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Navigating the Complex Compliance Requirements of the U.K. Bribery Act

In preparation for the implementation of the U.K. Bribery Act of 2010, many multinational businesses are in the midst of taking critical action to improve policies and procedures to meet the Act’s stringent requirements. In essence, the legislation will criminalize the act of offering, promising or giving a bribe to a public official or any other person by U.K. residents or nationals or by companies incorporated in the U.K. The Act was expected to be enforced beginning in April 2011, but delays in the Ministry of Justice publishing guidance to businesses on “adequate procedures” has caused the deadline to slip. However, the extra time is welcome, as many businesses are continuing to press ahead with compliance issues.

Are you prepared?

Diving into the Details

The Bribery Act goes much further than its established counterpart, the U.S. Foreign Corrupt Practices Act (FCPA), in two main areas: namely, it is not restricted to bribery of foreign public officials, but also extends to any form of commercial bribery, and there is no exception for facilitation payments. Companies with compliance and financial reporting systems that allow for the recording and disclosure of facilitation payments may feel particularly exposed to the Bribery Act. However, the U.S. Department of Justice does not plan to change its rules regarding facilitation payments — and, while the U.K. Serious Fraud Office (SFO) has repeatedly refused to rule out prosecutions involving facilitation payments, any action would need to be in the public interest. It remains to be seen whether facilitation payments that are not systemic, and are of a de minimis value, will meet this test.

With that said, facilitation payments are essentially bribes for performing regular duties and companies wishing to protect themselves from any legal actions are likely to ban, or at least phase out, facilitation payments. We know that one of the major concerns of internal counsel and compliance officers is that either an alleged bribe can be falsely recorded as a facilitation payment or, at worst, a facilitation payment can be used to mask bribes. The added advantage of outlawing facilitation payments within a company is that employees no longer need to make the distinction — or even a judgment call — between a facilitation payment and a bribe.

Notably, the Bribery Act also introduces a new liability offense of “failure of commercial organizations to prevent bribery.” This means that any company operating a business in the U.K. is guilty of the offense if a bribe is paid anywhere in the world by any person associated with the organization, including employees, subsidiaries, agents, distributors or any person performing a service.

The Best Defense

The best defense for a company is to establish “adequate procedures” to prevent anyone from offering or paying bribes. An organization can only be required to prove that its procedures are adequate when those procedures fail to prevent bribery. While businesses will have to wait and see exactly what guidelines the U.K. Ministry of Justice publishes on what constitutes such “adequate procedures,” the Ministry has already stated that it will not impose requirements on businesses. Therefore, a strict definition of what is considered “adequate” is unlikely to be included, though the U.K.’s SFO describes one possible definition as a system of controls to prevent a bribe being paid in the past five years.

For example, companies that currently record gifts and hospitality (both given and received) should also acknowledge and record gifts and hospitality that were not offered or declined. This concept of a “no file” is gathering momentum within the compliance field. Companies with effective ethics and compliance programs already in place are likely to bar a supplier that offers a bribe to win a procurement contract from bidding in the future, or to decline from continuing to pitch to a customer who requests a bribe to award the work. However, it is rare to find a company that not only documents these issues, but also keeps records in one centralized location.

No business can completely ensure against bribes being offered or paid on its behalf, but when considering “adequate” prevention methods, a good question to ask is how such a payment would be made. If you can find a way, so can others. Conducting a walk-through of existing procedures on a regular basis and rigorously testing for gaps is a good way to proactively keep systems up-to-date and prevent bribery. If checks are properly documented and filed, they will support the defense that proper procedures are being implemented.

The Bribery Act also makes it a criminal offense to request, agree to receive or accept a bribe from any other party. Comprehensive education and training on ethics and the potential impact of bribes offered to an individual or organization is essential. Individuals need to understand that they could face criminal prosecution (of up to 10 years) and the company could be subject to unlimited fines, so particular attention should be given to management and staff in high-risk areas such as procurement or contract negotiation. It is not unusual for low-level employees to accept “kickbacks” to award new work or ensure that a supplier continues to receive orders — a practice that can have serious consequences under the new Bribery Act.

The Time for Action is Now

Many organizations affected by the U.K. Bribery Act have yet to take steps to improve or enhance their policies and procedures to meet the Act’s requirements. Those wishing to have protection in place prior to the Act taking effect will do well to start the process immediately, if efforts are not already underway. Deconstructing the process of how bribes might be paid and filling those gaps through enhanced controls, policies and procedures — along with appropriate training — will ensure the development of adequate procedures for preventing bribery.

Please look for details on procedures and monitoring practices in the second installment of Alvarez & Marsal’s three-part series on the practical implications of the U.K. Bribery Act in March.