In April 2010, parliament passed a new UK Bribery Act which is expected to come into effect in autumn this year. This legislation creates a more effective legal framework for combating bribery, replacing a number of fragmented and complex offences, many of which had been in place for more than 100 years.
The act poses global risks and obligations for oil&gas companies that have jurisdictional presence within the UK, whether by carrying on business here or by having parent or subsidiary entities incorporated or formed under UK law.
It signals a fundamental change in the UK’s approach to prosecuting corruption, and the authorities have already made significant investment in enforcement capabilities.
This change in approach is underlined by a growing number of high-profile actions taken against corporations recently.
The act goes significantly further than the provisions of the US Foreign Corrupt Practices Act (FCPA) in two main areas. Firstly, it covers all bribery, whether or not it involves a public official. And secondly, there is no exemption for “facilitation payments”.
With the Bribery Act comes an urgent need for each business to re-examine its approach to managing bribery risk and to ask whether its current procedures are adequate.
The act creates four offences:
Two general offences covering the offering and receiving of a bribe.
A separate offence of bribing a foreign public official.
A new corporate offence of failing to prevent bribery.
The offences extend to operations outside the UK.
The new corporate offence of failing to prevent bribery is of particular note. Before the Bribery Act, there was no such offence. It is a strict liability offence that includes the activities of third parties acting on a business’s behalf. The legislation allows for unlimited fines under this offence.
The defence available to corporations is one of having “adequate procedures” in place to prevent bribery, but guidance issued so far on what procedures would be judged to be adequate has been high-level.
The offences by individuals will be committed when a person offers a financial or other type of advantage to another person with a view to inducing them to act improperly. These offences carry a maximum penalty of 10 years’ imprisonment.
The FCPA is likely to be familiar to most businesses in the oil&gas sector. This piece of legislation has already led to high-profile cases in which reputations have been severely damaged, fines of billions of dollars have been levied and jail terms have been handed down for senior executives.
However, the UK Bribery Act goes further in its reach than the FCPA, and compliance with the FCPA does not necessarily mean compliance with the new legislation.
The Bribery Act goes further than the FCPA in the following main respects:
It draws no distinction between public-sector and private-sector bribery, bringing into its remit business-to-business bribery.
There is no exemption for facilitation or “grease” payments.
It introduces the new corporate offence of failing to prevent bribery.
Companies subject to both the Bribery Act and the FCPA need to examine existing procedures for conformance with both laws.
Of particular note to businesses in the oil&gas sector should be a business’s exposure as a result of third-party relationships. Agents, consultants, distributors, joint ventures and new acquisitions create exposures that can be difficult to assess, but these are the areas where the risk can be greatest. Organisations need to look carefully at the due diligence they carry out on third parties who act on their behalf.
The act provides that the person committing the act need only be associated with the company, and the definition of “associated” includes, essentially, one performing services on behalf of another. It specifically acknowledges that this covers employees, agents and subsidiaries.
Considering the broad reach of the Bribery Act, which can apply to non-UK companies that conduct business in the UK as well as situations that occur outside of the UK, all those in the oil&gas sector need to pay attention to this legislation and consider the impact on their business.
The “failure to prevent” offence is likely to be effective from October this year.
For larger organisations, in particular, this leaves little time to assess the current state of their anti-bribery and corruption frameworks and implement improvements.
The Ministry of Justice has said that it will provide further guidance on what constitutes “adequate procedures”, but businesses should be acting now to prepare.
There are non-governmental pre-existing frameworks for assessing the effectiveness of financial reporting and regulatory compliance internal controls which allow for progress to be made in the absence of specific instructions from the ministry.
Guidance so far from the Serious Fraud Office and the GC100 organisation of leading general counsels on adequate procedures sets out the following broad areas for consideration:
Clear statement of anti-corruption culture with responsibility at board level.
Principles applicable regardless of local laws and culture.
A compliance function.
Risk-assessment procedures.
Formalised decision-making.
Individual accountability.
A code of ethics.
Policies on gifts; hospitality; facilitation payments; outside advisers; political contributions and lobbying.
Training to disseminate anti-corruption culture to all staff at all levels.
Financial controls to minimise risk.
Regular checks and auditing in a proportionate manner.
Commitment to making anti-bribery measures apply to business partners.
Due diligence over business relationships and projects.
Reporting and investigation.
A helpline for the reporting of concerns (“whistleblowing”).
Proper investigation of all allegations.
Appropriate and consistent disciplinary procedures.
As a result of the new legislation, organisations urgently need to examine their existing anti-bribery and corruption measures, benchmarked against leading practice and sector norms, and assess what improvements should be made ahead of the corporate offence coming into effect.
Many will already have policies as a result of the FCPA, but compliance with FCPA does not mean compliance with the Bribery Act, and the differences, some subtle and some stark, need to be addressed at an operational and strategic level in order to ensure compliance does not damage a company’s ongoing business.
In particular, attention should be paid to current and potential future relationships with third parties.
The global changes in working practices that may be required as a result of this legislation can be difficult and slow to implement. Organisations should be taking action quickly to be prepared.
David Lister is a director in Ernst & Young’s fraud-investigation and dispute-services team