Bribery Library Blog - Commentary on the UK Bribery Act and Its Impact on International Business

The new SFO director, David Green, has his work cut out for him as his budget strapped department heads towards the first anniversary of the Bribery Act, without having initiated a single corporate prosecution for corruption.

As the Act has no retrospective effect, there was always going to be a lag before the SFO would begin enforcement of the Act with any vigour; offences would need to have been committed after 1 July 2011, be detected/reported and investigated before any enforcement action could commence....and even then, there is a great deal of pressure on the SFO to commence its enforcement regime under the Bribery Act with a strong case.

Certainly the SFO is well underway with harvesting leads.  In November 2011 the SFO launched its confidential whistleblower hotline “SFO Confidential”, for the reporting of serious or complex fraud or corruption.  According to a report in the Financial Times yesterday, SFO Confidential has logged approximately 100 complaints a month since its launch. 

To date not a single official investigation has been commenced as a result of the information received via SFO Confidential.  It is fair to say that not all of those leads will be worth pursuing, but where there is so much smoke there must surely be a fire somewhere. 

We have previously blogged on two high profile whistleblower cases, concerning BP Tankers and EADS, both of which involve allegations of corruption having been handed to the SFO on a platter.  We await with interest the SFO’s next move with respect to BP and the supplier that is alleged to have paid bribes to a BP employee.  The allegations came to light in March 2012 and we expect it will take some time for both BP and the SFO to investigate.  In the meantime, the EADS investigation has been underway for over a year, with still no outcome.  While this case involves allegations of conduct pre-dating 1 July 2011, the length of time required for the SFO to complete its investigation suggests we may have to wait some time before we see enforcement by the SFO of Bribery Act cases. 

While a significant prosecution under the Act would no doubt kick many of those who are complacent about corruption risks into action, many organisations are nevertheless coming under pressure to develop and implement anti-corruption policies and procedures.  This pressure is not coming from the direct fear of prosecution, but is driven by the need to meet the standards expected of counterparties and others who wish to mitigate their organisation’s exposure to corruption through associated parties.  It remains to be seen, however, how long this momentum will continue in the absence of enforcement.

As our Australian readers will no doubt be aware, the Australian Government last week outlined a proposal to ban facilitation payments, launching a consultation paper as part of its review of facilitation payments under Australian law.  The bribery of foreign public officials is prohibited under section 70.2 of the Australian Criminal Code, with corporate offenders facing fines of A$11 million or 3 times the value of the benefits obtained, whichever is the greater.  Individuals face up to 10 years imprisonment or fines of up to A$1.1million.

Section 70.4 of the Criminal Code sets out a defence for facilitation payments, which is inconsistent with the international trend towards the prohibition of such payments and as highlighted in the consultation paper, puts Australian companies at greater risk of being found liable for acting outside the law e.g. where the operations of Australian companies also fall within the scope of the UK Bribery Act.

The Australian Minister for Home Affairs and Justice, Brendan O’Conner, has acknowledged the strong difference of opinion that exists in Australia over whether or not to allow the exemption to remain in place, with some believing that Australian business would be put at a competitive disadvantage if the defence was to be abolished.  However, Mr. O’Conner has also noted that the defence is inconsistent with Australia’s commitment to offering aid and assistance, particularly in the Asia-Pacific region.

The ban would bring Australian anti-corruption laws into closer alignment with the UK Bribery Act, which is another step towards levelling the international playing field for British companies, although according to Transparency International’s Bribe Payers Index 2011, Australian companies are already perceived as being less likely to pay bribes than UK or US companies, coming in 6^th equal with Canada. 

Notably my home country and neighbour to Australia in the South Pacific, New Zealand, also maintains an exemption for facilitation payments (see the New Zealand Crimes Act, s105C (3)).  New Zealand’s economy is not large enough for it to feature on the Bribe Payers Index, but it is ranked 1^st equal with Denmark and Singapore in Transparency International’s Corruption Perceptions Index 2010, meaning it is one of the countries in the world where you are least likely to find corruption.  Given that facilitation payments are a form of bribery and are illegal in the countries where they are paid, the New Zealand Government may follow Australia’s lead in looking to bring its anti-corruption legislation in line with international standards.  After all, we should not expect to behave overseas in a way that we would not tolerate at home.

There is also talk of the US Government revising its stance on facilitation payments, which would certainly be consistent with the aggressive enforcement of the FCPA.  Many of the US based organisations we work with ban facilitation payments, regardless of the US exemption, in particular because it is so difficult to know where the line is to be drawn.

We await with interest the outcome of the consultation in Australia.  The Australian Government invites all interested parties to submit their views of the matters outlined in the consultation paper by close of business on 15 December 2011. 

As we wait to see how the SFO will tackle large corporate prosecutions under the Bribery Act, a question on many people’s lips is whether the UK will follow the US in adopting the use of deferred prosecution agreements (or DPAs).  Our US colleagues recently blogged on the US prosecutors’ long-established and increasingly common practice of negotiating such agreements and on SFO Director, Richard Alderman’s, belief that there is “considerable scope” for the use of deferred prosecutions in relation to SFO investigations.

There are a number of benefits to be gained from giving UK prosecutors the power to negotiate DPAs.  Certainly the cost and time involved in investigating offences would be significantly reduced, which is good news for the public purse.  Further, a well negotiated DPA that gives proper attention to remediation (e.g. through monitoring) as well as to punishment, has the potential to effect a permanent positive change in the culture of an organisation. 

However, there are a number of tricky issues that need to be resolved before the use of deferred prosecution agreements can be adopted in the UK.  The following issues have lately been raised by leading practitioners in the field, many of whom support the concept, but advocate a cautious and considered approach:

• Which cases are suitable for DPAs?
• When should the possibility of a DPA be raised?  Before or after charges are laid? 
• What role should the judiciary play in the negotiation of DPAs? 
• How are penalties to be determined? 
• How can global settlements be achieved given that a DPA in the UK offers no guarantee against prosecution in another jurisdiction?
• Is there scope and is it desirable to offer immunity to individuals within an organisation who co-operate with the investigation and facilitate an agreement being reached?
• Will the public have a negative view of DPAs and see them as a way for an organisation to pay its way out of being prosecuted?

Ideally the SFO will want the ability to enter into DPA negotiations before charges are laid, to avoid a costly and time consuming investigation.  But if the SFO proposes a DPA before it has sufficient evidence to lay charges, should an organisation be willing to admit liability at that stage?  For organisations faced with the prospect of entering into a DPA, the decision will in some cases be akin to deciding whether or not to self-report. 

The Bribery Library will be following this debate over the coming months and looking further at these issues. 

The SFO has devised its own guidance for considering how to deal with organisations that continue to make "small" facilitation payments after 1 July. 

Our sources at the SFO have informed us that the SFO will be looking to see:

1. whether the company has a clear issued policy regarding such payments;

2. whether written guidance is available to relevant employees as to the procedure they should follow when asked to make such payments;

3. whether such procedures are being followed by employees;

4. evidence that all such payments are being recorded by the company;

5. evidence that proper action (collective or otherwise) is being taken to inform the appropriate authorities in the countries concerned that such payments are being demanded;

6. that the company is taking what practical steps it can to curtail the making of such payments.

There remains a number of grey/ challenging areas.  Where is the line between "small" payments and payments which the SFO would condemn?  How many small payments collectively amount to a significant breach of the Bribery Act?  If you have a zero tolerance policy, but payments are still being approved, what message is being given to your employees and business partners?

For those organisations that are doing their best to avoid making facilitation payments, but are finding it difficult to stop making them altogether, this insight into the SFO's thinking will offer some limited breathing room.  However, the clear message from these six points is that the SFO will be expecting to see a positive approach by organisations towards the goal of eradicating such payments from their operations.

Certainly the suppliers of facilitation payments can make efforts to avoid being in situations where they are susceptible to demand for payments, but long term eradication must surely rest as much on inroads being made into the demand side itself.  Organisations are encouraged to take collective or other action to inform authorities that demands are being made, but pressure also needs to be applied at government level.  Will we see the UK Government supporting British organisations to take a stand against facilitation payments by working with foreign governments to tackle the issue of demand?

In the meantime, it will be interesting to see in 2 years time whether the SFO's tolerance with respect to facilitation payments has changed.

In the build up to the release of the Ministry of Justice’s Guidance there was a great deal of speculation about the position the Government would take on facilitation payments.  Would the Government take the same approach as under the US FCPA and make an exception for facilitation payments?

The Guidance was duly released and the Government confirmed that under the Bribery Act, as under the previous legislation, facilitation payments are bribes and are therefore illegal and subject to prosecution:

Facilitation payments, which are payments to induce officials to perform routine functions they are otherwise obligated to perform, are bribes. There was no exemption for such payments under the previous law nor is there under the Bribery Act.

As was the case under the old law, prosecutors will carefully consider all the facts and surrounding circumstances of cases which come to their attention to assess whether a payment amounts to a bribe and, if so, whether a prosecution is in the public interest.

You can continue to pay for legally required administrative fees or fast-track services. These are not facilitation payments.

(Quick Start Guide, page 7)

Small, one off payments are, on their own, unlikely to attract the attention of the SFO.  While there is no de minimis limit in the Bribery Act and therefore no guarantees with respect to low value payments, the fact remains that small infractions will not justify the time and cost involved in prosecuting.  However, for those organisations that routinely make facilitation payments (even though each payment might itself only be small), there is a risk that continuing to make such payments will result in prosecution under the Bribery Act. 

The common plea in relation to facilitation payments made to foreign public officials: “that is how business is done there!”, will not be a defence under the Bribery Act unless it can be proven that the public official was either permitted or required by the written law applicable to that official to be influenced by the payment, which as you can imagine is likely to be an extremely rare circumstance.

The different approach taken between the US and the UK in relation to facilitation payments will put some organisations in a real dilemma: keep paying and run the risk of prosecution or refuse to pay and risk adverse consequences for the business.  For some organisations the Bribery Act will make no difference to their operations in respect of facilitation payments as despite the allowance under the FCPA, they already prohibit employees (and third parties) from making such payments because it is too difficult to judge in many cases where the line is i.e. whether the action you are paying for you would get if you did not make the payment.  If this is the case, what are you making the payment for in the first place?

Assessing the risk of prosecution

The joint prosecution guidance of the Director of the SFO and the Director of Public Prosecutions issued on 30 March 2011, suggests that the following factors would tend in favour of prosecution:

• Large or repeated payments, which are likely to attract a significant sentence;
• Facilitation payments that are planned for or accepted as part of a standard way of conducting business (which may indicate the offence was premeditated);
• Payments that indicate an element of active corruption of the official in the way the offence was committed;
• Where a commercial organisation has a clear and appropriate policy setting out procedures an individual should follow if facilitation payments are requested and these have not been correctly followed.

The following factors are likely to tend against prosecution:

• A single small payment likely to result in only a nominal penalty;
• The payment(s) came to light as a result of a genuinely proactive approach involving self-reporting and remedial action;
• Where a commercial organisation has a clear and appropriate policy setting out procedures an individual should follow if facilitation payments are requested and these have been correctly followed;
• The payer was in a vulnerable position arising from the circumstances in which the payment was demanded.

Make your organisation immune to payment requests

Aside from the risk of prosecution, it makes good business sense to cut out facilitation payments as they add a layer of additional cost to your operations, which has to be absorbed either by you or your customers. 

Here are some ideas for your consideration:

• Plan ahead and amend your operations to ensure you can absorb expected delays without having to make payments.
• Know the laws of the jurisdiction you are in and use your knowledge to refuse the request for payment.
• Use industry groups to apply pressure at senior levels of government.
• Give employees and third parties (such as agents and contractors) clear guidance on how to recognise improper requests for payments and how to resist such requests.

It remains to be seen how active the UK prosecutors will be at prosecuting organisations that make facilitation payments.  While it is tempting for some organisations to carry on making payments as usual, there are other risks in addition to prosecution and inflated business costs that are worth considering.  Given the exposure to prosecution through associated persons, organisations with whom you are associated may force you to comply with their anti-corruption policies and procedures (including a prohibition on facilitation payments) in order to do business with you. 

So, to pay or not to pay: how will your organisation answer the question?