Hong Kong Law
The UK Bribery Act 2010: The Implications For Businesses Operating In Asia
IntroductionThe extensive jurisdictional reach of the UK Bribery Act 2010, when it is finally implemented, will have significant implications for businesses operating in Asia which have a UK connection and for British nationals and citizens living in Asia. In particular, as dealt with in detail later:
- A new strict liability corporate offence of failure to prevent bribery may be committed by a company (wherever it is incorporated or formed) which "carries on a business or part of a business" (a term which is not defined in the UK Bribery Act 2010) in the UK. The offence may apply to bribery conducted anywhere in the world by a person with no connection to the UK. The offence applies also to UK incorporated companies irrespective of where they carry on business or where the bribery occurs. The offence is triggered if a person associated with the company bribes another person, intending to obtain or retain business or a business advantage for the company. A person is " associated with a company" if he performs services on behalf of or for the company, potentially catching a company's agents, employees, subsidiaries, intermediaries, joint venture partners and suppliers.
- The UK Bribery Act 2010 also has serious implications for individuals as it gives the UK courts jurisdiction over bribery committed anywhere in the world by a person with a "close connection to the UK" (the definition of which includes British nationals and citizens).
BackgroundThe UK Bribery Act 2010 represents a considerable extension of the existing UK law relating to bribery and corruption, prompted by criticism of the UK's regulatory framework in this area by the Organisation for Economic Cooperation and Development ("OECD"). UK law in this field is inconsistent with the OECD Bribery Convention, which the UK ratified in 1998. In response to criticism, particularly of the UK's handling of the BAE corruption case, a process of reform was commenced by the Law Commission in 2008. This led to the drafting of the Bribery Bill, which was placed before parliament in November 2009. The Bribery Act received Royal Assent on 8 April 2010. The UK Bribery Act 2010 was originally to enter into force in October 2010, before being delayed until April 2011. As set out above, implementation of the UK Bribery Act 2010 has now been delayed for a second time. Prior to the passing of the Bribery Bill into law, there was a common law offence of bribing a public official and a number of statutory offences involving the bribery of a public agent or official. Together these offences are known as the Prevention of Corruption Acts 1889 to 1916 and they encompass the Public Bodies Corrupt Practices Act 1889, the Prevention of Corruption Act 1906 and the Prevention of Corruption Act 1916. Among the problems apparent under the old mixed common law and statute regime was the difficulty of convicting a company of bribery, due to the requirement to prove that a senior manager was the controlling mind and will behind the offence. Additionally, a transaction that was completely private and involved no public official was beyond the scope of the old bribery offence, save where the bribe was made to an agent acting for another person.
The Offences Under The 2010 ActThe new UK Bribery Act 2010 contains four categories of offence:
- A general offence of offering, promising or giving a bribe to another person
- A general offence of requesting, agreeing to receive or receiving a bribe from another person
- A specific offence of bribing a foreign public official
- A strict liability corporate offence of failing to prevent bribery
Section 1: Offence of bribing another personAn offence is committed under section 1 of the UK Bribery Act 2010 where a person (P) offers, promises or gives a financial or other advantage (the term "financial or other advantage" is not defined) to another person in the following two scenarios:
- Case one, where P intends the advantage to bring about an improper performance of a relevant function or an activity by another person or to reward such improper performance (section 1(2)).
- Case two, where P knows or believes that the acceptance of the advantage offered, promised or given, in itself constitutes the improper performance of a relevant function or activity (section 1(3)).
Section 2: Offences concerning being bribedSection 2 relates to offences where the offender is the target of a bribery attempt. There are four different situations where a person, R, will be guilty of committing an offence in respect of receiving a bribe, which apply where:
- R requests, agrees to receive or accepts a financial or other advantage:
- intending that a relevant function or activity should be improperly performed by R or another (section 2(2));
- the request, agreement or acceptance is of itself an improper performance of a relevant function or activity (section 2(3));
- as a reward for improper performance of a relevant function or activity by R or another (section 2(4)); or
- R or another performs a relevant function or activity in an improper manner, in anticipation of or in consequence of R requesting, assenting to receive or accepting a financial or other advantage (section 2(5)).
- R's aim may be for the improper performance to occur as a result of the request, agreement to receive or acceptance of the advantage.
- Receiving, agreeing to receive or accepting the advantage may amount intrinsically to the improper performance.
- The advantage may be a reward for the improper performance
Sections 3, 4 and 5: Improper Performance and Relevant Function or Activity as they apply to Sections 1 and 2Both general offences relating to the making and receiving of bribes are based around the concept of "improper performance". "Improper Performance" in section 4 of the UK Bribery Act 2010 means performance (or non performance) of a public or private function, which breaches the expectations of good faith or impartiality, or violates a duty of trust. This concept is to be applied using an objective test, based on the expectations of a reasonable person in the UK regarding the activity in question. Sections 5(1) and (2) concern the difficult issue of the effect of local customs on reasonable expectations of proper performance. When assessing what a reasonable person in the UK would expect where the performance is not governed by UK law, no local custom or practice should be taken into account, save where it is permitted or demanded by the written law of the country or territory in question. The term "Written law" in the UK Bribery Act 2010 relates to law found in any written constitution or provision made by or under legislation, or any judicial decision applicable to the country or territory concerned and which appears in published written sources (section 5(3)). "Relevant function or activity" is defined in section 3. It is a broad definition and can relate to all functions of a public nature, all activities linked with a business (which includes a trade or profession (section 3(7)), any activity undertaken in the course of a person's employment and any activity performed by or on behalf of a body of persons (whether corporate or unincorporated). A further requirement is that an expectation exist that the functions are performed in good faith or impartially, or that the individual responsible for them is in a position of trust (sections 3(3), 3(4) and 3(5)).
Section 6: Bribery of Foreign Public OfficialsAlthough the new bribery offences in sections 1 and 2 have substantial extra territorial effect, the UK Bribery Act 2010 also creates a new specific offence of bribing a foreign public official. The new offence is clearly influenced by the OECD Anti-Bribery Convention, the terms of which it appears to be modeled on. Sections 6(5) and 6(6) give a flexible definition of foreign official, encompassing government officials and those working for international organisations. The scope of the offence does not cover accepting bribes, only offering, promising or giving them. The offence can be reduced to three constituent parts:
- The briber must intend to influence the foreign public official in his capacity as foreign public official, including any failure to exercise those functions and any use of his position, even if he does not have authority to use the position in the manner in question;
- The briber's intention must be to obtain or retain business or a benefit in the conduct of business, which includes anything that is done in the course of a trade or business;
- The briber must directly or via a third person, offer, pledge or provide any financial or other advantage to the foreign official or to another person at the foreign official's request.
Facilitation PaymentsThe US Federal Law Foreign Corrupt Practices Act ("FCPA") 1977 makes an exception in its anti bribery regime for small "facilitation payments" rewarded to officials in order to streamline official procedures, a widespread practice for those doing business in parts of the developing world. The UK Bribery Act 2010 contains no such exception, making all payments of this nature, regardless of size or local custom, illegal. This stance has been criticized for ignoring commercial reality, but the UK government has declined to retreat from its zero tolerance approach, preferring to deal with difficult cases through the use of prosecutorial discretion.
Corporate HospitalityAlthough the government has accepted that the new legislation is not intended to criminalize proportionate and legitimate hospitality, including that offered to foreign public officials, it has retained the ability to bring proceedings under the UK Bribery Act 2010 against those who indulge in excessive displays of hospitality in order to undermine the recipient's duties of good faith, impartiality or trust which are owed to his employer. Again, this is an area in which prosecutorial discretion will play a large part.
Section 7: Failure of Commercial Organisations to Prevent BriberyPerhaps the most contentious of the four categories of offences is section 7, which attaches criminal liability to a "relevant commercial organisation" when a person associated with that organisation (within the meaning of section 8(1), discussed below in relation to the extra territorial scope of the section 7 offence) bribes (within the meaning of sections 1 and 6) another person, intending to obtain or retain business or a business advantage for the organisation. The offence can be committed in the UK or overseas. There is no negligence test to establish liability in connection with this section, as it is a strict liability offence, with the only defence for the commercial organisation being an ability to show that it had "adequate procedures" in place to prevent persons associated with the organisation from committing bribery (section 7(2)). The interpretation given to "adequate procedures" when establishing the defence, as well as the impact of extra territorial application, are vital factors when considering this section and these are discussed separately below.
The Extra Territorial Effect Of The Act
Section 12: The Territorial Application of the General Bribery Offences of Sections 1 and 2 and the Section 6 Offence of Bribing a Foreign Public OfficialUnder section 12(1) of the UK Bribery Act 2010, an offence has been committed under sections 1, 2 and 6, if any act or omission which forms a component of the offence occurred in the UK. It should be emphasised here that once any of the acts making up the offence transpire in the UK, it is irrelevant where any of those involved reside, are domiciled or are incorporated. Sections 12(2) and (3) of the UK Bribery Act 2010 relate to the extra territorial application of sections 1, 2 and 6. These sections state that proceedings may be taken in the UK if:
- a person, who has a "close connection" with the UK,
- acts or omits to act in a manner outside the UK that would be an offence under sections 1, 2 or 6, if that act or omission had taken place in the UK,
- even if no such act or omission actually did occur in the UK.
- A British citizen.
- A British overseas territories citizen.
- A British national (overseas).
- A British overseas citizen.
- A person who under the British Nationality Act 1981 is a British subject.
- A British protected person within the meaning of the British Nationality Act 1981.
- An individual ordinarily resident in the UK.
- A body incorporated under the law of any part of the UK
- A Scottish partnership.
Territorial Application of Section 7 Offence of Failure of a Commercial Organisation to Prevent BriberyAs discussed above, section 7 attaches criminal liability to a "relevant commercial organisation" when a person associated with that organisation bribes (within the meaning of sections 1 and 6) another person, intending to obtain or retain business or a business advantage for the organisation. The extra territorial effect of the offence stems from the meaning attached to the phrase "relevant commercial organisation" in the UK Bribery Act 2010. Under section 7(5), the term "relevant commercial organisation" is defined as any of the following:
- A body that is incorporated under the law of any part of the UK and that carries on a business anywhere (whether in the UK or elsewhere).
- Any other body corporate (wherever incorporated) that carries on a business, or part of a business, in any part of the UK.
- A partnership that is formed under the law of any part of the UK and that carries on a business anywhere (whether in the UK or elsewhere).
- Any other partnership (wherever formed) that carries on a business, or part of a business, in any part of the UK.
The Adequate Procedures Defence Under Section 7 (2) And The Ministry Of Jusitice's Draft Guidelines
The Adequate Procedures DefenceA "relevant commercial organisation" (C) has a defence from a charge of failure to prevent bribery, if it can show that it had in place adequate procedures designed to prevent persons associated with C from undertaking such conduct (Section 7(2)). However, the term "adequate procedures" is not defined in the UK Bribery Act 2010, which leaves companies with considerable uncertainty as regards what is expected of them. Section 9 of the UK Bribery Act 2010 creates a statutory obligation on the Secretary of State to produce guidance on the matter, in order to aid and inform commercial organisations. The government issued a draft guidance (the "Guidance") on the adequate procedures defence in September 2010, as part of the consultation process. The 8-week consultation period ended on 8 November 2010. A government response, along with the final version of the guidance, was to be published in January 2011. However, as discussed above, this has been delayed.
The Draft Guidance on the Adequate Procedures DefenceThe aim of the Guidance is to assist commercial organisations of all sizes and forms to ensure that they are taking adequate precautions against the threat of bribery. It details six key principles for ensuring bribery does not occur, illustrating them via case studies. It is not a standalone document and is meant to form part of a wider framework of regulatory guidance, encompassing publications from the Financial Services Authority, the Serious Fraud Office and the City of London Police. Although the issue of whether an organisation actually has adequate procedures to prevent bribery is one of fact to be decided by the courts, organisations can place themselves in a stronger position by adhering to the recommendations contained in the Guidance.
The Six PrinciplesThe six principles upon which the Guidance is structured are not intended to create an exhaustive and mandatory set of factors guaranteeing that an organisation's procedures will be considered adequate under the UK Bribery Act 2010. Rather they aim to assist organisations in understanding the kind of procedures they should put in place to guard against bribery. The Guidance explicitly recognises that different companies will require different procedures if they are to be considered adequate by the courts. In cognizance of this, the principles make suggestions and recommend factors to be taken into account by companies when developing and stress testing their anti bribery regimes.
Principle 1: Risk AssessmentThe Guidance recommends that the company conduct regular self appraisals in order to better understand and measure the risk of corruption which it must confront. This process will allow a company to expend its resources in the most efficient way possible in its efforts to prevent corruption and bribery. The Guidance is clear that different companies will need to follow different procedures when assessing the adequacy of their protection against both internal and external risks. Company policy on corporate hospitality is a good example of an internal risk, while external risks may arise from the countries in which an organisation conducts business or the manner in which it makes charitable donations.
Principle 2: Top down commitmentThis principle highlights the importance for leaders of an organisation, whether the board of directors, managing partners or senior management, of leading by example. They should establish and publicise a culture where corruption is not tolerated. It is noteworthy that the Guidance states that this zero tolerance culture towards bribery should be extended to an organisation's business partners, without discussing what this may require a company to do as regards its relations with others.
Principle 3: Due DiligenceThis principle relates to the responsibility on organisations to perform adequate due diligence checks on their business partners, in order to ensure that a relationship with them runs little risk in the way of bribery or corruption. This is potentially a very broad responsibility and ties in with the zero tolerance approach to business partners noted above. When assessing business partners, regard should be had to their location, operating history, personnel and the nature of the business opportunity involved.
Principle 4: Clear, practical and accessible policies and proceduresThis principle refers to the form in which an organisation presents its policies, highlighting the need for them to avoid ambiguity and obtuseness. The Guidance notes that anti bribery policies must be formulated in a manner which takes account of the different roles played by different individuals within the organisation, from the senior management and directors to "all employees and all people and entities over which the commercial organisation has control." This last statement, regarding entities over which the organisation has control, has caused some confusion as it is unclear whether an organisation need extend its anti bribery policies only to those entities over which it does exert control, or whether there is a wider application for these policies. If the answer is the latter, how is an organisation to implement such a requirement? The Guidance does list, without further explanation, a number of issues which an organisation's anti corruption framework should address. These include an explicit ban on bribery, advice on relevant legal regimes, information on the whistle blowing process, instruction on the giving of political donations, charitable gifts, hospitality and expenses, and advice on how to deal with blackmailers and extortionists. Additionally, the Guidance highlights the importance of an organisation's existing self-regulatory functions in combating bribery, such as the audit and financial controls. Furthermore, the Guidance recommends the formulation of a set of procedures to be implemented should bribery actually occur.
Principle 5: Effective ImplementationThis principle underlines the significance for an organisation of ensuring that its anti bribery policy is implemented in a practical and efficient manner and is a key part of the organisation's culture. The importance of assimilating the anti bribery policies into the day-to-day realities of running the organisation, from a management and employee viewpoint, is highlighted. The scale of the framework for implementation will depend largely on the scale of the organisation in question, but some of the suggestions for effective implementation mentioned in the Guidance are an efficient division of responsibility, the use of training courses to familiarise staff with anti bribery procedures, the publication of these procedures both internally and externally and a well-organized internal reporting system.
Principle 6: Monitoring and ReviewThe final principle emphasises the importance of an effective monitoring and review system, in order to ensure compliance with the organisation's anti bribery regime, and to identify and resolve any problems that arise. Suggestions are made by the Guidance regarding how to structure this system of monitoring and review, such as effective financial and auditing controls, financial monitoring, bribery reporting and incident management procedures as well as periodical reporting to the audit committee, board of directors or equivalent body. Once again the scale of the system employed depends on the size of the organisation, and once again the Guidance makes many suggestions and imposes no requirements. The importance of the audit is however underlined, for large and small organisations alike.
The Guidance's Illustrative ScenariosAnnex B to the Guidance is composed of five illustrative scenarios, designed to assist organisations in putting the six principles into practice. All of the scenarios involve foreign officials or entities and consist of a series of questions which organisations should ask themselves, if one of these scenarios should arise. The usefulness of the scenarios is undermined by the fact that they all start from the position that a wrong has been committed, with a prosecutor examining a number of procedures to assess their adequacy, as opposed to instructing businesses on how to avoid such situations in the first place. The scenarios cover agents and middlemen, hospitality and promotional expenditure, business partners (including joint ventures and consortia), facilitation payments and political and charitable donations.
The Guidance: Further Information about the ActIncluded in the Guidance document is a section entitled "Further Information about the UK Bribery Act 2010", wherein the Ministry of Justice summarises some significant aspects of the UK Bribery Act 2010 and addresses some other important issues. These issues take in the use of prosecutorial discretion, the making of facilitation payments, corporate hospitality and spending on company promotions. The topic of corporate hospitality and promotional expenditure is an important one for business, as these are a regular part of how many companies conduct their affairs and the prospect of their being criminalised under the UK Bribery Act 2010 is a most unwelcome one. In this section of the Guidance, the Ministry of Justice state that "reasonable and proportionate hospitality and promotional expenditure" are unlikely to constitute a breach of the UK Bribery Act 2010, due to the absence of intent to influence or secure a business advantage required for a prosecution under section 6. As noted above, the UK Bribery Act 2010 contains no carve out regarding facilitation payments, but intends to rely on prosecutorial discretion to deal with difficult cases. Quite how this discretion is to be exercised is unclear, although answers may be forthcoming in the form of the Joint Guidance on the UK Bribery Act 2010 from the Serious Fraud Office ("SFO") and Director of Public Prosecutions ("DPP"). This Joint Guidance aims to guarantee consistency in enforcing the UK Bribery Act 2010 between those two bodies and the police. Finally, it should be noted that the legal status of this "Further Information" section, as regards its relationship with section 9 of the UK Bribery Act 2010, remains unclear.
The Guidance: ConclusionThe approach taken by the draft guidance is a broad one, focusing on principles rather than rigid rules. This method has its advantages, as it guarantees a degree of flexibility, which is required to accommodate the various forms of commercial organisations which are to be regulated by the UK Bribery Act 2010. Any attempt to impose a narrower rule based approach would cause difficulties, as it may make compliance more onerous for small organisations as opposed to large ones and vice versa. However the drawback of the approach taken by the Guidance is that it fails to give companies definite advice on how to ensure that they employ "adequate procedures" under section 7 of the UK Bribery Act 2010. Neither the principles nor the illustrative scenarios are sufficiently detailed to permit companies to be sure of compliance. The Guidance is likely to be of more use to small rather than large companies, as large ones will probably already have an anti-bribery regime in place. It is to be hoped, that with the publication of the final Ministry of Justice Guidance and the Joint Guidance on the UK Bribery Act 2010 by the SFO and DPP, commercial organisations will be in a more informed position as regards the standard to be met in order to create an "adequate" anti bribery framework, thereby allowing them to avail of the section 7 defence. Finally, the Growth Review's findings on the UK Bribery Act 2010 in its entirety may also have an effect on the "adequate procedures" defence. Charltons does not advise on English law and accordingly this note is for information purposes only and should not be relied upon. In any specific case, advice should be sought from English solicitors.
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Charltons - Hong Kong Law Newsletter - Issue 111 - 14 February 2011