The new UK Bribery Act was expected to come into effect in the autumn of last year, having been passed in April 2010. Its implementation, however, was delayed until April this year and now faces further political and public pressure.
In the last month, for example, the government ordered a review of the act, as part of its growth review, to determine the full extent of its restrictiveness and capacity to negatively impact on economic growth.
Nonetheless, the current political landscape would suggest that it is only a matter of time before it comes into force. North-east Scottish companies engaged in the oil & gas sector should be acutely aware of its significance, given many operate in challenging environments where evidence of bribery and corruption exists.
Oilfield services firms, in particular, should keep the act front of mind as they seek to make the most of global opportunities in their arena, while expanding their footprint and international reach.
Guidance on adequate procedures
The UK Ministry of Justice published draft guidance on adequate procedures to combat bribery and corruption in September 2010. As expected, this was high level and principle-based, rather than prescriptive of particular procedures.
Finalised guidance is due to be published at the end of this month, although it is not expected to contain any significant changes to the initial outline.
The six principles covered by the draft can be summarised as follows:
Top level commitment
Clear statement of anti-corruption culture with responsibility at board level
A zero-tolerance culture towards corruption
Risk assessment
Appreciation of the current bribery risks facing the sector and market
Should be performed periodically by a suitably-skilled assessor
Policies and procedures
Policies on: gifts; hospitality; facilitation payments; outside advisors, political contributions and lobbying
Must be clear, practical, accessible and enforceable, and reflect the variety of roles within an organisation
Implementation
Demonstration of effective rather than paper compliance
Implementation strategy to cover responsibility, training, communication plan, monitoring and review dates
Training to disseminate anti-corruption culture to all staff at all levels
Due diligence
Ongoing due diligence to cover all parties to business relationships
Monitoring and review
Financial controls to minimise risk
Regular checks and auditing in a proportionate manner
The challenges – jurisdictional reach
Corporates that have addressed the act head-on appear to be wrestling with a few common issues, chief among them being jurisdictional reach.
This piece of legislation is among the world’s most rigorous anti-bribery laws and creates the right (in certain circumstances) to prosecute non-British companies and their officers for making illicit payments anywhere around the globe, provided they have some form of business presence in the UK.
The Serious Fraud Office (SFO) – the main enforcer of the act – has been making a point of reminding the international business community of the extra-territorial reach of the legislation. Richard Alderman, the director of the SFO, stated in an interview with The Times on December 6, last year, that the act “significantly increased the regulator’s international reach”.
He went on to confirm that the SFO will target foreign companies suspected of paying bribes, even if these illicit deals have little or no connection to the UK. A crackdown on foreign multinationals would, he believes, help to ensure a level playing field for British companies that are trying to win business in overseas markets.
These comments echo the aggressive cross-border enforcement of the US Foreign Corrupt Practices Act (FCPA).
Facilitation payments
Facilitation payments (FPs) are another area of concern. These are used in many countries and are not prohibited by existing anti-corruption legislation, including the aforementioned FCPA. Although the act makes no specific reference to them, the inference is that these payments are prohibited.
The SFO has sought to provide guidance on its approach to these payments by stating that anti-corruption policies should address the possibility of FPs being paid. This suggests the body will take a sympathetic view of certain “emergency” FPs that are paid under duress – for example, where a threat to the payee exists – but it is alive to the possibility that businesses may be tempted to overstate the duress factor in a bid to justify ongoing FPs.
To make it clear, the SFO has noted that there is a “remote chance” that small, one-off FPs would be cause for prosecution, but FPs that are seen as “regular features of the business” will result in legal action.
Promotional expenditure
The absence of any exception for reasonable promotional expenditure in the UK act, in stark contrast to the FCPA, is seen by many UK businesses as problematic, because it can be viewed as an intention to influence in many cases.
Announcements made by the SFO appear to recognise the implications of such broad-based clauses, stating that there is no public interest in prosecuting “technical” breaches of the act, where promotional expenses are “reasonable, moderate and not lavish”.
Additionally, the Ministry of Justice reinforced this when Lord Tunnicliffe explained they were “not seeking to penalise expenditure…for legitimate commercial purposes”. Although he did qualify this by adding “lavish corporate hospitality can also be used as a bribe”.
Businesses, therefore, should not be afraid of entertaining their contacts. They should, however, ensure that the provision of entertainment and the giving of gifts is transparent and bear the implications of the act in mind on a case-by-case basis when considering them, in order to make sound judgements on their appropriateness.
Building an effective compliance programme
It is in the best interests of businesses to begin grappling with the implications of the act by first undertaking a robust risk assessment. This should be seen as the initial cornerstone to any response to the issues posed.
Without one, it would be difficult for any business to determine the scale of any potential stumbling blocks, or to truly understand where current and future risks may lie.
The implementation of an effective business change programme should be the next step, where appropriate, but consideration must be given to commercial aspects. Compliance and commerciality must move in step.
No programme, no matter how extensive or expensive, can provide absolute assurance of compliance.
It will, however, impact positively on a company’s culture and deter wrongdoing, making non-compliance less likely.
It will also mean in the unhappy event of a violation, that the business is in a better position to handle both the aberrational behaviour itself and the subsequent dealings with the regulatory authorities.
One by-product of the increased rate of corporate prosecutions and settlements, is the rise in the number of criminal prosecutions of executives. It should be made clear that the risks can have a real impact on their lives and future prospects and are not simply monetary penalties.
David Lister heads up Ernst & Young’s Fraud Investigation and Dispute Services team in Scotland