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The Complexity of Compliance Under the U.K. Bribery Act

The U.K. Bribery Act will criminalize the act of offering, promising or giving a bribe to (or requesting, accepting or agreeing to accept a bribe from) a public official or any other person by U.K. residents or nationals or by companies incorporated in the U.K. and its associates. The Bribery Act was expected to be enforced beginning in April 2011 but, as discussed in our first installment in this series, the Ministry of Justice has been delayed in publishing guidance to businesses on “adequate procedures,” and this has caused the deadline to slip. In the meantime, many businesses continue to press ahead with reviewing and enhancing their compliance procedures.

To seek to prevent bribery and corruption in an organization, management has to understand what is happening in their business, both at the head office and in other locations where business is conducted. Many Compliance Officers spend between 25 percent to 50 percent of their time out of their offices, not just walking the halls, but also on the shop floor, production line and in the warehouse. Time spent observing working practices and engaging with staff from all parts of the business, and at all levels of the organization, is invaluable to Compliance Officers in highlighting areas of risk that need to be addressed.

The incoming Bribery Act contains an “adequate procedures” defense for businesses that have properly implemented an anti-bribery and corruption program. This defense will not be available to those that have only a paper policy; the compliance program needs to be executed. One way this has successfully been done is to truly engage staff in the process. Holding workshops or roundtable events with staff aimed at identifying potential red-flag situations has the dual benefit of ensuring staff understands their company’s commitment to its anti-bribery program, as well as providing a forum for the staff’s perspective on “how things really happen” in the business.

Taking Responsibility

The Bribery Act makes businesses responsible for the actions of its “associates,” loosely defined as someone “who performs services for or on behalf of the business.” It is therefore likely that associates will include employees, agents, consultants, subcontractors and suppliers. There is currently much debate around the extent to which a business can be responsible for the actions of others, but taking little or no action is not a viable option for businesses wishing to afford themselves the best protection. The Serious Fraud Office (“SFO”) — the U.K. government agency responsible for enforcing the Act — will determine the appropriate response to any violation depending on how effectively a business conducts its compliance procedures.

Many businesses already conduct pre-employment screenings when hiring senior managers. Refreshing this process every few years can uncover potential issues with longstanding and trusted employees. In the same way, due diligence should be conducted on agents, subcontractors and suppliers before they are engaged and repeated on a regular basis. The amount of investigation conducted can vary depending on their geographic location (higher-risk countries would warrant diligence closer look than lower-risk countries) and their importance to the business.

For deep due diligence on key associates, businesses may wish to engage professionals with local knowledge and contacts, but for other associates, performing open source research — including local language checks of internet news services and industry-related chat rooms — is a cost-effective and appropriate option. Receiving input from local management and employees can also be valuable, but any information provided should include independent verification. In order to demonstrate “adequate procedures,” it will be essential to properly document the decision-making rationale behind the level of due diligence deemed appropriate, the work undertaken and the results. If the results are inconclusive, then further work is needed, and if inappropriate activity is uncovered, then swift action must be taken.

Setting a Higher Standard

Many international businesses already operate within the boundaries of the U.S. Foreign Corrupt Practices Act (“FCPA”), but the U.K. Bribery Act goes considerably further than the FCPA by outlawing facilitation payments and by including all forms of commercial bribery rather than just in relation to foreign public officials. Perhaps, understandably, there has been some concern within the U.K. business community about being held to a higher standard than many overseas competitors, and in potentially acting alone to combat the social and economic harm caused by bribery and corruption. In reality, many international businesses have a connection to the U.K. (through a subsidiary, stock listing, sales operation, etc.) and may also be required to comply with the U.K. Bribery Act. Additionally, there is a growing trend for collective action taken on an industry-wide basis.

Companies representing several industries have already begun to join forces with competitors and collectively agree not to make specific types of payments that could be considered bribes or facilitation payments. While these companies generally suffered some initial difficulty with those requesting or expecting bribery payments, this passed and those payments are no longer requested, allowing them to do business in a quicker, cheaper and more transparent manner. Trusting that they are not going to experience these difficulties alone, or that a competitor will not take advantage, has encouraged these businesses to confront the issue of bribery. The SFO in the U.K. and the U.S. Department of Justice have been promoting the use of collective action, and we expect this activity to increase as the business community becomes more aware of its benefits.

At the time of writing this article, the U.K. Ministry of Justice had not published guidance on commercial organizations preventing bribery, and an estimated date for publication has not been provided. The U.K. Bribery Act will not come into force until three months after the guidance is released. Not only are businesses wisely using this time to improve procedures and controls in readiness for the Act’s implementation, but we understand that the SFO is also using the time to finish ongoing fraud investigations and prosecutions. The SFO will then shift its resources to its corruption team in preparation for targeting those businesses that fail to prevent bribery — and to those individuals who may have been involved in bribery after the Act comes into force. With penalties for these offenses, including prison sentences of up to 10 years and unlimited individual and corporate fines, it is not surprising that compliance is top of mind.

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