Kicking out the kick-backs

The Bribery Act has created a new offence for commercial organisations of failing to prevent bribery. It also provides companies with the classic choice of doing something now to create their defence to a prosecution under this provision '“ or pay the price later. The Act provides only one defence to an organisation if an associated person has paid a bribe to obtain or retain business for the organisation or to obtain or retain an advantage in conducting the organisation's business. This is that the company had 'adequate procedures' designed to prevent people associated with the company from bribing.

Whether or not an organisation's guidelines are adequate is important: the offence of failing to prevent bribery carries an unlimited fine. While penalties under the old anti-bribery regime have been in the mere tens of millions of pounds '“ leaving aside liability in foreign jurisdictions, particularly the US '“ the signals are that the English court views these penalties as too low. Indeed, where a company's lack of means is cited to reduce a fine, it is only likely to be successful in enabling a company to continue in business if it had demonstrated to the court that new management would not engage in similar conduct in future (see the sentencing remarks of Thomas LJ in R v Innospec Limited [2010] EW Misc 7 (EWCC)).

Both large organisations that do business abroad in exotic places where bribes may be considered commonplace and small companies struggling to win business in new markets are vulnerable. There are also many cases every year of corruption by UK companies in the UK.

It is not just UK-based organisations that are subject to the Bribery Act offence of failing to have adequate procedures to prevent bribery. The test for this offence extends beyond organisations formed under the laws of any part of the UK to organisations, wherever formed, that carry on business or part of their business in the UK.

One intriguing question left open by this test is whether a corporate group will be found to be carrying out part of a business in the UK, or whether the court will adopt a stricter approach by looking only at the activity of the subsidiary concerned. Unsurprisingly, prosecutors have argued that the group structure should not prevent the UK courts taking jurisdiction.

Reaching the 'adequate' standard

Formal guidance from the secretary of state is awaited on what procedures a commercial organisation needs to have in place to achieve the 'adequate' standard. However, in a letter from Lord Bach to interested peers dated December 2009, Lord Bach set out a number of points on behalf of the government. He identified existing work of Transparency International, the Global Infrastructure Anti-Corruption Centre, a draft paper by the GC100 and the OECD's good practice guide that was then not published but of which he said '[the government] will undoubtedly wish to reflect in our own guidance'. The OECD guidance is now published and there is a significant body of material available giving clues as to what the secretary of state's guidance will contain.

Where clients already have effective anti-bribery measures in place, there is limited point in conducting a review until the secretary of state's guidelines are published.

However, some clients will have further to go than others; and, as most of the guidance material recognises, organisations differ and face different challenges, and therefore need to address different issues in different ways to achieve the same result of avoiding the use of bribes.

Starting from scratch

Clients that have not yet recognised the need to take action must be taken to first base, and that process should start now. The published guidance from the bodies identified by Lord Bach can be used as a basic test to see the extent to which clients will need to establish or review their anti-bribery procedures. The guidance includes the following:

• Strong support is provided by senior management to the client's anti-bribery controls and policies.
• A senior officer with adequate autonomy from management (including as to resources) should have responsibility for oversight of ethics and compliance programmes.
• Measures should provide clear guidance on, among other things, gifts, hospitality, political contributions, charitabledonations, facilitation payments and solicitation and extortion directed against the company.
• Appropriate due diligence should be carried out on hiring and oversight of business partners.
• Appropriate disciplinary procedures should be used to enforce anti-bribery violations.
• Provision of guidance should be available to directors and employees on compliance with policies.
• Reporting procedures should be in place.

Facilitation payments (i.e. payments to officials that are sought for an official to fulfil his or her duties) are an area that clients must get to grips with. While permitted under some anti-bribery legislation, they will not be permitted under English law when the Bribery Act comes into force.

The combination of the enactment of the Bribery Act and renewed vigour in enforcement, most recently recognised by Thomas LJ in Innospec, is providing a new landscape for anti-corruption enforcement of heavy fines and imprisonment of individuals responsible for bribery.

The establishment by commercial organisations of adequate procedures to prevent bribery is an obvious way in which clients can seek to protect themselves against prosecution. Solicitors should encourage their clients to address these issues now.