The Bribery Act 2010 came into force in sthe UK a year ago. The predicted deluge of prosecutions has yet to happen, but companies should ensure now that they have robust policies in place
Before the UK Bribery Act 2010 came into force on 1 July last year, many businesses were running scared. With the threat of prosecutions at board level over the corrupt actions of third parties, hired in markets possibly on the other side of the world, a lot of money was spent on compliance.
However, there has been only one prosecution to date: court clerk Munir Patel took money to help people evade prosecution for driving offences. No corporation has yet been called to the dock.
The lack of action should not be interpreted as a lack of a will to prosecute: this may well be the calm before the storm. KPMG Forensic director Charlie Patrick says: “The Serious Fraud Office [SFO] has had a difficult year but the new director, David Green, has said he means business. He comes from a prosecutorial background, and people should take him very seriously.”
Looking for a big scalp
Arnold & Porter partner Kathleen Harris agrees: “I expected it to be two to three years before we saw any significant prosecutions, but the SFO will be looking for a big scalp now to show that it has teeth.”
Patrick points out that the SFO is still dealing with cases under previous legislation, such as civil recovery orders (see box right), but will most likely be poised to deploy the Bribery Act soon. “While this is only my supposition, I think he will chose to focus on a foreign firm with a UK footprint committing a big-ticket crime that [affects] UK plc,” he says. “The last thing he will want to do is prosecute a UK company trying to do the right thing.”
But UK companies should not be complacent merely because the first prosecution may fall on a foreign firm. “Companies should be dusting off their risk assessments and re-assessing them,” says Patrick. “Compliance shouldn’t be seen as a one-off action but a living process. Make sure that there is a proper process of monitoring and review in place.”
The act attempts to level the playing field. It is part of a growing body of universal law in this area, and acting in compliance is an advantage for western businesses
Robert Amsterdam, attorney
Harris believes the act should be seen as a long-term cultural change, like discrimination legislation, and responsible corporates need to take a zero-tolerance approach to the heart of their operation. “The Bribery Act should be a standard feature of risk management and looked at in concordance with every other risk that a business faces,” she says. “Exposure must be reviewed in an active and ongoing way. It’s simply not enough to have done an initial assessment and then think you are covered. There was a great rush to get systems in place by last July, but I’m not sure that all companies have really addressed their risk.”
Risk managers should check their compliance procedures and ensure that they are fit for purpose. “Go through your offices on a risk-by-risk basis,” advises Patrick.
Companies at particular risk include those working in countries with high corruption and expanding rapidly. “Get a handle on any third parties working on your behalf,” warns Patrick. “The burden of compliance for most large businesses has not been too onerous - most have been tethered by similar US legislation since 1977, so big pharma, oil and defence firms were already well prepared.”
He adds: “My concern has been for the smaller-medium sized firms that may not have a head of risk. They have to deal with a barrage of legislation and the Bribery Act may just become something they can’t get around to. But they should take it seriously.”
Smaller companies are not expected to have the same response as a large multinational, but they must take precautions. Harris says:
“They must demonstrate that Bribery Act compliance is part of their business dealings.”
Not just a burden
Avoiding prosecution is an obvious goal, but focusing on the legal burden imposed by the act may have blinded many to the unexpected competitive advantage it is offering them.
Robert Amsterdam, a Canadian attorney who specialises in defending multinational clients in emerging markets, says: “It’s actually a pro-business legislation.”
“The act attempts to level the playing field. It is part of a growing body of universal law in this area, and acting in compliance is an advantage for western businesses. Government policy is behind this: to try to reduce the competitive advantages enjoyed by companies from command economies like China and Russia. The act is a tool to make it easier to operate in markets where we have never had the advantages of local firms. We might not see this for some years, but it is a salutary goal.”
Furthermore, reviewing compliance offers an opportunity to get to grips with the complexities of operations and improve management at all levels and locations. Patrick says: “It can be a very useful tool to really understand how your business works, and what is going on in, say, a sales office in Africa.”
He adds: “If a third party is not complying on bribery issues, what else is it not doing? Maybe there is more than just a problem with corruption.”
Ten strategic considerations for a civil settlement
Since April 2008, the SFO has been able to settle cases by way of a civil recovery order. Six corporate cases were resolved on a civil basis and three led to criminal proceedings. These cases provide useful considerations for companies that want to persuade the SFO that a civil settlement is appropriate.
1 Conduct an internal investigation first
Most successful civil outcomes occur where professional advisers have first conducted an internal investigation before making full disclosure to the SFO. Advisers can make a preliminary report to avoid the conduct coming to light by other means.
2 Think carefully about documents
Avoid unintentionally bringing hard copy or electronic documents into the jurisdiction through the internal investigation, as the SFO may compel disclosure. Preserve evidence already in the jurisdiction.
3 Instruct a monitor early on
DePuy International Ltd and MW Kellogg Ltd avoided the imposition of an SFO-appointed monitor because their parent companies had already instructed one in their compliance review. This shows that corporate reform is taken seriously.
4 Review the conduct of the board
The involvement of a director is an aggravating feature, particularly if a personal benefit was derived. It will be difficult to avoid corporate attribution of the offence if a director is involved; a custodial sentence for the director is likely.
5 The standard of your products may be a consideration
The SFO considered this factor in civil outcomes regarding two publishing businesses. A good product meant that the jurisdictions involved had not been supplied with deficient products nor overpaid for the goods supplied.
6 Know the company’s bottom line
Companies should know the relevant figures as to their viability in advance of any negotiations, including, where relevant, an analysis of the total revenue generated from public contracts to demonstrate the grave effect of debarment.
7 Investor dividends
Even after a prosecution, the SFO may seek to recover dividends. It has confirmed that shareholders, particularly institutional investors, that receive the proceeds of crime could face civil action to recover the money.
8 Is self-reporting the best way to proceed?
A self-report is not a guarantee against prosecution. However, the consequences of not reporting are serious; the likelihood of the conduct coming to light in any case should be considered. If the risk is high, it is best to self-report and improve the likelihood of a civil resolution.
9 Avoiding debarment - the BAE resolution
If a civil outcome is not possible, negotiate a prosecution based on books and records, as the consequences in terms of debarment from public procurement contracts are less serious.
10 Turn a disadvantage into a commercial advantage
Companies that have had a monitor or a clean bill of health after prosecution or civil resolution have an advantage where the purchaser of products or services wants to be sure that it is contracting with a compliant company.
DLA Piper UK LLP