FCPA Compliance and Ethics Blog

May 27, 2010

Lanny Breuer at Compliance Week

Assistant Attorney General for the Criminal Division of the U.S. Department of Justice (DOJ), Lanny Breuer gave the final day’s keynote speech at the Compliance Week 2010 Conference. Many of his remarks were directed at the ethics and compliance professionals who attended the event. He confirmed that the Obama Administration is committed to combating financial fraud, particularly in the area of overseas bribery and corruption as prohibited by the Foreign Corrupt Practices Act (FCPA). He used a quote from Attorney General Holder in emphasizing this point, that bribery “is a scourge on civil society.”

He stated that tools which had been previously used to combat organized crime would now be employed in the fight against white collar crime, including both wiretaps and sting operations as were used against the gun manufacturing industry in the operations which culminated in the arrests of 22 individuals in Las Vegas in January of this year. He also discussed that many foreign governments had entered into collaboration agreements to facilitate cross-border investigations and enforcement actions.

Breuer stated that one of the goals of the DOJ is to “charge individuals” as a strategy to deter corporate conduct. Further, holding individuals accountable is essential and will also deter illegal corporate conduct which results in violations of the FCPA. One of the more startling statistics cited by Breuer was the number of individual prosecutions pursued by the DOJ in the years 2004-2009. Since 2004, 84 individuals have been charged with FCPA violations. However 46 of those individuals were charged in 2009 so over ½ were charged in the last year. Indeed there have been 22 individuals charged already this year in the gun industry sting case so the facts would seem to bear out his statements. (For prior post on gun industry sting case, see here).

After emphasizing that the DOJ will continue to hold individuals accountable under the FCPA, Breuer turned to some of the things that he considered key elements of a compliance program. He began by listing a couple of references as benchmarks and they were the US Sentencing Guidelines and the OECD Good Practice Guidance for Anti-Bribery Compliance Programs. He then delineated the following elements: Tone at the Top; a compliance program which not only punishes compliance violations but also rewards good ethical behavior in a corporation; a strong whistle-blower program (and protection) through a hotline or other appropriate mechanism; and significant and direct reporting by the compliance officer to the Board. He also stated that the DOJ wants to know about not only your company, but also the companies which your may be doing business with; both in the form of third party foreign business partners and customers. He concluded by emphasizing that an effective compliance program is not static but dynamic, adapting to meet new and additional compliance challenges and subject to periodic reviews and appraisals by outside experts.

Breuer stressed the importance of coming to the DOJ rather than the DOJ coming to you, when a potential FCPA violation was discovered. The benefits to a company can be significant if a company comes forward AND fully cooperates with the DOJ. Breuer stated that if a company does so it will receive meaningful credit. He cited two examples where the penalty assessed was significantly less than the range suggested under the US Sentencing Guidelines. Breuer cited two examples. First in the Siemens’ case, the fine which could have been levied, based upon the conduct was between $1.35BN to $2.75BN and final fine levied by the DOJ was $450MM (the total fine paid to the US and German governments was $1.6BN). The second example was the fine paid by Helmerich and Payne, that of $1MM. This was 1/3 of the total fine which could have been levied based upon the US Sentencing Guidelines.

Lastly Breuer noted that it is his position that a company should come to the DOJ when it initially makes the discovery of a potential FCPA violation, rather than doing so after it conducts its investigation. This should be done for a couple of reasons. Initially Breuer remarked that the DOJ can provide guidance on the issues that it wants investigated by the company. This may prevent the company from investigating an issue that the DOJ does not deem necessary. Conversely the DOJ may suggest areas which it wants investigated that the company may not have considered. More importantly, such early notification allows the company involved to have a constructive dialogue with the DOJ and allows the DOJ to become a partner with the company in the investigative and remediation process.

Breuer took several questions from the audience. One of his more interesting responses was regarding facilitation payments and whether the US was moving towards the OECD/UK Bribery Act model of not allowing such payments. He responded that it was a question which needed consideration as compliance standards are evolving on a world wide basis. However as of this date, Breuer was not aware of any proposed change in the FCPA on this issue but that it may be visited in the not too distant future. (For a comparison of the FCPA and Bribery Act, see here).

The talk and Q&A by Breuer was well received by the audience and provided concrete guidance in several areas relating to FCPA compliance policies and issues.

For a copy of the text of Breuer’s remarks, click here.

This publication contains general information only and is based on the experiences and research of the author. The author is not, by means of this publication, rendering business, legal advice, or other professional advice or services. This publication is not a substitute for such legal advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified legal advisor. The author, his affiliates, and related entities shall not be responsible for any loss sustained by any person or entity that relies on this publication. The Author gives his permission to link, post, distribute, or reference this article for any lawful purpose, provided attribution is made to the author. The author can be reached at tfox@tfoxlaw.com.

© Thomas R. Fox, 2010

April 26, 2010

The Bribery Act-A Change in the Name Affects the Game

Filed under: FCPA,UK Bribery Bill — tfoxlaw @ 6:11 am
Tags: , , ,

The UK Bribery Bill is just over one week old and there has been a plethora of commentary on it. Indeed this commentator has received, and read, several helpful comments from his UK counterparts over the past week. This blog has had several posting on the legislation, both pre and post law. See here, here and here. This posting will list some of the highlights and insights into what has been posted over the past couple of weeks.

What’s in a Name?

TFoxlaw does not yet have a full appreciation of some of the subtleties of the British legislative process so the first thing that must be reported is that as the Bribery Bill was passed by Parliament and received the Royal Assent it is now law therefore it must be referred to as the Bribery Act. In other words, to continue to refer to it as the Bribery Bill is no longer correct. So, for those of you keeping score at home, please edit your score cards.

Is it a Game Changer?

This is not only a significant question for UK companies but also US companies with UK subsidiaries or a UK presence. So for both UK and US companies the answer is yes, the Bribery Act is a significant game changer. White and Case, in a client memorandum in April, 2010, notes that the Act changes the law for UK companies in the following areas:

• The extra territorial scope of the Act;
• The liability of senior officers;
• The corporate liability offence;
• The illegality of facilitation payments;
• The illegitimacy of payments to both foreign public officials and non-public officials; and
• The potential of debarment from public procurement contracts.

However, these changes can be just as dramatic for US companies with a UK presence so almost every US company with international operations has either a UK presence or a UK subsidiary therefore the answer is most probably yes, the Bribery Act is a game changer for US companies as well.

A new PM could ring in change?

For those of you who are not following the international section in your newspaper, there is an upcoming election in the UK. All Parliament seats are up for grabs and the party garnering the most seats will come to power, subsequently selecting the next Prime Minister. How does this impact the Bribery Act? It will affect the Bribery Act through the only affirmative defense set forth in the Act, which is the ‘adequate procedures’ defense. The Explanatory Notes to the Bribery Act indicate that this narrow defense would allow a corporation to put forward credible evidence that it had adequate procedures in place to prevent persons associated from committing bribery offences.

The legislation requires the Minister of State for Justice to publish guidance on procedures which relevant commercial organizations can implement to prevent bribery by persons associated with their entity. It was not originally anticipated that the Minster of Justice’s guidance on the Bribery Act, or the affirmative defense of ‘adequate procedures’, would not be published until the fall, most likely October as reported to this commentator.

Initially this means that it is likely that there will be a lengthy period where prosecutions are unlikely. Additionally, with the upcoming elections, there may be a change in government from Labour to the Tories or even to the Lib Dems. If the pro-business Tory party returns to power this could have implications for the guidance, as could a hung parliament. However, a coalition government of Labour/Lib Dems (or even a Lib Dem lead coalition) could well result in more restrictive language around the ‘adequate procedures’ defense.

So there may be more questions than answers at this point and the best guidance we can offer is “Watch this Space”.

This publication contains general information only and is based on the experiences and research of the author. The author is not, by means of this publication, rendering business, legal advice, or other professional advice or services. This publication is not a substitute for such legal advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified legal advisor. The author, his affiliates, and related entities shall not be responsible for any loss sustained by any person or entity that relies on this publication. The Author gives his permission to link, post, distribute, or reference this article for any lawful purpose, provided attribution is made to the author. The author can be reached at tfox@tfoxlaw.com.

© Thomas R. Fox, 2010

April 21, 2010

Changes Coming:US Sentencing Guidelines, UK Bribery Act and the OECD on Facilitation Payments-Part III

Filed under: OECD,UK Bribery Bill — tfoxlaw @ 7:59 am
Tags: , , ,

At its April 7, 2010 meeting the United States Sentencing Commission approved amendments to its Sentencing Guidelines. The next day on April 8, 2010, the UK Bribery Bill received Royal Assent and became the Bribery Act. These two events follow the December 9, 2009 release by the Organization for Economic Co-Operation and Development’s (OECD) Recommendation for Further Combating Bribery of Foreign Public Officials, when the OECD marked the tenth anniversary of the entry into force of the OECD Anti-Bribery Convention.

These three releases, which comprise of two changes in the legal schemes by two of the world’s largest economic players and the proposal of one of the largest Non-Governmental Organizations (NGO) dedicated to ending corruption across the globe portend significant changes in how companies will be structured and transact business going forward in the new decade. This is the third and final of three postings which have discussed the changes that companies, with any US or UK presence, will be required to implement. In the initial post we considered the changes to the US Sentencing Guidelines; we then discussed the changes required by the UK Bribery Act and in this third and final post in this series, we will end with the recommendations regarding facilitation payments as found in the OECD’s Recommendation for Further Combating Bribery of Foreign Public Officials.

The OECD and Facilitation Payments

In late 2009, to celebrate “International Anti-Corruption Day” recognizing the Tenth Anniversary of the OECD Anti-Bribery Convention, the OECD released “The Recommendation for Further Combating Bribery of Foreign Public Officials”. In this report the OECD recommended changes relating to facilitation payments (aka “grease payments”) such as those which are legal under the FCPA. OECD Secretary-General Angel Gurría described these low-level payments, designed to expedite performance of a “routine government action” such as obtaining mail delivery, phone or power service, as “corrosive . . . particularly on sustainable economic development and the rule of law”.

Facilitation payments, also known as “expediting payments” or “grease payments,” are bribes paid to induce foreign officials to perform routine functions they are otherwise obligated to perform. Examples of such routine functions include issuing licenses or permits and installing telephone lines and other basic services. The only countries that permit facilitation payments are the United States, Canada, Australia, New Zealand and South Korea. Facilitation payments, however, are illegal in every country in which they are paid. They have come under increasing fire under the FCPA as inconsistent with the totality of US policy on anticorruption.

This change by the OECD brings the considerable problems associated with facilitation in the international business arena into sharper focus. Just like large commercial bribes, grease payments abuse the public trust and corrode corporate governance. Treating them as anything other than outright bribery muddies the compliance waters and adds confusion where there should be clarity. This new stance by the OECD, coupled with the increased enforcement under the FCPA, may well bode the end of facilitation payments. There is no monetary threshold for determining when a payment crosses the line between a facilitation payment and a bribe. The accounting provisions of the FCPA require that facilitation payments must be accurately reflected in an issuer’s books and records, even if the payment itself is permissible under the anti-bribery provisions of the law.

Facilitation payments carry legal risks even if they are permitted under the anti-bribery laws of a particular country. In the US enforcement agencies have taken a narrow view of the exception and have successfully prosecuted FCPA violations stemming from payments that could arguably be considered permissible facilitation payments. Violations of the accounting and recordkeeping provisions of the FCPA are also more likely when a company makes facilitation payments. Abroad, countries are increasingly enforcing domestic bribery laws that prohibit such payments. Companies that allow facilitation payments face a slippery slope to educate their employees on the nuances of permissible payments in order to avoid prosecution for prohibited bribes.

The global business environment has changed even as the FCPA has remained static. In the absence of any legislative action to roll back the facilitation payment exception, the DOJ and Securities and Exchange Commission (SEC) plainly have set out to repeal the facilitation payment exception on a case-by-case basis. US companies should recognize the weakening of the argument supporting a facilitation payment exception and should develop compliance policies that do not permit any kind of grease payments. A policy that prohibits all payments (unless there is high level of legal and compliance approval) will relieve businesses of the compliance burden of differentiating between lawful and unlawful payments. From the point of view of the modern global corporation, a compliance regime that attempts to differentiate between “good” corrupt payments and “bad” corrupt payments will do more harm than good.

This publication contains general information only and is based on the experiences and research of the author. The author is not, by means of this publication, rendering business, legal advice, or other professional advice or services. This publication is not a substitute for such legal advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified legal advisor. The author, his affiliates, and related entities shall not be responsible for any loss sustained by any person or entity that relies on this publication. The author can be reached at tfox@tfoxlaw.com.

© Thomas R. Fox, 2010

April 16, 2010

Changes Coming: US Sentencing Guidelines, UK Bribery Billand the OECD on Facilitation Payment-Part II

At its April 7, 2010 meeting the United States Sentencing Commission approved amendments to its Sentencing Guidelines. The next day on April 8, 2010, the UK Bribery Bill received Royal Assent. These two events follow the December 9, 2009 release by the Organization for Economic Co-Operation and Development’s (OECD) Recommendation for Further Combating Bribery of Foreign Public Officials, when the OECD marked the tenth anniversary of the entry into force of the OECD Anti-Bribery Convention.

These three releases, which comprise of two changes in the legal schemes by two of the world’s largest economic players and the proposal of one of the largest Non-Governmental Organizations (NGO) dedicated to ending corruption across the globe portend significant changes in how companies will be structured and transact business going forward in the new decade. This is the second of three postings in which will discuss the changes that companies, with any US or UK presence, will be required to implement. The initial post will was on the changes to the US Sentencing Guidelines; in this post, we will consider the changes required by the UK Bribery Bill; and in the third and final post we will consider the recommendations as found in the OECD’s Recommendation for Further Combating Bribery of Foreign Public Officials regarding ending of facilitation payments.

 

There are several differences between the Foreign Corrupt Practices Act (FPCA) and the UK Bribery Bill which all companies should understand. These include:

  • The Bribery Bill
    • has no exception for facilitation payments.
    • creates strict liability of corporate offense for the failure of a corporate official to prevent bribery.
    • specifically prohibits the bribery or attempted bribery of private citizens, not just governmental officials.
    • not only bans the actual or attempted bribery of private citizens and public officials but all the receipt of such bribes.
    • has criminal penalties of up to 10 years per offense not 5 years as under the FCPA.

 

There is one affirmative defense listed in the Bribery Bill and it is listed as the “adequate procedures” defense. The Explanatory Notes to the Bribery Bill indicate that this narrow defense would allow a corporation to put forward credible evidence that it had adequate procedures in place to prevent persons associated from committing bribery offences. The legislation requires the Secretary of State for Justice to publish guidance on procedures that relevant commercial organizations can put in place to prevent bribery by persons associated with their entity.

Other than this commentary, the Bill provides no further information on what might constitute “adequate procedures” as a defense but the Government has signaled that it will work with the UK business community to provide appropriate guidance to this critical component of the Bribery Bill. The UK law firm KattenMuchin has indicated that they expect the Government will apply a test regarding the “adequate procedures” defense “with regard to the size of the company, its business sector and the degree to which it operates in high risk markets”. The law firm of Covington and Burling, in a client advisory dated March 31, 2010, has opined that the Bribery Bill will not come into force until late 2010 because it will take the UK government until then to issue guidance on what may constitute ”adequate procedures”.

The Bribery Bill is a significant departure for the UK in the area of foreign anti-corruption. It cannot be emphasized too strongly that the Bribery Bill is significantly stronger than the US FCPA. The Bribery Bill provides for two general types of offence: bribing and being bribed, and for two further specific offences of bribing a foreign public official and corporate failure to prevent bribery. All the offences apply to behavior taking place either inside the UK, or outside it provided the person has a “close connection” with the UK. A person has a “close connection” if they were at the relevant time, among other things, a British citizen, an individual ordinarily resident in the UK, or a body incorporated under the law of any part of the UK. Many internationally focused US companies have offices in the UK or employ UK citizens in their world-wide operations. This legislation could open them to prosecution in the UK under a law similar to, but stronger than, the relevant US legislation.

These changes include the outright banning of facilitation payments and the outright banning of all bribery and corrupt payments by US companies to not only foreign governmental officials but all private citizens. The Bribery Bill certainly does away with any legal question of “who is a foreign governmental official” under the FCPA and the use of other legislation, such as the Travel Act, which bans bribery generally, to back corrupt actions made to a foreign person who is not a governmental official, into an FCPA violation. All US companies with UK subsidiaries or UK citizens as employees, should ban such acts as part of their overall compliance and ethics policies sooner rather than later.

 

This publication contains general information only and is based on the experiences and research of the author. The author is not, by means of this publication, rendering business, legal advice, or other professional advice or services. This publication is not a substitute for such legal advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified legal advisor. The author, his affiliates, and related entities shall not be responsible for any loss sustained by any person or entity that relies on this publication. The author can be reached at tfox@tfoxlaw.com.

 

© Thomas R. Fox, 2010

April 7, 2010

UK Bribery Bill Update

Filed under: FCPA,UK Bribery Bill — tfoxlaw @ 2:06 pm
Tags: , ,

It appears that the UK Bribery Bill, introduced in March 2009, made it out of Parliament before the upcoming general election. The Bribery Bill is a significant departure for the UK in the area of foreign anti-corruption. It is significantly stronger than the FCPA. Many internationally focused US companies have offices in the UK or employ UK citizens in their world-wide operations. This legislation could open them to prosecution in the UK under a law similar to, but stronger than, the relevant US legislation.

Some proposed amendments were recently introduced by the Tory Party which would have allowed allow facilitation payments that were ‘reasonable in amount’, ‘customary in the situation’ or the ‘only reasonable alternative in the situation’. Writing in the blog doingggoodbiz.wordpress.com, Alan Holroyd reported that Clair Ward, the Parliamentary Under-Secretary of State for Justice, stated that such exceptions would have ‘driven a coach and horses through the policy objectives of the bill’.

This debated brings up one of several differences between the FPCA and the Bribery Bill. These include:

• The Bribery Bill has no exception for facilitation payments.
• The Bribery Bill creates strict liability of corporate offense for the failure of a corporate official to prevent bribery.
• The Bribery Bill specifically prohibits bribery of private citizens, not just governmental officials.
• The Bribery Bill has criminal penalties of up to 10 years per offense not 5 years as under the FCPA.

There is one affirmative defense listed in the Bribery Bill and it is listed as the ‘adequate procedures’ defense. The Explanatory Notes to the Bribery Bill indicate that this narrow defense would allow a corporation to put forward credible evidence that it had adequate procedures in place to prevent persons associated from committing bribery offences. The legislation requires Secretary of State for Justice to publish guidance on procedures that relevant commercial organizations can put in place to prevent bribery by persons associated with their entity.

Other than this commentary, the Bill provides no further information on what might constitute ‘adequate procedures’ as a defense but the Government has signaled that it will work with the UK business community to provide appropriate guidance to this critical component of the Bribery Bill. The UK law firm KattenMuchin has indicated that they expect the Government will apply a test regarding the ‘adequate procedures’ defense “with regard to the size of the company, its business sector and the degree to which it operates in high risk markets.” The law firm of Covington and Burling, in a client advisory dated March 31, 2010, has opined that the Bribery Bill will not come into force until late 2010 because it will take the UK government until then to issue guidance on what may constitute ‘adequate procedures’.

This publication contains general information only and is based on the experiences and research of the author. The author is not, by means of this publication, rendering business, legal advice, or other professional advice or services. This publication is not a substitute for such legal advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified legal advisor. The author, his affiliates, and related entities shall not be responsible for any loss sustained by any person or entity that relies on this publication. The Author gives his permission to link, post, distribute, or reference this article for any lawful purpose, provided attribution is made to the author. The author can be reached at tfox@tfoxlaw.com.

© Thomas R. Fox, 2010

March 14, 2010

The Only Defense: Adequate Procedures under the UK Bribery Bill

With wide cross-party support it is anticipated that the Bribery Bill will pass the House of Commons and become law by May, 2010. The Bribery Bill amends and repeals existing anti-bribery offences under the Public Bodies Corrupt Practices Act 1889, the Prevention of Corruption Act 1906 and the Prevention of Corruption Act 1916 and abolishes the UK common law offenses of bribery and embracery (bribery of jurors). This proposed legislation represents a long awaited simplification of the law on corruption and makes the UK compliant with its international obligations under the OECD. It will have a major impact on the way businesses connected to the UK manage their international business.

There is one affirmative defense listed in the Bribery Bill. The is the ‘adequate procedures’ defense. The Explanatory Notes to the Bribery Bill indicate that this narrow defense would allow a corporation to put forward credible evidence that it had adequate procedures in place to prevent persons associated from committing bribery offences. Although not explicit on the face of the Bill, in accordance with established case law, the standard of proof the defendant would need to discharge is the balance of probabilities. The legislation requires Secretary of State to publish guidance on procedures that relevant commercial organizations can put in place to prevent bribery by persons associated with their entity.

Other than this commentary, the Bill provides no further information on what might constitute ‘adequate procedures’ as a defense but the Government has signaled that it will work with the UK business community to provide appropriate guidance to this critical component of the Bribery Bill. The UK law firm KattenMuchin has indicated that they expect the Government will apply a test regarding the ‘adequate procedures’ defense “with regard to the size of the company, its business sector and the degree to which it operates in high risk markets.”

While it might only give general guidance, the United States Department of Justice has published its Sentencing Guidelines which provide a framework to construct an ethics and compliance program which will meet the strictures of the FCPA. Using the Sentencing Guidelines, Richard Cassin has written about an effective compliance program, in his excellent FCPABlog. He notes that the purpose of an “effective compliance program” is to prevent and detect criminal conduct. In his listing his suggestions for what constitutes an “effective compliance program” He suggested the following:

1. A Written Program. A company must have standards and procedures in place to prevent and detect criminal conduct.
2. Board Oversight. A public company’s Board of Directors must be knowledgeable about the content and operation of the compliance program and must exercise reasonable oversight of its implementation and effectiveness.
3. Responsible Persons. One or more individuals among a company’s high-level personnel must be assigned overall responsibility for the compliance program.
4. Operating and Reporting. One or more individuals must be delegated day-to-day operational responsibility for the compliance program. They must report periodically to high-level personnel on the effectiveness of the compliance program. The individuals must have adequate resources, appropriate authority, and direct access to the Board or Audit Committee.
5. Management’s Record of Compliance. A company must use reasonable efforts not to hire or retain personnel who have substantial authority and whom a company knows or should know through the exercise of due diligence have engaged in illegal activities or other conduct inconsistent with an effective compliance program.
6. Communicating and Training. A company must take reasonable steps to communicate periodically and in a practical manner its standards and procedures, and other aspects of the compliance program, to directors, officers, executives, managers, employees and agents — by conducting effective training programs and otherwise disseminating information appropriate to the individuals’ respective roles and responsibilities.
7. Monitoring and Evaluating; Anonymous Reporting. A company must take reasonable steps (a) to ensure that its compliance program is followed, including monitoring and auditing to detect criminal conduct, (b) to evaluate periodically the effectiveness of the compliance program and (c) to have and publicize a system, which may include mechanisms that allow for anonymity or confidentiality, whereby a company’s employees and agents may report or seek guidance regarding potential or actual criminal conduct without fear of retaliation.
8. Consistent Enforcement — Incentives and Discipline. A company’s compliance program must be promoted and enforced consistently throughout a company through appropriate (a) incentives to perform in accordance with the compliance program and (b) disciplinary measures for engaging in criminal conduct and for failing to take reasonable steps to prevent or detect criminal conduct.
9. The Right Response. After criminal conduct has been detected, a company must take reasonable steps to respond appropriately and to prevent further similar criminal conduct, including making any necessary modifications to a company’s compliance program.
10. Assessing the Risk. A company must periodically assess the risk of criminal conduct and take appropriate steps to design, implement, or modify its compliance program to reduce the risk of criminal conduct identified through this process.

Once again the British Government has not provided any guidance was to what might constitute “adequate procedures” under the Bribery Bill. However procedures based upon some of all of the elements above would certainly be a good starting point for any UK corporation to put in place.

————-

This publication contains general information only and is based on the experiences and research of the author. The author is not, by means of this publication, rendering business, legal advice, or other professional advice or services. This publication is not a substitute for such legal advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified legal advisor. The author, his affiliates, and related entities shall not be responsible for any loss sustained by any person or entity that relies on this publication. The Author gives his permission to link, post, distribute, or reference this article for any lawful purpose, provided attribution is made to the author. The author can be reached at tfox@tfoxlaw.com.

© Thomas R. Fox, 2010

February 12, 2010

Proposed UK Bribery Bill: It’s Implications and Contrasts to the FCPA

In March 2009, the United Kingdom introduced into Parliament a Bribery Bill drafted to consolidate and bring into the 21st Century the various UK anti-corruption and bribery laws. As stated by Her Royal Highness Queen Elizabeth II, in her speech of November 18, 2009, the purpose of the Bribery Bill is to “Provide a modern and comprehensive scheme of bribery offences to equip prosecutors and courts to deal effectively with bribery at home and abroad.” As of February 9, 2010, the Bribery Bill had its third and final reading in the House of Lords, where no changes were proposed, and the bill has now been presented to the House of Commons for the first reading.

Background

General reform of the bribery laws was first proposed in a Law Commission report in 1998. This led to a draft Government Bill in 2003 that failed to win broad support in pre-legislative scrutiny. This defeat led to mounting pressure as the UK faced criticism from the Organization for Economic Co-Operation and Development (OECD) for the UK’s lack of clear substantive prohibitions on bribery and its failure to comprehensively implement and enforce its obligations under the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions.

The Secretary of State for Justice Jack Straw introduced the draft Bribery Bill, which was informed by a further review by the Law Commission and was published in March 2009. The bill was subject to pre-legislative scrutiny by a Joint Committee of both the House of Lords and Commons from May to July 2009. The Joint Committee report, published in July 2009, was broadly supportive of the Government’s proposals. The Government’s response to the Joint Committee report was published on November 20, 2009; the same day as the publication of the Bribery Bill.

With wide cross-party support it is anticipated that the Bribery Bill will pass the House of Commons and become law by May, 2010. The Bribery Bill amends and repeals existing anti-bribery offences under the Public Bodies Corrupt Practices Act 1889, the Prevention of Corruption Act 1906 and the Prevention of Corruption Act 1916 and abolishes the UK common law offenses of bribery and embracery (bribery of jurors). This proposed legislation represents a long awaited simplification of the law on corruption and makes the UK compliant with its international obligations under the OECD. It will have a major impact on the way businesses connected to the UK manage their international business.

Offenses under the Bill

A. Individuals

Individuals can be prosecuted for making an offer to, or a promise to, bribe where such promise or offer gives a financial or other advantage to another person to obtain a reward. The bribe need not be financial but can be of “other value”. This can occur for any function of “of a public nature” (i.e. ‘governmental official’) or “connected with a business” (i.e. ‘private entity’). The Bribery Bill makes it a crime to accept a bribe where a person agrees to receive or accepts something of value and it occurs whether or not the person actually receives it; if the action is linking to providing improper performance. As with offering a bribe, the legislation prohibits such actions by both public officials and those “connected with a business”. The test for whether an offer or promise is a bribe is “what a reasonable person in the UK would expect in relation to the performance of the type of function or activity concerned.”

B. Companies

In addition to the ongoing corporate liability for its employees engaging in bribery, this Bill creates a strict liability crime when a company fails to prevent bribery. This means that if an employee offers or makes a bribe and the person, who has the responsibility of preventing bribery, fails to prevent the bribe such person can be liable under the Bribery Bill. If there is no ‘person responsible’ for preventing bribery within the company, responsibility for the action is deemed to be that of any senior officer, such as a director, secretary or manager of the company. The only defense to this situation is if the company can show it had “adequate procedures designed to prevent…such conduct.”

C. Extraterritorial application

This legislation has extraterritorial application so that any UK citizen or company transacting business anywhere in the world can be liable under this Bill. This means that the relevant criminal act can occur outside the UK and persons or companies in the UK can be liable. But more importantly for non-UK companies, they are covered as well if they have a UK office or operation or even probably if they employ a UK citizen. There is no requirement in the Bribery Bill that the illegal conduct be approved by or paid through the UK branch or subsidiary. The simple instance of having a UK presence will create jurisdiction. So if a Dutch company has a UK branch and engages in bribery in some country in Asia, that Dutch company can now have UK liability under the Bribery Bill and be prosecuted in the UK.

D. Penalties

The Bribery Bill provides penalties for individuals for up to 10 years in jail per offense and unlimited fines. Senior company officials who consent to or are a part of a bribery scheme are liable as individuals as well. Equally significantly prohibited actions by companies are punishable by fines that not limited.

Contrast with the Foreign Corrupt Practices Act

The Bribery Bill is significantly broader than the US Foreign Corrupt Practices Act (FCPA). There is more strict scrutiny in the Bribery Bill and enhanced criminal penalties available to UK prosecutors. The significant differences in the two pieces of legislation are as follows.

A. Public v. Private

The FCPA focuses on anti-corruption of foreign governmental officials. The Bribery Bill specifically covers non-governmental officials, i.e., private citizens. This makes any bribery illegal; not just trying to or bribing a foreign governmental official.

B. Facilitation Payments

The FCPA has a specific defense for facilitation payments. The Bribery Bill has no such defense and indeed, certain types of corporate hospitality are prohibited if they are “intended to subvert the duties of good faith or impartiality that the recipient owes his or her employer”.

C. Strict Liability for Failing to Prevent Bribery

The FCPA has no strict liability either written directly into the statute or interpreted by judicial review. The Bribery Bill creates a new strict liability of corporate offense for the failure of a corporate official to prevent bribery.

D. Penalties

The FCPA has criminal penalties of 5 years per offense. The Bribery Bill has penalties of up to 10 years per offense.

Defenses under the Bill

There are two affirmative defenses listed in the Bribery Bill. The first is listed as the ‘adequate procedures’ defense. The Explanatory Notes to the Bribery Bill indicate that this narrow defense would allow a corporation to put forward credible evidence that it had adequate procedures in place to prevent persons associated from committing bribery offences. Although not explicit on the face of the Bill, in accordance with established case law, the standard of proof the defendant would need to discharge is the balance of probabilities. The legislation requires Secretary of State to publish guidance on procedures that relevant commercial organizations can put in place to prevent bribery by persons associated with their entity.

Other than this commentary, the Bill provides no further information on what might constitute ‘adequate procedures’ as a defense but the Government has signaled that it will work with the UK business community to provide appropriate guidance to this critical component of the Bribery Bill. The UK law firm KattenMuchin has indicated that they expect the Government will apply a test regarding the ‘adequate procedures’ defense “with regard to the size of the company, its business sector and the degree to which it operates in high risk markets.”

Conclusion

The Bribery Bill is a significant departure for the UK in the area of foreign anti-corruption. It is the culmination of many years of debate within the British government on how to move forward with its responsibilities under the OECD Convention on the Combating of Bribery. The Bribery Bill is significantly stronger than the US FCPA. Many internationally focused US companies have offices in the UK or employ UK citizens in their world-wide operations. This legislation could open them to prosecution in the UK under a law similar to, but stronger than, the relevant US legislation. US companies should monitor the progress of this Bribery Bill and be ready to enact changes to their FCPA compliance programs to incorporate the required changes if they have UK subsidiaries or business operations.

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