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Organisations have now had 12 months to get to grips with the UK Bribery Act. What’s clear is that having adequate procedures in place to prevent bribery is the best defence mechanism

We are now one year into the operation of the UK Bribery Act and it has become clear to all, or should have become clear, is that reasonable hospitality is not what the Act legislates against.

The aim is not to stop companies building relationships with clients by taking them to Wimbledon, Lord’s or Twickenham.

What should also be clear is that companies cannot escape the Act simply because an agent in some distant Middle Eastern or African or Latin American country continues business as usual and greases the palms of everyone he or she deals with.

What agents do for you comes to rest at your door, as far as the Act is concerned, and bribery is a criminal as well as a commercial offence. Prison or swingeing fines, and the disgorging and clawing back of profits, await transgressors.

Offences under the Act, as Jonathan Middup, partner and head of anti-bribery and corruption for Ernst & Young in the UK explains, are not mitigated by pointing to the fact that in some countries bribery is simply an accepted way of getting business done.

“The underlying view of the Act is that the more Western companies play the bribery game, the harder it is to eradicate it. There needs to be zero tolerance of bribery and this is what the Act sets out to achieve,” he says.

A handful of large multinationals have already taken a firm stand against it and have said that they are not going to pay bribes, no matter what.

They are finding, Middup says, that officials and others in the countries concerned learn that company X or company Y cannot be “taken” and, after some resistance, the demands vanish and business gets done anyway.

That is the kind of success that the Act is striving to achieve, so from the point of view of the authorities every infringement sets back the process, and those companies caught turning a blind eye to the practice among agents, or among their rank and file employees, can expect to be made an example of.

Peter Maher, a partner in the forensic department at Deloitte, also emphasises that this is a criminal statute, not a regulation, and that directors would do well to keep that in mind.

We have not yet seen the degree of enforcement activity under the Act that was expected when it came into force, but we are still very early in the game, he says.

In particular, companies need to grasp the fact that the UK Bribery Act has subtle differences from the US Foreign Corrupt Practices Act, which came into force in 1977.

In particular, the FCPA allows “facilitation payments”, which are payments made to, for example, facilitate the movement of goods from the dockside of a foreign port.

Under the UK Act anything that is not a recognised fee or disbursement is out, and that goes for facilitation payments too, which the Act regards as simply bribery under a different guise. Maher points out that prosecutions were also slow to start under the FCPA.

“When I left the US in 1992 there had been very few actions brought, then it simply exploded from 2003 onwards, so we could see a similar pattern in the UK,” he says.

On hospitality, Maher and others recommend applying the “Evening Standard test”. Would you be uncomfortable, as a board, reading about the hospitality you are providing on the front page of the Evening Standard?

“Talking to the Serious Fraud Office (SFO), it is clear that it is not their intention to restrict hospitality. They are going after out and out bribery,” he says.

It is also important to realise that there is a lower hurdle in the Act where public officials rather than private companies are the recipients or alleged recipients of bribes.

“There is a public interest dimension to this. In emerging markets the bribery of government officials tends to involve diverting funds from public coffers to the individual’s private bank account, so you have an impoverished population being deprived of funds,” he says.

Companies need to take particular care to carry out proper due diligence when engaging in M&A activity in markets that are high risk as far as bribery is concerned.

They will certainly want to inquire deeply into the processes the target company has in place to prevent bribery.

Catriona Munro, partner, EU competition and regulatory services at lawyers Maclay, Murray & Spens, says that her team is fielding a constant stream of enquiries from clients who, one year in, are still coming to terms with the processes they need to put in place to fulfil the requirements of the Bribery Act.

Boards may well think that their business is not at much risk, but when they look more closely at matters, for example, at the agency issue where they have traditionally operated very much on trust, they get a fright, she says.

“I still get surprised reactions from clients when they discover that they can be liable for people doing business on their behalf, but that is the way this law was designed to work,” she says.

One crumb of comfort for companies is that under the Bribery Act, having adequate procedures in place to prevent bribery is a complete defence, whereas under Competition Law having adequate procedures simply mitigates the punitive fines that can be handed out.

Munro points out that one of the shortcomings of the present UK law is that there is no guarantee that self-reporting an offence will prevent the SFO from prosecuting the company, which is a major disincentive to self-reporting.

However, there is a general expectation that the SFO will be reasonable and they have privately indicated as much to practitioners.

“What we are emphasising to clients is that your defence has to go beyond paper procedures. It has to involve a real effort to push anti-bribery training and awareness throughout the organisation, and you have to know that your accounting procedures are tight enough to identify potential slush-fund monies anywhere in the organisation,” Munro says.

If a court finds that it was easy for an offender to get company funds to pay bribes, that is not going to work well for the company at all.

Photograph: Getty Images


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