One Year on: What has the Bribery Act Done for us?

It is almost a year since the Bribery Act 2010 came into force on 1 July 2011.  There was at that time much gnashing of teeth about what the Act would mean for UK businesses and the dire fate awaiting those anti-corruption policies and procedures were not in good shape.  As we approach the first anniversary of the Act's implementation, Melanie Wadsworth of Faegre Baker Daniels asks, what has been the true impact of this legislation and how has it changed the anti-corruption landscape.

Background briefing

First, a brief reminder of the effect of the Bribery Act, which replaced a historic patchwork of bribery offences based on laws dating back to the early 1900s.  In addition to creating a specific offence of bribery of a foreign public official (section 6), the Act created two broader offences of bribing and being bribed (sections 1 and 2).  Significantly, from the perspective of companies, the Act also established a new corporate offence of failure to prevent bribery by a person performing services on behalf of a commercial organization incorporated or carrying on business in the UK (section 7).  Organizations can defend themselves against an alleged Section 7 offence by proving that they had in place "adequate procedures" designed to prevent bribery.  The question of adequacy will depend on the facts of each case, but the UK government published helpful Guidance¹ to assist commercial organizations to establish adequate bribery prevention procedures and identified six principles which should inform such procedures, including top-level commitment, clear communication and monitoring and review.

Current Position

A survey of 1,000 UK-based middle managers published by Ernst & Young in April 2012 found that almost three quarters of respondents (72%) are still not aware of the Act. At first sight, this figure is astonishing: this time last year one couldn't pick up a newspaper without reading about the Act and its potential ramifications.  More importantly, large numbers of companies, both public and private, are known to have taken the Act very seriously, putting in place comprehensive anti-corruption policies well before it came into force.  How could this apparent disconnect arise?

Reasons

A number of possibilities suggest themselves.  First, much of the publicity surrounding the Act focused on corporate hospitality and suggested that corporate events were a thing of the past.  In reality, this was always something of a red herring and the government Guidance soon made it clear that there was no intention to criminalise bona fide expenditure on reasonable and proportionate hospitality.  However, the initial emphasis on this narrow aspect of the legislation did rather take the focus away from areas of potentially greater concern. 

Second, the UK has historically struggled to see bribery and corruption as its problem.  In a report published just before the Act came into force², Transparency International concluded that any discussion of the subject in the UK tended to assume that it was a challenge existing in other countries, particularly in the developing world.  Accordingly, business managers who are not operating in countries where corruption is endemic might not have considered the Act to be their problem.

Caught in the Middle

Key decision-makers in many companies, mindful of the requirement to set the tone from the top, have taken a lead in establishing appropriate anti-bribery policies.  It does seem, however, that the message has still not been adequately transmitted to those at the coalface.  Ironically, it is an organization's middle managers who are perhaps most likely to spot red flags and be in a position where they might be offered – or put under pressure to offer – bribes.  For that reason alone, the most comprehensive anti-corruption policy will be worthless if it has not been communicated clearly and enforced proactively throughout the organization.  Training is the key and an essential part of proving that procedures are "adequate".  Whilst many companies have taken the first crucial steps in compliance, it is significant that of the 28% of managers surveyed by Ernst & Young who had heard of the Act, only half felt that they had received adequate training to ensure they were able to comply with it.

Investment banks – a case study

Further doubts were raised by the Financial Services Authority's recent report on anti-bribery systems in investment banks³, which concluded that most firms had not properly taken account of the FSA rules covering bribery and corruption, either before the Act or after.  Particular areas of weakness included dealings with third parties used to win or retain business and assessment of the effectiveness of existing training.  Having fined Aon Ltd UK£5.25 million in 2009, for failing to take reasonable care to counter the risks associated with payments to overseas third parties, and Willis Ltd UK £6.9 million for similar regulatory failures in July 2011, the FSA clearly expected to see greater progress.

Dynamic and bespoke

Corruption risk assessment should be a continuous process based on qualitative, relevant information from both internal and external sources.  An effective system will inform the development of monitoring and training programmes and be embedded in the operational processes of the organization.  The FSA's investigation noted that many firms relied too heavily on external advisers and generic sources, such as the government Guidance, without sufficient input from either the business (including those middle managers highlighted by the Ernst & Young report) or more relevant external sources, such as peer companies and appropriate trade associations.

Dangerous liaisons

It is clear that one of the most significant areas of vulnerability for companies is potential liability for the actions of "associated persons" – those who perform services for or on behalf of the organization, such as subcontractors, consultants or introducers.  Even if the company had no knowledge that an associated person intended to offer, pay or accept a bribe, it may be found guilty of the section 7 offence if its procedures to mitigate that risk were not adequate.  It is therefore essential that appropriate due diligence is undertaken, and full records kept, on any associated person engaged by the company.  The due diligence process should seek to identify potential red flags such as negative press allegations, adverse judicial or regulatory findings or political connections.  Where potential risks are identified, but reasonably deemed (after additional due diligence) to be acceptable, the company should ensure that enhanced procedures such as senior management oversight and sign-off are applied to the relationship.  All third party relationships, but particularly those in high-risk sectors or jurisdictions, should be monitored and reviewed regularly and in sufficient detail to ensure they remain appropriate.

Civil Recovery – Out of Favour

Given that much of the pressure on the government to develop the Act came from a report published by the OECD in 1999, saying it had "serious concerns" about the lack of enforcement in the UK against bribery and corruption, it is interesting to consider the findings of a recent OECD report on the UK's enforcement record⁴. Although acknowledging significant progress, the report did raise some concerns, including in the area of self-reporting and reliance on civil recovery orders rather than criminal prosecution.  The written policy of the Serious Fraud Office (SFO) encourages companies to self-report bribery by enticing them with the prospect of civil recovery, so avoiding a criminal conviction, provided certain criteria are met and the company's directors have had no personal involvement in the wrongdoing.  The SFO will typically require a self-reporting company to investigate the allegations itself, at its own expense, which is clearly of benefit to the agency whose budget is very limited.  In recent years, the UK courts have been highly critical of civil recovery orders, particularly in the context of foreign bribery.  As noted by the court in Innospec⁵, a pre-Act case involving corrupt payments to officials in Iraq and Indonesia to secure contracts, "those who commit such serious crimes as corruption of senior foreign government officials must not be viewed or treated in any different way to other criminals.   It would be inconsistent with the basic principles of justice for the criminality of corporations to be glossed over by a civil as opposed to a criminal sanction".  The OECD shares this concern, not least because civil recovery orders require less judicial oversight and are less transparent than criminal plea agreements.  With limited information available on the terms of settlement , often because the SFO has entered into a confidentiality agreement with the defendant, it can be difficult to assess whether the sanctions imposed are proportionate and dissuasive.  Not only is this information important for assessing the effectiveness of SFO enforcement and policy, but its absence misses an opportunity to raise public awareness and provide guidance on bribery-related issues.  The situation may change if the SFO is able to offer deferred prosecution agreements (DPAs), which will be made public, as proposed by the Government in mid-May.

 Too early to tell

In terms of prosecutions, it is fair to say the impact of the Act has so far been underwhelming.  To date, only one lowly court clerk has been convicted – to a three year prison term – having pleaded guilty to accepting a UK£500 bribe to "get rid of" a speeding charge.  But the nature of cases involving bribery and corruption, particularly overseas, requires painstaking and protacted investigation and gathering of evidence, such that the lead-in time to prosecution is significant.  To expect the SFO to have become aware of, investigated and prosecuted a significant offence under the Act within 12 months of its coming into force is simply not realistic.  The SFO stated as at 31 January that it had 11 active bribery/corruption cases and a further 18 cases under consideration.  Although not all of these will have involved offences under the Act, it is reasonable to assume that some do.

Having been in office only a few weeks, David Green the new head of the SFO has already made it clear that he means business.  Despite the SFO's modest budget, Green believes a targeted, strategic approach will produce results.  In a recent interview he acknowledged "a perception that we are more inclined to settle than prosecute" and stated his intention to rebalance the focus between prosection and civil settlement.  Music to the ears of the OECD, but unnerving for organizations, more familiar and comfortable with the concept of plea-bargaining and reduced sanctions.  They may take some comfort, however, from early indications that Green is interested only in the largest cases of bribery by overseas companies, where UK companies have been prevented from competing for significant contracts on a level playing field.  That said, many feel that it will only be through cooperation with better funded agencies such as the US Department of Justice and the US Securities and Exchange Commission that the SFO will be able to afford successfully to pursue the big cases.  For overseas companies operating in the UK, that has to be of concern and the clever money is on the first significant prosecution under the Act to have a US element.

^{1.    See http://www.justice.gov.uk/guidance/making-and-reviewing-the-law/bribery.htm
2     Corruption in the UK: Overview and Policy Recommendations, Transparency International UK (June 2011)
3    Anti-bribery and corruption systems and controls in investment banks, Financial Services Authority (March 2012)
4    Phase 3 Report on Implementing the OECD Anti-bribery Convention in the United Kingdom, OECD Working Group on Bribery (March 2012)
5    Regina –v- Innospec Limited (2010)}

This article was first published in Money Laundering Bulletin on 7th June 2012.