Transcript Implications of the new UK Bribery Act for Operations in

Introduction to the new UK
Bribery Act and what it mean
for Russian companies
Doran Doeh
Managing Partner - Russia
T (+7 495) 229 2333
[email protected]
snrdenton.com
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Agenda
 Introduction
 The Core Bribery Offenses
 Failure to Prevent Bribery
 Extraterritoriality
 Who does the Act apply to?
 Penalties and Consequences
 Defences under the Act
 How will the Act be interpreted and applied?
 How does the Act differ from the US FCPA?
 Case studies
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Introduction
 Consolidates and replaces old fragmented UK laws and common law on
bribery
 Old UK law had to prove the “controlling mind” guilty – very difficult with
global businesses - few successful prosecutions
 Implements the OECD Anti-Bribery Convention
 OECD 2008 report heavily criticised UK judiciary’s handling of BAe
Systems case (allegations surfaced in 2003) and highlighted many
problems with UK’s application of the OECD Anti-Bribery Convention
 Adopted April 2010 – comes into force April 2011
 Replaces
– Common law
– Public Bodies Corrupt Practices Act 1889
– Prevention of Corruption Acts 1906 and 1916
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Introduction
 Has extra-territorial effect – applies to actions by UK individuals and
companies/partnerships AND persons connected with the UK,
wherever in the world those actions occur AND to any non-UK corporate
body or partnership that “carries on a business or part of a business”
in the UK
 Includes a new strict liability offence for commercial organisations who
fail to prevent bribery by their associates
 Unusually short and simple for UK legislation – much more like civil
law/Russian legislation – gaps and ambiguities need to be filled by
secondary legislation – not clear intended Guidance on “adequate
procedures” will do this sufficiently; Guidance on prosecutions may be
very relevant
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The Core Bribery Offenses
– Bribing a person
– Being bribed
– Bribing a foreign public official
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Bribing (section 1)
Person (individual or corporate) may commit following offences:
 Bribing another person (private or public sector)
–
offers, promises or gives a financial or other advantage to another (directly or
indirectly); and
• intends the advantage to induce/reward a person for the improper
performance of a relevant function or activity; or
• knows or believes the acceptance of the advantage is itself improper
performance
 EXAMPLE: P provides a friend (who works in the same company as X) $10,000 to
give to X, to persuade X to send P confidential information about the company that
P wants in connection with her own business.
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Being bribed (section 2)
Person (individual or corporate) may commit following offences:
 Being bribed (private or public sector)
–
requests, agrees to receive or accepts a financial or other advantage (directly
or indirectly); and
(a) intends there to be improper performance as a consequence; or
(b) there is improper performance of relevant function or activity (whether as
reward, in anticipation or consequence of request, agreement or acceptance)
–
in the cases outlined in (b), no requirement for person to know or believe that
performance of the function or activity is improper
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Being bribed (section 2)
 EXAMPLES:
(a) R asks P for $10,000 if he – R – or a colleague destroy supporting documents submitted by
rival bidders for a contract P is seeking with R’s employer.
(b) R, a civil servant, asks for $1,000 for himself to process a routine application.
(c) R, a civil servant, asks for $1,000 from P as a reward, having processed P’s application
especially quickly.
(d) R, an agent, accepts P’s bid for a contract on behalf of a company, because R expects P
secretly to reward him personally.
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Common points (sections 1 and 2)
 The law applies:
– wherever the giving/receiving of the advantage occurs and wherever
the performance occurs
– whether direct or indirect
– whether or not person receiving the advantage is the person
performing the function and
– In some cases, whether or not the person knows the performance is
“improper”
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Common points (sections 1 and 2)
 Applies to almost any activity or function, public or private business, in
relation to which the person: (A) is expected to perform in good faith (B)
is expected to perform impartially and/or (C) is in position of trust by
virtue of performing it. (Section 3)
 “Improper performance” means performance or failure to perform in
breach of a “relevant expectation” under conditions (A), (B) or (C) above.
(Section 4)
 What is expected? “what a reasonable person in the United Kingdom
would expect in relation to the performance of the type of function or
activity concerned… any local custom or practice is to be disregarded
unless it is permitted or required by written law” (Section 5)
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Bribing a foreign public official (section 6)
 Also a specific offence of bribing a foreign public official (“FPO”) if the
person:
– intended to influence that FPO is his capacity as an FPO and
– intended to obtain or retain business or an advantage in the conduct of
business
 Applies if, directly or through a third party, a person promises or gives
any financial or other advantage to a FPO or another person at the
request or with the assent or acquiescence of the FPO
 An FPO is any person who:
– holds an administrative, legislative or judicial position or
– exercises any public function for any country or territory or subdivision
of any country or territory or any public agency or enterprise or
– is an official or agent of any public international organisation
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Bribing foreign officials (section 6)
 Exception if
–
the foreign public official is permitted or required by applicable written law to
be influenced by offer promise or gift – e.g. set-off arrangements
 No requirement for conduct to be deemed improper
 Note: foreign public official does not commit offence by being bribed (unless also
within section 2)
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Bribing foreign officials (section 6)
 EXAMPLE: (offence) P asks R, a civil servant in Toyland, to process quickly P’s
application for licence to engage in construction work in Toyland. R says that will
only be possible if P provides X, a relative of R, with help in the conversion of flats
on X’s land. P agrees to provide the help.
 EXAMPLE: (no offence) P asks R, a civil servant in Toyland, to process quickly P’s
application for a licence to engage in construction work in Toyland. R says that will
only be possible if P helps to build a new school in Toyland. P agrees to provide the
help. The written law applicable to R says that favourable treatment may be given
to foreign businesses if they agree to fund school building work in Toyland.
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Senior officer liability
Senior officers may commit following offence:
.
 Section 14: Liability of senior officers of bodies corporate
–
where section 1, 2 and 6 offences committed by a body corporate, senior
officer (or person purporting to act in that capacity) also guilty of offence if:
(a)
offence committed with consent or connivance of senior officer (or person
purporting to act in that capacity); and
(b)
where bribery act took place outside UK (and underlying offence only
committed because person is UK body corporate), the senior officer or
person also has “close connection” with UK
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Senior officer liability
 EXAMPLE: P gives Y (working at a rival company to P’s employer .company) $500
for confidential information. P completes an expenses form for general unspecified
expenses of $500 which is signed off by a senior officer of P’s employer company.
The senior officer knows the $500 has been used to purchase confidential
information.
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Failure to Prevent Bribery
- the main concern for Russian companies
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Failure to prevent bribery (section 7)
 Offences under Sections 1, 2 and 6 still require the “controlling mind” of a
company/partnership to be guilty of an offence
 Section 7 provides a new strict liability offence with no requirement that
the “controlling mind” of the organisation authorise, encourage or be
aware of the bribery
 A “relevant commercial organisation” is guilty of an offence if a person
“associated” with it bribes another person intending:
– to obtain or retain business for the commercial organisation or
– to obtain or retain an advantage in the conduct of business for the
commercial organisation
 Applies wherever in the world the offence takes place
 It is a defence for a relevant commercial organisation to prove that it had
in place “adequate procedures” designed to prevent persons associated
with it from undertaking such conduct
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Failure to prevent bribery - “associated person”
 A “associated person” is any person who performs services in any
capacity for or on behalf of the relevant commercial organisation – no
need for associated person to have close connection with UK
 Can include agents, subsidiaries, intermediaries, distributors, contractors,
joint venture partners and consortium members …
 Employees assumed to be “associated” unless prove not performing
service for or on behalf of the relevant commercial organisation
 It is the “associated person”, rather than the relevant commercial
organisation, that needs to have the intention to obtain or retain business
 Meaning of “performs services” – determined “by reference to all the
relevant circumstances and not merely by reference to the nature of the
relationship between A and C”
 Role of subsidiaries unclear and begs the question of what “doing
business” means
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Failure to prevent bribery
 EXAMPLE: C (a company incorporated in the UK) wishes to do business in
Toyland. C employs an agent (X) living in Toyland to establish business contacts on
C’s behalf with government officials in Toyland. X bribes those officials to place
contracts with C. The directors of C had given no guidance to A on their attitude to
bribery, even though it is well-known that officials in Toyland are open to bribery.
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Extraterritoriality
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Extraterritoriality: section 1, 2 and 6 offences
 Section 12: Extraterritoriality
–
.
Section 1, 2 and 6 offences committed
(a)
if any part of conduct occurs in UK; or
(b)
if act take place abroad, provided the person performing the
act has a close connection with the UK
–
Close connection:
(a)
British (e.g. British citizen, British National, British Overseas citizen etc.)
(b)
individual ordinarily resident in the UK
(c)
a body incorporated in the UK
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Extraterritoriality: section 7 offence
 Section 7: Failure of commercial organisation to prevent bribery
.
–
no requirement for the associated person to have close connection with the
UK if acts committed abroad
–
definition of “relevant commercial organisation” includes:
• body corporate or partnership which carries on business or part of a
business in the UK
 Question: Does operating in the UK through a branch or a subsidiary make a
difference?
 EXAMPLE: C, a company incorporated in Noddy Land, with a branch in the UK,
wishes to do business in Toyland. C, through its head office in Noddy Land,
employs an agent (X) living in Toyland to establish business contacts on C’s behalf
with government officials in Toyland. X bribes those officials to place contracts with
C. The directors of C had given no guidance to X on their attitude to bribery, even
though it is well-known that officials in Toyland are open to bribery.
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Who does the Act apply to?
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Who does the Act apply to?
 CORE OFFENCES (SECTIONS 1, 2 & 6)
– Offence in the UK: any person/company/partnership (whether or not connected
with the UK)
– Offence outside the UK: any person with a “close connection” with the UK:
• British citizen/national/subject
• individual ordinarily resident in UK
• UK company/partnership/body
– Senior officers of body/partnership if consented or connived and either (i)
offence in the UK or (ii) outside UK but senior officer has a “close connection”
with the UK (Section 14)
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Who does the Act apply to?
 FAILURE TO PREVENT (SECTION 7)
– Wherever offence takes place, a “relevant commercial organisation” is:
• UK company/partnership which carries on a business anywhere
• Non-UK company/partnership which carries on a business or part of a
business in the UK
– “carries on a business” not defined in the Act but may be given very broad
meaning
• “business” does not necessarily involve profit or gain
• single transaction could, in some cases, qualify
• listing on LSE/AIM?
• agents in the UK?
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Penalties and consequences
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Penalties and consequences
 Sections 1, 2 and 6 (core bribery offences):
– Individuals – up to 10 years and unlimited fine
– Organisations – unlimited fine.
 Section 7 (failure of commercial organisation to prevent)
– Organisations – unlimited fine
 Debarment from bidding for government contracts in the EU
 Civil Recovery Orders
 Financial services organisations
– Financial Services Authority
– Aon fine
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Defences
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Defences
 Section 7: “failure to prevent bribery”
–
adequate procedures in place designed to prevent persons associated with a
commercial organisation from bribing
 all other offences
–
defences given for intelligence service and armed forces only
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What are “adequate procedures”?
 The Secretary of State is to publish guidance on “adequate procedures”
to prevent bribery before the Act comes into force in April 2011
 Draft guidance published 14/9/10 and consultation open until 8/11/10:
http://www.justice.gov.uk/consultations/briberyactconsultation.htm
 Draft guidance sets out six principles for bribery prevention:
– Risk assessment (specific to sector and market)
– Top level commitment (establishing a no-tolerance culture)
– Due diligence (particularly relevant to JVs and associates)
– Clear, practical and accessible policies and procedures
– Effective implementation
– Monitoring and review
and distinguishes between larger and smaller organisations
NEXT PRESENTATION DEALS WITH THIS
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How will the Act be interpreted and
applied?
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How will the Act be interpreted and applied?
 The Act is written deliberately broadly to catch all forms of bribery and does not
include any safe harbours or de minimis levels
 The Director of the Serious Fraud Office (SFO) will be responsible for
prosecutions under the Bribery Act in relation to offences outside of the UK
 Before bringing a prosecution the Director must be satisfied that:
– there is sufficient evidence to provide a realistic prospect of conviction and
– if there is sufficient evidence, whether a prosecution is in the public interest
 The more serious the offence the more likely to be in the public interest to
prosecute
 Joint SFO/DPP legal guidance for prosecutors will be published early 2011 and
will include “a clear, comprehensive and consistent guide to the law and relevant
public interest considerations” (Speech by Attorney General Sept 2010)
 “Adequate procedures” are the only defence to strict liability – don’t wait until April
2010 to prepare these
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How will the Act be interpreted and applied? (cont)
 Facilitation payments:
“it will rarely be in the public interest to prosecute … for the payment of small
sums to secure the performance of routine tasks”.
Law Commission report (not binding) – suggests sensible use of discretion not to
prosecute is best way to deal with small facilitation payments
 Corporate hospitality:
“Corporate hospitality would trigger the offence only where it was proved that the
person offering the hospitality intended the recipient to be influenced to act
improperly. Obviously lavish or extraordinary hospitality may lead a jury to reach
such a conclusion but “most routine and inexpensive hospitality would be unlikely
to lead to a reasonable expectation of improper conduct”.”
Lord Tunnicliffe, Ministry of Justice (Jan 2010), quoting Director of SFO
 “Offset” arrangements where additional investment offered or required as part of a
tender “unlikely to give rise to difficulties” – Ministry of Justice draft guidance
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Comparison with FCPA
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Comparison with FCPA
 FCPA
 UK BRIBERY ACT
– Only applies where a non-US
public sector party involved
– Applies also to entirely private
transactions
– Can be liable for acts of agents
and other parties where “know”
they will bribe on your behalf
– Applies strict liability to acts of
“associated” service providers
irrespective of knowledge
– Safe harbours for (i) facilitation
payments for “routine government
action” and (ii) reasonable
promotion or demonstration of
company products
– No carve outs for facilitation
payments, corporate hospitality or
demonstrations
– Currently no automatic exclusion
from public contracts but bill
pending in Congress
– Conviction under Act would result
in exclusion from public sector
contracts in EU
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Case Studies
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Case Study 1 – Corporate entertainment
 Manufacturing Supplier (C) invites 10 selected client personnel to day out at Olympic games.
Day out includes slap up meal provided by C.
 C invites 10 selected client personnel to day out at Olympic games and extends the invitation to
spouses.
 C invites 10 selected client personnel (including their spouses) to day out at Olympic games.
Some of the individuals are based in Asia and US. C pays for their flights and provides hotel
accommodation for the client personnel and their spouses.
 C is unaware that one relevant spouse flown in from Asia is a government official who works in a
procurement department. C will shortly be submitting a tender to this government department to
supply its manufactured goods.
 X is a potential client that C is hoping to do business with. C has been asked by X to submit a
tender for the supply of goods. A, an employee at X, sends an email to a director of C. A states
that he looks forward to receiving the tender. As a PS to the email, A asks if he can be added to
any list there might be for corporate events at the Olympics, in particular any events to which he
can bring his wife and children.
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Case Study 2 – International issues
 Y Limited is a UK-based insurance broker in the niche market of arranging insurance on risks
relating to the supply of cocoa beans.
–
Y Limited operates from the UK, with a subsidiary in Ghana, and branches in Brazil and
Indonesia.
–
The branch offices use a network of local intermediaries to source business from the branch
base and surrounding countries back to the UK, so Y Limited can introduce the would-be
insureds to its panel of insurers.
 How widely does the Bribery Act apply?
 Does it apply differently to branches and subsidiaries?
 What is its effect on intermediaries?
 What should Y Limited
–
require in its procedures?
–
do to monitor the activities of its overseas offices and intermediaries?
 Would it make any difference if Y Limited were based outside UK but is listed on LSE?
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