Caught in the Act

The United Kingdom’s new bribery act goes into effect July 1, replacing a variety of complex anti-bribery laws. With it comes a lot of uncertainty about what is and isn’t considered bribery and who will be covered by the new law. 

Brokers around the globe might be exposed to liability under the act for actions taken by their employees, agents or subsidiaries in or outside of the U.K.

The Bribery Act has a long reach and applies to the conduct of anyone remotely associated with a U.K. business. It also creates a corporate standard of strict liability for failing to prevent bribery. The act makes bribery of a public official or private individual a crime—in contrast to the U.S. Foreign Corrupt Practices Act, or FCPA, which is directed only at public officials.

The new law raises many questions about corporate client entertainment. For example, if you treat a prospective client to a lavish dinner hoping to land an account—is that considered marketing? Or bribery?

Another area of controversy is the so-called facilitation payment. These are generally low-level payments to local officials to get a project going, such as funding for a new road leading to the project. The FCPA provides an exemption for these payments; the Bribery Act does not.

The U.K.’s zero-tolerance policy on bribery establishes tough penalties, including up to 10 years in prison. Companies would also face stiff fines and could be banned from bidding on future public contracts.

The Ministry of Justice released long-awaited guidelines to assist businesses in complying with the new law, but there are a number of unanswered questions. Brokers can find Justice Ministry help at www.justice.gov.uk.

Here is some general guidance from the Ministry, the London International Insurance Brokers Association (LIIBA) and other sources. It is by no means comprehensive. Be sure to seek legal counsel when applying the law to you and your organization.

There are four offenses:

• Offering, promising or giving a bribe to another person
• Requesting, agreeing to receive, or accepting a bribe from another person
• Bribing a foreign public official
• Failing to prevent bribery by an associated person, in the case of a commercial organization or partnership (the so-called “corporate offense”).

Who falls under the Bribery Act? All U.K. businesses are subject to the law. It applies to non-U.K. companies if they or their employees or agents are involved in an act of bribery that involves a U.K. connection. Any firm that does business in the U.K. is also exposed if it violates the law anywhere in the world (with or without its knowledge).

The failure to prevent bribery is a statutory offense under the law. According to LIIBA, the offense can be triggered by the conduct of independent agents as well as employees and subsidiaries (“associated persons”). The only defense is to have “adequate procedures” in place to prevent bribery. Adequate procedures means following Ministry guidance on the subject. Otherwise, the burden of proof is on an accused company to prove it did not commit an offense. The corporate offense imposes strict liability. Prosecutors do not need to show that senior officials intended to bribe.

The Ministry says that “adequate” depends on the bribery risks faced—the nature, size and complexity of a business. For example, a small or medium-sized business with minimal risks will require minimal procedures.

The six principles are:

• Actions taken should be proportionate to the risks faced.
• Senior-level management should show a commitment to prevent bribery.
• Assess the risks you face and conduct research in the markets in which you do business and the people with whom you work.
• Conduct due diligence. Know exactly whom you are working with.
• Make sure your policies and procedures are clearly communicated to staff and associates.
• Monitor and review your risk assessments to make sure no new risks have emerged.

The Ministry of Justice says you need to do due diligence on people who work or perform services for you or on your behalf. A person who simply supplies goods to you is unlikely to fall into that category. It is very unlikely that you will need to consider due diligence on persons farther down the supply chain.

So can an organization provide hospitality, promotional or other business expenditures? Yes, to an extent. The British government does not intend for reasonable and proportionate genuine hospitality or promotional expenditure be punished under the Bribery Act. You can continue to provide tickets to sporting events and take clients to dinner as a reflection of your good relations, within reason.

As LIIBA warns, be sure to document everything you do to prevent accusations of bribery.