LONDON – Test cases will be required to assess the full legal risks posed by the corporate liability provisions of the UK Bribery Act, according to legal experts. A consultation paper issued by the UK government on September 14 to give the industry guidance on Section 9 of the Act, which covers corporate measures for preventing bribery, is restricted to a principles-based approach that confirms the role of prosecutorial discretion for future corruption cases.
“There are references in the paper to prosecutorial discretion,” says John Cassey, head of fraud and litigation at financial services consultancy Protiviti. “The authorities will look at two criteria: whether there is sufficient case to obtain a criminal conviction, and whether it’s in the public interest to secure a prosecution. Some companies might think that’s not a satisfactory position. Companies like to have clear definitions of what they can and can’t do. Leaving it to the discretion of the prosecutor leaves it slightly in the air relating to the specifics of the situation.”
The Act applies to all firms with business operations in the UK, and a prescriptive ‘one size fits all’ approach would difficult to implement, which has led to the adoption of a principles-based approach. The Act was passed into law in April and will come into force in April 2011. The government’s consultation paper runs for eight weeks between September 14 and November 8.
Instead of prescription, the Ministry of Justice’s paper encourages firms to incorporate six principles into their policies and procedures in order for them to comply with their corporate responsibilities. They cover risk assessment, top (board)-level commitment, due diligence, clear policies and procedures, effective implementation, and monitoring and review.
“There is a defence created by the Act, whereby if a company has put adequate procedures in place to prevent bribery occurring, then it can protect it from a corporate prosecution,” says Cassey.
To demonstrate how compliance with principles would be turned into enforcement policy and practice under the Act, the consultation paper includes a number of illustrative scenarios.
“A company will have a statutory defence to the new corporate offence of failure to prevent bribery if it can show it had adequate procedures in place to prevent bribery by persons associated with the company,” says Antony Corsi, a partner at law firm Fulbright & Jaworski in London. “Ultimately it will be for the courts to judge whether the company did have adequate procedures in each case, but in reaching that judgment the courts are likely to consider the guidance on procedures to prevent bribery. For that reason this draft guidance is an important step in shaping the parameters of the defence.”
The scenarios cover examples incorporating the application of the six principles in terms of business partner commitments, corporate hospitality responsibilities, examples of agents acting on behalf of the firm in (fictional) overseas jurisdictions, political and charitable donations, and use of facilitations payments – prohibited by the Act.
“The Bribery Act makes no allowances for facilitation payments; the Act deems they constitute bribes and are treated as the slippery end of the slope,” says Cassey at Protiviti. “If there is a serious allegation that the bribery has been going on for some time and is embedded within the firm, it is likely the authorities will take action.
“However, if somebody within a firm makes a one-off £25 payment to a stevedore at an African port to get some goods cleared quickly, it is not systematic, and the question is raised over whether prosecutors would take action,” he says. “It’s unlikely to be challenged because the amounts of such payments could be so small and the costs of prosecuting so large.”
Corsi at Fulbright & Jaworski says it is inevitable that test cases would be used to try the outer limits of the Act and firms’ legal exposure to isolated cases of facilitation payments. “Whether a facilitation payment case will actually be brought is a matter for prosecutorial discretion, and will be approached on a test-case basis,” he says.
The outlawing of facilitation payments is a major departure from the US Foreign Corrupt Practices Act (FCPA), which was previously the world’s toughest anti-bribery regime and the standard by which anti-corruption standards at international firms have been judged.
“Compliance with the FCPA gets organisations some way down the track, but not necessarily all the way,” says Corsi. “The new Act differs from the FCPA in certain key areas: the extension of criminal liability to the recipient of the bribe under the Act is one aspect; another is that the Act applies to prevent bribery between private companies and private individuals; and the new corporate offence of failure to prevent bribery is potentially very serious. Another issue that is likely to trouble many companies in practice is the continued absolute bar on facilitating payments, again unlike the FCPA.”
The Bribery Act was passed into law with cross-party support by the previous Labour government but the UK had been under long-running political pressure from the US and the Organisation for Economic Co-operation and Development (OECD) to implement modern anti-corruption legislation. The Bribery Act is being implemented by the present Conservative-Liberal Democrat coalition administration under new secretary of state for justice, Kenneth Clarke.
“The government wants commercial organisations to consider prevention of bribery and corruption issues now and in terms of day-to-day operational policies, rather than on a reactive basis,” says Corsi. “If organisations decline that opportunity, they and the people involved risk paying a heavy price. If successfully prosecuted under the Act companies face an unlimited fine and individuals also face prison sentences of up to 10 years.”
Enforcement of the Act will be primarily undertaken by the Serious Fraud Office (SFO), backed up by the courts for the prosecution of criminal charges. However the Conservatives pledged before the election that in government they would seek the dissolution of the SFO and create a new economic crime body, which would also incorporate the financial crime mandate exercised by the Financial Services Authority, itself due to be folded into two new regulatory units under the aegis of the Bank of England.
The Ministry of Justice’s consultation paper can be read here.