International Law Advisory - UK Parliament Passes Anti-Bribery Reform Law

On 8 April, the long-awaited UK bribery reform bill received Royal Assent in Parliament and became law.  The bill has been codified as the Bribery Act 2010  (hereinafter, the “Act”).  Most provisions in the Act do not come into force immediately, but will become effective following an order by the Secretary of State, which in turn will follow the publication of guidance by the Government concerning certain aspects of the Act.

Passage of the Act represents the culmination of over a decade of efforts to modernize the anti-bribery laws of the United Kingdom.  The Act repeals the pre-existing criminal anti-bribery laws in the UK – including the common law bribery offence, the Public Bodies Corrupt Practices Act 1889, the 1906 and 1916 Prevention of Corruption Acts, and related measures – which were widely acknowledged as antiquated and lacking clarity and scope.  The Act accomplishes three overarching objectives:

  1. The Act creates a new bribery offence imposing liability on organisations whose employees or representatives engage in bribery in the UK or abroad.  This represents an important new tool for regulators and prosecutors in the UK, whose earlier efforts at criminal enforcement of anti-bribery laws against companies were constrained by limitations in the general UK criminal laws in attributing criminal misconduct to organisations.  The new corporate offence contains, however, an affirmative defence that will allow an organisation to avoid prosecution if it can demonstrate that it had implemented “adequate” anti-corruption compliance procedures.
  2. The Act comprehensively redefines the substantive criminal elements of bribery, including through a new general offence that covers domestic and foreign bribery, and a separate, stand-alone foreign bribery offence that introduces standards similar in scope to the OECD Anti-Bribery Convention and the U.S. Foreign Corrupt Practices Act (“FCPA”).
  3. The Act broadens the jurisdictional reach of the UK anti-bribery laws, to cover bribery worldwide by individuals who are UK nationals or are ordinarily resident in the UK, and organisations that conduct some portion of their business in the UK.

The Act also achieves a number of institutional reforms, including eliminating the requirement that the UK Serious Fraud Office (“SFO”) (the principal agency responsible for enforcing the Act) obtain permission from the Attorney General before instituting criminal proceedings for bribery offences.[1] 

The Act comes at a time when anti-corruption enforcement in the UK is on the rise, and has galvanized significant public and administrative attention.  As discussed in our prior alerts, the SFO has been very active over the last two years in bringing enforcement actions under the narrower, pre-existing UK anti-corruption laws.  Companies with operations in the UK thus should take note of the Act, and consider whether their corporate compliance programs merit reconsideration in view of the new UK anti-bribery standards.

The principal features of the Act are discussed below. 

General Offence

Section 1 of the Act includes a new general bribery offence, which defines bribery as the act of giving, offering, or promising “a financial or other advantage,” directly or indirectly, with the intent to “induce” a person to perform any public- or business-related function “improperly.”[2] The offence applies equally to domestic bribery and overseas bribery, and to both commercial bribery and bribery of domestic and foreign public officials. 

The Act dispenses with earlier standards under UK law that had focused on proving that the recipient of the bribe was an “agent” bribed in order to perform or omit to perform “any act in relation to his principal’s affairs or business.”  The principal-agent standard was widely criticized as a vestige of Victorian and Edwardian era concerns over bribery (one of the primary factors motivating the introduction of that standard, in the 1906 legislation, was to criminalize bribes paid to household servants), and had proved difficult to apply in the context of modern business.

Expectation Test

Although the new general offence provides better clarity than earlier standards, it is not without ambiguity.  For instance, the concept of “improper” in the new general offence is defined, in Section 4 of the Act, as conduct that is in breach of functions that the target of the bribe is “expected” to perform in “good faith” or “impartially,” or where the target is held “in a position of trust”.  The Act provides, moreover, that this “expectation” of trust or impartiality is to be evaluated through an objective test of “what a reasonable person in the United Kingdom would expect”, and that any “local custom or practice” in the bribery target’s home jurisdiction is to be disregarded unless that practice is “permitted or required by the written law” in the country or territory concerned.

The “expectation” test introduces a unique bribery standard that is not reflected in the OECD Anti-Bribery Convention or the FCPA.  The standard is somewhat cumbersome when viewed in the abstract, and any number of latent ambiguities may emerge as it is applied in individual cases.  For example, would a “reasonable person in the United Kingdom” find it appropriate for a public contract tenderer to pay for a foreign government official to visit the UK to inspect a manufacturing facility, in order to assist the government official in evaluating whether to build a similar facility in her or his home country?  Will inviting the employee of a commercial competitor to an expensive recruiting lunch now constitute commercial bribery?

The Government has acknowledged the broad scope of the general bribery offence, but has said that it will rely upon the appropriate exercise of prosecutorial discretion to focus application of the offence on cases that truly merit criminal enforcement.

Jurisdiction

The offence has a wide jurisdictional scope, applying to any offense where any conduct forming part of the underlying offense occurs either:

  • within the territory of the UK, irrespective of the nationality of the person or organisation engaging in the conduct (thus encompassing misconduct by foreign persons or entities who happen to be present in the UK when the misconduct occurs); or
  • outside of the territory of the UK, by any person who has a “close connection” to the UK.  The term “close connection” is defined to include any British national (including British Overseas Citizens), any non-UK national who is “ordinarily resident” in the UK, or any body incorporated under the laws of any part of the UK (including Scottish partnerships).

Foreign Bribery Offence

In order to ensure that the Act complies with the United Kingdom’s commitments under the OECD Anti-Bribery Convention, Section 6 of the Act contains a separate, stand-alone offence pertaining to the bribery of foreign officials, which largely tracks the substantive standards in the OECD Convention and the FCPA (on which the OECD Convention is generally modeled).  Prosecutors will have the option of bringing foreign bribery cases under either the general offence in Section 1, or the Section 6 foreign bribery offence.

The foreign bribery offence applies where a person gives or offers any “financial or other advantage” to a “foreign public official,” either directly or indirectly, with the intent to influence the foreign official and to “obtain or retain” “business” or “an advantage in the conduct of business”.  The only exception in the Act is where the recipient is permitted or required under the written law of the recipient’s country to be influenced by the offer, promise, or gift (a standard that is also reflected in an affirmative defense in the FCPA, but which arises in fact only rarely).

Similar to the OECD Convention and FCPA, the term “foreign official” is defined to include any person who (1) holds a “legislative, administrative, or judicial” position; (2) otherwise “exercises a public function” for or on behalf of a foreign government or a public agency or “enterprise”; or who is an official or agent of a public international organisation.  In contrast to the FCPA, but consistent with the scope of the OECD Convention, candidates for political office are not explicitly included in that definition, but conceivably could be viewed as exercising a “public function”.  The Act also does not specify what degree of government ownership or control is required for an organisation to qualify as a “public enterprise”, though existing guidelines on ownership/control issued by the OECD under the Anti-Bribery Convention will presumably inform regulators, prosecutors and judges in the UK.[3]

The foreign bribery offence in Section 6 has the same jurisdictional scope as the general offence summarized above.

New Corporate Offence

For most criminal offences in the UK, an organisation can be convicted for a crime only if a senior manager of the company – i.e., someone who can be viewed as possessing the “directing mind” of the organisation – is personally responsible for elements of the crime.  That standard, known as the “identification” doctrine, has proved difficult to meet in bribery cases, as bribery often will occur only in lower levels of an organisation, without the involvement of senior management.

Section 7 of the Act creates a new offence, directly applicable to organisations, that excludes the “identification” doctrine and renders organisations criminally liable, on a respondeat superior basis, for offences by persons acting on behalf of the organisation.  As discussed in more detail below, organisations will have an affirmative defence, however, if they can prove that they have implemented “adequate” anti-corruption compliance procedures.

Bribery by an “Associated Person”

Under the new corporate offence in Section 7, a commercial organisation can be found guilty of bribery if any person “associated with” the organisation commits bribery, with an intent to obtain or retain business (or an advantage in the conduct of business) for the organisation.  It is not necessary for the “associated person” to have been convicted of bribery, but in prosecuting the organisation the Government must establish, beyond a reasonable doubt, that the associated person committed misconduct that would constitute bribery under either the general or foreign bribery offences discussed above (except that the prosecution need not establish that the “associated person” or the misconduct has any connection to the United Kingdom, under the jurisdictional provisions of the above offences).

The term “associated person” is defined broadly in the Act as any person who “performs services for or on behalf of” the organisation.  The Act gives non-exclusive examples of such persons, including an “employee, agent, or subsidiary”.  However, the Act includes a flexible standard whereby the relationship between the person and organisation will be evaluated by reference to “all the relevant circumstances and not merely by reference to the nature of the relationship” between the person and organisation.

The “associated person” standard is potentially quite broad.  No direct contractual link is required between the “associated person” and the organisation, and the standard might be construed apply to overseas affiliates, joint ventures, and consortia that the organisation may not have complete control over.  The Government has indicated that it will provide further guidance on the “associated person” concept; however, it has indicated that the guidance will encourage organisations involved in joint ventures and other business models to ensure that appropriate compliance procedures are built into those arrangements.

Jurisdictional Scope

The Section 7 corporate offence applies to any organisation that is established under the laws of any part of the United Kingdom, or any foreign company that “carries on a business, or part of a business,” in the United Kingdom.  The offence applies to any act of bribery, anywhere in the world, that can be linked to those organisations, even if the bribery itself occurs entirely outside of the United Kingdom. 

The phrase “part of a business” is undefined in the Act, and will be left to courts to construe.  Conceivably, the standard could be of very wide application.  For instance, consider an entity that is organized under Russian law, with most of its operations in Russia, but that maintains a representative office in London.  Arguably, jurisdiction under the Act could attach to any act of bribery associated with that Russian company anywhere in the world, even if the bribery is not related to the London representative office.  (On the other hand, some may argue that the Act’s jurisdictional scope should be subject to an implied limitation that UK territorial jurisdiction must somehow be triggered, or that a UK person or organisation must be involved in the underlying misconduct.)

Similarly, it is an open question whether simply registering a company on the London Stock Exchange or Alternative Investment Market would meet the “part of a business” standard (in which case, the Act would bear similarity to the FCPA, which applies to overseas companies whose securities are traded on U.S. exchanges).  As with other aspects of the Act, much will be left to the discretion of regulators and prosecutors, and to judicial scrutiny.

“Adequate Procedures” Defence

As noted, Section 7 contains an affirmative defence, whereby organisations can avoid criminal liability if they can establish that they have “adequate procedures” in place designed to prevent bribery.  It will be the organisation’s burden to provide evidence and establish, by a balance of probabilities, that its anti-corruption compliance procedures are “adequate”.  Notably, this represents a significant distinction between the Act and the approach taken under the FCPA – although having adequate procedures can constitute a mitigating factor in FCPA prosecutions, such procedures would not constitute an outright affirmative defence under U.S. law.

The term “adequate procedures” is left undefined in the Act, but the Act requires the Secretary of State to issue guidance on this topic.  The Government has indicated that interested parties will be given an opportunity to comment on the guidance before it is finalized.  

Much has been made of the importance of the proposed guidance in debates surrounding the Act, but we do not expect it to provide substantial insights that are not already reflected in other international best practices standards.  The Government has stated, for instance, that it does not intend to introduce prescriptive standards, and it will not routinely monitor compliance (except, potentially, as a precondition to settlement or an element of a plea agreement in the context of enforcement actions).  Instead, the guidance to be published will include general benchmarks, and the Government has stated that it expects courts, in determining whether the “adequate procedures” defence applies, “to take into account the size and needs of the particular business being prosecuted.”

The Government’s guidance undoubtedly will draw from other leading “best practices” standards.   There are many such standards, including for example:

Several common themes emerge from those (and other similar) sources.  Organisations will, for instance, be expected to (1) show strong involvement and support from senior management and the board of directors; (2) publish and disseminate clear written policies and procedures (including specific procedures, as appropriate, covering issues such as dealings with intermediaries, processes for obtaining regulatory approvals from foreign governments, facilitating payments, travel and entertainment expenditures, and political and charitable contributions); (3) ensure appropriate oversight and training of employees and third party representatives; and (4) implement transparent books and records procedures to ensure that company funds are properly accounted for and cannot be used for the purpose of making improper payments. 

However, the challenge for organisations will not be to “tick the boxes” on these and other high-level best practices criteria, but rather to carefully consider the unique corruption-related risks that the organisation faces in its domestic and overseas operations, and to tailor a corporate compliance program that effectively addresses those risks.  Although the Government’s guidance may provide certain insights into that exercise, organisations ultimately will need to conduct their own risk assessments, and to find thoughtful compliance solutions that can be implemented across the company’s operations.

Penalties

Penalties for offences under the Act include up to 10 years imprisonment for individuals, and unlimited monetary fines.  The Government has not yet issued guidance as to how fines may be assessed under the Act, but may do so (the Parliamentary Joint Committee on the bribery bill had recommended such guidance).  However, recent SFO enforcement actions under the pre-existing anti-bribery laws suggest that penalties in the millions of pounds will not be uncommon in significant cases. 

Additional Issues Of Note

“Facilitating” Payments

Consistent with pre-existing laws in the UK, the Act contains no explicit defence or exception for “facilitating payments”, i.e., small payments intended to persuade officials to perform routine functions.  This presents a direct contrast to the FCPA, which contains an exception excluding facilitating payments from the scope of that statute’s prohibitions.

The Government has not offered significant guidance to date on facilitating payments, other than to note – as has been the case in the past – that it is unlikely that prosecutions will be brought against persons or entities that make small payments to compel truly routine, non-discretionary government action.  The SFO has, in particular, indicated that “small facilitation payments are unlikely to concern the SFO unless they are part of a larger pattern (when, by definition, they would no longer be small facilitation payments) where their nature and scale has to be evaluated.”

This is an area where UK-based organisations that have already implemented FCPA compliance programs should pay particular attention, to ensure that their “facilitating payments” policies reflect an appropriate balancing of risk under UK law.

Bona Fide Business Expenditures

Another distinction between the Act and the FCPA is that the Act contains no exception or affirmative defence covering reasonable and bona fide expenditures relating to the promotion, demonstration, or explanation of services, or the execution or performance of a contract with a government.  Given that the foreign bribery offence in Section 6 of the Act contains no requirement that the payment must be “improper”, and the only exception to the offence is where a payment is explicitly permitted or required under the written laws of the foreign country, bona fide expenditures could technically fall within the Section 6 offence, if it can be shown that the expenditures were made with an intent to influence the official and to obtain or retain business. 

Again, the Government has indicated that prosecutorial discretion will ensure that truly bona fide expenditures will not be prosecuted, and some members of Parliament indicated in debate that Section 6 should be viewed as containing an implied rule that the payer must act with a “corrupt” intent.

Liability for Senior Officers

Section 14 of the Act provides that if an organisation commits an offence under the general offence or foreign bribery offence (Sections 1, 2, or 6 of the Act), and the offence occurs with the “consent or connivance” of a “senior officer” of the organisation, the senior officer will separately be liable under the Act.  Notably, criminal liability under the the new corporate offence in Section 7 will not trigger senior officer liability – accordingly, mere failure to implement “adequate procedures” will not itself constitute a basis for criminal liability for company management.

The Act does not make clear whether the organisation itself must be prosecuted under Sections 1, 2, or 6 in order to trigger liability under Section 14.  Conceivably, prosecution could be brought against current or former senior officers, while the organisation itself avoids prosecution (such as through a negotiated civil settlement).

Section 14 may not reflect a substantial departure from existing law (given the identification doctrine, which as noted above requires senior management involvement in order for an organisation to be found criminally liable), but underscores the risks that anti-corruption offences pose both to organisations and their senior management.  The SFO already has shown, in recent cases, a readiness to bring action against senior management in egregious bribery-related cases (this trend also has been seen, to a considerably greater extent, in the United States under the FCPA).

Debarment Risk

In contrast to FCPA, which permits both criminal and civil penalties, the Act is strictly a criminal statute.  Notably, criminal penalties under the Act would lead to mandatory debarment under the UK Public Contracts Regulations 2006, which implements the European Union Procurement Directive.  For UK organisations that rely upon UK public contracts for a significant portion of their revenue, the risk of enforcement under the Act thus presents a very significant collateral debarment risk.

The Government has indicated that it will seek guidance from the EU as to how the Directive’s mandatory debarment features should apply in connection with the Act’s corporate offence, and will issue appropriate guidance thereafter.  Separately, the SFO has indicated that for parties that disclose infractions voluntarily, it will be prepared to consider settlements that focus on civil penalties under other, related statutes – such as the civil recovery procedures under the Proceeds of Crime Act 2002 (the UK anti-money laundering law), or the Companies Act 1985 (which was utilized in the SFO’s recent settlement with BAE Systems).  Civil settlements under those statutes would not trigger mandatory EU debarment.

Conclusion

Many important aspects of the Bribery Act remain to be determined, including in the form of guidance to be issued by the Government (which undoubtedly will not occur for at least several months, given the impending Parliamentary election on 6 May).  Nevertheless, the Bribery Act clearly presents the UK Government with a new and expanded range of tools to prosecute bribery.  Given the Government’s increased enforcement efforts in recent years, under the more limited pre-existing regime, it is likely that the Act will result in an increased number of enforcement actions – both in terms of prosecutions, and settlements with parties who voluntarily self-disclose infractions to the SFO. 

Any increase in SFO investigations also may increase the risk of parallel investigations in other jurisdictions.  This risk is particularly evident for companies with significant presence in both the United Kingdom and the United States, given the extensive reach of the FCPA and the close working relationship between the SFO and the U.S. Department of Justice (the two agencies collaborate regularly on investigations and enforcement, and have recently coordinated several large settlements).

Through its London and Washington D.C. offices, Steptoe & Johnson has substantial expertise and experience, both under US and UK laws, in assisting companies in developing anti-corruption compliance programs, investigating potential misconduct, and in managing disclosures and settlements with enforcement authorities.  If you have any question regarding the Bribery Act, or Steptoe & Johnson’s UK and FCPA anti-corruption practice, please contact David Lorello (dlorello@steptoe.com; +44(0)20 7367 8007) in Steptoe’s London office, or Lucinda Low (llow@steptoe.com; 202-429-8051), Ed Krauland (ekrauland@steptoe.com; 202-429-8083) or Tom Best (tbest@steptoe.com; 202-429-8079) in Steptoe’s Washington D.C. office.


 


[1]Although numerous amendments to the bribery bill were considered in Parliament, the Act ultimately maintains the core features proposed originally by the Law Commission in November 2008, and presented to Parliament last March.  For further background on the progress of the bribery reform through Parliament, please see our March 2009 and February 2010 alerts. 

[2]Section 2 of the Act includes a parallel offence for soliciting or receiving bribes.

[3]See Commentaries on the OECD Anti-Bribery Convention, available for download on the OECD website at http://www.oecd.org/dataoecd/4/18/38028044.pdf