Businesses should not pause despite Bribery Act delay

According to a recent story in the South China Morning Post, the best gift you can give to a public official in China is not an iPad, it is not even a precious jewel.

The favourite gift at the moment is a rather unprepossessing pre-paid card.

A business seeking access to China’s lucrative markets buys the card in Beijing, tops it up online (to the tune of 10,000 yuan upwards), takes it to the provinces where he gifts it to the local official in exchange for a licence. Unlike the iPad, the card is subtle and untraceable; unlike the precious stone, the card can be used anywhere – the official can even pawn it for hard cash.

Of course, such a story is not new (and China is equal place with Colombia and Greece (78th) on Transparency International’s Corruption Perceptions Index 2010). What is new is that, when the Bribery Act comes into force, companies operating in China who also have a connection with the UK will have to be wary of the practice, not because they fear prosecution over there, but because they risk prosecution over here.

Long-arm law

But the Bribery Act, the UK’s first attempt at comprehensive legislation to make corruption a civil and potentially criminal offence, has been delayed yet again (it was also delayed last summer). The April commencement date has been shelved.

When the coalition government announced this false start a few weeks ago, there were sighs of relief from some corners, as well as howls of disbelief from others.

Pro-business media declared this governmental procrastination a victory for the anti-regulation lobby. The Organisation for Economic Cooperation and Development (OECD) – where the push for anti-corruption laws has in part come from – was critical of the decision.

In truth, the government’s pause may be less important than the business lobby or the OECD suggest. Although at the time that the delay was announced one official reason given was that it arose out of the coalition’s ‘growth review’ of all regulatory law on business, a Ministry of Justice spokesperson says: ‘We are working on the guidance to make it practical and comprehensive for business. We will come forward with further details in due course.’

It is probably no surprise that the government needs more time. The Bribery Act was virtually the last act of the outgoing Labour government and was rushed through at uncomfortable speed.

The original bill did not even envisage guidance; that was added later and now there are no fewer than three different sets of guidance which the government says it will deliver.

First, the ‘section 7 guidance’ on implementing adequate procedures to prevent bribery; an MoJ circular containing detail on the provisions of the act; and the guidance for prosecutors being drafted by the director of public prosecutions and the Serious Fraud Office. Small wonder this is turning out to be a slow and arduous process, particularly with a change of government.

Sam Eastwood, a dispute resolution partner at Norton Rose and head of the firm’s business ethics and anti-corruption group, says: ‘The delay has been overplayed and this three-month window that everyone is so surprised about was always there. We always knew there was going to be a grace period between the guidance being published and the act coming in.’

The delay, then, is a decoy and tough anti-corruption laws are still on their way. The rumour among interested parties is that we will see the three guidances by the end of this month and the act will come in as early as May or June. Smart companies and smart counsel are already onto this.

Ready or not?

So what are lawyers and business doing to prepare? When it does finally arrive, it is unlikely that the act itself will change, so all thoughts are focused on the pieces of guidance.

Randal Barker, general counsel and company secretary of the Eurasian Natural Resources Corporation, is a member of the executive committee of the GC100, the association for general counsel and company secretaries in FTSE 100 companies, and leader of its standing group on corporate responsibility and health and safety. He has also led the GC100’s engagement on the Bribery Act.

He says: ‘The act itself is already locked down. General counsel’s role is to convert the law into practice. So for us the guidance is very important and we have been engaging with the government on that.’

The guidance grabbing the most attention is the ‘section 7 guidance’. Lawyers are focused on ensuring that their client’s organisation is protected from the corporate offence of ‘failing to prevent bribery’. This means ensuring that the company has the appropriate defence to such a failure which is to have ‘adequate procedures’.

The million-dollar question, then, is what exactly are ‘adequate procedures’? And the section 7 guidance is supposed to answer that – though as one lawyer confides to the Gazette: ‘The trouble with guidance is that it never actually tells you anything.’

The extent to which a company is listening to the advice of its legal team in preparing for and adapting to the new regime depends on its size and operational nature. For those companies represented by the GC100, such as Tesco, BP and HSBC, the Bribery Act is a matter of fine tuning existing anti-corruption compliance programmes.

Those multinationals which do extensive business in the US have had plenty of practice because of the demands of pre-existing anti-bribery legislation – the US’s Foreign Corrupt Practices Act (FCPA) – and they will have had policies and procedures to cope with those demands.

Because the Bribery Act goes further than the FCPA, fine tuning focuses on how these companies’ practices need to be adapted in light of the slightly broader UK legislation.

One of the big differences is that the UK legislation can hold a company liable for an act of an ‘associated person’. In other words, a company could be prosecuted because one of its agents or a joint venture partner has been giving out bribes. As a result, there is much greater emphasis on not only getting your own house in order, but making sure that your business partners get theirs in shape too.

For the construction industry, where supply chains are often long and convoluted, the ‘associated persons’ net is an important new potential liability to consider, and those companies must decide how far down the chain they are prepared to insist is locked into anti-corruption processes.

For those companies outside of the large multinational bracket which are based in the UK, or have a connection with the UK (the Bribery Act covers both), the level of preparation by business appears to be extremely varied, according to Eastwood: ‘Some companies have been working on anti-corruption processes for months, while others have not even thought about it yet.’

Small-scale problems

It is the small and medium-sized businesses (SMEs) which may have the most work to do, and it is becoming apparent that this is where a lot of the burden could fall.

As Eastwood explains: ‘Smaller companies may be more reliant on the networks and relationships where bribery is most common. How can they deal with this greater exposure without the resources?’ Smaller businesses which are parties to joint ventures with UK-based corporations, localised foreign suppliers and contractors who may have built up a small presence in the UK, may all find themselves at the sharp end of anti-corruption law.

Alexandra Wrage, president of Trace International, an NGO which provides anti-corruption compliance solutions, and now has a membership of about 160 multinational corporations, agrees that SMEs are particularly vulnerable: ‘Many SMEs are further down the supply chain in an industry. They are getting pressure from both sides. Many large corporates are pushing the demands of tough anti-corruption regimes further down the food chain towards these SMEs.’

For Trace International, SMEs are its most recent customers. Wrage says: ‘For us, SMEs are a huge growth area, particularly because they have no resource. This issue is being given to people in the business who have a lot of other things to do – HR or even business managers, so they pass it to us.’

Ironically, SMEs may however have an advantage over larger corporations because of their size.

In implementing anti-corruption compliance programmes, multinationals find it difficult to communicate with employees on the ground in far flung places, both in getting a message across that corruption is unacceptable, and in picking up on malpractice. This may be easier in SMEs where managers are nearer to their workers and can achieve both more simply.

But for companies of all sizes, there are some common problems thrown up by the new act. One issue which the media has picked up on is to what extent corporate gifts and hospitality, such as corporate seats at sporting events, away days and tangible freebees given to public officials, could be bribes.

Many organisations (such as financial institutions) have already had to address this and have introduced policies setting limits and standards. But even they are having to question whether they have gone far enough – and whether their policies are being adhered to.

For instance, Age UK, the international charity for the elderly, already has an entertainment register where hospitality must be disclosed, but it is now concerned that it may be adversely affected if there is a radical rethink in exactly what corporate entertainment is permissible.

Mark Harvey, head of legal at Age UK and joint chair of the In-House Charity Lawyers Group, says: ‘Many corporates attend our fundraising dinners and special events [with guests]. This is a key component of our funding strategy. Is this a form of bribery? Technically under the act it is.’

Lawyers and in-house counsel are hoping that the question of corporate entertainment will be properly addressed in the section 7 guidance. As one general counsel says: ‘We want assurance that our current practices fall the right side of the line. What we want, what businesses want, is to be told what we can and cannot do. We want certainty. But at the moment no one will give us a definitive answer.’

Rules oriented

They may be disappointed, however, because the guidance is unlikely to give any definitive answers either – the government has demonstrated in the draft guidance that it is using principles and case studies, rather than prescriptive lists of dos and don’ts.

Another common concern with the contents of the act is that it creates criminal as well as civil offences. Anthony Woolich, a partner at Holman Fenwick Willan, says: ‘Because the act makes certain offences a criminal offence, rather than a civil one, this means it is even more important to have a level of precision in the act, otherwise an employer does not know if his employees are committing crimes or not.’

A good example of this is facilitation payments. These are sums of money paid in a huge range of cases to ‘facilitate’ the execution of the contract, such as ensuring that a routine official activity (clearing goods through customs, for example) is being done. In some instances payments can be as low key as a ‘bonus’ or a ‘tip’ for getting the job done.

Woolich gives the example of stevedores loading and unloading cargo on and off ships who may get paid what is in effect an attendance allowance to turn up on time.

This payment would, potentially, fall within the Bribery Act and so would be a criminal act. Woolich says: ‘This is a situation where you have already won the contract and yet you will still be caught by the act.

This is in sharp contrast to the US where such payments are not illegal – nor does the OECD require countries who are signing up to anti-corruption laws to ban them’.

In fact, this criminalisation problem could be challenged, says Woolich: ‘The vagueness of the operation of the act could mean that elements would fall foul of human rights law – if you don’t even know whether something you are doing is criminal, then you cannot have a right to a fair trial, which is a breach of article 6.’

Despite these misgivings, it is unlikely that the government will backtrack on the proposed law on facilitation payments, though it is possible that the guidance would set a de minimis level below which facilitation payments would not be unlawful.What does become clear is that greater attention will be given to a whole range of transactions which up until now may have been tolerated – companies are being forced to self-police.

They will have to look more rigorously at monitoring staff (which itself throws up its own litany of legal issues surrounding data protection and employee privacy); they will have to use third party vetting bodies to ‘green light’ local agents; and they will have to take a tougher stance on enforcing their own policies throughout their own corporate community.

As always, there will be technological solutions – such as software which can analyse data traffic or pick up phone conversations relating to bribery. Accountancy firms such as PricewaterhouseCoopers, as well as a host of other service providers, offer sophisticated forensic technology.

The Bribery Act may come into force very soon – and intact. But there is an elephant in the room here which is crucial to any debate about what are the real implications of the act – the extent to which cases of bribery will actually be prosecuted.

Indeed, many general counsel who work in large multinational companies with sophisticated compliance programmes say that the Bribery Act is neither here nor there. What matters to them is whether or not it is enforced.

It is telling, for instance, that Barker shows just as much interest in the prosecution guidance as he does in the section 7 guidance. He says: ‘For us the prosecution guidance is key. We want to know what are the key elements of the offence and how they will be prosecuted? This is where the rubber really hits the road.’

Led by the US, there have been a number of high-profile, high-value anti-corruption prosecutions across jurisdictions against multinationals (see box, page 13). The Securities and Exchange Commission is prosecuting more companies than ever. This has made organisations sit up and change. But will the same happen here?

This may be a question of the time and resources given to the enforcement bodies. With cuts being made across the board here in the UK there is concern that the SFO will suffer too. If the SFO does not – or cannot – cut its teeth then the Bribery Act could be a damp squib.

Wrage says: ‘What is important is the political will to combat corruption. If there is no capacity for enforcement because the SFO is being denied staff and resources, then the UK will be like many other countries with tough anti-corruption laws, such as China or Russia, where corruption continues because there is no political will to eradicate it.’

Perhaps there is a Chinese proverb which needs to be written here: the lion is out of its cage but is it hungry?

Polly Botsford is a freelance journalist

Anti-corruption enforcement is on trend at the moment with the US leading the charge. Although the US’s anti-corruption legislation, the Foreign Corrupt Practices Act, was introduced in 1977, it has only been in the last decade (since the Enron scandal) that prosecutions by the Securities and Exchange Commission have really taken off.

Together with the US Department of Justice, the SEC has brought 168 cases against household name multinationals such as Halliburton, Baker Hughes and Chevron.

In Germany there was the Siemens case. This involved illegal payments in the engineering company amounting to more than €1bn. The prosecution involved the investigation of hundreds of employees, middle and senior managers, some of whom were also individually sued for damages.

The US got involved with Siemens, demonstrating its willingness to tread into foreign jurisdictions and pursue non-US companies. It settled its case against the company to the tune of $800m (also demonstrating the size of fines that can be awarded). Since then Germany has brought 117 cases and has more than 20 live cases.

Even in places such as China, corruption prosecutions have begun to emerge (though some would question the motivation of such prosecutions): in 2010 four employees of Rio Tinto, the global mining company, were sentenced in Shanghai for accepting bribes from steel companies wanting access to China’s valuable iron ore.

The sentences ranged from between 10 and 14 years in prison, and one defendant was not even a Chinese national but a Chinese-Australian.