibit reasonable and proportionate hospitality and promotional or other similar business expenditure intended for these purposes”. Bona fide trips, for example to Wimbledon or Twickenham, to establish cordial relations or improve a corporate’s image are not out of bounds. However, the guidance does warn “that hospitality and promotional or other similar business expenditure can be employed as bribes”. These sentiments are echoed in the SFO/DPP Guidance. To overcome this, the Act employs the concept of what an ordinary person would think, but, as with adequate procedures, the question of what amounts to a bribe will remain ambiguous until clarified by the Court.
Conclusion
It is clear that, subject to resources, the Act will be vigorously enforced, not least in the shadow of the bruising criticism of the authorities following the settlements in the BAE and other recent cases and the long standing criticism of the UK for not treating corruption with sufficient seriousness, particularly in the international context. More than ever before, as well as ensuring that adequate anti-bribery procedures are in place, it is imperative that organisations and individuals caught up in a bribery investigation obtain expert legal advice.
About the Author
Guy Bastable is a specialist corporate defence solicitor and a partner in the Business Crime & Regulation department of pre-eminent London-based law firm BCL Burton Copeland, which is renowned in the areas of business crime and regulatory enforcement, providing advice to organisations and individuals nationwide and internationally.
Richard Sallybanks
The Bribery Act 2010 – What do you do if your adequate procedures fail?
Introduction
Much has already been written about the Bribery Act which comes into force on 1 July 2011, in particular the new criminal offence for commercial organisations of ‘failing to prevent bribery’. This article does not explain the new law in detail but instead considers the factors companies should have in mind if they identify that bribery has occurred within their organisation.
A short summary of the law
The Act creates two general offences of bribing another person and being bribed and discrete offences of bribery of a foreign public official and a failure of commercial organisations to prevent bribery by persons associated with them (such as an employee, agent or joint venture partner). This last offence can only be committed by a company, not an individual, but there is a statutory defence if the company can show it had ‘adequate procedures’ in place to prevent persons associated with it from bribing.
Bribery comes in different forms including large corrupt payments made to obtain or retain business, lavish hospitality intended to influence a public official, and small unofficial ‘facilitation’ payments to expedite the performance of a routine or necessary action such as the granting of a visa. All are illegal under the new law and, if committed by an agent on behalf of a company, may give rise to criminal liability for the company (with the risk of an unlimited fine, debarment from public procurement contracts, and reputational damage) notwithstanding that it had implemented anti-bribery procedures and the directors were unaware of the conduct.
If this happens, what does the company do? Should it report the matter to the authorities and, if so, how can it mitigate the risk that a prosecution will follow?
Self-reporting and the risk of criminal prosecution
Joint guidance issued by the Director of the Serious Fraud Office (SFO) and the Director of Public Prosecutions (DPP) acknowledges that the Act “is not intended to penalise ethically run companies that encounter a risk of bribery” and that “a single instance of bribery does not necessarily mean that a company’s procedures are inadequate.” Consistent with this, the SFO and DPP have also made it clear that the public interest factors in favour / against a criminal prosecution of a company include whether there has been a history (or lack of history) of similar conduct.
Therefore, a company that has genuinely and appropriately tried to prevent bribery but has failed may avoid prosecution if it can show that the conduct was an isolated incident. However, it is clear that the more prevalent bribery is within the organisation, the greater the risk of prosecution. So, what does a company do if it identifies bribery within its organisation which has been ongoing or is part of an established business practice? Perhaps counter-intuitively, the company’s best interests may still lie in reporting the matter to the authorities.
Companies should note that if they do not self-report and bribery within their organisation is reported to the SFO by a third party (such as a disgruntled competitor), this will be viewed as a significant aggravating factor tending in favour of prosecution. Conversely, self-reporting (when allied with a genuinely proactive approach from senior management including a comprehensive internal investigation, remedial action and a commitment to effective corporate compliance going forward) can result in the possible resolution of the matter by civil, as opposed to criminal, proceedings. The availability of a civil remedy, namely proceedings to recover monies obtained in connection with the corrupt conduct, is a factor tending against prosecution but this will only be on offer if the company self-reports in the way described above.
In any event, the company may have little choice but to self-report as the Bribery Act provisions cannot be considered in isolation. There is a real risk that monies obtained by a company in connection with a corruptly obtained contract would be considered ‘criminal property’ under the Proceeds of Crime Act 2002. The company (and its directors once informed of the suspicion that the contract was won through corruption) would be at risk of committing money laundering offences unless it disclosed that fact to the appropriate authority, the Serious Organised Crime Agency (SOCA), as soon as practicable. A disclosure to SOCA will give rise to the likelihood of the information being passed to the SFO, giving the company little choice but to report the underlying conduct to the SFO simultaneously.
Conclusion
Companies clearly need to implement a compliance programme to minimise the risk of bribery being undertaken on their behalf. With a programme in place, a company will be better positioned to deal with the fall-out if it discovers an instance of bribery and if it self-reports, it will substantially mitigate the risk of prosecution. However, companies cannot make a decision on whether to self-report bribery without regard to the Proceeds of Crime legislation and the possible need to make a disclosure to SOCA under that regime. Any company which decides against a disclosure to SOCA because it wants to keep the bribery under wraps runs the risk of exposing its directors and the company itself to criminal investigations for both bribery and money laundering.
Richard Sallybanks & Shaul Brazil, BCL Burton Copeland
Richard Sallybanks, Partner, BCL Burton Copeland: 07775 523015. [email protected] www.bcl.com
Richard Sallybanks specialises in complex business crime and regulatory defence work. Richard has been a partner at BCL Burton Copeland since 1999, having joined the practice from CMS Cameron McKenna in 1995. At CMS, Richard specialised in commercial litigation and worked in Hong Kong and Germany, as well as on secondment at financial regulator IMRO.
