UK Bribery Act guidance shifts focus from hospitality to intermediaries

Thursday, 31 March 2011

The UK Government has today published its guidance in relation to the new Bribery Act which will now come into force on 1 July 2011. Draft guidance was originally published in September 2010 but finalisation has been delayed by extensive lobbying.

The Director of Public Prosecutions (DPP) and the Serious Fraud Office (SFO) have also published their Joint Prosecution Guidance on the Act.

Geoff Nicholas, co-head of the Global Investigations practice at international law firm Freshfields Bruckhaus Deringer said, ‘It is clear that the Government has taken account of the comments made by business through the consultation process, even if business has not got everything it wanted.’

He continues, ‘In launching the guidance, Ken Clarke has made it clear that although the Act sets out tough new rules, avoiding bribery is about common sense not bureaucracy.’

The guidance is not intended to be prescriptive and sets out six principles which companies should take into account when considering the steps to be taken to prevent bribery in their businesses.

Nicholas said, ‘Different procedures will work for different companies, depending on the size and nature of their business and the markets in which they operate. What the guidance makes clear is that the procedures need to be proportionate to the risks faced by the business.’

Paul Lomas, a senior disputes partner at Freshfields notes: ‘The Government has clearly put risk front and centre of the new procedures and rightly so. But the fundamental concern remains: a company can be criminally liable for the acts of people it does not control and may not even know.’

‘As a result, there will be heavy emphasis on due diligence when entering new markets. This may have a significant impact for businesses considering acquisitions, new business opportunities and entering into partnerships and joint ventures,’ says Lomas.

Hospitality

The Government has responded to some of the concerns raised during the consultation and made it clear that it has no intention of seeking to prohibit corporate activities aimed at building corporate relations and promoting business.

As Paul Lomas notes, ‘Many will be relieved to know that the trip to Twickenham is still on the cards. But companies will have to take care as to what is appropriate when hosting business partners, particularly government officials.’

‘The DPP and SFO’s guidance expressly states that the lavishness of any hospitality will be a factor, but not the determining factor, as to whether this hospitality is seen as falling on the wrong side of the line,’ he says.

Foreign officials and hospitality

What particularly concerned business was the potential breadth of the offences of bribing a foreign public official. Through-out the passage of the Bill in Parliament, the Government has steadfastly refused to include any requirement that there be any corrupt or improper intention on the party making the payment or offering some form of advantage to foreign public officials.

In business terms, there was a fear that this might mean that any hospitality or promotional activities around foreign government counterparties might be deemed to be wrongful, whether or not this was the intention.

This could have had a significant impact on the ability of companies to do business with governments and government entities in many of the markets where business currently sees the most scope for growth.

The Government has clearly stated that it does not intend the Act to prohibit reasonable and proportionate hospitality and promotional expenditure with respect to foreign government entities, which it recognises is an acceptable part of doing business.

As Geoff Nicholas notes, ‘The comfort the government has sought to give is that companies are free to continue to promote their businesses and provide bona fide hospitality. In doing so, it appears to have re-introduced a requirement for improper intent by the back door.’

Facilitation payments

There are still areas of concern for business. Notably, the Government has given no ground on the issue of facilitation payments. These are small payments often demanded in certain parts of the world to facilitate routine actions by government officials.

Nicholas says, ‘The Government sees facilitation payments as having a corrosive effect, helping to perpetuate a culture of bribery. They are seen very much as the thin edge of the wedge.’

‘Although the guidance re-affirms the position that facilitation payments are bribes, the Government recognises that demands for these payments won’t be eradicated without action at a state level. Nevertheless, it insists that business has an important part to play and should not be offering payments for routine actions taken by foreign government officials.’

The guidance from the DPP and SFO specifically addresses this issue saying that, ‘they will seek to prosecute large and repeated payments which are part of a company’s normal way of doing business in certain markets rather than go after small one off payments,’ says Nicholas.

The guidance also recognises that it won’t be in the public interest to prosecute a payment by someone in a vulnerable position, for example where they feel under physical threat.

Failing to prevent bribery: the corporate offence

There is some reassurance as to the potentially very broad international application of the new corporate offence. This will be particularly welcomed by overseas companies that feared any link to the UK, however weak, would open them up to the Act.

'It would be necessary for a prosecutor to show that a foreign company has a demonstrable business presence in the UK so it’s unlikely that mere investment alone would give rise to liability,’ says Nicholas.

‘The Government has also made it clear that being listed on the London stock exchange by itself would not mean a company was deemed to be carrying on business in the UK,’ says Nicholas.

Associated persons

Nicholas says that at any one time a whole range of entities may be said to be performing services on behalf of a company including contractors and suppliers, but where there are several entities in a chain, ‘it is likely to be only those that are direct counterparties which are deemed to be performing services on behalf of a company, and that may give rise to a bribery offence.’

He continues, ‘Much will depend on the nature of the relationship between a business and its partners. It’s not as cut and dried as some might have hoped.’