On 30 March the Ministry of Justice published its guidance about procedures which relevant commercial organisations can put in place to prevent persons associated with them from bribing (section 9 of the Bribery Act 2010). It also published a non-statutory quick start guide aimed at small businesses.(Free access.)
On 30 March 2011 the Ministry of Justice published its guidance about procedures which relevant commercial organisations can put into place to prevent persons associated with them from bribing (guidance). If an organisation can prove that it has adequate procedures in place, then they can form the basis of a defence to the offence of failing to prevent bribery under section 7 of the Bribery Act 2010.
Like the draft guidance published in September 2010, the guidance sets out six principles that are intended to give all commercial organisations a starting point for planning, implementing, monitoring and reviewing their bribery free business regime. However, the principles have been amended from those in the draft guidance to include two new principles, Principle 1: Proportionate procedures and Principle 5: Communication, in the place of the principles in the draft guidance headed: Clear practical and accessible policies and procedures and Effective implementation.
The principles as set out in the guidance are:
Principle 1: Proportionate procedures.
Principle 2: Top level commitment.
Principle 3: Risk assessment.
Principle 4: Due diligence.
Principle 5: Communication.
Principle 6: Monitoring and review.
The guidance is aimed at giving clarity on how the Bribery Act will operate and is intended to help commercial organisations of all sizes and sectors understand the procedures they can put in place to prevent bribery as mentioned in section 7(1). The guidance strongly advocates a risk based approach to adopting adequate procedures, acknowledging that different procedures will be appropriate depending on the size of the organisation, the sectors and jurisdictions in which it does business, as well as the nature of its business partners and transactions. Procedures should be proportionate to the risks faced by the organisation.
The guidance is not prescriptive but after each of the principles it does now suggest procedures which are designed to help organisations address the relevant principles. It will now be for organisations to review their businesses, carry out the relevant risk assessments and determine whether their procedures are adequate to prevent bribery. Where they are not, they should seek to implement anti-bribery procedures without delay.
The Bribery Act will come into force on 1 July 2011.Close speedread
Section 7 of the Bribery Act 2010, which will come into force on 1 July 2011, introduces a new offence under which a relevant commercial organisation is guilty of an offence if a person associated with it bribes another person intending to obtain or retain business or a business advantage. However, it is a defence for the organisation to prove that it had in place "adequate procedures" designed to prevent those associated with it from undertaking such conduct. Section 9 of the Bribery Act requires the Secretary of State to publish guidance about anti-bribery procedures in respect of this offence.
In order to be liable under section 7, a commercial organisation must have failed to prevent conduct that would amount to an offence under sections 1 or 6. Although section 7 does not require that a person has been convicted of such an offence, if the prosecution cannot prove beyond reasonable doubt that a sections 1 or 6 offence has been committed, the section 7 offence will not be triggered.
The territorial reach of the section 7 offence is based on the definition of "relevant commercial organisation". Under section 7(3) a commercial organisation can be liable for conduct amounting to a section 1 or 6 offence on the part of a person who is neither a UK national or resident in the UK, nor a body incorporated or formed in the UK. Section 12(5) provides that it does not matter whether the acts or omissions which form part of the section 7 offence take part in the UK or elsewhere. Therefore, if the organisation is incorporated or formed in the UK, or that the organisation carries on a business or part of a business in the UK then section 7 will apply to it. For further information see Practice note, Bribery Act 2010: jurisdictional reach (www.practicallaw.com/5-504-1451).
The guidance (www.practicallaw.com/0-505-4865) about procedures which relevant commercial organisations can put into place to prevent persons associated with them from bribing follows responses to draft guidance, published in September 2010 (see Legal update, Bribery Act 2010: Consultation on guidance about commercial organisations preventing bribery (www.practicallaw.com/5-501-7922)). The Bribery Act extends to England and Wales, Scotland and Northern Ireland. This guidance is for use in all parts of the United Kingdom. Both Scottish Ministers and the Northern Ireland Assembly have been consulted regarding the content of this guidance.
For further information on the Bribery Act, see PLC Commercial, Practice note, Bribery Act 2010 (www.practicallaw.com/5-500-8692).
The guidance notes that the objective of section 7 of the Bribery Act is not to bring the full force of the criminal law to bear upon well run commercial organisations that experience an isolated incident of bribery on their behalf. Therefore, in recognition of the fact that no bribery prevention regime will be capable of preventing bribery at all times and to encourage commercial organisations to put procedures in place to prevent bribery by persons associated with them, section 7 provides a full defence.
The commercial organisation's willingness to co-operate with an investigation by the Serious Fraud Office (SFO) under the Bribery Act and to make a full disclosure will also be taken into account in any decision as to whether it is appropriate to commence criminal proceedings
The guidance contains analysis of sections 1, 6, and 7 of the Bribery Act. Similar provisions were included in the draft guidance but were criticised on a number of levels. The guidance explains the sections in more detail and gives more indications as to the government's intentions in relation to prosecutions under these sections.
The guidance briefly outlines section 1, which makes it an offence for a person (P) to offer, promise or give financial or other advantage to another person in two cases:
Case one, where P intends the advantage to bring about an improper performance of a relevant function or an activity by another person or to reward such improper performance (section 1(2)).
Case two, where P knows or believes that the acceptance of the advantage offered, promised or given, in itself constitutes the improper performance of a relevant function or activity (section 1(3)).
The guidance notes that "improper performance" of a function is performance which amounts to a breach of an expectation that a person will act in good faith, impartially, or in accordance with a position of trust and that functions in both the public and private sectors are covered. In determining what is expected, the Bribery Act imposes a test of what a reasonable person in the UK would expect and states that where the function is not subject to UK law, local custom or practice is to be disregarded unless it is permitted or required by local written law contained in any written constitution, or legislation or judicial decision.
There have been concerns that this section would prevent certain types of hospitality, such as taking clients to major sporting events. However, the guidance clearly states that in order to bring a case, the prosecution would have to show that the hospitality was intended to bring about the improper performance and that this would be judged by what a reasonable person in the UK would think. It is therefore seen as unlikely that taking clients to, say, a Six Nations match at Twickenham would be an offence.
The guidance outlines the section 6 offence of bribing a foreign public official. A person is guilty of the offence if his intention is to influence the official in the official's capacity as a foreign public official. A foreign public official includes, among others, elected and non-elected officials holding a legislative, administrative or judicial position in any kind of country or territory outside the UK. The guidance confirms that this will include those performing public functions in national, local or municipal government or for any public agency or public enterprise of such a country or territory, such as professionals working for public health agencies and officers exercising public functions in state-owned enterprises. Officials or agents of a public international organisation, such as the UN or the World Bank can also be included (see section 6(5) and 6(6)).
The guidance notes that there may be an overlap between the section 1 offence and section 6 offence, in that bribing a foreign public official may involve conduct which amounts to improper performance of a relevant function. The lesser evidential requirement of section 6, that is, of proving the intention only to influence the official in his capacity as a foreign public official, is aimed at making section 6 more effective to prevent the influencing of decision making of public officials.
Given the wide scope of section 6, the guidance gives the following additional explanations:
The section 6 offence is not committed if the official is permitted or required by the applicable written law to be influenced in his capacity as a foreign public official by the advantage given. The guidance explains that where, for example, local planning law permits or requires a company doing business in a jurisdiction to put some additional investment in to the local economy (so called "off-set" arrangements) this is very unlikely to trigger a section 6 offence. If the additional investment would advantage the official himself and the local law is silent on the matter, the prosecutors will consider the public interest in prosecuting.
The guidance is very clear that the intention behind the Bribery Act is not to criminalise bone fide, proportionate and reasonable hospitality, promotional and other business expenditure which is aimed at better public relations. Such expenditure can, however, amount to a bribe where it is accompanied by the requisite intention to secure a business advantage by influencing the official in his official capacity but it will be necessary to show that there is a real advantage to the official or a person at his request. The prosecution will have to show that there is sufficient connection between the advantage given and the intention to influence and secure the business advantage. Generally the more lavish the hospitality and the higher the expenditure, the greater the inference that it is intended to influence the official to grant the business or business advantage. The guidance notes that different sectors have different norms as to the levels of hospitality that they offer, although remaining in keeping with those norms will not itself be evidence that no bribe was paid, if there is contrary evidence. However if there is no contrary evidence it is unlikely that the incidental provision of a routine business courtesy such as transfers from airport to hotel for a site visit or tickets to an event, will raise the inference that it was intended to have an impact on decision making.
The guidance gives the following example to illustrate its points:
The provision by a UK mining company of reasonable travel and accommodation for foreign public officials visiting mining operations to review the company's installations, safety and operating systems would fall outside the intended scope of the offence.
Flights and accommodation for foreign public officials to meet with senior executives of a UK commercial organisation in New York as a matter of genuine mutual convenience, and some reasonable hospitality for the individual and his or her partner, such as fine dining and attendance at a baseball match are unlikely to raise the necessary inferences. However, if, for example, the organisation's senior executives could easily have seen the official with all the relevant documentation when they visited the relevant country the previous week then the necessary inference might be raised by holding a second meeting in New York.
Offering ordinary travel and lodgings to enable a foreign public official to visit to a hospital run by the commercial organisation providing private health care is unlikely to engage section 6 but if that same commercial organisation offered the foreign public official an unrelated five-star holiday this might well raise the necessary inference.
The guidance therefore suggests that while an organisation is reviewing policies and procedures for the purposes of the defence under section 7, should also establish proper standards for hospitality and other similar expenditure.
A relevant commercial organisation is guilty of an offence if a person associated with it bribes another person intending to obtain or retain business or a business advantage. However, it is a defence for the organisation to prove that it had in place "adequate procedures" designed to prevent those associated with it from undertaking such conduct. The guidance emphasises that the standard of proof for establishing the defence is the balance of probabilities.
A relevant commercial organisation is defined in section 7(5) as a body or partnership incorporated or formed in the UK irrespective of where it carries on a business, or an incorporated body or partnership which carries on a business or part of a business in the UK irrespective of the place of incorporation or formation. The term "carries on a business" is not defined in the Bribery Act. The guidance notes that it will be for the courts to determine what this means but the government's intentions are that:
A common sense approach is adopted with regard to organisations incorporated or formed in the UK. It will not make a difference that the organisation pursues charitable educational or public functions, if it engages in commercial activities it will be a commercial organisation within section 7.
Whether organisations incorporated or formed outside the UK carry on a business in the UK will, again, be determined by the courts but, again, the government advocates a common sense approach. It would not expect, for example, that the mere fact that a company is admitted to the UKLA's Official List and to trading on the London Stock Exchange will qualify it as carrying on a business in the UK. Similarly, having a UK subsidiary alone would not be expected to comprise carrying on a business as the subsidiary can act independently of its parent company.
The guidance notes that a person is associated with a commercial organisation if it performs services for or on behalf of that organisation. Although this could include employees, agents and subsidiaries, the relationship between the parties will not be the only factor. Section 7 is intended to be broad in scope, which means that contractors and suppliers who performs services (the guidance draws a distinction here between those merely selling goods) could also be covered.
Supply chain: Following discussion around the extent to which the supply chain is covered by this section, the guidance notes that an organisation is likely only to have control over its relationship with its contractual counterparty, that it may not even know the identity of its sub-contractors and that it is likely that sub-contractors will be actually be performing services for the organisation's contractual counterparty and not for other persons in the contractual chain. It suggests that the principal way in which commercial organisations may decide to approach bribery risks which arise as a result of a supply chain is by adopting anti-bribery procedures (such as risk-based due diligence and the use of anti-bribery terms and conditions) with its contractual counterparty and by requesting that counterparty to adopt a similar approach with the next party in the chain.
Joint venture parties: The guidance notes that in the case of joint ventures through a separate legal entity, a bribe paid by that entity may lead to liability for its members if it is performing services for those members and the bribe is paid with the intention of benefiting them. However, it also notes that the legal relationship between the joint venture entity and its members does not automatically mean they are associated. Where the joint venture is conducted through a contractual arrangement, whether a party to the arrangement is liable for a bribe paid by an employee or agent engaged by one of the other parties to the joint venture will, partly, depend on the degree of control it has over that employee or agent. Normally the employer or person contracting with the agent will be the person associated with them. In any event, an offence will not be committed if it cannot be proved that the associated person intended to obtain or retain a business advantage for the commercial organisation. This is so even if the commercial organisation (be it a parent company or subsidiary) benefits indirectly from the bribe. However, if such intention can be proved, then the organisation may be liable (subject to the defence of having adequate procedures to prevent bribery).
Small bribes to facilitate routine government action (facilitation payments) can form a section 6 offence or, if the requisite intention to induce improper conduct is present, the section 1 offence, and therefore liability under section 7. Given the determination to eradicate facilitation payments, the guidance states that there will be no exemptions for them, as under the Foreign and Corrupt Practice Act in the US. However it is recognised that if there is no alternative but to make a payment in order to protect 'life limb or liberty' the common law defence of duress will probably be available.
Before proceeding, prosecutors must be sure that there is both evidence on which to base the prosecution and that it is in the public interest to do so. The guidance notes that prosecutorial discretion provides a degree of flexibility which will help ensure the just a fair operation of the Bribery Act. For further information, see Practice note, Bribery Act 2010: enforcement: prosecutorial discretion (www.practicallaw.com/6-504-2191).
As in the draft guidance, the guidance sets out six principles which should inform the procedure put in place by commercial organisations to prevent bribery. Two of the six principles (Principle 1: Proportionate procedures and Principle 5: Communication) are new and replace those of Clear, practical and accessible policies and procedures and Effective implementation, as set out in the draft guidance.
The guidance notes that as small organisation will face different challenges from those faced by larger organisations and organisations with purely domestic operations may face lower risks of bribery than those with international businesses, bribery prevention procedures should be proportionate, but the outcome should always be robust and effective anti-bribery procedures.
A commercial organisation's procedures to prevent bribery by persons associated with it are proportionate to the bribery risks it faces and to the nature, scale and complexity of the commercial organisation’s activities. They are also clear, practical, accessible, effectively implemented and enforced.
The guidance notes the difference between policies (statements of an organisation's stance) and procedures. Policies are likely to:
Include a statement of the organisation's commitment to bribery prevention.
Set out the general approach to reducing bribery risks.
Give an overview of implementation strategy.
It notes that procedures should be proportionate to the bribery risks that an organisation faces. These will be ascertained by a risk assessment and will depend on a number of factors which may be shared by large and smaller organisation, such as the size, nature and complexity of the business and the type and nature of persons associated with it. The procedures put in place to deal with the risks will vary depending on the level of the risk and size of the organisation. Procedures will need to be designed to prevent bribery by associated persons.
The guidance contains a non-exhaustive list of topics that bribery prevention procedures might cover, which includes:
The involvement of top-level management (see Principle 2).
Risk assessment procedures (see Principle 3).
Due diligence of existing or prospective associated persons (see Principle 4).
Gifts, hospitality and promotional expenditure, charitable and political donations and demands for facilitation payments.
Direct and indirect employment, including recruitment, terms and conditions, disciplinary action and remuneration.
Business relationships with all other associated persons including pre- and post-contractual agreements.
Financial and commercial controls such as adequate bookkeeping, auditing and approval of expenditure.
Transparency of transactions and disclosure of information.
Decision making, such as delegation of authority procedures, separation of functions and the avoidance of conflicts of interest.
Enforcement, detailing discipline processes and sanctions for breaches of the organisation’s anti-bribery rules.
Reporting of bribery including 'whistle blowing' procedures.
Detail of the process by which the organisation plans to implement its bribery prevention procedures.
Communication of the organisation's policies and procedures, and training in their application (see Principle 5).
Monitoring, review and evaluation of bribery prevention procedures (see Principle 6).
The top-level management of a commercial organisation (be it a board of directors, the owners or any other equivalent body or person) are committed to preventing bribery by persons associated with it. They foster a culture within the organisation in which bribery is never acceptable.
As in the draft guidance, this principle means that there should be top level commitment to both:
Communication of the organisation's anti-bribery stance: this will cover both internal and external communication and may include a commitment to carry out business fairly, honestly and openly, a commitment to zero tolerance towards bribery, an explanation of the consequences of breaching the policy for both employees and other associated persons, a statement of the business benefits of rejecting bribery, reference to the range of bribery prevention procedures the commercial organisation has or is putting in place, the names of key individuals and departments involved in bribery prevention procedures and reference to any collective action against bribery in, for example, the same business sector.
Involvement in developing anti-bribery procedures: this may include the selection and training of senior managers to lead anti-bribery work, leading on key measures such as a code of conduct, endorsement of all bribery prevention related publications, raising awareness and encouraging transparent dialogue throughout the organisation, engaging with associated persons and external bodies, involvement in high profile and critical decision making, assurance of risk assessment, oversight of breaches of procedures and the provision of feedback to the board (or equivalent) on compliance.
The commercial organisation assesses the nature and extent of its exposure to potential external and internal risks of bribery on its behalf by persons associated with it. The assessment is periodic, informed and documented.
The guidance states that risk assessment for bribery may be part of the organisation's general risk assessment or may form a stand alone process but in either case it should be proportionate to the organisation's size and structure and to the nature, scale and location of its activities. Procedures will usually involve overseeing the risk assessment by top level management, ensuring appropriate resourcing, identifying internal and external information sources, due diligence enquiries (see Principle 4) and accurately recording the risk assessment and its conclusions. The extent of risk assessment should be monitored as the organisation's business changes (see Principle 6).
The guidance categorises external risks as follows:
Country risk: the guidance suggests countries are high risk where there are perceived high levels of corruption and no effectively implemented anti-bribery legislation or promotion of transparent procurement and investment policies.
Sectoral risk: higher risk sectors include the extractive industries and the large scale infrastructure sector.
Transaction risk: these could include charitable or political contributions, obtaining licences and permits and transactions relating to public procurement.
Business opportunity risk: these could include projects which are of high value, involve many contractors or intermediaries, are not undertaken at market prices or have no clear legitimate objective.
Business partnership risk: the guidance cites the use of intermediaries in transactions with foreign public officials, consortia or joint venture partners and relationships with politically exposed persons where the business relationship involves a prominent public official, as examples of high risk business partnerships.
The guidance lists common internal risks as including deficiencies in employee training, skills and knowledge, a bonus culture that rewards excessive risk taking, a lack of clarity in the policies and procedures relating to hospitality and promotional expenditure, and political or charitable contributions, a lack of financial controls and lack of a clear anti-bribery message from the top-level management.
The commercial organisation applies due diligence procedures, taking a proportionate and risk based approach, in respect of persons who perform or will perform services for or on behalf of the organisation, in order to mitigate identified bribery risks.
The guidance emphasises that due diligence should be carried our on using a proportionate, risk-based approach, so, for example, less bribery prevention due diligence is needed when appointing a person to carry out IT support than when appointing someone to act as intermediary with public officials in a high risk jurisdiction. The Principle encourages commercial organisations to put in place due diligence procedures so that proportionate measures designed to prevent persons associated with them from bribing on their behalf can be put in place. Monitoring of associated persons should continue throughout the business relationship. Due diligence is likely to be greater in the case of companies given the number of individuals involved but organisations should also remember to carry out due diligence in relation to their own employees who are in a position of vulnerability in relation to the potential for bribery.
The commercial organisation seeks to ensure that its bribery prevention policies and procedures are embedded and understood throughout the organisation through internal and external communication, including training, that is proportionate to the risks it faces.
Communication will vary according to the risks faced by the relevant organisation. Internal communications will include both a clear statement of policies and the procedures of the organisation and the procedures for raising concerns about bribery, should it be detected. External communications may include a code of conduct and can include information on the organisation's procedures, controls and sanctions. The guidance considers various forms of training and who should undertake it. Once again, it notes that the requirement to train employees and some associated persons will be proportionate to the risks faced. Training should be continuous, and regularly monitored and evaluated.
The commercial organisation monitors and reviews procedures designed to prevent bribery by persons associated with it and makes improvements where necessary.
The guidance notes that as bribery risks will change from time to time policies and procedures should be kept under constant review. Financial control mechanisms are particularly important in this respect as they will help indicate the effectiveness of anti-bribery procedures. Periodic reviews should be supplied to top management and organisations should also consider external appraisal of its policies and procedures.
Appendix A to the guidance contains 11 case studies which look at how the six principles might relate to hypothetical situations. The case studies cover:
Hospitality and promotional expenditure.
Due diligence of agents.
Communicating and training.
Community benefits and charitable donations.
Top level commitment
The case studies are simpler that those set out in the draft guidance and in each case give a suggested list of actions that an organisation facing the situation given might consider.
For a full list materials published and to be published by PLC on the Bribery Act, see Practice note, Bribery Act 2010: toolkit (www.practicallaw.com/9-503-9451).