Benchmark bribery legislation for Europe

European organisations breathed a sigh of relief on 20 July 2010 when the British Ministry of Justice announced a delay in the implementation of the UK Bribery Act. The act was due to come into force in October 2010, but will now be delayed until April 2011. Although it is tempting to view it this way, these extra few months should not offer a welcome rest bite period for businesses that are unsure how they will comply with the act.

The Bribery Act has struck fear into the hearts of many organisations that see financial incentives as an integral part of their work since it received Royal Assent in April 2010. The act replaces much, and codifies the remainder, of the various fragments of the UK's existing anti-corruption legislation, dating back to 1889 with the Public Bodies Corrupt Practices Act. It heralds a new era in the UK's fight against corruption by establishing distinct general criminal offences for those "offering" and those "accepting" bribes, a new offence for the failure of commercial organisations to prevent bribery by persons acting on their behalf and a discreet offence for those who bribe foreign public officials.

Opportunity to reassess

Some organisations will view the delay in its enforcement as an opportunity to temporarily divert limited resources and time away from contemplation of the act to other projects. There may be sound reasoning behind this decision given the need to reassess business priorities in this current economic climate, but adopting such a reallocation in practice is ill advised.

One aspect of the act that causes concern for many European businesses is Section 7, which requires commercial organisations to actively prevent bribery. Respected commentators have reached broad agreement that in order to qualify for a defence of having "adequate procedures in place designed to prevent" bribery, organisations must demonstrate that those procedures work in practice. It will take companies considerable time to draft and implement measures to ensure the business does not infringe on the new legislation, and likewise it will take time to communicate these new rules to staff. Businesses need to use this extra time wisely by implementing such procedures before the act comes into force.

Confirmed commitment

The Bribery Act has also been given the teeth to demonstrate the UK's worldwide commitment to ethical business conduct. Sanctions such as unlimited financial penalties and potential 10-year custodial terms (double the five year provision under the US's Foreign and Corrupt Practices Act), which will be imposed for breaches of the act where circumstances dictate, certainly show the UK coming out strong against any form of bribery.

Historically, the US has been considered the ‘global police' for bribery; it set the benchmark for anti-corruption and bribery legislation through the operation of the FCPA, enforced by the US Department of Justice and Securities Exchange Commission.
The new UK provisions, to be enforced by the Serious Fraud Office, take potential criminality for corruption to a higher level as its reach extends far beyond the provisions of, and outlaws certain activities permitted under, the FCPA.

Severity impact

There are two key differentiators between the FCPA and the Bribery Act. One is that the Bribery Act covers all private and public corporate dealings including corporate hospitality while the FCPA only concentrates on public officials and activities. The other is that the Bribery Act outlaws the use of facilitation payments, which are not excluded under the FCPA. It is the uncertainty and severity of these two features, and their impact on everyday international business activity, that have given rise to the majority of expressions of uncertainty over the application of the act to date, and with good reason.

Upon its strictest interpretation the Bribery Act criminalises any form of facilitation payment, regardless of the circumstances under which it is made or the local practice that may exist. A strict interpretation would also jeopardise the legality of what many would consider to be acceptable corporate hospitality. Despite this uncertainty, comfort for those tasked with identifying the fine line between compliance and breach is offered by Lord Tunnicliffe in correspondence to Lord Henley following debate in the Grand Committee earlier this year.

"We recognise that corporate hospitality is an accepted part of modern business practice and government is not seeking to penalise expenditure on cooperate hospitality for legitimate commercial purposes. But lavish corporate hospitality can also be used as a bribe to secure advantages and the offences in the bill must, therefore, be capable of penalising those who use it for such purposes."

Considerable penatlies

The potential penalties enforced by the Bribery Act for infringement could be considerable, even under a civil settlement. This was demonstrated by the stance taken against BAE Systems when it was fined £30m in the UK and £400m in the US earlier this year. Businesses could face financial ruin as a direct result of these financial penalties, as shown by the comments of Lord Justice Thomas in Regina v Innospec Limited [26h March 2010] where the penalty imposed of $12.7m fell far short of what he had in mind: "I consider that a fine of $12.7m ... wholly inadequate as a fine to reflect the criminality displayed by Innospec."

Given free rein in his view, Lord Justice Thomas said: "the fine would have been measured in tens of millions".

From bitter experience, the systems now in place at BAE Systems serve as reference points for what is required to avoid the attentions of the SFO in a future driven by the simplified process, which will see criminal charges brought through the Bribery Act. European organisations must use the extra months afforded to them by the delay in the act's implementation to put such systems in place, or face similar consequences.

Andrew Gillett is a partner and head of casualty fraud at Weightmans, specialising in counter fraud strategy, claims handling and sanctions.