At long last, on 30th March, the Ministry of Justice published its “Guidance about procedures which relevant commercial organisations can put into place to prevent persons associated with them from bribing” (the "Guidance"). A somewhat convoluted title, but in short this guidance seeks to better define the scope of the UK’s Bribery Act 2010 (“the Act”),
The Act which comes into force on 1 July 2011, has been described as “the toughest anti-corruption legislation in the world” and the initial outcry amongst City professionals fearing that the days of corporate entertainment may be numbered has now been laid to rest thanks to the publication of this final guidance.
The Act has modernised antiquated bills and precedents that constituted the UK law on bribery and corruption. Once in force it will repeal all previous bribery provisions and replace them with the crimes of bribery, being bribed, the bribery of foreign officials and the failure of a commercial organisation to prevent bribery carried out on its behalf. The Act applies to all UK firms and also to activities in other jurisdictions, if the individual or company has certain links to the UK.
Firms should thus be mindful of the practical implications; when sourcing deals, fund raising (particularly in higher risk jurisdictions), placing senior managers on the boards of portfolio companies (for private equity firms) and finally when engaging with third party suppliers that actually perform a service directly to the firm.
The Guidance
The Guidance modifies and expands on the six principles that should form the basis of how the Firm may establish an ’adequate procedures’ defence. Those principles are;
- Proportionate Procedures
- Top-level Commitment
- Risk Assessment
- Due Diligence
- Communication
- Monitoring and review
The Guidance provides a welcome clarity on certain high profile contentious areas such as hospitality. According to the Guidance, reasonable and proportionate entertainment will not be prohibited; in the words of Kenneth Clarke, “no one wants to stop firms getting to know their clients”. It is believed therefore that, taking clients to sporting events, for example, is an acceptable practice, so long as it (the offering) is not intended to bribe the individual.
However, caution must be taken over any hospitality provided to foreign public officials as the rules are far more complex and the risk of offence of bribery is greater. The Guidance also provides clarification on what constitutes an “associated person” and “carrying on business” in the UK, where it takes a somewhat common sense approach in the opinion of some and a concession to business in the opinion of others.
Proportionality
Proportionate, to the nature, scale and complexity of the business is a mantra we hear time and time again and in this instance the Guidance makes clear that there is no “one-size-fits all” approach when it comes to having adequate procedures. As Kenneth Clarke states in his forward; “you need common sense rather than burdensome procedures”.
FSA authorised firms may take comfort where they already have adequate policies and procedures in place covering gifts/inducements, conflicts of Interest, remuneration and whistle-blowing, but will need to consider in light of the Guidance, whether any enhancements are required to be compliant with the Act depending on the risk of bribery actually being conducted by an associated person, or the organisation itself, on a global scale. Any stand alone anti-bribery policy should work in conjunction with the firm’s current policies and procedures.
Maximum Penalty
The maximum penalty for breaching the Act is 10 years imprisonment and/or a fine. It is worth noting that bribery in the UK has always been illegal and that the FSA’s existing rules require firms to have adequate policies and procedures in place in order to reduce the risk of financial crime occurring and also to minimise the risk of inducements. A failure to respond adequately to the Act may render a financial services firm susceptible to an FSA “failure of adequate systems and controls” penalty, like that which was levelled against AON Limited in January 2009 to the value of £5.25m, or even a criminal prosecution by the Serious Fraud Office.
Next Steps for firms
Forgoing the aforementioned, do not panic. In the main, an FSA regulated entity will have range of policies and procedures in place that can be considered in the context ‘adequate procedures’. In the three months until the Act comes into force, a review of risks should be undertaken by the business and also the consideration to what extent existing policies need to be enhanced or complimented. In summary, the following inventory of actions should be checked:
- Risk Assessment (taking account of high risk jurisdictions in which the firm operates and any outsourcing arrangements)
- Adequate Policies and Procedures review (proportionate to the risk of bribery faced by the firm)
- Training of staff members on the Act
- Ongoing monitoring of the risks faced by the firm
If you have any questions on this issue, please contact Peter Moore, Stephen Burke or Alan Leale-Green. Alternatively telephone 020 7408 2448 to speak to your usual IMS contact.